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TikTok deal derailed as China pushes back on Trump tariffs

Shuang Jing — Tue, 08 Apr 2025 10:11:11 +0000

US President Donald Trump delayed enforcement of the TikTok sale-or-ban order for 75 additional days last Friday, one day before it was set to take effect. The extension follows Trump’s earlier tariff announcement that reportedly disrupted a pending deal to transfer the app’s US operations to American owners. ByteDance later claimed on Weibo that the company is still in talks with the US government and has not yet reached any agreement.

Why it matters: The delay highlights the ongoing uncertainty surrounding TikTok’s future in the US and the broader geopolitical tensions between Washington and Beijing. Trump has linked the deal with tariff negotiations, adding a new layer of complexity and making clear this is not a simple tech transaction but a bargaining chip in US-China trade relations.

Details: Trump announced the delay on his social platform, Truth Social, stating that his administration has been working hard to secure an agreement to “save TikTok” and has “made significant progress,” but the TikTok deal “requires more work to ensure all necessary approvals are signed.” The delay will allow TikTok to operate for another 75 days, pushing its deadline for a sale or closure in the US to mid-June.

Earlier, CNN reported that a deal led by the Trump administration to split TikTok’s US operations into a new company – with US investors holding a majority stake and ByteDance retaining less than 19.9% to comply with the law – was “basically finalized” on Wednesday.
“We had a deal pretty much for TikTok – not a deal but pretty close – and then China changed the deal because of tariffs,” Trump told reporters on Air Force One as he returned to Washington after a long weekend in Florida. “If I gave a little cut in tariffs they would have approved that deal in 15 minutes, which shows the power of tariffs.”
Potential TikTok investors could include Oracle and BlackRock, with Oracle currently providing most of the app’s back-end technical support. Other companies expressing interest in bidding include Amazon, former Los Angeles Dodgers owner Frank McCourt, and the founder of OnlyFans.

Context: Last year, former US President Joe Biden enacted a law that forced ByteDance, TikTok’s parent company based in China, to sell its stake in the app or face a ban in the US over national security concerns. The law was scheduled to take effect in January, but Trump announced a delay in its enforcement, hoping to negotiate a deal to keep the app operational.

Since then, Trump has stated that numerous buyers have shown “great interest” in acquiring TikTok.

The app, with over 170 million American users, is a highly valuable asset for any buyer looking to influence young internet users.
Currently, 60% of ByteDance’s ownership is held by “global institutional investors,” including BlackRock, General Atlantic Investment Group, and Susquehanna; 20% is owned by Chinese founders and 20% is owned by employees, including American staff.

TikTok has tried several approaches to resolve the stand-off over US national security concerns, including establishing a Transparency Center, creating a dedicated US data security company, USDS, to manage American user data, and implementing two projects – “Clover” for data segregation and “Texas” for data security – each costing about $1 billion annually. The company has also hired executives with American backgrounds and reached an agreement with Oracle, which will serve as TikTok’s “trusted technology provider” in the US, according to the agreement, and whereby Oracle is authorized to conduct security reviews of TikTok’s US source code. ByteDance has repeatedly stressed that its data storage is localized, with US user data managed by Oracle, and that there is no evidence of security risks, though this defense has gained little traction among US politicians.

TikTok’s clock continues to tick

Shuang Jing — Mon, 09 Dec 2024 12:38:09 +0000

A US appeals court last Friday upheld the law challenged by TikTok, rejecting the platform’s argument that it was unconstitutional. This decision gives the court until Jan. 19 to determine whether TikTok will be banned if it fails to secure a US-based buyer. The ruling moves TikTok one step closer to a potential ban in the US. A TikTok spokesperson stated, “the TikTok ban was conceived and driven by inaccurate, flawed, and hypothetical information, leading to outright censorship of the American people.”

Why it matters: Despite ongoing controversies, TikTok has undeniably made a significant impact in the US, shaping everything from the economy and e-commerce to technology, free speech, and even political discourse. If banned, the impact would ripple across personal users, businesses, and cultural spheres. The move could also prompt other Chinese tech companies to reassess their international expansion strategies, especially their plans to enter the US market.

Details:

Polls show that support for a TikTok ban among Americans has steadily declined, dropping from 50% in March 2023 to 32% between July and August 2024, while opposition to the ban has gradually risen.

Public support for a TikTok ban. Source: Pew Research Center

Nonprofit organizations have spurned the House legislation as unconstitutional, arguing that it violates First Amendment protections that ensure TikTok users’ rights to access lawful information. The American Civil Liberties Union (ACLU) condemned Friday’s “flawed and dangerous” federal appeals court ruling that upheld the law banning the social media platform TikTok.
President-elect Donald Trump is expected to try to halt a potential US ban of TikTok next year, after he promised on the campaign trail to save the popular social media app if he won, despite being the first to call for the bill.
While president-elect Donald Trump has promised to lift the ban, data shows that Republicans are generally more likely to support it, even though that support has waned. However, Trump’s promise remains uncertain.

Views of a TikTok ban by political party. Source: Pew Research Center

In recent years, China has implemented policies to regulate algorithm exports. In August 2020, around the same time the Trump administration demanded that ByteDance sell TikTok, China’s Ministry of Commerce and Ministry of Science and Technology revised export control regulations. The updates added “personalized information push services based on data analysis” to the list of technologies subject to export restrictions.
TikTok is estimated to have 2.05 billion users globally as of 2024, with the United States serving as its second-largest market, home to 120.5 million users.
TikTok Shop was officially introduced in September 2023 to allow users to purchase things within the app. According to CNBC, retailers and brands continue to invest in TikTok Shop even though the potential Jan. 19 ban grows nearer.
TikTok’s main competitor in the US is Instagram’s Reels. If TikTok is banned, Reels is likely to see a significant surge in user adoption and engagement, as it would become one of the few remaining platforms offering similar short-form video content. Launched in 2020, Instagram reels now have over 2 billion monthly active users.

Context：In April, US President Joe Biden approved a bill requiring the platform to be sold to a new, non-Chinese owner or face prohibition in the US. TikTok filed a lawsuit in May to block the law, arguing that it infringed on the free speech rights of its more than 170 million American users and unfairly targeted the platform.

India, once TikTok’s largest market outside China with 200 million users, banned the platform in 2020 over privacy and security concerns. As of 2024, India now leads in Reels users with 327 million, followed by the United States at 169 million.

China says yes to a Chinese firm buying a South Korean chipmaker, US and South Korea say hold on

Wei Sheng — Fri, 02 Jul 2021 08:07:11 +0000

China approved a Chinese firm to acquire South Korean chipmaker Magnachip in late June, a week after the US government paused the acquisition for review and the South Korean government initiated a deal review. Wise Road Capital, a Beijing-based private equity firm, received approval from Chinese regulators to acquire Magnachip on June 21.

Why it matters: Magnachip is a world-leading manufacturer of driver chips in smartphone displays, producing circuits controlling other components like organic light-emitting diode (OLED) displays. The acquisition has raised concerns in South Korea that the country may lose its chipmaking advantage to China.

China’s approval alone won’t close the deal, which needs approvals from the US and South Korean governments.

China’s approval: The antitrust bureau of China’s State Administration for Market Regulation said in a Wednesday statement (in Chinese) that it had “unconditionally approved” the deal between Wise Road Capital and Magnachip.

China approved the deal on June 21, but only revealed it to the public on June 30.
Magnachip announced in March that it would sell to Wise Road Capital for $1.4 billion.

US and South Korean reaction: The US blocked the deal on June 15. In South Korea, the deal was met with public pushback, prompting a review from the government.

The Committee on Foreign Investment in the United States (CFIUS), a panel headed by the Secretary of Treasury and consists of nine other US cabinet members, blocked the deal on June 15 through an interim order. According to a June 17 filing by Magnachip, CFIUS also blocked Magnachip from delisting in the US stock market, which the Chinese firm reportedly said it planned to do after the acquisition.
Magnachip is incorporated in Delaware, and listed on the New York Stock Exchange. Despite having little presence in the US market, Magnachip is considered a “US business” by US law. According to the Code of Federal Regulations, a “US business” refers to any entity engaged in interstate commerce in the United States, regardless of the nationality of the company or the person who controls it.
On April 8, unionized workers of Magnachip staged a sit-in at the company’s campus in Gumi, South Korea, expressing opposition to the deal, according to local media Business Korea.
On June 10, Business Korea reported that the Ministry of Trade, Industry and Energy of South Korea had proclaimed Magnachip as a “national core technology,” making the deal subject to the South Korean government’s approval.

Context: In 2004, Magnachip was spun off from South Korean memory semiconductor company SK Hynix and purchased by US firm Citi Venture. The company went public on the New York Stock Exchange in 2011.

Despite being listed and incorporated in the US, Magnachip is based in South Korea. Most employees are South Korean, and most factories and offices are in South Korea, according to South Korean national news agency Yonhap (in Chinese). The agency added that it has always considered Magnachip a South Korean company.

Xiaomi says US court has revoked investment ban

Wei Sheng — Wed, 26 May 2021 06:40:27 +0000

Chinese smartphone maker Xiaomi said Wednesday a US district court has ordered the Defense Department to lift a ban on American investment in the company.

Why it matters: Xiaomi has evidently shaken off a geopolitical burden that have weighed down its shares since earlier this year. It is unlikely that the Biden administration will appeal against the decision.

Xiaomi was placed on a list of “Communist Chinese military companies (CCMC)” by the outgoing Trump administration on Jan. 15, a week before it left office.

A similar move against China’s three major telecom companies led to their delisting from US stock markets in May.

Details: The US District Court for the District of Columbia issued a ruling ordering the US Department of Defense to remove Xiaomi from the CCMC list, said the smartphone maker in a filing (in Chinese) to the Hong Kong exchange on Wednesday.

The order “officially revoked all restrictions on the purchase or holding of the company’s securities by US investors,” said Xiaomi.
The company is “an open, transparent, publicly traded, independently operated and managed corporation,” it said.
The Biden Administration has previously said it won’t challenge a ruling by a federal judge that temporarily blocked enforcement of the blacklisting.

Context: An executive order signed by US President Donald Trump in November bans American investment in companies that it deemed owned, controlled, or affiliated with China’s military.

In February, Xiaomi filed a lawsuit against the US government over the decision to add it to the CCMC list. Xiaomi said that it believes its inclusion was “factually incorrect and has deprived the company of legal due process.”
In March, a federal judge temporarily blocked enforcement of the ban on the company, calling the decision to blacklist Xiaomi “deeply flawed.” Xiaomi is not state-owned.
China’s three state-owned telecom operators, China Mobile, China Unicom, and China Telecom, said on May 8 that they would be delisted by the New York Stock Exchange on May 18. The three firms were added to the CCMC list by the Trump administration last year.

TikTok moves off Alibaba Cloud: report

Wei Sheng — Tue, 18 May 2021 09:58:51 +0000

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.

CFIUS doesn’t mean Chinese companies can’t invest in the US

Doreen Edelman, Laura Fraedrich and Christian Contardo — Wed, 05 May 2021 10:41:51 +0000

Despite heightened US-China trade tensions and the COVID-19 pandemic’s disruptive effects on the global economy, mergers and acquisitions continue. The US government’s Committee on Foreign Investment in the United States (CFIUS), however, has steadily increased its scrutiny of Chinese investment in US businesses. Recent changes to US laws, including the Foreign Investment Risk Review Modernization Act (FIRRMA), expanded CFIUS’s ability to block investments that it deems a threat to US national security.

CFIUS is examining more Chinese companies investing in US businesses, but this does not mean CFIUS will block all such transactions: in fact, the majority are still approved. Chinese companies considering investments involving critical technologies or sensitive personal data must plan ahead and carefully consider their approach to minimize CFIUS risk.

How it works

An interagency panel, CFIUS, reviews foreign investments in, or acquisitions of, US companies for national security risks. If CFIUS determines such risks cannot be mitigated, it may block a transaction, or if the transaction has been completed, direct the foreign owner to divest from the US business.

Opinion

Doreen Edelman is partner and chair of Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Laura Fraedrich is a senior counsel with Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Christian Contardo is an associate with Lowenstein Sandler’s Global Trade & Policy practice, based in Washington D.C.

Recently, the US government has identified the government of the People’s Republic of China as a significant counterintelligence and economic espionage threat. As a result, CFIUS has increasingly focused on Chinese investment in US businesses, particularly involving sensitive data, critical technology, or critical infrastructure. Due to this emphasis on data and technology, tech companies in particular are exposed to CFIUS risk.

Following the 2018 regulatory changes, CFIUS now may review any minority investment in US businesses that:

Produce, design, test, manufacture, fabricate, or develop one or more Critical Technologies;
Perform certain functions related to Critical Infrastructure; or
Maintain or collect, directly or indirectly, Sensitive Personal Data of US citizens.
The capitalized terms are all defined in the regulations and together are referred to as a TID US Business with TID standing for Technology, Infrastructure, and Data.

CFIUS may review minority investments in TID businesses if the investment provides the foreign party:

Access to Material Nonpublic Technical Information;
Membership or observer rights on, or the right to nominate an individual to a position on, the board of directors (or equivalent); or
Any involvement, other than through voting of shares, in substantive decision making related to the US company.

Additionally, CFIUS must be notified of certain transactions. Those involving US businesses that produce, design, test, manufacture, fabricate, or develop Critical Technologies require a CFIUS filing if US regulatory authorization is required to export the Critical Technology to the foreign investor. In other words, a foreign investor must determine if the company’s technology would normally be subject to a US export license. If so, it must notify CFIUS.

A companion law to FIRMMA requires the US government to review export control requirements for emerging and foundational technologies, which is expected to result in increased license requirements for US exports to China.

It’s not a ban

Although risk has increased, Chinese companies can still invest in the United States. In many cases, foreign investment poses no national security risks that would warrant CFIUS intervention. Although the “T” in TID, refers to technology, only a few companies will qualify as TID US businesses that trigger the closest CFIUS scrutiny.

However, some evidence suggests that FIRRMA may have put a damper on Chinese investment in the US. The 2019 CFIUS report indicates a marked decrease in China-based notice filings, although this also corresponds with an overall decline in Chinese investment in the US amid global economic uncertainty. While the confidential nature of the CFIUS process makes data-gathering difficult, public disclosures of CFIUS matters since 2019 indicate there have been at least 16 filings by Chinese companies. Of those, CFIUS approved six, President Trump blocked one, and the rest either remain pending or there has been no public disclosure of their disposition. Because of the sensitive nature of the information provided to CFIUS, CFIUS does not publicly disclose its decisions; thus, we gathered the above information from corporate disclosures.

Notably, during the same time, CFIUS clearances that involve “mitigation agreements,” conditions on the deal monitored by the US Department of Justice, have increased. The Assistant Attorney General for National Security, who oversees the process, has indicated that this increase in mitigation measures rather than blocking transactions is likely to continue. He cautioned, however, that investment from companies owned by foreign governments or in countries that are not allied with the US may present trust issues that make mitigation measures unlikely to alleviate national security concerns.

Given the recent tensions between the US government and the Chinese government, China-based investors may face an uphill battle to convince CFIUS of their ability to mitigate national security concerns, particularly involving acquisitions of TID US businesses. However, this is not impossible. For example, even if the US business involves Critical Technology, the Department of Commerce already may have licensed that technology to China for a particular purpose such that the investment does not create additional risk, or an agreement to restrict use of the technology may be sufficient. Also, it may be possible to restrict access to data or to facilities in a way that sufficiently mitigates risk.

Should you continue to invest?

With expanded jurisdiction and new mandatory filing requirements, CFIUS risk is greater than ever for Chinese investments in US tech companies. Even when companies may not be required to file with CFIUS, many choose to do so voluntarily to obtain clearance and avoid a future requirement to divest. Obtaining clearance at the time of the transaction matters more than ever because FIRRMA also has provided more resources for CFIUS to review non-notified transactions (transactions that were completed without a CFIUS filing), potentially disrupting the investment.

Investors should consider their goals. For parties not seeking to control the US company, and who are willing to take a passive role or invest as a limited partner with restricted access to sensitive technical information or data, CFIUS risk is much less. It’s possible that CFIUS may not even review the transaction.

Additionally, while FIRRMA enjoyed bi-partisan support, the Biden administration may herald a change in CFIUS policy over time. We are still waiting for appointments to the Treasury Department offices that manage the CFIUS process. Once they are filled, we will have a better sense whether there has been a change in the risk calculation for certain foreign investment transactions.

Chinese companies should evaluate CFIUS risk early to identify the likelihood of any US national security vulnerabilities as well as to determine whether a mandatory filing is required, or whether a voluntary filing would be prudent. Additionally, companies should consider proactive steps to address likely CFIUS concerns, such as investing as a limited partner with no control of the US business, or restricting foreign access to technology or data. With proper planning and collaboration, Chinese tech companies can successfully navigate this complex regulatory framework to make the acquisitions and investments to improve and grow their businesses. After all, CFIUS still approves the vast majority of the transactions it reviews.

SILICON | Loongson promises self-reliance with new architecture

Stewart Randall — Wed, 21 Apr 2021 06:51:48 +0000

Last week, Chinese processor company Loongson announced plans to release a new instruction set architecture. Loongson is known for processors based on the MIPS architecture, and is linked to the Chinese Academy of Sciences.

According to the company, its new LoongArch architecture includes a base architecture as well as extensions such as vector instructions, virtualization, and binary translation. The architecture reportedly has nearly 2,000 instructions—a surprisingly high number—with the company claiming the architecture provides complete independence from technology developed overseas.

Opinion

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia.

The company said that the architecture has done away with “outdated content” found in traditional instruction sets and is more suitable for high-performance, low-power design. The new architecture, it claimed, makes it easier to compile software and develop operating systems or virtual machines. It is also compatible with mainstream instruction sets, so software designed for x86 or Arm should be able to run on LoongArch.

An instruction set architecture (ISA) is the link between hardware and software. It specifies how the hardware runs the software code. China has so far been relying on ISAs developed by foreign companies.

China’s quest for a homegrown CPU

The global CPU market has been dominated by the x86 architecture for years, essentially controlled by two companies, Intel and AMD.

For several years now Chinese companies have been trying to break this duopoly, with some success domestically but definitely not globally. Huawei and Phytium both used the Arm v8 architecture to create powerful 64-core server chips used in data centers and supercomputing. Under US pressure, it is difficult for either company to continue creating such chips.

Hygon and Zhaoxin design x86 processors through joint ventures with AMD and VIA, although Hygon fell into geopolitical trouble as well. Another company, Sunway, has always used the lesser-known, US-designed Alpha architecture, but as far as I know Sunway processors were only ever used within the government.

A few companies, most notably C-Sky and China Core, tried to promote their own architectures or variants of older ones like PowerPC into the commercial market. Both more or less failed and have since latched onto the much talked-about open-source RISC-V architecture. Alibaba acquired C-Sky in 2018. It’s now a leading RISC-V processor company under the name T-Head.

Loongson has always used the MIPS architecture. MIPS ISA has an interesting history, but it is going out of fashion—even its owner, MIPS Technologies, has ditched it in favor of RISC-V.

There has never been a successful Chinese architecture. C-Sky failed to scale and moved to RISC-V. Other companies that claim to be “made in China” have used or use existing open-source or licensable architectures.

Starting from scratch to build an ISA is a big challenge. It’s faster to design your CPU based on a mature architecture, because there is an existing hardware and software ecosystem to latch onto.

However, with Huawei, Phytium, Hygon, and Shenwei on the US entity list, China is worried that it doesn’t have a completely independent architecture. RISC-V may be a great platform for Chinese companies to go overseas with their designs, but it is a global initiative, and in some cases, China may want something that is totally its own.

READ MORE: China’s chipmakers could use RISC-V to reduce impact of US sanctions

No patent infringements

You may be wondering if LoongArch infringes on patents from other architectures. To allay such fears, Loongson paid for a third-party IP agency last year to analyze whether LoongArch infringed on other architectures including Arm, x86, RISC-V, and MIPS. They concluded that the design is unique and independent, that its manual was clearly different to others’, and that it didn’t infringe on Chinese patents for any of the major international architectures.

Perhaps the key phrase here is Chinese patents, rather than global. This may be something to keep an eye on. Loongson says they will analyze international patents as well but have so far concluded that the architecture is completely independent and controllable.

It seems to me that in order to avoid patent infringements and at the same time support emulation of other architectures they have ended up increasing the complexity of their instruction-set: 2,000 instructions is more than other mainstream architectures.

Loongson 3A5000

The Loongson 3A5000 CPU, announced last month, is already using this new architecture and has already been successfully “taped out,” and sent to a fabrication plant for production, at 12nm.

This CPU is aimed at the PC market. The interesting thing here is the process node. Loongson has always used GlobalFoundries to tape out chips based on ST-Micro’s FD-SOI process. One might presume they would continue to use GlobalFoundries for the new generation chip, but they have not announced what process it uses.

Some have said it will use the TSMC 12nm process, while others suggested it could be using SMIC, which now boasts the ability to tape out 12nm. SMIC may be not be ready for mass production yet, but for a test chip, this should not be a problem. This could be a Chinese architecture manufactured at a Chinese fab—just hearsay right now, but something to consider. TSMC or GlobalFoundries are still more likely, as SMIC 12nm would be new to the company, and SMIC has recently come under more restrictions from the US.

It’s also worth noting that Loongson moving from 28nm in previous chips up to 12nm shows development in its design capabilities. It also has a new server chip 3C5000 using the same process but it is said to be much more powerful.

Why not RISC-V?

Since Wave Computing became MIPS Technologies and ditched the MIPS architecture in December, there have been rumors that Loongson would follow. Most in the industry surmised the company would move to RISC-V like many others have.

RISC-V seems to be the easiest route for a company like Loongson, but there are some reasons why it might have chosen not to. First, there are other companies doing this, so it would be difficult to differentiate. Secondly, it’s clear Loongson wanted something 100% Chinese, not reliant on an international architecture. Finally, Loongson might be planning to follow the RISC-V model and actually open the architecture.

According to its press release, once the IP patent situation is confirmed globally, they plan on creating a LoongArch Alliance where members can access the architecture and Loongson IP cores for free. While the company did not say the instruction set will be open to members, it is certainly possible.

It is rumored though that the company will join the RISC-V consortium. Prior to the LoongArch announcement, executives have said they are “looking forward to join the open-source instruction consortium.” Most thought this meant RISC-V, but they could have been alluding to their own alliance.

I wouldn’t be surprised if the company joined RISC-V. Its own architecture could be used within China for military or government applications, while RISC-V would be a better platform for Loongson to finally go global.

Time will tell

“Only by achieving independence in the root of the instruction system can the software ecosystem chains be broken,” Loongsoon management said in its press release. Such statements make it clear that the main purpose of LoongArch is for China to have its own fully independent instruction-set architecture.

Since C-Sky moved to RISC-V, this hasn’t been the case. While I do not see LoongArch becoming a globally competitive architecture, as ecosystems are difficult to build up, it could be another string in China’s self-reliance bow.

It will also be interesting to see how the LoongArch Alliance develops. Will it open the instruction-set architecture? If cores designs are free, is that just for research or for commercial use as well?

This whole initiative definitely has government support. Loongson came out of the Institute of Computing Technology, China Academy of Sciences, which is still a major shareholder, and a RISC-V consortium member, with one person on its board.

I will be keeping an eye on whether LoongArch infringes on any global patents, any processor benchmarks out there, how its alliance develops, and whether it does make a move to RISC-V in the end as well. It will likely be used in government and military PC and server applications, but can it move beyond that? Time will tell.

Grey market for console gaming imports rebounds after crackdown

Eliza Gkritsi — Thu, 15 Apr 2021 07:40:12 +0000

Two weeks after a crackdown on imported console gaming products, it’s still easy to buy them in China. Games remain widely available in offline stores and online, and prices have returned to normal after a brief spike.

The tight supply led to an increase in prices across other online stores, but this was short lived, according to Daniel Ahmad, a senior analyst at Niko Partners, a firm that monitors China’s gaming market.

Prices for imported consoles and individual games have returned to pre-crackdown levels, which are slightly above international ones, TechNode has found on Taobao. The analyst said that on other online retail platforms such as JD.com, there wasn’t much of an impact.

Physical stores that TechNode visited in Shanghai in the last week seemed unaffected by the crackdown on console gaming. They were still advertising imported consoles and titles banned in China—including a US version of Animal Crossing, which was removed from Taobao last year, reportedly because of its use by protesters in Hong Kong.

Some particular games are still very hard to find on Taobao. These include Nintendo’s Animal Crossing, and The Last of Us, an intensely violent two-part series developed for PlayStation. Special edition Animal Crossing Switch consoles are still widely available throughout the online marketplace, but don’t come with the game.

Imported Nintendo Switch games from Hong Kong, Japan, and the US, on display at a store in Shanghai on April 13. (Image credit: TechNode/Eliza Gkritsi)

Grey imports

China’s Anti-Smuggling Bureau said on April 2 that authorities in Guangdong had arrested 54 importers and seized RMB 78 million ($12 million) worth of Nintendo, PlayStation, and Xbox gaming consoles.

While such events are “not unusual,” this was the largest anti-smuggling operation in recent memory, Ahmad said.

“It’s not really part of a wider, larger crakdown, but of course the government always reserves the right to do that, given the grey area,” Ahmad said.

Chinese console gamers usually have to wait several months before international hits are released domestically, if ever, due to stringent censorship of imported gaming titles. Some famous titles never get released domestically due to graphic violence or sexual content.

This has created a small but active market for consoles and cartridges imported from nearby Hong Kong or Japan.

READ MORE: INSIGHTS | No country for console gamers

Taobao ghost town

In response to the crackdown, several shops on Taobao removed listings for the imported console gaming products. Some told customers they would not be delivering for a while. One of the biggest Taobao stores, called TGBus, told customers that deliveries would be halted temporarily because a water leak had damaged some of the goods and had led to power outage in its warehouse, Chinese media reported.

The hashtag on social media site Weibo about Nintendo Switch being targeted has been seen over 150 million times, peaking at 136 million on March 31. That was when local media reported that popular Taobao stores selling imported consoles were down.

The shop that had claimed water leak damage remained offline as of April 12, but its affiliates are still live on the e-commerce app. Another popular shop based in Shanghai merely told customers it couldn’t deliver due to “exceptional circumstances.” The shop remains live on Taobao, but is empty of listings.

Some of the shops that removed their listings or disappeared altogether from Taobao said they were directly supplied by the importers who had their products seized. Others were exercising an “abundance of caution. They felt like they may be indirectly implicated in some way if they were to keep these products up,” Ahmad said.

A popular Taobao shop for imported games shows no listings on April 13. (Image credit: TechNode/Eliza Gkritsi)

Even in the immediate aftermath of the crackdown, most shops didn’t disappear from Taobao, and the impact on other e-commerce apps was minuscule. Two weeks on, business is back to normal.

The Monster Hunter effect

The Hong Kong release of a new entry in a popular series might have have triggered the crackdown.

The week leading up to the crackdown, the first entry for Nintendo Switch of the long-running series Monster Hunter was released in Hong Kong. Monster Hunter: Rise was developed by Capcom, the Japanese studio behind the Resident Evil series.

The series has met massive success throughout East Asia, as has the Switch console.

Prior to 2014, when sales of console gaming products were completely banned in China, authorities would clamp down on imported products when there was a surge in interest: “If you hit a certain threshold, that would trigger a reaction,” Ahmad said.

It is likely that “there would be a high number of imports” of Monster Hunter: Rise, which could have triggered a reaction, Ahmad said.

Three hashtags related to the Capcom game, #MonsterHunter, #MonsterHunterRise, and #MonsterHunterWorld, have been viewed at least 470 million times on Weibo. The hashtag numbers peaked in the runup to March 26, when Monster Hunter: Rise was released in Hong Kong.

The Switch has been a big hit in China, driving growth in the mostly niche console market. Nintendo has delivered 1 million units of the console in China since it launched in December 2019, according to Tencent, which has partnered with the Japanese game developer to sell the Switch in China.

This is roughly double what Sony’s PlayStation and Microsoft’s Xbox sold in the same time period, according to data from Niko Partners.

Catching up

All major consoles are now sold legally in China in local versions, but few games are available for these outside the grey market. Eager to get their hands on a wider variety of releases, gamers turn to imported goods.

“We are now at a point where every major console manufacturer has launched a product in China,” and once something is released overseas, it will get an official release in China, albeit with a delay, the Niko Partners analyst said.

Sony has announced plans to launch the PlayStation 5 in China in the second quarter of 2021. The console’s global release was in November 2020.

A Taobao listing for Nintendo Switch consoles imported from Japan and Hong Kong. (Image credit: TechNode/Eliza Gkritsi)

For games, “there is still a very strict regulatory environment,” which means the approval process is “long” and “cumbersome,” Ahmad said. Officially, it takes three months, but in reality, it can take a year to get a game approved by China’s National Press and Publication Administration. Rather than wait, online and offline shops respond to strong demand with smuggled products.

Ahmad points out that despite a recent increase in the speed of the licensing process, a “soft cap” on how many games can get approved means that there is no “material difference” in the number of games Chinese console owners can get their hands on.

Globally, more than 3,000 titles are available on the Nintendo Switch console. As popular as the Switch has been, gamers in China can only choose from fewer than 20 titles, Ahmad said.

This might sound like a small number, but it’s a massive improvement. During the first three months of the Switch’s launch in China in December 2019, only one game was approved: Super Mario Bros U Deluxe.

New titles have been slowly added to the list of approved games, notably Ring Fit Adventure in September 2020.

“This is why there is a big smuggled games market in the first place,” Ahmad said.

Correction: A previous version of this article incorrectly described Niko Partners as “London-based.”

Japan scrutinizes Tencent stake in Rakuten over national security

Wei Sheng — Thu, 15 Apr 2021 05:46:12 +0000

Chinese internet giant Tencent’s investment in Japanese tech firm Rakuten will be “monitored for national security implications,” Japanese government officials told their US counterparts prior to the meeting between the two nations’ leaders on Thursday, Nikkei reported.

Why it matters: Chinese tech companies’ overseas investment activity faces increasing scrutiny as the US pushes for a tech alliance with allies.

Details: Japanese officials briefed the US National Security Council on Tencent’s March investment in Rakuten, a Japanese e-commerce and telecommunications service provider, Nikkei Asia reported on Thursday.

Rakuten announced on March 12 that it planned to raise a total of JPY 242.3 billion (around $2.2 billion) by issuing new shares to investors including Tencent, Japan Post Holdings, and US retail giant Walmart.
Tencent, through its Image Frame Investment subsidiary, paid JPY 65.7 billion on March 31 to acquire a 3.7% stake at Rakuten, according to Nikkei.
Japanese officials worried that the investment might run afoul of an executive order signed by former US President Donald Trump in January which banned transactions with eight Chinese apps including Tencent’s WeChat Pay over national security concerns.
Tokyo will “closely monitor” the tie-up to see whether Tencent has access to non-public technology, sources told Nikkei.

READ MORE: Before the bans, China tech investment turned away from US

Context: Rakuten is an online retail company founded by Japanese billionaire Hiroshi Mikitani. The company also runs a telecommunications business. It launched its 5G service in September.

Japanese Prime Minister Yoshihide Suga is set to meet with US President Joe Biden in Washington on Thursday.
Biden has upheld the Trump administration’s tough policies on Chinese tech firms. Biden’s government last week imposed sanctions on seven Chinese supercomputer developers, barring them from acquiring US technology.

Share prices for crypto rig maker Ebang in free fall after short report

Eliza Gkritsi — Fri, 09 Apr 2021 08:15:03 +0000

Ebang share prices on the Nasdaq have fallen 9% since Tuesday, when short seller Hindenburg Research released a report accusing the company of a number of misdeeds including inflating its mining rig sales and cryptocurrency trading volumes.

Why it matters: Ebang is one of two Chinese cryptocurrency mining rig makers that is publicly traded on US stock markets along with peer, Canaan Creative.

The timeline: On Tuesday, the day the short report was released, Ebang shares opened at $5.23, falling 17% from market close on Monday.

On Monday, Ebang announced the launch of a crypto exchange, dubbed Ebonex.
The stock lost an additional 4.6% in the half hour after market open on Tuesday, then rose modestly to close at $5.53.
The stock rebounded to $5.58 on Wednesday afternoon, but has been dropping since.
Ebang stock has lost 20% of its value since market close on Monday, closing at $5.03 on Thursday.

Missing earnings: Ebang’s stock began to fall on March 17 after reaching a high of $11.85 per share that day. As of Friday, it has not yet announced a date for the release of its 2020 earnings.

Ebang has only disclosed earnings once since listing on the Nasdaq in June, when it released its half-year 2020 results on Sept. 25.
The company raised $150.4 million in two follow-on share offerings, which closed on Feb. 17 and April 6.

The short report: Hindenburg research said Ebang is “simply the latest chapter in the ‘China Hustle’ disguised as a Bitcoin mining play,” referring to a documentary exposing Chinese companies that conduct stock market fraud on US exchanges.

The company failed to list twice on the Hong Kong Stock Exchange in 2018, before listing on the Nasdaq in 2020.
Ebang’s equipment is inferior to its competitors’, its sales have dwindled, and the company has tried to shift investor attention to its new crypto exchange, which reports “fictitious volumes,” Hindenburg said.
The rig maker has inflated sales through third-party transactions and funneled cash to “opaque deals with insiders and questionable counterparties,” the short seller said.
In a statement on Wednesday, Ebang stopped short of denying the allegations, saying the report “contains many errors, unsupported speculations and inaccurate interpretations of events,” and that it will review the accusations and take “whatever action necessary” to protect investors.

Rig sales: Bitcoin and Ethereum prices have soared in the last few months, and so have mining rig sales. Industry leader Bitmain’s deliveries are booked for months.

Several companies have pivoted to crypto mining, but none have announced purchases from Ebang. The company’s rigs are not popular, according to several miners TechNode has spoken with.
The most popular mining rigs globally are Bitmain’s AntMiner, MicroBT’s Whatsminer, and Canaan’s Avalon Miners, according to Flex Yang, CEO of Babel Finance, which provides financial services to crypto miners.
Embattled Canaan Creative, which has lost its competitive edge and was similarly the target of a short report, has seen its pre-sales rise since mid-February on the back of surging cryptocurrency prices.
Ebang said on March 17 that it had completed the design of its first 6-nanometer chip, while Bitmain has been selling rigs with 5nm chips since September.
Hindenburg said that Ebang’s sales are now “near-zero,” and that previous reported deliveries were largely fabricated and or were made up of defective units, citing Chinese media reports.

The crypto exchange: Ebang first announced that it is building a crypto exchange in August, entering an already crowded market.

The exchange was five days late to launch. Ebang shares prices rose on news related to the crypto exchange.
Ebonex reported $243 million traded between Ethereum and Bitcoin during its first 24 hours, Hindenburg said, compared with $60 million on Huobi Global—the world’s second-largest exchange by volume traded—on the same day.
The short seller said that it would have been impossible for Ebonex to trade this volume “given its limited web and social media footprint,” citing relatively low numbers of social media followers and Google searches.
The 24-hour trading volume on Ebonex for ETH/BTC has fallen to $1.1 million as of the time of writing.
The company has also announced plans for digital asset management firms in Canada, New Zealand, and Australia, as well as plans to enter the mining business.

Sales inflation scheme: The reason for the failed listings, Hindenburg said, was a sales inflation scheme involving Yindou, a peer-to-peer lending scheme. P2P lending in China was an industry rife with fraud, with many companies simply Ponzi schemes masquerading as tech firms.

Cui Hongwei, the spouse of the Yindou CFO, transferred RMB 250 million ($38 million) to Ebang between December 2017 and February 2018. Ebang then transferred RMB 380 million to Cui between March and April 2018, the report said, citing local media.
Hindenburg said that this was essentially a sales inflation scheme. Yindou defaulted on RMB 4.4 billion of debt in July 2018.

Shady underwriter: Ebang’s IPO underwriter, Hong Kong-based AMDT Global Markets Limited, has a “history of fraud and self-dealing allegations (including from one of China’s largest private equity firms), as well as a track record of US IPO flops,” Hindenburg said.

Ebang directed $103 million in bond purchases linked to AMDT following its successful IPO on Nasdaq, according to the report, an amount $11 million more than its IPO proceeds.

SILICON | What the new Arm v9 architecture means for China

Stewart Randall — Thu, 08 Apr 2021 07:38:48 +0000

Last week, UK-based semiconductor design company Arm announced plans for the next generation of chips. The v9 architecture comes ten years after the release of v8, which is currently the standard used for mobile phone central processing units (CPUs) and many other processors.

There are some good articles on the new features v9 brings to the table, most notably the Realms feature, which promises to increase security by running applications while data is protected from inspection or intrusion by the host or any other software running on that host. The new architecture will also bring AI/ML extensions for AI support across its CPUs, network processing units (NPUs), and graphics processing units (GPUs), and the ability to improve performance by accelerating workloads in a CPU environment in ways that previously required external hard accelerators.

In short, v9 architecture brings massive new capabilities to Arm CPUs—and OEMs will jump on it for their next lines of high-end equipment and devices. If Chinese companies want to stay competitive globally in the next decade, they need to use it. But the window of opportunity for some of them to buy an architectural license may be closing.

Opinion

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia.

Licensing architecture

I’ve written an overview of major architectures in China elsewhere, but here’s a brief recap: Many Chinese companies design Arm-based chips, but most will license complete Arm cores on a single-use or multi-use basis, so they don’t have to design a core themselves.

More ambitious chip design companies may get an architecture license, which allows the licensee to change the design itself. This is what you need to create a customized core like the Kirin line of phone CPUs, designed by Huawei’s HiSilicon for use in its phones. But it’s difficult to build a core from scratch, so you have to be highly skilled.

Currently, only two companies in China have an architecture license for v8: Huawei and Phytium Technology, a fabless chip design company focused on Arm server chips..

Notably absent

Arm’s press release included several quotes from high-profile partners around the world, including representatives of three major Chinese smartphone brands; Xiaomi CEO Lei Jun, Vivo CTO Shi Yujian, and Oppo Head of Research Levin Liu. Notably absent were Huawei and Phytium Technology.

Both Huawei and Phytium previously bought architectural licenses from Arm, in part as a way to advertise their independence and control. To help them sell such a message Arm also created Arm China, a separate company that has its own issues.

The smartphone makers that did make the press release, have never been architectural licensees of Arm v8. This could change as they look to develop their own chips. All these companies have been investing heavily in building their own internal chip design capabilities.

However, I think for the time being they will stick with application processors from Qualcomm or MediaTek. As part of Arm’s presentation MediaTek announced that its first smartphone chip using the v9 architecture will be available by the end of 2021, sooner than any Chinese handset OEM would be able to design their own. That’s a lot sooner than they’re likely to be able to make their own.

Chinese handset companies will likely license Arm cores for individual designs, such as Xiaomi’s recent image signal processor design. Xiaomi’s previous attempt at an application processor was somewhat of a failure, and it makes sense for the company and others like Oppo and Vivo to focus first on simpler designs that can help them differentiate their products and also help them gain valuable real-world chip design experience.

So what are we to make of the absence of current licensees Huawei and Phytium? Are they not considered key partners, can they license v9 architecture, and does it even make sense for them to?

Can Huawei buy the v9 architecture?

Huawei has struggled to access semiconductors and IP since the US placed it on a list of companies which require licenses to buy US or US-linked technology. The absence of either company in Arm’s presser could imply that one or both won’t be able to upgrade to v9.

In response to such speculation, Arm has said that it can continue to license its IP to China including Huawei, concluding that its IP is of UK-origin and so not subject to the US ban. Ian Smythe, vice-president of solutions marketing at Arm said, “Following a comprehensive review, Arm has determined that its Arm v9 architecture is not subject to the US Export Administration Regulations,” adding that Arm had informed US government agencies of this conclusion.

That might not be the last word for Huawei. Ultimately, the US government may conclude that Arm’s Austin facility, which contributes to a lot of its high-performance architectures, means that Arm’s IP is sufficiently of US-origin to face export restrictions.

Phytium on thin ice

Phytium is not on the export ban list, and as such does not face the same restrictions as Huawei. However, it is on a list of “military-linked” companies that face restrictions on cross-border investments.

Also, the Washington Post reported today that that the Trump administration was planning to put Phytium on an export blacklist, but “ran out of time”. The article also reported Phytium chips are used at supercomputing centers that design advanced weapons systems for the People’s Liberation Army. This could heighten Washington’s scrutiny of the company, potentially leading to sanctions.

My best guess is that they will go ahead and secure a v9 license without much trouble, but they may be trying to keep a low profile in the hope that the US will not decide to target them. Watch this space.

Now or never

An architectural license gives Huawei and Phytium a certain amount of security: Once granted, the license is permanent, meaning Huawei would be able to continue designing new v9 chips indefinitely whatever actions Washington takes. But under present circumstances it might not be too useful.

An architectural license does not mean the licensee is licensing a specific core. They receive a set of specs for Arm’s cores and a testing suite. This allows the licensee to customize their own processor to fit their application. They can make cores that are faster, smaller, or less power hungry than standard Arm cores, or otherwise differentiated from standard Arm licensees.

Qualcomm and Apple rely on such licenses to create their chips, as did Huawei for its Kirin series. There are only a handful of such licensees globally, mainly because it costs a lot and requires a lot of time and internal expertise to create your own custom Arm core, while there are perfectly good cores available to license at a much cheaper price.

A license alone isn’t enough to make chips. If Huawei is able to buy an architectural license and does so, it still has no access to the EDA tools it needs and the fabs to actually manufacture a high-end Arm-based chip.

But it could be now or never. As competing companies move to v9, Huawei’s v8 license will soon be obsolete. It could actually make sense for the company to go in on an architectural license it can’t use for now in the hope that further down the line either restrictions on the company are removed or domestic self-sufficiency gets to a point where Huawei can get back into the high-end chip game.

With Nvidia’s acquisition of Arm also on the horizon, Arm could soon become a US-owned company. It could make sense for Huawei to lock in access to its IP now, although the same concerns could also motivate China to block the deal.

Conclusions

Access to IP is a chokepoint for semiconductors in China. As I’ve written before, RISC-V may help with this to some extent, but it isn’t as mature as Arm yet, and processor cores are just one of many different types of IP within a chip.

Despite RISC-V’s growth, Arm’s v9 architecture will be a core component for handset, server, IoT and automotive chips for the coming decade. For Huawei it may make sense to get in now, while it still can.

For its part, Arm will want to be free to license to Chinese companies and will be happy to take Huawei’s money. However, the reach of the US government can be long and if the Nvidia acquisition goes through I struggle to see companies on the entity list being allowed access.

Some domestic analysts argue that Huawei should not rely on architectural licenses. “You may get a v9 license this time, but what about v10 or v11, etc? Does endlessly licensing foreign IP mean independence?” (my translation).

It would be strange to see China without any Arm architectural licensees, but that is a prospect.

We may also see new Arm licensees. Perhaps the likes of Oppo or Vivo will decide it makes sense for them. We all know they are investing huge sums into their own IC design capabilities.

Social commerce app Xiaohongshu hires CFO ahead of likely IPO: report

Emma Lee — Fri, 26 Mar 2021 04:59:36 +0000

Xiaohongshu, a Chinese social media and e-commerce platform, has hired a former Citigroup executive to oversee its financial management as the company eyes a public listing in the US, according to a report by The Information.

Why it matters: Xiaohongshu, the $6 billion firm backed by Alibaba and Tencent, may be joining a growing list of Chinese tech firms heading to the public markets.

An early pioneer of China’s content-driven e-commerce trend, Xiaohongshu, also known in English as Red, faces intensifying competition from short-video platforms like ByteDance’s Douyin and Tencent-backed Kuaishou.

Details: Xiaohongshu has named Yang Ruo, a former Citigroup investment banker, as its chief financial officer overseeing the compilation of financial strategies as well as financial management and internal control, a company spokeswoman told TechNode on Friday.

The Shanghai-based company is considering a US listing as early as this year, The Information reported citing people familiar with matter. Investors said the IPO could value Xiaohongshu at more than $10 billion, according to the report, up from a valuation of $6 billion in early 2020 according to sources cited by Bloomberg.
The company is in discussion with several banks, but has not settled on a target raise, according to The Information.
A Xiaohongshu spokeswoman denied that the company is planning an IPO when contacted by TechNode on Thursday morning.

READ MORE: Xiaohongshu bids to reinvent itself, again

Context: In a similar move, TikTok parent ByteDance hired former Xiaomi executive Shou Zi Chew as chief executive, a sign that has been widely interpreted as preparation for its highly anticipated IPO.

Founded in 2013 , Xiaohongshu gained popularity among China’s young, middle-class, and mostly female consumers hungry for insight on lifestyle and fashion. Users can also buy products directly through the platform.
The company defines its model as B2K2C, where key opinion leaders help merchants to promote their product to customers.
Xiaohongshu had over 100 million monthly active users as of June, 70% of which were born after 1990, according to company data.
After surging in popularity early on, the content-driven app has struggled to land on a scalable monetization model while maintaining its community feel. It battled user trust issues and competition for user attention from other platforms.
The app was reportedly raising a Series D of at least $400 million at a valuation of $6 billion in January last year, following a $300 million round at $3 billion valuation in 2018.

China tightens grip on e-commerce, sharing economy IPOs: Retailheads

Emma Lee — Wed, 17 Mar 2021 06:40:40 +0000

Last week, China’s market regulator rolled out a set of new rules addressing newer innovations in the e-commerce market. Two of China’s largest “sharing economy” firms filed for public listings in the US. Online housing firm Beike posted its first profitable year, while the parent company of budget cosmetics brand Perfect Diary reported fourth quarter losses despite a jump in revenue.

Retail
headlines

China’s e-commerce and retail market offers a fire hose of products, choices, business models, rapidly changing content, and more. Here’s what you need to know about China’s online retail market for the week of Mar. 11 – 17.

More discipline for China e-commerce

China’s market regulator introduced on Monday a set of e-commerce laws pertaining to recent developments in the ever-evolving sector, including livestreamed sales, user data privacy, and forced exclusivity. (TechNode)

Sharing economy giants head for IPO

Energy Monster, the Softbank-backed Chinese power bank rental company, has filed for an initial public offering in the US. A February IFR report said the company aims to raise $300 million. The prospectus showed that the firm had received a D round exceeding $200 million led by Alibaba’s Taobao China and CMC Moonlight Holdings, followed by CGI and Hillhouse Capital. The company’s total 2020 revenues increased 38.9% year on year to RMB 2.8 billion ($430.6 million) from RMB 2.0 billion in 2019. However, its net income more than halved to RMB 75.4 million in 2020 from RMB 166.6 million in 2019 as people spent less time in public places during the pandemic. (SEC filing)
Bike rental firm Hello Inc. filed confidentially with the US Securities and Exchange Commission for an IPO in the US market, according to sources cited by Bloomberg. (TechNode)

Earnings season

Chinese online housing firm Beike announced Monday that its fourth quarter revenue rose 57.6% year over year to RMB 22.7 billion, and it booked net profits of RMB 1.1 billion compared with RMB 3.1 billion in losses the same period in 2019. Gross transaction value improved 65.4% year on year for the reporting period. The company posted net income of RMB 2.8 million for the fiscal year ended December, the first profitable year since its public debut in August. (Beike)
Yatsen Holding Ltd., parent of budget cosmetics brand Perfect Diary, reported a fourth quarter net loss of RMB 1.5 billion compared with net profit of RMB 46.2 million the same period a year earlier, driven by rocketing marketing expenses. Its revenue during the quarter increased 71.7% year on year to RMB 1.9 billion thanks to user base growth. (Caixin)

Livestream e-commerce

The value of China’s livestream e-commerce market jumped 121.5% year on year to RMB 961.0 billion in 2020, up from RMB 433.8 billion in 2019, while growth decelerated from 226.2%. The number of shoppers who make purchases via livestream is expected to rise 8.2% to 635 million in 2021, up from 587 million in 2020. (Iimedia Research, in Chinese)

Ant Group-backed bike-rental app Hello Inc files for US IPO

Emma Lee — Thu, 11 Mar 2021 06:34:22 +0000

Chinese bike-rental firm Hello Inc has filed for an initial public offering in the US, Bloomberg reported, citing people with knowledge of the matter.

Why it matters: A survivor of China’s bike rental bubble, the Shanghai-based company is among the largest bike-rental firms in the country. If Hello successfully lists, it would be the first US-listed Chinese bike-rental company.

Hello is signaling with the IPO—including the disclosures and accountability that come with a public listing—a shift to sustainable growth, following a backlash against bike-rental apps for breakneck but reckless expansion in earlier years.
After multiple rounds of consolidation, China’s bike-rental market is now dominated by firms that are backed by deep-pocketed giants: Ant Group-backed Hello, Didi’s Qingju, and Meituan Bike, formerly Mobike.
The company also operates electric bike-rental and ride-hailing businesses, all part of the “sharing economy” facing scrutiny as part of a broader regulatory tightening over China’s Big Tech.

READ MORE: INSIGHTS | The bike rental boom is dead. Long live bike rental

Detail: The company chose to file confidentially with the US Securities and Exchange Commission, according to sources cited by Bloomberg, exercising an option that is becoming popular owing to the flexibility it allows for timing and pricing.

Hello is working with China International Capital Corp., Credit Suisse Group AG, and Morgan Stanley for the listing, according to the report.
The size of the targeted raise was not disclosed, though a previous IFR report said that the firm looks to raise as much as $1 billion, according to Bloomberg.
A company spokesperson declined to comment on the matter when contacted by TechNode on Thursday morning.
Hello had 400 million registered users as of October for its bike rental business which it operates in more than 460 cities. It rents out electric bikes in 400 cities and offers car ride-hailing services in over 300 cities.
The company had 300 million registered users in 2019, when it said it was China’s largest two-wheel transportation app.

Context: Hello Inc. launched in 2016, two years after Mobike and Ofo, and quickly gained traction as the first bike-rental app to focus its business on China’s smaller cities.

The firm, also known as Hellobike, Hello TransTech and Hello Global, merged with Shanghai-listed competitor Youon Bike in October 2017.
In addition to Ant Group, the company is backed by top investors including Fosun Group, GGV Capital, and Shenzhen Venture Capital.
Companies within the broader sharing economy in China earned more than RMB 3.38 trillion ($519.6 billion) in transactions in 2020.

After NYSE delisting, China Telecom to list in Shanghai

Wei Sheng — Wed, 10 Mar 2021 06:10:30 +0000

China Telecom, one of China’s three biggest telecommunications operators, said Tuesday that its board had approved the decision to list its shares on the main board in Shanghai, following its suspension from trading in New York earlier this year.

Why it matters: The move comes after then-President Donald Trump in November signed off on adding China’s three state-backed telecommunication companies to a US investment ban. The New York Stock Exchange (NYSE) in January said it would delist the companies, which also include China Mobile and China Unicom.

The other two telecom companies are likely to follow China Telecom’s move. The three Chinese state-owned firms all listed simultaneously in New York and Hong Kong. New York-listed shares of the three companies were suspended from trading starting from Jan. 11.

Details: The China Telecom board approved on Monday a proposal to apply for listing the company’s shares on the main board of the Shanghai Stock Exchange, the company said in a filing to the Hong Kong exchange.

A Shanghai offering will help the company “establish more flexible and diversified financing channels” and utilize “both domestic and overseas capital markets, broaden sources of funds, enhance capital strengths and improve risk tolerance,” according to the filing.
The company proposed to sell up to 12.09 billion shares in Shanghai, or 13% of its total issued share capital after the offering.
The company separately reported on Tuesday that its revenue for 2020 grew 4.7% from the previous year to RMB 394 billion (around $60.5 billion) while its net profit grew 1.6% to RMB 20.9 billion.

Context: China Mobile went public in 1997 and was one of the first Chinese state-owned companies to go public in the US, followed by China Unicom in 2000, and China Telecom in 2002.

The NYSE said on Jan. 6 that it would delist China Mobile, China Telecom, and China Unicom on Jan. 11, citing an executive order signed by Trump in November.
An increasing number of US-listed Chinese firms are retreating from the American financial market or dual-listing shares on China’s A-share market or in Hong Kong amid recent US-China tensions. They include e-commerce site JD.com, gaming giant NetEase, and online media firm Sina.

Where China is investing in semiconductors, in charts

Wei Sheng — Thu, 04 Mar 2021 04:11:52 +0000

China is vastly increasing investment in semiconductors. In 2020, cash flowing into China’s semiconductor firms amounted to RMB 227.6 billion (around $35.2 billion) through the primary and secondary markets, a stunning 407% increase from the previous year, according to TechNode’s research.

In the premiere issue of our Semiconductors In-focus newsletter, we break down how this money is flowing into the sector, and where it’s going.

The rapid rise in semiconductor investment came as China realizes its dependency on foreign imported chips poses major risks as the country seeks to lead the world in high-tech areas such as artificial intelligence, supercomputers, and electric vehicles.

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In Focus: Semiconductors is a monthly in-focus newsletter, tracking China’s semiconductor boom in charts and deep-dives.

We’re making this issue free as a sample of our work. Sign up for membership to read every issue!

China is the world’s largest consumer of semiconductors, and the lion’s share of revenue from purchasing these chips go to foreign firms. China consumed $143.4 billion worth of wafers in 2020, and just 5.9% of them were produced by companies headquartered in China.

China has sought to make more of its own chips for years. In 2017, Chinese vice premier Ma Kai said: “We cannot be reliant on foreign chips.” Last year, President Xi Jinping called to “make technological self-sufficiency a strategic pillar of national development.” Beijing is expected to add “a suite of measures to bolster research, education, and financing” for the semiconductor industry to a draft of this year’s 14th five-year plan, China’s top-level policy blueprint for the following half decade, Bloomberg reported.

(Graphic: TechNode/Wei Sheng)

Concern over chip dependency has grown higher over the past two years as the US used semiconductors as leverage against companies like Huawei, a Chinese “national champion” which supports the country’s mission to lead the world in the next-generation wireless technology known as 5G.

The Trump administration banned Huawei from buying components from US companies in 2019 and cut the company off from third-nation suppliers that use American technology in 2020. The moves prompted Chinese business and political leaders to resolve to never again be put into such a situation.

China has massively increased investment in semiconductors over the past two years. The central and local governments have launched hundreds of policy funds, or guidance funds, to support the industry. The private sector also jumped onto the bandwagon. Venture capital investment into the semiconductors sector more than tripled in 2020 from the previous year. China also tapped its massive private capital market by opening up its financial market to let individual investors directly support high-tech firms that are not yet profitable. In 2020, 32 chip companies went public on China’s A-share market, up from 18 in 2019.

Big funds

The National Integrated Circuit Industry Investment Fund, known as the Big Fund, is the Chinese government’s main vehicle for semiconductor investment. The fund was first set up in 2014 by China’s Ministry of Finance and China Development Bank Capital, as well as several other state-owned enterprises, which together injected RMB 138.7 billion into the fund.

The Big Fund was established to invest in chip manufacturing and design, and promote mergers and acquisitions, according to China’s Ministry of Industry and Information Technology (MIIT), which supervises the fund.

It has shown a strong preference for semiconductor manufacturing companies, as China strives to produce cutting-edge 7-nanometer chips. The RMB 138.7 billion first Big Fund closed all of its investment projects at the end of 2019. Around 67% of its total investment went to semiconductor manufacturing firms, according to a report by Eastmoney Securities, a Chinese brokerage.

(Graphic: TechNode/Wei Sheng)

The first Big Fund had backed companies like Shanghai-based Semiconductors Manufacturing International Corporation (SMIC) and Huahong Semiconductor Limited. SMIC is China’s largest contract maker of semiconductors. It was also added to a US export blacklist in 2020.

In October 2019, the Big Fund raised another RMB 204 billion in a new funding round from the finance ministry, state-owned enterprises, and local governments.

Meanwhile, provincial governments have set up guidance funds totaling more than RMB 300 billion to support local semiconductor industries.

(Graphic: TechNode/Wei Sheng)

Opened stock market

In July 2019, China opened up a Nasdaq-style board on the Shanghai Stock Exchange. The STAR Market is the first Chinese exchange to allow unprofitable companies to list., revamping China’s earlier stock market rules.

However, not every unprofitable tech company is welcome. The Shanghai bourse has said that the STAR Market prefers companies that align with the “Made in China 2025” blueprint, Beijing’s plan for self-sufficiency in strategic sectors such as semiconductors and artificial intelligence.

Of the 216 companies listed on the STAR Market, 36 are semiconductors firms, as of the end of January. They include SMIC, which debuted on the market in July 2020 and saw its shares jump more than 200% on the first day of trading.

(Graphic: TechNode/Wei Sheng)

The STAR Market’s appetite for semiconductors has spurred a rush of activity in the sector. More semiconductor companies went public in 2019 and 2020 than all of those from 2010 to 2018. In 2020, some 32 chip companies went public on China’s A-share market, raising a total of RMB 87.6 billion.

(Graphic: TechNode/Wei Sheng)

VC money more than tripled

At the same time, private capital is quickly moving into the sector.

In 2020, the total amount of VC investment into Chinese semiconductor companies grew more than 366% from the previous year to RMB 140 billion, according to data from Itjuzi, a Chinese VC funding database. The total number of VC investment deals also nearly doubled in 2020 to 413.

(Graphic: TechNode/Wei Sheng)

Thanks to a robust stock market that gives investors more options to exit, later-stage rounds in semiconductors have seen steady growth. The percentage of investment deals after Series A had increased to 55.8% in 2020 from 33.1% in 2018.

(Graphic: TechNode/Wei Sheng)

Unlike government-led funds, VC firms prefer chip-design firms to manufacturing companies. Chip designers accounted for around 67.2% of VC investment deals in 2020.

(Graphic: TechNode/Wei Sheng)

What’s next?

Despite heavy investment from the government and private investors, experts have said that China will fall far short of its 2025 goal.

While China’s goal is to make 70% of the chips it uses by 2025, IC Insights, a market research firm, forecasted that China will produce only 20.7% of its chip consumption in 2024, growing only 3% from 2020.

(Graphic: TechNode/Wei Sheng)

The country not only needs to produce more chips, but it also needs to make sophisticated chips that can meet the demands of modern computing devices, such as high-end smartphones and supercomputers. However, experts said mainland China’s chip-making capability is “generations behind” the leading edge in Taiwan.

Though a complete value chain in five years may be a dream, China is making progress in the sector. Changxin Memory Technology, a state-backed semiconductor startup, started mass production of the country’s first locally designed dynamic random-access memory (DRAM) chip in September 2019. HiSilicon, Huawei’s chip-design branch, ranked among the world’s top 10 vendors of semiconductors in August for the first time.

But to emerge as a world-class semiconductor maker, analysts say, that China also needs to narrow a talent gap. It faces a talent shortfall of around 300,000 people, according to the China Semiconductor Industry Association.

How many of China’s top university graduates end up working for the domestic semiconductors industry? Where do Chinese chip makers find talent? Will the talent gap narrow as China continues to invest in the sector? We will dive into that topic in the next issue of this newsletter.

Chinese user sues Apple over app prices, citing antitrust law

Wei Sheng — Wed, 24 Feb 2021 07:29:17 +0000

A Chinese Apple user has sued the American tech giant over its higher prices for apps and services compared with Android marketplaces, citing China’s antitrust law, local media reported on Wednesday.

Why it matters: China has recently tightened regulations on tech companies’ anti-competitive practices. While those moves mainly targeting local firms, the suit may thrust Apple into the spotlight.

Firms that have been fined or investigated in recent months include Alibaba and affiliates of Tencent and logistics giant SF Express.

Details: Jin Xin, an Apple user has accused the company of “abusing its market dominant position” for charging developers high commissions, and barring users from using payment methods other than Apple’s in-app purchase feature, local newspaper Southern Metropolis Daily reported Wednesday.

Jin, whose gender and age were not disclosed, said in a court filing that pricing for apps and services like video-streaming app iQiyi, podcast app Himalaya, and music app NetEase Music are higher in Apple’s App Store than in Android app stores.
The plaintiff said that was because Apple charges app developers commissions as high as 30% of sales, which were ultimately transferred to consumers.
Users cannot choose payment methods other than Apple’s in-app payment so that they have to accept higher prices, Jin said.
Citing China’s Anti-Monopoly Law, the plaintiff said in the court filing that those practices were “anti-competitive behavior” and had deprived users of their rights of fair trade, according to the report.
The Shanghai Intellectual Property Court will hear the case, said the report, but the hearing date is not finalized.
Jin could not be reached for comment. Apple did not respond to a request for comment on Wednesday.

Context: China has recently formalized new antitrust guidelines targeting tech companies, which forbid online platforms from forcing merchants into exclusivity deals, and offering different prices based on user data.

State Administration for Market Regulation (SAMR), China’s top antitrust watchdog, in January 2020 proposed an overhaul of the country’s Anti-Monopoly Law to include internet-based services in the scope of antitrust regulations.

Mixed reality startup Nreal readies global expansion

Eliza Gkritsi — Tue, 23 Feb 2021 04:41:11 +0000

Chinese mixed reality glasses maker Nreal is preparing to launch its products in the US and Europe, less than a year after a California court dismissed a lawsuit brought against the company by Google’s Magic Leap.

Why it matters: Nreal is one of China’s most promising MR startups; it is backed by major Chinese tech venture capital (VC) firms and has set up partnerships with global heavyweights, including Qualcomm and Korea’s LG.

In the US and EU, it will be competing primarily with Microsoft, Magic Leap, and perhaps Apple in the augmented and mixed reality fields, but also with Facebook and HTC in the entertainment-focused virtual reality market.

Details: In partnership with Vodafone and Deutsche Telekom, Europe’s most prominent telecom carriers, the company will launch its Nreal Light MR glasses in the EU in the spring, according to a statement sent to TechNode on Tuesday.

The glasses will also be available in the US by April 2021, in collaboration with an undisclosed local telecommunications provider.
Nreal is also launching an enterprise edition of its MR glasses, which users can wear over an existing pair of glasses. The enterprise edition is shaped like a halo, circling the user’s head. Both Microsoft and Magic Leap have already launched their own enterprise-oriented smart glasses.
The startup is working with automakers, universities, and tourism organizations who want to use the enterprise MR glasses in the workplace, or to offer them to end users.
Several new apps designed for the smart glasses were revealed at the Mobile World Conference held in Shanghai on Tuesday, including a weather app, games, and a 3D live soccer experience app.

With the initial success we’ve seen with our carrier partners, we’re scaling this strategy and excited to get Nreal Light into the hands of American consumers by April of this year.
—Nreal CEO and founder Xu Chi, in the statement

Context: In fall 2020, Nreal launched its Light MR glasses in Japan in partnership with KDDI, and in Korea with LG.

Nreal closed a $41 million Series B in September led by TikTok competitor Kuaishou, bringing its total funding to $70 million.
Other Nreal investors include Sequoia Capital China, video-streaming platform iQiyi—which operates its own VR venture—as well as Shunwei Capital, a VC firm founded and chaired by Xiaomi’s co-founder Lei Jun, and state-backed GP Capital and CCEIF fund.
The company was accused of stealing technology from Magic Leap in June 2019.

READ MORE: US court rejects IP theft claims against Chinese mixed reality firm

China made 6% of chips it used in 2020: report

Wei Sheng — Fri, 19 Feb 2021 04:34:40 +0000

China produced a scant 5.9% of semiconductors it used in 2020, according to a report published Thursday, indicating significant reliance on foreign technology as the country pushes for independence on chips.

Why it matters: China, the world’s largest semiconductor market, is determined to increase domestic production of chips, and plans to make 70% of chips it uses by 2025.

Details: China’s integrated circuit (IC) market increased 9% to $143.4 billion in 2020 compared with a year earlier, according to a Thursday report by market research firm IC Insights. China-headquartered firms, however, only made $8.3 billion worth of ICs sold in the country in the same year, the report said.

Around 15.9% of ICs sold in China in 2020 were made locally, but most of them were made by foreign companies with wafer fabrication plants in the country, such as Taiwan Semiconductors Manufacturing Company, SK Hynix, and Samsung. Together, such firms made around 10% of chips sold in China last year.
IC Insights estimated in the report that 60% of semiconductors produced in China were components for exported products. The country is home to some of the largest smartphone makers in the world, including Xiaomi, Huawei, and Oppo.
Programmable logic devices, which are used to store the logic pattern integrated onto chips during programming, was the largest segment of China’s IC market in 2020, accounting for 26% of total wafers sold.
Strong sales of smartphones and other computing systems during the pandemic drove growth in microprocessors, which was the second-largest IC product segment in China last year, according to IC Insights. The category grew 12% last year to $32.7 billion.

Context: In December, the US added China’s largest chipmaker, Shanghai-based Semiconductors Manufacturing International Corp (SMIC), to an “Entity List” that effectively cut the company off from American technology.

Huawei, the world’s largest maker of telecommunications equipment, has been been plagued by US sanctions. The company has now essentially been cut off a supply of advanced semiconductors.

CHINA VOICES | Tech commentators on Biden: ‘Bring it.’

Shaun Ee — Mon, 08 Feb 2021 06:55:39 +0000

With Joe Biden starting his term as president, China’s internet has lost one of its hottest topics: Donald Trump.

Popular commentators have spent much of the past four years tracking the China-US tech rivalry, debating the impact of US policies, and speculating about China’s potential responses. Now, as a new administration takes office, these commentators are asking whether anything will change.

While Biden has marked his first days in office by reversing many of Trump’s policies, he may well retain some of the Republican administration’s measures targeting China’s tech sector, which since 2017 have ranged from export controls to stock market delistings and social media app bans. After all, many of the country’s China policies have seen bipartisan support.

READ MORE: INSIGHTS | No going back for US-China tech under Biden?

So far, the new administration has not revealed how it might approach China tech—heck, Biden has yet to pick an ambassador to China—but this hasn’t stopped China’s tech bloggers from speculating on what’s to come.

To get a glimpse of the sentiment among some Chinese tech commentators towards the new Biden administration, TechNode has dug up several popular online commentaries from the past few weeks. Spoiler: there’s much cynicism ahead.

China Voices

In TechNode’s members-only translation column, we bring you selections from discussions about tech on the Chinese internet. TechNode has not independently verified the claims made below.

Same old, same old

On Jan. 20, Biden started his term in office with a flurry of executive orders reversing his predecessor’s policies. But to do so is akin to operating “on a dying person,” quips Luke Wen, a prominent Chinese tech blogger who has been described as “one of the most prominent techno-nationalist voices” in the country’s blogosphere.

Wen’s piece on the now-president’s swearing-in is titled “Biden Walks Into the Mausoleum,” suggesting that his presidency will be a doomed one. It is one of the most popular Biden-and-tech articles on WeChat, garnering at least 100,000 views (the maximum number that WeChat displays), around 3,800 “Likes,” and 2,500 “Wow” reactions.

Wen is not optimistic that Biden will work to ease tensions with China:

The US’s ultimate goal in re-emerging as the world’s policeman is still to suppress China’s rise as much as possible. Although Biden’s staff all outwardly tout a policy of “no Cold War, no decoupling” toward China, in actuality, they have already started a technological Cold War. The tech Cold War and the ideological war will be the main battlefields between the two countries: on one side, Biden’s team will keep making a fuss about Hong Kong, Taiwan, and Xinjiang, and on the other, they will strive to hem China in across all technological domains.

According to Wen, Biden will not lift restrictions on Huawei such as its ban from purchasing US-made chips, and may even further restrict Chinese tech companies in the US. Part of his disillusionment with the new president comes from Biden’s supposed inaction on China since assuming office. After all, the Democrat has yet to undo Trump’s acts of confrontation, such as the tariffs on Chinese products and the Jan. 14 blacklisting of Xiaomi and eight other companies.

There has been absolutely no sign of resolution […] Presumably […] these tariffs will just be used as a bargaining chip against China.

As of publication, Biden has been in office for just over two weeks.

Thanks, Obama

Not everyone sees the US’s current attitude toward China as solely the legacy of the Republican former President Donald Trump. In an article titled “Comprehensive Adjustment! In the Biden Era, China and the US Will Duke it Out in Three Areas,” a blogger that goes by “Rongping” blames the Democrats for the tech war:

Many people may not be aware that the beating down of China’s ICT industry—as represented by Huawei—and the launch of the US-China tech war was […] the continuation of the Democratic Party’s established policies.

As evidence of this, Rongping brings up a White House advisory panel report released in the final days of the Obama administration on Jan. 6, 2017, calling for greater vigilance against Chinese attempts to dominate the semiconductor industry.

The report recommended that the US government tighten controls on exports to China and examine Chinese investment more closely, moves that the Trump administration has since implemented. Given that this Obama-era report predates Trump’s actions, Rongping claims:

From this, it can be seen that the Democratic Party is the driving force behind the tech war between the two countries!

The article has 53,800 views as of Feb. 3.

Driving force or not, the author does expect some changes with Biden in power:

More reliance on IP claims against China rather than national security excuses, so that the US can establish a better international image
More coordination by the US with its allies, and
A more consistent line on policy, as opposed to Trump’s reversals

Rongping warns that the US isn’t going to ease its pressure on China.

Gearing up for round two

If Biden isn’t going to let China off the hook, what are Chinese businesses to do?

Not to worry, says one blogger. In “Hidden War: A Game With the Biden Administration,” which has accumulated at least 100,000 views, “Brother Cat” says the US is running out of ammunition.

The Trump administration has played just about every card in the deck!

Now, the Biden administration is in an awkward position. If it wants to adopt hardline tactics to counter China’s hardline stance, its choices are few and far between.

Escalate the trade war? No luck, Brother Cat says: China’s busy forging ahead with two giant trade agreements, namely the Regional Comprehensive Economic Partnership (RCEP) among Asia-Pacific nations and another on EU investment. Escalate the tech war? “China’s made ample preparations there too,” Brother Cat claims.

This “preparation,” he explains, is China’s new sanctions blocking regime, also known as a “blocking statute,” which the Ministry of Commerce (MOFCOM) released in January and formally calls “Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures.”

The new rules discourage companies from complying with US sanctions by allowing their business partners to sue for lost revenue in Chinese courts.

It’s still unclear how Beijing plans to enforce the rules, but the blog claims:

The biggest financial backers of Biden’s election are tech companies. If the US does not lift controls against Chinese businesses […] then these US tech companies will face an unending stream of compensation lawsuits.

If the US turns a deaf ear to China’s preconditions, then this law will probably be swiftly implemented.

Other commentators were also drawn to the new blocking statute. Popular tech news blog Chaping suggested it should be used to retaliate for one of the last salvos of the Trump administration, namely the blacklisting of Xiaomi for its alleged links to the Chinese military. In “The US Sanctions Xiaomi, This Time China Can Finally Fight Back!” the author claims that the proposed blocking statute:

Exists precisely to prevent the US from abusing “long-arm jurisdiction” to infringe upon the legitimate rights and interests of Chinese enterprises.

Rather than focus on Biden, the Chaping article places Trump front and center, suggesting that his legacy could continue to define the US government. When the new president is mentioned, it is only to discourage fellow Chinese from anticipating any potential goodwill:

We cannot hang our hopes on other nations “discovering their conscience.” […] At the very least, [the blocking statute] allows Chinese companies to no longer tread as if on thin ice in the US, worrying constantly that at the next moment, this hegemonic sledgehammer disguised as “fairness” will smash upon their heads.

A few high hopes for Biden

Is there anyone in the China tech sector who is bullish on Biden?

There are certainly optimistic voices, like this author (45,000 views) who argues that Biden will increase immigration by raising US visa caps and giving green cards directly to PhD graduates in science and tech:

Under Biden’s leadership, the odds that more new policies beneficial to international students will be rolled out is extremely high […] the US government will, within the next four years, provide an even friendlier environment for numerous international students and scholars to pursue research and studies.

There is also this article (29,000 views) that suggests Biden “may break the Trump-era tariffs and tech blockade” and that “Huawei’s chip supply disruption and sanctions against Chinese companies will most likely improve,” though the author expects Biden to rework the global economic framework in favor of the US.

But online, voices willing to venture optimism about a US-China tech detente are harder to find. Unless the US president takes significant steps to loosen restrictions from the Trump era, Chinese commentary is likely to stay cynical.

Luckin Coffee files for bankruptcy in the US

Carolyn Surh — Sat, 06 Feb 2021 04:24:31 +0000

Chinese beverage chain Luckin Coffee filed for bankruptcy protection in the US on Friday, less than a year after it admitted to falsely reporting more than $300 million in sales in 2019 financial reports.

Why it matters: The filing is another step in a reckoning for the app-powered beverage chain, which had aggressively challenged US-based Starbucks in China with breakneck store expansion and steep customer discounts.

Now trading on the US OTC market, Luckin shares fell 46.5% in Friday afternoon trading to $6.86.

Details: Luckin and its liquidators filed a Chapter 15 petition in New York early Friday morning, seeking to stave off creditors in the US including shareholders and subscribers of the $460 million, five-year bond it raised less than four months prior to its fraud admission.

The filing will not impede the company’s business operations in China, “including paying suppliers, vendors, and employees,” it said in a statement.
Luckin seeks to centralize the restructuring of its finances through pending liquidation court proceedings in the Cayman Islands, where the company is registered.
“The Chapter 15 filing is a routine filing in the context of Cayman restructuring involving international jurisdictions,” the joint liquidators said in a statement sent to TechNode on Friday.
Luckin continues to operate 3,898 stores in China as of November, of which 60% are profitable at store level, according to a report provided to a Cayman Islands court.

Context: Ten months ago, Luckin announced that the company COO and a number of employees had falsified more than RMB 2.2 billion ($311 million) in sales and inflated costs from April 2019 to January 2020. Its leadership appears in to be in tumult even as it moves forward with new business developments, including inviting franchise partners in lower-tier city markets.

Chinese regulators in September fined the company and affiliates $9 million for unfair competition practices related to its sales fraud.
US regulators delisted the company from Nasdaq on July 1, and fined the company $180 million for accounting fraud in December.
Luckin share prices neared $40 apiece in January 2020, before short-seller Muddy Waters shared an anonymous report accusing the company of disclosing falsified operation figures in a tweet.

Clubhouse invites for sale on Alibaba’s used goods app

Eliza Gkritsi — Tue, 02 Feb 2021 07:30:24 +0000

Savvy Chinese netizens are looking to capitalize on the booming success of US-based Clubhouse by selling invitations to the invite-only live audio app, just a day after Tesla CEO Elon Musk broke audience records with an appearance on the platform.

Details: TechNode counted dozens of listings for Clubhouse invites on Idle Fish, Alibaba’s secondhand marketplace.

Prices range from RMB 180 ($28) to RMB 500 per invitation. Sellers are from a number of different locations in China. On eBay, Clubhouse invites are selling for around $50 at the time of writing.
The overwhelming majority of the Idle Fish listings were posted in the last 24 hours. TechNode has not been able to verify the authenticity of the listings.
The homonymous hashtag had been viewed 6.65 million times on Weibo, China’s Twitter-like social media platform, in the 24 hours preceding Tuesday afternoon, Feb. 2. It peaked around 5 p.m. China Standard Time on Monday.
“What is this? Am I out of touch with the times?” (our translation) one flabbergasted Weibo user wrote around 5 p.m., posting screenshots of chatter on the social media platform. The post had been liked 6,700 times.
At 5:43 p.m., a Weibo user with 2 million followers noted that Clubhouse invites were sold on eBay for $97. The post attracted 4,000 likes.

(Image credit: TechNode)

Context: The Clubhouse app lets users join in rooms and listen to conversations between hosts and guests. It has been buzzing in Silicon Valley the last month or so, but reached new heights of popularity after tech superstar Elon Musk’s appearance on Monday.

The Tesla executive debuted on the audio app, giving news writers around the world plentiful headlines: He broke the app’s audience limit, said he is a “supporter of Bitcoin,” and grilled the CEO of Robinhood about the app’s decision to stop investors from trading GameStop.

INSIGHTS | No going back for US-China tech under Biden?

Eliza Gkritsi and Wei Sheng — Mon, 01 Feb 2021 04:52:57 +0000

As the Biden administration takes office in the US, there’s a bipartisan, arguably multilateral, appetite to mess with China tech.

The new president has promised to make a U-turn on many of Trump’s policies, but China isn’t on this list. Cabinet picks have said that they support an aggressive stance on China and have made it clear that technology is a key aspect of their foreign policy, but haven’t revealed details as to how they will be tough on tech.

“The view that the two countries are competitors is now firmly held in both Beijing and Washington. In turn, there is little prospect for a meaningful improvement in US-China relations under the Biden administration,” Agathe Demarais, global forecasting director of The Economist Intelligence Unit, told TechNode.

“Biden will need to appease China hawks in both political parties in order to get support for his more ambitious domestic programs, such as building new infrastructure and healthcare,” Alex Capri, visiting senior fellow at the National University of Singapore, told TechNode.

Bottom line: China’s tech companies have seen big changes in their relationship with the US during the past four years, and a new US administration probably won’t undo many of those changes. The Biden administration is likely to put a pause on surprise moves like app bans, and be less unpredictable, but there’s almost certainly no going back to 2015.

Trump era policies

‘Buy American’ initiative: Trump tried to encourage US federal agencies to buy homegrown products from the very beginning of his presidency. The American federal government is likely not a big client for Chinese companies, with some exceptions.

An LA Times investigation found that from 2016 to 2019, direct federal procurement of foreign-made goods increased by 0.1%: from 3.5% of total federal spending to 3.6%.
Several federal agencies stopped buying drones from Shenzhen-based DJI between 2017 and 2020.
The initiative turned into a “Don’t Buy Chinese” policy in August 2020, when a law barred federal agencies from buying goods or services from companies that use equipment from Huawei, Hikvision, and Dahua Technology. While the US federal government is not a big direct client for these companies, contractors like Amazon are.

The Entity List: More serious threats to China tech began in 2016 with the short-lived addition of telecoms manufacturer ZTE to a list that limits exports of US technology, a move that temporarily cut it off from crucial supplies of semiconductors. In 2019, ZTE peer Huawei was added to this list in a move called a potential “death blow.”

ZTE was added after accusations that the firm sold equipment to North Korea. The telecoms equipment vendor paid a $1.19 billion fine the next year and pleaded guilty to violating US sanctions, and was removed from the list.
Surveillance equipment manufacturers Hikvision, Dahua Technologies, and AI companies Megvii and iFlytek were added to the list in October 2019. SMIC and drone maker DJI were added in December 2020.
In Aug 2020, the Commerce Department expanded the scope of export restrictions on trading with Huawei. In an explicit attempt to target Huawei’s semiconductor supply, the department effectively banned any chips that include US tech to be sold to the Chinese telecoms company.

Transaction bans: Perhaps Trump’s most confusing tech policy, if anyone is keeping score. On Aug. 6, 2020, Trump signed an executive order to bar US companies from making transactions with TikTok and WeChat over alleged privacy violations. Both bans were suspended by courts before coming into effect.

On Jan. 5, 2021, Trump banned transactions with another eight Chinese companies: Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office.
The new Commerce Secretary will have to decide which transactions fall under the ban.

Investment bans: Trump banned investments in companies designated as affiliated with the Chinese military by the Department of Defense (DoD) including China Mobile, China Telecom, and China Unicom, starting Jan. 11, 2021. Shares of the three telcos in Hong Kong fell sharply on the announcement. The list also includes Huawei and Hikvision.

Trump later added that US investors must divest from Chinese companies by Nov. 11, 2021.
On Dec. 3, 2020 the DoD added chipmaker SMIC to this list, and on Jan.14, Xiaomi.

Delisting: Not a Trump policy per se, but a potentially major hassle for US-listed Chinese tech companies. US lawmakers voted unanimously to pass the Holding Foreign Companies Accountable Act, which threatens to force Chinese companies off US stock markets within three years.

CFIUS: The Committee on Foreign Investment in the US blocked Chinese investments on several occasions, and expanded its jurisdiction in 2018.

The committee blocked Ant Group’s acquisition of MoneyGram in 2018.
In 2019, CFIUS forced Chinese gaming company Beijing Kunlun Tech to sell gay dating app Grindr, which is popular in the US, citing privacy concerns. The sale finally went through in March 2020.

Clean Network: First launched on April 29, 2020 as “Clean Path,” and later expanded in August 2020, the initiative seeks to rid US allies’ tech networks and infrastructure from Chinese technology.

Various countries have reportedly signed on, although it is unclear what commitments they had to make to be part of it.

Tariffs: Trump slapped tariffs on several Chinese tech products, starting with solar panels in January 2018, and later on electronics, including laptops and phones.

Apple dodged tariffs on its China-made products at the last minute, when the US and China agreed on the phase one trade deal.
Tariffs have not severely affected China tech companies, with US firms bearing the brunt of the duties.

I could go on, but these are the most important.

How China tech responded

Funding: Chinese VC activity in the US fell dramatically in 2019 and 2020, as Chris Udemans documented, when the techwar heated up.

Many market factors affected Chinese VC investments in US startups, but the drop is partly attributable to the changes to CFIUS rules in late 2018.

By contrast, US funding is still flowing into China. Beijing-based VC Qiming Venture Partners closed a $1.2 billion round of financing in September, mainly led by US university endowments and pension funds.

(Image credit: TechNode/Chris Udemans)

Semiconductors: Export controls have also inspired big efforts in China to achieve semiconductor independence, or at least limit reliance on US chipmaking technology. This is a very long road and several US companies guard key chokepoints, but there is probably no going back.

Stewart Randall has written about how the open-source RISC-V chip architecture is a promising avenue for Chinese chipmakers to free themselves from reliance on American companies, and is reportedly being used more frequently.

Grand strategy

The Trump administration aimed to decouple the US and China in the tech sphere, Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington, told TechNode.

Biden will be using similar policy tools, but his goal will likely be risk mitigation rather than complete separation, Kennedy said.

Biden’s team has begun to describe an approach that could lower the temperature without changing the basic fact of rivalry.

Kurt Campbell, Biden’s Indo-Pacific Advisor, and Jake Sullivan, Biden’s National Security Advisor, summarized an alternative approach in a 2019 Foreign Affairs article:

Washington, for its part, will have to invest in the core sources of American economic strength, build a united front of like-minded partners to help establish reciprocity, and safeguard its technological leadership while avoiding self-inflicted wounds.
-Kurt Campbell and Jake Sullivan, “Competition Without Catastrophe,” Foreign Affairs

Competition: Biden’s early appointees have said that his administration will continue competing with China on technology issues. However, Biden-style competition could mean more efforts to boost US innovation and fewer surprise app bans.

Antony Blinken, Biden’s Secretary of State, said he approves of the direction of Trump’s tough China policy, but disagrees with the former president’s tactics, during his confirmation hearing.
Even the relatively cautious Campbell and Sullivan say the US should get comfortable with “considerable friction.”
Biden is looking to strengthen the US’ domestically, boosting innovation and production capacity. Campbell and Sullivan wrote that this “domestic foundation” is what Washington needs to build on to deal with the China challenge.
Biden has promised to call up US allies trying to mend relations, so that they can exert united pressure on China at international institutions.

Cooperation: The new administration doesn’t only want to ramp up competition with China. Cabinet picks including Antony Blinken have said they want to find ways to work with Beijing on global issues such as climate change. Biden’s Secretary of State said in September that a full decoupling is “unrealistic and ultimately counter-productive.”

In Foreign Affairs, Campbell and Sullivan wrote that Washington should adopt a compete first, cooperate second approach.

Sullivan cautioned against making China an “existential threat” in the minds of American people and policymakers in a ChinaTalk podcast episode recorded in 2019.
Other than the environment, one area of cooperation could be regulation to rein in big tech, Xue Lei, research fellow of the Institute for World Economic Studies at the Shanghai Institute of International Studies, said in an event on Jan. 20.

Biden’s China team

Biden’s cabinet picks have almost unanimously expressed a desire to be tough on China on issues ranging from trade to human rights. They have also stressed the rising importance of technology on geopolitics.

President Biden and his incoming team have not detailed how they will deal with the US-China tech war. “I have not heard them whisper a word,” Kennedy said.

Biden’s top cabinet picks have often dodged making specific comments on technology issues. Here’s some exceptions on what they have said on China tech:

Laura Rosenberg, China senior director
- Rosenberg is the head of the Alliance for Securing Democracy in Washington DC. She is expected to bring attention to China’s censorship and allegations of surveillance technology.
- In a Dec. 31, 2020 report, the advocacy group argued for an alliance of democratic countries to counter China’s influence over global internet governance.
Tarun Chhabra, senior director for Technology and National Security
- Chhabra argues that American progressives should use rivalry to get Republicans to agree policies including increases in federal spending for R&D and education, as well as immigration policy changes to counter China’s Thousand Talents Program that attracts top tech talent from abroad.
Jessica Rosenworcel, chairwoman of the Federal Communications Committee
- Rosenworcel supported December 2020 decisions to revoke China Telecom’s US license and to reject an application from Huawei to review its designation as a national security threat.
Ely Ratner, top China advisor to the Pentagon chief
- A report co-authored by Ratner made several specific recommendations to the incoming administration on China tech, including expanding export controls based on end use of tech equipment, diversifying rare earth supply chains away from China, and coordinating with US allies on semiconductor export controls.

Tactics

“Democracies must employ scalpels rather than sledgehammers,” Rosenberg said. CSIS analyst Kennedy said he expects the administration to “carry out a top-bottom review of China policy and the entire foreign policy of their tactics and strategy.”

There’s some policy areas where experts expect to see movement from the new administration, albeit further down the line.

Made in America: Biden signed an executive order on Jan. 25 that will narrow the definition of American-made products and make it harder for federal agencies to justify buying foreign-made goods.

Backseat for tariffs: Experts expect tariffs on imported goods to take a backseat in Biden’s administration, giving way to strategic tools that confront China’s tech companies in different ways, like sanctions. “Rather than tariffs, the Biden administration will increasingly shift to sanctions and export controls to confront China’s rise in the technological sector and to try to re-assert the US global dominance in this area,” Demarais told TechNode.

Export controls: Campbell expressed support for “enhanced restrictions on the flow of technology investment and trade in both directions,” but not in a wholesale manner to avoid the Balkanization of the internet.

In the same op-ed, he identified the Huawei ban as a “cautionary tale” and called for creative policymaking, such as “establishing a multilateral lending initiative to subsidize the purchase of alternatives to Huawei’s equipment.”
China is “too big” to be steered with “traditional” financial sanctions, said Demarais. The new White House is likely to rely more heavily on export controls, and “this trend is likely to be a long-term one that will outlive the Biden administration,” she said.
“Biden is not likely to walk away from chip restrictions that are fueling China’s technology ambitions. Nor is Biden likely to walk away from blacklisting Chinese tech companies that have ties with the” People’s Liberation Army, Abishur Prakash, futurist at the Center for Innovating the Future in Toronto, told TechNode.
At the same time, Biden could finally give US firms “an audience,” a chance to “air their grievances regarding the suffering of collateral damage from Huawei restrictions,” Capri said.
A US semiconductor industry group wrote to the Commerce Department asking a review of the export restrictions to Huawei, Reuters reported on Jan. 26.

Standards setting: Some Biden advisors have said that they want the US to play a stronger role in international standard settings institutions to curb China’s influence in global tech standards.

At her Senate Confirmation hearing, Commerce Secretary nominee Gina Raimondo said Washington should “play offense” when it comes to standards setting.
In a Dec. 22, 2020 op-ed Laura Rosenberg, China senior director for the Biden administration, said Huawei’s “New IP” standard proposed at the International Telecommunication Union and the company’s 6G proposals are an attempt to “redesign the underlying architecture of the Internet to allow nation-states to exert greater control over Internet traffic and access.” Democracies have been “too passive” in international institutions, and they should work together to counter states like China, she wrote.

China tech in suspense

At this point, the broad strokes of the Biden team’s China approach are fairly clear. But tech companies and investors have a lot riding on the specifics. US policy won’t be going back to the rosier times of 2015, but China tech companies will have to wait to see how their access to US markets and stock exchanges will shape up in the next four years.

Kennedy said that US presidents usually don’t make decisions on foreign policy until the summer after they take office.

In the meantime, several of Trump’s policies will remain intact, chiefly entity lists. If you are Huawei or Hikvision, you will have to continue living with US export controls for the foreseeable future. If you are WeChat or Alipay, you can take a breather and expect to hear an update on whether you can operate in the US in a few months’ time.

Unfinished business: Analysts don’t expect any new moves any time soon, but the new administration has some homework due within the next two months.

The new Commerce Secretary has to define the scope of the Jan. 5 transaction ban on eight Chinese bans, including Alipay and WeChat Pay, by Feb. 19.
CFIUS has put its review of the TikTok deal on hold. Oracle and Walmart are reportedly still committed to buying the short video app, as they said four months ago.
“I fully expect CFIUS to continue blocking tech acquisitions in the US and to keep lobbying its allies to choose firms from America,” Capri said.
According to one of Trump’s last executive orders, by November 2021, US companies must have divested from 35 Chinese companies considered to have ties to the Chinese army, including chipmaker SMIC.

Stalling: Kennedy says Biden might try to hit the pause button on these actions until he has finished his policy review.

On Jan. 27, the Treasury Department extended the deadline by which US investors would be barred from investing in Chinese military companies by five months.

“In terms of the larger arc in figuring out how to manage the relationship with China, I am fairly optimistic,” Kennedy said. “The Trump administration highlighted the concerns of a Xi Jinping-led China. I think Biden will show more care in the tools to get effective action,” he said.

Update: This article has been updated to include the full name and title of Abishur Prakash, futurist at the Center for Innovating the Future, Toronto.

Xiaomi sues US government over investment ban

Wei Sheng — Mon, 01 Feb 2021 04:46:18 +0000

Chinese smartphone maker Xiaomi said on Sunday it had sued the US government over a move by the Trump administration which bars American investment in the company.

Why it matters: This is the first legal challenge launched by Chinese firms on the Trump administration’s investment blacklist. The US Department of Defense (DOD) alleges that the entities are “Communist Chinese military companies,” meaning they are owned or controlled by the People’s Liberation Army.

Chinese tech companies have won legal challenges against the US government sanctions before. In December, a district judge fully blocked the Trump administration’s attempt to ban the Chinese video-sharing app TikTok in the US.
But Huawei, a Xiaomi rival, has found little respite pursuing legal challenges. In February, a federal judge rejected Huawei’s constitutional challenge to a US law that restricts it from doing business with US federal agencies.

Details: Xiaomi said in a statement filed with the Hong Kong exchange on Sunday that it had filed proceedings in the US District Court for the District of Columbia against the DOD and the Department of the Treasury on Friday.

Xiaomi said that it believes its inclusion on the blacklist was “factually incorrect and has deprived the company of legal due process.”
The firm has asked the court to declare the decision illegal and to reverse the course, it said.
Defendants of the suit also include the US defense secretary, Lloyd Austin, and Janet Yellen, the Treasury secretary, according to a court filing.
The DOD didn’t “provide any explanation for its decision to designate Xiaomi as a Communist Chinese military company,” nor did it give Xiaomi any opportunity to explain, the company said in the court filing on Friday.
Xiaomi denied any allegations that it is owned, controlled, or does business with China’s defense industry.
The Defense and Treasury haven’t responded to the lawsuit.

Context: An executive order signed by former US President Donald Trump in November bans American investment in companies that are deemed to be linked with the Chinese military.

American investors will be prohibited from buying Xiaomi shares and will have to divest their holdings by November, according to the executive order.

US revokes licenses to sell to Huawei, to deny more: report

Wei Sheng — Mon, 18 Jan 2021 04:19:16 +0000

The Trump administration is revoking certain licenses for some suppliers of Chinese telecommunications firm Huawei, Reuters reported Monday, and it warned it would deny more applications.

Details: The Semiconductor Industry Association, an American industry group, said on Friday that the US Department of Commerce had issued “intents to deny a significant number of license requests for exports to Huawei and a revocation of at least one previously issued license,” Reuters reported, citing people familiar with the matter.

One of the sources in the report said eight licenses were revoked from four companies. Intel, which supplies Huawei with systems-on-a-chip (SoCs) used in smartphones and personal computers, was among the companies.
Another affected company was Kioxia Corp, a Japanese flash memory chip maker formerly known as Toshiba. The company had at least one license revoked, said two Reuters sources.
Some 150 licenses for $120 billion worth of goods and technology ready to ship to Huawei were pending approval before the latest action.
Another $280 billion of license applications for goods and technology for Huawei have not been processed, according to Reuters.
The Commerce Department has told companies that it “intends to deny” those applications.

Context: According to two US government regulations issued in 2019 and 2020, companies around the world have to seek a special license from Washington if they want to sell products that contain US technology to Huawei.

In September, Intel received a license from the US government to sell to Huawei. In November, US chipmaker Qualcomm was approved to sell 4G chips to the Chinese company.

PayPal now the sole owner of a payments firm in China

Eliza Gkritsi — Fri, 15 Jan 2021 07:34:07 +0000

US tech giant PayPal is the first foreign firm to fully own a Chinese payments firm after its acquisition of GoPay on Dec. 31.

Why it matters: The PayPal acquisition is a landmark in China’s financial liberalization amid an antitrust clampdown in fintech.

Details: PayPal acquired the remaining 30% of GoPay, according to the Chinese government’s company registration platform. The US company had bought 70% of the firm in September 2019, becoming the first foreign company licensed to offer payment services in China.

Details of the deal were not disclosed.
PayPal could not immediately be reached for comment.

Cross-border payments: PayPal said in 2019 that it wanted to tap into China’s market for cross-border payments. Unlike domestic transfers, the market for cross-border transactions is not yet dominated by giants like Ant Group and Tencent.

Because China is the world’s largest exporter and importer, “the market for cross-border payments is immense,” Bill Deng, co-founder and CEO of XTransfer, a Chinese cross-border payment and risk management firm, told TechNode.
Deng added, “There remain a large number of unresolved pain points in this industry,” which is still in its infancy, so there is room for new players.

Regulation: Regulators have followed up on Ant Group’s IPO suspension with further antitrust moves as they seek to rein in Big Tech’s power over the economy.

Last week, the People’s Bank of China asked Ant to retreat to its original payments business and overhaul its operations in credit, investment, and insurance.
Regulators have also ramped up efforts to bring in competition from overseas.
They have “vowed to open up the sector to all foreign investors, to issue licenses necessary to operate locally,” Deng said. In 2020, ownership caps on financial services firms were scrapped.
Several firms have already taken advantage of the new rules to set up wholly owned subsidiaries in China, including Allia nz, BlackRock, Mastercard, and S&P Global Ratings.
“The timetable for the liberalization of specific segments will become clear in the future,” the XTransfer CEO said.

Xiaomi shares plunge after US investment ban

Wei Sheng — Fri, 15 Jan 2021 06:15:04 +0000

Shares of Chinese smartphone maker Xiaomi plunged 11% on Friday morning after the Trump administration added it to a blacklist, forcing Americans to divest holdings and barring share purchases.

Why it matters: Xiaomi is the second-largest smartphone maker in the Chinese market and ranks fourth globally. The company has been caught in US-China geopolitical tensions for the first time, its troubles bearing resemblance to its main rival Huawei.

However, Xiaomi is unlikely to face the same degree of US restrictions as Huawei, which has been essentially barred from the global high-end semiconductor supply chain. The Trump administration will end next week and there is no sign that it will place export restrictions on Xiaomi.
A similar move against some Chinese telecom companies had led to their potential delisting from US stock markets. Xiaomi is listed in Hong Kong, indicating that the price plunge on Friday could be shareholder panic selling.

Details: The US Department of Defense on Thursday added Xiaomi and eight other Chinese firms to a list of “Communist Chinese military companies,” according to a statement on its website. An executive order signed by US President Donald Trump in November bans American investment in such companies.

Other companies added to the list include Commercial Aircraft Corporation of China, a state-backed aircraft maker; Gowin Semiconductor, a Guangzhou-based chip designer; and Beijing Zhongguancun Development Investment Center, a government-led venture capital firm.
Shares of Xiaomi in Hong Kong dropped more than 11% on Friday morning.
Xiaomi said in a statement Friday that it had confirmed that it is “not owned, controlled, or affiliated with the Chinese military,” and that the company’s products are all for “civilian and commercial use.”
A Xiaomi representative did not immediately respond to a request for comment.
US investors will be prohibited from buying Xiaomi shares and will have to divest their holdings by November, according to the executive order.

Context: Xiaomi shares reached a historical high of HKD 35.3 (around $4.6) on Jan. 5, driven by strong sales and a weakened Huawei. Market research firm Trendforce expects Xiaomi will be ranked the world’s third-largest smartphone vendor in 2021 while Huawei, which ranked third in last year, will fall to seventh this year.

The Trump administration reportedly considered adding other Chinese tech giants including Alibaba, Tencent, and Baidu into the investment blacklist. All three companies are listed on US stock markets.
On Wednesday, the Wall Street Journal reported that the US had decided to not to add them to the blacklist.

Update: This article has been updated to include a statement from Xiaomi and to correct a typographic error.

Mining rigmaker MicroBT is planning a US IPO: report

Eliza Gkritsi — Wed, 13 Jan 2021 06:38:39 +0000

One of China’s largest and newest manufacturers of cryptocurrency mining equipment, MicroBT, is readying a US public offering, according to Chinese media reports.

Why it matters: Business is booming for cryptocurrency mining rig makers, as Bitcoin prices have reached historic highs over the last two months.

MicroBT would be one of three major Chinese cryptocurrency mining rig makers to go public, along with Ebang and Canaan Creative.

Details: The company is “preparing” to list in the US, Chinese crypto blogger Colin Wu (in Chinese) reported on Wednesday, but he did not specify a timeline for the offering.

MicroBT is looking to do another round of fundraising prior to the listing to buy more chips from Samsung so it can churn out more product, according to Wu.
The Bitcoin network’s mining capacity has lagged the currency’s rising prices. Mining rig makers are struggling to keep up with demand, and their orders are fully booked for months.
Wu estimated that MicroBT’s 2021 revenue would reach $1 billion.
MicroBT did not respond to TechNode’s request for comment on Wednesday.

Context: MicroBT is a relative newcomer in crypto mining manufacturing. It was only founded in 2016, about three years after most of its Chinese peers.

The company quickly acquired market share with its Whatsminer series, in part because Bitmain, China’s largest player, was entangled in internal turmoil.
In September, it set up its first overseas factory to better serve growing demand from non-Chinese clients.

Read more: Is crypto mining really moving to North America?

The rig maker was considering an initial public offering in 2019, according to Bloomberg. A legal dispute with Bitmain reportedly put the plan on hold. MicroBT’s founder Yang Zuoxing was Bitmain’s director of chip design. When he founded his own company, Bitmain accused him of stealing intellectual property.
Yang was arrested in December 2019 and released on January 2020 on bail.

NYSE changes course again, to delist three Chinese telcos

Wei Sheng — Thu, 07 Jan 2021 04:39:30 +0000

The New York Stock Exchange said Wednesday it will stick to the original plan to delist three Chinese state-owned telecommunications companies after an earlier reversal of the decision that caused much confusion.

Details: Trading in the securities of China Mobile, China Telecom, and China Unicom Hong Kong on the NYSE will be suspended at 4 p.m. on Jan. 11 local time, the bourse said in a statement Wednesday.

The NYSE said the decision was based on new guidance received from the US Department of Treasury’s Office of Foreign Assets Control on Tuesday.
The three Chinese companies have a right to a review of the decision, the NYSE said.

Context: The second twist of the plot came a day after the US Treasury Secretary Steve Mnuchin reportedly disagreed with the NYSE’s earlier reversal.

The bourse on Dec. 31 said it would delist the three Chinese companies on Jan. 7, citing an executive order signed by US President Donald Trump which bans American investment in companies deemed to be owned or controlled by the Chinese military, including the three telcos.
On Monday, the NYSE said it would not delist the three firms after “consultation with relevant regulatory authorities.”

NYSE backs off delisting of Chinese telecom firms

Wei Sheng — Tue, 05 Jan 2021 05:37:56 +0000

The New York Stock Exchange said on Monday it will not delist China’s three major telecommunication companies, an abrupt reversal of a decision made last week which sank the firms’ share prices.

Details: The NYSE said in a statement on Monday that it “no longer intends to move forward with the delisting action” involving China Telecom, China Mobile, and China Unicom Hong Kong after “consultation with relevant regulatory authorities.”

The bourse said Thursday it would delist the three Chinese state-owned firms on Jan. 7, citing an executive order signed by US President Donald Trump in November. The order bans transactions in securities “designed to provide investment exposure to such securities, of any Communist Chinese military company” by any person in the US. The order included 31 entities that were deemed to be such companies, including the three telecommunication firms.

READ MORE: China telecom shares drop in Hong Kong on US delisting

“At this time, the Issuers will continue to be listed and traded on the NYSE. NYSE Regulation will continue to evaluate the applicability of Executive Order 13959 to these Issuers and their continued listing status,” the exchange said on Monday.
Shares of the three companies rallied on the news of the reversal. Hong Kong-listed shares of China Mobile surged 5.5% while China Telecom was up 5.7% and China Unicom jumped 6.7% on Tuesday morning.

China telecom shares drop in Hong Kong on US delisting

Wei Sheng — Mon, 04 Jan 2021 09:27:41 +0000

Share prices in Hong Kong for China’s three major telecommunication companies dropped as much as 5% Monday on news of a likely delisting from US stock markets. The telecom firms are among a batch of Chinese companies the US government has deemed to be affiliated with the Chinese military.

Why it matters: Shares of the three state-owned telcos dropped even as Chinese regulators tried to downplay the impact of the New York Stock Exchange’s (NYSE) decision to delist them. China’s top securities regulator has said the plan was “politically motivated” and that it will have a “limited impact” on the three companies.

Details: The NYSE said Thursday it would delist China Mobile, China Telecom, and China Unicom Hong Kong on Jan. 7, citing an executive order signed by US President Donald Trump in November.

On Monday, shares of China Telecom fell 5.6% in Hong Kong. China Mobile and China Unicom saw their shares drop 4.5% and 3.4%, respectively.
The order bans transactions in securities “designed to provide investment exposure to such securities, of any Communist Chinese military company” by any person in the US. The order included 31 entities that were deemed to be such companies, including the three telcos.
The NYSE said it had decided that the companies were “no longer suitable for listing,” but added that they have the right to request a review of the decision.
All three telecom firms said in statements to their Hong Kong investors that they had not been notified by the NYSE about the delisting decision.

Context: China Mobile went public in 1997 and was one of the first Chinese state-owned companies to go public in the US, followed by China Unicom in 2000, and China Telecom in 2002. All three are also listed on the Hong Kong Stock Exchange.

The three companies earn most of their revenue from providing telecommunication services in China and have little presence in the US.
China Telecom was previously allowed to provide international communications service in the US. In December, the US Federal Communications Commission (FCC) decided to revoke this authorization, citing national security concerns.
The FCC rejected an application from China Mobile to provide services in the US in May 2019.

SaaS is starting to sell Chinese companies on software: GGV’s Joshua Wu

Lillian Li — Wed, 23 Dec 2020 07:48:19 +0000

I’m excited to share a conversation with Joshua Wu of GGV this week. As discussed previously, Chinese software-as-a-service (SaaS) is shaping up to be a big investment trend in China tech. Joshua has a seat at the front lines through his work at B2B-focused venture capital firm GGV, one of the top global VC firms in China, whose partners regularly make the Forbes Midas list. Joshua led or contributed to GGV’s investments in PingCAP, Black Lake, Moka HR, Meicai, Smartmi, WPS, and more.

Opinion

Lillian Li recently returned to China after working at Salesforce Ventures and Eight Roads Ventures in London.

A version of this article originally appeared in Lillian’s longform China tech newsletter, Chinese Characteristics.

We spoke about the range of B2B and SaaS companies in China, key challenges facing Chinese SaaS companies, and its potential to converge with the trajectories of Western SaaS companies, among many other things. Some of the key takeaways include:

The Chinese public sector dominates total spending on software, and its attitudes influence how much can be fully cloud-native and standardized.
Chinese organizations often don’t conceptualize their issues as software problems, which leads to a lack of concrete inbound and outbound sales channels for SaaS sellers.
Horizontal SaaS, or software that is universal rather than customized, is hard in the Chinese market, since there’s so much diversity among enterprise clients. Specialized products have a much higher chance of delighting customers.
But Chinese companies are very willing to change and adopt new software if they see high ROI.

Lillian Li: I’m trying to figure out whether China’s B2B is in an earlier development stage relative to the West, or there are some Chinese-specific characteristics that we need to be mindful of. For example, Western companies also went through a phase of using private cloud, and then upgraded to SaaS once they realized the cost benefits and features upgrade that it provides. Will the same happen in China?

Joshua Wu: The Chinese-specific aspect is that the Chinese public sector dominates total spending on software, and that influences how much can be fully cloud-native and standardized.

For the private sector, industries like tech, real estate, and retail are standardized in their processes. Their concerns are partly development stage-based but also partly Chinese specific. For example, their concern with public cloud and SaaS isn’t against the model itself, but whether it provides value. Either that’s because their data hasn’t been fully digitalized, or they are using labor to solve these pain points today.

These companies’ need for organizational efficiency and collaboration also hasn’t reached a stage for software yet. These capabilities are not must-haves for them today; they don’t feel like everything should be collaboration first, digital, or on a platform. But I think this mindset will change soon.

The second barrier for the private sector’s adoption path is a price ceiling for SaaS. For an enterprise buyer, RMB 100,000 (around $15,000) per year is the upper price limit they are willing to consider. A typical white-collar worker’s annual salary is RMB 100,000 per year. It only makes sense to them if you’re pricing on a basis that’s lower than RMB 100,000 per year.

The third aspect is related to the customer’s trust in the privacy of public cloud, which is a matter of time. It’s not a significant matter for the private sector, so I’m not too worried about this.

LL: Do you think B2B companies will develop and follow the same paths as Western companies?

JW: That’s a good question, and I don’t know the answer. A pure SaaS model (which uses public cloud and recurring revenue) will never dominate in China. Hybrid clouds are huge in China, partly enabled by the government. In the rest of the world, the public cloud is eating the world. In China, the cloud is eating the world. There’s a difference.

LL: What are the differences between Chinese SaaS and Western SaaS companies?

JW: This starts with terminology. In China we talk about “enterprise services,” or “to business” (2B), which includes many sectors that are not included in SaaS in the West.

The first sub-category is B2B platforms, such as Manbang for logistics, Meicai for grocery supply chain, Baibu—in which I invested alongside GGV partner Eric Xu—for clothing supply logistics. These offerings could be called B2B marketplaces, but they also facilitate transactions on the platforms with tools. For example, an artificial intelligence (AI) image search which enables better matching for textiles. So it’s not quite SaaS, but the tools allow the seller to have more transactions. So this is a substantial sub-category in what we call enterprise services.

Another sub-category is called the industrial internet, which is a vertical sector solution. They aren’t exactly SaaS, but they are B2B and they focus on servicing the needs of a sector with a variety of hands-on help if needed.

For pure SaaS models, there’s a fair amount of infrastructure tech and middleware technology. We invested in a company called PingCAP, which is an open source database. In the SaaS category, there are the typical horizontal SaaS offerings, such as customer relationship management (CRM), human capital management (HCM), and applicants tracking system (ATS) such as our investment in Moka HR.

The last category is vertical SaaS, which is not completely standardized software. These companies try to charge recurring fees, and use their software as the wedge into an industry. The lack of standardization increases as the customer base moves from small and medium businesses (SMBs) to large enterprises.

These enterprise customers tend to be very particular. They prefer licenses over recurring payment. They also want hands-on support from on-premise implementation all the way to configuration. While these enterprises have large budgets, it’s difficult for startups to serve them economically. As a result, pure SaaS companies are scarce in China right now.

“There’s no concrete way to reach customers from a sales channel perspective. “

LL: What do you think are the biggest challenges facing B2B companies right now?

JW: The biggest challenge is the lack of suitable sales channels for SaaS, as customers aren’t coming in through inbound marketing. If an organization is having issues tracking candidates from different channels in a recruitment process, they wouldn’t know to search for an Applicant Tracking System (ATS) on Baidu. They don’t think this is a software issue. Tech companies are the only customers who conceptualize problems this way, and they are a minority. There’s no concrete way to reach customers from a sales channel perspective.

Most target customers don’t know the use of software products, and also have unrealistic expectations. When you’re deploying a product in a company, you’re also deploying a new management process. These new processes will solve the same issues but will do so with different approaches, they wouldn’t give the customer exactly what they want.

Similar to B2C examples like Apple, if you ask consumers what they wanted, you wouldn’t be able to get a breakthrough product from their response. The same principle applies to B2B products: you can’t give the customer exactly what they want. Navigating this well is down to sales capabilities. The sales, solution, and customer success team needs to find a balance between current customer needs and the future. Bridging this gap is very difficult for most, but easier for vertical SaaS, which is why they’ve been successful.

LL: Do you think Chinese companies are resistant to change?

JW: Chinese companies are happy to change if they see the value of changing. This is especially true for the pragmatic private sector. If they see high ROI, then they’ll do it. Even in public sector organizations, there’s a relatively quick turnover of the central decision-makers. They change about every two to three years. When a new decision-maker comes on board, it’s normal for them to adopt a new system. Reality is also forcing them, since the legacy tech in these organizations can’t fulfill their current needs.

The critical issue is the right value proposition. If you have a general product, the addressable market is more prominent. But this is going to be a shallower product which doesn’t solve the customers’ issues. If you make a specialized product, that’s a smaller target market but more likely to have an impact on the customer.

LL: So it sounds like you prefer to invest in a software that solves a specialized problem as a general starting niche to tackle the enterprise?

“Horizontal SaaS is hard for the Chinese market, since there’s so much diversity among enterprise clients.”

JW: Yes, I think it’s a good zero-to-one process that’s suitable for today’s Chinese market. If you look at the customer relationship management market, Fengxiang and Xiaoshuoyi are not bad, per se, but they should be doing much better given that category.

Horizontal SaaS is hard for the Chinese market, since there’s so much diversity among enterprise clients. It’s hard to make something that pleases everyone. Specialized products have a much higher chance of delighting customers.

LL: Do you think the Chinese SaaS founders realize this?

JW: Yes, there is a growing realization. It might not be explicit, but they are finding out through experimentation. They get a sense that they need to find their niche, find the right product-market fit, and then get investment from VCs like us. So it’s a space that’s influenced by both market needs and investors.

Though everyone’s endowment is different, some people might have a background in serving big enterprises. If they came from Microsoft or IBM, they are naturally apt at this. We also have the example of Palantir in the US, whose customers are predominantly government.

LL: Out of market, team, and product, which aspect do you give the most weight to when you invest?

JW: That would be the product, since that’s reflective of the capabilities of the team as a whole. They can pivot to find the market, but they have to have sound business logic behind it all. If a team is good at making a product, then I can assume that you have good organizational structure and collaboration style. These capabilities can be leveraged for any market and any product.

LL: What area of investment interests you currently?

JW: Similar to [investors in] the US, I’m interested in next generation cloud native infrastructure. I think these will have a lot of room in China. Their architecture structure is very on par with the US, since these infrastructures tech is technology-neutral. Apart from that, I’m interested in industrial internet enabled by AI.

LL: What’s your advice to Chinese SaaS entrepreneurs?

JW: I think this is a great time to start a business in this category. Focus on the product and deliver value. Look at what the US is doing and read up on SaaS metrics too. A lot of CEOs are good at making a product, but don’t have the best practice benchmarks for a company as it scales. They should study this aspect, and there’s a lot of public companies in the US for them to learn from.

SMIC to join Huawei on US blacklist: report

Wei Sheng — Fri, 18 Dec 2020 07:25:39 +0000

The US is planning to add dozens of Chinese companies, including the country’s biggest chipmaker, SMIC, to the same trade blacklist that has cut off telecommunications equipment giant Huawei from American technology and components, Reuters reported Friday.

Details: The US is expected to add around 80 new companies to the so-called entity list, nearly all of them Chinese, according to Reuters, citing two people familiar with the matter. American firms are barred from exporting technology and key components to companies on the blacklist without government approval.

China’s biggest chip manufacturer, Shanghai-based Semiconductors Manufacturing International Corp., and some of its affiliates are expected to be included in the entity list designation, it said.
The blacklisting would force SMIC to seek a special license from the US Commerce Department before buying key goods from American suppliers.
Such restrictions could potentially curb SMIC’s ability to source US-made chip-designing software, raw material, and machinery needed for the company’s semiconductor production.

Go deeper: Exclusive-U.S. to blacklist dozens of Chinese firms including SMIC, sources say – Reuters

Luckin agrees to $180 million fine for US fraud

Emma Lee — Fri, 18 Dec 2020 07:11:41 +0000

Troubled Chinese beverage chain Luckin Coffee has agreed to pay a $180 million penalty to settle accounting fraud charges brought by the US market regulator.

The US Securities and Exchange Commission (SEC) said on Wednesday it levied the penalty against Luckin for defrauding investors. The company “intentionally fabricated” more than $300 million in retail sales from April 2019 to January 2020 by using related parties to create false sales transactions through three separate purchasing schemes, according to the statement.

“Luckin employees attempted to conceal the fraud by inflating the company’s expenses by more than $190 million, creating a fake operations database, and altering accounting and bank records to reflect the false sales,” the SEC said.

The SEC penalty followed four months after the Chinese market regulator imposed a RMB 61 million ($9 million) fine on Luckin and a group of affiliated companies for creating unfair competition by engaging in sales fraud.

Shares of the company, still available on the OTC market after delisting in July, surged 96% to close at $7.35 on Thursday, well below its historic peak of $50 per share reached in January when it was listed on the Nasdaq.

Some view the surge as a sign that traders expect a turnaround for the disgraced coffee chain. The company may be readying for a “better version of its former self” after business restructuring and fines, according to Luke Lango, analyst at InvestorPlace research firm.

Luckin’s credibility, however, has been badly damaged. Industry watchers hold Luckin up as an example of the deception possible when US investors trade shares of foreign companies where due diligence is difficult. Further, the accounting fraud has helped position Chinese tech companies in the crosshairs of regulators and short sellers.

Luckin Coffee will have paid a combined $190 million for its fabricated sales scandal to domestic and US regulators. The company will also be held accountable for charges from China’s Ministry of Finance, which overseas violations of China’s Accounting Law, stock investors, and owners of its convertible bonds.

The company claimed it had $780 million cash or cash equivalents on its balance sheet as of late June.

How Huawei hooked Greek telcos

Eliza Gkritsi — Wed, 09 Dec 2020 02:32:02 +0000

Based on ten interviews with industry insiders and regulators, TechNode tells the story of how Huawei established itself in the Greek market—and how the tables have turned for the Chinese telco giant. This is the first part of a three-part series.

In 2011, the Greek government was just embarking on what would turn out to be a years-long journey of bankruptcy avoidance with a cost of harsh austerity. Social welfare cuts, increased taxes and drastic public sector reforms sent unemployment and inflation soaring—and Greeks took to the streets en masse.

Thousands of people were being laid off. Many businesses didn’t know if they would make it to the end of the year. The Greek government was so cash-strapped that it had to be bailed out by international credit institutions.

During this chaos, a small telco operator decided to upgrade its network (in Greek) to 4G. Wind Hellas wanted to spend three years rebuilding infrastructure that previously took 18 years to complete.

Wind Hellas had a secret weapon: a relatively unknown Chinese company called Huawei. While the country was in deep trouble, Huawei helped Wind Hellas build a brand-new network.

Wind Hellas’s headquarters in Athens, less than two kilometers away from Huawei’s office. (Image credit: TechNode/Eliza Gkritsi)

By 2014, the pair had built a 4G network that they claimed was the country’s fastest.

Today, Wind Hellas is Greece’s only surviving network operator that isn’t affiliated with a European telco conglomerate, and its relationship with Huawei runs so deep that its experience of other vendors is virtually non-existent.

“We cannot compare with other suppliers, but from what we know, [Huawei’s] performance is on par with them,” Nikos Panopoulos, chief network and supply chain manager at Wind Hellas told TechNode.

Huawei has been building relationships with Greek telcos for 15 years. When capital controls were implemented in the recession-struck country, it was Huawei’s time to shine. (Image credit: TechNode/Eliza Gkritsi)

The telco wars

To China, Huawei is a national champion, proof that the Chinese model can birth global tech leaders. To the US, it is a Trojan horse, Chinese interests and state capitalism masquerading as a run-of-the-mill tech firm.

But to Greece’s three telco operators, including Wind Hellas, Huawei—or “Hua,” as Greek telecoms professionals call it—has been a reliable partner for 10 years. It is a trusted supplier with a proven track record.

Huawei equipment is everywhere in Greece. Although it has not been used in Greece’s core network, Huawei equipment makes up more than half of Greece’s 4G radio access network (RAN), the grid of cell towers that speak directly to cellphones. Wind Hellas built its RAN system almost entirely with Huawei equipment.

RAN is the infrastructure that connects the end-user with the core network. If you’re sending an email, the first thing your phone does is to connect to the network using RAN. The EU considers RAN “highly sensitive” but not “critical” to network security.

It’s not just telecoms. The warehouses of IT providers in the country are full of Huawei products, ready to be integrated into server centers around the country. The Shenzhen-based company is so deeply entrenched in the systems of a US ally that it is all but impossible to imagine the country rejecting it.

With its most important military ally on one side and a vital trading partner on the other, Greece faces a dilemma that’s become common in 2020.

We’re going to spend the next few weeks exploring what the fight over Huawei looks like when you’re caught in the middle, using Greece as our case study. Greece’s story is unique (as we’ll see next week, it includes the suspicious death of a Vodafone employee possibly involving a US security agency), but it exemplifies the conflicts US allies face as Washington tries to drop a Silicon Curtain.

For the past two years, US diplomats around the world have implored allies not to use Huawei gear in their 5G networks. The company is “an arm of the Chinese Communist Party’s surveillance state,” said US Secretary of State Mike Pompeo in an official press release. He has called on countries to form a coalition and “push back” against China.

Some of the US’s closest allies have decided to exclude Huawei from 5G buildouts: Australia, New Zealand, Sweden, the UK, and, reportedly, France. The rest of Europe has so far resisted singling out Huawei for a complete ban.

Even three countries that signed 5G security agreements early on with the US—Estonia, Poland, and Romania—are trying to find ways to increase security without singling out Huawei.

Many European countries are still undecided: Austria, Finland, Luxembourg, the Netherlands, Norway, Portugal, and Spain. Some, like Switzerland and Hungary, have committed to buy from Huawei.

European countries are making moves to exclude Huawei from their 5G networks. (Image credit: TechNode/Wei Sheng)

Huawei’s journey to the west

In the early 2000s, Ericsson and Nokia were the world’s biggest telecoms vendors, and China was still considered a developing country by the World Trade Organization. From 2000-2005, only about one in five people in China had either a mobile phone or a landline, according to data from the International Telecommunication Union.

Huawei was a budget alternative at best. It started to explore business in Africa in 1998 and set off on its international expansion around 2000, Antonia Petrovits, a spokesperson for Huawei Greece, told TechNode.

Telecoms equipment manufacturer Cisco was the first US entity to take aim at Huawei in 2003, alleging that the then-upstart had infringed on five Cisco patents. But Washington had yet to come up with an aggressive and comprehensive policy centered around a national security argument, which is what we see today.

Low key

Huawei’s office in Athens is hard to find, but is located a stone’s throw away from the headquarters of Greece’s three telcos. (Image credit: TechNode/Eliza Gkritsi)

Huawei’s Athens office doesn’t have a big sign. The company doesn’t even list the address on their website. Unless you are invited, the only way to find out where they are is by accident (as TechNode did).

It’s a far cry from Huawei’s grandiose Shenzhen headquarters. A simple four-floor building houses a women’s health clinic, and the national headquarters of Huawei and Media Markt, a nationwide electronics retailer.

But its strategic location more than makes up for its modest appearance. It is a stone’s throw away from the headquarters of Greece’s telco providers.

The Chinese telco giant approached Europe via the Middle East, Paul Scanlan, head of Huawei’s Carrier Group, told TechNode. They wanted to build a good brand and understand the region better before dealing with more “mature customers,” he said.

When Huawei opened its offices in Athens in 2005, it was a China-focused company with a few branches in developing countries. The same year it inaugurated its offices in Greece, it opened an office in Kenya.

Greece appeals to Chinese companies as a “landing point” for Europe. As a member of the European Union, it follows EU rules and is an entry point into Europe’s southern and eastern blocs, Andreas Polycarpou, who worked in Athens as an executive consultant for strategy and innovation at ZTE for six years, told TechNode.

Good products, great service

At first, Huawei undercut competition with lower prices and aggressive marketing tactics. One person with direct knowledge of the procurement process said Huawei would directly compare technical specifications and pricing with competitors’ at sales meetings.

The company’s ownership structure allowed it to keep prices low while charging into new markets, like Greece. As a privately owned company, it can afford to be patient about turning profits.

“If their prices are lower, it’s not necessarily because they’re being heavily subsidized by the Chinese government. It’s because they don’t have to answer on their margins for shareholders,” Paul Triolo, practice head of geotechnology at advisory firm Eurasia Group, told TechNode.

Greek telcos OTE and Wind Hellas first bought Huawei equipment eight years ago, OTE’s Director of Strategic Planning Pavlos Vihos and Wind Hellas’s Head of Communications George Tsaprounis told TechNode in separate interviews.

Over time, Huawei’s products got better and its prices increased. But their relationships with local telcos had been established, and their equipment earned a reputation as reliable.

Industry insiders in Greece said Huawei’s equipment is excellent. Some even said that it is superior to Nokia and Ericsson equivalents, Huawei’s only real competitors.

But Huawei’s success in the Greek market goes beyond technicalities. It is largely attributable to a knack for localizing to the market and providing technical support. “Localization has always been our strategy,” Petrovits said, adding that the company “combines the best of the Chinese and international approach.”

At first, “communication was very difficult,” but Huawei developed a very good team of Greek employees and, over time, they managed to make the partnership work, Wind Hellas’s Panopoulos said.

Today, out of Huawei’s 120 employees in Greece, 70% are locals, Kostas Vasiliiou, wireless solution sales manager at Huawei Greece, told TechNode. Half of the 120 are technical staff, he said.

Huawei earned its place in Europe by delivering what was most important to the Greek market: world-class equipment at irresistible prices, and support throughout the products’ life cycle.

The Huawei secret sauce

Huawei’s commitment to localization allowed it to distinguish itself from other low-cost suppliers. As fellow Shenzhen equipment maker ZTE learned the hard way, this was key to winning over new markets like Greece.

ZTE entered the market in 2002 with a big sale of ADSL equipment—a type of broadband—to network provider OTE, Polycarpou said.

But ZTE never managed to form relationships with Greek telcos the way Huawei did. Huawei was able to convince Greek telcos that it would provide dedicated support. ZTE wasn’t.

“When you buy telecoms equipment, you don’t buy it for a year. You buy it for decades. You need to convince the buyer that you will be there to support them,” Polycarpou said.

Huawei had a technical service team tailored to the market from the moment it set foot in Greece. While ZTE improved its localization efforts from 2011 to 2017 and gained some market share, Huawei quickly rolled out new products to counter ZTE’s success.

ZTE’s technical staff currently numbers two people. They can’t compete with Huawei’s “army” of 60 technical service specialists.

“When they [Huawei] installed the IMS systems [IP Multimedia Core Network Subsystem], they brought armies of engineers with them,” Andreas Rigas, Senior Manager of strategy and development at OTE, told TechNode.

ZTE also did not navigate the local business landscape well, sometimes trying to sell products by talking to the wrong people, Polycarpou said.

“When the manager changes, he doesn’t listen to the locals’ advice. He wants to go meet a minister. But in Greece, the minister has nothing to do with sales of telco equipment,” he said.

ZTE never gained traction in Greece. Today, Huawei is cozily nestled in the country’s RAN system, while ZTE mainly sells peripheral network products, such as routers.

Seizing the moment

When the financial crisis spiraled into strict capital controls in 2015, the stars aligned for Huawei. Domestic politics, monetary controls, and other vendors’ finances came together for Huawei to embed itself deeper in Greece’s networks.

Since 2010, the Greek government had been agreeing to difficult austerity measures in exchange for bailouts from international creditors, chiefly the European Central Bank and International Monetary Fund. Foreign direct investment, including from US companies, dried up.

Washington itself sat out the Greek crisis, leaving the fate of its close ally to the hands of its creditors—other than the occasional diplomatic assurance.

Frustrated by austerity and “capitulating” governments, in 2015, the Greek people elected a “radical left” government which promised to stand up to its European creditors.

Shortly after the election, a dramatic sequence of events led to the implementation of capital controls to avoid a run on the banks and the catastrophic collapse of the financial system.

Transfers of money overseas were banned, unless with explicit permission from financial authorities. Cash withdrawals were limited to €60 per day. Greeks spent their summer of 2015 waiting in long ATM lines around the country.

Huawei seized the moment.

When capital controls were introduced, European and US companies stopped most shipments to Greece. Many would only sell if they were paid in advance. With public and private debt reaching unprecedented levels in Greece, advance payments were basically impossible.

Chinese companies like Huawei and ZTE had more cash on hand, and a willingness to bet on the Greek economy—or the country’s geopolitical position. They turned a blind eye to the capital controls by offering generous terms.

These companies let Greek buyers have equipment on credit, accepting deferred payments of up to 15 months.

Such agreements were commonplace during the crisis across industries, an unspoken secret in Greek business. In the case of telco equipment, they boosted the Chinese vendors’ position in Greece’s systems.

The Greek government could barely pay its healthcare suppliers. But Huawei and ZTE’s support allowed Greek telcos to continue investing in their networks.

(Image credit: TechNode/Eliza Gkritsi)

While Greek telcos were basically unable to buy from Western suppliers, their customers enjoyed substantial improvements in service

Between 2015 and 2018, the last year for which the EU Commission has released relevant data, one-third of Greek households gained access to very high-speed digital subscriber lines (VDSL). In the same time period, coverage of Long Term Network Evolution networks (LTE) increased by 20 percentage points. LTE is the technology that supports 4G connectivity.

In the context of the crisis, these facts are astounding. As Huawei equipment was being used to build up capacity during the capital controls era, about 22% of people in Greece were unemployed, 35% of the population was at risk of poverty and annual GDP growth averaged a meager 0.7%.

Huawei was pivotal in achieving these gains in connectivity. It is unlikely that telcos would have updated their networks so drastically in the midst of a financial crisis without an equipment vendor that was willing to make concessions in payment schedules—Huawei.

The Greek sector took note: when Western firms fled, the Chinese stayed. They “stood by the market,” an industry insider said.

As Huawei ties with Greek telcos were growing tighter, Washington damaged its credibility when it was caught red-handed spying on Greek telecoms networks.

By 2018, when the US began lobbying long-standing allies around the world about the security risks of Huawei products, Huawei equipment was thoroughly embedded in Greek networks. Meanwhile, European leaders in Brussels were finally waking up to the importance of telecoms security.

But in more than a decade in the market, Huawei had already made good friends in Greece. When the Huawei debate started, Greek decision makers had years of experience—and trust—with the company.

Part II of this series will explore how the US campaign against Huawei—and its own espionage activities—have affected EU policy.

Judge blocks Tiktok ban, Trump’s China tech legacy: Techwar roundup

Wei Sheng — Tue, 08 Dec 2020 06:46:53 +0000

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.

US blacklists China’s top chipmaker SMIC: report

Wei Sheng — Fri, 04 Dec 2020 06:04:09 +0000

Donald Trump’s administration on Thursday added China’s biggest chipmaker, SMIC, to a blacklist that could cut it off from American investment in the US president’s last days in the White House, Reuters reported.

Details: The Trump administration on Thursday added Shanghai-based Semiconductor Manufacturing International Corp. (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, according to Reuters.

The list, mandated by a 1999 law requiring the US Department of Defense to compile a catalog of firms “owned or controlled” by the People’s Liberation Army, did not trigger any penalties. However, a recent executive order issued by President Trump will bar US investors from buying shares of the blacklisted firms starting late next year, said the Reuters report.
SMIC is listed in both Hong Kong and Shanghai, while CNOOC has a unit that is listed in Hong Kong. SMIC shares declined by more than 2% on Friday morning before trading for the company’s Hong Kong-listed shares was suspended.
SMIC said in a stock market statement that it was assessing the impact of its addition to the list and said investors should be aware of the investment risks, according to Reuters.

Police seize $4 billion, US worried about China’s crypto lead: Blockheads

Eliza Gkritsi — Tue, 01 Dec 2020 08:04:00 +0000

Authorities in Jiangsu province seized $4 billion in cryptocurrencies in a Ponzi scheme bust, court filings showed. The US spy chief alerts regulators about China’s crypto dominance. Outflows from Okex reached $482 million in Bitcoin after it resumed withdrawals. Crypto mining rig maker Canaan reported a 400% surge in losses.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Nov. 24-Dec. 1.

The $4 billion bust

Authorities in Jiangsu province seized more than $4 billion in cryptocurrency in a crackdown on Plustoken, a Ponzi scheme.

According to a court filing dated Nov. 19 first and reported on Friday, authorities in Jiangsu seized 194,775 bitcoins; 833,083 Ether; 487 million Ripple; 79,581 Bitcoin Cash; 1.4 million Litecoin; 27.6 million EOS; 74,167 Dash; 6 billion Dogecoin; and 213,724 of the stablecoin Tether.

More than 2 million people were swindled out of RMB 50 billion ($7.59 billion) from the Plustoken scheme during its two years of operation.

A total of 15 people have been convicted so far in relation to the scheme, the court filing said, with fines ranging from $100,000 to $1 million and prison sentences from two to 15 years.

One of the members also laundered RMB 145 million, most of which was spent by the Plustoken team and their families on expensive cars, real estate, and insurance packages in Hong Kong, the filing said.

In total, 109 of Plustoken’s core members have been arrested, according to local media reports (in Chinese). Some had initially fled to the Pacific island nation of Vanuatu, where the scheme was allegedly active.

The latest court filing said the Ponzi scheme started in May 2018 by promoting a fake cryptocurrency trading platform. Investigations into its operators began in 2019.

The first ruling on the case came on Sept. 22 by a low-level district court in the city of Yancheng in Jiangsu. The latest ruling rejected appeals and is final. (The Block)

US crypto concerns

The Trump administration’s Director of National Intelligence, John Ratcliffe, sent a letter to the chairman of the US Securities and Exchange Commission, Jay Clayton, earlier this month, warning of China’s influence over digital currency technology, the Washington Examiner reported.

Ratcliffe said that China holds significant power over cryptocurrencies because it has the world’s biggest mining capacity, the computational process by which new cryptocurrencies are minted. He also warned that the US has been left behind in the race to a central bank digital currency as China is already piloting its own.

Ratcliffe proposed to have a team of “senior economic intelligence officials” brief Clayton, the report said.

Okex outflows

Cryptocurrency exchange Okex saw 24,631 Bitcoin ($482 million in Tuesday’s prices) leave its platform when it resumed withdrawals on Nov. 26 after pausing for nearly six weeks, Coindesk reported using data from crypto intelligence site Cryptoquant.

This is the largest outflow the exchange has seen since March, when Bitcoin markets were in free fall.

Okex halted withdrawals suddenly on Oct. 16 when one of the exchange’s key holders became “out of touch” because he were assisting with a government investigation.

The exchange’s founder was released by authorities on Nov. 20 after being held by authorities for weeks while he was cooperating with an investigation. It is unclear whether he was the key holder who was missing.

READ MORE: Okex founder is back, second digital yuan lottery: Blockheads

Canaan reports losses, again

Crypto mining rig maker Canaan’s losses widened by 400% to $12.7 million quarter on quarter in the three months ending September 30, 2020, its earnings report said. The disappointing results are made even more bleak by the fact that Bitcoin prices have risen by 30% in the same time period, and Canaan has reduced its product prices by almost 69%.

READ MORE: Rig maker Canaan misses Bitcoin surge, losses top $12 million

The TV blockchain

China’s National Television and Radio Authority released a white paper in collaboration with privacy-focused blockchain company Arpa to outline the potential applications of blockchain in media.

The white paper aims to”introduce the traceability, authenticity, and security of blockchain in radio, television, and other media,” Arpa said in an announcement. (Arpa on Medium)

The traceability project

Vechain, a Chinese blockchain company that works closely with government officials, released insights on its food traceability program with Walmart. It said that it expects the government to soon release a food traceability system to build trust after the Covid-19 pandemic.

The company rolled out a blockchain-based food traceability platform at Walmart China in June 2019. Consumers can scan QR codes on products to find out information about them. The data are compiled from different parts of the supply chain, and are stored on an enterprise blockchain.

The platform has been updated seven times, Vechain said, to connect with local government bureaus.

Videos to watch

TechNode hosted an online panel to discuss the global expansion of the BSN with three experts from Shanghai, Singapore, and Hong Kong .
An “old lady” talks about decentralized finance eloquently while she is promoting an allegedly fraudulent project.

PlusToken, the world's largest crypto fraud case, ended in China. Another real and very funny video is popular on the Chinese Internet these days. An old lady from country is promoting a defi crypto fraud project(Pangu) to her friends, which means the god who created the world. pic.twitter.com/7cXlA9Iz22
— Wu Blockchain（Chinese Crypto Reporter） (@WuBlockchain) November 28, 2020

How a Chinese food delivery app is gambling on nostalgia

Yuebai Liu — Fri, 27 Nov 2020 07:03:26 +0000

It’s a rainy Sunday evening in London. I pull out my phone and look for regional Chinese cuisine on food delivery apps. Disappointment quickly hits.

Browsing London food delivery platforms like Just Eat, Uber Eats, and Deliveroo, I only find typical British-Chinese sweet and sour dishes, as well as dim sum. Not exactly the regional cuisine I’m looking for.

London is far behind New York or San Francisco when it comes to authentic regional dishes from China. While the UK capital has a Chinatown and plenty of Chinese restaurants, it’s often difficult to find menus that don’t specialize in Cantonese dim sum and an anglicized version of Cantonese food dishes geared towards a sweeter and less spicy taste.

Opinion

Yuebai Liu is a London-based ethnographer working at the intersection of technology, culture, and policy.

Frustrated by the lack of better options, I open Hungry Panda, a Chinese food and grocery delivery app only available in Chinese. Founded in 2016 by Nottingham University graduate Liu Kelu, the service targets overseas Chinese students and communities. Its social media campaigns are aimed at young homesick Chinese.

I came across Hungry Panda at Seveni, a hotpot and charcoal BBQ eatery in South London popular among Chinese students. Restaurant staff were handing takeaways to young men in blue uniforms with a panda logo and “Hungry Panda” on their bags. The company quickly piqued my interest.

I’m not a fluent Mandarin reader, so, with the help of Google Translate, I opt for a restaurant with food from China’s southwestern Sichuan province—famous for its delicious, spicy cuisine—and another specializing in hearty meals from Northeastern China.

The regional combination is odd: Liaoning province in China’s northeast is more than 2,500 kilometers from Sichuan. It’s also going to take over 90 minutes to deliver my meal. Ordering isn’t easy for non-Chinese speakers, as it requires basic Mandarin. Only a handful of restaurants have added English translations to parts of their menus. The platform and most of its content is in Chinese.

But I won’t complain if I’m able to have some real barbecue skewers (chuar), a spicy numbing stir fry pot (malaxiangguo) from Sichuan, and a tasty mix of stir fried potato, aubergine and peppers (disanxian) from northern China.

Hungry Panda is tapping into a niche by promising to bring authentic ingredients and dishes to its users, but is the app trying too hard to bring the same user experience people are used to in China to overseas markets?

Targeting the homesick

A quick search in the app pulls users into what feels like a hidden world of Chinese food that goes beyond dim sum and fried noodles.

Hungry Panda’s menus feature classics like spicy pickled fish soup (suanlayu), spicy cumin barbecue skewers, and grilled pancakes with egg and chives (jiucaihezi). These are dishes that are usually found in small corners of larger menus and not included on menus on apps like Deliveroo and Uber Eats—restaurateurs just don’t believe their non-Chinese customers are interested.

Hungry Panda’s interface is a near-clone of Eleme, one of China’s biggest food delivery platforms. It’s so similar that I initially thought the Alibaba-owned food delivery giant had started operating in London.

Hungry Panda was actually founded in 2016. Headquartered in London, in February the startup raised $20 million from Felix Capital, a backer of Deliveroo and 83 North, a venture capital firm and early investor in JustEat.

In less than four years, Hungry Panda has expanded its services to more than 30 cities across six countries, all while keeping the app in Mandarin. The size of its user base is not public, but the app has been downloaded more than 100,000 times from the Google Play Store.

In 2019, the company’s direct-to-consumer brand Dada Chinese Supermarket started delivering Asian groceries to its users within two hours of ordering, meeting a demand that was long there. Then, at the beginning of lockdown, the platform started delivering Covid care packages that included health and safety products like N95 masks, hand sanitizer, and traditional Chinese medicine.

“Hundreds and thousands of miles away from home, it’s brave to fight against loneliness” says the voiceover in a Hungry Panda video ad. The commercial shows a man in his 20s thinking about the life he temporarily left behind to study in the UK. “Life abroad, but the stomach belongs to home” continues the voiceover.

But to Xiao Xiao, a Guangzhou native studying engineering at Durham University, Hungry Panda is far from replacing food from home: “There are only a handful of Chinese restaurants that will deliver to where I live and the food is average, but I use it during Chinese festivities or when I’m alone watching Chinese shows,” she told me.

Users can’t access the same variety of restaurants they would at home because Hungry Panda’s focus on a niche market means less demand—and therefore less supply, which is required to create enough density for on-demand deliveries to become viable.

Too ‘Chinese’?

Hungry Panda’s interface shares many similarities with delivery platforms in China.

Just like apps in China, users receive daily red packets, or hongbao, which can be used for discounts at restaurants that sell food through the app. Food is categorized by the region it comes from in China. The touch and feel of adding dishes to the app’s cart is so similar to Eleme. Memories of ordering Yang’s Dumplings, a popular Shanghai pan-fried soup dumpling chain that only operates in China, hit me when I use Hungry Panda.

Payment is also indistinguishable. Users can use popular Chinese apps Alipay and Wechat Pay to buy their meals. Those that don’t have access to the Chinese payment platforms can also opt for credit and debit card payments.

Ads for special offers pop up when you open the app, along with banners for new restaurants and Chinese festivities. The app now even has a carousel that lands the user on a local Covid-19 stats page in Chinese. There is little space and a lot of content is crammed into the small screen, a design principle common to websites and apps in China.

For those who are not used to Chinese apps, however, Hungry Panda might feel like visual chaos. “It’s convenient for Asian groceries, but the app is confusing. There’s a lot going on—it’s like Taobao. I’m more used to a clean Western interface,” Michelle, a Taiwanese-born Londoner, told me.

There are 400,000 people of Chinese ethnicity in the UK, and many more that are discovering an appetite for authentic regional food and groceries from China. For Michelle, an Eleme or Meituan duplicate may meet that occasional demand, but will it be enough to retain users like her in the long run? Is Hungry Panda aiming for a user experience that is almost too “Chinese,” excluding other potential users?

Challenges ahead

Xiao Xiao is planning to go back home once she completes her degree abroad. She’s not the only one—many have moved back home after classes moved online.

As the Covid-19 pandemic wears on, travel restrictions could mean that a much smaller number of Chinese students can continue their studies abroad this year. As a result, Hungry Panda could find itself stuck in its niche, and there may not be enough homesick students to make the business viable.

“As soon as plane ticket prices went down a little, I packed up and flew back,” Aaron, a second year student at the University of Wisconsin-Madison, told me. He now continues his studies online at his home in Harbin, a city in Heilongjiang, China’s northernmost province.

There is, however, enough of an appetite for regional Chinese food for Hungry Panda to expand its current target market. Authenticity is a big selling point to those that are looking for something different, and as we move into a new tiered system with local lockdowns in the UK, perhaps it’s time for Hungry Panda to make its platform available in English.

UPDATED: Huawei restructures cars business while selling Honor phone brand

Jill Shen — Thu, 26 Nov 2020 08:16:53 +0000

Huawei founder Ren Zhengfei announced on Wednesday a reorganization that granted the head of its consumer business group oversight over its car business operations as the company moves to shore up promising new revenue streams.

Why it matters: Huawei is sharpening its focus to its budding connected car business following US sanctions which have strangled the company’s smartphone unit by clamping down on its access to chipsets.

Huawei’s revenue growth rate declined to 9.9% year on year in the first nine months of the year from 18% in 2019, which the company said “basically met expectations.”
Its global smartphone shipments fell 23% year on year in the third quarter, market research firm Canalys said in a recent report.
Shenzhen-based Huawei last week announced it was selling its budget smartphone brand Honor to a consortium including major partners and the local government, which could make Honor no longer a subject to US sanctions.

Details: Huawei’s Intelligent Automotive Solution business unit was moved under the consumer business managing board, currently led by the group’s CEO Richard Yu, according to an announcement (in Chinese) dated Oct. 26 and posted to its online community on Wednesday.

Yu will also lead the investment decision-making on the company’s intelligent automotive parts-related business in addition to its consumer device unit, Ren said, adding that the company aims to create more synergies between the two.
Ren reaffirmed its strategy in the announcement that it has no intention to build cars, but to become a parts and solution provider for the growing segment of intelligent and connected vehicles.
A Huawei spokesperson told TechNode on Friday that the move does not reflect a change in the company’s focus on smartphones. “It’s a normal business restructuring and has nothing to do with business priority change or US sanctions,” he added.

Context: Huawei in May 2019 placed its auto business unit under its information and communication technology (ICT) infrastructure managing board which mainly oversees its carrier and enterprise businesses and is led by rotating chairman Eric Xu.

The Chinese telecommunications giant has invested heavily in the new potential revenue stream, spending more than $500 million during the first 10 months of this year. The unit had around 4,000 employees as of September, according to a Caixin report (in Chinese).
The auto unit’s operations had been fragmented prior to the restructuring. On one hand, it develops car components and software solutions such as a power management system and charging solutions for electric cars, Caixin reported citing company employees.
Meanwhile, the consumer group offers Hicar, a platform similar to Apple’s Car Play for connecting smart devices to vehicles, and the in-vehicle version of its Harmony operating system is jointly developed by the two teams, the sources said.

This article and its headline were revised Friday to include comment from Huawei.

INSIGHTS | More European countries are turning their backs on Huawei

Eliza Gkritsi — Mon, 16 Nov 2020 06:33:16 +0000

China’s Huawei is falling behind in the race to supply telecommunications equipment for 5G networks in Europe, its largest market outside of its home turf.

As Sweden decided in October to exclude Huawei from its next-generation mobile networks, seven out of 27 European Union member states have made moves to heavily restrict the Shenzhen company’s participation in the buildout of 5G. The list includes heavyweights like France and the UK.

Among countries that have not made decisions on Huawei, six have signed a declaration of intent to keep their networks “clean” of Chinese technology under the US “Clean Network” initiative. Signing the Clean Network initiative does not appear to bind countries to bar Huawei gear.

While regulators are driving the shift against Huawei, telcos are jumping the gun. In another five countries, telco operators have signed contracts to procure 5G equipment from Huawei’s competitors, Nokia and Ericsson, likely anticipating regulation.

(Image credit: TechNode/Wei Sheng)

Experts say that the Shenzhen-based company may eventually face de facto expulsion from Europe’s 5G networks as countries move to make their final decisions.

Huawei supplied around 50% of the equipment for Europe’s 4G networks, according to a 2017 report by the European Trade Union Institute, an EU-backed research center. However, the company now faces a much less welcoming environment for 5G—at least two countries have banned its gear outright, and a dozen others are considering heavy restrictions.

“Chinese vendors will play a minuscule role in parts of Europe’s mobile networks that are considered sensitive or critical,” Jan-Peter Kleinhans, director of the project Geopolitics & Technology at German think tank Stiftung Neue Verantwortung told TechNode.

Kleinhans said that he could imagine a full exclusion of Huawei equipment from Europe’s 5G core networks “in the long run.”

“Since the European Union put the onus on member states to objectively assess risks and adopt mitigating measures to ensure the security of 5G rollouts, most countries have increased their scrutiny of Huawei,” Jan Stryjak, associate director at market research firm Counterpoint, told TechNode. “Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game.”

European countries so far haven’t banned Huawei from all of their 5G core networks, a Huawei spokesperson told TechNode on Friday. “Huawei calls and pushes for the establishment of network security standards, and hopes all vendors to be subject to the same scrutiny.”

The company said its commitment towards the European market is “unchanged.”

The EU toolbox

The first step towards an EU-wide policy on 5G security came in January, when the EU Commission released the so-called EU 5G toolbox: A blueprint for how the 27 member states should evaluate 5G gear provider risks and trustworthiness.

The toolbox requires member states to assess supplier risk profiles on a national or EU level and apply restrictions on those deemed high-risk.

“The EU toolbox recommends a set of key measures that should be taken by all member states and by the Commission. These measures will apply to everybody, without targeting any actor or country in particular,” Marietta Grammenou, a European Commission spokesperson, told TechNode in an email.

The toolbox does not mention Huawei or China by name, but instructs national regulators to consider the “risk of interference by non-EU state or state-backed actors,” echoing US rhetoric.

Some countries have taken a middle-of-the-road approach: They have chosen to raise security requirements for all vendors in a way that amounts to a ban on Huawei without naming it.

The EU toolbox was rolled out after the US government embarked on a campaign to pressure allies into excluding Huawei equipment from their 5G networks, and marked a sharp shift from earlier guidance in EU security directives, where country of origin did not feature prominently as a concern.

Scholars have said that Huawei is owned and controlled by the Chinese state but the company maintains that it is a private company 100% owned by its employees.

The toolbox leaves the decision to ban Huawei up to member states: “While everyone who complies with our rules can access the European market, member states have the right to decide whether to exclude companies from their markets for national security reasons,” Grammenou said.

“Since mobile networks are considered a critical infrastructure with a direct impact on national security, member states are free to develop their own strategy and thus balance between costs and security,” Kleinhans said.

As countries set their own paths, a likely result is “a highly fragmented regulatory landscape,” Kleinhans said.

Security concerns

As more regulators and telecommunication operators put limits on Huawei, it’s getting more tempting to jump on the bandwagon. Europe’s military and intelligence community, meanwhile, has been voicing objections to Huawei gear, citing national security concerns.

“With no country wanting to be the odd one out, it wouldn’t be surprising if all member states follow the same trend,” Stryjak said.

While only two countries have specifically banned Huawei from future network buildouts, lawmakers and politicians are signaling that other European countries will likely follow their example or heavily restrict the company’s involvement.

In July, the UK banned Huawei from its 5G networks and ordered its telecommunication operators to remove existing Huawei gear from their networks by 2027, citing a US ban on the company in May that could cut the company off from the global semiconductor supply chain.

In a similar move, a Swedish telecom regulator said in October that potential grantees of the country’s 5G spectrum must not use products from Huawei in new core networks and existing Huawei gear must be phased out before 2025.

Sweden’s Huawei decision was made based on assessments by the country’s Armed Forces and the Security Service, the Swedish Post and Telecom Authority (PTS) said. On the announcement of the Huawei ban, Klas Friberg, head of the Swedish Security Service, said “China is one of the biggest threats to Sweden.” The country, Friberg added, must not forget when constructing its 5G network that China “is conducting cyber espionage to promote its own economic development and develop its military capabilities.”

Europe’s biggest economies and political epicenters, including Germany and France, have also indicated that they are turning against Huawei.

In October 2019, Germany’s spy chief Bruno Kahl said Huawei “can’t fully be trusted” to participate in the country’s 5G network rollout. While German Chancellor Angela Merkel was in September reportedly vehemently opposed to any restrictions that would single out Huawei, she faced a contingent of politicians who sought to effectively ban Huawei from German 5G networks. Later in the month, they appeared to have won.

In July, Reuters reported that the French National Cybersecurity Authority (ANSSI) had granted licenses to some operators that use Huawei gear. But the bulk of the authorizations were for three or five years, whereas most applications for 5G kit from European rivals Ericsson or Nokia received eight-year licenses.

Notably, the ANSSI informed operators during informal conversations, not stated formally in documents, that licenses granted for Huawei equipment would not be renewed once expired, according to the report.

The Huawei issue has been a flash point in escalating tensions between China and the US. For more than a year, the US government has continued to pressure its allies to exclude Huawei equipment. Not doing so, it said, poses the potential risk of Beijing using vulnerabilities in the company’s gear to spy on foreign 5G networks, an allegation Huawei has repeatedly denied.

A full ban on Huawei equipment would almost certainly be seen by Beijing as choosing sides, and fodder for retaliation.

Most recently, a UK oversight body said in October that Huawei had failed to adequately solve security flaws including a “vulnerability of national significance” in gear used in the country’s telecom networks despite previous warnings.

In April 2019, Vodafone told Bloomberg that it found “hidden backdoors” in the software that could have given Huawei unauthorized access to the carrier’s system providing internet service in Italy. The carrier said at the time that the issues had been resolved after it asked Huawei to remove them.

‘A matter of time’

Huawei has not disclosed how much revenue it earns from Europe. According to the company’s annual results, it generated RMB 206 billion (around $31.1 billion) from Europe, the Middle East, and Africa in 2019, or around 24% of its total revenue for the year.

Stryjak of Counterpoint said that there could still be a play for Huawei in the radio access network (RAN) market, the less sensitive area of 5G networks that connect end devices to core networks. However, he said, Huawei’s RAN business in the continent is still subject to the “suspicion that governments and operators now hold.”

“It seems only a matter of time before all of Europe’s core 5G networks are Huawei-free,” Stryjak said.

How a secret early Tiktok growth hack nearly backfired

Matthew Brennan — Tue, 10 Nov 2020 09:48:33 +0000

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.

“Why are moms using Tiktok? Why is anyone using Tiktok?” shouted the world’s most popular Youtuber towards the camera. It was late 2018 and Swedish gamer Pewdiepie was recording his second of fifteen “Tiktok Cringe Compilation” videos after the first had proved to be a hit. Each episode was ten minutes of him reacting to painfully embarrassing Tiktok videos.

Opinion

Matthew Brennan is an author and speaker on Chinese mobile innovation technology, and co-founder of China Channel.

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 its early days, Tiktok attracted internet subcultures, filling the platform with content that was often just plain weird.

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.

US App store download rankings for Musical.ly (later Tiktok) from October 2017–18. Shortly after merging Musical.ly with Tiktok, the merged app’s ranking improved considerably, boosted massively through aggressive spending on ads. (Illustrator: Valentina Segovia; Data: Chan Dashi)

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 acquired new users at a much faster rate than Musical.ly. It then accurately and efficiently matched those users with niche content based on personal preferences in a way that Musical.ly never could. (Illustrator: Valentina Segovia)

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.

Examples of Tiktok furry accounts, in which adults dressed as large anthropomorphic animal-like characters. (Screenshots: Matthew Brennan)

“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.

Anti-Tiktok online memes, from late 2018 and early 2019. (Image credit: Nathan Baker)

Sweden halts 5G auction after court stays Huawei ban

Wei Sheng — Tue, 10 Nov 2020 05:17:09 +0000

The telecommunications regulator in Sweden on Monday halted a spectrum auction after a court suspended “until further notice” parts of its decision that excluded Chinese telecommunications equipment maker Huawei from the country’s 5G networks, Reuters reported.

Why it matters: The court ruling granted Huawei some relief from widespread backlash in Europe. However, the Swedish Post and Telecom Authority’s (PTS) move to suspend the auction may signal future tension between Huawei and regulators.

The Swedish authorities have said the country must consider the Chinese state’s cyber-espionage when building its 5G networks. For more than a year, the US government has campaigned against Huawei over fears that China could use Huawei to eavesdrop on communications running through telecommunication equipment it sells across the world. Huawei has repeatedly denied the allegations.

Details: PTS was set to hold spectrum auctions for the country’s 5G networks starting on Tuesday. The regulator halted the auctions on Monday after a court in Sweden ruled that carriers using Huawei equipment could participate, Reuters reported.

In October, PTS said in a statement that potential spectrum grantees must not use products from Huawei and ZTE, another Chinese telecom equipment maker, in new central function installations. The government body also asked telecom companies to phase out existing infrastructure for central functions containing products from Huawei and ZTE before Jan. 1, 2025. Huawei appealed the decision last week.
The Stockholm administrative court said that certain parts of the regulator’s October decision will not apply until further notice, according to Reuters.
Huawei has no plan for more legal action and is waiting to have “constructive dialogue” with Swedish authorities, Kenneth Fredriksen, Huawei’s executive vice president for the region told Reuters.
PTS said it would review the possibility of starting the auctions, which would allocate frequencies in the 3.5 GHz and 2.3 GHz bands needed for 5G communication, as soon as possible.

Trump backs off Ant Group blacklisting: report

Eliza Gkritsi — Wed, 04 Nov 2020 06:13:18 +0000

The US president has decided to put off blacklisting Ant Group after a phone call between a senior US official and an Ant executive, Reuters reported.

Why it matters: The US State Department had reportedly submitted a proposal to the White House to blacklist the fintech giant last month, citing security issues. The move would have cut it off from US capital ahead of what was expected to be a blockbuster stock market debut.

Three sources said that US President Donald Trump decided against the move on concerns that it was too precarious ahead of the election.

Details: In a phone call, Alibaba President Michael Evans convinced US Commerce Secretary Wilbur Ross to reject the State Department’s proposal, the Reuters sources said.

The Commerce Secretary feared that blacklisting Ant would antagonize Wall Street close to the election, potentially bringing a lawsuit or sending markets on a downward spiral, the report said
Another source said that Wilbur Ross decided that Alibaba is already scrutinized because its e-commerce app, Taobao, is on the notorious markets list for selling counterfeit goods. Ross’s decision was not affected by the phone call or worries over Wall Street, the source said.

Context: On Tuesday evening, Chinese regulators suspended Ant Group’s Shanghai listing. The company consequently halted its Hong Kong listing.

Experts TechNode spoke with agreed that a recent speech in Shanghai tipped Chinese authorities over the edge.
China’s financial regulators have been working to de-risk the sector and increase oversight of fintech firms since 2017.
Ma’s speech stepped on the wrong toes, and he was summoned to Beijing for a “regulatory talk” with regulators on Monday. The contents of that meeting are unknown, but the Shanghai Stock Exchange suspended the Ant Group listing the next day.
The Ant Group IPO was set to be the biggest of all time at $35 billion.

READ MORE: Ant Group IPO delay and Jack Ma’s ill-timed speech

Binance in trouble, blockchain security standard: Blockheads

Eliza Gkritsi — Tue, 03 Nov 2020 08:30:27 +0000

A Forbes report accused Binance, the world’s largest cryptocurrency exchange, of attempting to deceive US regulators. China got its first blockchain security standard, and processed digital yuan transactions almost doubled in the last month. Bitmain closed another big sale of Antminers to the US, and a new cross-chain protocol was integrated to the BSN.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Oct. 27-Nov. 3.

The Binance papers

An allegedly internal Binance document obtained by Forbes said that the cryptocurrency exchange banned from China in 2018 was trying to set up a complicated corporate structure to deceive US regulators and aid customers in evading US laws, the site said.

Binance denied the accusation. The founder and CEO of the company took to Twitter to question the document’s authenticity.

FUD. The statements and accusations in the article are incorrect. The whole article hinges on a 3rd party document. The said document was not produced by a @Binance employee (current or ex). Anyone can produce a “strategy document”, but it does not mean Binance follows them. 1/7 https://t.co/AnIUJLXWTZ
— CZ Binance (@cz_binance) October 29, 2020

The document in question dates back to late 2018, when Binance was setting up a US subsidiary, according to Forbes. It speaks of a plan to set up a company, dubbed “Tai Chi Company” in the document, to distract US regulators while Binance was working on regulation workarounds.

Binance US, the exchange’s on-the-books subsidiary, would go along with US compliance requirements and would not allow highly leveraged derivatives trading, the document said. Trading crypto derivatives is highly regulated in the US.

Meanwhile, the “Tai Chi Company” would feign interest in compliance, while it was teaching investors on its platform how to evade geographical restrictions and trying to find technological workarounds. The company would return revenues to Binance as licensing fees.

Binance is the world’s largest cryptocurrency exchange, trading on average $10 billion per day. (Forbes)

Government blockchain moves

Chinese regulators released the first industry standard for security in blockchain technology. The standard was implemented on Oct. 1 and includes 62 provisions and has been approved by the Ministry of Information Technology. (National Internet Emergency Response Center, in Chinese)
The government of Chengdu in the southwestern province of Sichuan released a plan to integrate blockchain in government and become a blockchain development hub by 2022. The city plans to use blockchain for traffic control, hazardous waste management, supply chain traceability, cross-border trade, intelligent manufacturing, and agriculture, as well as develop a testing ground for the digital yuan. (Red Star News, in Chinese)
China should be proactively participating in the setting of global digital currency and digital tax standards, President Xi Jinping said in a statement on Saturday. (Coindesk)

The digital yuan

The governor of the People’s Bank of China, Yi Gang, said digital yuan pilots have processed RMB 2 billion ($299 million) in 4 million transactions so far. On Oct. 6, the central bank’s deputy governor said RMB 1.1 billion had been processed in 3 million transactions. (BNN Bloomberg)
Huawei’s newest smartphone, the Mate 40, will come with a built-in digital yuan wallet, the company said in a Weibo post. The wallet will feature “hardware-level security, controllable anonymity protection, dual offline transactions,” Huawei said. (Huawei’s official Weibo)

New blockchain partnerships

Bitmain closed a deal to sell 10,000 of its newest cryptocurrency mining rigs to Marathon Group, a US-based crypto investing company. Bitmain signed a contract for 10,500 Antminer S19s with Marathon Group in August, and another for 17,595 with Core Scientific in June. (Globe Newswire)
Poly Enterprise, a permissioned cross-chain protocol, became available to developers on the Blockchain Services Network today. (Poly Network official Twitter)

READ MORE: EXCLUSIVE: China’s BSN to test cross-chain interoperability in October

Heard at Emerge: Is the world still open to China tech?

Wei Sheng — Mon, 02 Nov 2020 04:29:38 +0000

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.

Fintech giant Lufax eyes $2.36 billion IPO in New York

Eliza Gkritsi — Fri, 23 Oct 2020 08:04:10 +0000

Shanghai-based lending and wealth management unicorn Lufax is looking to raise $2.36 billion in its debut on the New York Stock Exchange, according to the market’s website.

Why it matters: Lufax is one of two Chinese fintech firms looking to raise multi-billion dollar amounts on US exchanges this autumn. Chinese tech companies meanwhile face increasing scrutiny from US regulators and China vies to keep homegrown tech companies from listing abroad.

Ant Group has filed a draft prospectus to list on Nasdaq, for what could be one of the biggest IPOs in history.
The Shanghai STAR market, with relaxed IPO rules, is aimed at keeping Chinese tech firms from overseas listings.

READ MORE: Ant Group IPO filings: five key takeaways

Details: Lufax filed in early October to go public but details have not been released.

The Ping An-backed giant is selling 175,000 American Depositary Shares priced between $11.50 and $13.50, bringing the higher end of the range to $2.36 billion.
Lead underwriters are Goldman Sachs, Bank of America Securities, UBS Investment Bank, HSBC, and China PA Securities.
Lufax’s net profit dipped 2.8% year-on-year in the first half of 2020 to RMB 7.272 billion in H1 2020, according to a filing to the US Securities and Exchange Commission (SEC). In the same time period, its total revenues increased by 9.45%, the company said.

Context: Lufax was founded in 2011 by Ping An Insurance as a peer-to-peer lending company, but has gradually expanded its business into wealth management.

In the six months ended June 30, 2020, less than 3.5% of the revenue of its tech platform came from wealth management services.
Ping An reportedly now owns 43% of the unicorn after several rounds of investment.
Lufax has raised $3 billion to date, according to startup information site Crunchbase. It was valued at $38 billion after its latest funding round in 2018, Reuters reported.
In April, US-listed Chinese coffee startup Luckin Coffee admitted to fabricating RMB 2.2 billion in sales. Since, streaming platform Iqiyi and edtech company GSX Techedu have both admitted that they are under investigation for fraud by the SEC.
Congress has proposed a bill to enhance regulatory oversight of US-listed Chinese companies, and a working group convened by the US president has made similar recommendations to the SEC.

READ MORE: INSIGHTS | What’s at stake in fight over delisting Chinese firms

The prospects of increased regulatory oversight haven’t stopped Chinese tech firms from tapping into US capital markets. Electric vehicle companies Xpeng and Li Auto both went public in the US in the third quarter.
JD.com’s fintech unit is one of the Chinese tech companies planning to float shares on the Shanghai STAR market.

Huawei under ‘intense pressure’ as Q3 growth sinks

Wei Sheng — Fri, 23 Oct 2020 06:51:51 +0000

Huawei said Friday its earnings for the first nine months of the year “met expectations,” though its revenue growth in the third quarter slowed sharply from the previous quarter.

Why it matters: The deceleration highlights how US restrictions on Huawei’s ability to source crucial high-end semiconductors have taken a toll on the Chinese telecommunication company’s business.

Details: Huawei said in a statement Friday that it booked income of RMB 671.1 billion (around $100.4 billion) in the first nine months of the year, growing 9.9% year on year.

The company’s revenue for the third quarter was RMB 217.3 billion, a year-on-year increase of 3.7%, according to TechNode’s calculations of earlier data. The company’s second quarter revenue had rebounded to 22% compared with the same period a year earlier.
The company’s net profit margin in the first three quarters was 8.0%, compared with 8.7% in the same period last year, according to the company’s statement disclosing unaudited financial data of the period.
“Throughout the first three quarters of 2020, Huawei’s business results basically met expectations,” it said.
The Shenzhen-based company said its supply chain was “under intense pressure” and its production activities and operations saw “increasing difficulties,” citing only the global outbreak of Covid-19. However, a series of sanctions imposed by the US government have cut the company off from the global semiconductor supply chain, and it is now relying on wafer stockpiles to maintain production.
Analysts predict the company’s stockpiles of semiconductors will only last until June 2021.

Context: After three rounds of export restrictions, the Chinese telecommunications equipment and smartphone maker has lost nearly all access to semiconductors using US technology—specifically the high-end chips it needs for its carrier and handset businesses.

In May 2019, the US government banned American companies from shipping components and technology to Huawei, but granted the company a series of reprieves, the last of which expired in August.
In May and August, the US imposed similar export requirements on global semiconductor foundries that use American technology and third-party vendors that sell products to Huawei.
In July, Huawei said its revenue during the first half of the year grew 13.1% to RMB 454 billion.

Sweden bans Huawei, ZTE from 5G networks

Wei Sheng — Wed, 21 Oct 2020 05:04:53 +0000

Sweden has banned Chinese telecommunications equipment makers Huawei and ZTE from participating in its 5G network rollout, the country’s top telecoms regulator said Tuesday.

Why it matters: The development shows European countries are tightening restrictions on Chinese suppliers for their 5G infrastructure, signaling the US government’s campaign to eliminate Huawei equipment from Western communications networks is gaining traction.

Swedish company Ericsson, a key rival to Huawei, has been selected to supply parts for 5G core networks belonging to China’s three state-owned telecom companies.
The decision may mean that Sweden could face retaliation from China. Ericsson relies on China to produce some equipment it designs and China’s Ministry of Commerce is mulling export controls that would prevent the company from sending products it makes there to other countries, the Wall Street Journal reported in July citing people familiar with the matter.

Details: Sweden’s top telecom regulator Post and Telecom Authority (PTS) is set to hold spectrum auctions on Nov. 10. The government body said in a statement Tuesday that potential license grantees must not use products from Huawei and ZTE in new central function installations.

Existing infrastructure for central functions containing products from Huawei and ZTE must be phased out before Jan. 1, 2025, the regulator said.
PTS said in the statement that the conditions were based on assessments made by the Swedish Armed Forces and the Swedish Security Service.
Klas Friberg, head of the Swedish Security Service, said Tuesday that “China is one of the biggest threats to Sweden” and that the country must consider when building the 5G network what he called the Chinese state’s cyber espionage conducts.
Huawei said in a statement to TechNode Wednesday that it is “surprised and disappointed” by the Swedish government’s decision and that “there is not any factual ground to support allegations of Huawei posing any security threat.”
“We find the exclusion of Huawei simply based on groundless presumption unfair and unacceptable,” the company said. It also called on Sweden to “reevaluate” the decision.
ZTE did not respond to a request for comment on Wednesday.

Huawei’s future in EU: The US government has been campaigning its allies to avoid Huawei equipment from their networks since last year.

So far, some US allies such as Australia and Japan have imposed de-facto bans on Huawei. Some European countries like the UK and France decided to phase out Huawei equipment over the next few years.
Many Western European countries, which are mostly member states of the European Union (EU), including Germany, Italy, and Spain, are on the fence.
The EU’s stance on Huawei is relatively clear—it has released a “toolbox” and guidelines on how member states should evaluate 5G gear provider risks and trustworthiness without mentioning any specific country or company. However, its member states are taking various approaches.
The toolbox and guidelines are not legally binding, so the results depend on how countries interpret and implement them. One example is Belgium, whose major telecom operators had chosen European vendors Ericsson and Nokia to build their 5G networks. This approach avoided enraging Beijing and largely followed Washington’s will. But the question is whether this will become the norm.
“Huawei’s expulsion from all of Europe’s core networks seems to be a question of when, not if,” Jan Stryjak, associate director at market research firm Counterpoint, wrote in an article published in September.
Stryjak told TechNode in a recent interview that he said as much because “more and more countries are opting to remove Huawei from their core networks in place of alternative vendors like Nokia or Ericsson.”
“Since no country would want to be alone in bucking the trend, solidarity seems to be the name of the game, which is bad news for Huawei,” he said.

Digital yuan rush and OTC crackdown: Blockheads

Eliza Gkritsi — Tue, 13 Oct 2020 05:49:46 +0000

China’s blockchain industry doesn’t stop, even during China’s week-long National Day holiday. A public test for the digital yuan was announced in Shenzhen, over-the-counter (OTC) traders are facing increasing pressure, and two reports shed some light on the numbers behind China’s vast blockchain industry.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the weeks of Sept. 28 – Oct. 12.

The digital yuan

Shenzhen launched the first public test for the central bank digital currency, which will distribute RMB 100 million (about $1.48 million) through red envelopes. A lottery system will randomly select 50,000 individuals who will receive virtual red envelopes with RMB 200 worth of the digital yuan. Residents of the Luohu district can apply through China’s big four banks and those selected will be able to use the coupons at 3,389 retail outlets around the city. Applications were due by Monday, and the distribution will take place on Friday. (Reuters)
The People’s Bank of China has processed RMB 1.1 billion in upwards of 3 million individual transactions using the digital yuan, the bank’s deputy governor Fan Yifei said on Oct. 6. More than 120,000 digital wallets have been opened, 92% of which are personal wallets while the rest are corporate, he said. The bank has tested 6,700 use cases, according to Fan. (Fintech Futures)
On Monday, another central bank deputy governor called for further acceleration of the digital yuan’s rollout. (South China Morning Post)

READ MORE: INSIGHTS | China’s digital currency has a long way to go

The OTC crackdown

Chen Lei, the former CEO of Xunlei, China’s largest download software, has been accused of embezzling company funds to trade in crypto and is currently under investigation by authorities. (Sina Finance)
The State Council said on Sunday that it will crack down on phone and bank cards that are used for illegal activities, and China’s crypto traders fear that they could have their bank cards frozen. OTC traders have recently reported that their bank cards have been frozen for five years. (Wublockchain)

The numbers

A report by international consulting firm PWC said that China stands to gain the most from blockchain adoption. Blockchain technology could add $440 billion to its gross domestic product by 2030, compared with $407 billion net benefit in the US, the report said. (PWC report)
A recent report based on data collected in October said China’s blockchain industry is dominated by small- and medium-sized enterprises. Companies with registered capital under RMB 5,000 account for 46% of China’s blockchain companies, a report by blockchain data platform Longhash said. Only 9% of all companies have over RMB 50,000 in registered capital, according to the report. (Longhash)

Huawei value declined 8% to $160 billion on US sanctions: report

Wei Sheng — Mon, 12 Oct 2020 08:36:54 +0000

Shanghai-based Hurun publishing group estimated that Huawei, which it calls the most valuable consumer electronics company in China, is worth $160 billion in its first-ever report ranking the country’s consumer electronics companies published on Monday.

Why it matters: Assessing Huawei’s value is difficult because the company is not publicly traded. The report offers a glimpse of the mysterious company’s overall size and how its value has been impacted by US sanctions aiming to cut it off from the global semiconductor supply chain.

Details: Hurun said in a report (in Chinese) Monday that Huawei was valued at RMB 1.1 trillion (around $160 billion), ranking it as the most valuable consumer electronics company in mainland China.

Rupert Hoogewerf, Hurun’s chairman and chief researcher, said in the report that Huawei’s valuation shrank from RMB 1.2 trillion last year to RMB 1.1 trillion this year because of US sanctions.
The valuations were calculated by share prices as of market close on Sept. 30 for publicly traded entities, or estimated based on similar public companies if they were unlisted, according to Hurun.
Trailing Huawei are Chinese smartphone makers Xiaomi, valued at RMB 434 billion; Vivo, worth RMB 175 billion; and Oppo at RMB 170 billion.
Huawei declined to comment on the valuation.

Context: Though not listed, Huawei releases reports about its quarterly and annual earnings. In July, the company said its revenue for the first six months of the year grew 13.1% year on year to RMB 454 billion.

Huawei maintains that it is a private company 100% owned by its employees. The company had issued virtual shares to some 104,572 employees as of end-2019, including company founder and chairman and chief executive Ren Zhengfei, who held 1.04% of Huawei’s total shares, the company said in its 2019 annual report (in Chinese).
The South China Morning Post said in a report in September that each virtual share of Huawei was valued at RMB 7.85 in 2019.

Chinese tech firms mired in geopolitical spats: Techwar roundup

TechNode Staff — Wed, 30 Sep 2020 06:40:52 +0000

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.

Judge blocks Tiktok download ban from US app stores

Wei Sheng — Mon, 28 Sep 2020 06:36:43 +0000

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

Judge orders US to postpone Tiktok ban or defend it on Friday

Wei Sheng — Fri, 25 Sep 2020 05:08:29 +0000

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.”

Intel license shows US wants Huawei to rely on its chips: expert

Wei Sheng — Thu, 24 Sep 2020 06:30:42 +0000

The US Commerce Department license granted to Intel allowing it to continue supplying Huawei shows that Washington wants the Chinese telecommunications company to rely on US products rather than make its own chips, according to an industry expert.

The US government has imposed license requirements on chipmakers around the world which want to sell products that contain US technology to Huawei. The new restrictions came into effect on Sept. 15.

Silicon Valley-based Intel supplies integrated circuits such as systems-on-chip (SoCs), central processing units (CPUs), and graphics processing units (GPUs), used in computers. However, the company doesn’t contract out its manufacturing capabilities to make customized chips for clients, nor does it sell chip-making tools or machinery.

The move shows the US “may be willing to grant licenses as long as it doesn’t help Huawei create its own chips,” Stewart Randall, head of electronics and embedded software at Shanghai-based consultancy Intralink, told TechNode on Thursday.

Intel’s license to continue shipping to Huawei doesn’t help Huawei make its own chips but it does help the Chinese company’s server, personal computer, and laptop product lines, Randall said, adding that this shows Washington wants Huawei to “rely on US chips.”

Intel is the first company known to have received US permission to sell chips to Huawei. Huawei suppliers around the world, including Chinese contract chipmaker Semiconductor Manufacturing International Corp., South Korean chipmaker SK Hynix, and Taiwanese chip designer Mediatek, have applied to the US government for similar licenses. None of the applications have yet been approved.

On Wednesday, Huawei rotating chairman Guo Ping told reporters that US chipmaker Qualcomm is applying for a license to sell its chips. “If Qualcomm were granted the license, we will be willing to use their chips to make phones,” said Guo.

Huawei now relies on its stockpile of semiconductors to continue making products ranging from 5G base stations to smartphones and laptops. Guo said Wednesday that the company is still verifying how many wafers they have in stock.

“We have sufficient chip stock for base stations… But as to smartphone chips, we are still looking for solutions because Huawei uses hundreds of millions of smartphone wafers every year,” Guo said.

Analysts said Huawei’s stockpile of chips may last four to 10 months. “We are confident that Huawei’s chip stock can last until the end of this year… It is possible that Huawei will still have chips to use in the first half of 2021, but, in this period the uncertainty is huge,” IDC analyst Will Wong told TechNode in an interview last week.

Huawei’s Harmony OS: a third major mobile operating system?

Wei Sheng — Wed, 23 Sep 2020 09:25:11 +0000

Huawei’s long-awaited Android replacement is here. On Sept. 10, the company announced that its in-house mobile operating system, the Harmony OS, will be available on handsets starting next year.

The announcement came just days ahead of a US Commerce Department deadline which cut the company off from all possible sources of high-end chips, critical for its smartphone and carrier businesses. Analysts said the company may have to halt hardware production starting in the middle of next year.

The company first debuted Harmony OS in August 2019, shortly after new Huawei devices lost access to Google services on the official version of Android as a result of a May 2019 US ban. Harmony was widely seen as an alternative to Google’s Android mobile operating system, but at first Huawei only deployed it on devices like smart television sets and smart watches.

Starting from scratch

A third operating system outside of Apple’s iOS and Google’s Android could be an important source of revenue for Huawei’s consumer business to offset losses in hardware sales. In 2019, income from mobile services accounted for 10.5% of Google parent company Alphabet’s revenues and 17.8% of Apple’s, according to TechNode’s calculations.

Experts say that it will be difficult for Huawei to generate material revenue from the new operating system. The company faces challenges ranging from establishing a profitable business model to attracting app developers. If Huawei can no longer make smartphones, persuading other phone makers to adopt the system will prove challenging, they said.

Both Google and Apple take a 30% cut from transactions made on their platforms, which include sales of apps and digital content, as well as in-app purchases.

But there is a difference in China which makes earning revenue more difficult, according to Rich Bishop, chief executive officer of Appinchina, a company that helps overseas developers distribute their apps in China.

“All of the [third-party Android] app stores in China only make money from games. For any non-gaming apps, they don’t charge any fee.”

“But if they are able to make Harmony OS successful, for example, they have 500 million people around the world using Harmony OS to download apps and games from the Huawei store, then potentially they could make a lot of money,” Bishop explained.

“But that really depends on whether they can persuade everybody to sign up to Harmony OS.”

Will Huawei convince developers?

It is relatively easy for a developer to convert an Android app to a Harmony OS app, Bishop said. “Huawei obviously is a massive company with a lot of resources, and they are working very hard to try to persuade as many developers as possible to set up a Harmony version of their apps,” he said.

But according to Richard Yu, president of Huawei’s consumer business, the company’s mobile service ecosystem now has around 1.8 million developers, but only 96,000 apps. Most of these developers have yet to make an app for Harmony OS.

“Most developers are basically going to wait and see because they don’t particularly want to start assigning resources to develop for a third mobile OS,” Bishop said.

“I think they are just gonna see how successful the ecosystem is and whether other companies are making good money from Harmony OS, and then they may decide to develop Harmony OS apps too.”

Weighing politics and competition

The other challenge Huawei faces in promoting the Harmony OS is attracting new users. It is now the world’s largest smartphone vendor, but its handset capacity is under huge pressure because of the semiconductor restrictions.

Rumors spread that Huawei smartphone peers Xiaomi, Oppo, and Vivo could adopt Harmony OS, with a number of articles in Chinese either predicting that they would or calling upon them to do so in support of the company. Huawei denied that it had reached a deal to put Harmony on competitors’ phones, but none of the other companies have commented.

But they would have to be very patriotic to support a competitor.

“Smartphone makers like Xiaomi, Oppo, and Vivo have been facing great pressure from Huawei in the past year after it shifted its focus on the domestic market,” Will Wong, analyst at market research firm IDC, told TechNode.

“If they adopt Harmony OS, they are essentially helping Huawei. So I think the possibility is low.”

Bishop of Appinchina agrees. “I don’t think that other domestic manufacturers like Xiaomi and Oppo would want to use Harmony OS, because obviously, it is a much weaker ecosystem than Android. And it’s run by a competitor, Huawei,” he said.

Both Wong and Bishop reckon that the only reasons that other Chinese phone makers would use Harmony OS would be “political.”

“I don’t think Huawei’s competitors will say ‘absolutely no,’ to Harmony OS because the political risk is a very important factor in today’s market,” said Wong.

“The only way I can really see it working is if the Chinese government, because of the US-China decoupling, says: ‘all right, China needs its own mobile OS.’ And therefore, they kind of require every Chinese manufacturer to offer Harmony OS or to have it as an option,” said Bishop.

On Wednesday, Zhang Pingan, president of Huawei’s consumer cloud business unit, told reporters that the ecosystem of Harmony OS is always “open” to other smartphone makers.

“I think we will work together with all hardware makers to build a better ecosystem and help developers avoid switching back and forth between different platforms,” he said.

Luckin and affiliates fined $9 million, more penalties may come

Emma Lee — Wed, 23 Sep 2020 05:48:55 +0000

Chinese authorities ordered troubled coffee chain Luckin Coffee and a group of affiliated companies to pay a fine of RMB 61 million ($9 million) for creating unfair competition by engaging in sales fraud.

Why it matters: Luckin Coffee is receiving its first fine six months after admitting to financial fraud in early April. Regulators and investors at home and abroad are still investigating the company, which may see more penalties as inquiries conclude.

Details: Issued Tuesday by China’s top commerce watchdog, the State Administration for Market Regulation, the fine was applied to 45 companies, including two Luckin entities and 43 other companies that helped the coffee chain inflate its sales.

The regulator is the executive authority of China’s Unfair Competition Law. It found that Luckin, assisted by multiple third-party partners, inflated its sales, costs, and profits from August 2019 to April 2020. The practices violated competition laws and misled the public, it said.
China’s Ministry of Finance, which overseas violations of China’s Accounting Law, is also investigating Luckin, as is the US Securities and Exchange Commission, stock investors, and owners of its convertible bonds. Moreover, management led by Charles Lu are said to be facing criminal charges over the scam.
Luckin said it has “carried out an overall rectification on the related issues” (our translation) in a statement on Chinese microblogging site Weibo on Tuesday. “We will further improve our operations according to related laws and regulations.”

Context: Two months after short seller Muddy Water tweeted a short report from an anonymous author, Luckin admitted on April 2 that it fabricated RMB 2.2 billion in sales in 2019, causing its shares to plunge more than 80% within a week.

Luckin management has been fighting for control over the company since April. In a September board meeting, founder Charles Lu lost when his opponent Sean Shao made a comeback after briefly being ousted from the board two months earlier.
The scandal from the once high-flying coffee chain put Chinese tech companies in the crosshairs of regulators and short sellers.

Filecoin fork, US and UK outspend China: Blockheads

Eliza Gkritsi — Tue, 22 Sep 2020 06:08:34 +0000

This week, Chinese Filecoin miners threatened to fork the massively popular network, the BSN will integrate two dozen public chains, and a new cryptocurrency mining rig may give Bitmain a run for its money. Two reports show how China stacks up globally in the blockchain world.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Sept. 15-22.

The Filecoin Fork

A group of Chinese investors threatened to fork Filecoin, a cryptocurrency network whose main offering is decentralized file storage. The completed mainnet is scheduled to be released in the coming weeks.

The coin, which has been massively popular among Chinese miners, issued a $250 million initial coin offering three years ago.

The head of MIX Group, a Filecoin mining company, unveiled the threat at a conference in Xiamen. He said users are not satisfied with the governance of the network, saying it is too centralized, and with the fact that the mainnet launch has been delayed from its initial release in March 2020.

The mainnet launch could wash out as many as 80% of miners through a staking mechanism, a recent report said. (Decrypt)

The government connection

The government of Beijing will pilot a blockchain-based system for monitoring and managing security risks associated with cross-border data flows. (TechNode)
Vechain joined the China Animal Health and Food Safety Alliance, a government-backed organization that aims to provide a food traceability platform. It is the only company in the alliance that is entirely focused on public blockchain. (PRNewswire, Vechain press release)
The Blockchain Services Network, a government-backed “internet of blockchains,” plans to integrate 24 public chains in the Chinese network by making them permissioned. (Coindesk)

The mining equipment makers

Micro BT’s new Whatsminer cryptocurrency mining rig, expected to be released later this year, could top Bitmain’s Antminer S19. The M50S will use Samsung 8 nanometer chips and will come with an energy efficiency ratio of 30 joules per terahash (J/T), compared with the S19’s 34.5 J/T. (WuBlockchain, in Chinese)
Bitmain will allow Core Scientific to build its first repair center in North America. Core Scientific is a US-based mining company that agreed to buy 17,595 of Bitmain’s Antminers back in June. The announcement came hours after recently ousted co-founder Wu Jihan had regained Bitmain’s reins. (PRNewswire, Bitmain press release)

READ MORE: Is crypto mining really moving to North America?

The numbers

China will trail behind the US and Europe in spending on blockchain solutions in 2020, according to market intelligence firm IDC. China will have spent $457 million, compared with $1.6 billion in the US and $1 billion in Europe. But, by the end of 2020, China will have seen the most growth in blockchain expenditure in the last five years at 51.7%. (IDC)
China ranks fourth globally in cryptocurrency adoption, surpassed only by Ukraine, Russia, and Venezuela, a report by Chainalysis said. The rankings are based on value received and sent through cryptocurrencies, deposits, and peer-to-peer trade volume. (Chainalysis)

Tiktok, Wechat bans: what has happened so far?

Wei Sheng — Mon, 21 Sep 2020 17:54:12 +0000

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.

Huawei faces uncertain future after US chips deadline

Wei Sheng — Fri, 18 Sep 2020 09:51:21 +0000

US officials have complained many times about “loopholes” that allow Huawei to keep its chip supply chain running in the face of export controls. Now it seems that the “loopholes” are closed, and tight.

After being subjected to three rounds of export restrictions, the telecommunications equipment and smartphone maker has lost nearly all access to semiconductors using US technology—meaning the high-end chips it needs for its carrier and handset businesses.

Richard Yu, president of Huawei’s consumer business, said Aug. 7 that the company had to stop making its in-house Kirin chips, which are widely used on the company’s mobile devices, because they are made using US technology.

Despite the looming bans, Huawei has been on a roll lately. The company was ranked the world’s largest smartphone vendor for the first time in the second quarter. However, in an event last week, Yu said the growth of Huawei’s smartphone sales during this period had been “affected” by “a shortage of components.”

In other people’s eyes, however, the situation could be much worse. Analysts told Reuters that US export restrictions would threaten Huawei’s status as the world’s largest handset maker, and warned its smartphone business would “disappear entirely” if it could not source the chips it needs.

The uncertainty in Huawei’s supply chain has also taken a toll on its carrier business. The British and French governments have told domestic telecom operators to phase out Huawei equipment, citing the risks of the company’s supply chain continuity.

It looks like the end of the world for the company. But what options does Huawei still have? We asked experts, and it doesn’t look good.

What happened this week?

Huawei has faced escalating US restrictions for over a year.

May 16, 2019: The US government bans American companies from shipping components and technology to Huawei, but granted the company a series of reprieves, the last of which expired in August.

May 15, 2020: The White House announces plans to tighten its stranglehold, cutting Huawei off from global semiconductor foundries that use American software and technology to Huawei. These news rules officially took effect on Tuesday.

Aug. 17: US government expands licensing requirements, seeking to prevent Huawei buying US-linked chips through subsidiaries or third-party vendors

After Tuesday’s deadline, Huawei will lose access to most of the semiconductor fabrication plants in the world that can make high-end chips because they use US technologies. Huawei cannot buy ready-made chips that contain US technology from any third parties because of the August ban.

Experts said that the US will move swiftly to block any further “loopholes.” The company has stockpiles of chips, but only enough to last a few months. It has to plan out how to use these stockpiles in order for its production to continue.

Can Huawei still get chips?

Huawei has an in-house chip designer known as Hisilicon. This subsidiary designs a variety of chips used in Huawei’s products. They include the Kirin series for mobile devices and the Balong series for telecommunications gear.

Hisilicon could struggle to continue designing Kirin or Balong chipsets because it lost access to US-origin electronic design automation (EDA) tools, Jan-Peter Kleinhans, project director at Germany tech-policy think tank Stiftung Neue Verantwortung, told TechNode in an email.

EDA is a category of software tools for designing electronic systems such as integrated circuits and printed circuit boards. The EDA industry is dominated by three US, or US-linked, firms—Synopsys, Cadence, and Mentor Graphics. Together they account for 60% to 70% of the global EDA market and around 95% of sales in China.

But even if Huawei managed to design chips, it would still need an outsourced fabrication plants to manufacture them, like nearly all semiconductor companies. Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung, and Chinese company Semiconductor Manufacturing International Corp. (SMIC) are Huawei’s existing suppliers. All three are forbidden to use US-origin manufacturing equipment to fabricate chips for Huawei, Kleinhans said.

They can apply for licenses to continue supplying Huawei—but it’s up to Washington whether to grant them. SMIC, China’s biggest chipmaker, said Tuesday it had applied to the US government for a license to continue supplying to Huawei. TSMC reportedly planned to apply for a license to continue shipping to the company. A unit of Samsung is also seeking approval from the US government to continue supplying Huawei.

“The outlook is rather grim,” Kleinhans said. “Also, even if Huawei finds ways around the current restrictions, the US government’s trajectory is pretty clear: this is now the third export ban against Huawei. There can easily be a fourth or a fifth, if they deem it necessary.”

So far, none of the applications have been approved.

How will Huawei make phones?

With Huawei’s chip stockpile, smartphone production may not need to halt immediately. But the question is: How long will Huawei’s stockpile last?

Four to 10 months, according to analyst Will Wong at market research firm IDC.

Wong told TechNode that Huawei currently has a stock of high-end chips from TSMC and medium- to low-end chips from Mediatek, a Taiwanese chip designer.

“We are confident that Huawei’s chip stock can last until the end of this year,” Wong said. “It is possible that Huawei will still have chips to use in the first half of 2021, but, in this period the uncertainty is huge.”

The company might use Mediatek chips to produce more medium- to low-end phones during the rest of the year to make up its losses in the high-end handset market, said Wong, adding that Huawei might have to save some chips for production next year.

“All Huawei has to do is to bide its time, because there might be a turnaround after the November US presidential election,” he said.

“No matter how much chip stock does Huawei have, it has to race against time,” he said. “There may be a better situation after the election, or perhaps Huawei can manage to produce chips in China, but the key is time.”

A Huawei spokesman declined to comment on questions about the company’s plans for chip sourcing. He said in a statement to TechNode that the company is “still evaluating the long term impact of the matter at hand and are actively seeking solutions to minimize the impact for everyone.”

How will Huawei’s carrier business be affected?

The US government has been pushing Western countries to avoid Huawei equipment in their next-generation 5G networks, saying that the Chinese government could use its gear for spying purposes. Huawei, the world’s largest supplier of telecom equipment, has repeatedly denied the allegations.

Eventually, some US allies announced they would begin excluding Huawei. But what made some European countries dodge Huawei products were not Washington’s security warnings, but the possibility that the company would not be able to supply them due to semiconductor export bans.

In July, the United Kingdom and France instructed telecom operators to phase out Huawei equipment from their current networks over the next few years. Both countries cited the uncertainty around the company supply chain as a reason for doing so.

“The UK government revised its 5G strategy and excluded Huawei from further 4G/5G deployments exactly because they are not confident that Huawei will be able to serve British operators in the future because of the US export control,” said Kleinhans.

“Following the UK’s analysis, I think it’s fair to say that Huawei will struggle to maintain or even upgrade customer networks in the near future,” he said.

Bytedance plans US IPO for Tiktok: report

Wei Sheng — Fri, 18 Sep 2020 05:23:45 +0000

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

SMIC asks to continue supplying Huawei: report

Wei Sheng — Wed, 16 Sep 2020 06:19:10 +0000

China’s biggest contract chipmaker SMIC has applied to the US government to continue supplying to telecommunications equipment maker Huawei, local media reported, after the grace period for a semiconductor ban expired on Tuesday.

Details: Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) told Chinese newspaper Securities Times that the company had applied to the US government to continue shipping to Huawei and vowed that it would “strictly comply with laws and regulations.”

Shares of the company jumped 8.4% on Wednesday morning in Hong Kong on the news.

Context: SMIC itself, however, is under threat of being added to a US technology export blacklist. The US Defense Department said earlier this month that the Trump administration is considering imposing export restrictions on the company.

Experts told TechNode that SMIC may not have the capacity or capability to produce chips Huawei needs because its technology is “generations behind.”
SMIC is able to make 14-nanometer (nm) chips. In May, SMIC received $2.2 billion from Chinese state-backed venture capital funds to increase the capacity of one of its 14-nm chip fabrication plants.
However, the chips Huawei needs include 5-nm Kirin 1100 processor for servers and 7-nm Kirin 810 chip for smartphones. Taiwan’s Taiwan Semiconductor Manufacturing Co. (TSMC) is able to make more advanced 7-nm chips, but the company has reportedly halted shipment to Huawei.

Blockchain in government and Defi antics: Blockheads

Eliza Gkritsi — Tue, 15 Sep 2020 08:12:51 +0000

This week, various governmental bodies in China were busy announcing blockchain integration in their operations. Supporters in China of decentralized finance, or “Defi,” staged a protest against centralized exchanges, while police raided cryptocurrency exchange Gate.io over the listing of the Kimchi token.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world in the week of Sept. 7-14.

Governments love blockchain

Huawei signed an agreement with China’s Copyright Protection Center to build a blockchain-based copyright management system dubbed “Digital Copyright Identifier.” (Tom.com, in Chinese)
App platform Vechain is partnering with the government of Hainan, China’s southernmost province, to build a blockchain-based governance system for Wenchang, the “first aerospace cultural and tourism city.” The municipality aims to raise the profile of China’s space exploration industry. Vechain, along with Kingsoft Cloud, will build a “smart city brain” using blockchain, artificial intelligence, and big data. (Vechain official medium post)
The central government launched its first “city blockchain innovation rankings” at a conference in Beijing. The program tallied up “objective data” on cities’ innovation and adoption of the technology. The capital topped the list with 99.82 points, and Shenzhen came second with 91.2 points, just above Shanghai. (Sina Finance, in Chinese)
The eastern province of Fujian launched 20 blockchain projects aiming to spur innovation and revamp some local government functions. The projects include government services, public welfare, food safety, and industrial and agricultural production. Along the “Digital Fujian” project, the Blockchain Services Network (BSN) started construction of a node in the province. (Xinhua News Agency, in Chinese)
The BSN said on Monday the platform will be compatible with smart contract-oriented blockchain-agnostic programming language Digital Asset Management Language. The language will be the “exclusive standard” for application of decentralized applications, BSN architects said. (TechNode)
Meanwhile, a bill aimed to boost US competitiveness in the blockchain field passed through the US House Energy and Commerce Committee to the US House of Representatives. (Official Twitter of Cathy McMorris Rodgers, primary bill sponsor)

READ MORE: BSN taps DAML as ‘exclusive standard’ for dapp development

All aboard the Defi train

The week in China’s decentralized finance world started with an online movement among investors to take down centralized exchanges by withdrawing their cryptocurrency deposits. The impact on reserves was small. Some exchanges blocked withdrawals citing unexpected maintenance. The movement came right after Sushiswap, a Defi token that had reached unprecedented popularity, crashed. (TechNode)
A few days later, the anonymous co-founder of Sushiswap, 0xmaki, said in an interview that the project plans to launch a Chinese-language interface. (Coindesk)
Cryptocurrency exchange Binance launched a $100 million investment fund focused on early-stage projects in decentralized finance. The exchange released its own Ethereum-compatible blockchain on Sept. 1, saying a number of projects were already working on the chain. (Cointelegraph)
Police in China raided cryptocurrency exchange Gate.io over the listing of Defi token Kimchi. (Coingeek)

The mining equipment makers

Crypto currency rig maker Canaan Creative announced a $10 million share buyback, following better-than-expected Q2 earnings results. The buyback has been approved by the board of directors and will take place over 12 months starting Sept. 22. (Canaan)

READ MORE: Blockheads: China sets global blockchain standards and Canaan is alive

The Battle of Bitmain drags on. Wu Jihan took back control of the world’s biggest cryprocurrency mining equipment maker’s Beijing arm. Wu was ousted by his rival Zhan Ketuan in May, whom he had ousted in October. (TechNode)

INSIGHTS | Smartphone makers race to 5G amid the post-covid Covid slump

Evan Huang and Heather Mowbray — Mon, 14 Sep 2020 05:57:53 +0000

The global economic downturn caused by Covid-19 was always going to hit the smartphone market. But as smartphone makers shifted their conferences online, pandemic conditions eased up in China, making it the only phone market in the world that saw sequential growth in the second quarter of the year.

But behind the dazzling results lurk some worrying realities that have cast a shadow over both China’s prospects and the global smartphone market. Chinese leader Huawei is trapped under sanctions. Oppo and Vivo have proved limited in their capacity to produce top-notch handsets.

Function fatigue has set in among consumers. For years, manufacturers have bet on camera technology to sell new devices. Consumers are eager for truly disruptive innovation to raise its head.

Editor’s note

The Insights column is a little different this week—we’re bringing you an overview of the state of play of China’s smartphone makers, courtesy of our colleagues at cn.technode.com. Translation by Heather Mowbray.

A ‘new’ 5G Iphone?

Apple’s Chief Financial Officer Luca Maestri told investors on a recent call, “Last year we started selling new Iphones in late September; this year we expect supply to be available a few weeks later.” The new phone may launch on time, but delivery and sales will face delays.

It may well be that Tim Cook isn’t worried about the delay. Last year, even though Apple was forced to accept price cuts and massive discounts, the new Iphone 11 became one of the best-selling phones in China. Alongside it came the revamped Iphone SE, whose strong value for money made it the most popular Apple model in the world. Global shipments of the new Iphone SE reportedly reached 12-14 million units in Q2 2020.

The success of these two phones gives Apple reason for confidence. According to data from market research firm CINNO, in Q2 2020, Iphone sales in China increased 62% year-on-year to 13 million units.

With this momentum, the launch of the 5G Iphone, expected in fall 2020, is hotly anticipated.

5G is becoming an essential selling point in the Chinese market. Statistics from the China Academy of Information and Communications Technology show that domestic 5G mobile phone shipments reached 13.911 million units in July. The data shows that 5G smartphones accounted for 62.4% of domestic mobile phone sales, exceeding 60% of the total for the second consecutive month.

The wave of 5G replacements is likely to build over the next few months. Analysis by research firm Counterpoint suggests that more than 50% of global 5G phone sales this year will come from China.

The survival of Huawei

At the end of March, Huawei rotating chairman Xu Zhijun said that 2020 was Huawei’s most difficult year, and called for the company to come together to overcome its difficulties.

When it rains, it pours.

According to international media reports, Huawei’s temporary reprieve from a ban on importing US technology expired on Aug. 13 this year. There has been no word of a renewal.

Its relationship with the Google Play Store has been severely disrupted. Huawei devices that came with pre-installed Google mobile services can still download and update Google applications through other channels. But newly released phones, such as the P40, cannot use such services.

Huawei is working to mitigate the loss of the Google Play Store. Its phones come equipped with a Huawei suite of mobile services, and a homegrown operating system called HarmonyOS, or HongmengOS in Chinese, is coming to smartphones in early 2021, the company announced Sept. 3.

On the existing foundations of the HarmonyOS ecosystem, breaking into overseas markets may take a while. Few of the world’s most popular apps are available in Huawei’s app store, although some can be installed independently. Richard Yu has predicted that apps like Facebook will eventually join the Huawei app store.

Harder to evade are the US’s new restrictions on the company’s semiconductor supply chains.

Huawei’s executive director Richard Yu said at the China Informatization Hundreds Conference 2020 that due to the second round of sanctions by the United States, Huawei will lose its chip making capacity on Sept. 15. As a result, the company’s smartphone shipments this year might be fewer than last year’s 240 million, Yu said.

The dwindling supply of chips will severely challenge Huawei’s market competitiveness in the phone business. Coupled with the ban on overseas GMS services, its vitality in overseas markets has been struck a heavy blow, and this has cast a long shadow over Huawei’s confident New Year vision.

Xiaomi at ten: a fork in the road

When Covid-19 hit China, Xiaomi’s shipments were already lowest among the four leading manufacturers, which also include Huawei, Oppo, and Vivo.

Despite strength in online sales channels, the epidemic era hasn’t been kind to it. In Q2 2020, the company accounted for only 10.4%, or 9.1 million, of the 87.8 million smartphone units shipped in China, its 21.9% year-on-year drop in sales second worst among the major brands, data from IDC said.

Xiaomi’s setbacks overseas have been worse as it lost production and order capacity due to the virus. In India, one of its strongest markets, Xiaomi’s overall shipments fell 48.7% year-on-year.

Xiaomi models do not have a reputation for value, and it hasn’t come up with an alluring flagship model to attract consumer attention. Its surround-screen model , announced with much fanfare last year, was indefinitely delayed in 2020. The same holds true for chips. After the first generation of its phone chips was released in 2017, Xiaomi hasn’t released any plans for a second generation.

Xiaomi also lags its peers in R&D spending. In 2019, Oppo and Vivo both increased their R&D spend to RMB 10 billion ($1.46 billion) . Xiaomi only invested RMB 7.5 billion in 2019, and plans to reach RMB 10 billion this year.

Lei Jun, Xiaomi’s co-founder and CEO, has pursued business diversification for a while. But despite growth in IoT sales prior to 2020, Xiaomi remains a smartphone company. Its handset shipments account for 50.1% of its total revenue.

Internet of Things (IoT) products have performed well in recent years. But even in this market, Xiaomi is slowing down, weighed down by excessive reliance on hardware sales and the complicated supply chain logistics of selling hundreds of products. Its Q1 2020 earnings report shows little growth in IoT.

Oppo is diversifying

Meanwhile, Oppo has increased its investments overseas and established a semiconductor company called Zheku Technology.

Zheku may be Oppo’s way out. The company has always focused on marketing and offline channels and has suffered a lot during the Covid year. Its eye-catching advertisements—often seen on other manufacturers’ gadgets—are increasingly unable to cover up performance shortcomings. These are now compounded by anti-China sentiment in India, which sent shipments to India plummeting in the second quarter by 51% year-on-year. Oppo has lost more than any other of the top five brands in India.

For Oppo, this year may be the most difficult since it got into smartphones. This is despite Oppo’s accomplishments in 2019: reorganizing its product line, strengthening finances, establishing an independent chip department, developing independent sub-brand Realme, and launching IoT products; it also began to increase R&D to compete with its rivals.

A painful readjustment is now necessary. In the face of these challenges, Oppo recently announced that OnePlus founder and CEO Pete Lau (who will remain founder and CEO of OnePlus) has returned as senior vice president of shared parent company Ouga Holdings, and is fully responsible for the Ouga ecosystem’s product planning and experience, including Oppo.

In desperate times, Oppo is rallying its troops, and wants to reorganize its product line by bringing back veterans of the brand, strengthen differentiation, guard its market share, and regain the attention of its customers—who have very much glanced away.

Bytedance picks Oracle for Tiktok ‘partnership’ in US: report

Wei Sheng — Mon, 14 Sep 2020 04:48:29 +0000

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.

Is crypto mining really moving to North America?

Eliza Gkritsi — Fri, 11 Sep 2020 10:07:56 +0000

Since 2018, there’s been talk about China losing its crypto mining lead to North America. The idea made headlines again in early 2020 after Barry Silbert, founder of $3 billion crypto investment fund Grayscale put a big bet on mining in the US.

China’s status as the world’s crypto mining leader has gone unchallenged for at least five years. The country is home to the biggest equipment manufacturers and accounts for almost 65% of the global bitcoin hashrate, a measure of computer power on the network, data compiled by researchers at the Cambridge Centre for Alternative Finance.

We’ve seen claims that Chinese miners are going to America to escape regulations, and that Americans are jumping into the industry themselves. We wanted to know if either checked out, so we made some calls.

Six China-based miners and industry insiders contacted by TechNode said they have no intention of moving their operations to North America, but industry watchers said there are signs that the industry is preparing for take off in North America.

Techwar, crypto mining edition

Can this traditionally Chinese wildcat industry flourish in North America?

Silbert’s US-based blockchain group DCG made a big bet that it can. In late August, DCG announced it has committed to invest $100 million through 2021 in a crypto mining investment company it founded in 2019, Foundry.

From its base in upstate New York, Foundry wants to challenge China’s crypto mining dominance. It plans to build its own mining operations and finance other companies to do the same across the US and Canada.

According to eToro Bitcoin, Foundry’s mission could have support from Washington. The centralization of the $215 billion bitcoin network (at the time of writing) has rung alarms in the US. Just yesterday, a Congress committee debated a bill to support US competitiveness in blockchain technology that could include crypto mining.

It’s not just North America that wants to challenge China: Kazakhstan and Iran have made moves to support local crypto mining industries.

Mike Colyer, Foundry’s newly appointed CEO told TechNode that concerns around centralization are essentially about security, which are not specific to China. It’s not about “North America vs. China, or US vs. China, it’s about strengthening the decentralization and the security of the bitcoin network,” he said.

Transactions on bitcoin’s ledger are not verified by a single authority, but instead rely on consensus among the majority of the users. This makes the network vulnerable to what is known as a 51% attack, whereby the majority of the miners use their collective hashpower to take control of the network.

In an op-ed published in August, Ripple CEO Chris Larsen said that bitcoin miners’ concentration in China “means the Chinese government has the majority needed to wield control over those protocols and can effectively block or reverse transactions.”

But it’s an unlikely scenario. An attack is estimated to cost a little over $516,783 per hour. Despite professionalization and consolidation of the industry, China’s 65% is not a unit, but a wildcat industry of small miners that operate in a legal grey area.

READ MORE: INSIGHTS | Markets, not floods, will drown bitcoin miners

Beijing vs. Uncle Sam

Chinese miners have had a rocky relationship with local authorities, to say the least. Just last week, the local government of Inner Mongolia announced it was halting electricity discounts for major cryptocurrency mines, including Bitmain and Ebang.

This news seems to support the idea that China-based miners are fed up with regulatory crackdowns and are moving out.

READ MORE: Blockheads: Mining and the curious case of the digital yuan

However, authorities in Sichuan have recently indicated that they want to legitimize and support the mining industry. New regulations will bring it under the direct supervision and taxation of the government, but only big, professionalized miners will survive the ripple effects of the new rules.

Despite these changes, Sichuan-based miners contacted by TechNode said they have no intention in moving their operations to North America. They said conditions for mining in China are still good.

Flex Yang, CEO of Babel Finance, a company which finances Chinese crypto mines, said he hasn’t seen any miners moving to North America, at least not yet.

“Chinese miners love China,” Alejandro de la Torre, VP at Poolin, one of the world’s biggest mining pools, told TechNode. He said that the rumored move to North America is “just a rumor.”

One miner contacted by TechNode said he was considering moving operations to North America but for foreign exchange purposes rather than concerns about regulation. His company is funded in US dollars instead of Chinese yuan.

He said the tides of regulation can be as unpredictable in the US as China, with the Internal Revenue Service, the federal tax agency, and local governments bringing instability.

Some states in the US have seen the value of bitcoin mining and are welcoming the new investments, Colyer said. “Georgia, North Carolina, and Texas are really excited to have folks,” he said.

The cost of power

Foundry isn’t betting on China-based miners crossing the pond. He says US institutional investors have realized the value of the industry and want in. In the last three years, many have built out infrastructure in the form of facilities waiting to be filled with mining rigs, Colyer said.

But for North America to develop its mining industry, it needs more than the good graces of regulators.

Mining needs a lot of cheap electricity to be a profitable business. The abundance of cheap electricity in parts of China, notably Sichuan, Xinjiang, and Inner Mongolia, has helped miners scale up their operations by keeping costs low.

At the peak of rain season, electricity produced by hydropower stations in Sichuan, a province on the foot of the Himalayas, prices can be as low as $0.01 per kilowatt hour. The mining provinces are also sparsely populated, which means a lot of electricity is untapped.

“North America has a few advantages that can make it as competitive for mining as China,” Ethan Vera, co-founder of North America-based mining operator Luxor and founder of Hash Rate Index, told TechNode.

Vera said that the idea that China has cheaper and better sources of electricity than the US is not entirely accurate.

“Canada and the US have very advanced electricity grid infrastructure that can be used for crypto mining at a lower cost,” he said, pointing to Texas where he said electricity can cost less than $0.02, the state has seen a lot of mining infrastructure build-outs.

Foundry sees opportunity in parts of the US with power grid conditions similar to Sichuan: Washington state, western New York, Texas, and the Tennessee Valley, are among the parts of North America that Colyer said have similar power grid conditions to Sichuan.

But other costs can stack up in the US. Labour costs are significantly higher in North America, the miner who is considering moving his operations there said. Yang said the overall cost of developing mining operations is higher in the US.

Rig makers crossing the pond

US-based miner Vera thinks Chinese mining rig manufacturers welcome investors’ interest in North America, even “prioritizing” orders from there. “They don’t want to be China-centric either,” Foundry CEO Colyer said.

“We plan to continue collaborating with Foundry as we focus on increasing our global market share,” Jordan Chen, COO of MicroBT, said in a press release announcing Foundry’s launch.

The bulk of the orders for mining rigs in 2020 are from North America, said several industry insiders, including Yang. It is likely that major manufacturers will be occupied with delivering orders to North America for the rest of the year, with little to no capacity to deliver new orders to China.

If true, this could suffer a major blow to China’s mining industry. Access to the newest machines is a make-it-or-break-it condition for an industry where small differences in equipment stack up to major competitive edges.

In July, Bitmain signed the biggest known deal for its newest mining rig with Washington state-based Core Scientific, which happens to be Colyer’s previous gig. The Beijing company will sell 17,595 S19 Antminers to Core Scientific over the next four months.

READ MORE: Battle of Bitmain: big Antminers sale as co-founders try truce

Just the ‘beginning’

We didn’t find evidence of an exodus of Chinese miners, but North American investors are putting their weight, and wallets, behind the local crypto mining industry. Their investments have yet to mark a visible mark on hashrates, and it is too early to tell how different costs will stack up in the cash flow-intensive industry.

Foundry, backed by the deep pockets of Silbert’s DCG, will try to boost the North American industry.

Politics might make this an opportune time for Foundry’s mission to bring mining to North America, as US lawmakers are talking about national competitiveness in blockchain and cryptocurrencies.

Vera predicts that the tide is just “beginning.” “While 2020 hasn’t seen any large change yet due to the rainy season in Sichuan, tariffs and manufacturer delays, 2021 is poised to see a significant change,” he said.

Correction: An earlier version of the article incorrectly stated that DCG has already invested $100 million in Foundry and that Flex Yang is the co-founder of Babel Finance.

HarmonyOS coming to smartphones next year: Huawei

Wei Sheng — Thu, 10 Sep 2020 09:28:01 +0000

Chinese smartphone maker Huawei announced Thursday that Harmony OS, its in-house replacement for Android, is coming to smartphones. The mobile operating system will be available to developers in December, company officials said, with consumers to see it next year.

Why it matters: This is the first time the embattled Chinese company confirmed that its HarmonyOS, known in Chinese as HongmengOS, will run on mobile devices. The new OS is a sign that Huawei is inching towards independence from American technology for its smartphone ecosystem.

The company first announced the operating system in August 2019 after new Huawei devices lost access to Google services on the official version of Android as a result of a May 2019 US ban.
HarmonyOS, widely regarded as an alternative to Google’s Android mobile operating system, already runs on a series of Huawei devices such as smart television sets and smartwatches.
The company previously did not confirm that the system would be deployed to smartphones. Analysts told TechNode that this was to avoid “harming its relationship with Google.” Most current Huawei handsets still use the Android operating system.

Details: Richard Yu, head of Huawei’s consumer business group, said in an event Thursday afternoon that HarmonyOS will come to smartphones early next year, as he announced the 2.0 version of the operating system. Developers will get early access in December.

Yu, citing market data, said that the company became the world’s largest smartphone vendor in the second quarter. “But a shortage of components has affected our growth in recent months,” he said.
Yu had previously said Huawei would stop making the Kirin chipsets used in high-end smartphones starting from September, citing US pressure on the company’s suppliers.
Yu also said that a Hongmeng app ecosystem is developing. A Huawei executive said in November smartphones running the HarmonyOS was ready in technology, but the app ecosystem was “lagging behind.”
The HarmonyOS ecosystem has around 1.8 million developers and some 95,000 apps, said Yu. He added that developers can easily convert an existing app for other devices to a smartphone app on the HarmonyOS.
Yu also announced that the operating system will be open-sourced on Gitee.com, a Chinese homegrown alternative to American source code management platform Github, on Thursday. In July, the Chinese government chose (in Chinese) Gitee.com to build a Chinese “independent open-source code hosting platform.”

Context: Huawei sold 55.8 million smartphones in the second quarter and, for the first time, reached the top spot in global smartphone vendor ranking, according to market data provider IDC. But the US-China trade war has threatened the company’s access to critical inputs for its smartphones.

On Aug. 18, the US Commerce Department added 38 Huawei subsidiaries into the so-called “Entity List” and imposed license requirements on any transactions involving items subject to US export controls, meaning that Huawei can’t purchase commercially available chips it needs from third-party vendors.
The bans will tighten next week, when major chipmakers plan to end shipments to Huawei on Sept. 15.

Correction: An earlier version of this story wrote that HarmonyOS will be “deployed” to smartphones in December. In fact, it will be made available to developers in December, according to the company’s announcement, and consumers will get phones with the new operating system next year.

INSIGHTS | What’s at stake in fight over delisting Chinese firms

James Hull — Mon, 07 Sep 2020 07:07:45 +0000

Everyone can see that the diplomatic, economic, and trade relationship between the United States and China is deteriorating. A subset of the issues plaguing the relationship stem from recent fraudulent behavior from Chinese companies listed in US markets.

Washington is trying to fight the opacity of these publicly traded Chinese firms to protect US investors, in part spurred by revelations of Luckin Coffee’s fraudulent behavior earlier this year. The last month has seen the SEC open investigations into two more US-listed Chinese tech companies, while US politicians are considering a delisting ultimatum to force Chinese companies to provide more information to regulators.

Fraud is not unusual in publicly listed companies, and no nation is immune to it. What is unusual is the strong response from US regulators looking for enhanced audit oversight, and their explicit targeting of Chinese companies.

The question is: what does this mean for US-listed companies and markets.

Insights

James Hull is an analyst, portfolio manager, and co-host of TechNode’s China Tech Investor podcast

Bottom line: US authorities have long complained about their ability to scrutinize Chinese companies’ books, but China’s rules don’t clearly forbid it and SEC investigations into Iqiyi and GSX Techedu could be a chance to make a deal. Nothing is set in stone (or law) yet, but Chinese companies are already moving to what is, perhaps, a better home for them: Hong Kong.

Foreign vs. domestic filers: Foreign firms listed in the US have different listing requirements than domestic firms, and have for a long time. For example, foreign filers are not required to file quarterly reports, many companies do file them anyway, but they aren’t required by the SEC. Foreign filers also don’t have to disclose executive compensation in proxy statements because proxy statements are not required, nor are insider sales (Section 16 filings). Currently the PCAOB does not have an agreement with Chinese authorities allowing for oversight of US-listed Chinese company auditors.

Why tighten regulations now? I believe it is driven by retail investor losses from Luckin Coffee, the extent of that fraud, and the large amount of press coverage Luckin Coffee enjoyed as the “Starbucks challenger,” and DC taking a more hawkish turn on China in recent years.

A brief timeline

US-listed Chinese equities have had a rough time in 2020.

Jan. 31: Anonymous short report on Luckin Coffee claims the coffee startup inflated sales by more than 69% in Q3 2019 and 88% in Q4 of the same year.
April 2: Luckin Coffee admits to falsifying almost RMB 2.2 billion in sales.
April 6: Wolfpack Research short report on Iqiyi, accusing the streaming service of revenue fraud.
May 20: Holding Foreign Companies Accountable Act (HFCA) passes in the Senate.
Aug. 6: President’s Working Group (PWG) press release and report are released by the Treasury Department.
Aug. 13: Iqiyi discloses SEC investigation, shares tumble.
Sept. 2: GSX Techedu discloses SEC investigation, shares tumble.

The proposed regulatory environment

The HFCA bill: Per the Congressional Research Service’s summary, the bill would require that:

Publicly listed companies must establish they are not owned or controlled by a foreign government.
They must declare whether their auditor is subject to Public Company Accounting Oversight Board (PCAOB) inspection.
Companies are given three years of non-inspection by the PCAOB, and then they are banned from trade on US exchanges, if they are not properly inspected.
If a company’s auditor is not subject to oversight by PCAOB, then it must disclose the percentage of shares owned by governmental entities, whether the governmental entities have a controlling financial interest, information on any board members who are officials of the Chinese Communist Party (CCP), and whether the articles of incorporation contain any “charter of the CCP.”

The PWG report: The working group is an advisory group convened by the president. It’s made a series of recommendations, mostly for the SEC, to adopt similar rules, but on a tighter deadline:

Enhanced listing requirements that guarantee access to audit working papers.
A suite of extra disclosures and guidance meant to shed light on the risks of investing in non-cooperating jurisdictions.
Currently listed companies have until Jan. 1, 2022 to comply, and new listings (IPOs) must comply before trading.

The PCAOB: The regulator at the center of the conflict is a relatively young body that specializes in overseeing the accounting firms that audit US-listed companies. It’s separate from the Securities and Exchange Commission, which enforces securities laws and regulates stocks and options and the exchanges on which they are traded.

The PCAOB was established by Sarbanes Oxley Act of 2002, a law created in the aftermath of accounting scandals like Enron.
The Texas energy company went bankrupt in 2001 after years of misleading shareholders. Its auditor, Arthur Andersen, was found guilty of obstructing justice for shredding documents. Its business never recovered.
The PCAOB regularly oversees non-US auditors who work for US-listed companies. However, it complains that China does not provide the access the board needs to do effective oversight.

Unanswered questions

The grey area: Can the PCAOB inspect US-listed Chinese company books? Depends who you ask.

Yi Huimin, the Chairman of China’s Securities Regulatory Commission, told Caixin that China has never prohibited or prevented Chinese companies from providing audit working papers to foreign regulators. He added that such information exchange should be conducted through regulatory cooperation and comply with security and confidentiality regulations.
In their filings, Chinese companies tell a different story. Most US-listed Chinese companies disclose in their Risk Factors their auditors operating in China are “not permitted to be subject to inspection by the PCAOB” (quote from Bilibili’s filing; many others have similar language).
So, PCAOB inspection is neither explicitly prohibited nor explicitly permitted, the proverbial “gray area.”

Could they reach a deal? Many countries’ audit oversight authorities have cooperative arrangements with the PCAOB. The agreements are signed between either an independent audit oversight authority or a securities exchange regulator.

China doesn’t have independent audit oversight, so an agreement would likely be between the PCAOB and China’s stock market watchdog, the China Securities Regulatory Commission (CSRC). A trial joint inspection was attempted in 2017, but failed to achieve agreement.
Maybe the current on-going SEC investigation into Iqiyi will provide an opportunity for the SEC and the CSRC to hash out the issues and cooperate. This is something I will be watching.

Unclear deadline: How much time do US-listed Chinese companies have to get compliant? Again, it depends.

According to the HFCA: three years from whenever the law becomes effective.
But the clock isn’t ticking yet. To become law, HFCA would need to pass the House of Representatives and be signed by the President.
While these steps have not happened yet, they can happen in one or two days if there’s sufficient political motivation.
According to the PWG recommendation: Jan. 1, 2022 for currently listed companies, new listings would have to comply immediately, or at least as soon as exchanges adopt the requirement.
If the SEC and CRSC can come to a workable understanding on Iqiyi, it could bode well for all US-listed Chinese companies. In the best case, they may be able to tick the PCAOB oversight box immediately.

Early responses

Chinese firms flock to Hong Kong: Even though a tighter US regulatory environment for Chinese publicly listed companies is still under construction, Chinese tech firms have indicated their intention to move away from American markets.

In the last 12 months, many US-listed Chinese firms have listed or plan to list shares on the Hong Kong Exchange. Companies already listed include Alibaba (HK:9988), JD.com (HK:9618), Beigene (HK:6160) and Netease (HK:9999).
Unlike its big brother Alibaba, Ant Group will list simultaneously in the Shanghai and Hong Kong stock exchanges, the fintech giant said in July.
Markets speculate that more firms will follow, including Baidu, Iqiyi, Wuba, Sogou, China Distance Education, among others.

Hong Kong is a better home for these companies: Listing in the US has been popular in recent decades because of easier listing requirements, allowance of dual-class shares, a deep and liquid market, an investor base that was eager for growth and technology companies, and the fact the companies and their shareholders could receive US dollars for their shares, a global currency free of capital controls. But the Hong Kong Exchange has been improving in many areas.

Since April 2018 Hong Kong allows dual-class share structures that are popular with technology companies. Secondary and dual-class listings will benefit from passive flows with the Hang Seng Indexes allowing them in their market indices from August 2020.
There are also natural advantages for listing in Hong Kong. Hong Kong investors benefit from proximity to China and being embedded in Asia, making them more familiar with these markets and domestic trends. They operate in the same time zone.
There is little-to-no language barrier for Hong Kong investors, Cantonese speakers are 96% of Hong Kong, according to Language Magazine, and they can read Mandarin.
The Hong Kong Exchange is a deep and liquid market. The Hong Kong Dollar is still freely convertible into other currencies.

Looking ahead: Regardless of whether the SEC, PCAOB, and CSRC can reach an agreement, I expect more Chinese companies to make the move to Hong Kong, assuming convertibility of HK Dollar continues unabated. Perhaps they’ll even follow Ant Group and seek a dual Hong Kong-Shanghai listing.

READ MORE: Ant Group IPO filings: five key takeaways

Mining and the curious case of the digital yuan: Blockheads

Eliza Gkritsi — Tue, 01 Sep 2020 06:25:44 +0000

Last week was a busy week in China’s blockchain world, particularly in cryptocurrency mining circles. The Battle of Bitmain drags on, while the government of Inner Mongolia is cracking down on the local mining industry. At the end of the week, the digital yuan made an appearance on a banking app, then mysteriously disappeared.

Blockchain
headlines

The world of blockchain moves fast, and nowhere does it move faster than China. Here’s what you need to know about China’s block-world for the week of August 24-30.

The curious case of the digital yuan

China Construction Bank, one of China’s “big four,” on Saturday opened its digital yuan e-wallet to the public. The feature was available on the bank’s app, leading to widespread speculation that the central bank’s digital currency was finally ready for public use. Some users even managed to conduct some transactions.

Later on the same day, the feature disappeared with no explanation, leaving users and speculators puzzled about what CCB was doing with the digital renminbi.

The mining debacles

On Aug. 24, the government of Inner Mongolia announced it had halted discounted electricity pricing to 21 companies, including cryptocurrency mining pools. Among the companies were cryptocurrency equipment manufacturers Bitmain and Ebang’s pools, Coindesk reported. Electricity costs for the mines will rise by one third, the government said. The government of China’s northern autonomous region continues to clamp down on the crypto mining industry, while southwestern Sichuan province pursues a cleanup operation. (Blockchain Real, in Chinese)

READ MORE: INSIGHTS | Markets, not floods, will drown bitcoin miners

The chairman and legal representative of MicroBT, a bitcoin equipment manufacturer, has reportedly resigned from his position. Yang Zuoxing was arrested in 2019 while he was still at Bitmain over alleged embezzlement. (WuBlockchain)

Government moves

Huawei and the local government of Beijing are trialing a blockchain-based directory of the city’s government agencies. (Jintai, in Chinese)
The Chinese government wants to use blockchain to manage its social welfare system, according to a paper co-authored by the Communist Party and the State Council. (Xinhua, in Chinese)
China’s “internet of blockchains,” the Blockchain Services Network (BSN), plans to launch support for stablecoins in 2021. Stablecoins are cryptocurrencies pegged to fiat currencies. (Cointelegraph)
The US Department of Justice said Chinese cryptocurrency traders colluded with North Korean hackers to launder $250 million of stolen cryptocurrencies. (US Department of Justice)

In the corporate world

China’s e-commerce giant JD.com is partnering with UK blockchain startup Everledger and the US Gemological Institute to launch a diamond traceability platform. (Ledger Insights)

Food for thought

Can China successfully export its consortium chain-focused blockchain industry? Will the BSN be as impactful as promised? Ethereum co-founder Vitalik Buterin answers TechNode’s questions abut China’s blockchain world. (TechNode)

Bytedance to obey China tech export rule as Tiktok sale nears

Wei Sheng — Mon, 31 Aug 2020 07:13:09 +0000

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.

Tiktok CEO Kevin Mayer quits as US pressure mounts

Wei Sheng — Thu, 27 Aug 2020 06:37:22 +0000

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.”

VC Roundup: No sign of tech war in China VC flows

Wei Sheng — Thu, 27 Aug 2020 05:04:44 +0000

Recent developments in the escalating US-China tech war signal that a full technology “decoupling” between the world’s two largest economies might be inevitable. So far, new measures have stifled sectors ranging from telecommunications equipment to social media. But is it chilling US VC activity in China?

Two weeks ago, TechNode reporter Chris Udemans wrote that Chinese investments in US startups have fallen dramatically since 2018, the same year the US began to scruitizine Huawei and ZTE, two of China’s largest telecom manufacturers.

But when TechNode looked at US-to-China data, we got a surprise: things look normal. Investor and analyst data show that American capital flowing into Chinese startups has not yet taken a hit from geopolitical tensions between the two nations.

VC Roundup

VC Roundup is TechNode’s monthly newsletter on trends in fundraising. Available to TechNode Squared members.

Overall US investment in Chinese startups—including deals made directly by US institutions or China-based venture capital (VC) firms investing in US dollars—has fallen since 2018, but this is in line with a broader cooldown in Chinese tech investment due to a slowing economy and growing financial headwinds.

But it could be that the slow-moving field is still processing the changed environment. Some investors and analysts told TechNode that politics is going to catch up with investments. Chinese VC firms that raise funds in US dollars, which have played a big role in China’s decade-long technology boom, are having a hard time raising money from their limited partners in America. Growing hostility from regulators and lawmakers toward US-listed Chinese companies may make it more challenging for Chinese firms to float shares in American financial markets, which is where most US dollar-based venture investors seek to exit.

US VC investment shrank amid ‘capital winter’

American VC firms first entered the Chinese market in the early 2000s. Many credit these early American investors with helping establish modern VC investing in China. Among them were firms like Sequoia Capital, IDG Capital, and Matrix Partners.

US-China Investment Project, a research initiative led by Rhodium Group and the National Committee on US-China Relations, estimates that US VC firms invested in nearly one-third of all venture capital-backed Chinese companies from 2000 to the first half of 2019. It also estimates that US investors channeled around $47 billion into Chinese startups over the period, accounting for 16% of the roughly $300 billion in total investments.

Investment into Chinese startups by US venture firms took off after 2014, peaking at $19.6 billion in 2018, according to a US-China Investment Project report. The findings attributed this spike to a few massive late-stage fundraising rounds for prominent Chinese technology companies like Ant Financial, Pinduoduo, and Bytedance.

Venture funding, however, fell dramatically to $5 billion in 2019, the lowest level since 2015, according to the report. The drop was in line with a broader slowdown in Chinese tech and venture capital markets. Investors were becoming “more selective in the face of increasing economic uncertainty and a growing perception that parts of China’s tech ecosystem had become overheated after years of rapid growth,” the report said.

(Image credit: TechNode/Wei Sheng)

Total VC investment into Chinese startups fell by almost half from $204 billion in 2018 to $119.7 billion in 2019, according to Itjuzi, a Chinese venture capital data provider.

US backers, Chinese funds

US-owned VC firms only represent a small portion of the American capital that flows into Chinese startups. The majority of US dollar investments are made through Chinese VC firms that raise funds from American limited partners. These US dollar funds often include high-profile Chinese general partners such as Source Code Capital, which backed Chinese super-app Meituan Dianping; Lightspeed China Partners, which invested in social e-commerce upstart Pinduoduo; and Zhenfund, whose portfolio firms include social media app Xiaohongshu and the artificial intelligence unicorn Yitu.

Foreign backers in these Chinese US dollar funds include sovereign wealth funds, retirement funds, and big corporates, according to Liu Xiaoqing, analyst at Itjuzi. Liu told TechNode that while such funds raise money in countries like Japan and Singapore, the majority of their funding comes from the US.

Compared to RMB funds, US dollar funds participate in far fewer deals but tend to make substantially greater investments in each. The average investment made by RMB funds was $28.1 million in the first quarter, compared to an average of $103 million per deal by US dollar funds, according to a report (in Chinese) by financial advisory firm China Renaissance.

Investments by US dollar funds into Chinese startups peaked in the second quarter of 2018, with $42.8 billion invested into 217 venture funding rounds. In 2019, Chinese venture capital dropped by more than half, though this is still in line with the overall performance of the Chinese tech VC market. The transaction volume of financing rounds made by US dollar funds in 2019 also halved compared to the year before, according to China Renaissance.

(Image credit: TechNode/Wei Sheng)

Money is ‘not political’

In the second quarter, even as the US government tightened restrictions on Chinese tech companies, US dollar funds were still playing an important role in startups’ fundraising. US dollar funds accounted for 54% of VC transaction volume with Chinese tech startups in the quarter, according to Itjuzi (in Chinese).

Adam Lysenko, associate director at Rhodium Group, said there have also been tailwinds for increased investment over the last couple of years, such as Beijing’s embrace of foreign investment in the automobile and financial sectors, despite escalating US-China tensions. “Due to these factors, we haven’t seen a massive drop-off in US investment in China yet,” said Lysenko, who co-authored the US-China investment report.

But experts warn that investment data moves slowly. If investors are getting cold feet now, the effects may not appear in the data for years. In the VC market, the time horizon may stretch longer. “There is a delay in market data considering that the lifecycle of VC funds could be three to eight years,” Liu told TechNode.

Xu Miaocheng of Unity Ventures, a Beijing-based early-stage VC firm, told TechNode that some Chinese US dollar fund managers are already having a hard time raising money from their American limited partners. Reasons include the Covid-19 crisis which has hampered business trips, as well as escalating conflicts between the Trump administration and Chinese tech companies.

Liu, however, insists the impact will be minimal because money is “not political.”

“The US government will not regulate US investment in China in the same way it scrutinizes Chinese investment in the US technology sector,” she said. Beyond a number of select Chinese firms currently sanctioned by US regulators, “they [the US government] don’t care which countries American limited partners invest in, as long as they are making money.”

Not everyone believes the calculus is so clear-cut. “The future trajectory of US investment in China will depend on whether political concerns outweigh the powerful commercial motives that still exist to deploy capital there[China],” said Lysenko. He added that US venture capitalists continue to see China as a crucial market for growth in a world with slower economic growth.

Given the interdependence between the two countries’ corporate sectors, he continued, “I expect that only a dramatic decoupling path—with sustained US government pressure on US firms—will result in a meaningful reduction in US investment in China.”

Additional contributions by Chris Udemans.

Q&A with Vitalik Buterin on the BSN and China’s blockchain world

Eliza Gkritsi — Tue, 25 Aug 2020 09:11:04 +0000

Much has changed in the blockchain universe since Vitalik Buterin released one of the most influential white papers in the history of the distributed ledger technology. His 2013 Ethereum white paper was the first step in developing the world’s second-largest cryptocurrency by market capitalization. Unlike Bitcoin, the Ethereum protocol was created to support the development of blockchain applications (known as decentralized applications, or Dapps), which has rendered it into the go-to platform for blockchain developers.

One change that Buterin doesn’t often talk about is China’s rise as a global blockchain powerhouse.

On the heels of the annual Ethereum Developers Conference, TechNode interviewed Ethereum co-founder Buterin via e-mail. Supported by the Ethereum Foundation, EDCON is a community-supported event organized by LinkTime, Unitimes, ETHPlanet, and other Ethereum communities.

Buterin spoke about blockchain adoption in China, China’s Blockchain Services Network (BSN), and the early days of Ethereum.

The Ethereum co-founder welcomes Chinese developers, government, and large enterprises to the field, but warns that a preference for consortium blockchains may get in the way of their international ambitions. This type of blockchain centralizes control of the network.

In an international context you cannot assume that there is even a single government that everyone trusts, whereas public blockchains are more easily perceived as being neutral.
VItalik Buterin

Buterin also sees potential in the Chinese government-led “internet of blockchains” BSN, but cautions that it’s far from a done deal. He compared the hype to Facebook’s Libra digital currency, which also made headlines when announced. Only five months later, major partners pulled out from the project, and it has yet to pick up steam.

Blockchain Services Network (BSN)
What: A platform for blockchain development, bringing together cloud services and different chain protocols on city nodes.
Why: To reduce the cost of blockchain application design and deployment while powering communication between chains. It will be made available around the world through local cloud providers, ultimately creating a global internet of blockchains.
Who: It is part of the government’s Global Blockchain Strategy unveiled by Chinese President Xi Jinping in November 2019, spearheaded by the China State Information Center, China Mobile, China Union Pay, and Red Date Technology. For details watch our webinar with BSN’s architects and key partners.

TechNode: Where are you seeing the most blockchain talent, geographically speaking?

Vitalik Buterin: I think it’s widely distributed! At the beginning it was more highly concentrated in Silicon Valley, Berlin, and a few other places, but now there are hubs of blockchain talent all around the world. I see many successful teams in the US, Europe, Australia, and recently more in China as well.

TN: Governments are increasingly involved in blockchain, either through regulation or their own initiatives. Consortium chains are garnering increasing attention and popularity. Do you think that either or both of these moves diminish the potential for decentralization?

VB: My impression is actually that public chains are gaining more support recently, including from large enterprises and even government applications in a few cases. Consortium chains are of course the more safe and conservative option, and much more powerful than public chains in the short term because public chains have scalability issues, but I think public chains will prove themselves to be more safe and scalable with time.

TN: How do you think China’s increased activity in the blockchain world, both by the private and public sectors, will affect the development of the technology in the next decade? What are some pros and cons?

VB: I am definitely happy that so many in China are interested in building blockchain applications. We are in a time when there is great concern about what technologies can be trusted; blockchains cannot solve all problems but there are definitely some things that blockchains can make better by making it easier to build platforms where users control their own data, improving auditability and transparency of algorithms, etc.

One main challenge I see is that so far Chinese large enterprises and government tend to focus mostly on consortium chains, and while I think this will work within China, I also think that many of the most valuable blockchain applications are international ones, and in an international context you cannot assume that there is even a single government that everyone trusts, whereas public blockchains are more easily perceived as being neutral. So I do think that more adoption of public chains is going to be necessary. BSN integrating with public chains is definitely a positive step in this regard.

TN: Ethereum is one of the chains available on China’s BSN, according to Red Date. How was the decision to participate taken, can you describe the reasoning? How do you think you can manage the collaboration/competition relationship given that both projects pertain to smart contracts and Dapps?

VB: That decision was taken by the BSN group, it would be better to ask them for their reasoning! I think they simply want to give developers options and the ability to use high-quality public networks that are widely used, and Ethereum is absolutely at the forefront of that. I don’t see BSN as being a competitor to Ethereum; I see it as being a different layer.

TN: What is your take on the BSN more broadly? What will its impact be?

VB: I think it’s still too early to tell; it remains to be seen exactly what kinds of projects will be built on BSN and how it will evolve. It’s important to not try to guess too much from early initial information about a project when it’s being released; e.g. I think this is one of the mistakes that people made with Libra.

TN: It is said that back in 2013 you proposed creating a scripting language on top of Bitcoin, but that this didn’t go down well. If this is true, what do you think looking back on that interaction now? Is there anything you would have done differently? Do you think that, ultimately, the creation of Ethereum was for the best?

VB: This is a misconception; I did not actually propose to build on bitcoin first. I proposed to build on Primecoin instead of Bitcoin, because at the time the Bitcoin community was already having debates with many people pushing to change the protocol to make it impossible to build second-layer protocols of the type that I wanted to build on top. A big part of the reason why I wanted to build on Primecoin instead of building an independent blockchain was because at the time I expected I would have to write the code myself and I did not see myself capable of writing an independent blockchain from scratch. However, when I published the idea, far more people quickly offered to help, and so I did feel like I had the ability to create Ethereum as a separate blockchain.

TN: You began your career as a journalist at Bitcoin Magazine. Have skills from media helped you in your later career? What is the most common mistake journalists and public speakers make when communicating blockchain with the general public?

VB: Probably the two most important skills that I learned were (i) an understanding of the tech and economics and other properties of bitcoin and cryptocurrency, and (ii) writing skills. I think the biggest mistake made by a lot of educational writing is that there are usually two types of educational writing. First, there is writing that tries to fully explain the idea technically, with the goal of helping people fully understand it and be able to implement it; however, this writing tends to be very academic, very difficult to read, and often written to be read by people who studied the same things in university as the author etc etc. Second, there is writing that targets the general public, but is completely technically inaccurate. I feel like there is a large missing space in between these two extremes, and it’s what I try to target with a lot of my writing.

TN: What was it like to be paid in Bitcoin (BTC) in the early 2010s? What did your family and friends tell you? What were the most important reasons why you got involved with cryptos?

VB: Being paid with BTC for the first time definitely felt like becoming part of a new world. My family and friends were not too interested at first, though I became interested very quickly; I found the combination of math and technology and ideas around open source software, digital communities and freedom very attractive. It took time for other people to find cryptocurrencies interesting as well.

TN: What is the most important roadblock in a blockchain-powered internet, back in the early 2010s and today? How was your thinking about the technology changed? Have you discovered new potential/limits that you didn’t see before?

VB: There are definitely many things that I understand now that I did not understand well back then. One example of this is around decentralized governance. In the early 2010s, I was very interested in DAOs (fully decentralized companies running on the blockchain) and similar ideas, but I understood little about the challenges of actually building them and the economics of governance mechanisms.

Since then I’ve come to understand much more, and I know what the limits are; for example, I have written many articles about how coin-based voting systems are vulnerable to bribing voters, control by very few wealthy actors, and similar problems. Understanding the economics and the limits of oracles has also been another significant advancement since then. [Oracles connect Dapps with the real world, facilitating the execution of smart contracts.] Though at the same time, we have come much further in actually having these systems running on a live network, so I think there has been progress.

TN: Ethereum 2.0 (Eth2.0) is adopting a proof of stake consensus algorithm to improve the network’s scalability and efficiency. But it’s likely that staking pools, much like mining pools, will emerge to dominate the network, increasing centralization. Will Eth2.0 sacrifice some decentralization for scalability? How do you plan to deal with centralization stemming from staking pools?

VB: The Eth2.0 research team takes decentralization very seriously. We have made many protocol changes to try to make the protocol more friendly to individual and small-scale stakers. Staking pools are definitely going to happen, through it is definitely our hope, and our expectation, that there is less centralization in staking than there was in mining.

UPDATED: Bytedance challenges Trump’s Tiktok ban in court

Wei Sheng and Savannah Billman — Tue, 25 Aug 2020 03:20:00 +0000

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.

Xpeng, next up in wave of US IPOs, attracts big-name investors

Jill Shen — Mon, 24 Aug 2020 08:04:30 +0000

Xpeng Motors is priming for a public listing in New York where it could raise up to $1.1 billion from a number of high-profile backers, including Chinese technology giants Alibaba and Xiaomi.

Why it matters: Xpeng’s listing is timed to benefit from strong investor appetite for electric vehicle stocks, a spillover effect from Tesla’s massive run this year as it ramped up production of China-made Model 3 sedans.

The initial public offering (IPO) would also be a test of US investor demand for Chinese stocks amid harsher financial scrutiny and rising tensions between Beijing and Washington.
Xpeng would be the third Chinese EV maker to list in the US after Nio and Li Auto—currently the most potent local Tesla challengers, backed by Chinese tech giants Alibaba, Tencent, and Meituan, respectively.

Details: Xpeng Motors is offering 85 million American depositary shares (ADS) at $11 to $13 each, according to a Friday filing to the US Securities and Exchange Commission. The company said each share will represent two Class A ordinary shares.

The high end of the range gives the EV maker a valuation of $9.17 billion. After the closing bell on Friday, Nio closed with a market cap of $16.7 billion and Li Auto with $12.5 billion.
Chinese e-commerce giant Alibaba, its biggest external shareholder with a 14.4% stake, will purchase up to $200 million in the share sale, followed by US hedge fund Coatue with an expected subscription worth $100 million.
In the meanwhile, Primecap Management Company, a US investment firm that has held Tesla stocks since 2011, also indicated interest in purchasing $100 million worth of shares in the offering.
California-based Primecap is currently a Tesla shareholder with a 0.7% stake reduced from 1.8% in 2012, which accounts for 1.22% of its total portfolio, according to online research platform GuruFocus.
Sovereign wealth fund Qatar Investment Authority will subscribe for $50 million worth of shares, after joining in its $800 million Series C+. Xiaomi, Hong Kong-listed smartphone maker and a long-time backer, will also buy up to $50 million worth of shares.
He Xiaopeng, CEO of the company and a former executive at Alibaba, will retain 31.6% of the business and 58.9% of the voting power, according to the amended registration statement.

Context: Guangzhou-based Xpeng Motors is currently the only new EV maker that has delivered both electric sedan and SUV models to customers in China.

Xpeng has delivered a total of 20,707 EVs as of July starting in late 2018, mostly its first production model, the G3, compared to Nio’s 49,615 units which began delivery four months earlier.
It has sold 1,966 units of its second EV model, the P7, an electric sedan boasting a driving range of 706 kilometers (439 miles) and a proprietary assisted automated driving system XPilot, in the three months ended July 31.
The company plans to launch its third and fourth models, one sedan and one crossover, based on its existing EV platforms by the end of 2022, according to the prospectus.

Huawei, ZTE slow 5G buildout as US tech ban takes hold

Wei Sheng — Thu, 20 Aug 2020 07:52:06 +0000

Chinese telecommunications equipment makers Huawei and ZTE have slowed their 5G base station installation in the country amid increasing uncertainty in its key component supply chain, Nikkei Asian Review reported Wednesday.

Why it matters: The two companies grabbed more than 80% of 5G base station contracts from China’s three main telecom carriers. The throttling of their 5G base station construction signals that US export controls are taking hold, curbing their ability to source key components.

The slowdown is also a result of Chinese carriers’ prudent investment strategy for the next-generation wireless technology.

Details: Huawei and ZTE are working on re-designing some of their 5G products to remove as many US parts as possible, Nikkei reported. They told some suppliers to slow down shipments of certain 5G base station-related products in June.

A ZTE component and part supplier executive said the company was told to slow shipments in June, and July shipments came to a near standstill. The executive said the company had to go through product verification tests again as ZTE has changed many of its designs.
A Huawei supplier also told Nikkei that Huawei had changed some designs and replaced equipment used in the manufacturing process, which led to a slowdown in the installation of 5G base stations.
Torrential rains and floods in southern China in the past few months have also contributed to delays in 5G base station installations, the report said.

Cautious stance: China’s three state-owned carriers—China Mobile, China Unicom, and China Telecom—have maintained prudent 5G budgets despite Beijing’s push to build more 5G cell towers, part of the so-called “new infrastructure” initiative in the post-virus stimulus measures.

China Mobile kept its annual capital expenditure plan unchanged at RMB 179.8 billion (around $26 billion). Yang Jie, chairman of China Mobile, told reporters last Thursday that the company’s overall capital expenditure on 5G would not “increase drastically” in the next three years.
China Unicom and China Telecom are jointly building a 5G network in the country. China Unicom Chairman Wang Xiaochu said last Wednesday that the alliance has saved the pair more than 40 billion yuan in capital expenditures over the year, according to the Nikkei report.
However, the two carriers have kept their annual capital expenditure plan, totaling RMB 155 billion, unchanged for this year.
The three carriers’ combined budget for 5G buildout in 2020 is RMB 180.3 billion, according to state-run China News Service.

Context: On Monday, the US Commerce Department expanded restrictions on Huawei, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.

The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.

US expands Huawei ban to third-country chip vendors

Wei Sheng — Tue, 18 Aug 2020 05:20:29 +0000

The US Commerce Department issued Monday new rules expanding restrictions on Huawei, in a move that will further narrow the Chinese telecommunications equipment maker’s access to crucial chips.

Why it matters: The move could further close what some US officials call “loopholes” in Huawei’s chip supply chain, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.

The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.
Monday’s new rules mean Huawei can’t circumvent the ban by purchasing commercially available chips it needs from third-party vendors.

Details: The US Commerce Department added another 38 Huawei subsidiaries into the so-called “Entity List” and imposed license requirements on any transactions involving items subject to US export controls, it said in a statement on Monday.

This means vendors of chips made with US technology will have to apply for a license in transactions where Huawei or other companies on the Entity List act as a “purchaser, intermediate, or end user,” according to the statement.
“These actions, effective immediately, prevent Huawei’s attempts to circumvent US export controls to obtain electronic components developed or produced using US technology,” the Commerce Department said in the statement.
The US President Donald Trump reinforced his concern that Huawei equipment could be used to spy on Americans. During an interview on Monday on “Fox & Friends,” Trump called the Chinese company “Spy-Wei.”
A representative of Huawei declined to comment to a request from TechNode on Tuesday.

Context: A series of US restrictions on critical chips has taken a toll on Huawei’s business, especially in the smartphone segment.

Chinese media Caixin reported earlier this month that Huawei will stop making its flagship Kirin chipsets after Sept. 15 due to US pressure on suppliers.
Huawei’s high-end Mate 40 handsets, which will debut this fall, will be the last smartphones featuring the Kirin 9000 processor, company’s most advanced processor, said Yu Chengdong, head of Huawei’s consumer business, who called it a “huge loss” to the company, according to Caixin.
Huawei’s in-house chip designer Hisilicon relies on software from US companies such as Cadence Design Systems and Synopsys to design its chips. It outsources the production of its chip designs to Taiwan Semiconductor Manufacturing Company, but the collaboration is under pressure because of new US export regulations announced in May.
Mediatek, a Taiwanese chip designer, is widely seen as a possible alternative to Huawei’s Hisilicon. The company told Chinese business media Yicai Tuesday that it is evaluating the US export rule changes to make sure it complies with relative regulations.

INSIGHTS | Trump’s app bans and what they mean for China tech

Wei Sheng — Mon, 17 Aug 2020 03:48:26 +0000

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.

We’ve spent a lot of the last week trying to figure out what it all means. Here’s what we’ve learned.

Bottom line: The two apps will be banned in the US unless there is a change in their ownership, meaning at least that they will be dropped from app stores. While Bytedance is reportedly in talks with potential buyers like Microsoft and Twitter, it is virtually inconceivable for Tencent to sell Wechat, one of the Chinese internet titan’s most valuable products.

Every week, TechNode picks a story in the news and boils it down to what you need to know in the exclusive Insights column.

It’s normally paywalled, but we’re making this issue free as a sample of our work. Sign up here to get access to every issue.

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?

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.
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.

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

CHINA VOICES | ‘Abandon your fantasies’: bloggers to Bytedance

Shaun Ee — Fri, 14 Aug 2020 10:08:52 +0000

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):

“Free market” this way, says the sign in the first panel. In Lao Pei’s rendition, though, what awaits the deliciously plump TikTok is a slightly less happy fate. (Image credit: Lao Pei)

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.

US regulator is investigating Iqiyi for financial fraud

Wei Sheng — Fri, 14 Aug 2020 06:51:00 +0000

Chinese video-streaming platform Iqiyi said Thursday that it is under investigation by US authorities over a short report released in April which accused the company of inflating 2019 revenue by up to 40%.

Why it matters: US regulators are more actively investigating allegations against Chinese companies for financial fraud after beverage chain Luckin Coffee admitted in April it had fabricated transactions in 2019 totaling around RMB 2.2 billion (around $317 million).

The US is increasingly scrutinizing Chinese companies as lawmakers call for stricter audit requirements. US President Donald Trump has also recently threatened to delist from American stock exchanges Chinese companies that do not comply with US accounting standards.

Details: Baidu-backed Iqiyi said in a statement announcing its second-quarter earnings on Thursday that it is cooperating with the Securities and Exchange Commission (SEC) probe, which is seeking financial and operating records dating from January 2018.

The top US financial market regulator is also seeking “documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020,” the company said.
Iqiyi said it had hired advisers to conduct an internal review of the key allegations in the Wolfpack report “shortly” after it was released.
Shares of the company tumbled as much as 19% on Thursday on the disclosure.

READ MORE: INSIGHTS | Short seller huffs and puffs, but it doesn’t blow Iqiyi down

Context: In April, Muddy Waters Research tweeted a link to a Wolfpack Research report, alleging that Iqiyi had inflated its 2019 revenue by 27% to 44% and overstated user numbers by 42% to 60%.

At the time, Iqiyi said in a statement that the report “contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
On May 20, CNBC reported that the US Senate unanimously passed legislation prohibiting foreign companies which do not adhere to the country’s regulatory and audit standards from listing on its exchanges or raising money from American investors.
Earlier this month, the Trump administration issued its recommendations to ban Chinese companies from US stock exchanges if they don’t comply with American accounting standards, according to the Financial Times.

Techwar: Tiktok US ban may include app stores, ads

Savannah Billman — Fri, 14 Aug 2020 06:07:59 +0000

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.

Before the bans, China tech investment turned away from US

Chris Udemans — Thu, 13 Aug 2020 03:28:03 +0000

It wasn’t so long ago that China tech investment loved US startups. Now, the two tech markets feel like they’re on different planets.

Over the past week, US officials have announced plans to rid American networks of Chinese technology and digital services, and announced bans that could outlaw the use of short video platform Tiktok and popular messaging app Wechat in the US.

The move has taken tech tensions between the two companies to unprecedented levels, and placed additional pressure on Tiktok owner Bytedance to sell the short video platform’s US operations over national security concerns.

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Expanding Empires is TechNode’s monthly data-driven newsletter looking at where and how Chinese tech majors are investing in up-and-comers around the world. Available to TechNode Squared members.

So far, the American offensive specifically targets two companies, but ripple effects are creating uncertainty over just how wide-ranging the ban could be—especially for Wechat’s owner Tencent, which holds a formidable portfolio of US investments.

So how do geopolitical tensions affect Chinese tech’s overseas investments? Pretty significantly, it turns out. In fact, the story of American measures to stifle Chinese influence in its home market starts long before July.

I scraped and analyzed public funding data to pinpoint deals by Chinese tech majors in the US. The numbers highlight a turning point in 2018, when the US sharpened its focus on companies like telecommunications giants Huawei and ZTE. Since then, Chinese investments in US startups have fallen off a cliff.

Tech giants like Alibaba, Tencent, and Baidu appear to have reversed their US investment strategies amid rising tensions between China and the US, as two superpowers tussle over the future of the companies that dominate the internet.

Key takeaways:

Chinese tech giants invested heavily in the US between 2010 and 2018, but quickly scaled back investments in US startups beginning in 2019.
The drop-off is partly explained by increased scrutiny in 2018, when the Committee on Foreign Investments in the United States (CFIUS) was given more power to review investments in US companies.
Since then, new Chinese investments in American startups have fallen dramatically. Contributions in the first quarter of 2020 dropped to $400 million, down by more than a third compared to the same period in 2019, according to the US-China Investment Project.
The drop in funding occurred only among Chinese investors—overall investment flows into US startups largely remained the same in 2019.

Investment explosion

It started with a boom. After gaining a solid foothold in their home markets, Chinese tech giants started looking abroad for the next big thing.

In 2008, Tencent became the first Chinese tech giant to set its sights on the US, investing in big-ticket companies like electric vehicle maker Tesla and social media giant Snap.

The company has participated in 81 funding rounds for US startups since 2008. Its US investments peaked between 2014 and 2017, a period when it made three-quarters of its deals—62 in all.

In 2010, the same year that Google bowed out of China over concerns of censorship and cyber threats, e-commerce giant Alibaba made its first move into the US. The e-commerce giant has since taken part in 27 funding rounds for US companies. These rounds totaled more than $5.4 billion. Given how companies guard information about their investments, the data presents only the total value of each funding round rather than Alibaba’s individual contributions.

Meanwhile, Baidu made its first US investment in 2013. Though it has taken part in significantly fewer funding rounds than either Alibaba or Tencent, Baidu’s investment peak came in 2016, when it participated in rounds for lidar-maker Velodyne, as well as fintech companies Circle and Zestfinance.

Overall, Chinese venture funding in the US amounted to around $14 billion between 2013 and 2018, according to figures from the US-China Investment Project. Total investment spiked in 2018 at $4.7 billion, but otherwise plateaued between 2015 and 2019 at around $2.5 billion.

The bust

Everything changed after 2018. In 2016, Baidu, Alibaba, and Tencent were involved in 22 deals in the US. In 2019, they took part in a paltry three investments.

The reason was almost certainly politics. As trade tensions between the world’s two largest economies flared, the US and Chinese tech sectors took most of the heat. Hostility grew and investments shrank.

Chinese investors that focused on US startups in previous years have sought distance from the sector. Tightening US regulations drove them away, while the prospect of bigger returns lured them to developing markets. New rules that give CFIUS extra power added another important reason for the decline.

(Image credit: TechNode/Chris Udemans)

In 2019, Tencent took part in just two funding rounds—one for social media news aggregator Reddit, and another for contacts manager Contacts+—a 90% decrease from its height of 23 deals in 2015, and a 70% year-on-year decline from 2018.

While Alibaba’s US portfolio isn’t as expansive as Tencent’s, the company participated in 26 deals between 2010 and 2017, including high-profile investments into companies like mobility platform Lyft and Snap. Since 2018, it has taken part in only one US funding round.

Alibaba’s pullback from the US preceded Tencent’s. Business concerns may have also played a role, as the company pivoted to Asia’s lucrative developing markets when growth began to stagnate in its home market of China. Still, US scrutiny of Chinese firms was already intensifying, and rising tensions undoubtedly played a role in Alibaba shifting away.

Even Baidu, which has far less at stake in the US given its smaller investment footprint, has pulled back from American investments. Just one of its 11 investments took place after 2018.

As the number of Chinese funding rounds in the US declines, so does the amount of investment coming from China. The US-China Investment Project estimates that Chinese venture funding in the US totaled $400 million in the first quarter, down from $640 million during the same period in 2019 and $1 billion in 2018. Of course, a global pandemic beginning in China also contributed to this fall.

This dropoff was “distinctively Chinese,” according to the US-China Investment Project’s report. Despite the decrease in Chinese investment, overall funding in US startups largely remained the same.

China’s tech giants have turned their eye to the developing markets. Firms including Alibaba and Tencent have increased their investments in the emerging markets of South and Southeast Asia. The two companies have divided up India’s tech scene without any overlap in their investments, while also making some big bets on promising tech companies in Southeast Asia.

(Image credit: TechNode/Chris Udemans)

Tougher reviews

A significant factor contributing to the dropoff in China tech investment is the increasingly strict regulatory environment. In late 2018, the US introduced new measures that increase scrutiny of foreign investments in American companies.

Dubbed the Foreign Investment Risk Review Modernization Act (FIRRMA), the changes gave CFIUS, an inter-agency body tasked with identifying risks from foreign investments, more power to scrutinize investments into American firms.

FIRRMA came into effect amid fears that Chinese acquisitions of and investments into US companies were abetting technology transfers from the US to China, and having adverse effects on American companies and internet users.

Before the new rules, CFIUS typically reviewed deals only when a foreign investor took a controlling stake in a US company, focusing on deals involving sensitive technologies.

In early 2018, fintech giant Ant Financial found itself locking horns with CFIUS. The Alibaba-affiliated company had wanted to acquire American money transfer firm Moneygram, but was forced to withdraw from the deal after the regulatory committee rejected it over national security concerns.

The proposed $1.2 billion deal would have made 2018 an even bigger year for China-US investment flows, increasing total investment that year to nearly $6 billion, based on figures from the US-China Investment Project. That figure would have more than doubled the previous year’s total.

CFIUS has also blocked Chinese ownership of the LGBTQ dating app Grindr. The committee required Beijing Kunlun Technology, the app’s previous owner, to sell the app, citing national security concerns. Kunlun agreed to sell the app to San Vincente Acquisition in March.

FIRRMA gave CFIUS a mandate to review non-controlling investments in US companies that produce critical technology, critical infrastructure, or that collect US citizens’ personal data. Critical technologies can include anything from semiconductors to batteries.

Crucially, it also authorized the committee to target investors based on the country they are from.

“While specific countries are not singled out, FIRRMA allows CFIUS to potentially discriminate among foreign investors by country of origin in reviewing certain investment transactions,” the Congressional Research Service, a US Congress-affiliated think tank, wrote in a February report.

According to CFIUS’ annual report, only three potential investments in critical technology originated from China in 2019. But even if CFIUS is not rejecting deals, the dramatic drop in Chinese investment shows that Chinese tech companies don’t think it’s worth trying.

“The broad impacts suggest systemic headwinds to Chinese venture activity, reflecting tighter investment screening and a deterioration in investor sentiment as US-China tensions increase,” said the report by the US-China Investment Project.

Given the Trump administration’s latest move to shed Chinese technology from America’s digital networks, Chinese companies and investors will likely continue to be driven away by US politics.

8 things to know about the Chinese tech giant behind Tiktok

Wei Sheng — Wed, 12 Aug 2020 09:36:00 +0000

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 t o 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.

(Figure 1)

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.

Techwar: Trump’s Wechat, Tiktok ban to face lawsuits

Savannah Billman — Tue, 11 Aug 2020 04:52:51 +0000

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.

Trump’s Wechat ban to have little effect on Tencent’s revenue: analysts

Wei Sheng — Mon, 10 Aug 2020 06:45:42 +0000

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 Wechat ban will mean more than lost connections

Frankie Huang — Fri, 07 Aug 2020 07:42:41 +0000

On July 15th, just two days after White House trade adviser Peter Navarro spoke of possible actions to be taken against Tiktok and Wechat, my mother forwarded me a long, extremely detailed step-by-step guide for downloading and backing up my Wechat data and contacts. The guide has been viewed over 100,000 times since it was first posted.

Opinion

Frankie Huang was born in Beijing and raised in New Jersey. She is a freelance writer, illustrator, and strategist based in Boston. Her work explores feminism, diaspora identity, and social issues.

“I never believed or worried about a Wechat ban,” my mother remarked after sending it to me.

“So why did you send me that guide?” I asked.

“Just in case,” she replied. “I mean, Trump would do anything to better his chances for a reelection.”

Beneath her feigned nonchalance I noted a familiar anxiety we share.

Yesterday’s executive order from US President Donald Trump, banning “transactions” with Tencent that relate to Wechat, will certainly change her tone. It’s no longer possible to dismiss these fears and paranoia.

Is a Wechat ban likely?

Over the years, Wechat has grown from a simple mobile messaging app to a sprawling super app on which people conduct business, consume content, make monetary transactions, and live their lives. But at its core, it’s about connections between people.

The first blow to Wechat’s global network came from India. On June 29, the Modi government banned Wechat, along with 58 other Chinese apps, in response to tensions in the China-India border.

After weeks of deliberation, the US launched its own assault with Secretary of State Mike Pompeo’s newly unveiled “Clean Network” initiative, and a freshly released Executive Order that takes direct aim at Wechat. A potential US-based Wechat ban looms darkly as US-China relations traverse increasingly choppy waters.

READ MORE: Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

While discussions of scrubbing China’s digital presence from American networks are still in the conceptual stages, the legality of implementing a sweeping ban remains dubious. Kevin Xu, a seasoned political organizer and a tech startup advisor based in California, offered a measured perspective on what may come to pass, prior to yesterday’s executive order.

“Chances of some sort of ban on Wechat before the election is higher than 50%, but it will likely be partial, for example, banning all Federal employees and/or contractors who do business with the Federal government. It’s hard to know the legality of such a ban, but it’ll likely be made on national security grounds, which has a wide legal leeway.”

In India, Tencent cooperated with the ban, without arguing about its legality. On July 27, the company stopped providing services to India-based users. Will it behave the same way with the US, or mount retaliatory actions? Right now it is impossible to say.

In whatever form it will take, the Wechat ban stands to make a quick splash in the media cycle, allowing President Trump to claim a hollow victory against China while fanning the flames of nationalism in his desperate bid for reelection.

The Chinese government would of course be no worse for wear, it’s the Chinese diaspora in the US who would stand to suffer most under this senseless punishment, depending on how the situation plays out.

Wave of anxiety

Even after reading the new Executive Order from the White House, I don’t really believe a comprehensive Wechat ban will come to pass in 45 days.The dangerous precedent such a move would set will certainly not go unchallenged by lawmakers and business leaders.

But then again, a few months ago I didn’t think a US consulate in China and a Chinese consulate in the US would be shut down within a week, yet here we are. Perhaps I’m still in denial about the new state of affairs.

A ban on Wechat is increasingly likely, but still a ways off. This hasn’t stopped a wave of anxiety from spreading, not only among members of the Chinese community in the US but the Chinese diaspora elsewhere as well.

On the same day I received my mother’s Wechat backup guide, a family friend who lives in Paris phoned me, frantic that she would lose contact with her family in the US. My aunt in Shanghai, whose only daughter lives in San Francisco, asked me for recommendations on alternative messaging platforms.

As we wait for the boot to drop, we don’t know whether families will lose contact, if precious conversation logs will be lost, or if communities will unravel—all for the sake of a political stunt.

Rising political volatility will bring further infringements upon personal liberties.

At a time when international travel is nigh impossible, our digital bonds become all the more precious and vulnerable. For many Wechat users in the US, it is the only thing that links them with loved ones they may not have seen for months, and may not know when they can finally reunite with. It is an extraordinary cruelty to sever these links at a time when we must lean on these technologies that span the distance we physically cannot travel.

A Chinese American researcher who asked not to be named uses Wechat to connect with her large extended family in Beijing, and to update them on her pregnancy. “A Wechat ban would devastate my grandma,” she told me. “She’s already so worried that I will give birth here while the pandemic is not under control.”

In the event of an all-out Wechat ban, users may still find a way around it. Chinese internet users are famously resourceful, owing in no small part to having to navigate the heavily censored digital landscape of China. Using a VPN, or switching to alternative platforms such as Line and Whatsapp are viable contingency options.

READ MORE: Techwar: US wants to rid its internet of Chinese technology

One may even see a silver lining in all of this. Since Wechat content is regularly monitored and censored by the Chinese government even when users are abroad, switching to a new platform would afford them more privacy and freedom to discuss sensitive topics.

But there’s little point in recognizing the inadvertent upsides for anyone who must involuntarily stop using Wechat, especially given the implications—rising political volatility will bring further infringements upon personal liberties.

Straddling nationalities

As the Chinese diaspora’s ability to connect is jeopardized, their relationship with the US grows more fraught.

For many, there is no end in sight. “What happened to this ‘lighthouse nation’ (referring to the US’ status as a beacon of liberty)? Ban Chinese apps today, ban Chinese people tomorrow?” asked one commenter on CReader.net, a popular overseas Chinese news aggregate and forum.

“Normally I would believe that the government has some kind of bottom line, but Trump doesn’t even care if he is making America a laughing stock to the entire world,” Zhou, a scientist at Columbia University who only gave her surname, told me over Wechat.

The tension between the US and Chinese governments will almost certainly lead to harsh demands for the Chinese diaspora in the US to demonstrate loyalty, something former Democratic presidential candidate Andrew Yang advocated for in the face of growing anti-Asian sentiments.

But this is an impossible and humiliating choice for those whose lives and identities straddle nationalities, and it would accomplish nothing. If President Trump believes continually demonstrating open hostility to all entities of Chinese origin will win him votes, he will not stop at a WeChat ban.

For now, there’s little to be done except dutifully go through the 17 steps it takes to download Wechat data, and anxiously await what comes next.

Techwar: Trump to end transactions with Tencent and Bytedance in 45 days

Eliza Gkritsi — Fri, 07 Aug 2020 03:31:15 +0000

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.

EO on Wechat pic.twitter.com/V6brHDbDZ0
— Olivia Qi Zhang (@zhang_qiii) August 7, 2020

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

Techwar: US wants to rid its internet of Chinese technology

Eliza Gkritsi — Thu, 06 Aug 2020 08:18:31 +0000

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.

The U.S. expands the Clean Network by launching 5 new Clean initiatives–Clean Carrier, Clean Store, Clean Apps, Clean Cloud & Clean Cable–to secure Americans’ most sensitive information from the CCP’s surveillance state. We call on freedom-loving nations and companies to join us. pic.twitter.com/BQSk6YFt1M
— Secretary Pompeo (@SecPompeo) August 5, 2020

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.

Zoom will be local version-only for Chinese users

Emma Lee — Mon, 03 Aug 2020 07:02:05 +0000

Video-chat service Zoom will stop offering direct services to users based in China, although it will still be accessible through the company’s local partners.

Why it matters: Zoom, the US-based company founded by Chinese-born Eric Yuan, has been caught in the crosshairs of the trade war and rising political tensions between the two countries. Removing direct service support in China highlights yet another retreat for the company in the Chinese market.

Zoom users surged as a popular choice for business professionals during the global lockdown resulting from the Covid-19 pandemic.
Zoom’s move may hand domestic apps with video conferencing and productivity features, like Alibaba’s DingTalk and Tencent’s WeChat Work, the opportunity to attract more users.

Details: Zoom will suspend services, sales, and updates for users with a billing address in mainland China beginning August 23, Chinese media (in Chinese) reported Monday, citing an announcement from the company.

Read more: Is Zoom crazy to count on Chinese R&D?

Zoom, which previously operated its China business through direct sales, online subscription, and partner sales, is now shifting to a partner-only model with its technology embedded in partner offerings, the company said in a statement to TechNode on Monday.
The firm suspended the online subscription model for its China-based services two months ago.
“Users in Mainland China may continue to join Zoom meetings as participants,” Zoom added.
The company has recommended several authorized partners, including local video conferencing service provider Bizconf, Zhumu.com and Umeet, as shown in the official website of Donghan Telecom, one of Zoom’s Chinese partners which runs the website Zoom.com.cn.
The company said in the statement that its local partners, all of whom feature embedded Zoom technology, will provide better-localized services to users.

Context: After the company was temporarily blocked in China last fall, Chinese Zoom users began switching to localized versions of the app, including those provided by Shanghai Donghan and Shanghai Huawan.

Zoom suspended individual users in China from hosting meetings on the platform in May.
The company admitted in April that some user calls had been “mistakenly” routed through data centers in China, resulting in a backlash by foreign government agencies and companies over fears of Chinese surveillance and censorship.

Tiktok, Microsoft resume talks amid renewed threat of US ban

Savannah Billman — Mon, 03 Aug 2020 00:10:10 +0000

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.”

EV maker Li Auto up 43% after $1.1 billion Nasdaq debut

Chris Udemans — Fri, 31 Jul 2020 04:38:37 +0000

Electric vehicle maker Li Auto raised $1.1 billion in its Nasdaq debut on Thursday after pricing above its expected range, becoming the second Chinese new energy vehicle company to list on an American bourse. The company’s share price closed up more than 40% after its first day of trading.

Why it matters: Winners are beginning to emerge in China’s electric vehicle market after a boom in the industry. Several automakers including rival startup Byton have failed to raise funds to hold them over in the aftermath of the Covid-19 outbreak.

Meanwhile, Tesla challenger Nio has seen its share price surge after it secured lines of credit from several Chinese banks amounting to RMB 10.4 billion ($1.48 billion).
Li Auto reached 10,000 deliveries faster than any of its more established rivals.
The company’s IPO could serve as a litmus test for interest in Chinese companies going public in the US.

Details: Li Auto began trading under the ticker “LI” on Thursday. The company priced 95 million American Depositary Shares at $11.5 per share, higher than the expected range of $8 to $10.

Goldman Sachs, Morgan Stanley, UBS, and China International Capital Corporation were underwriters on the listing.
The company also raised an additional $380 million through a concurrent private placement to existing investors including affiliates of lifestyle services company Meituan and short video giant Bytedance.
Li Auto’s CEO and founder Li Xiang currently holds a 25.1% stake in the company. Meituan CEO Wang Xing follows with a 23.5% stake. Li retains more than 70% of the voting power after the listing, according to the company’s IPO prospectus.

Context: US listings are proving to be popular among Chinese EV makers despite increasing scrutiny of Chinese companies in the US. Nio went public in New York in late 2018 while rival EV maker Xpeng is reportedly also pursuing a US IPO after confidentially filing in June, Chinese media reported.

Meanwhile, WM Motors is weighing up a listing on Shanghai’s Nasdaq-like STAR Market, Bloomberg reported.
It has been a difficult year for electric vehicle makers, which last year saw a drastic decline in deliveries after the Chinese government reduced purchase subsidies by around 50%.
The industry also took a big hit in the first quarter in the aftermath of the Covid-19 outbreak in China, with sales of new energy vehicles dropping to 11,000 in February from 137,000 in December, according to figures from the China Passenger Car Association.
Li Auto, formerly known as Lixiang, was founded in by Li Xiang in 2015. The company closed its $550 million Series D this month. The round was led by lifestyle services giant Meituan, the EV company’s largest backer.

Ctrip said to be mulling delisting from Nasdaq

Wei Sheng — Tue, 28 Jul 2020 09:04:01 +0000

Chinese online travel company Ctrip is considering delisting from Nasdaq and is in talks with potential investors to fund the plan, Reuters reported on Tuesday citing unnamed sources.

Why it matters: China’s largest online travel firm is the fourth Chinese tech company in the past month to consider delisting from the US financial markets. Intensifying tensions between the world’s two largest economies are scaring Chinese tech companies from New York exchanges, once a sought-after market to raise funds.

The move follows increasing scrutiny of Chinese companies in the US and calls from lawmakers for stricter audit requirements following Chinese beverage chain Luckin’s admission of financial fraud in April.

Details: The management of Baidu-backed Ctrip has asked several financial and strategic investors including venture capital firms and tech companies to fund its privatization plans, according to the Reuters report, citing four people familiar with the matter.

The company has held preliminary talks with banks about a potential secondary listing in Hong Kong, Reuters reported in January. The company later decided to delist as the coronavirus outbreak has badly hit its travel business and weighed heavily on its market cap, said the Tuesday report.
A Ctrip representative declined to comment when reached by TechNode on Tuesday.

Context: Ctrip, founded in 1999, went public on Nasdaq in 2003. The company acquired British flight search engine Skyscanner in 2016 and US online travel agency Trip.com in 2017.

The company’s net revenue dropped 42% year on year to RMB 4.7 billion (around $670 million) in the first quarter. It also booked a net loss of RMB 5.4 billion in the same time period.
In May, the company forecasted its net revenue would decrease around 67% to 77% year on year in the second quarter, citing “the continued negative impact due to Covid-19.”
On Monday, Chinese search engine Sogou said it received a buyout offer from Tencent that could lead to the company’s delisting from the New York Stock Exchange (NYSE).
On July 6, Chinese online news and social media company Sina said it had received an acquisition proposal which would take the company private after 20 years of trading on the Nasdaq.
Chinese online classifieds marketplace 58.com entered a deal to delist from the NYSE in June.

Tencent makes a bid to buy out Sogou search engine

Savannah Billman and Wei Sheng — Mon, 27 Jul 2020 20:06:23 +0000

Chinese tech giant Tencent proposed buying out Chinese search engine Sogou, said its parent company Sohu on Monday, a move that would mean the subsidiary would delist in New York.

Why it matters: In considering the proposal, Sogou joins Chinese media firm Sina in mulling over delisting from US stock exchanges amid new investor-protection legislation and US-China trade uncertainties.

Details: Long-time investor Tencent proposed acquiring all of the outstanding ordinary shares of Sogou at $9 a share, according to the Sohu statement. Tencent’s initial proposal is not binding and has not yet been reviewed by the Sohu board.

Neither Sohu nor Sogou have made any decisions with respect to Tencent’s offer, the companies have said. But if the tentative transaction is finalized, Sogou will delist from the New York Stock Exchange (NYSE) to become a privately held subsidiary of Tencent, Sohu said.
Tencent and Sogou have a long relationship. When Sogou listed on the NYSE in 2017, Tencent was its largest shareholder and promoted Sogou’s search engine in its own products.
Sogou is the second-largest search engine in China behind Baidu and its Sogou Pinyin Method, a popular Chinese language input software, had 503 million monthly active users (in Chinese) as of December 2019.
Tencent currently owns approximately 39.2% of the total issued and outstanding shares and holds 52.3% of Sogou’s total voting power.
Sogou’s share prices on the NYSE surged more than 47% on Monday.
A Tencent representative declined to comment late Monday, and Sohu did not respond to an emailed request from TechNode.

Context: Growing distrust between US and Chinese lawmakers is spreading throughout financial markets. On May 20, CNBC reported that the US Senate unanimously passed legislation prohibiting foreign companies from listing on US exchanges or raising money from American investors unless they can prove “they are not owned or controlled by a foreign government.”

Alibaba’s shares dropped 2% in response to the news and several high-profile Chinese tech firms are reconsidering their place in US markets, according to the report.
The Chinese online marketplace 58.com delisted in June, and Sina is also considering delisting following an acquisition proposal in July from New Wave, a company owned by Sina chairman and CEO Charles Chao.
China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC) ended a 15-year listing on the NYSE in June 2019, citing low trading volumes and the high cost of listing in New York and complying with local laws.
58.com has not revealed where they planned to relist, but it could follow SMIC’s footsteps by listing on the Shanghai Stock Exchange, continuing the trend of Chinese companies turning away from the US to Shanghai or Hong Kong markets.
US regulators are unable to access Chinese companies’ audit records, a legal requirement for listing on US exchanges.
Though the legislation doesn’t specifically call out Chinese companies, US-China trade tensions pushed issues of investor safety and financial accountability to the fore. The law’s authors have also called out China for not “playing by the rules.”

SILICON | Server chips: a growing opportunity for Chinese fabless players

Stewart Randall — Fri, 24 Jul 2020 09:13:48 +0000

In recent years, handsets have been key to semiconductor industry growth. So when analysts predicted a grim 2020 for the handset markets, things didn’t look great for semiconductor companies either. In December 2019, analysts expected handset sales to drop 2% to 270 million units in 2020.

Since the pandemic took hold, things look even worse. The International Data Corporation now predicts a 12% drop in handset shipments this year.

But as the semiconductor industry’s most important market is looking at abysmal prospects, industry reports somehow show chip sales grew by 5.8% globally year-on-year for May 2020. TSMC saw over 35% YoY growth in the first half of 2020.

Opinion

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia.

Predictions for the rest of the year are weaker, but still miles ahead of the handset market. Some analysts expect a 5-10% drop in global chip sales for 2020 as wireless, automotive, industrial, and general consumer electronics sales all fall. Others predict 3.3% growth for the whole year. It might not be huge growth, but it’s growth nonetheless.

If consumer electronics sales are in freefall, what’s keeping the semiconductor industry from dropping further, even giving it hope of growth—and is this the opportunity Chinese chip makers have been waiting for to make their mark on the industry?

TSMC saw sales of every chip it manufactures drop in volume in H1 2020 growth. Except for one, which grew by 12%: high-end server computer chips.

Less phones, more laptops

While the Covid-19 pandemic accentuated the trend of falling handset sales, it put fuel on the fire of cloud computing.

Cloud services were already moving data storage and processing from edge devices, like phones and laptops, to data centers. But then the pandemic and lockdowns made work from home the norm around the world.

This has not only led to an increase in PC and laptop sales, which grew 11.2% year-on-year globally in Q2 2020, but also an increase in the use of video conferencing, distance learning, and video streaming services.

In China, up to 300 million people were working from home in the first quarter of 2020—and tech companies jumped at the opportunity. Virtually every major internet company brought out new apps to deal with this demand.

Baidu brought out its collaboration tool Baidu Hi. Alibaba released DingTalk 5.0. Bytedance created Feishu. Tencent pushed Tencent Meeting (which it had luckily just released in December 2019). Even Sohu and Pinduoduo got in on the action with Little E and Knock.

This surge in remote working services has led to a surge in internet traffic, which demands more processing power from cloud providers. More processing power needs more servers, and servers are made of chips: general-purpose CPUs and accelerators like graphics processing units (GPUs) and field-programmable gate arrays (FPGAs).

READ MORE: SILICON | China’s progress on homegrown CPUs

I don’t believe we will see internet usage drop back to pre-pandemic levels. The amount of data collected by individuals and companies has been exploding for a while now, and it will only grow.

The sudden change in human behavior brought by Covid-19, along with increasing workloads and 5G connectivity, represents an opportunity for Chinese companies to break into a market dominated by Intel, AMD, and Nvidia.

Do one thing, do it well

More people working from home doesn’t just mean more servers; it means a greater mix of servers to cater to the varying needs of different applications. Some servers need to be flexible; some need to be low-cost, and some need to have specific accelerators designed for specific applications.

Not only will the world need more chips, but it will need a greater variety of them. This gives Chinese companies the chance to pick a market and develop a product.

Different types of chips have made their way into the server space in recent years and ever increasingly so. General purpose Central Processing Units (CPUs) aren’t suitable for some applications, so they need help from various different kinds of accelerators.

Accelerators are processors to which the main general-purpose CPU offloads some workload. Graphics processing units (GPUs), used for image and video processing, and more flexible field-programmable gate arrays (FPGAs), and application specific integrated circuits (ASICs) are the main types of accelerators in use.

In 2012, Nvidia found that its GPUs, normally used for processing images and video, were great for AI applications. It has ridden the AI wave to now be worth more than Intel. Some applications have required more flexibility, so FPGAs from Xilinx and Intel have also made their way into data centers.

Chinese Jingjia Micro, and recently Zhaoxin, are working on GPUs, but at this stage they are low-end laptop/PC offerings that don’t meet the demands of servers. The same can be said for Gowin, Anlogic, Pango, and others doing FPGAs; Chinese players are still far behind the likes of Intel, Xilinx, and Achronix.

READ MORE: China’s first homegrown x86 PCs are here, but don’t get too excited

Sometimes it makes sense to create a chip for a specific purpose and to do that one thing really well. Enter Application-Specific Integrated Circuits (ASICs).

China’s chip sector has proven to hold its own in at least one type of server ASIC: cryptocurrency mining rigs. Bitmain and Canaan are the world’s top producers of crypto mining equipment. This suggests that it is possible for China to lead innovation in at least one kind of server chip.

But many companies have popped up in China looking to ride the AI server ASIC wave in recent years, and none have found great success yet. Like most industries in China, lots of people jump on the bandwagon and make large profits difficult for one another. Many will die, but a few will survive and prosper.

The old ISA conundrum?

While ASICs are probably the best opening, Chinese companies in the server space now are focused on general-purpose CPUs. Companies working on both types of chips have chosen a variety of Instruction Set Architectures (ISAs).

Instruction set architectures (ISAs) are a set of instructions that control communication between software and hardware in processors. They are owned and licensed by western companies, which means Chinese chipmakers rely on deals with IP licensing firms like the UK’s Arm.

Can Chinese companies even begin to make inroads into a market that is 98% x86 architecture, of which almost 90% is Intel and 10% AMD?

It’s difficult, for all the same reasons why Chinese companies can’t wrangle US superiority in semiconductors.

Whether because of luck, economic planning, or market forces, a couple of companies have emerged around each ISA, spreading China’s bets. Huawei and Phytium are using Arm; Zhaoxin and Montage are using x86 (I consider Hygon defunct); Loongson is using MIPS; and Sunway, something else altogether, possibly developed in-house.

Huawei’s Hisilicon has been by far the most successful in the server CPU space. Some Chinese analysts say it may sell 1.5 to 2 million of its Kunpeng server chips this year. Its Taishan server chip might see its market share grow to 3% share globally by the end of 2021. We all know Huawei’s current troubles, so such predictions aren’t exactly watertight.

One way out of the ISA conundrum, as I’ve written before, is using the RISC-V open-source architecture. Huawei and others are jumping on the bandwagon, trying to develop high-performing chips using the free-to-use architecture, and should continue to. It won’t be a fast transition.

READ MORE: China’s chipmakers could use RISC-V to reduce impact of US sanctions

But when it happens, it will remove one key weapon from the US arsenal. The US won’t be able to block Huawei and other Chinese companies from getting their hands on the fundamental architecture.

However, even if one of them created a CPU, based on any of these ISAs, that was superior in power, performance, and area, there are other barriers to entry.

Snatching some of the global market share is not just about having a great performing chip. The software, applications, standards bodies, etc. create an entire ecosystem that can help customers integrate, optimize, and get to market faster.

Huawei has tried to create such an ecosystem by opening up OS source code, compilers, tools, etc. it has done better than any other Chinese company, but still relies on the Arm ecosystem.

Too many cooks

Whether we like it or not China is looking to design and manufacture homegrown chips to replace US imports, and server chips are key to this. The stability and growth in this market means it’s ripe for investment, even if barriers to entry are high.

Making server chips is a long and painful process. But the Chinese companies listed above have identified the cloud as an opportunity and have been investing in it.

One extreme example of trends in China’s server chips industry came from Tencent earlier this year. The Shenzhen company announced it would buy 1 million servers over the next five years, spending around $70 billion.

Domestic demand for server chips will only grow in the coming years. With government preference for domestic chips in this industry and a need for custom accelerators, it could be one of the better semiconductor verticals for Chinese companies to build a customer base in.

However, like many industries in China, there is increasing risk of over-fragmentation, which will make it difficult for everyone to make solid profits. Inspur and Sugon, two leading Chinese server companies, recently set up their own chip divisions, adding to market fragmentation. While I doubt they will start with CPU design as their first foray, it might be coming in later years.

It remains to be seen if Chinese chip makers can compete internationally. But increasing revenues from China will give them better footing to go about global business development, especially in China-friendly countries.

Chinese companies need to pick their fights. Competing in the general-purpose CPU space is an uphill battle. RISC-V could provide a long-term self-reliant option, but dominant players Intel and AMD are strong competition.

Custom ASICs for specific tasks is where China already has plenty of talent and companies that are up to the task. While it would be nice to see extra competition in the GPU and FPGA space, Chinese companies here face the same barriers as those creating general-purpose CPUs.

Most importantly, ecosystems need to be built. It is a difficult and time-consuming endeavor. Even a recent SOE I met with preferred to use Intel, simply because he understood it; it works, it’s mature.

With this mindset, even grabbing the domestic market is a far cry from where we are now. The government needs to step in and use “Made in China” incentives.

China has talented engineers in the ASIC and FPGA design space, but there are simply too many companies for any one of them to have the economies of scale and R&D spend to truly compete. Consolidation and collaboration are needed if Chinese design companies are going to seize the server opportunity.

Huawei urges UK to ‘reconsider’ 5G ban

Wei Sheng — Wed, 15 Jul 2020 06:51:39 +0000

Huawei said Tuesday the UK’s decision to ban the Chinese telecommunications equipment maker from its 5G networks was “disappointing” and urged the country to “reconsider.”

Why it matters: The British government said that banning Huawei gear was due to “uncertainty” around the company supply chain. The company argued that it was a “politicized” decision.

Details: Huawei urged the British government to reconsider the ban announced Monday on the company’s equipment from the country’s 5G network rollout, said Huawei in a statement to TechNode on Tuesday.

“It threatens to move Britain into the digital slow lane, push up bills and deepen the digital divide,” the company said.
The UK government also ordered telecom operators to remove existing Huawei equipment from their 5G networks by 2027, citing a US ban on Huawei in May that could bar the company from the global semiconductor supply chain.
“Given the uncertainty this creates around Huawei’s supply chain, the UK can no longer be confident it will be able to guarantee the security of future Huawei 5G equipment,” Digital and Culture Minister Oliver Dowden said on Tuesday.
Huawei, however, said the UK’s decision was “about US trade policy and not security.”
“We remain confident that the new US restrictions would not have affected the resilience or security of the products we supply to the UK,” the company said.

Context: A new US regulation announced by the Department of Commerce in May requires companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology, potentially cutting the company off from global chip manufacturing.

The company sources critical chips for its smartphones, 5G base stations, and other devices from global semiconductor makers such as Taiwan’s TSMC and Win Semiconductors, and South Korea’s Samsung Electronics.

China’s Huawei says first half revenue grew 13%

Wei Sheng — Mon, 13 Jul 2020 20:27:56 +0000

Huawei said Monday its revenue during the first half of the year grew 13.1%, a significant slowdown from the same period last year as the company faces stricter sanctions from the United States.

Why it matters: The Shenzhen-based telecommunications gear maker’s business in the first six months of the year was hit by a double whammy—a new round of US sanctions imposed in May and the Covid-19 pandemic that has disrupted the global economy.

“The complex external environment makes open collaboration and trust in global value chains more important than ever,” Huawei said in a statement Monday.

Details: Huawei booked RMB 454 billion (around $64.9 billion) in revenue in the first six months of the year with a net profit margin of 9.2%, the company said in the statement.

Huawei’s consumer business earned RMB 255.8 billion, while its carrier and enterprise units reaped a respective RMB 159.6 billion and RMB 36.3 billion, the company said.
Second quarter revenue rose 22.7% year on year, according to TechNode’s calculations based on stated data.

Context: The same period a year earlier, the company reported 23.2% year-on-year revenue growth, before the impact of a May 2019 US blacklisting that sought to cut the company off from American technology. Huawei touted the growth as proof that US sanctions had a limited impact on its business.

The ban took effect in May after several reprieves. Before that, some of Huawei’s important American partners such as Google—which provides commercial licenses to millions of Huawei’s Android-powered smartphones—had already terminated cooperation with the company, dealing a blow to its consumer business, its biggest source of revenue.
In May, the US Department of Commerce announced a new regulation requiring companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology, an upgraded version of a May 2019 ban that applied only to American companies.
The new regulation could potentially cut Huawei off from the global semiconductor supply chain. Affected Huawei suppliers include Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker which produces high-end chip designs for Huawei; Taiwan’s Win Semiconductors, which makes Huawei’s radio frequency chip designs; and South Korea’s Samsung Electronics, which ships memory and storage to Huawei.
Huawei had reportedly started shifting some production of its chip designs from overseas contract makers to domestic ones such as Shanghai-based Semiconductor Manufacturing International Corp., but experts believe the homegrown alternative is too backward in technology to supply the cutting-edge chips that Huawei needs.

Chinese EV startup Li Auto files for US IPO

Jill Shen — Mon, 13 Jul 2020 07:14:20 +0000

Li Auto on Friday announced it had filed an application with the US regulator to offer shares on Nasdaq, making it the second Chinese electric vehicle maker to list on the US stock market after Nio.

Why it matters: The filing confirms a long-running rumor, and enlarges a gap between frontrunners and losers in a slowing Chinese EV market.

The winners in China’s EV industry are starting to emerge. Oh, and for anyone looking to buy Tesla shares UK offers, the share prices for Tesla challenger Nio hit an all-time high of $14.98 on Friday after it secured lines of credit from six domestic banks totaling RMB 10.4 billion. Meanwhile Byton, as well as several other would-be EV makers, is on the verge of insolvency.

Details: Beijing-based Li Auto Inc. listed a placeholder amount of $100 million for its offering in a Friday filing to the US Securities and Exchange Commission (SEC) without a price range for the shares.

Li Auto boasted a higher capital efficiency than most rivals, recording revenue of RMB 851 million ($120 million) and gross profit of RMB 68.3 million in the first three months of this year, according to the filing.
The company’s first quarter gross margin of around 8% outperforms rival Nio’s vehicle margin of -7.4% during the same period. Nio has said it expects positive gross margin in Q2.
However, Li Auto is bleeding cash along with its rivals, with around RMB 4 billion in total net losses over the past two and half years. Q1 losses had narrowed nearly 80% year-on-year to RMB 77.1 million.
Li Auto began delivering in December its first mass market model, the Li One, a plug-in hybrid crossover, and has sold more than 10,677 of the premium PHEVs over the past eight months. To compare, Nio has delivered 46,082 units over a two-year period.
Li One, with a starting price of RMB 328,000 ($46,870), was top-ranked in sales volume for all medium-to-large fuel-efficient and electric SUVs in the first half of this year, according to figures from China Automotive Technology and Research Center. The second-ranked Lexus RX450h sold 3,219 units, followed by Nio ES8 with deliveries of 2,435 units.
Li Xiang, the company’s CEO and founder, currently holds a 25.1% stake in the company, followed by Meituan CEO Wang Xing with 23.5%. Li will retain around 70.3% of the voting power after the IPO, according to the filing.
The company plans to trade on the Nasdaq under the symbol “Li.” Goldman Sachs, Morgan Stanley, and UBS are underwriters for the deal.

Context: Formerly known as Lixiang, Li Auto was founded by internet veteran Li Xiang in mid-2015. Li formed Chinese car-buying portal Autohome.com in 2005 which has been listed on the New York Stock Exchange since December 2013.

The company closed its $550 million Series D led by Meituan earlier this month. Wang, founder of the Chinese food delivery giant, has been its strongest backer since 2019 when he led Li Auto’s $530 million Series C.
Xpeng, another EV startup on the rise, may be following in its footsteps. Reports about the company secretly filing for US listing in June have been circulating in Chinese media. An Xpeng spokeswoman declined to comment.

US-listed Chinese tech stocks rise amid boom in home markets

Emma Lee — Thu, 09 Jul 2020 06:56:53 +0000

Share prices for US-listed Chinese technology stocks including e-commerce giants Alibaba and JD.com reached historical highs on Wednesday after a domestic stock market rally reached fever pitch.

Why it matters: The jump in share prices for major US-listed Chinese tech firms followed recent gains for Chinese equities.

The Shanghai Composite soared around 9% this week, aided by a bullish front-page editorial from state-owned China Securities Journal and growing optimism triggered by economic recovery after the Covid-19 lockdown.
The gains come in spite of growing scrutiny of publicly traded Chinese firms over potential accounting issues.

Read more: As China tech stocks surge, a fundraising window opens

Details: Alibaba shares climbed 9.0% to close at $258 on Wednesday, its market valuation gaining around $6 billion to reach a historical high of $701.08 billion.

JD.com’s market cap hit $102.93 billion on Wednesday after its shares jumped 6% to close at $65 apiece. It became the fifth listed Chinese tech company to pass the $100 billion mark, joining Alibaba, Tencent, Meituan, and Pinduoduo.
Share prices for Hong Kong-listed companies also climbed—Tencent jumped 6.6% and Meituan rose 2.5% as of publication.
Blue City Holdings, the owner of China’s largest LGBT dating app Blued, soared 46% in its Nasdaq debut after raising $85 million.
Other Chinese tech stocks which climbed on Wednesday: microloan service Qudian surged 36%, app developer Cheetah Mobile jumped 31%, influencer platform Ruhnn was up 20%, and JD-backed grocery delivery service Dada-JD Daojia rose 13%.
Baidu and Pinduoduo were relative underperformers, rising a respective 2.2% and 1.4%.

Context: Chinese internet firms are returning to domestic markets, including secondary listings for Alibaba, JD.com, and Netease in Hong Kong, and JD Digits on Shanghai’s STAR market.

Sina, a Chinese online news portal and minority owner of microblogging service Weibo, may delist and go private after 20 years of trading on the Nasdaq.

US probing Tiktok for failing to protect minor users: report

Wei Sheng — Wed, 08 Jul 2020 05:42:40 +0000

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.

Chinese online media firm Sina may delist in US

Wei Sheng — Tue, 07 Jul 2020 05:08:18 +0000

Chinese online news and social media company Sina said Monday it had received an acquisition proposal which would take the company private after 20 years of trading on the Nasdaq.

Why it matters: Sina is the second Chinese tech company in a month to mull a delisting from US stock exchanges. Chinese online classifieds marketplace 58.com entered a deal to delist from the New York Stock Exchange in June.

Details: New Wave, a British Virgin Islands-based company owned by Sina chairman and CEO Charles Chao, has proposed to acquire all of Sina’s outstanding shares at a price of $41 per share, the company said in a statement on Monday.

The offer valued the 22-year-old Chinese company at $2.7 billion. Its shares jumped to $40.5 by market close on Monday after closing at $36.7 on Thursday.
Sina’s board has formed a special committee consisting of three independent directors to evaluate the proposal.
“The board cautions the company’s shareholders and others considering trading in its securities that the board just received the non-binding proposal letter from New Wave and no decisions have been made with respect to the company’s response to the proposed transaction,” the company said in the statement.

Context: Founded in 1998, Sina started as a news portal that aggregated articles from print-based media. It went public on Nasdaq in 2000, becoming one of the first Chinese tech companies to list in the US.

In 2009, Sina launched Weibo, a Twitter-like social media platform. The company spun off Weibo and listed its shares on Nasdaq in 2014.
Revenue for the first quarter of 2020 declined 8% year on year to $435 million while net profits rose to $82.4 million from $33.1 million in the same period last year, according to company filings.
The privatization trend is just part of a wave of US-listed Chinese tech companies looking beyond listings in the US. In June, gaming giant Netease and e-commerce company JD.com debuted secondary listings on the Hong Kong stock exchange.
Chinese companies are under increasing scrutiny in the US after beverage chain Luckin’s admission of financial fraud.
The Trump administration has also threatened to order US markets to delist Chinese firms. The US Senate passed a bill in May that could force foreign companies listed in the US to hand over their audit records, potentially scaring away some Chinese companies.

Charles Lu is out at Luckin, but his influence may linger

Emma Lee — Mon, 06 Jul 2020 08:09:23 +0000

Shareholders of scandal-hit Luckin Coffee have voted out founder Charles Lu, the company’s chairman, along with three other board directors during an extraordinary general meeting held on Sunday, local media reported.

Why it matters: The removal of half of the company’s board of directors is the culminating step in US-listed Luckin’s top management shakeup. The company’s CEO, COO, and many other employees have been fired after the company admitted to accounting fraud in April.

Lu’s removal from comes shortly after he survived the first round of an ouster which began last week.

Details: Despite being removed from the board, Lu may still retain the upper hand in the power struggle over Luckin, according to local media reports.

The three other directors who were removed were opposed to Lu.
They are Sean Shao, chairman to the special committee responsible for Luckin’s internal investigation, and Li Hui and Liu Erhai, two crucial figures in Lu’s funding network who then initiated the campaign to remove Lu after the accounting fraud scandal broke.
Zeng Ying and Yang Jie, two executives who are reportedly Lu allies, were named as independent board directors.
Lu might still control of the board, but he may soon lose his grip over the company as lenders led by Credit Suisse target his family’s assets to recoup losses upwards of $500 million losses resulting from the scandal.

Alibaba is the top global blockchain patent holder

Eliza Gkritsi — Fri, 03 Jul 2020 07:48:30 +0000

Alibaba and its mobile payment affiliate Alipay together hold the highest number of blockchain patents worldwide, though China lags significantly behind the US.

Why it matters: The results of a study by the China Patent Protection Association indicate that China has a long way to go to match the level of innovation in distributed ledger technologies seen in the US.

Chinese firms are known to file a lot of blockchain patents, but the report showed that China has yet to match the US in granted patents.
Since a speech by President Xi Jinping in October on the importance of the technology, the Chinese government has been bullish on blockchain. It has been trying to spur innovation around the technology with dedicated projects around the country.

Details: Alibaba holds 212 out of 3,924 blockchain-related patents in the world, the China Patent Protection Association said on Wednesday. The only other Chinese firm in the top 10 is Tencent with 42 patents. US tech giant IBM came second with 136 patents.

Tencent’s rise to ninth in the world and second in China marks progress from the Shenzhen-based tech giant. Research published in November placed it at number nine in China.
Six out of 10 top blockchain patent holders are American, three of which are tech firms. Two South Korean companies also made the top 10.
The US holds almost double the amount of China’s patents.
The study also tracked the quick and explosive growth of blockchain innovation worldwide. Total granted patents increased from three in 2014 to 1,799 in 2019.

Context: China has had a tumultuous history with blockchain, especially cryptocurrencies.

It is now trying to become a world leader in the technology with ambitious projects such as the Blockchain Services Network and administrative moves like the national standardization committee launched in November.
Previous research suggests that more than half blockchain-related innovation activity in China is related to fintech.
Traditional banks have also ramped up their efforts to come up with blockchain solutions in recent years.

Intel resumes shipment to Chinese server maker Inspur

Wei Sheng — Fri, 03 Jul 2020 06:41:35 +0000

China’s biggest server maker, Inspur, said Friday that Intel has resumed shipments to it. The American chipmaker briefly suspended shipment after Inspur was added to a US list of Chinese companies it deems military-controlled.

Why it matters: The list, announced by the US Department of Defense, paves the way for US President Donald Trump to impose sanctions on 20 Chinese companies, including Inspur and Chinese telecommunications equipment maker Huawei. However, Intel’s twist indicates the list has not been turned into an export control list.

Inspur has around 37.6% of China’s server market in the first quarter of this year, according to market research firm Gartner (in Chinese). The company is an important provider of hardware used by many of China’s leading cloud-computing firms like Aliyun and Tencent Cloud.
Inspur spent some RMB 17.9 billion (around $2.5 billion) on sourcing components from Intel in 2019, accounting for 37.5% of its total expenses, according to its 2019 annual report (in Chinese).

Details: Inspur has received notice from Intel that the US company has resumed shipment to the Chinese server maker, Chinese media Caixin reported Friday. Intel also confirmed the information to Caixin.

Intel said Wednesday it had suspended shipments to Inspur because it needed to “adjust its supply chain to comply with relative US laws,” Caixin has reported.
Shares of the company, where are listed on the Shenzhen Stock Exchange, surged 4% Friday morning on the news.
The interruption to shipments came after the Pentagon compiled a list of 20 Chinese companies with ties to the Chinese military last month. President Trump can use the International Emergency Economic Powers Act’s authorities against entities on the list, Axios reports, citing Larry Wortzel, a commissioner of the US-China Economic and Security Review Commission.

Context: Chinese manufacturing companies are increasingly subject to supply chain disruption when sanctioned by the US as a result of intensifying geopolitical conflicts between the world’s two largest economies.

In 2018, ZTE, a smaller rival of Huawei, saw its market value tank by billions of dollars after the US banned American companies from exporting components and technology to it for seven years. The ban was later lifted in July 2018.
In May 2019, the US imposed similar sanctions against Huawei. The company expected the ban could reduce its production output by $30 billion over 2019 and 2020.

Luckin’s Charles Lu survives first round of ouster

Emma Lee — Fri, 03 Jul 2020 05:56:17 +0000

Luckin Coffee announced Thursday that Charles Lu will remain board chairman of the embattled Chinese beverage chain after a proposal to remove him from the position failed to get the number of votes needed to pass.

Why it matters: The struggle for control at the coffee chain after an investigation into its accounting fraud points to deep involvement from top management.

Local authorities reportedly have found emails Lu, also known as Lu Zhengyao, sent to colleagues to instruct the fraud, which means Lu is likely to face criminal charges in China.
The investigation into Luckin is attracting wide media attention, as well as intensifying scrutiny of a number of other US-listed Chinese tech stocks.

Read more: Charles Lu: The man behind Luckin and China’s fastest IPOs

Details: The proposal to remove Charles Lu from his positions as a director and board chairman did not get more than the two-thirds of votes needed to pass the resolution during a board meeting held on July 2, according to a company statement.

The board proposed removing Lu as a director and board chairman based on the recommendation of a special committee formed for the internal investigation, according to a Wednesday statement.
Lu may still face a shareholder vote on resolutions that could remove him as a director during an extraordinary general meeting to be held on Sunday, where shareholders will also vote on whether to remove at least three other directors beside Lu, according to a Bloomberg report.
The company’s former chief executive officer, Qian Zhiya, former chief operating officer, Liu Jian and certain employees reporting to them participated in the fabricated transactions, according to the statement.
The company inflated its 2019 net revenue by approximately RMB 2.12 billion ($300 million), and boosted costs and expenses by RMB 1.34 billion, it said in the statement.

Context: Luckin Coffee fired CEO Qian Zhiya and COO Liu Jian from their positions in May.

The company received a second delisting notice from Nasdaq in June for failing to submit the 2019 annual report, less than a month after receiving its first notice on May 19 for “public interest concerns” and “fabricated” transactions.
Chinese car rental Car Inc may soon sever all formal ties to Lu, founder of Luckin, Car Inc, and Ucar.

Investors beware: there’s a new ‘China Hustle’

Michael Norris — Thu, 02 Jul 2020 09:13:23 +0000

“The China Hustle,” a documentary from a few years back, depicts a special type of stock market fraud. Obscure Chinese high-tech manufacturers, agricultural producers, and mining companies would list on overseas stock exchanges. Investor conferences, investment funds, and stockbrokers played up each company’s connection to China’s growth miracle, stimulating investor demand and precipitating share price spikes.

Trouble is, many companies were cooking the books, with eye-watering revenue growth stemming from a web of fraud. As the real value of these huckster companies came to light, stock prices tumbled, and naïve investors were left holding the bag. All up, over 200 Chinese companies were found to have engaged in some kind of China hustle, resulting in $50 billion in securities fraud.

Some years later, Luckin Coffee’s multi-billion-dollar collapse alerted investors to the prospect of a new kind of hustle. A recent string of short reports, fraud admissions, and lawsuits have reinforced these fears. In fact, I’d go as far as to say Luckin’s the tip of the iceberg. We face a “New China Hustle” of falsified growth and management acting in bad faith.

Let’s unpack what it is, and what to be on the lookout for.

Opinion

Michael Norris is a TechNode Contributor and Research and Strategy Manager at AgencyChina. He has the financial sense not to hold or short stocks of any of the companies mentioned in this article.

Digital fraud

“New China Hustles” don’t involve manufacturers, agricultural producers, or mining companies engaged in the physical economy. Instead, these hustlers involve digital economy actors like digital advertisers, online education providers, and consumer commerce companies.

Take the recent fraud admissions from Luckin Coffee and TAL Education Group, respectively a digital-first coffee vendor and an education provider with a swag of online-only sub-brands. In both instances, fessed-up fraud involves inflated online purchases. Mobile gaming company Cheetah Mobile and online tuition provider GSX are staring down the barrel of shareholder lawsuits about inflated user numbers and sham revenues.

Why the sudden tech angle?

Investors know technology and internet stocks have outperformed the market. That breeds comfort with these stocks’ high-risk, high-reward growth profiles—scale first, profits later. This leeway suits hustlers well.

But even in tech, eventually you have to come up with some numbers. When predicted growth falls short, falsified revenue and user growth keep stock prices on an upward trend and can help evade questions around sketchy business models, elusive profitability, and evaporating cash reserves.

When it comes to growth, digital hustlers have grey areas they can exploit. In the case of Luckin Coffee and TAL Education Group, we’re looking at fake users and inflated revenues. With bad intentions, it’s pretty straightforward to perpetuate digital fraud—a couple of clicks here, a few numbers into a dashboard there, and you’ve got an additional 20% extra app users this month!

Indeed, digital companies with management acting in bad faith can be equivalent to a black box. You can use satellite images to cross-check an obscure cobalt mine’s stated output. However, there’s limited scope to do the same for an obscure gaming company’s user revenue. It takes the continued effort of well-resourced skeptics and short sellers to yank away the façade.

Manipulating markets

When digital actors define their own growth metrics, monitor their own performance, and report against that performance, they are simultaneously their own referee and cheerleader. That’s dangerous, particularly when sophisticated hustlers know what metrics move markets and aren’t afraid to use that to their advantage.

Luckin Coffee is perhaps the most brazen example. As the now-famed anonymous short report hauntingly suggested months before Luckin admitted to sales fraud, “Luckin knows exactly what investors are looking for, how to position itself as a growth stock with a fantastic story, and what key metrics to manipulate to maximize investor confidence.” Armed with that knowledge, Luckin Coffee fooled institutional and retail investors. It would be reckless to assume other hustlers didn’t have the same level of situational awareness and the willingness to exploit that for financial gain.

Indeed, I fully expect the next crop of Chinese companies to fall from grace to be cunning PR operators—unafraid to grease the wheels with analysts, press, and commentators to head-off accusations of manipulated metrics and insulate multi-billion dollar market capitalizations.

Fast and fraudulent

Victims of securities fraud are not exclusively “Bitcoin Bros” or “Youtube Day Traders.” Victims include a mix of ill-considered, ill-informed, and innocent pension funds, investment banks, and individual investors.

Scandal-ridden Wirecard also shows securities fraud isn’t something that just emanates from China. Low-tech and high-tech companies with lackluster, incompetent, or downright deceitful management are listed on exchanges worldwide. Perverse incentives that obscure poor management and bad companies exist across venture capital and public markets.

However, there’s a reason why it’s called a “China Hustle.” The feverish desire for above-average returns, information asymmetry, lack of oversight, and loose corporate governance notions, all make China suited to unchecked financial manipulation.

Luckin and TAL have admitted to user fraud. But I’m sure they’re not alone. There are credible short-seller reports on Uxin, Iqiyi, and GSX, and I reckon that most of these will eventually be vindicated.

So, what do you need to be on the lookout for?

First, there’s digital manipulation, like fake users, bogus sales, and inflated transaction volumes. Next, there’s accounting wizardry that results in flexible (or non-existent) definitions of revenues, costs and cash, related-party transactions, and frequently revised or inconsistent reporting formats.

If you’re seeing user growth that dramatically exceeds third-party data or costs are defined differently each time you open an earnings release, it may be time to take profits and abandon ship.

Robotruck firm Tusimple looks to raise $250 million

Jill Shen — Wed, 01 Jul 2020 08:37:17 +0000

Self-driving startup Tusimple is looking to raise $250 million in a funding round which will support plans to remove safety drivers from its robotruck fleet as early as 2021, a person close to the company told TechNode.

Why it matters: The funds would be critical for the company’s expanding efforts to commercialize its technology. However, its valuation is now so high that most venture capital firms have been deterred, said two people with the knowledge of the matter.

San Diego-based Tusimple has been viewed as the player with the most potential in the self-driving truck sector, achieving unicorn status with a valuation of $1 billion after closing its Series D1 early last year.

Details: Tusimple is seeking to add $250 million to its war chest, appointing investment bank Morgan Stanley which recently sent proposals to potential investors on why the company is poised to succeed, TechCrunch reported Friday citing people familiar with the matter.

A person close to the company confirmed the fundraising efforts to TechNode on Tuesday, adding that the AV startup intends to close the pre-IPO funding round within the next six months for a possible US stock market listing as early as 2021.
Tusimple did not respond to request for comment.
The company is looking to start offering driverless freight delivery services in the US next year along with partners such as auto supplier ZF, CTO Hou Xiaodi recently told Chinese media.
Hou added that it currently operates a fleet of 50 trucks with logistics centers in Dallas, Houston, and San Antonio, Texas.
It has been running a pilot cargo service since last March, partnering with UPS to test self-driving trucks on a stretch of highways between Phoenix and Tucson in Arizona.
The US logistics giant took a minority stake in the company months later as part of its $215 million Series D closed last September.
The AV startup in March announced it was doubling the number of trips in its service for UPS to 20 round-trips in Arizona and Texas per week.
Speaking with Chinese media in late 2018, CEO Chen Mo said it plans to launch a combined fleet of 1,500 roborigs in US and China in 2021, and poised for IPO after 2021 when safety drivers are completely removed.

Battle of Bitmain: big Antminers sale as co-founders try truce

Eliza Gkritsi — Mon, 29 Jun 2020 06:55:06 +0000

Bitmain signed a deal with to sell 17,595 of its newest bitcoin mining rigs, called S19 Antminers, to Core Scientific, the Washington state-based mine hosting company said in a press release on June 26.

Why it matters: The deal is Bitmain’s largest known sale of the S19 Antminers yet. It could indicate that the worst is over for the Beijing-based manufacturer.

Chaos has overtaken Bitmain in the last couple of months, as its two co-founders fight for control. Co-founder Zhan Ketuan stopped product deliveries in early June amid a battle for control of the company.
The announcement comes less than a week after Bitmain’s dueling co-founders came to an agreement to resume product deliveries.
The underlying leadership question is unresolved, as a lawsuit between the rival camps continues. So long as the litigation continues, product deliveries are still in a precarious situation.

READ MORE: Bitmain Battle: Signs of reconciliation, but not resolution

Details: Bitmain will deliver the S19s over the next four months, the press release said. Core Scientific will deploy them in their 655,000 square feet of data centers across the US.

Core Scientific sells the processing power of mining rigs to its “growing list of clients.”
This is the first time Bitmain’s S19 Antminer will land in the US since its release in February 2020.
The two companies have been working on the deal since the beginning of the year but faced delays due to Covid-19, Forbes reported.
Core Scientific did not disclose the price of the 17,595 S19 Antminers.

Core Scientific has received and begun testing the first of Bitmain’s newest ASIC miners, and has seen material success in increasing existing hashrate to achieve a 110 TH/s ± 3%.
Kevin Turner, President & CEO of Core Scientific

Context: Bitmain has had two rival CEOs since Zhan seized control of the Beijing arm of the company in May, which runs Bitmain’s manufacturing operation in Shenzhen. Wu Jihan ousted Zhan back in October 2019. He remains in control of offshore sales and procurement through Bitmain’s Hong Kong affiliate.

Core Scientific appears to be planning on capitalizing on growing hash rates in the US. Observers often use hash rate measures to gauge overall activity in the mining of bitcoin and other cryptocurrencies.
China, which offers cheap hydroelectric power, still dominates bitcoin mining with about 70% of the global hash rate, according to a study by the University of Cambridge.
Core Scientific has been building a relationship with Bitmain for some time. In late May, it announced plans to bring the company’s official training program for Antminer maintenance to the US for the first time.

Luckin shares plunge 12% on second delisting warning

Emma Lee — Wed, 24 Jun 2020 04:32:12 +0000

Shares of Luckin Coffee plunged 12.3% on Tuesday after disclosing that it received a second delisting notice from the Nasdaq exchange.

Why it matters: A second notice adds weight to the troubled coffee chain’s potential to delist. The company’s share prices have plunged upwards of 80% since admitting accounting fraud in April.

The second notice comes less than a month after the firm received a delisting notice on May 19 for “public interest concerns” and “fabricated” transactions.

Details: The delisting notice was sent in response to the company’s failure to file a Form 20-F, or annual report, for the period ended December 31, 2019, according to a statement from the company.

The company says it has been “working diligently to explore possible ways to file the annual report as soon as possible” citing Covid-19 and the internal investigation as reasons for the delay.
The US Securities and Exchange Commission requires foreign private share issuers to file their annual reports within four months of the end of the fiscal year.

Context: The company’s shares surprised with a 21.6% rally in late May attributed to rumors that restaurant giant Yum China and Tencent-backed fast food chain Tim Hortons China were considering purchasing company assets including its app and customer data, in addition to speculation on social media that the company would be acquired.

Banks including Credit Suisse have won a court order seeking to liquidate entities controlled by Luckin Coffee Chairman Lu Zhengyao, or Charles Lu, according to a SCMP report.
Chinese car rental Car Inc may soon sever all formal ties to Lu, founder of Luckin, Car Inc, and Ucar.

Alibaba, Bilibili, and Pinduoduo earnings, plus what to expect if Chinese companies delist from the US

Elliott Zaagman and Michael Norris — Fri, 19 Jun 2020 07:24:33 +0000

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

This week, James is taking some time off with his newborn, so CTI regular Michael Norris fills in as cohost. He and Elliott discuss Alibaba, Bilibili, and Pinduoduo’s Q1 earnings, as well as what the possibility of Chinese companies delisting from US exchanges will mean for investors.

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

Links:

Bilibili and the niche vs mass market dilemma– Pingwest

Hosts:

Editor

Peter Isachenko

Podcast information:

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

Chinese Tiktok rival Zynn halts pay-to-watch after app store removals

Wei Sheng — Thu, 18 Jun 2020 05:59:40 +0000

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.

‘Five Eyes’ look in different directions on Huawei

Wei Sheng — Wed, 17 Jun 2020 10:18:39 +0000

New Zealand and Canada face a dilemma as the US pushes them to ban Huawei from telecoms networks, national security experts from Five Eyes countries said in an online discussion held by Canadian research organization Conference of Defence Associations Institute on June 9.

Smaller countries in the US-led intelligence alliance are trying to avoid being entrapped in the conflicts between the two superpowers while keeping their relations with the US, said Joe Burton, senior lecturer at the University of Waikato’s Institute of Security and Crime Science, during the online panel. Representatives of four out of the five countries participated in the panel, with a UK expert canceling.

The Trump administration has waged a years-long campaign against the Chinese hardware giant, asking allies to ban its telecoms equipment and attempting to cut off its access to key technology. Most recently, the White House moved to cut the Chinese telecommunications equipment and handset maker off from global chip manufacturing.

The United States has long warned of national security risks associated with Huawei’s equipment. The Shenzhen-based telecoms giant could spy on other countries’ telecommunications at Beijing’s behest, Washington has argued.

Around the world, some US allies, like Japan, have responded with restrictions of varying degrees on Huawei equipment.

The UK has sided with the US and plans to phase out Huawei products in the next three years. Australia excluded Huawei equipment from its 5G networks in 2018.

But Five Eyes members New Zealand and Canada have yet to come up with comprehensive policies on Huawei.

‘The door has been left ajar’

New Zealand placed restrictions on Huawei equipment in its 5G rollout, but “the door has been left ajar for [the company’s] involvement in the future,” said Burton.

The Pacific country doesn’t have an official ban targeting Huawei equipment in its 5G network. However, in 2018, the country’s intelligence agency rejected telecoms company Spark New Zealand’s request to use 5G gear provided by Huawei, citing concerns about national security.

In November, Spark named again Huawei as one of its preferred 5G vendors and Wellington has yet to decide whether to approve the new plans.

As a small state with considerable dependence on Chinese goods and markets, New Zealand doesn’t have “the capacity necessary to absorb economic shocks like other countries do,” said Burton.

Burton said that New Zealand’s current policy on Huawei shows they don’t want to get involved, and even entrapped, in US-China conflicts. Burton used entrapment, a term describing countries dragged into wars they don’t want to fight, to refer to the scenario that New Zealand is avoiding.

“We are afraid of entrapment…I think there is a new form of technological entrapment which we should be aware of, and the tensions in the China-US relationship over technology and industrial policy have adverse effects on us which we are keen to avoid,” said Burton.

Canada balances security and diplomacy

Canada hasn’t made a decision on whether Huawei’s involvement should be allowed in its 5G networks, despite warnings from its own military against Huawei equipment, said Richard Fadden, a former director of the Canadian Security Intelligence Service, during the online discussion.

The US-China ongoing diplomatic dispute over the arrest and possible extradition of Huawei executive Meng Wangzhou makes things even more complicated for Canada. Wanzhou was arrested by Canadian authorities in Vancouver in 2018 over alleged sanction violations, at Washington’s request. British Columbia courts have yet to decide whether she will be extradited to the US.

Meng’s arrest plunged Canada’s relations with China into their darkest period in decades. Within a month of Meng’s arrest, China detained, and then formally arrested, two Canadians and halted key agricultural imports from the country. Beijing has threatened further retaliation if Canada bans Huawei from its 5G networks.

But this tit-for-tat diplomacy might not do much to sway Canada. The amount of harm that China can do to Canada is “limited,” said Fadden.

“Our country would not be materially hurt in the medium to long term if we said no to Huawei,” said Fadden, who is also a former Canadian national security advisor.

But Canada could also see reprisals coming from its neighbor and largest trading partner. The US is prepared to reassess its intelligence-sharing arrangement with Canada if Huawei is allowed to participate in Canada’s 5G rollout, the Canadian State Department said earlier this month.

However, the country has long insisted on an independent approach towards Huawei. The country’s industry minister Navdeep Bains told local media in March that Canada would not be “strong-armed into a decision” on the Chinese company’s access to its 5G networks.

“We will make sure that we proceed in a manner that’s in our national interest. We won’t get bullied by any other jurisdictions,” said Bains.

Five eyes, five views

The Huawei dilemma is not going away in the near future. Whatever the result of the US presidential election, the country’s policy towards Huawei will not change, according to Timothy Heath, senior international defense researcher at American policy think tank Rand Corporation.

During the online discussion, Heath said the US approach towards China and Huawei is “bipartisan.”

Even within the Five Eyes, security concerns seem to be universal. Patrick Walsh, associate professor of intelligence & security studies at Australia’s Charles Sturt University said the country has been lobbying Washington to ban Huawei equipment even before Trump placed a series of restrictions on the company.

“We’ve seen things like the intelligence law that have come up, which essentially states that even if you’re a private sector company, if the state calls you to help with an intelligence operation, you’re compelled to participate in that,” said Walsh, referring to China’s 2017 National Intelligence Law which requires organizations and citizens to “support, assist and cooperate with the state intelligence work.”

“Huawei is operating in a sector considered strategic by the state and it is clearly subject to direction by the Chinese state,” said Fadden.

A Huawei spokesperson refused to comment on the discussion but cited company founder and CEO Ren Zhengfei as saying the company is willing to sign non-backdoor agreements with carriers around the world to address concerns over its equipment’s potential security risks.

The company has set up a series of cybersecurity centers around the world, including in the UK, Germany, and Belgium, the spokesperson said.

China’s largest gay dating app Blued files for US IPO

Emma Lee — Wed, 17 Jun 2020 05:48:01 +0000

Blue City Holdings Ltd., the company behind China’s gay dating app Blued, filed its application on Tuesday to offer shares on the Nasdaq exchange.

Why it matters: Blued, which boasts 49 million users, is the largest social dating app for China’s LGBTQ (lesbian, gay, bisexual, transgender, and queer) community, according to a report by consultancy Frost & Sullivan.

The company’s application to list on a US exchange bucks the current trend of Chinese tech companies showing increased interest in Hong Kong listings.
US government agencies are pushing for more stringent rules on foreign companies including those from China, following a string of accounting scandals led by Luckin.
Still, a listing in the US may garner more interest than one on its home turf, which holds less progressive views on LGBTQ communities.
Blued’s global expansion may challenge US counterparts Grindr and Hornet.

Details: The company used a placeholder amount of $50 million as a fundraising target, according to the filing. A September Bloomberg report cited a source that said the IPO was expected to raise around $200 million at a $1 billion valuation.

China, where the LGBTQ population is still a controversial and highly regulated group, remains the Beijing-based company’s primary market.
But the app is also building a global presence with nearly half of the company’s 6 million monthly active users from outside of China including India, South Korea, and Thailand as of March 2020, the company said.
Blued is still loss-making, but its net loss attributable to shareholders has narrowed to RMB 27.9 million ($3.9 million) in Q1 2020 from 195.9 million from the same period a year earlier, according to the filing.
Besides its core dating feature, the app also runs livestream content and surrogacy matchmaking service Bluedbaby, as well as healthcare service He Health.
Livestreaming is the company’s primary revenue source, generating RMB 670 million or 88.5% of the company’s revenue in 2019. The company earns its remaining portion of its revenue from membership services, advertising, and others.
The founding team holds 37% of the company through Blue City Media. Shunwei Ventures, the venture capital firm started by Xiaomi founder Lei Jun, owns 12.3% of the firm, and is the largest institutional investor. Other shareholders include CDH entities, Liberty Hero, and Crystal Stream Fund.
AMTD Global, CLSA Limited, Loop Capital Markets, and Tiger Brokers are joint bookrunners on the deal.

Context: Launched in 2012, Blued has received a total of RMB 130 million of venture capital in seven financing rounds.

Beijing Kunlun Tech, the Chinese owner of Grindr, in March sold 99% of its stake in the US gay dating app, a year after US regulators pressed for disposal over national security concerns.

China Telecom, Unicom urge FCC not to halt US service

Wei Sheng — Tue, 09 Jun 2020 07:48:50 +0000

Chinese state-owned telecommunications companies China Telecom and China Unicom urged the US telecommunications regulator not to revoke their authorization to operate international phone services in the country as relations between the two countries deteriorate.

Why it matters: Efforts to restrict Chinese state-owned telecom companies from operating in the US are intensifying as concerns about national security and Chinese espionage gather momentum.

The two carriers, China Telecom and China Unicom, have had permission to provide international telecommunications services to and from the United States for decades. However, the US Justice Department and other federal agencies recently asked the Federal Communications Commission (FCC) to act against their operations, citing national security concerns.

Details: The US arm of China Telecom urged the FCC on Monday not to revoke its right to operate in the US “based solely on foreign policy concerns in the absence of any evidence whatsoever of specific misconduct,” according to Reuters, citing a filing by the Chinese company.

China Telecom (Americas), the US subsidiary of the Chinese state-owned carrier, said that the company’s conduct does not “demonstrate any reasonable basis for the U.S. government’s stated lack of trust,” according to the report.
Following requests from the Justice Department, along with Homeland Security, Defense, State, and Commerce Departments, the FCC warned in April it might shut down the US operations of state-controlled Chinese telecoms companies including China Telecom and China Unicom.
China Unicom (Americas) said in a June 1 filing to the FCC that it had “a two-decade track record as a valuable contributor to US telecommunications markets” and that there is no valid ground to revoke its authorization to operate in the US.

Context: China Telecom and Unicom hold licenses granted by the FCC in the early 2000s allowing them to operate in the country, but US lawmakers have long advocated re-examining their operations.

China Mobile USA, a subsidiary of China Mobile, filed an application in September 2011 to the FCC to carry international voice traffic between the US and other countries. The company stated that it didn’t intend to provide telecom services within the US.
The FCC in May 2019 denied China Mobile’s application. Chairman Ajit Pai said the Chinese government would use the carrier to conduct activities which would seriously jeopardize US national security, law enforcement, and economic interests.

Chinese lender Qudian is now luxury e-tailer Secoo’s biggest shareholder

Emma Lee — Thu, 04 Jun 2020 04:46:05 +0000

Chinese micro-loan lender Qudian has agreed to buy $100 million worth of shares in Secoo Holdings, making it the Chinese luxury e-retailer’s largest shareholder with a 28.9% stake.

Why it matters: Buying into Secoo could help struggling Qudian resuscitate its consumer lending platform by expanding to luxury e-commerce consumers.

Expansion to online sales of costly luxury products could help lure customers into Qudian’s financial system.
Qudian rolled out Wanlimu, a luxury online retailer site, in March. The platform quickly gained momentum with heavy discounts and aggressive marketing tactics.
However, many remain skeptical of the high-end beauty products sold on the platform at bargain basement prices, a red flag which has in the past signaled either counterfeit products or a problematic business model.

Details: New York-listed Qudian has agreed to purchase more than 10 million newly issued Class A ordinary shares of Nasdaq-listed Secoo for an aggregate purchase price of up to $100 million, or a per-share price of $9.80, according to a joint statement released on Wednesday.

The two companies will enter into a strategic partnership to cooperate in the online luxury e-commerce sector.
The cooperation will cover various areas such supply chain management, user acquisition and retention, quality appraisals, post-sales services, and financing solutions, according to Qudian founder and chairman Luo Min.
The partnership will bring value to both Secoo and our Wanlimu platform, Luo said.
Secoo will use the investment proceeds to further strengthen its supply chain and enhance user experience, Secoo founder and chairman Li Rixue said in the statement.
In response to the news, Qudian shares rose 4.7% and Secoo shares soared 52.6% on Wednesday.

Context: Six-year-old Qudian started out as a consumer credit firm. It raised $900 million in its 2017 stock market debut, then the biggest US IPO by a Chinese fintech firm.

A government crackdown on microlending has weighed on the company’s performance since its stock market debut. The company saw its market value plummet from around RMB 10 billion just after its IPO to just RMB 433 million as of Wednesday.
Alibaba’s Ant Financial, an early backer, dumped its entire stake in the company in 2019 after it ended its partnership in 2018.

US and China headed for ‘very different semiconductor stacks’

Shaun Ee — Wed, 03 Jun 2020 08:07:30 +0000

Can China gain semiconductor independence while the US escalates the “Great Chip War”? “It’s going to be a big hit while China works it out,” TechNode contributor Stewart Randall said at a webinar on May 28, “but given time and money, yeah, it’s possible.”

Randall discussed the US “Export Ban 2.0” against Huawei with fellow TechNode contributor Jan-Peter Kleinhans at the second installment of the monthly “Tech After Hours” webinar series. With that ban, the US said, “you think you’re ahead of us, but I’m going to prove you wrong,” said Randall, who is head of Electronics and Embedded Software at Intralink.

“It would be really hard for Huawei to go around this ban,” said Kleinhans, director of the Geopolitics and Technology project at the Berlin-based Stiftung Neue Verantwortung. But in the long run, he said, “I don’t think any country, China included, will be held back.”

Fresh out of tricks

Huawei itself might have a tough time with the new export controls, Randall said. They’ve surprised us before—but he “can’t personally see how they could keep on designing” this time without access to Electronic Design Automation (EDA) tools or fabs.

Even a magic trick that evades this round of sanctions may not matter, Kleinhans said. The real question is about the US government’s “direction of travel.” Even if the most recent export ban against Huawei isn’t watertight, we can “probably expect a third or fourth one until they get it right.”

According to him, this isn’t just about the trade dispute anymore, or even previous allegations of theft of intellectual property. “It’s about containment,” he said.

Randall agreed. “When you have the ability to do this and China is your adversary—why not?”

Huawei’s chip design subsidiary, Hisilicon, will be particularly hurt by the export controls, he said. The company represents the cutting edge of China’s integrated circuit industry and is a point of national pride. Even if Huawei buys more chips from other companies, Hisilicon won’t “have anything to do,” and that would “be embarrassing to China—Hisilicon enters the top 10 in the world, and a few months later it doesn’t exist.”

And in the near future, “if Hisilicon collapses, China can’t make world-beating military tech, doesn’t have access to fabs—that could lead to some kind of pressure on China and a compromise with the US.”

Parallel semiconductor stacks

So in the short- and mid-term, Kleinhans said, the US can certainly block China’s way. But with extra Chinese investment, “in a decade or two we have very different semiconductor stacks.” He and Randall agreed that the most reasonable option would be a “trailing-edge” chip, something “middle-range” in case China got cut off from the rest of the world.

“Interestingly,” Kleinhans said, “you see a connection between different regions… in Germany and Europe, there’s a fraction of policymakers saying, well, in the public domain, we don’t need the latest and greatest—we need secure and trustworthy ICT systems.”

Building up to independence will be difficult, if not impossible. No semiconductor company today can do anything without US tools or equipment, Randall said. “It’s just how the industry is,” he said, “you could flip it around and say that the US is reliant on Taiwan to make its chips.”

As both speakers said, that independence will come easier in some processes and products than others, and getting there is going to take more than cash. In Kleinhans’ words, “if it was just about money, China would’ve already been successful.” China will need to get smart about how it invests, and how it attracts talent to the industry.

Crisis or opportunity

So who stands to win, and lose, from the Great Chip War?

Expect no winners in the short- and mid-term, Kleinhans says. “Every single dollar you spend there eats away from R&D.”

But long-term, he sees it as an opportunity for companies to make their supply chains more resilient—not just to buffer against geopolitical crises, but also pandemics and natural disasters.

For US semiconductor companies, life isn’t about to get any easier, according to Randall. Europe, though, has been trying to sit on the fence, and as China moves to exclude US suppliers and move to non-US equivalents, “maybe that’s a good opportunity for others out there when blood is on the streets.”

The Great Chip War isn’t likely to simmer down anytime soon. Both governments will have to decide how much they want to escalate, and if China decides it wants to hurt the US, it could target something else, making the chip war bleed into other industries and products.

Overall, it’s bad news for an industry that depends on global supply chains and distribution of labor. “So I’m really wondering,” Kleinhans said, “in 20 years, if you’re a historian looking at this time period, how much innovation got lost in the nitty-gritty details of this tech rivalry?”

Tiktok apologizes for ‘glitch’ that blocked Black Lives Matter hashtag

Wei Sheng — Tue, 02 Jun 2020 10:45:44 +0000

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.

Bytedance SVP Liu Zhen resigns as company shifts power out of China

Wei Sheng — Fri, 29 May 2020 05:47:39 +0000

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.

US adds dozens of Chinese firms to trade blacklist

Chris Udemans — Mon, 25 May 2020 06:49:58 +0000

In its latest rebuke against China, the United States said on Friday that it will add nearly three dozen Chinese companies and institutions to a trade blacklist over their alleged involvement in human rights abuses or their ties to the country’s military.

Why it matters: The move comes as lawmakers and political advisors meet in Beijing for the Two Sessions, one of the most important annual events on China’s political calendar.

Being added to the trade ban effectively bars the companies from buying products and technology from American firms without approval from the government.

Details: The US Department of Commerce added nine companies and institutions to the trade ban for their alleged complicity in human rights abuses in China’s northwestern Uighur Autonomous Region. Of these, seven companies have were added to the so-called “Entity List” for “enabling China’s high-technology surveillance” program.

These seven companies include facial recognition firms Cloudwalk Technology and Sensenets, surveillance company Netposa, and AI chipmaker Intellifusion, according to a commerce department statement.
Meanwhile, the US has also blacklisted 24 companies and institutions for their alleged ties to China’s military, the commerce department said in a separate announcement. These include high-profile cybersecurity firm Qihoo 360 and Softbank-backed robotics firm Cloudminds.
Qihoo responded in a strongly worded statement, saying that the company “firmly opposes” the accusations.
Several universities and research institutions were also been included on the Entity List for being involved in or posing a significant risk for becoming involved in activities that could affect US national security, including the Harbin Institute of Technology and Beijing Computational Science Research Center.
The blacklisting aims to prevent China from using US commodities and technologies in activities that undermine the country’s interests, Secretary of Commerce Wilbur Ross said in the statement.

Context: The move marks Washington’s latest offensive against Chinese tech companies in an ongoing spat between China and the US.

In October, the US placed several Chinese artificial intelligence and surveillance companies on the blacklist, including AI firm Sensetime, facial recognition company Megvii, and surveillance camera maker Hikvision, among others.
The US has also sought to limit Huawei’s involvement in its 5G rollout, citing national security concerns.

Export ban II: Huawei’s harsher, higher-stakes sequel

Stewart Randall — Wed, 20 May 2020 04:02:26 +0000

New export ban rules announced by the US Department of Commerce could be the blow that finally incapacitates Huawei, cutting off its ability to create advanced semiconductors.

Whilst rules passed by the Department of Commerce last year blocked Huawei from Google Services, reducing Huawei’s sales outside of China, the company still found loopholes allowing it to continue designing high-end chips and outsource production to TSMC. These loopholes may now be blocked.

What happened?

Since 2019, Huawei has been on the US BIS Entity List. The goal was to cut off Huawei and its affiliates, most importantly chip design subsidiary Hisilicon, from US technologies. They required companies wanting to export to Huawei to obtain a license from the US government.

Opinion

Join a discussion with the author! Next week, TechNode will host an online discussion with columnist Stewart Randall and CSIS expert James Lewis on the export ban, Huawei, and #techwar. Spaces are limited. Sign up here to participate.

Columnist Stewart Randall is Head of Electronics and Embedded Software at Intralink.

Despite these restrictions, Huawei has continued to use US technology.

Hisilicon has been able to continue designing chips, relying on existing licenses from key US Electronic Design Automation (EDA) tool companies Synopsys and Cadence. The rules limited these companies’ ability to provide updates, patches, and technical support, but Hisilicon could continue using the software, even if it wasn’t quite up to date.

It also didn’t block Huawei from contracting chip fabrication to Taiwan Semiconductor Manufacturing Company (TSMC), a Taiwanese company, and to Semiconductor Manufacturing International Corporation (SMIC), a Chinese company, both of which use US equipment in their production lines.

The rules did prevent Huawei from offering Google Services on its phones, a significant blow that led to reviews like “a stunning phone you shouldn’t buy.” Indeed, Huawei’s handset shipments have started to suffer outside of China, but overall sales are up due to a huge increase in domestic demand—where Google Services are not allowed anyway.

The US now says it will apply the rules to indirect relationships like TSMC, meaning anyone in the world using US technology or software to design or manufacture semiconductors for Huawei must now obtain licenses from the US.

To directly quote from the briefing, “Huawei benefited from a loophole that allowed it to make use of US electronic design software and manufacturing equipment to continue to produce its own semiconductors. That ends today.”

I’m not a lawyer, and I can’t tell you if this version of the ban is watertight. People are already suggesting loopholes on Twitter. But at the end of the day, TSMC can’t afford to give up on its US market and will comply if its lawyers can’t find a work around. SMIC, as a Chinese company, could be another story.

How does this affect Huawei?

Under these rules, many more suppliers will need a US license to work with Huawei. Fabs owned by TSMC and Samsung will need a license; many semiconductor IP companies, even some non-US ones, will need a license; outsourced design service companies will need a license. One would assume that most of the time the US will deny licenses, or at least hold the threat of denial over China and Huawei if they don’t play ball.

The process of making a semiconductor is complicated and has multiple phases, going from raw materials, to design, to fabrication, to packaging and assembly. The new rules threaten Huawei’s ability to make chips in two central phases, by limiting access to fabrication plants (“fabs”) and preventing the use of EDA tools in design.

And the rules in theory also affect Chinese companies. Just like TSMC, SMIC will have to apply for a license to manufacture Huawei’s chips, as it too uses US equipment. Imagination Technologies may be Chinese owned these days, but it still uses US EDA tools, so its IP couldn’t be used by Huawei without a license unless the company moves away from these tools. All Chinese design service companies, such as Verisilicon, use these tools—there just aren’t any realistic alternatives.

Huawei is said to have prepared by stockpiling a lot of chips, and the rules came with a 120-day reprieve for orders already in place, so Huawei’s next Kirin chip (Kirin 1000), which is in production at TSMC, should be good to go. Production is expected to stop by mid-September, so I imagine Huawei will look to manufacture as many of this chip at TSMC as possible between now and then. Plans for the 5nm Kirin 1100 for next year may have to be scrapped, as only TSMC can do this. Any future high-end designs at 7nm and 5nm will have to be scrapped or moved to another less advanced process.

Of course, even this is possible only if there is a fab that can set that up without US equipment in that time period. There isn’t an obvious loophole.

The fab problem

Not having Google Services is one thing, but if you don’t have a chip you don’t have a product, even for the domestic market.

But Huawei has surprised us before and may continue to do so. It would have known this was coming, and as such will have some contingencies. But it’s hard to conceive of a plan that would cover this situation. Huawei does have a stockpile, but you can’t stockpile chips that haven’t been manufactured yet.

Without loopholes, there are more or less no existing fabs that can work with Huawei for now. In the short-term, this means Huawei has nowhere to manufacture its chips. In the medium-to-long term, there are some answers, if costly ones.

One, TSMC, Samsung, SMIC, and other fabs could create Huawei-specific, or China-specific, production lines with zero US equipment. This would be a huge investment just to deal with one customer, but if US restrictions spread to all Chinese companies it could make sense economically. Even Huawei alone could still make sense to TSMC, which relies on Huawei for 10-15% of sales, but this risks the wrath of the US government. The Chinese government might also push SMIC to set up a non-US line. It announced a $2.2 billion investment into SMIC straight after the US announcement, perhaps to create such a production line, but this wouldn’t replace TSMC’s 5nm and 7nm, and current SMIC free capacity is not enough to deal with orders from Huawei.

Two, Huawei could start fabricating its own chips, like Intel or Samsung. It would have to create its own chip production line free of US equipment. This isn’t something that can happen overnight, and would not be cheap, but would give it more control.

It makes more sense for it to work closer with domestic fabs to create US-free production lines, as it is more economical and lets both companies focus on their core expertise. Either option could result in no longer having access to leading edge process and so a worse product than today.

But either option could fail, depending on what the US does with international equipment makers. While there are non-US manufacturers, they are probably vulnerable to US pressure just as TSMC and Samsung are. Leading Dutch equipment company ASML has previously followed US export rules, and without ASML you can’t have a high-end chip.

The EDA problem

On the EDA front, Huawei’s research and innovation lab, called the 2012 lab, has been rumored to be working on its own set of tools. It is unclear how ready these are, but this could be one area where the company surprises us all.

Read more: SILICON | China’s design tools conundrum

Domestic tool companies already have tools for certain parts of the design flow, but nothing that covers the entire design process from architectural exploration, to RTL verification, to physical design, etc. The Department of Commerce has made it clear it wants to stop Huawei using Synopsys, Cadence, and Mentor tools, and I interpret the following to mean its partners can’t use them either to supply Huawei with design services or silicon IP:

This expanded rule will impose a US licensing requirement, an export-control licensing requirement whenever anyone anywhere in the world uses US technology or software to design or produce semiconductors for Huawei. Companies wishing to sell certain items to Huawei produced with US technology must now obtain a license from the United States.

That brings us to the IP problem. Although Huawei has a make rather than buy philosophy, it does rely on several IP companies that will be affected by the new rules, and these IP companies often use US EDA tools to design their IP. Although Arm cores were previously deemed to be UK origin technology and Huawei could continue to access Arm v8 and v9 architectures Arm uses EDA tools from companies like Synopsys, so could Arm IP be back on the chopping block?

As I have written before, the new open source architecture RISC-V could be Huawei’s way out here. But while RISC-V is growing fast and is extremely versatile, its ecosystem does not match Arm’s yet, so it will be a few years before it is viable in consumer electronics like handsets.

But it’s not just Arm. There’s a lot of scattered IP in a design: the GPU, communication interfaces, on-chip monitors, etc. In addition to EDA, Synopsys, is also an IP provider. Just one example is its USB IP: Huawei uses Synopsys USB 2 and USB 3 PHY IP, and it no longer can. This IP is not something that can just be designed overnight, and Huawei will need to find an alternative that doesn’t come from a company using US EDA tools.

System-on-a-chip design companies like Hisilicon invariably rely on IP for some parts of their designs, in order to speed up the design process and create the best performing design possible. For some IP, it seems Huawei will have to design itself using a mix of its own tools and other domestic tools, as well as encourage its non-US suppliers to verify RTL using other tools. I spoke to one non-US IP company, whose lawyer confirmed it won’t be hit by the rules and can carry on licensing to Huawei, so there will be some IP suppliers Huawei can still rely on.

Production, EDA, and to a lesser extent, IP are the three main areas of concern, but there are many others, field programmable gate arrays and emulators for chip prototyping being one, 5G test and measurement equipment being another.

Deus ex Biden unlikely

I expect the US tech lobby will be going crazy right now, as many companies are not just losing their Huawei business, but also Chinese business. The first question I often get asked in meetings these days is: “is your IP American?”

The environment in the US is very anti-China. As Trump and Biden attack each other as soft on China, they’re bidding up the confrontational attitude, and I don’t expect that to change any time soon. There may be change rhetorically, but not in US policy goals.

China has, of course, been just as brash and undiplomatic. Its media are calling for a strong counterattack, and the government itself has threatened to use what it calls its “Unreliable Entity List.” That threat hasn’t been made concrete at this time, but Apple, Boeing, Qualcomm, and Cisco are have been rumored as targets.

I have considered some options for Huawei here, but none of them feel very realistic or short-term. The best option would be to find a way to avoid the ban coming into force.

Meanwhile, TSMC will be trying everything it can to help. Losing Huawei’s business would also a huge blow for the Taiwanese fab, and I’m sure it will be taking legal advice as well as lobbying the US government to let it continue its work with Huawei. Its announced fab in Arizona seems not entirely certain, so this investment could be used for leverage in any negotiations.

Will there be enough chips?

A worst-case scenario sees Huawei without enough chips for its next flagship product, and stuck with either nowhere to manufacture chips, or an inferior US-equipment free production line that means future products are no longer world leading, possibly after many months of interrupted production. That’s not even considering a scenario where the company can’t even viably design chips at all.

I’ve focused on phones, but Huawei also needs the chips it designs for all its other product lines: servers, laptops, switches, base stations, AI, cameras, etc. It will have been stockpiling a lot of these, especially 5G base station chips, but it still faces the problems highlighted above across all its product lines.

The company has surprised us before though, and perhaps it can again. But if it can’t, then we can expect a very different Huawei, and US tech can look forward to retaliation in China.

Nasdaq is helping China keep IPOs at home

Eliza Gkritsi — Tue, 19 May 2020 09:55:03 +0000

Nasdaq will release new restrictions on IPOs that will restrict many Chinese companies from listing on the stock exchange in the future. Chinese companies listed in the US are facing increasing skepticism after Luckin Coffee admitted to fraud in April.

Why it matters: The new restrictions are likely to have a profound impact on Chinese tech startups. Many pick the New York-based bourse for going public, in part because of its relaxed rules.

Beijing has been actively trying to keep Chinese tech companies from listing overseas since 2019.
The new rules come in the midst of heated trade tensions between the US and China.

Details: The tightened rules will not single out Chinese companies, but are prompted by fears over transparency and accountability specific to them, Reuters reported.

Companies China, and other countries, will have to raise more than $25 million in their IPO or one quarter of their market capitalization after listing.
This is the first time Nasdaq has set a minimum threshold for IPO value.
Only 40 out of 155 Chinese companies that have listed on the Nasdaq since 2000 would have met this requirement, Refinitiv data suggests.

Watch: Thin ice for US-listed Chinese tech companies: Webinar playback

Context: In April, Nasdaq-listed beverage chain Luckin Coffee admitted to falsifying RMB 2.2 billion in sales.

US-based short sellers have followed Luckin’s admission with reports alleging misconduct at streaming giant Iqiyi and edtech startup GSX.
But China’s financial authorities want to discourage homegrown tech companies from listing overseas. In June 2019, they launched a Nasdaq-style exchange in the Shanghai bourse, relaxing regulations to allow for more startups.
Five months later, regulators said they would expand the reforms to other stock exchanges in the country. In late April 2020, Shenzhen’s stock exchange embraced these changes.

Bytedance hires Disney streaming chief as Tiktok CEO

Wei Sheng — Tue, 19 May 2020 05:17:27 +0000

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.

Huawei is confident it’ll find a way around the new US chip ban

Wei Sheng — Mon, 18 May 2020 10:38:11 +0000

A high-level executive of Huawei said Monday the company will find a solution to a new rule announced by the Trump administration that effectively cuts the Chinese telecommunications equipment maker off from global chip suppliers.

Why it matters: This is Huawei’s first official response to the new rule change made public on Friday. The company said it is still evaluating the impact of the new restrictions.

The rule, announced by the US Commerce Department, requires companies around the world to obtain licenses for sales to Huawei of semiconductors made with US technology.

Details: The Commerce Department’s rule would “inevitably” harm Huawei’s business to a great extent, said Guo Ping, the rotating chairman of Huawei, in a press conference Monday at the company’s headquarters in Shenzhen. He added that the company is confident that it would find a solution soon.

“The US believes being in the lead in technology is a base of its global supremacy, and that any country with advance technology would pose a threat to its supremacy. Unfortunately, Huawei is taking a lead in the information and communications technology (ICT) sector.”
Guo Ping, rotating chairman

The world’s largest telecoms equipment maker described the new rule as “arbitrary” and “pernicious,” warning that it would “undermine the entire industry worldwide.”

“Huawei categorically opposes the amendments made by the US Department of Commerce to its foreign direct product rule that target Huawei specifically. This new rule will impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries”
Huawei spokesman Joe Kelly, reading from a company statement during the press conference.

The company, which was also added to a Commerce Department “Entity List” a year ago that bars it from sourcing components and technology from US companies, said the new rule would damage international companies’ trust in US technology.

“Ultimately, this will harm US interests.”
Huawei in the published statement

Context: The Trump administration’s new rule, effective Friday but with a 120-day grace period, will block companies around the world from using American-originated equipment and software to design or produce chips that are supplied to Huawei or its subsidiaries.

Companies can apply for a license to continue shipping those products to Huawei, but the Commerce Department had said the presumption would be to reject those requests.
Nikkei Asian Review reported Monday that Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world’s largest contract semiconductor maker and a key manufacturer of chips designed by Huawei’s Hisilicon, has halted new orders from Huawei in response to Washington’s new rule change.

Zoom suspends Chinese individuals users from hosting meetings due to ‘regulatory demand’

Wei Sheng — Fri, 15 May 2020 06:36:35 +0000

Popular video-conferencing app Zoom has suspended individual users in China from hosting meetings on the platform. One of the company’s Chinese resellers announced the changes earlier this month.

Why it matters: US-based Zoom has become one of the most popular choices for Chinese business professionals working from home to host meetings amid the Covid-19 pandemic. It is also widely used by individuals to host webinars and give online courses.

The app has placed between fourth to seventh in the rankings of Apple’s iPhone App Store’s business category in China from since mid-February, according to app intelligence firm Sensor Tower.
The restrictions on individual users come as China is set to hold an annual meeting of its congress, the country’s most important political event, later this month. The gathering is usually accompanied by a rise in internet controls and restrictions.

Details: Zoom has suspended free users in China from hosting meetings starting from May 1. Individuals are no longer allowed to purchase its services, said Shanghai Donghan Telecommunications, one of Zoom’s Chinese partners which runs the website zoom.com.cn.

The Shanghai-based company said it has suspended all new user registrations on the website. Businesses need to contact their sales representatives to buy licenses for the service.
A woman answering a call at Shanghai Donghan’s office said the restrictions on individual registrations are due to “regulatory requirements,” but she refused to give further details.
She said that companies will have to provide a business license issued by Chinese market regulators to purchase services from the company. Fees can only be transferred from a corporate bank account.
Free users, either individual or corporate, are able to join meetings, the company said on the website.
Shanghai Huawan Telecommunications, another Chinese partner of Zoom which runs the website Zoomvideo.cn, only allows corporate users to register and purchase services, but it doesn’t inspect users’ corporate information before purchases were made, according to TechNode’s review.
It is unknown if Zoom’s US headquarters made the decisions. The company didn’t immediately reply to an email requesting comments.

Context: Chinese users of Zoom began to switch to localized versions of the app, including those provided by Shanghai Donghan and Shanghai Huawan in September after the service was blocked in the country in the same month.

Zoom is also facing scrutiny in overseas markets because of its reliance on China for product development. The company, founded by Chinese immigrant Eric Yuan, has had part of its product development team based in China since it was founded in 2011.
The company admitted in April that some users “mistakenly” had their calls routed through data centers in China, resulting in a backlash from foreign government agencies and companies that fears their meetings might become vulnerable to Chinese surveillance.

Trump extends for another year the executive order behind the Huawei ban

Wei Sheng — Thu, 14 May 2020 05:31:39 +0000

The US President Donald Trump extended Wednesday for another year an executive order that bans telecommunications equipment and services from foreign companies that could pose a threat to national security. The order effectively bans US businesses from working with Huawei.

Why it matters: The order, originally signed by Trump in May 2019, is widely seen as a measure against Chinese telecoms equipment makers such as Huawei and ZTE, even though it doesn’t list any countries or companies by name.

The Federal Communications Commission, the US’ top telecoms regulator, had previously named Huawei and ZTE as “national security threats.”
Trump had ordered the US Commerce Department to stop transactions “posing an unacceptable risk,” which includes import of gear or services from companies that have close ties to foreign governments and could use their equipment to monitor or disrupt US telecommunications or other infrastructure.

Details: Trump announced Wednesday the extension of the exclusive order signed in May 2019 that invoked the International Emergency Economic Powers Act, which authorizes the president to regulate commerce after declaring a national emergency in response to any unusual threat to the US with a foreign source.

The US Commerce Department is also expected to extend again a license that allows US companies to keep shipping essential components to Huawei, Reuters reported, citing a person briefed on the matter.
A representative of Huawei declined to comment.

Context: The Commerce Department added Huawei and 70 of its affiliates in May 2019 to a trade blacklist that bars US companies from doing business with them without government approvals. It gave Huawei a 90-day grace period soon after the ban was imposed. The reprieve was later extended in August, November, and then in February.

The latest reprieve for the company was announced in March and is set to end on May 15. Meanwhile, the department said it was seeking public comment on whether the license should be further extended.

Chinese online grocer JD Daojia files for US IPO

Emma Lee — Wed, 13 May 2020 07:17:20 +0000

Dada Nexus, the company behind on-demand grocery delivery platform JD Daojia and delivery platform Dada Now, filed its application on Tuesday with the US securities regulator to offer shares on the Nasdaq stock exchange.

Why it matters: JD Daojia’s filing for an initial public offering (IPO) on a US exchange bucks the current trend among Chinese US-listed firms, which have shown increased interest in Hong Kong listings. Led by Alibaba, the country’s tech giants currently favor the Hong Kong market amid escalating US-China tensions and concerns over fraud.

The move highlights the company’s confidence in China’s on-demand grocery delivery market, which surged during China’s country-wide lockdown that began in February, sequestering millions at home to avoid spreading the virus.

Details: In its filing, the company uses a placeholder amount of $100 million as a fundraising target. A source cited by tech media outlet The Information said in August that the IPO was expected to raise $500 million.

JD Daojia partners with more than 89,000 stores, serving 27.6 million active customers in more than 700 Chinese cities with delivery services for fresh groceries, flowers, medicine, beauty, household items, and other products.
In 2019, net revenue reached RMB 3.1 billion ($437.8 million), growing around 60% year on year, according to the company’s prospectus.
Net revenue for the first quarter of 2020 more than doubled to RMB 1.10 billion from RMB 526.5 million in the same period a year ago.
The company is still loss-making, though net losses narrowed 20% year on year to RMB 279.3 million in Q1 2020 from RMB 336.9 million in Q1 2019.
Goldman Sachs, BofA Securities, and Jefferies are joint bookrunners on the deal.

Context: JD Daojia raised $500 million from Walmart and JD.com in 2018.

The company is a grocery delivery joint venture between e-commerce platform JD.com and on-demand delivery platform Dada.
JD.com, JD Daojia’s largest shareholder with a 51.4% stake, is reportedly planning for a secondary listing on the Hong Kong exchange.
The company is in competition with with Meituan, Alibaba’s Ele.me, and Dingdong Maicai.

Luckin apologizes to staff after month-long fraud tumult

Emma Lee — Wed, 13 May 2020 05:36:24 +0000

Embattled Chinese beverage chain Luckin Coffee issued an apology letter to its employees on Tuesday evening for the upheaval following its stunning fraud admission in early April.

Why it matters: Luckin had remained relatively silent about its moves following the April 2 disclosure of fraud to the US Securities and Exchange Commission. The apology and appointment of new leadership on the same day mark a distinct change in leadership style.

The company on Tuesday fired CEO Qian Zhiya and COO Liu Jian from their positions.

Details: “We would like to express our sincere apologies for all the troubles the incident has brought upon your family,” the company said in a letter addressed to its employees on Tuesday, according to Chinese media reports.

The company said that it is grateful to its employees for their hard work in maintaining normal operations of stores, supply chain, and product innovation during a difficult time.
The board has appointed Guo Jinyi as acting CEO of the company to oversee the firm’s daily operations as the fraud investigation continues.
Like his predecessor Qian Zhiya, Guo was also formerly an executive with Car Inc., the car rental firm backed by Luckin chairman Lu Zhengyao.
The company named new board members Wu Gang, a longtime Mcdonalds executive and a Luckin senior vice president, and Cao Wenbao, an airline executive.
The Starbucks challenger also pledged in the letter to restructure the company and rebuild its values under its new leadership.

Context: Luckin disclosed in early April that its COO had fabricated around $310 million in sales in 2019, triggering a plunge in share price of around 80%.

US regulators, as well as China’s top market regulators, have launched probes into Luckin Coffee.

Updated: added detail about Luckin’s two new board members.

Imagination Technologies ranks STAR Market as its top choice for eventual IPO

Eliza Gkritsi — Wed, 29 Apr 2020 05:19:19 +0000

Imagination Technologies, a top UK semiconductor company acquired by a state-backed Chinese fund, ranks a listing on the Shanghai stock exchange’s tech board as its top option once it is ready to float shares, according to Reuters.

Why it matters: The chip design company is at the center of a geopolitical storm between China, the UK, and the US.

In the beginning of April, the UK government intervened in an attempted boardroom takeover that they saw as leading to the transfer of key technological intellectual property to China.
The private equity firm that bought Imagination Technologies in 2017, Canyon Bridge, is backed by Chinese state-backed venture capital firm China Reform Holdings.

Read more: Imagination Technologies: What’s at stake in the fight over control

Details: The UK chipmaker’s financials have been in a bad state for a while now, recording an operating loss of $23 million in 2019, a Reuters source said. An initial public offering is a few years down the line, according to the report.

The Nasdaq-style tech board at the Shanghai stock exchange is a “top option,” the report said citing a source with knowledge of the matter.
“There is an enthusiasm towards semiconductor companies in China, with the STAR Market. Many semiconductor companies have listed there and valuations have been attractive,” the source told Reuters.
The focus is to save the business, not re-domicile it in China, Reuters’s sources said.

Context: The boardroom takeover was cancelled after intervention from prominent conservative members of the UK Parliament.

With more than 30 years worth of patents, the company is one of the UK’s most valuable strategic tech assets.
Imagination Technologies’ CEO, CTO, and CPO all quit after the attempted boardroom takeover by Canyon Bridge.
About 11 billion devices or 30% of the world’s mobile phones, as well as 40% of cars use graphics chips developed by Imagination Technologies, Sky News said.
The semiconductor designer’s shares fell in 2017 after it lost Apple, its biggest client. Cayman Islands-based Canyon Bridge swooped in to buy it for £550 million ($688 million).
In January 2020, the Financial Times reported that the firm would be selling to Apple again.
The STAR Market launched last year to attract more IPOs from tech companies in China. The tech board has relaxed listing rules relative to other exchanges in the country.
At least five top semiconductor companies were reportedly accelerating plans to publicly list on the tech board in response to Beijing’s push for technological self-reliance.

Export controls and the rise of US-China techno-nationalism

Alex Capri — Fri, 24 Apr 2020 04:38:43 +0000

Even as the world is in the grip of the coronavirus pandemic, the US and China are locked in an escalating race to control the technologies of the future. This new environment has inspired a philosophy I have described as “techno-nationalism”: mercantilist-like policies, such as export controls, that link a nation’s tech innovation and enterprises directly to its economic prosperity, national security, and social stability.

While governments are trying to lock down technology, tech multinationals are looking for ways to sidestep onerous export controls and restrictions to continue selling to key customers such as Huawei. As I document in a recent report published by the Hinrich Foundation, businesses are doing this by exploiting legal loopholes and restructuring global supply chains.

Alex Capri is Visiting Senior Fellow at the National University of Singapore, in the Business School. He writes extensively on trade, technology, and geopolitics.

Going forward, loopholes in existing export controls could prompt stricter measures from Washington, which will come at higher costs for tech companies and continue to disrupt global value chains (GVCs).

For US and other foreign companies, this means two things: first, the US government could close export control loopholes, in particular the so-called de minimis rule; second, the Feds are likely to increase pressure on key suppliers and governments to stop selling controlled technologies to Chinese companies.

Export controls’ impact on value chains

An export control is a regulation put in place to protect national security, promote foreign or domestic policy, and, in some instances, control the export of items in short supply. By itself, an export control is not an export ban, and does not mean that the product in question can never be exported.

Export controls do, however, often mean that you have to ask a government for permission before selling, transferring, or transporting a product to a foreign market. Whether or not a license is required will depend on where the final buyer is located, who the buyer is, and how the controlled item will be used.

A key driver of export controls is the concept of “dual-use,” meaning that a commercial technology could be used for military purposes. In the US, for example, the US Department of Commerce has created an extensive list of dual-use technologies which can be found on the Controlled Commodity List (CCL).

Everything on the CCL is subject to “export controls,” but an actual export license will only be required based on the above “who,” “where,” “what,” and “why” criteria, for each unique instance. For example, the same item exported to China, Japan, and South Korea might only require an export license for China.

The US Export Control Reform Act of 2018 will expand the number of dual-use technologies on the CCL, targeting “emerging and foundational technology” and putting most, if not all, US-China technology transfers at risk of being subject to more export controls and license requirements. This would include things like machine learning, robotics, autonomous vehicles, and additive manufacturing (3D printing), among others.

This means that everything on Beijing’s “Made in China 2025” list will fall under the dual-use umbrella.

Export licenses add a layer of uncertainty to GVCs, and the denial of a license can turn a long-time supplier into an unreliable supplier literally overnight. Export controls also mean that a company’s supply chains will be examined under the proverbial regulatory compliance microscope, adding compliance costs, delays, and risks to previously routine business.

Read more: A Chinese view of AI export controls

Efforts to de-Americanize

Export controls are already costing US firms and businesses. Since being placed on the restricted entity list in May 2019, Huawei claims to have jettisoned all US technology from its P30 Mate smartphone, including radio frequency chips (made by Skyworks Solutions and Qorvo), memory (Micron), and design software and operating systems (Synopsis, Mentor Graphics, and Android).

According to a report by Bloomberg, Huawei has also eliminated US technology from the first 50,000 units of its next generation 5G base stations, turning instead to fabless design subsidiary HiSilicon. Bloomberg reported that this impacted US suppliers Intel and Xilinx.

The ramping up of US export controls—and Chinese companies’ subsequent efforts to decouple from US suppliers—has placed US companies in a precarious position, given their sizable revenues from the Chinese market. Huawei alone purchased approximately $11 billion worth of semiconductors from US firms in 2018.

To put this into perspective, more than 60% of Qualcomm’s revenue came from China in the first four months of 2018; for Micron, over 50%; for Broadcom, about 45%. Broadcom has revised its 2019 revenue estimate down by $2 billion because of the Huawei ban, and overall market uncertainty from the US-China tech war.

It is no surprise, then, that American companies are fighting to maintain their market share.

Two very compelling long-term fears make it very hard for, say, semiconductor firms to write off their Chinese customers . First, once a company loses market share, it becomes nearly impossible to recapture it if foreign competitors can step in to replace them. This is due to the very high switch-over costs and complexities involving semiconductor B2B relationships. A well-ensconced competitor in the semiconductor space is very difficult to supplant. Second, in a sector that must commit ever-increasing resources to innovation, revenue from existing business must be ploughed back into critical R&D activities. Losing that revenue damages future competitiveness.

US firms have therefore been lobbying the US government, through organizations like the Semiconductor Industry Association (SIA), to delay an all-out ban on tech sales to Huawei and other Chinese firms, and to convince the US Department of Commerce to quietly approve export license applications—so far, there have been virtually no accounts of denied export license applications for Huawei.

‘American’ technology

Even though current export controls are hurting US businesses, these rules are not that hard for many suppliers to dodge. In many cases, all it takes is a little creativity with the legal definition of “US technology.”

US export controls apply only to US technology—and whether technology is US is determined by so-called “de minimis” thresholds set out in US Export Administration Regulations. What matters is how much of the value of the product is made up of US “controlled technology.” These thresholds are currently set at 10% and 25% of a product’s overall fair market value, depending on the technology in question.

If a company wants to sell to Huawei, all it has to do is manipulate its supply chain to cut the value of the US content, or to increase the value of non-US made components. This can be done a lot of ways—none of which help US workers or suppliers.

To manipulate the value of non-US inputs, for example, companies can increase the costs of foreign labour, overhead, IP license fees, or the costs of materials. For a product near the threshold, this can be as easy as paying EU factory staff a bit more to raise the value of non-US components.

The de minimis loophole is incentivizing US companies to move operations overseas and has led the US government to consider reducing the thresholds, or eliminating them all together.

So far this has not happened, due to opposition from US companies and trade associations. However, this issue may yet re-emerge.

The next phase

Going forward, the US government could take a much tougher stance on export controls, which could have high costs for many firms. For starters, it could close the de minimis loophole, reducing the threshold to 5% or even zero. This would make it difficult or impossible for some firms to reshuffle their GVCs.

Another increasingly plausible scenario is that the US government will try to exert leverage over third-country companies to cut off sales to restricted entities such as Huawei.

Senior officials at the White House have agreed to new measures to increase pressure on the Taiwan Semiconductor Manufacturing Company (TSMC), the Taiwanese semiconductor foundry which produces microchips for Huawei’s HiSilicon. Under a new proposed rule, foreign firms that use US-made chip-making equipment would have to obtain an export license to sell certain micro-chips to Huawei.

Only a small handful of companies make the manufacturing machines that enable everyone else to produce high-yield microchips in commercial quantities, including TSMC. American companies, such as Applied Materials, Lam Research, and KLA-Tencor, dominate this space. Two other firms, ASML (Netherlands) and TEL (Japan), round out this small, exclusive club. However, because ASML and TEL come from countries with strong historical alliances with the US, Washington has the power to get them to acquiesce to its techno-nationalist agenda.

An uncertain future for export controls

Chinese companies will accelerate their efforts to de-Americanize their supply chains, no matter what happens to US export control policies.

The rise of techno-nationalism will push companies to decouple, ring-fence, and realign their value chains, in some cases pre-emptively and in other cases because of new government constraints.

The US-China technology rivalry, thus, will continue to present tech companies with increased risks and uncertainty well into the foreseeable future.

A Chinese firm made a memory chip that can compete with Samsung. What’s next?

Eliza Gkritsi — Thu, 23 Apr 2020 04:23:11 +0000

In a milestone for China’s semiconductor industry, Yangtze Memory Technologies (YMTC) announced last week that it has developed a 128-layer NAND flash memory chip (128L) in-house. The company expects mass production to start sometime between the end of 2020 and mid-2021, a spokesperson for YMTC told TechNode.

The Wuhan-based firm hit this milestone while fighting to continue production during the lockdown of its home city.

Read more: What industry can’t stop? Semiconductors

As wafers hit surface area limits, space on them is like downtown real estate: it comes at a premium. Layering circuits allows chipmakers to fit more memory into the same space—building up instead of out. 128L puts YMTC on the cutting edge of flash memory, but scaling up to mass production to match its competitors will be challenging.

Flash memory is used in products from “entry-level” USB and memory cards, to more complicated solid-state hard drives. YMTC’s current generation of 64L memory has its foot on the lowest rung of this ladder.

Samsung, Micron and SK Hynix hit the initial production milestone in 2019, and started selling their in-class chips in early 2020. YMTC’s product could compete with them, but comes six months to a year behind the competition.

It is an important step on China’s path to semiconductor independence, but the fact that YMTC has managed to stack 128 layers of circuits on a wafer won’t necessarily make it a big player in the global semiconductor industry, experts said. There are several hurdles that YMTC needs to jump through in order to compete with incumbents in quality, scale, and price.

Analysts said that YMTC’s previous NAND chip was hardly a wild success. “Because YMTC has just begun selling 64L NAND products, and because of the impact from COVID-19, the actual sales figure remains low at this point,” Avril Wu, a semiconductor analyst at Taiwanese market research firm TrendForce, told TechNode.

YMTC has not released any information as to how many units of the 64-layer memory chip it has sold, and did not reply to TechNode’s request for data. TrendForce expects YMTC to account for 8% of the global flash memory market in 2021.

The timing is right for YMTC to launch the 128L chip, as innovation from some competitors is likely to slow. The price of NAND Flash fell by an average of 46% in 2019, leading to losses, conservative capital expenditures, and record-low output growth expectations, TrendForce said.

Manufacturing difficulties

For YMTC to compete with international peers, memory chip production standards will matter as much as design. One measure used in the industry to gauge quality is yield: the proportion of chips on a wafer that work properly.

In the best case, YMTC will become a big player in the global flash memory chip game. In the worst case, Randall said, its clients won’t evolve past China.

“YMTC lags behind other mainstream memory manufacturers in terms of yield and product stability,” Wu said. She added that “it is actively bridging this competitive gap.” More than a matter of design, yield is affected by the production process. Companies refine the manufacturing process as engineers gain know-how in making a particular design.

Market analyst Wu said the “primary hurdle” is the procurement of manufacturing equipment. The billion dollar machines that are used to produce chips are made by few companies in the US and Europe, like Dutch ASML and American LAM Research. They take months to produce and have long waiting lists, which is why usually there is a months-long lag between announcing a product and bringing it to market.

“In the future, if the US government prohibits European and US equipment suppliers from shipping to YMTC, it will negatively affect the company’s capacity expansion schedules,” Wu said.

The issue of experience and know-how is important for scaling production as well, James Lewis, Senior Vice President and Director of the Technology Policy Program at US think tank Center for Strategic and International studies, told TechNode.

“It’s not foreign sources for semiconductor manufacturing equipment that is the obstacle,” he said.

The 64L’s yield was reportedly “good enough,” said Stewart Randall who heads the electronics and embedded software department at Intralink, a consultancy that provides market entry services to China, told TechNode. This is a positive sign for the 128L’s yield, but its production is harder. “Let’s see how the 128L does,” he said.

With a little help from a friend

In all likelihood YMTC will manage to scale up capacity and mass produce its 128L flash chip in 2021, analysts said. But the scale at which this production happens is crucial to the economies of scale that allow companies to offer competitive prices. Given the lack of know-how and equipment, it will take time for YMTC to match the offers of incumbents in price and quality.

But the Wuhan memory chip-maker has a powerful friend holding its hand. It is funded by government-backed conglomerate Tsinghua Unigroup. Beijing’s Big Fund, focused on promoting the development of homegrown semiconductors, raised $29 billion last summer. Tsinghua Unigroup received the most state funding out of all semiconductor players in the world between 2014 and 2018 in a December report published by the Organization for Economic Construction and Development.

As a strategic company that isn’t listed, YMTC and Tsinghua Unigroup don’t need to churn profits the same way that its competitors do. The state-owned company is likely willing to bankroll losses in order to help a Chinese semiconductor company establish itself in the market

“Neither financial nor human resource factors are issues for YMTC,” Wu said. Backed by Tsinghua Unigroup, all it needs is time to make a dent in the flash memory market. TrendForce said that YMTC’s mass production of 128L is likely to drive down prices for the industry overall.

Beijing has other ways to help YMTC, but it must strike the right balance. “The temptation will be for the Chinese government to press companies to give YMTC preference, but this works only if the chips are competitive in price and performance,” Lewis said.

Foreign companies could relocate rather than buy an inferior product from YMTC, Lewis said. This policy is “a bit touchy now, as the government doesn’t want to encourage foreign companies in China to leave” during the Covid-19 pandemic, he said.

YMTC’s clientele is overwhelmingly made up of Chinese companies, but it also works with Phison Electronics, a Taiwanese company that packs flash memory chips into controllers for USBs, memory cards, and SSDs, sources told TechNode.

A big step for YMTC, a small step for China

The development of the 128L flash memory chip is an accomplishment. Founded in 2016, the company has managed to come head-to-head with decades-old players like Samsung on one crucial aspect of semiconductor design: stacking circuits on a wafer. It is big news for the Wuhan-based firm, but it is only a small step in China’s efforts to achieve self-reliance in semiconductor production and manufacturing.

The 128L wafer will allow YMTC to up its game, from memory cards and USBs into solid-state drives for computers. The fact that it has developed its own chip architecture, called Xtacking, bodes well for future intellectual property conflicts, Wu said.

But memory chips are some of the easiest integrated circuits to produce, the “low end of semiconductor technology,” Lewis said. Chinese companies have yet to make significant progress in designing more advanced chips, like graphic processing units, and rely on western companies. China’s semiconductor industry might soon be supplying memory components to the globe, but it will continue to import all the other chips that computers are made of from the rest of the world.

Huawei revenue growth slows sharply in Q1 amid pandemic, sanctions

Wei Sheng — Tue, 21 Apr 2020 09:59:34 +0000

China’s Huawei reported Tuesday sharply slower revenue growth in the first quarter of 2020 as the company faces both trade restrictions from the US and the global coronavirus outbreak.

Why it matters: The dismal revenue numbers for Q1 provide a picture of how the Covid-19 outbreak has affected China’s electronics manufacturing sector and smartphone market.

The country reported last week that its first-quarter GDP contracted by 6.8% from a year ago—the first quarterly revenue decline of the country since at least 1992.
Huawei, however, is expected to gain from China’s massive “new infrastructure” initiative that aims to stimulate the country’s virus-hit economy by pouring trillions of RMB into 5G networks, data centers, and artificial intelligence.

Read more: China’s ‘new infrastructure’ projects, explained

Details: Huawei’s revenue for the first quarter grew only 1.4% year-on-year to RMB 182.2 billion (around $25.8 billion), according to a company statement published Tuesday.

The growth rate for Q1 2019 was 39% year-on-year.
“Huawei’s business is continuing as usual and its overall business results in Q1 2020 are in line with expectations,” said the company in the statement.
Its net profit margin in the quarter was 7.3%, slightly lower than the 8% margin reported in the same period last year.

Context: Huawei reported 23.2% year-on-year revenue growth in the first half of 2019. This was shown by the company as proof that the US sanctions had a limited impact on its business.

The Trump administration added Huawei on a trade blacklist in May, barring US companies from exporting to Huawei without government approvals.
Huawei said in October its revenue growth for the first three quarters of 2019 was 24% year on year.
The company said earlier this month its revenues for the full year 2019 rose 19.1% to RMB 858.8 billion.
In an interview with the Wall Street Journal in March, Huawei founder and CEO Ren Zhengfei said the company had lower expectations for its first-quarter revenue but the company’s revenue for the whole year would keep moving ahead.

China green-lights major Nvidia deal as US, EU scramble to protect tech from China

Eliza Gkritsi — Fri, 17 Apr 2020 06:19:47 +0000

As EU and US authorities are trying to protect their most valued assets from Chinese money, China made what could be a goodwill gesture: The country’s antitrust regulator approved the acquisition of Israeli Mellanox Technologies by California-based Nvidia for $6.9 billion. The deal is expected to boost Nvidia’s edge in artificial intelligence computing.

Why it matters: China’s green light comes at a time of heightened tensions between Beijing and the Western world. Analysts speculate that there could be multiple reasons behind the approval: an attempt to defuse tensions, a sign that China doesn’t plan to fight every single battle, or that they simply don’t care.

The powers of the Committee on Foreign Investment in the United States (CFIUS) were expanded on Feb. 13, 2020. The committee can now block deals of non-controlling interests.
EU lawmakers are looking to expand the bloc’s and member-states’ power to scrutinize and block Chinese investments. The EU’s competition chief encouraged EU governments to buy shares of tech companies they deem strategically important.

Details: The Mellanox deal was announced in March 2019 and was first cleared by US and EU authorities.

Chinese law requires that the State Administration for Market Regulation (SAMR) approves mergers or acquisitions between companies with combined sales over $56 million in China and $282 million globally.
The companies had to refile their application with China’s antitrust regulator because it expired.
Competition in the graphics processing units market is heating up, with AMD and Intel closing in on Nvidia’s market share.
The chipmaker has made strides in AI, catering to the needs of big tech like Alibaba and Microsoft with deep learning chips.
Mellanox is a leader in low-latency, high-bandwidth interconnect solutions.
The Mellanox acquisition gives Nvidia the potential of a world-leading stack of solutions in deep learning and big data analytics.

Context: The Imagination Technologies boardroom takeover that never took place has caused a stir in US and European circles. The UK chipmaker’s CEO, CPO and CTO resigned, unconvinced that the company was safe from a takeover.

The SMRA blocked Qualcomm’s $44 billion acquisition of NXP Semiconductors in July. The US had lifted sanctions on telco vendor ZTE just a few weeks before.
Mellanox is Nvidia’s biggest-ever spending on an acquisition. In 2011, Nvidia acquired Icera for $267 million, a spokesperson for the GPU maker told the Wall Street Journal.

Huawei shifts chip production away from Taiwan firms in favor of mainland

Wei Sheng — Fri, 17 Apr 2020 06:14:30 +0000

Chinese telecommunications firm Huawei is shifting production of its in-house designed chips away from a major Taiwanese chipmaker.

Details: The Shenzhen-based telecommunications company is moving its chip production towards Shanghai-based Semiconductor Manufacturing International Corp (SMIC) from Taiwan Semiconductor Manufacturing Co Ltd (TSMC), said a report by Reuters, citing sources familiar with the matter.

HiSilicon, their chip design subsidiary, has already started telling its engineers to design for SMIC instead of TSMC in late 2019, according to one of Reuters’ sources.
The company said in a statement the shift was “common industry practice” and that the company “considers carefully issues such as capacity, technology and delivery when choosing semiconductor fabrication plants.”

Context: A federal ban by the Trump administration last May barred American companies from exporting components and technology to Huawei without government approvals.

The Trump administration is considering to expand the ban to more foreign companies that use US technology, including Taiwan’s TSMC.
Huawei warned last month of retaliation by the Chinese government if the US ban upgrades.
“The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board,” Eric Xu, Huawei rotating chairman, said at a press event last month.

Short seller says China edtech firm GSX inflated revenue by 70%

Emma Lee — Wed, 15 Apr 2020 05:54:14 +0000

US short-seller Citron Research has accused Chinese online tutoring company GSX of defrauding investors by inflating its 2019 revenue up to 70%, sending the company’s share prices down in Tuesday trading.

Why it matters: The Beijing-based edtech upstart is the latest US-listed Chinese firm facing close scrutiny in the wake of a fraud disclosure by beverage chain Luckin and online education peer TAL.

Short sellers have also set their sights on Chinese video-streaming platform Iqiyi and classifieds site 58.com.
Citron’s report comes two months after short-seller Grizzly Report accused GSX of faking sales and financials by order “brushing” and overstating its net profit in 2018 by 74.6%.
China’s online education industry is bearing the brunt (in Chinese) of the blow, with shares for New Oriental, GSX, Netease’s Youdao, and Liulishuo declining after NYSE-listed TAL disclosed fraudulently inflated sales from one if its business units.

Read more: US-listed Chinese firms are on thin ice

Details: Citron Research calls GSX “the most blatant Chinese stock fraud since 2011” and asks that trading of its shares be halted and for an immediate internal investigation in a report published on Tuesday.

GSX’s revenue surged 431% year on year to $2.11 billion in 2019 from $397 million in 2018, according to the company. Citron Research said in its report that it believes the growth is vastly inflated.
GSX, which claims in its prospectus to be the third-largest online K-12 after-school tutoring service in China in terms of gross billings in 2018, is absent from a group market share reports conducted by the government, media, and third-party think tanks, according to the Citron Research report.
Chen Xiangdong, GSX founder and CEO, denied the fraud accusations in response to former fraud concerns. “Integrity is the most precious element in our value system since the first day of GSX,” he said in a Weibo posting on April 8.
GSX shares plunged around 12% mid-day before closing down 0.6% on Tuesday.
Citron’s report has attracted attention from law firms including Atlanta, Ga.-based Holzer and Holzer LLC which are launching investigations.

Context: Founded in 2014, GSX is an online education platform targeting K-12 after-school tutoring services in a large class format.

The company went public on the NYSE in June to raise $208 million at the mid-point of its targeted range at $10.5 a share.

Chipmaker executives quit over Chinese takeover

Eliza Gkritsi — Mon, 13 Apr 2020 09:49:24 +0000

Two executives at Imagination Technologies, a UK semiconductor design and manufacturing firm, have quit their positions following a postponed boardroom takeover from Chinese investors, Sky News reported citing people familiar with the matter.

Why it matters: The semiconductor firm is one of the UK’s most prolific tech assets with over 30 years worth of patents. UK Members of Parliament got involved due to the company’s business and strategic importance to the UK.

In 2017, Imagination Technologies shares plunged after Apple announced it would no longer use its products. A Cayman Islands private equity firm called Canyon Bridge acquired the firm for £550 million ($688 million) in the same year. A Chinese state-owned fund, China Reform Holdings, is the investor’s main backer.
The venture capital firm behind Canyon Bridge wants to redomicile Imagination Technologies to China, bringing all its intellectual property along, Sky News said.
Executives worried that the move would hinder the company’s ability to do business in the US, including their star client, Apple.

Read more: Imagination Technologies: What’s at stake in the fight over control

Details: The two executives, Steve Evans, Chief Product Officer, and John Rayfield, Chief Technical Officer could change their minds. But only if they are assured that the “proposed change of control” does not take place, Sky News said.

Evans refuses to be part of a company that is “effectively controlled by the Chinese government,” the news channel said.
The takeover was cancelled, but the chief executives seem to think that it was merely postponed. They haven’t seen enough “assurances” the control of the company will not be moved to China.
The company’s Chief Executive Officer, Ron Black, resigned on Friday.
The interim Chief Executive and Executive Chairman of the firm, Ray Bingham, is trying to convince the two C-level executives to stay. Bingham happens to be a co-founder and partner of the Canyon Bridge private equity firm.

Context: Last week, Imagination Technologies would have discussed the appointment of four representatives of state-owned China Reform Holdings as directors in an emergency meeting.

After a campaign from prominent Conservative MPs, the UK’s culture secretary called Imagination Technologies and asked for an urgent meeting with Bingham. The emergency meeting was then cancelled.
A few days after the takeover was put to bed, the Trump administration decided to investigate the matter. The Committee on Foreign Investment in the US (CFIUS) wants to find out if there is a risk of US-made tech being moved to China. Imagination Technologies had acquired a US company that designs artificial intelligence chips prior to the Canyon Bridge acquisition.
The UK government is seeking increased powers to stop mergers and acquisitions that could threaten British national interests, Sky News reported.
The timing of the takeover seems perfect. In January, Imagination Technologies rekindled its relationship with Apple in a new deal. The agreement gives Apple “access to a wider range of Imagination’s intellectual property in exchange for licensing fees.”
One person told Sky News that the timing was to ensure that British authorities were distracted by the Covid-19 pandemic.
About 30% of the world’s mobile phones, or 11 billion devices, and 40% of cars use Imagination Technologies’ graphics chips, Sky News said.

BYD is supplying Softbank with 300 million masks a month for Japan

Jill Shen — Mon, 13 Apr 2020 07:12:23 +0000

Chinese electric vehicle maker BYD is supplying face masks to Japan purchased by Softbank, as the country’s manufacturers rush to meet surging overseas demand amid the global spread of Covid-19.

Why it matters: Hit hard by plunging auto sales and core business shutdowns, more automakers are switching to manufacturing face masks.

China’s largest EV maker claims to be the world’s biggest mask producer, underscoring the country’s strength as a manufacturing powerhouse.

Details: BYD on Sunday confirmed that it has reached an agreement with Japanese conglomerate Softbank to supply 300 million face masks per month starting May, reported Shenzhen Special Zone Daily (in Chinese).

A day earlier, Softbank CEO Masayoshi Son said he obtained a monthly supply of 300 million face masks from BYD, which includes 100 million N95 masks and 200 million regular surgical masks. BYD will set up a new production line for Softbank, according to a Reuters report.
The news follows a recent deal between Warren Buffet-backed BYD and California to produce “a sustainable amount of” personal protection gear for the state, Nikkei Asian Review reported Thursday citing a state official.
Earlier this month, BYD was granted a permit by the US Food and Drug Administration to export Chinese-standard N95 respirators to the US, along with dozens of other Chinese mask makers, according to a FDA document.
The Shenzhen-based auto giant has offered medical supplies to 19 countries and regions along with China’s official foreign aid. Daily output in its factory has exceeded 15 million masks and it is currently expanding the capacity at a speed of 1 million units each day, according to the report.
A company representative said in Shenzhen Special Zone Daily that the move was in response to the Chinese government’s offers of aid to other countries, now that it has the pandemic under control.

Context: China reached production capacity of 116 million masks per day on Feb. 29, according to government figures, a figure that shot up more than tenfold in a month when big OEMs swiftly switched to mask production, motivated in part as a way to reopen their car production facilities.

SAIC-GM-Wuling, a joint venture between General Motors and its Chinese manufacturing partners, had been allowed to export masks earlier this month, according to an announcement released by local authorities (in Chinese).
Fiat Chrysler Automobiles late last month announced it will be producing masks at one of its Chinese factories, reported TechCrunch. The automaker expects to supply 1 million masks a month to health workers and others on the front line of the pandemic in North America in the coming weeks.

DJI appears to be making major changes to its US operations

Eliza Gkritsi — Thu, 09 Apr 2020 08:42:33 +0000

The world’s leader in consumer drones, DJI, is making major changes to its US operations, three niche US-publications reported this week citing DJI dealers. Monica Suk, a DJI spokesperson, confirmed that the company is making “organizational changes,” but didn’t comment on reported layoffs nor a change in strategy.

Why it matters: Journalists suggest that faced with mounting scrutiny from US lawmakers and prolonged supply chain disruptions due to Covid-19, the company is using the upheaval to pivot to a direct-to-customer model and/or working only with major dealers.

The Shenzhen-based drone giant has been facing an increasingly uncertain future in the US. Lawmakers have been questioning its ties to the Chinese government and have advised consumers against buying their products.
DJI holds about 77% of the US consumer drone market, Bloomberg said, citing data from US-based market research firm Drone Industry insights.

“We have made some organizational changes in order to adapt to today’s challenging economic environment, but we remain open for business everywhere we operate.“
Monica Suk, DJI spokesperson

Details: It is unclear whether the reported changes are a result of turmoil caused by the Covid-19 pandemic, or if there is a wider organizational change in motion.

According to the media reports, authorized DJI dealers in the US are having trouble getting shipments. Products are reportedly being stopped at the US border for unknown reasons whilst DJI’s productive capacity in China has yet to reach pre-lockdown levels. TechNode has not been able to independently confirm these reports.
As a result, product stock in the US is limited and shipments have been inexplicably canceled, the reports said.
Suk said that DJI factories have resumed operations and that the company’s “distribution network is shipping products across the globe.” She did not give any specific numbers as to whether productivity has been restored.
One of the largest DJI dealers in the US told TechNode that any changes made will not affect their business but declined to make any further comments.
Reporters with connections in the US market wrote about layoffs in DJI’S US staff, including repair and support staff and company representatives that liaise with dealers. New reps are assigned only to be switched again days later, said another news site citing posts on private dealer forums.
A search on LinkedIn confirmed that several people terminated their employment at DJI in March. The reasons why their employment was terminated are unknown. Most past employees did not respond to TechNode’s requests for comment. One declined to comment.
The company first confirmed that it is making “organizational changes” to reputable site DroneDJ. Chinese media said today that DJI denied (in Chinese) the reports of layoffs. The statement sent to TechNode doesn’t mention the reports of layoffs, only that employees have been working from home under government guidance.

Context: The Shenzhen drone maker is notoriously secretive and opaque. As a private company, it doesn’t release revenue and sales figures nor provides any details of its strategic plans. Media requests for interviews are seldom granted.

DJI’s reputation was tarnished when a $150 million fraud scandal broke out in January 2019. In April 2019, A DJI employee was sentenced to prison for posting confidential information on Github.
As the Shenzhen company became the world leader in consumer drones with a $21 billion valuation, and US-China relations have deteriorated, DJI has faced increasing scrutiny in American politics.
The US army stopped using DJI products in 2017 due to “security concerns.” The US Interior Department grounded all its China-made drones in October 2019 for similar reasons.
A bipartisan bill introduced in the US Senate in September 2019 seeks to bar federal agencies from buying drones made in China.
Meanwhile, governments in Europe are using DJI drones to spray disinfectant and police areas under lockdown.
Out of the company’s 17 offices, 4 are located in the US.

Short seller accuses Iqiyi of revenue fraud

Wei Sheng — Wed, 08 Apr 2020 05:38:54 +0000

A short seller firm has accused Chinese video-streaming platform Iqiyi of reporting inflated revenue figures and user numbers in 2019, following just days after US-listed Luckin Coffee’s explosive revenue fraud disclosure on Thursday.

Why it matters: The Beijing-based company often referred to as the “Netflix of China” is another high-profile target for short sellers following beverage chain Luckin Coffee’s spectacular downfall, as US-listed Chinese companies find themselves under increasing scrutiny.

Details: Muddy Waters Research tweeted a link to a Wolfpack Research report on Tuesday, alleging that Iqiyi had inflated its 2019 revenue by 27% to 44% and overstated user numbers by 42% to 60%.

The Wolfpack report claimed Iqiyi had also blown up its expenses, the prices it pays for content, other assets, and acquisitions “in order to burn off fake cash to hide the fraud from its auditor and investors.”
The research, which Muddy Waters assisted with, included a survey of 1,563 people in Iqiyi’s target demographic which found that VIP users of the video streaming site often scored free memberships through package deals with its partners, including Xiaomi TV and JD.com.
The company records the membership revenue in full and lists its partner’s share as expenses, inflating both revenue and expenditures, according to the report.
Iqiyi said in a statement Wednesday that a report by short seller Wolfpack Research “contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
Nasdaq-listed Iqiyi did not provide details backing its claims about the report, but said that it has always been committed to maintaining “high standards of corporate governance and internal control” in compliance with US securities regulations.
Iqiyi could not be immediately reached for comment.

What’s next: Dan David, the founder of Wolfpack Research, said in an interview with Bloomberg TV Wednesday that the downside of the report to Iqiyi would be “unlimited” if there was a “truly independent investigation” into the company’s alleged fraud.

Meanwhile, Holzer & Holzer, a US-based law firm, announced Wednesday it is investigating whether Iqiyi violated federal securities laws.

“In the last 10 years, we’ve been responsible for delisting over a dozen China-based companies for fraud, [but] nobody has gone to jail, nobody has paid a fine. It is not illegal in China to steal from US investors.”
— Dan David, the founder of Wolfpack Research, on Bloomberg TV

Context: Iqiyi’s share prices fell 11.2% Tuesday morning before bouncing back to gain 3.2% by market close.

Shares of Chinese search engine Baidu, Iqiyi’s parent company, also tumbled nearly 5% Tuesday morning on the allegations.
Luckin Coffee has seen its shares plunge nearly 80% in the past days after it announced last week one of its top executives and several employees fabricated transactions in 2019 totaling around RMB 2.2 billion (around $310 million).
The announcement came two months after short seller Muddy Waters Research publicized on social media an anonymous report which claimed the company had been inflating operational, sales, and revenue numbers.

Luckin fraud may be out of Chinese regulator’s reach

Wei Sheng — Fri, 03 Apr 2020 09:34:35 +0000

China’s top securities regulator denounced Luckin Coffee on Friday after the beverage chain disclosed that one of its top executives and other employees had faked billions of yuan in sales over most of 2019.

Details: The China Securities Regulatory Commission (CSRC) said in a statement published Friday that it would launch an investigation into Luckin Coffee’s alleged financial misconduct based on arrangements around international securities regulations.

“The CSRC pays high attention to Luckin Coffee’s financial misconduct and condemn the company for those financial misconduct behaviors. Publicly traded companies, wherever they are listed, should strictly comply with relevant markets’ law and regulations and fulfill their duties of accurately revealing financial information.”
— CSRC in a statement (our translation)

What the lawyer says: Nasdaq-listed Luckin does not fall under the CSRC’s jurisdiction, so it could only release a statement condemning it, Liu An, a securities lawyer at Beijing-based law firm Dentons China, said in an interview with reporters on Friday.

Liu mentioned that the revised Securities Law of China, which went into effect on March 1, would give the CSRC more legal basis to probe Luckin’s misconduct allegations. But in order to do so, misconduct must have taken place after March 1, he added.
The new Securities Law had added an article that bans overseas-listed Chinese companies from “harming interests of domestic investors,” according to Liu.
“Chinese investors of Luckin can also file lawsuits against the company if the misconduct lasted after the new Securities Law became effective.”

Context: Luckin announced Thursday that a preliminary internal investigation showed that it reported an estimated RMB 2.2 billion ($310 million) worth of phony sales to investors, from the second to the fourth quarter of 2019.

The Xiamen-based company’s shares plummeted 75.6% Thursday on the disclosure.
In February, short seller Muddy Waters posted an anonymous report which accused Luckin of disclosing fraudulent operational figures and that it is a “fundamentally broken business.”

Luckin Coffee admits to sales fraud

Emma Lee — Fri, 03 Apr 2020 03:10:04 +0000

Chinese beverage chain Luckin coffee shares plummeted 75.6% on Thursday after it disclosed that several employees including its COO had fabricated transactions for much of 2019, amounting to an estimated RMB 2.2 billion in falsified sales.

Why it matters: The disclosure comes two months after doubt about the Chinese Starbucks rival’s operational metrics were first floated in a report made public by short seller Muddy Waters. The scandal marks a stunning fall for the Xiamen-based company that had been touted as the country’s largest coffee chain by store count.

Luckin still hasn’t filed its financial report for the fourth quarter of 2019, though the Q4 earnings season is coming to an end. The upcoming report will be closely scrutinized as an indicator of its real performance.
In addition to Q4 uncertainties, Luckin’s Q1 2020 financials are expected to have suffered from limited business activity due to the Covid-19 outbreak and the extended Spring Festival holiday, like many of its peers.

Read more: So long, and thanks for all the coffee!

Details: Luckin announced Thursday that a preliminary internal investigation showed that it reported an estimated RMB 2.2 billion ($310 million) worth of phony sales to investors, from the second to the fourth quarter of 2019.

Certain costs and expenses were also “substantially” inflated during this period, the company said in the statement.
The company said that Liu Jian, Luckin’s chief operating officer and a director of the company along with a number of employees reporting to him had “engaged in misconduct, including fabricating certain transactions.”
It pledged it would take appropriate action, including legal measures, against all individuals responsible. The employees have been suspended as recommended by a special committee formed by three independent board directors.
Share prices for Car Inc., the Hong Kong-listed firm which shares the same funding network and whose executives went on to found Luckin, dived 45.1% Friday.
Meanwhile, stock prices for rival Starbucks closed 3.8% up.

Expert’s take: “There’s a long, painful road ahead [for Luckin],” Michael Norris, leader of research and strategy at AgencyChina, told TechNode on Friday.

“The company will have to release their latest earnings, provide Covid-19 related guidance, endure forensic accounting, and lawsuits,” he said.
However, Norris noted it’s still too early to predict the total downfall of the company. “Even with last night’s sell-off, the company still boasts a [$1.62 billion] market capitalization.”
The Thursday press release estimated the revenue fraud at RMB 2.2 billion but also intimated there were inflated costs, Norris added. “We’ll need to see the full extent of the fraud before determining what Luckin’s burn rate looks like.”

Read more: Why it’s time to wake up and smell the coffee on Luckin

Context: In February, short seller Muddy Waters tweeted an anonymous report which accused Luckin of disclosing fraudulent operational figures and that it is a “fundamentally broken business.” The company’s share sank more than 19%.

In response, the company denied all allegations in the report three days later, calling it “misleading, flawed, and meritless.”
However, scrutiny over the company increased. A group of US law firms have launched investigations into Luckin on behalf of the company’s investors.
Luckin Coffee raised in an additional $865 million in net proceeds in January, just eight months after raising $651 million in May 2019 IPO.

Huawei warns of retaliation for ‘slaughter’ after $12 billion miss

Lavender Au — Wed, 01 Apr 2020 04:24:13 +0000

Huawei, the world’s largest maker of telecom equipment by revenue, released earnings for 2019, saying that it missed a target set internally by $12 billion due to a US trade ban. The company also warned of retaliation by the Chinese government.

Why it matters: After a year of “unprecedented challenges” brought by a US ban on sales of its gear to American companies, the marquee Chinese technology company reported significantly slower profit growth and revenues which missed its own goals by a wide margin.

Despite the May ban, US suppliers continued to deal with Huawei. Eric Xu, Huawei’s chairman, said in an interview that in 2019 the company spent $18.7 billion with US companies.
Its annual earnings report also laid out future growth directions besides 5G: smart wearables and internet of things devices, cloud service platforms and artificial intelligence, and billion-dollar programs that support developers to add to its homegrown ecosystem, in an effort to pose a viable alternative to Android and Apple applications.

“The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board.”
—Eric Xu, Huawei rotating chairman, at a press event

Details: Huawei reported revenues of RMB 858.8 billion ($123 billion) for 2019, an increase of 19.1% year on year and maintaining consistent top line growth compared with a year ago when revenue rose 19.5% on an annual basis.

It posted net profit of RMB 62.7 billion, slowing to 5.6% growth year on year compared with 25.1% year on year in 2018.
Xu warned of retaliatory measures by the Chinese government during the annual report press event, saying “Why wouldn’t the Chinese government ban the use of 5G chips or 5G chip-powered base stations, smartphones and other smart devices provided by American companies, for cybersecurity reasons?”
The carrier business grew 3.8% year on year to RMB 296.7 billion and accounted for 34.5% of the company’s total revenue, falling below 40% for the first time. Last year, it made up 40.8% of total revenue.
Its consumer business earned RMB 467.3 billion during the year, making up more than half of total revenue (54.4%).
Xu said that the US sanctions meant that its consumer business lost $10 billion in overseas markets. It remains the fastest growing of Huawei’s three major businesses.
Huawei shipped 240 million smartphone units globally, up 16.5% year on year compared with 35% year on year in 2018.

Context: The US banned its companies from doing business with Huawei in May but has since issued temporary licenses to allow Huawei to continue. It extended on March 10 this license again to May 15.

Huawei said that its RuralStar base station solutions allow more than 40 million people living in remote areas to have mobile internet coverage. That includes a quarter of the smallest wireless carriers in the US on which many of the country’s farmers rely.
Huawei’s executives said that Covid-19 has affected its plans to build 5G infrastructure in Europe and China, though domestic construction may ramp up since the outbreak seems to be under control in China.
Much of Huawei’s manufacturing is based in southern China which means its supply chains are less affected by the Covid-19 lockdown in Hubei, central China.

Bytedance may now be worth $100 billion

Wei Sheng — Tue, 31 Mar 2020 06:16:38 +0000

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.

TuSimple deal with auto supplier will enable robotruck tech to scale

Chris Udemans — Fri, 27 Mar 2020 07:47:57 +0000

Robotruck startup TuSimple has partnered with German auto supplier ZF to develop and commercialize technology for autonomous trucks.

Why it matters: TuSimple aims to begin testing truly driverless trucks—those without safety personnel on board—by 2021.

ZF is one of the largest automotive suppliers in the world and has made a significant push into autonomous driving.
TuSimple has tested its technology on a stretch of highway between Tucson and Phoenix, Ariz. since 2018. The company also won China’s first permit to trial driverless trucks in Shanghai.

Details: TuSimple and ZF will work together to develop onboard computers and sensors such as radar and lidar for autonomous trucks, according to a statement released Thursday. The German supplier will also become TuSimple’s “default supplier” when commercializing robotrucks.

ZF will provide engineering support to integrate and validate TuSimple’s autonomous driving platform into the trucks, the companies said.
The partnership is an “important milestone,” according to Chuck Price, TuSimple’s chief product officer. He said that the deal allows the companies to scale the technology toward mass-produced autonomous trucks.
Meanwhile, ZF said that it expects the two companies to create the first commercialized automotive-grade autonomous system for trucks.
The deal comes shortly after TuSimple expanded a tie-up with UPS, effectively doubling the number of autonomous delivery runs the company makes for the American logistics company.
TuSimple currently has 18 contracted customers and makes around 20 autonomous trips per day.

Context: Autonomous trucks are expected to reach commercialization before passenger vehicles, presenting huge potential for growth. TuSimple aims to transform America’s $800 billion trucking industry with autonomous rigs.

The company was founded in the US in 2015 by Hou Xiaodi and splits its operations between the US and China, with offices in Beijing and Shanghai as well as in Japan.
TuSimple, which is developing Level 4 autonomous long-haul trucks, secured $120 million in an extended Series D in September.

Ehang’s passenger drone sales are taking off

Eliza Gkritsi — Thu, 26 Mar 2020 08:16:39 +0000

Chinese passenger drone maker Ehang has more than quadrupled its revenues and significantly narrowed its losses in the fourth quarter, the company said Wednesday, but it expects some short-term effects from Covid-19 in 2020.

Why it matters: In Ehang’s first quarterly financial results since listing on Nasdaq in December, the urban air mobility company recorded a surging top line as well as solid progress toward commercialization of its passenger drones.

The Guangzhou-based startup expects revenues to double in 2020.
The Covid-19 pandemic will bring some “short-term turbulence” to Ehang and the urban air mobility industry, CEO and co-founder Huazhi Hu said in a statement.

Details: “Absence and late return of front-line workers, delayed fulfillment across our supply chain, and the short-term disruption on some of our customers’ industries such as tourism” as a result of the Covid-19 outbreak might dampen Ehang’s results in 2020, the company said. But it is looking to explore new opportunities such as emergency response and search and rescue.

Ehang’s Q4 revenue rocketed 421% year on year to RMB 54.7 million ($7.9 million) from RMB 10.4 million.
Despite these gains, Ehang’s net losses per share were RMB 0.22 ($0.03) or RMB 15.5 million ($2.2 million) in the quarter ended December, 43% lower than the RMB 27.1 million in Q4 2018.
In 2019, Ehang sold 61 of its Ehang 216 passenger drone, 26 of which were sold in the fourth quarter and 18 in the third quarter, the startup said. In 2018 it sold no drones.

Context: The drone maker’s initial public offering raised $46 million, less than half of its initial goal of $100 million.

Ehang drones have received flight permission from the US Federal Aviation Authority as well as Norway’s regulator. The drone maker has conducted test flights, including some for passenger drones, in 15 cities in China and Europe. It has signed agreements to cooperate on urban air mobility with Guangzhou in southern China and Linz, the third-largest city in Austria.
The startup outlined its vision for the future of urban air mobility a month after it went public. Ehang wants to create bus-like infrastructure for drones, compared to the taxi visions of other companies.

Tencent launches global version of its Zoom rival

Eliza Gkritsi — Tue, 24 Mar 2020 06:55:55 +0000

As working from home catches on globally, gaming giant Tencent on Tuesday launched its video conferencing tool internationally, taking China’s battle for enterprise collaboration and productivity tools to markets overseas.

Why it matters: China’s tech heavyweights have been pushing into B2B services since late last year, looking for sources of growth outside their traditional industries. The Covid-19 pandemic has accelerated the shift, dramatically increasing in the size the pool of potential users.

The market for video conferencing in China grew 36.2% year on year in 2018 to RMB 3.1 billion ($437 million), according to data from CCW Research, a market research firm.
In September, popular video conferencing tool Zoom was blocked in China, leaving a void for local players to fill.
Globally, Tencent and Alibaba have to compete with major tech players like Microsoft, Google, and Zoom for a share of the enterprise collaboration pie.

Details: Voov is an international version of Tencent Meeting, launched in December 2019 by Tencent Cloud. It offers cloud-based encrypted video conferencing and instant messaging capabilities during meetings, the company said in a statement emailed to TechNode.

The company touts the service’s “ultra-smooth” HD video conferencing and stability, which leverages “Tencent Cloud’s cutting-edge technology.”
The paid version of Voov allows up to 300 participants to dial in to a meeting, but this feature will be free during the Covid-19 pandemic.
“By offering customers Voov Meeting’s paid features for free, we hope to provide suitable solutions to assist enterprises in reducing their operating costs during this time,” said Norman Tam, General Manager at Tencent’s International Business Group.
Users can join Voov meetings using a WeChat mini program without having to download the app on their phones or laptops. They can connect using their WeChat accounts or just a phone number, a Tencent spokesperson told TechNode.
The app offers artificial intelligence-enabled image distortion, such as beautification and background blurring. This will help users “eliminate embarrassing scenarios such as working without makeup or exposing messy home environments,” it said.

DingTalk won’t give Alibaba a win in social

Context: Alibaba’s productivity tool Dingtalk also offers video conferencing functionality, but does not offer interoperability with Tencent’s WeChat, the most popular social network app in China.

Zoom’s app is ranked first in the US Apple app store, and its share price rocketed nearly 50% in the last month. Microsoft offers video conferencing in its Microsoft Teams collaboration suite, while Google has developed Google Hangouts.
In China, Tencent competes with other local players like Zoom’s Chinese partner Huawan, and Shenzhen-listed BizConf Telecom.
In February, Alibaba enterprise collaboration app Dingtalk offered online learning to students whose education moved online due to the epidemic. Alibaba is also trying to make Dingtalk a collaboration tool for front-line medical staff battling Covid-19.
Despite its wide usage, Dingtalk has been heavily criticized by users who flooded app stores with one-star reviews in early March.
Countries around the world are announcing lockdown measures to halt the spread of Covid-19 —and work is moving online as a result. Out of approximately 380,000 confirmed coronavirus infections worldwide, about 80,000 are in China.

TikTok promises to let US experts guide its content moderation

Wei Sheng — Thu, 19 Mar 2020 06:01:14 +0000

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.

Dingtalk is now available worldwide for ‘medical heroes’

Eliza Gkritsi — Wed, 18 Mar 2020 06:37:33 +0000

Alibaba has launched a free international collaboration platform based on its enterprise productivity app Dingtalk for medical professionals to share information and advice on prevention and treatment of the Covid-19 outbreak, Alibaba Cloud said on Wednesday.

Why it matters: Information sharing between medical professionals is key to tackling the pandemic, as new hotbeds of infections rise.

Alibaba’s move is in line with China’s policy to lend a helping hand in the coronavirus pandemic that is sweeping through the globe.

Details: Alibaba’s “Medical Expert Communication Platform” is built on the Hangzhou-based giant’s Dingtalk work collaboration app. It seeks to connect “medical heroes” from around the world to share experience and know-how in the fight against Covid-19, according to a company statement.

Users can message instantly and make use of video calls across borders, as well as use Dingtalk’s real-time text translation for 11 languages.
As soon as doctors from around the world join the platform, they can talk to top Chinese experts, the company said.
Alibaba also compiled a handbook on Covid-19 treatment and prevention, outlining best practices learned from China’s experience. The handbook includes guidelines on hospital practice, staff management, diagnosis, nursing care, rehabilitation of critically ill patients, and more.
The handbook is available in English and Chinese and will soon be available in Italian, Spanish, Japanese, and Korean.
Jack Ma, the founder of Alibaba, tweeted from his recently created Twitter account, “I need your help to share this handbook quickly to hospitals, doctors, nurses and anyone who needs to know around the world.”
Alibaba’s Cloud division offers computing power tailored for treatment, vaccine development, and epidemic prediction for Covid-19, for a fee.

I need your help to share this handbook quickly to hospitals, doctors, nurses and anyone who needs to know around the world. It is available here: https://t.co/WfQEbdmgym. We are in this together! (2/2)
— Jack Ma (@JackMa) March 18, 2020

Context: The Covid-19 epidemic started in China, but is now crippling the healthcare systems in countries including Italy, Iran, and Spain. As of Tuesday, there were more coronavirus cases outside of China than in. Yesterday, China reported only 13 new confirmed cases of the virus,

As the pandemic seems to be under control inside China, Beijing has turned its focus to helping other countries, as well as mitigating the risk of imported infections.
The Alibaba founder pledged to donate millions of protective face masks and Covid-19 testing kits around the world.
Dingtalk saw a surge in daily active users and downloads in February, as Chinese authorities imposed mandatory work-from-home arrangements and millions of students had to download the app to follow online classes.
However, Chinese users did not take well to the work and study from home experiment, flooding app stores with negative reviews.

Jack Ma is donating medical supplies to US, Europe, Africa

Eliza Gkritsi — Tue, 17 Mar 2020 05:51:40 +0000

Alibaba founder Jack Ma posted on his freshly minted Twitter account on Monday that he is donating through his charity foundation testing kits and masks to countries afflicted by Covid-19 including the US, all of Africa, Italy, and Spain.

Why it matters: Ma’s move follows other tech billionaires in offering help to countries affected by Covid-19, but has also given him the most positive publicity he has seen in a while.

Ma developed a cult-like devotion in Alibaba employees and aspiring entrepreneurs around the world, but has fallen out of the spotlight since stepping down from Alibaba’s helm in September.

The first shipment of masks and coronavirus test kits to the US is taking off from Shanghai. All the best to our friends in America. 🙏 pic.twitter.com/LTn26gvlOl
— Jack Ma (@JackMa) March 16, 2020

Details: A donation of 500,000 Covid-19 testing kits and 1 million protective face masks to the US was already underway, according to Ma’s first tweet on Monday which has drawn nearly 430,000 likes as of Tuesday morning. The Jack Ma Foundation said it plans to deploy similar aid to Japan, Korea, Italy, and Spain.

The Jack Ma Foundation will be sending 1.1 million testing kits, 6 million masks and 60,000 medical use protective suits and face shields to the capital of Ethiopia. The government in the capital city of Addis Ababa has agreed to distribute them among the 54 African countries, Ma said.
An undisclosed amount of medical supplies donated by the Foundation arrived in Belgium yesterday. Part of the supplies will be sent to Italy, which counts the most Covid-19 confirmed cases outside China.
“Unity is strength,” was the message attached to the supplies, written in French, German and Chinese.
Cainiao Network, Alibaba’s logistics arm, will be operating five flights to Europe per week to deliver aid to the EU, according to the foundation.

The second shipment of donations from Jack Ma Foundation and Alibaba Foundation for epidemic prevention in Europe has just arrived at the Liege Airport in Belgium, hours ahead of schedule. pic.twitter.com/i2k6zYAmlV
— Jack Ma Foundation (@foundation_ma) March 16, 2020

Context: Jack Ma donated RMB 100 million (approximately $14.3 million) to two Chinese companies working on Covid-19 vaccines and RMB 1 billion for medical supplies to central Hubei province, where the virus was first reported.

The Alibaba founder faced online criticism in May 2019 after expressing support for the “9-9-6” work schedule and then encouraging employees to perform daily sexual activity on top of that.
There are more than 3,800 confirmed cases in the US, but this number may increase drastically once testing for the virus is widely available. Testing kits are in short supply and have been criticized for accuracy flaws.
Europe has emerged as the new epicenter of the Covid-19 outbreak. As of March 17, confirmed cases in Italy number more than 24,000 and Spain more than 9,000 while France and Germany each exceed 6,000.
Africa has remained largely unaffected by the virus, but the continent is bracing for an outbreak as 30 out of 54 countries now have cases.
Microsoft founder Bill Gates has pledged to donate $100 million for the global fight against the current novel coronavirus, including $50 million to scientists researching Covid-19 treatments and vaccines.

ZTE shares sink 23% after news of US bribery investigation

Wei Sheng — Mon, 16 Mar 2020 08:31:42 +0000

Share prices for ZTE plunged 23% on Monday on reports that the US Justice Department is investigating the Chinese telecommunications company for bribery.

Why it matters: The free fall in share price signal that investors are panic selling on fears that the US may again sanction the company as it did in 2018.

Sanctions announced by the US Department of Commerce in April 2018, which banned US companies from exporting to ZTE for seven years but were later lifted, tanked the company’s market value by billions of dollars.
The news about China’s second-largest telecommunications equipment maker comes as the country pushes a so-called “new infrastructure” investment scheme that is expected to inject RMB 25 trillion (around $3.6 trillion) into sectors including telecommunications, transportation, and artificial intelligence.

Details: ZTE share prices on the Hong Kong stock exchange dropped 23% as of publishing on Monday following reports by NBC News and the Wall Street Journal that said the US Justice Department is investigating the company for possible bribery of foreign officials.

The company, which is also listed domestically on the Shenzhen Stock Exchange, saw its share price reach the market’s daily limit of 10% downside on Monday.
The investigation involves potential violations of the US Foreign Corrupt Practices Act, which bars businesses from paying bribes to foreign government officials, according to the WSJ report. Foreign companies may fall under US jurisdiction if such actions took place within its borders, or if the bribes were wired through the country’s financial system, it said.
ZTE said in a statement filed (in Chinese) with the Hong Kong bourse on Monday that it had not yet been notified by the US government of the investigation and that the company is still “in normal operation.”

Context: China’s stock market also tumbled Monday, with the benchmark Shanghai composite index closing 3.4% lower while the Shenzhen composite slipped 5.3%.

The US Commerce Department imposed sanctions on ZTE between April and July 2018 because it evaded the country’s sanctions by selling telecom equipment to Iran and North Korea. As a result, the company recorded losses of RMB 7.8 billion in the first six months of that year.

TikTok to open ‘transparency center’ in US amid lawmaker scrutiny

Wei Sheng — Thu, 12 Mar 2020 05:18:27 +0000

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.

Huawei ban reprieve extended, again, to May

Wei Sheng — Wed, 11 Mar 2020 05:32:03 +0000

The exterior a Huawei buildings on July 30, 2019 in Shenzhen. (Image credit: TechNode/Shi Jiayi)

The Trump administration has extended the grace period of a trade ban on Huawei through May 15, allowing US companies to continue doing business with the Chinese telecommunications equipment giant.

Why it matters: The reprieve has already been extended four times and allows Huawei’s existing customers to keep purchasing its equipment. However, it is a concession more for rural US carriers than the telecommunications company.

Many small US telecommunications companies rely on Huawei as a source for equipment because its pricing is considerably cheaper than gear from European suppliers such as Ericsson and Nokia.
The Chinese company, on the other hand, insists that the extensions “won’t have a substantial impact” on its business.
“This decision does not change the fact that Huawei continues to be treated unfairly. This has done significant economic harm to the American companies with which Huawei does business,” the company said in February.

Details: The US Commerce Department announced on Tuesday it was seeking public comment on whether a license allowing US companies to continue doing business with Huawei should be further extended, and that it had extended the license through May 15 to provide an “opportunity for public input.”

The 45-day extension announced in February is due on April 1. The department said it allowed rural telecom companies “the ability to continue to temporarily and securely operate existing networks while they identify alternatives to Huawei for future operation.”
Huawei declined to comment.

Context: The Commerce Department added the company to an “Entity List” on May 16, which bars American companies from selling or purchasing with the firm without government approval.

The department gave the company a 90-day grace period soon after the ban was imposed in May. The reprieve was later extended in August, November, and then in February.
In November, the US Federal Communications Commission voted to ban US carriers from receiving federal subsidies when purchasing equipment from Chinese telecom equipment makers Huawei and ZTE.

Luckin may face shareholder fraud lawsuit

Emma Lee — Fri, 06 Mar 2020 08:43:21 +0000

At least 10 US law firms have announced investigations into Chinese beverage chain Luckin Coffee on behalf of the company’s investors as of Friday.

Why it matters: Luckin may soon find itself under US regulator scrutiny amid a dramatic downturn for most of the broader food and beverage industry as a result of the coronavirus outbreak.

Details: US shareholder rights litigation firms announced an investigation into whether the company had fabricated several operational and financial numbers, including per-store per-day sales, net selling price per item, advertising expenses, and others.

The law firms include Gross Law Firm, Pomerantz LLP, Schall Law Firm, Levi & Korsinsky LLP, Bronstein, Gewirtz & Grossman, LLC, The Law Office of Vincent Wong, The Klein Law Firm, Bragar Eagel & Squire, and P.C. Law Offices of Howard G. Smith.
Luckin did not respond to TechNode’s inquiries about the impact of the Covid-19 outbreak on its first quarter performance.
US rival Starbucks’ outlook may shed some light on the impact of the epidemic on the broader industry. The US coffee chain, which closed half of its 4,300 stores in China since January, expects China sales in stores opened for at least a year to drop by about 50% in the quarter ended March. Revenue loss resulted from the epidemic would amount to $400 million to $430 million during the period.

Context: The allegations in the investigations may sound eerily familiar to the coffee chain. In late January, short seller Muddy Waters Research tweeted an 89-page, anonymous report alleging several instances of fraud.

The report claimed Luckin’s number of items per store per day was inflated by at least 69% in Q3 2019 and 88% in Q4, and that items per order declined sequentially in Q4 to 1.14 from 1.38.
Luckin’s share price fell $3.91 per share, or 10.74%, to close at $32.49 per share on Jan. 31, 2020 as a result of the report.
The company responded on Feb. 4 to the fraud allegations, denying all accusations laid out in the report, calling it misleading, flawed, and meritless.

Robotruck firm TuSimple expands UPS tie-up

Chris Udemans — Fri, 06 Mar 2020 05:09:49 +0000

Autonomous truck startup TuSimple has expanded its partnership with UPS, doubling the number of delivery runs its vehicles make for the American logistics company per week.

Why it matters: The extended alliance between the two companies is a vote of confidence for TuSimple, which aims to transform the country’s $800 billion trucking industry with fully autonomous rigs.

UPS’s venture capital arm in August invested an undisclosed amount in the trucking company.
TuSimple has been testing its technology on a stretch of highway between Tucson and Phoenix, Ariz. since 2018. The company also won China’s first permit to trial driverless trucks in Shanghai.

Details: TuSimple will increase the number of trips it makes for UPS to 20 runs per week, adding an additional 10 trips on a new route between Phoenix and El Paso, Texas, the company said in a statement on Thursday.

TuSimple will continue running 10 trips a week on an existing route between Tucson and Phoenix.
At the same time, the company said it had reduced fuel costs in its operations with UPS by 10%. Autonomous driving technologies are often touted as being more energy-efficient than human drivers.
UPS is using its partnership with TuSimple to explore ways in which autonomous technology can improve efficiency, safety, and customer service, Scott Price, chief strategy and transformation officer at UPS, said in a statement.
TuSimple currently has 18 contracted customers and makes around 20 autonomous trips per day.

Context: The logistics industry could see increased efficiency by using autonomous trucks as more people do their shopping online, putting increased strain on freight companies.

The US was short 60,000 truck drivers at the end of 2018, according to estimates by the American Trucking Association, which expects that figure to triple by 2028.
TuSimple was founded in the US in 2015 by Hou Xiaodi and splits its operations between the US and China, with offices in Beijing and Shanghai as well as in Japan.

Qihoo 360 accuses CIA of 11-year espionage offensive

Chris Udemans — Wed, 04 Mar 2020 07:34:23 +0000

Cybersecurity company Qihoo 360 has accused the CIA of targeting China’s government and several of the country’s critical industries in a decade-long espionage campaign.

Why it matters: The claim comes just weeks after the US charged four Chinese military officers over the 2017 Equifax breach in which hackers stole personal data, including names and addresses, belonging to 147 million Americans.

China has long been accused of hacking American companies to gather intelligence and steal intellectual property.

Details: Qihoo said on Monday that between 2008 and 2019 the US may have acquired China’s “most classified business information.”

The company said it made the discovery by comparing the sample code it had collected to CIA hacking tools released by Wikileaks in 2017.
The collection of tools, dubbed Vault 7, was allegedly leaked by Joshua Adam Shulte, a former CIA employee who is on trial for disclosing classified information.
Qihoo said that by analyzing when the various tools were made, the company discovered that its creators are based on the east coast of the US, where the CIA is located.
CIA hackers targeted China’s government agencies, aviation and petroleum industries, scientific research institutions, and internet companies, Qihoo said.
The company speculates that the US intelligence agency could steal “important figures’ travel itinerary” through its focus on China’s aviation industry.
State mouthpiece the Global Times responded to the allegations, saying that they “lay bare the US’ astonishing hypocrisy in attacking China for years, while accusing China of cyber-attacks.”

Context: Chinese organizations are becoming increasingly vocal about reported attacks against the country by others.

Qihoo also recently claimed that South Asian hackers were using the coronavirus outbreak to target China’s medical institutions “on the frontline” of fighting the epidemic.
Meanwhile, China’s National Computer Network Emergency Response Technical Team said that state-backed hacking groups are garnering increased attention around the world.
The organization said that the number of public research reports about these groups increased by almost 360% year on year in 2018.

JD.com shares surge 12% on strong Q4 earnings beat

Emma Lee — Tue, 03 Mar 2020 05:00:40 +0000

The exterior of online retailer JD’s Beijing headquarters, pictured here in November 2018. (Image credit: TechNode/Cassidy McDonald) Credit: TechNode/Cassidy McDonald

Chinese online retailer JD.com posted on Monday robust top-line growth for the fourth quarter of 2019, sending shares up 12% by market close.

Why it matters: The Chinese e-commerce giant has gradually been winning back investor confidence. The company’s shares hit a historical low in late 2018 after founder Richard Liu faced rape allegations in the US, compounded by other factors including intensifying competition from rivals like Alibaba and Pinduoduo and a management reshuffle.

JD.com’s share price more than doubled in 2019, up from a low point of around $20 in the beginning of 2019 to the $43.30 per share value as of market close on Monday.

As JD CEO and founder faces public criticism, what’s next for China’s largest retailer?

Details: JD.com’s total net revenue rose 26.6% year on year to RMB 170.7 billion ($24.51 billion) in the December quarter from RMB 134.8 billion the same period a year earlier, the company said in a statement on Monday. The revenue beat the high end of analyst estimates compiled by Yahoo Finance.

The company’s net income attributable to ordinary shareholders was RMB 3.6 billion in the quarter ended December compared with net losses of RMB 4.8 billion for the same period a year earlier.
Cost of revenues rose in line with revenue growth, increasing 26.8% year on year to RMB 146.7 billion in Q4, driven by the company’s online direct sales business and third party logistics services.
Liu attributed strong customer growth to ongoing penetration of lower-tier cities. Annual active customer accounts increased 18.6% to 362.0 million in 2019, while monthly active users on mobile soared 41% compared with December 2018.
The company expects to record at least a 10% annual growth in net revenue for the first quarter of 2020, down from a 20.9% growth in the same period of last year.
JD warned that the 2020 Q1 estimate is subject to change in light of uncertainties related to Covid-19.
Separately, the company’s chief financial officer Sidney Huang will retire in September. JD Retail’s finance chief Sandy Xu will take over Huang’s role.

Context: Chinese tech firms like JD.com and Alibaba have been contributing to efforts to battle the epidemic by making donations and offering support to small and medium-sized companies.

JD.com founder Richard Liu began handing over his management roles at a number of JD subsidiaries in 2019.

Baidu tops California’s new self-driving report

Jill Shen — Fri, 28 Feb 2020 10:53:50 +0000

Chinese search engine giant Baidu reported the lowest rate of human driver intervention among companies testing autonomous vehicles (AVs) on California public roads, according to the latest batch of disengagement reports released by the state’s Department of Motor Vehicles.

Why it matters: This marks the first time in the report’s history that a Chinese company unseated Waymo, Google’s self-driving arm and an accepted industry leader, for the top spot.

California has required data reporting from companies for testing AVs on its public roads, including the number of miles driven autonomously and the number of times human drivers are required to take control of the vehicle, known as a disengagement.

Details: Baidu reported driving 108,300 miles and six disengagements with four vehicles last year, making for the lowest disengagement rate of all the companies listed in the California’s annual self-driving record: 0.055 per 1,000 self-driven miles.

Baidu’s number dropped significantly from a year ago when it rated 4.86 per 1,000 self-driven miles, which the company attributed to rapid expansion in testing fields over the past three years.
Waymo again reported the greatest number of miles driven by its 153 robocars, covering 1.45 million miles in California last year. It had one disengagement every 13,219 miles, versus Baidu’s one every 18,050 miles.
In unusually strident language, Waymo posted a series of tweets on Wednesday questioning if the disengagement metric leads to meaningful insights, adding that its real-world driving experience takes place mostly outside of California.
The AV leader said in December that it has more than 1,500 monthly active riders for its robotaxi pilot project Waymo One in Phoenix, Ariz. and surrounding areas.
Doubts about the credibility of the metric are increasingly being voiced, as it is not mandatory for companies to report testing environments, which can vary from downtown traffic to empty highways.
Executives from companies including General Motors-backed Cruise have expressed views that the metric has little value when there is no clear definition of what constitutes a disengagement.
Disengagement data has been accepted as a barometer to compare AV companies and assess the commercial readiness of self-driving cars, and is often cited as evidence of Waymo’s leadership.
In a statement sent to TechNode on Friday, Baidu said disengagement rate is an internal reflection of the speed of technical iterations, but comparison between companies is “not that meaningful.”

Context: Apart from Baidu, four Chinese companies were among the top 10 on the report in terms of disengagement frequency.

Alibaba-backed AutoX reported one disengagement every 10,684 miles, ranking fourth, followed by Guangzhou-based Pony.ai with one disengagement every 6,475 miles.
Didi broke into the top 10 for the first time with one disengagement every 1,535 miles, as did PlusAI, a self-driving truck developer which had one disengagement every 940 miles.
Guangzhou-based WeRide drove 5,917 miles with one disengagement every 152 miles. COO Zhang Li said it has shifted road testing to China, where its fleet of more than 100 robocars drove more than 1.1 million kilometers (around 683,000 miles) and offered more than 8,300 rides within a ride-hailing pilot project as of last year.

Baidu begins robotaxi pilot service in Changsha

Luckin tea rival brewing $400 million US IPO: report

Emma Lee — Thu, 27 Feb 2020 05:59:42 +0000

Naixue’s Tea, one of China’s largest tea beverage chains, is seeking to raise $400 million through a US public offering, according to a Bloomberg report.

Why it matters: Up-and-coming Chinese tea beverage brands like Naixue’s Tea and Hey Tea have attracted viral followings from younger consumers over the past two years. The tea beverage market is attracting big name coffee chains including Starbucks and Luckin as they look to diversify business lines and seek new growth points.

Data from food delivery platform Meituan show (in Chinese) that milk tea and tea beverage orders reached 210 million in 2018, “far higher” than that of coffee.
Beverage chains from Starbucks and Luckin to Naixue’s Tea are suffering from a major downturn as a result of the Covid-19 outbreak, which has immobilized China since January.

Luckin joins Starbucks in blurring boundaries between coffee and tea

Details: Naixue’s Tea, also known as Nayuki, has filed confidentially for a US listing and is working with advisers for a share sale that could take place as soon as this year, according to the Bloomberg report citing people with knowledge of the matter.

The source said that the firm is looking raise $50 million to $100 million in a pre-IPO funding.
The company denied the news to local media, saying that it is focusing on recovering its operations amid the epidemic.
The company did not respond to TechNode’s requests on Thursday for further details.

Context: Founded by entrepreneur couple Peng Xin and Zhao Lin in 2015, the Shenzhen-headquartered company is now operating more than 349 stores in upwards of 50 cities across the country, selling fresh-fruit tea and coffee drinks as well as baked goods.

Similar to Luckin, the company is leveraging online channels for marketing and sales such as delivery platforms and WeChat.
The company raised its last funding round, a Series A Plus worth hundreds of millions of yuan, in March 2018 from Tiantu Capital at a valuation of RMB 6 billion ($855 million), according to corporate intelligence platform Tianyancha.
After launching the “Fawn Tea” brand in July, Luckin split off the product line as an independent operation two months later in a bid to focus on the tea beverage market.
Starbucks launched eight fruit-flavored tea drinks in mid-April in an effort to capture more sales from Chinese consumers.
In response, tea brands like Naixue’s Tea and Hey Tea have rolled out their own coffee drinks to fend off competition.

Fashion e-commerce platform Jumei to go private

Emma Lee — Wed, 26 Feb 2020 07:13:43 +0000

New York-listed fashion and lifestyle e-commerce platform Jumei said Monday that it had entered in agreement which would take the Chinese company private, ending its struggles to remain competitive in the cutthroat sector.

Why it matters: Once a popular online retailer for cosmetics and luxury products, Jumei’s downfall reflects the fierce competition in China’s fast-evolving e-commerce sector. It has tried and failed in two attempts to privatize which began in 2016.

The company owns power bank rental company Ankerbox, known as Jiedian, which holds 40% of China’s power bank market. The sector had 305 million users in 2019.
Jumei’s efforts to expand into other emerging tech trends such as livestreaming, offline stores, TV drama series production, and hardware has seen little success.

Details: In response to Monday’s announcement, the company’s shares soared 26% to $19.52 per share on Tuesday.

Under the agreement, Jumei said it will carry out a merger with Super ROI Global Holding Ltd. and Jumei Investment Holding Ltd., two entities that are held by the company’s founder and chairman Chen Ou.
If the takeover is completed, the company will stay remain under Chen, who currently holds 44.6% of Jumei’s outstanding shares and 88.9% of the total voting power, according to the statement.
The buyer group will fund the merger with debt financing, cash, and credit lines.
The merger is currently expected to close in the second quarter.
The company received on Jan. 12 a proposal from Chen to acquire all outstanding shares he does not already own for $20 per ADS in cash.

Context: Jumei raised $245 million in its 2014 IPO, with shares priced at $22 apiece.

Chen made his first proposal to privatize the company as early as Feb. 2016 at a buyback price of $7 per ADS. He scrapped the privatization offer in November 2017 after other shareholders protested the buyback.
Similar to many e-commerce peers, Jumei has been blighted by counterfeit product scandals.
In 2017, investors called the company out for acquiring power bank rental startup Ankerbox, an unrelated segment then seen as a risky endeavor.

BYD electric bus deal one of the biggest for US

Jill Shen — Tue, 25 Feb 2020 08:27:20 +0000

BYD, China’s biggest electric vehicle maker and a partner to Toyota and Daimler, on Tuesday announced it had secured the lion’s share of the biggest single order to date for electric buses in the US.

Why it matters: The deal will help BYD further pry open the North American market, and underscores a global acceleration in transitioning public transit from gasoline power to clean energy.

China is leading the race to electrify transportation with the world’s largest fleet of more than 420,000 electric buses in the country versus 4,000 buses in the rest of the world, according to a BloombergNEF report.
Europe is vying to catch up. The European Union has required at least 25% of public buses purchased for cities within its member states to be emission-free by 2025, while UK Prime Minister Boris Johnson recently pledged to support the purchase of 4,000 zero-emission buses over the next five years, according to a BBC report.

Details: Shenzhen-based BYD will deliver a total of 130 all-electric buses to Los Angeles as part of the city’s initiative to convert its entire public bus fleet to zero-emission vehicles by the start of the 2028 Summer Olympics, the company said in a statement sent to TechNode on Monday. Two of four BYD buses from an earlier deal had already been delivered.

The nine-meter (30-feet) electric bus model, known as K7M, can seat 22 passengers, has a maximum range of 240 kilometers (around 150 miles), and can be fully charged in around 3 hours.
The Warren Buffet-backed EV company first announced a deal of 130 K9M buses with the Los Angeles Department of Transportation in November, which the company said could reduce greenhouse gas emissions by 81% compared to the city’s natural gas buses over their 12-year lifespan.
Apart from the deal with BYD, the city will also purchase 25 e-buses from local manufacturer Proterra. Officials said that all the 155 vehicles will be delivered over the next two years starting in March.
Los Angeles Mayor Eric Garcetti said on Thursday that the move will help the city to achieve a more sustainable future with “cleaner air and lower emissions.” Officials said the city’s electric bus fleet will be one of largest in California, reported Electrive.
A BYD spokeswoman did not reveal the delivery timeline or the deal’s value when contacted by TechNode on Tuesday.

Context: Riding the wave of a global push for bus fleet electrification, BYD has so far delivered more than 55,000 e-buses in 50 countries and regions.

The Chinese EV giant has delivered upwards of 1,200 e-buses to 60 cities across Europe for a 20% market share, behind Polish bus manufacturer Solaris which runs 3,500 buses in the region.
The company in December announced that it had secured what it claimed was the largest ever single order for e-buses in Europe to supply 259 units to public transport provider Keolis in the Netherlands starting this summer.

Briefing: BYD and ADL deliver 37 electric buses in London

iFlytek granted US trade ban exemption for medical supplies

Chris Udemans — Mon, 24 Feb 2020 09:34:56 +0000

The US has approved an application by speech recognition firm iFlytek to exempt the company from a months-long trade ban in order to buy medical supplies.

Why it matters: An epidemic of a new flu-like virus dubbed Covid-19 has killed nearly 2,600 people in China after appearing in the central Chinese city of Wuhan late last year. The outbreak has resulted in medical supply shortages around the country with hospitals in several major cities appealing to the public for donations.

The US placed several Chinese technology companies including iFlytek on the so-called Entity List in October, effectively blocking them from doing business with American companies without permission.

Details: iFlytek applied for an exemption on Feb. 7 to make “charitable donations” of medical supplies that it was restricted from buying in the US as a result of the ban. The US Department of Commerce has subsequently approved the request, iFlytek said in a filing to the Shenzhen Stock Exchange on Monday.

The company said previously that it had commissioned a US-based law firm to submit a formal exemption request, making an appeal “in the spirit of humanitarianism and international cooperation.”
The Covid-19 outbreak has put huge pressure on China’s healthcare system. Hospitals in Beijing, Guangzhou, Shanghai, and Shenzhen, among others, have asked the public to donate respirator masks and other medical supplies for healthcare workers.
iFlytek said its artificial intelligence technology is being used to screen people for Covid-19. The company’s tech is also being used in online learning platforms for house-bound students around the country.

Context: China’s tech sector mobilized its resources to curb the spread of the infection. Meituan, Alibaba, and Tencent, among other companies, have made donations exceeding RMB 3 billion ($429 million).

Meanwhile, companies including AI firm SenseTime have started offering online classes while students learn at home amid school closures because of the virus. E-commerce platforms have also stepped in. JD.com vowed to ensure adequate supply of face masks to the public and curb consumer stockpiling.
The US blacklisted iFlytek and several prominent Chinese AI companies including Sensetime and Megvii over their alleged complicity in Beijing’s human rights violations in the Xinjiang Uighur Autonomous Region.

INSIGHTS | A turning point in Trump’s war on Huawei?

Wei Sheng — Mon, 24 Feb 2020 02:15:39 +0000

What with all the panic over the past month, you could be forgiven for forgetting there’s a tech war on. But for Chinese telecommunications giant Huawei, there’s no forgetting ongoing threats from the US.

The phase one trade deal signed in January between the US and Chinese governments created the illusion of a turning point in the ongoing dispute. However, Huawei’s predicament and the uncertainties arising from it are far from over.

Bottom line: The phase-one trade deal offered little relief for Huawei. The deal, which included provisions on intellectual property theft and halted some tariff hike in the past years, didn’t mention the Huawei situation at all.

The Shenzhen-based company still has to confront the technology and supply chain blockage from the US. It is now facing more legal charges brought by the Trump administration. The last few weeks have made Huawei’s situation clearer as US and European views of the company split further. Threats from the US are intensifying, while in Europe bans are being ruled out. The company is signaling that it will fight Google on its own OS turf, preparing alternatives to Google services for the Android platform

Endless lawsuits: Huawei’s US challenges are intensifying as its fight with the US government and competitors moves into the courts.

A US judge rejected Tuesday a lawsuit filed by Huawei challenging a law that banned federal purchases of the company. It filed the lawsuit in March 2019, seeking to overturn a provision in the National Defense Authorization Act (NDAA), which bans US government agencies from doing business with Huawei or ZTE.
The US Department of Justice filed on Feb. 13 an indictment that accused Huawei of conspiring to steal trade secrets and conducting business and technology projects in sanctioned countries like North Korea and Iran. While not many charges brought by the indictment are new, the legal action came at a critical time when the extradition hearings of Huawei CFO Meng Wangzhou began in Canada.
Huawei filed earlier this month two lawsuits against US telecoms operator Verizon, accusing it of infringing 12 patents held by Huawei.

HMS push: Huawei’s phone sales outside China are threatened by its loss of access to Google apps and services on Android phones. It is actively pushing in-house replacements for Google offerings, bringing it in direct competition with the search engine giant.

It is reported that Huawei plans to launch a new smartphone that will run on the company’s in-house Huawei Mobile Services (HMS) framework in Europe later this month. HMS is an alternative to the Google Mobile Services, which provides mobile applications corresponding to Google offerings such as Gmail, the Play Store (Google’s app store), and Google Music.
HMS is an Android skin deployed on Huawei phones sold in the Chinese market. It replaces most Google apps and services from vanilla Android with offerings such as Huawei App Gallery, a mobile wallet, Huawei Video, and a music app.
Reuters reported that four Chinese smartphone makers, including Huawei, Xiaomi, Oppo, and Vivo are teaming up to form an alternative to Google’s Play store to distribute Android apps to users outside China.
Last month, Huawei released a new version of HMS, adding capabilities such as Quick Response (QR) code extraction, near-field communication (NFC), and identity authentication.
In the same week, the company invested around $26 million into a subsidy scheme for British and Irish developers to make apps on HMS.

Fighting Google on its own turf: It has been widely reported that Huawei is going to use an in-house mobile operating system called HarmonyOS to replace Android. But recent efforts like HMS demonstrate that Huawei is sticking to Android. But with the absence of Google, it has to develop alternatives to all of the Google offerings on its phones.

Since the standard Google Play app store is not part of the open-source Android package, Huawei will have to build a new ecosystem around its own app store. To make it viable the company must solve a chicken and egg problem: it needs enough apps to bring in consumers and enough consumers to bring in app developers.

Huawei has already seen a declining trend in smartphone sales in Europe, its biggest overseas market. The company’s smartphone shipments in the continent dropped by 16% and 7% in the third and fourth quarter last year, according to market research firm Canalys.

A full switch to HMS may risk losing some users in overseas markets, but it could also turn into a profitable business for Huawei and help it take a large portion of Google’s share in the Android service market.

Google parent Alphabet is estimated to have earned around $29 billion from the Play store last year, accounting for nearly 18% of its total revenue. The earnings come from GMS pre-installed on billions of Android smartphones worldwide.

For Huawei, the number is smaller but still significant. It is the second-largest smartphone vendor in the world and has sold 230 million smartphones last year. Huawei has said it had no plans to return to using Google’s mobile services even if the US government decides to lift the trade ban.

5G updates: The UK finally made its “Huawei decision” in late January, allowing the Chinese company to play a limited role in Britain’s 5G networks. It appears that the EU is following a similar approach, opting for risk management frameworks rather than bans.

The UK’s limitations include:

Huawei will be banned from supplying kit to “sensitive parts” of the network, known as the core. That part of the network is where voice and other data is routed across various sub-networks and computer servers to ensure it gets to its desired destination.
Its gear will only be allowed to be used in the “non-core” parts of the network, or the periphery. The periphery includes the base station and antennas used to provide a link between individual mobile devices and the core.
It will only be allowed to account for 35% of the kit in the periphery.
Huawei gear will be excluded from areas near military bases and nuclear sites.

The decision from Downing Street has irritated the US government with President Trump’s White House chief of staff Mick Mulvaney warning there could be “a direct and dramatic impact” on the sharing of intelligence between the US and UK.

Following the UK’s decision, the European Commission published a “toolbox” of risk mitigation measures to guide EU members’ 5G rollouts. The kit doesn’t name Huawei or China, but it agrees that a supplier’s relationship with foreign states could affect its risk profile.

Tough tests ahead: With Europe rejecting US calls to ban Huawei, it’s clear that the company had dodged a bullet on market access. US export bans remain the most pressing threat, although it remains to be seen whether the bans will be upgraded to the point that the company cannot source essential components. Equally uncertain is whether a critical mass of consumers and app developers outside China will be willing to move to a new Android ecosystem that lacks Google’s popular apps and services.

US files new charges against Huawei for racketeering, IP theft

Wei Sheng — Fri, 14 Feb 2020 09:56:12 +0000

US federal prosecutors have added new charges against Chinese telecommunications equipment maker Huawei and its US subsidiaries, accusing the company of conspiring to steal trade secrets and conducting business and technology projects in sanctioned countries.

Why it matters: The indictment adds pressure on Huawei from the US, which has been campaigning for its allies to avoid using its equipment on their next-generation 5G networks.

The US has long claimed that Huawei equipment could be used to spy on foreign networks. The company has repeatedly denied the accusations.
Huawei has been involved in many intellectual property (IP) disputes with US companies, including smartphone brand Motorola, software maker Cisco, and telecommunications company Quintel.

Details: The US prosecutors filed the new indictment Thursday in federal court in Brooklyn, New York, charging the Chinese company with conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (RICO), a 1970 federal law that aims to control organized crimes, according to the Department of Justice.

The indictment also includes new allegations about the company’s involvement in countries on the US sanctions list such as North Korea and Iran. It says Huawei helped the Iranian government by installing surveillance equipment that it used to identify and monitor protesters during the 2009 Iranian presidential election protests.
The technology theft accusations include Huawei’s misappropriation of trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology, and robot-testing technology.
Huawei, its American subsidiary Huawei USA, and research arm Futurewei are among the defendants.
Huawei said in a statement to TechNode that the indictment is “part of an attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement.”
“The government will not prevail on its charges, which we will prove to be both unfounded and unfair,” the company said.

Context: Washington placed Huawei on a trade blacklist last year, banning US companies from selling components and technology to the Chinese firm.

The company last year sued the US government over a law that prohibits federal agencies from using its equipment.

Apple partner Foxconn struggles to reopen plants

Eliza Gkritsi — Mon, 10 Feb 2020 07:03:38 +0000

iPhone assembly plants in China belonging to Foxconn will not return to normal production volumes for at least another week due to the novel coronavirus outbreak, multiple media reports have reported, with some factories remaining closed and delayed returns expected for significant parts of its labor force.

Why it matters: Foxconn, also known as Hon Hai Precision Industry Co., is China’s largest private sector employer and the world’s biggest iPhone assembler. Delays in Foxconn’s production, a key manufacturing contractor for Huawei, Amazon, Google, and many others, are likely to affect supply chains for several major electronics brands.

The coronavirus outbreak, first reported in Wuhan, the capital of central Hubei province, has infected more than 40,000 worldwide and killed 909, and brought China to a standstill.

Details: Local authorities in Shenzhen have ordered Foxconn to keep its factories closed over the next week due to “violation of epidemic prevention and control” which could result in the death penalty, Nikkei Asian Review reported on Saturday, citing anonymous sources familiar with the matter.

The local government of Longhua in Shenzhen, where Foxconn’s largest factory is located, denied the report in a WeChat post (in Chinese) on Sunday. It said that on-site inspections to determine whether Foxconn plants are adequately equipped to prevent the virus from spreading were still ongoing.
The Longhua government added that the company had applied for resumption of work on Feb. 6.
But labor shortages could continue to crimp Foxconn’s operations even after the plants re-open. As the number of infections rise, travel is limited and people across China remain in quarantine.
Apple analyst Ming-Chi Kuo said Foxconn’s Shenzhen factories will not open until at least next week, and that 40% to 60% of the workforce will resume normal operations.
In the northeastern city of Zhengzhou, about 10% of Foxconn’s factory workers or 16,000 people returned to work today, Reuters reported Monday quoting a person with direct knowledge of the matter.
About 30% to 50% of the workers in the Zhengzhou plant will return to work next week, Ming-Chi Kuo estimated.
Foxconn responded to reports saying they are working closely with local governments to fulfill requirements for the resumption of work. Factories will re-open in a piecemeal fashion, according to a statement the company sent to TechNode.

Context: Southern Guangdong province, where Shenzhen is located, has reported the second-highest number of coronavirus infections after Hubei. Shenzhen counts 368 confirmed cases, compared with 337 in Beijing and 295 in Shanghai, according to official data.

Foxconn’s labor and safety practices have been criticized in the past. In 2011, an explosion in a Chengdu factory working on Apple, Microsoft, and Samsung contracts led to three deaths and 15 injuries.
Up to eight factory workers sleep in the same room in Foxconn’s dormitories, according to a 2017 investigation by the Guardian.
Apple has closed all its retail stores in China until Feb. 13 or 14, Bloomberg reported on Friday.
In June, Foxconn announced it will be improving its production capacity outside mainland China to mitigate risks arising from the trade war, as well as rising labor costs.
South Korean manufacturers Samsung and LG were set to resume operations today, Korean media reported.

Huawei sues Verizon for alleged patent infringement

Wei Sheng — Thu, 06 Feb 2020 09:47:07 +0000

A Huawei store in Beijing on Nov. 17, 2019. (Image credit: TechNode/Coco Gao)

Huawei has filed two lawsuits against Verizon, alleging that the US carrier infringed on 12 patents held by the Chinese telecommunications company.

Why it matters: The move is a sign of escalating intellectual property (IP) disputes between the US and Huawei, which has long been accused of IP theft.

The Shenzhen-based company has been involved in several lawsuits, accused of stealing technology from US companies including smartphone brand Motorola, software maker Cisco, and telecommunications company Quintel.
Huawei had been granted 87,805 patents globally and 11,152 of them are registered in the US, the company said on Thursday.

“We invest heavily in R&D because we want to provide our customers with the best possible telecommunications solutions…Verizon’s products and services have benefited from patented technology that Huawei developed over many years of research and development.”

—Song Liuping, Huawei chief legal officer, in the statement

Details: Huawei has filed lawsuits against Verizon in the US District Court for the Eastern and Western Districts of Texas, seeking compensation for the US company’s use of technology that is protected by 12 of Huawei’s patents, according to a company statement sent to TechNode on Thursday.

Huawei said it had negotiated with Verizon for a “significant period of time” before filing the lawsuits, but the two company “were unable to reach an agreement on license terms.”
The company said it has invested 10% to 15% of its revenue in research and development (R & D) every year for the past decade.
Verizon did not immediately reply to requests for comment on Thursday.

Context: Huawei asked Verizon to pay licensing fees for more than 230 of its patents and sought more than $1 billion, Reuters reported in June.

US Senator Marco Rubio said in July that Congress should stop Huawei from “using patent troll tactics and weaponizing the U.S. legal system against American companies.”
The company last year sued the US government over a law that prohibits federal agencies from using its equipment.

China tech stocks bounce back after virus outbreak losses

Eliza Gkritsi and Wei Sheng — Thu, 06 Feb 2020 04:39:08 +0000

This article was co-authored by Wei Sheng.

China’s tech stocks have dropped sharply since Jan. 13, when an epidemic disease known as novel coronavirus went global. On Tuesday Feb. 3, they started to recover, but most have a long way to recover from January losses.

E-commerce giant Meituan Dianping opened at HK$109.20 (about $14) on Jan. 13, dropped to HK$99.50 by the end of the day Feb. 3, and has climbed back to HK$100.50.

The stock rise coincided with a strong monetary boost from Beijing on Tuesday. The People’s Bank of China injected RMB 400 billion (about $57 billion) of liquidity to the banking system and strengthened the yuan exchange rate to support the economy.

The liquidity injection was the largest in the past year, sending a strong message to markets that the government will support the Chinese economy during the virus outbreak.

Alibaba and Meituan stock rebounded on Tuesday, Feb. 4. (Image credit: TechNode/Eliza Gkritsi)

Manufacturers of surgical masks, now widely used and sometimes mandated in China for protection against airborne viruses, have seen a surge in share prices. Stock for three Chinese firms TechNode analyzed have gained 40% in share price since Jan. 13, indicating that investors expect a prolonged health crisis.

But things are looking up this week in tech. Stocks on Shanghai’s tech board started to climb on Tuesday, gaining back on the past few weeks’ losses. The benchmark SSE Composite Index, in which the STAR Market is listed, has gained close to 3% since Tuesday.

China’s Nasdaq-style STAR Market has been on a roller coaster ride after it reopened on Monday. Most shares dropped during the first day of trading after the week-long break with 43 out of 79 listing companies seeing their share prices reach the tech board’s daily limit of 20% downside.

E-commerce bounceback

The e-commerce sector has been hit the hardest among those analyzed, as expectations for consumption were low in the past few weeks. Share prices of the six companies TechNode analyzed saw a 9.4% decrease on average until Feb. 3, and have since won back 5.4%.

Millions of people are staying at home this week due to obligatory work-from-home policies, adding on the fact that fears of the virus spreading is running high. But fear of the virus might prove beneficial for e-commerce companies.

“Alibaba and Meituan’s share prices dipped slightly, but are now on an upward trajectory, as investors price in how important e-commerce will be over the coming months,” Michael Norris, leader of research and strategy at AgencyChina, told TechNode.

Cities across China have ordered entertainment venues to shut down and shopping malls to take strict entry measures during the Spring Festival break which went from Jan. 23 through Feb. 2 after a last-minute extension.

“Over the coming weeks, the default for many folks’ consumption will be e-commerce,” Norris said. E-commerce and delivery platforms have already implemented “no-contact delivery,” meaning the delivery driver doesn’t come in person with the person receiving the goods. This scheme meets consumer desires and “the stock market has responded positively to these developments,” Norris said.

Luckin Coffee shares have dropped by 29%, from $44.17 on Jan. 13 to $31.35 on Feb. 3, the biggest drop among the companies analyzed. On Saturday, the US investment firm Muddy Waters delivered a further blow to China’s largest coffee chain, saying that it believes the company is inflating sales numbers. Luckin Coffee stock has increased by 24.56% this week, recovering to $39.05.

Luckin shares dip further despite refuting fraud claims

Shoppers going online

Smartphones and telecommunications companies have also seen a drop. The five companies TechNode analyzed showed a 2.3% decrease since Feb. 13.

“We predict the overall smartphone shipment in China to drop by 15% to 20% year on year in the first quarter,” said Fang Jing, chief analyst at Cinda Securities, a Beijing-based investment firm.

The drop is attributable to the government’s calls remain during the Spring Festival holiday in an effort to contain the spread of the virus, Fang said.

The holiday is usually considered a barometer of Chinese private consumption because of the traditions of gift-giving and family reunions. However, fears of the deadly coronavirus that has killed 491 people and sickened 24,363, based on official data, have kept shoppers away from the streets.

“We have seen shipments of smartphones through offline channels drop by 70% during the Spring Festival holiday,” said Fang. “If the situation is not going to take a turn for the better, the percentage will likely increase.”

Instead, people are going online for electronics consumption. Online shipments of smartphones are expected to account for as much as 40% in the first quarter, Fang said, adding that the proportion was only 28% in the same period last year.

With a small store footprint, Xiaomi relies on online sales, which makes it a strong contender for the coming months when e-commerce will become an even bigger pillar of consumption. Its stock climbed 3.29% in the time period analyzed, making it the only rising stock in the smartphones and telcos category.

Compounding on Xiaomi’s relatively good outlook in China, are good results in India. The Beijing-based company remains the top smartphone brand in India, according to research by market intelligence firm Canalys published on Jan. 29.

Supply chain delays

The epidemic also creates challenges and disruptions for supply chains in China, especially after authorities in some big cities announced rules barring companies from resuming operations for a certain period of time following the break.

Companies in Shanghai, for example, are not allowed to re-open offices before Feb. 10, meaning either remote work or a longer holiday. In the meantime, jobs that require the physical presence of employees, like factories, remain closed.

DingTalk, WeChat Work overburdened as hundreds of millions work remotely

Car manufacturer Hyundai had to close all its factories in South Korea after it ran out of critical components coming from China. The world’s fifth-largest automaker said it would take three to four weeks to switch to parts made outside China.

“We expect that most consumer electronics manufacturers will resume operations on Feb. 9 or Feb. 10, which means a delay of roughly one week,” said Fang.

“But, given that the first quarter is always a low season for electronics consumption in the year, the impact is limited. We expect that orders affected by the delay will account for less than 2% of smartphone makers’ annual orders.”

CORRECTION: An earlier version of this article erroneously reported Meituan Dianping’s stock price as though it were listed in US dollars. The company’s shares are priced in Hong Kong dollars.

US-China tech war may ‘de-Americanize’ global supply chains: report

Wei Sheng — Wed, 05 Feb 2020 05:12:15 +0000

Ongoing trade tensions and a technology cold war between the US and China may spur a “de-Americanization” of global supply chains, according to a report by global trade nonprofit Hinrich Foundation.

Why it matters: US export restrictions on major Chinese tech companies such as Huawei will force global semiconductor companies to source non-American parts, causing a reconfiguration of supply chains to meet thresholds set by the US government, according to the report.

To ship to companies on the US commerce department’s Entity List, suppliers around the world must ensure their products contain less than 10% of US technology if they are made in the US and 25% for non-US made products.
China is currently the largest importer of integrated circuits in the world with $300 billion worth of microchip technology being imported to the country in 2018, said the report.

Details: The methods by which global suppliers legally circumvent export controls by moving parts of the value chain to workable locations will determine whether the US trade restrictions have the desired effect, Alexander Capri, research fellow at Hong Kong-based Hinrich Foundation and author of the report, told TechNode.

“Efforts to circumvent US export controls will increase” unless export restrictions on core technologies are lowered or removed altogether, the report said, though “the semiconductor industry is taking a wait-and-see posture regarding large-scale reshoring operations” for the moment.
Huawei has more than 13,000 suppliers globally and it purchased some $70 billion in components and parts in 2018, according to the report, citing company rotating chairman Ken Hu.
Huawei’s legal team began an analysis to determine whether the company could legally circumvent US export controls by instructing its suppliers to lower American technology in its value chain when the company was placed on the US government’s Restricted Entities List in 2018.
In order to meet de minimis exclusion, semiconductor companies would either have to reduce the value of the US content or increase the value of non-US made components, according to the report.

Context: The Trump administration placed Huawei on a trade blacklist in May, effectively barring the Chinese telecommunications equipment maker from buying US components and technology without government approval.

The US government added to the trade black list in Oct. 28 other entities including Chinese government agencies and private companies, such as video surveillance gear maker Hikvision and artificial intelligence firms SenseTime and Megvii.

Trip.com widens travel cancellation fee waiver program

Eliza Gkritsi — Mon, 03 Feb 2020 07:11:27 +0000

Chinese online travel platform Trip.com Group, is extending a free cancellation policy for people traveling in or to China until Feb. 29 for those affected by the current coronavirus outbreak, it said on Sunday.

Why it matters: Tourism in China has been hit hard by the epidemic, as thousands of travelers have already been affected by travel restrictions.

Trip.com, China’s largest online travel platform, has received millions of requests for booking cancellations or changes, 10 times more than the usual rate, a spokesperson for the company told TechNode on Monday.

Details: Trip.com, or Ctrip as it is known in China, has waived fees normally charged for canceling or changing bookings for hotels, tours, and airplane and train tickets. Customers who have booked hotels or transportation in China until Feb. 29 can cancel or amend their booking at no extra cost if the booking was made before Jan. 28.

On Jan. 24, Ctrip began its “Safeguard Cancellation Guarantee” program allowing refunds for travel plans made by Jan. 24, provided travel or check-in times fell before Feb. 8.
The Nasdaq-listed platform invited hotels to participate in a free cancellation program on Jan. 23, giving full refunds to guests who wants to cancel their plans during those dates. More than 400,000 hotels have signed up as of Monday, according to the spokesperson.
International hotel chains like Hilton, Shangri-La, Intercontinental Hotel Group, Marriott, Hyatt, and Accor are also participating in the scheme.
Air travel booked via Trip.com can also be cancelled without charges from the platform during the same dates. Most Chinese airlines are giving full refunds, as well as some international companies, according to a company statement.
Train tickets are fully refundable, following guidance from the railway authorities, the company said.

Context: The current novel coronavirus strain which was first reported in the central Chinese city of Wuhan in Hubei province, brought the country to a standstill during one of its busiest travel seasons.

In addition to the 56 million people living under lockdown in Hubei province, the streets of many Chinese cities are mostly empty.
On Jan. 24, China’s Ministry of Tourism ordered the halt of all tourist group package sales.
Many international airlines have cancelled flights to China. On Jan. 31, the US State Department raised the travel warning to the highest possible alert, urging its citizens to avoid travel to the country.
Trip.com launched a RMB 200 million ($28.5 million) fund to support the waived fees.
A separate “Global Disaster Relief Plan” was implemented on Jan. 26 allowing customers who booked an international group or private tours scheduled to fall between Jan. 27 and Feb. 29 to receive a full refund.
Ctrip is rumored to be looking at a secondary listing in Hong Kong. Its share prices on Nasdaq fell 13% in January.

Apple supplier eyeing Vietnam expansion despite trade deal: report

Eliza Gkritsi — Wed, 22 Jan 2020 10:03:01 +0000

News that a Taiwanese supplier for Apple and Samsung with factories in China plans to set up new production facilities in Vietnam following a US-China “phase one” deal is a signal that the trade friction merely hastened the process of electronics manufacturers diversifying from China, according to an analyst.

Why it matters: The so-called phase one trade deal was expected to restore confidence in China’s economy, but Pegatron’s move shows that tech companies are still trying to disentangle their supply chains from “the world’s factory” to mitigate risk.

“The trade war accelerated manufacturers’ moving away from China and it sent a strong message: Do not put all your eggs in one basket.” (our translation)

—Will Wong, smartphone analyst at IDC Singapore

Details: Vietnam lacks the level of infrastructure and skilled labor pool that supports China’s manufacturing capacity, Will Wong, a Singapore-based smartphone analyst at market research firm International Data corporation, told TechNode. But local governments remain hopeful that it will become central to electronics supply chains in the future and are trying to attract investment, he added.

Pegatron has already leased a production facility in a city in northern Vietnam called Haiphong, Bloomberg reported on Tuesday. In that facility, the Taipei-based company plans to make styluses for South Korean smartphone giant Samsung, the report said.
The electronics manufacturer is also looking for a site in north Vietnam to build a production facility from scratch, but Pegatron doesn’t plan on shifting iPhone assembly to Vietnam, according to the report.
The company’s share prices showed no significant fluctuation since the announcement, declining 0.6% by market close on Wednesday.

Context: Increasing labor costs and stricter regulation in China had tech companies looking for manufacturing facilities elsewhere prior to the trade war, Wong said.

It is uncertain what the impact of this trend will be on the Chinese economy. Under the “Made in China 2025” strategic plan, Beijing wants China to shift from being the “world’s factory” into a high-tech powerhouse that develops its own auto technology, semiconductors, robots, pharmaceuticals, and more.
Foxconn, the world’s largest electronics manufacturer, in June assured investors that it had an “agile” plan to move iPhone production out of China in case tariffs rendered US-bound exports too expensive.
“If Apple needs us to move our supply chain, we can do that with the fastest speed. US-China relations are changing dramatically and we are closely monitoring them, and so does Apple,” Young-Way Liu, a member of Foxconn’s operation committee said at the time.
Pegatron spun off Taiwanese laptop maker Asus in 2009 to make motherboards.

Includes contributions from Wei Sheng.

The future of passenger drones is buses, not taxis: Ehang

Eliza Gkritsi — Thu, 16 Jan 2020 10:27:37 +0000

The future of autonomous aircraft in cities bears more resemblance to a centralized bus system rather than on-demand vehicles like taxis, Chinese drone maker Ehang said in its first white paper released on Wednesday.

Why it matters: The Beijing-based firm is veering from the flying taxi model adopted by other players in the field, including Uber and Volocopter.

Ehang raised $46 million in its initial public offering (IPO) on Nasdaq in December 2019.

Details: The white paper explored “the potential of [urban air mobility] through insights into UAM applications and commercialization based on practical use cases,” according to Edware Xu, the startup’s chief strategy officer.

Ehang proposed a UAM system requiring all aerial vehicles, including passenger and cargo drones, be registered and operated through a centralized platform.
Centralized management of drones—like a city’s public bus system—is the best way to improve traffic congestion, transport safety, and bolster municipal functions such as emergency response and police, Ehang said in the paper. This model resembles bus operation rather than independent taxis.
This centralized control center coordinates vehicle auto-piloting to address safety issues and traffic congestion, the paper said. Ehang has designed its autonomous aircrafts with this system in mind, it said.
Ehang said in the paper that aerial travel in cities will come sooner than most expect due to progress it has made. It pointed to a 2018 blue paper by investment bank Morgan Stanley, which predicted that autonomous aircraft transport will be commonplace by 2040.
Ehang is “on the verge” of realizing “full commercial operations” of its autonomous aircraft vehicles in 2019 to 2020, which would put Morgan Stanley’s estimate at the conservative side of the spectrum, the paper said.
The paper also mentioned using the Beidou navigation system, China’s homegrown version of the globally used, US government-owned global positioning service (GPS).
The startup could not be immediately reached for comment.

Context: Ehang caused a splash in 2016 when it debuted the world’s first electric passenger drone, called Ehang 184, at the Las Vegas Consumer Electronics Show (CES).

On Dec. 6, just days before its IPO, Ehang demonstrated a flying taxi ride in Guangzhou.
The startup is eyeing international expansion, and is already making moves in that direction. On Jan. 8, it conducted its first trial flight in the US with its autonomous, two-seater Ehang 216 passenger drone. In October 2019, it signed a deal with the government of Azerbaijan to set up a command-and-control center at the airport in its capital city of Baku.
It faces competition in the race to commercialize passenger drones from startups like Volocopter and Kitty Hawk, aerospace heavyweights Airbus and Boeing, and ride-hailing giant Uber.
Last week, Uber unveiled a new passenger drone developed in collaboration with South Korean car maker Hyundai.

US to ground drone project over Chinese spying concerns: report

Chris Udemans — Mon, 13 Jan 2020 09:14:28 +0000

The US government plans to terminate one of its largest civilian drone programs over concerns that devices at least partially made in China may be used for spying, the Financial Times reports, citing two people familiar with the matter.

Why it matters: Chinese-made civilian drones have become a focal point for the US government, as officials warn that Beijing could use photos taken with onboard cameras for intelligence purposes.

The move to ground the fleet received opposition from various agencies over concerns that the grounding could cost the government time and money.
The US army outlawed the use of DJI drones in 2017. Congress is also considering banning the federal government from buying Chinese-made drones.

Details: The US Department of Interior will ground its nearly 1,000 drones after determining that they pose an unacceptable level of risk as Beijing could be using the devices for spying.

Secretary of the Interior David Bernhardt has not approved a final policy. The devices may be used in special situations, including emergencies, and for training purposes, FT sources said.
The interior department has already temporarily grounded drones with cameras, which the agency used to tackle wildfires and to map terrain, while their risks were reviewed.
Numerous government agencies have objected to the ban, according to documents seen by the FT. The Fish and Wildlife Service detailed in a note that the temporary ban has affected their operations. The agency had to cancel flights to count animals and monitor controlled burns, which are used to reduce wildfires.

US Interior Department to ground Chinese-made drones: report

Context: Against the backdrop of the US-China trade war, Washington has sought to limit US exposure to Chinese technology.

Chinese companies are under increased scrutiny over national security concerns. Telecommunication firm Huawei was put on a US blacklist in May, effectively banning it from doing business with American companies.

TikTok says no user data requests from Chinese authorities in H1 2019

Tony Xu — Fri, 03 Jan 2020 09:02:26 +0000

TikTok said that it did not receive any requests for user information from the Chinese government including law enforcement agencies in the first half of 2019, and that India was the leading source for such requests, according to the platform’s first-ever transparency report released on Dec. 30.

Why it matters: TikTok has been trying to convince US lawmakers that the platform does not pose privacy, censorship, or national security risks despite its Chinese ownership.

Bytedance, the parent company of TikTok, has been moving to separate the short video platform from its Chinese businesses since as early as the third quarter of 2019.
Alex Zhu, the head of TikTok, had planned to meet with three Republican lawmakers before the end of the year but postponed the meeting, citing scheduling issues and the holiday rush.

“We take any request from government bodies extremely seriously, and closely review each such request we receive to determine whether, for example, the request adheres to the required legal process or the content violates a local law. TikTok is committed to assisting law enforcement in appropriate circumstances while respecting the privacy and rights of our users.”

—TikTok in the transparency report

Details: Out of the 298 legal requests for user information TikTok received in the first half of 2019, close to 36% or 107 came from India, which made the highest number of requests, followed by 79 requests from the US.

TikTok said it provided authorities with some user information for 47% of requests from India, and 86% of all requests from the US.
The company said that it reviews any information request carefully for legal sufficiency.
TikTok also removed content that is deemed illegal by governments in different countries. Government bodies in India, for instance, sent 11 such requests during the first half of 2019, resulting in eight account removals or restrictions.

Context: The US Army and Navy in late December banned the use of TikTok on government-issued phones, citing potential cybersecurity threats from the app.

Bloomberg reported last month that Bytedance has considered selling stakes in TikTok to protect the business, but Bytedance denied all such claims.

Huawei expects revenue to reach $122 billion in 2019

Wei Sheng — Tue, 31 Dec 2019 03:29:43 +0000

Huawei said Tuesday the company’s revenue in 2019 is expected to jump 18% year on year despite a series of campaigns led by the Trump administration against the telecommunications gear maker this year.

Why it matters: The growth rate is slightly lower than last year. In 2018, the company’s revenue grew 19.5% year on year.

The company also predicted that the coming year would be a “difficult year,” and that it would not be removed from the US “Entity List,” which bars American companies from supplying to Huawei without government approvals.

Details: In a New Year’s message to employees, rotating Chairman Eric Xu said they expected revenue in the year to reach a record RMB 850 billion (around $121.7 billion). He added that the figures failed to meet the company’s predictions earlier this year.

The Shenzhen-based company, also the world’s second-largest smartphone vendor, said handset shipments had exceeded 240 million units and the business is in “robust growth.”
Huawei will “go all out” to build the Huawei Mobile Services (HMS) ecosystem to ensure it can keep selling smartphones in overseas markets, said Xu. HMS is an alternative to Google Mobile Services (GMS), which pre-installs popular Google apps and services on Android phones. Huawei is not authorized to use GMS due to the US export ban.
“Our predictions every year are very radical, that’s why we said the figures failed to meet expectations,” said a Huawei spokesman to TechNode on Tuesday.“But the 18% [annual growth rate] is good enough, and it is also pretty good compared to other companies,” he said.

“Survival will be our first priority…We will focus on the following four areas: sustaining growth, improving our capability, optimizing our organization, and controlling risks.”
—Eric Xu, in his New Year’s message to employees.

Context: Huawei said in October that its revenue for the first three quarters grew 24.4% year on year to RMB 610.8 billion. It announced in July that revenue in the first half of the year grew 23.2% year on year to RMB 401.3 billion.

The company doesn’t reveal quarterly earnings before this year.
In June, Huawei founder and CEO Ren Zhengfei said he expected the US trade blacklist will reduce production output by $30 billion over the next two years.
Huawei, which reported revenue of RMB 721.2 billion last year, re-evaluated its revenue targets to around $100 billion this year and the next, according to Ren. It had initially forecasted revenue growth in 2019 of between $125 billion and $130 billion depending on foreign exchange fluctuations.

Paypal closes deal for 70% of China’s Gopay

Nicole Jao — Fri, 20 Dec 2019 12:02:48 +0000

California-based online payment company Paypal has completed the deal to acquire 70% of Chinese digital payment service provider Gopay, a move that allows the US company to operate payment services in the country.

Why it matters: By taking on majority ownership of Gopay, Paypal is a step closer to becoming the first foreign company to provide digital payment services in China, which for many years foreign companies like MasterCard and Visa have been trying to do.

Details: Paypal acquired the stake in Gopay through its Shanghai-based subsidiary Yinbaobao Information Technology. The People’s Bank of China, the country’s central bank, approved the deal in late September. The companies did not disclose details including the deal size.

Gopay is a relatively small player in China’s payment space, which is dominated by Alipay and WeChat Pay. However, with the partnership, Paypal gains access to the firm’s license to provide online, mobile, and cross-border renminbi payments, something it has been working on for years.

Context: With policies favoring domestic players, foreign firms have encountered major hurdles when attempting to enter China.

China has been more friendly to foreign companies wanting to apply for licenses since 2017, but the approval process has been slow. The China-US trade war has also made the process more complicated.
Gopay, also known as Guofubao in China, was founded in 2011 as a joint venture between the China International Electronic Commerce Center (CIECC), affiliated with the Ministry of Commerce, and HNA Retailing Holding, but is now jointly held by the CIECC and a subsidiary, Cofortune Information Technology Co., according to its website.

Hey TikTok: You’ve got a PR problem the size of the US

Michael Norris — Thu, 19 Dec 2019 06:00:57 +0000

Michael Norris is a TechNode contributor and Research and Strategy lead at AgencyChina. Commentaries do not necessarily represent the editorial position of TechNode.

Dear TikTok PR,

TikTok is in a unique and delicate position.

On the one hand, you’ve got a breakout hit. Sensor Tower reports that, outside games, TikTok is the most downloaded app of the year and the only app in the top five that isn’t owned by Facebook. This, alongside the success of Douyin, TikTok’s predecessor in mainland China, is cause for congratulations.

On the other hand, your success has brought scrutiny, especially in the US. I suspect you’ve been busy since Reuters reported on an ongoing national security investigation into Bytedance’s 2017 acquisition of Musical.ly. This review, undertaken by the Committee on Foreign Investment in the United States (CFIUS) could, at worst, compel you to reverse the merger that brought TikTok to the US.

But, even before CFIUS got involved, you routinely found yourself caught in blunders and backflips.

First, leaked documents showed TikTok created guidelines to remove content that could offend the Chinese government. You said those guidelines had been superseded, but former employees promptly contradicted these claims.

Then, you massaged over changes to TikTok’s org structure. I can only presume changes to Alex Zhu (Head of TikTok)’s reporting line were intended to create distance between TikTok and Douyin. However, the change (whereby Alex reports to Bytedance CEO Zhang Yiming) make it look like Alex literally and figuratively takes orders from Beijing. Speaking of, a few days ago you thought it would be wise for Alex to cancel meetings with US lawmakers critical of TikTok. It’s still early days, but I anticipate you’ll take some heat for that.

All this all while TikTok backflipped on blocking a US teenager sharing her views on internment of Muslims in Xinjiang and was caught with its pants down again choking traffic to content creators with disabilities, plump body shapes and pro-LQBTIQ views.

So here’s a heads up: there are three reasons why your PR quagmire will get worse in the coming year.

First, you haven’t developed a coherent narrative to assuage fears around Chinese ownership.

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.

There’s also the question of TikTok’s workforce. Someone will presumably go on LinkedIn and work out that around one in ten TikTok employees listed are based in China, as of Dec. 18. From the same data set, they’ll also notice that there are very few folks in the US responsible for product, and even fewer responsible for content moderation. These optics are, in a word, bad.

Second, TikTok’s previous content-related SNAFUs will prompt rigorous inspection of its Community Guidelines. These are far, far shorter than what Facebook has developed, and that company is still a long way off getting out of PR purgatory. I know you’ve hired lawyers and former congressmen to pad them out, but I’m not convinced how far “Bear with us, we’re working on it” will go with American officials.

During this process, I anticipate you will be asked to detail how Bytedance and TikTok use human moderators and machine learning to identify, classify, demote and remove offensive content. You might not feel the need to do this, but there are folks out there who are already putting the pieces together. You should take the initiative and show how you deploy human and machine-assisted moderation to block nudity, combat ISIS propaganda and report potential sexual predators.

It’s at this point that, someone, somewhere, will look closely at the nexus between TikTok and Douyin.

You see, it’s no secret that it was only very recently TikTok divorced itself from Douyin’s product team.

It’s also no secret that Douyin’s CEO pledged to use the platform “curate” content around positive values (Chinese), which weren’t named or articulated. The existence of similar editorial or curatorial policies in your overseas markets may be all that’s needed to convince investigators that TikTok could be a vehicle for foreign influence.

There you have it. A full suite of reasons why you’ll be pushing the proverbial uphill in the coming year.

Getting on top of each of these areas may very well be critical for your continued operations in America. CFIUS hasn’t looked too kindly on Chinese tech companies in the recent past, and it appears to be responsive to anti-China sentiment in Congress. For instance, it made a Chinese acquirer sell Grindr, blocked the sale of MoneyGram to Ant Financial, and also prohibited the sale of a US semiconductor firm to a Chinese government-backed investment firm back in 2017.

You’re at real risk of losing the PR battle, which could mean orders to divest Musical.ly and potentially exit your most lucrative overseas market.

You’ll have your work cut out. Good luck.

Cheap loans underpin China’s semiconductor sector: OECD

Eliza Gkritsi — Thu, 19 Dec 2019 02:37:29 +0000

Tsinghua Unigroup and SMIC topped the OECD’s list of top recipients of government support in the global integrated circuit industry. (Image credit: TechNode/Eliza Gkritsi)

Chinese semiconductor companies receive the most government support of any of their global peers proportionately to their revenue, states a report from the Organization for Economic Construction and Development (OECD). The report describes not only the enormous size of the Chinese apparatus supporting the local integrated circuit (IC) industry, but the unique role of government equity and cheap loans in the Chinese IC ecosystem.

Some non-Chinese companies like Samsung and Intel receive similar amounts of state funding, but because of higher revenues, the government funds support a significantly smaller proportion of their operations.

The OECD in collaboration with moorcroft debt recovery looked into public financial records of 21 international chipmakers which represent two-thirds of the global market. They found that Chinese companies receive higher government support relative to their revenues on average than their global peers. This support comes by way of cheap loans, investments at below market price, and direct budgetary support.

Tsinghua Unigroup, a semiconductor developer 51% owned by a leading state university in Beijing, is the largest recipient of government support in the sample. The Semiconductor Manufacturing International Corporation (SMIC), China’s largest chip manufacturer, is the largest recipient of funding as a proportion of revenue, getting government help equal to over 40% of its revenue.

In terms of Chinese semiconductor companies, only privately-held HiSilicon, owned by Huawei, made it into the global top 20 by revenue in 2018, in sixteenth place.

Disproportionate government ownership

Chinese firms received 86% of all below-market-equity investments among the firms surveyed. These take place via the Integrated Circuit Fund, a government company set up in 2014 to invest $23 billion in the industry, as well as through state-owned enterprises and local governments that acquiring stakes in chipmakers.

Semiconductor plants, known as fabs, are subject to a complex ownership structure in China, involving different levels of government in different parts of the company structure. One of these facilities costs around $20 billion to construct, the OECD said.

The government owns 95% of equity in fab Shanghai Huali, the OECD said. It is supported by a $1.8 billion injection from the national IC fund and $316 million from the Shanghai government. In addition, it is owned by the SASAC and Hua Hong Group, a state-owned semiconductor agency. Other examples in the report include 75% government equity in a fab in Wuhan, the provincial capital of central Hubei, and 57% in a Beijing fab.

But these investments have yet to produce significant returns, as profits remain low. Chinese firms’ assets doubled in the period 2014 to 2018, after the national IC fund was set up, but average profit margins were one-fifth of their global peers as of 2018.

Chinese IC firms lack their own chip designs, and usually act as manufacturers for overseas companies, which keeps profit margins low. In September, two Chinese companies announced plans to start making homegrown memory chips, but experts remain skeptical on if they can compete with incumbents.

SILICON | Can China make chips?

“New NAND flash and DRAM players like Changxin Memory and Yangtze Memory are entering markets full of incumbents,” Stewart Randall, head of electronics and embedded software at Intralink, a consultancy that provides market entry services to China, told TechNode. “It will be extremely hard to gain market share. selling at a loss to gain market share may be necessary, but government funding can keep them going,” he added.

Better loans, budgetary help

The three largest recipients of below-market loans between 2014 and 2018 were Chinese; Tsinghua Unigroup at $3.14 billion, SMIC at $695 million and JCET at $688 million, the OECD said. State-owned Hua Hong Group also received a $71 million loan in that period, the report states.

These loans typically include better terms than those from commercial lenders, with lower interest rates and longer repayment periods. The loans came from state-owned banks, namely the Bank of China, China Development Bank, and China Construction Bank.

All other firms in the sample received little or no funding. The next largest non-Chinese recipient on the list was Korea’s SK Hynix, which borrowed $34 million from various lenders, including the Korean Development Bank.

Beijing is also helping China’s chip industry through direct cash injections, subsidized inputs and tax deductions. SMIC and Hua Hong were the greatest beneficiaries of such budgetary support, proportionately to their revenue, according to the report. SMIC receives fiscal help from the government equivalent to almost 7% of revenue and Hua Hong’s budget receives assistance equivalent to 5% of revenue.

The US-dominated semiconductor firm acquisitions from 1998 to 2018. But with the creation of the national IC fund, international buyouts from Chinese players boomed. Nearly three-quarters of all IC firm buyers were Chinese in 2016. Activity has since slowed as restrictions on capital outflows intensified.

AR firm Nreal seeks to dismiss US-based Magic Leap lawsuit

Wei Sheng — Wed, 18 Dec 2019 06:53:04 +0000

Chinese augmented reality (AR) headset maker Nreal filed on Tuesday a motion to a California court, seeking to dismiss a lawsuit brought by its US-based rival Magic Leap accusing the company and its founder of stealing its technology.

Why it matters: The June lawsuit brought by a US firm against a Chinese company over intellectual property (IP) reflects the broader dispute between the world’s two largest economies over technology theft.

Beijing-based Nreal was founded by ex-Magic Leap employee Xu Chi, who left his position at the US firm as a software engineer in 2016.
The two companies both manufacture headsets for so-called augmented, or mixed reality, an interactive technology combining a real-world environment with computer-generated images.

Briefing: American AR startup accuses Chinese ex-employee of IP theft

Details: In a motion filed with a federal court in San Jose, Nreal claimed that Alibaba-backed Magic Leap is “filing lawsuits to slow down new entrants in the AR market,” according to a company statement.

Nreal stated the lawsuit by Magic Leap was “vague and unsubstantiated,” and that it was brought because the Chinese company was developing a similar device to Magic Leap’s AR headset.
In the June lawsuit, Magic Leap alleged Xu exploited its confidential information to “quickly develop” a prototype of mixed-reality glasses and other devices that are “strikingly similar” to its designs.
Florida-based Magic Leap did not immediately respond to an emailed request for comment on Wednesday.

“We will fight Magic Leap’s meritless legal claims and will not allow them to distract us from innovating and delivering unparalleled augmented-reality products.”

— Xu Chi, Nreal founder, in a statement

Context: Founded in January 2017, Nreal received $16 million Series A+ from investors including Everbright and Baidu’s online video unit iQiyi in January. The valuation is unknown.

The company released $499 AR glasses in January at the Consumer Electronics Show 2019 in Las Vegas.
Last week, Apple told a federal court that it had “deep concerns” that two Chinese-born former employees accused of stealing trade secrets would try to flee back to China.
Tesla in March accused a former employee of stealing IP worth hundreds of millions of dollars and sharing it with its Chinese rival, Guangzhou-based Xpeng Motors.

US finalizing targeted limits on key tech exports to China: report

Eliza Gkritsi — Wed, 18 Dec 2019 04:35:51 +0000

The US administration is putting the final touches on a plan to limit key technology exports to rivals like China, Reuters reported on Tuesday.

Why it matters: The US is balancing the need to maintain access to an important consumer market with keeping its homegrown technology from falling into the hands of adversaries. Rhetoric from administration officials as well as the blanket export ban on Huawei, the world’s largest telecommunications equipment manufacturer, have alarmed American companies, which have lobbied for more relaxed rules.

Details: The rules will be submitted to international trade bodies for review, so that they can be implemented by US companies’ overseas subsidiaries as well, according to Reuters, though the review process would also slow down the roll out of restrictions, likely to mid-2021.

In 2018, the US Congress reformed export controls to include “foundational and emerging technologies,” which were later listed by the Bureau of Industry and Security. According to Reuters, the new rules will include 3D printing and quantum computing.
It is likely that the rules will be open for comment from industry experts before they become official, Reuters said.
The document was drafted by the US Commerce Department, the federal authority regulating international trade.

China closes ranks as AI firms join Huawei on US blacklist

Context: Other than Huawei, the US has imposed export restrictions on the world’s most valuable artificial intelligence (AI) startup, Hong Kong-based Sensetime, as well as natural language-processing company iFlytek, and surveillance system manufacturers Hikvision and Dahua Technology.

American chipmakers lobbied aggressively in Washington for an ease of the export ban.
In 2018, the federal Bureau of Industry and Security identified technologies like AI, semiconductors, autonomous vehicles, robotics, and biotechnology as key to its economic supremacy and national security. These priorities were passed in law through the National Defense Authorization Act, an annual bill that outlines national security priorities.
The trade war has also crimped growth in the Asia-Pacific region, as a business confidence index hit a 10-year low in June, according to a report by INSEAD business school and Thomson Reuters.

US committee asks Apple, Google if apps are screened for foreign ties

Eliza Gkritsi — Mon, 16 Dec 2019 09:51:59 +0000

(Image Credit: BigStock/Dilok)

A US national security committee wants to know if Apple and Google require app developers to disclose their ties to foreign entities and whether apps store American user data overseas.

Why it matters: The letters indicate growing concern in the US about whether private Chinese technology companies are providing information to the Beijing government and warn that the data could be used to blackmail US users.

While the committee does not specifically ask for information related to China, TikTok, Grindr and Face App are mentioned in three out of four footnotes used to provide background for the probe.

Details: House national security subcommittee chairman Rep. Steven Lynch applauded the decision to force Grindr’s Beijing-based owner to divest from the LGBTQ app, adding that it could be “only a small part” of how foreign countries “seek to exploit consumer mobile application data to gain leverage” over the US.

The committee asked for details on the app review process before they are uploaded on the App Store and Google Play stores. It also asked whether the two issues would determine if the apps are approved for the Silicon Valley consumer tech giants’ app stores.
They want to know whether Apple and Google check if non-US entities hold more than 50% of the app development company and if they check where an app developer stores user data.
The committee also wants to know if Apple and Google track the numbers of US downloads for apps.

Briefing: Chinese firm looking to sell Grindr after US raises security concerns

Context: Bytedance’s TikTok short video app has tried to separate its Chinese and US operations, facing increasing scrutiny from US politicians in recent months, but has also delayed scheduled meetings with US regulators.

TikTok is the world’s third most popular app in the non-gaming category by user downloads, according to analytics firm Sensor Tower.
A bill introduced to the US Senate in November could make it illegal for app developers like Bytedance and Apple to store US citizens data and their encryption keys in China.

Ant Financial, Vanguard to start retail investment advisory service

Nicole Jao — Mon, 16 Dec 2019 05:49:42 +0000

Chinese fintech company Ant Financial and US-based asset management firm Vanguard will begin providing investment consultancy services to individual investors in China.

Why it matters: Vanguard, one of the largest public mutual fund providers in the world, is one of the many foreign asset management firms that hope to gain inroads in China. The partnership with Ant Financial is said to pave the way for Vanguard to acquire a license allowing full control of its ventures in China.

Vanguard, BlackRock, and four other overseas financial institutions have expressed their intention to apply for fully foreign-owned mutual fund licenses in China, according to Bloomberg. The country’s securities regulator said in October that overseas institutions can apply for total control of onshore ventures starting next year.

“Today, millions of Chinese investors lack access to professional investment advisory services. Through this partnership, we will reduce complexity and significantly lower the threshold for individual investors to access high-quality wealth management advice in China,”

—Peter Zhang, CEO of the joint venture

Details: The two companies will advise Chinese investors on fund investment, a service for which it has obtained approval from the China Securities Regulatory Commission, through a joint venture.

According to Vanguard, the JV will provide customized services for investors based on risk preference, time frame, and investment objectives. The service will be accessible through its mobile payment app Alipay and its wealth management platform Ant Fortune and will accept minimum investments of RMB 800 (around $113).
Ant Financial told TechNode on Monday that the official date of service launch will be revealed “soon.”

Briefing: Ant Financial, Vanguard form joint venture in Shanghai

Context: Alibaba’s fintech affiliate Ant Financial set up a joint venture with the Shanghai unit of Vanguard in June, government records showed.

Vanguard opened its Shanghai office in 2017. It claims to have $5.9 trillion worth of assets under management, as of the end-October.
Ant Financial’s Alipay boasts a global user base upwards of 1.2 billion, and operates the world’s largest money market fund, Tianhong Yu’e Bao.

Ping An’s One Connect raises US IPO target to $312 million: report

Nicole Jao — Fri, 13 Dec 2019 05:37:34 +0000

(Image credit: Bigstock / World Image)

Ping An’s fintech arm One Connect Financial Technology expanded its US initial public offering (IPO) to $312 million on Thursday, a day after disclosing plans to cut its share sale by nearly half, Reuters reported.

Why it matters: One Connect’s new target valuation of $3.7 billion is significantly lower than last year’s $7.5 billion set during its maiden funding round.

One Connect has adjusted its IPO plan multiple times in the past year. It had initially planned to raise $1 billion in Hong Kong at a valuation of about $8 billion. In June, the company changed its listing destination to New York partly due to the political uncertainty in the region.

Details: One Connect is reportedly selling around 31.2 million American depositary shares (ADS) at $10, giving it a valuation of around $3.7 billion, according to an anonymous source cited by Reuters.

Earlier this month, TechNode reported the company was aiming to raise as much as $504 million by offering 36 million ADS at $12 to $14 per share.
On Wednesday, the company lowered its target range to $9 to $10 per share with a goal to sell 26 million ADS, cutting the target by almost half.
One Connect will begin trading on the New York Stock Exchange under the symbol “OCFT” on Friday.
One Connect did not immediately respond to TechNode’s request for comment.

Fintech firm One Connect plans to raise $468 million in downsized IPO

Context: One Connect focuses on providing financial technology solutions to small- and mid-sized financial institutions. The company, also backed by SoftBank’s Vision Fund, has become one of the largest commercial blockchain platform operators in recent years.

According to its filings to the US regulator, One Connect’s losses widened to more than RMB 1 billion for the first nine months of this year from RMB 579 million in the same period a year earlier.

Revenue from Tencent’s ‘PUBG Mobile,’ ‘Peacekeeper Elite’ surpasses $1.5 billion

Tony Xu — Fri, 13 Dec 2019 03:49:57 +0000

Tencent’s mobile battle royale titles “PlayerUnknown’s Battlegrounds Mobile” (PUBG Mobile) and its Chinese rebrand “Peacekeeper Elite” have raked in more than $1.50 billion since launch, according to analytics firm Sensor Tower.

Why it matters: Smartphone games continue to power growth for Tencent’s gaming business, which started to recover in the third quarter, growing 11% year on year.

Revenue from mobile games in the third quarter grew 25% year on year, accounting for 85% of the company’s online games revenue.

Tencent scraps ‘PUBG Mobile,’ replaces it with more compliant ‘Game for Peace’

Details: The two titles, which are seen as the same game adapted for different markets, generated more than $1.3 billion, or 88% of its lifetime revenue in 2019 to date.

Launched in China in May, Peacekeeper Elite, also known as “Game for Peace,” grossed a total of $614 million on Apple’s China App Store so far, accounting for close to 41% of the total revenue from the two titles.
The US market contributed $293 million across Apple’s App Store and Google Play, or about 20% of the total revenue. Japan ranked third with $117 million.
Player spending across the two titles has grown sequentially in every quarter this year, reaching a fresh high of $496 million in the third quarter.
PUBG Mobile and Peacekeeper Elite together racked up nearly 555 million downloads worldwide, with 21% coming from India and 19% from China. PUBG Mobile’s official Twitter account, however, said in December that PUBG Mobile alone surpassed 600 million downloads.
The revenue figure makes the two titles the highest-grossing shooter game on mobile. In comparison, NetEase’s battle royale title “Knives Out” earned $915 million across iOS and Google Play since its November 2017 launch, whereas Epic Games’ “Fortnite” grossed $838 million from just the App Store to date since its March 2018 launch.

Context: PUBG Mobile started beta testing in China in February 2018 but had been unable to acquire a license due to a country-wide game approval freeze and tightened regulations implemented in April, leaving the company unable to monetize the game.

In May, Tencent scrapped PUBG Mobile and relaunched it as patriotic-themed Peacekeeper Elite, which was approved in April. The new version of the game raked in $14 million within 72 hours of launch.

Chinese co-working giant Ucommune files for US IPO

Emma Lee — Thu, 12 Dec 2019 04:18:48 +0000

Ucommune, China’s largest co-working space operator, filed with the US securities regulator on Wednesday for a listing on the New York Stock Exchange.

Why it matters: Ucommune’s filing follows months after US-based WeWork’s failed plans for an initial public offering (IPO) triggered widespread investor concern over profitability prospects of the co-working model.

With the lion’s share of its operations in China, Ucommune faces competition from WeWork, which has expanded aggressively since first entering the market in 2017.
Local players like Kr Space and MyDreamPlus add to the crowded playing field in China’s co-working industry.

Details: Haitong International and China Renaissance are lead underwriters for the IPO, but the preliminary filing did not offer details on the size of the offering.

The company plans to list under the ticker symbol “UK.”
Ucommune runs 197 spaces across 42 cities in greater China—which includes Hong Kong—and Singapore as of September 2019, according to its prospectus. In contrast, WeWork operates 120 spaces across 12 cities in greater China, around 15% of its global total.
Ucommune said it has 584,600 individual members and 25,000 business members as of September this year.
In addition to its “self-operated” model where the firm serves as a secondary landlord, Ucommune also runs an asset-light model, including space design, building, and management services.
The asset-light business operates 39 spaces, and the unit has turned an operating profit in both 2018 and the nine months ended September 2019, according to Ucommune.
Revenue rose 209.9% to RMB 874.6 million ($122.4 million) for the nine months ended September 2019 from RMB 282.2 million the same period a year earlier.
The company’s net loss reached RMB 573 million (around $80 million) in the first nine months of this year, up from RMB 445 million in 2018 and RMB 373 million in 2017.
To compare, WeWork generated a $900 million net loss in the six months ended June 30, on revenue of $1.54 billion earned during the same period.
Ucommune is an investor in TechNode.

Context: Riding high on China’s shared space boom, Ucommune has been an investor darling since its inception. The firm has closed a total of 11 funding rounds, raising a combined $704.4 million investment, according to startup database Crunchbase.

Founded in 2015 by Chinese real estate veteran Mao Daqing, Ucommune fared well during widespread market consolidation in China’s co-working space which began in 2017.
The firm acquired a group of smaller co-working spaces in 2018 including Fountown, Wedo, Woo Space, New Space, and Workingdom.

China’s GPS challenger, Beidou, to be completed by 2020

Eliza Gkritsi — Wed, 11 Dec 2019 08:18:36 +0000

China’s version of the Global Positioning System (GPS), called Beidou, will be completed by the end of the year, according to its website, as the country works to close the technological gap with the US and improve its domestic technology capabilities.

Why it matters: Beidou is China’s attempt to compete with US leadership in the navigation services market, as well as a strategic attempt to minimize China’s reliance on US technology in case of disputes.

China is promoting the system to countries that participate in its Belt and Road Initiative.

Details: The news was first announced by the Chinese delegation at the United Nations International Committee on Global Satellite Navigation Systems in Bangalore on Dec. 8. China’s effort for a homegrown version of GPS started in 2000 and comprises three satellite networks. Beidou-3 is the first to provide global navigation services and the latest to be rolled out.

The final satellite launches and the core constellation system for the network will be completed by 2020, and the system will be ready for global rollout.
A total of 35 satellites positioned at different orbits will form Beidou-3, team members said in April.

Context: Beidou is operated by China’s National Space Administration. The first satellite for the Beidou-3 program was launched on March 15, 2015 and geolocation services from Beidou-3 became available to the Asia-Pacific region in December 2018, ahead of the originally planned date in 2020.

The first two iterations of the geolocation system, Beidou-1 only provided location services in China and Beidou-2 in the Asia-Pacific region.
The global market for navigation services reached $39.7 billion in 2017, according to US market research firm Grand View Research.

China orders state offices to replace foreign computers, software: report

Wei Sheng — Mon, 09 Dec 2019 10:19:04 +0000

Beijing has ordered the offices for all government agencies and public institutions to remove foreign computer equipment and software from their offices within three years, the Financial Times reported.

Why it matters: The government directive, which comes as Washington attempts to limit the use of Chinese technology and is cracking down on some of China’s biggest tech companies including telecommunications equipment maker Huawei and artificial intelligence firm SenseTime, is likely to be a blow to US tech firms such as HP, Dell, and Microsoft.

The move is a part of broader efforts from Beijing to push for reliance on homegrown technologies and mobilize public and private sectors to support domestic tech companies.
The US has also been trying to exclude Chinese players, including Huawei and its rival ZTE, from the country’s telecommunications market citing national security risks.

Details: It is estimated that 20 million to 30 million pieces of foreign-made hardware will need to be replaced, and that the process will begin next year, said the Financial Times report, citing unnamed analysts at state-backed broker China Securities.

The analysts said that around 30% of the hardware will be substituted with Chinese-made products in 2020, 50% in 2021, and 20% the year after.
The order came from the ruling Chinese Communist Party’s Central Office earlier this year, said the analysts.
Analysts are also skeptical about whether China can find appropriate alternatives to software and operating systems such as Microsoft’s Windows and Apple’s macOS.
China’s homegrown desktop operating systems, such as the Kylin OS, has a limited ecosystem of developers producing compatible software, said the report.
It is also challenging to define “domestically made” hardware and software, the report said, citing as an example products made by Chinese-owned personal computer manufacturer Lenovo, which use processor chips by Intel and hard drives made by South Korea’s Samsung.

Context: Smartphone and laptop maker Huawei announced its in-house operating system, the HarmonyOS, in August in August as a response to the US government’s blacklisting of the company.

The company hasn’t decided to run the system on its handsets because of the lack of a mobile application ecosystem.

Facebook sues Chinese nationals for hacking accounts, spreading ads

Chris Udemans — Mon, 09 Dec 2019 03:46:27 +0000

Facebook is suing two Chinese nationals and a Hong Kong-based advertising agency for allegedly using the platform to deceive internet users into installing malware, allowing them to compromise “hundreds of thousands” of social media accounts to run ads for counterfeit goods.

Why it matters: The lawsuit is not the first the social media giant has filed this year against a Hong Kong company.

In August, Facebook sued an app developer in the city for implanting malware into Android apps that created fake clicks on the social network’s ads for financial gain.
Meanwhile, the company has been attempting to repair its battered reputation following the privacy issues that arose from the Cambridge Analytica scandal.

Details: Facebook has filed the lawsuit against ILikeAd Media International Company Ltd., as well as Chinese nationals Chen Xiaocong and Huang Tao for creating and distributing the malware.

Facebook said ILikeAd used images of celebrities in their ads to entice people to click on them, a practice known as “celeb bait.”
The social media giant also alleges that the defendants made use of a practice known as cloaking, which disguises an ad’s destination link in order to get around the company’s ad review protocols.
Facebook said the campaign began as early as 2016 and continued to August 2019.
The company said that since April it has been notifying “hundreds of thousands” of users that their accounts may have been compromised.
Facebook is seeking an injunction to stop ILikeAd from abusing its platform, as well as damages.

“Cloaking schemes are often sophisticated and well organized, making the individuals and organizations behind them difficult to identify and hold accountable. As a result, there have not been many legal actions of this kind.”

—Facebook in a statement

Context: In August, Facebook sued Hong Kong-based app developer LionMobi for “click injection fraud,” allowing the company to profit from fake clicks on ads displayed on a smartphone.

Facebook’s complaint was also lodged against Singapore-based developer JediMobi.
Both companies were banned from Facebook’s Audience Network, which allows advertisers to extend their campaigns across the internet and into apps.

Drone maker Ehang sets terms for US IPO, seeking $46 million

Wei Sheng — Fri, 06 Dec 2019 07:30:50 +0000

Chinese drone maker Ehang seeks to raise up to $46.4 million in its US listing, according to company filings, less than half of the $100 million placeholder used when it filed its application in late October.

Why it matters: Founded in 2014, the Guangzhou-based company specializes in commercial and aerial photography drones, and was the first to receive a license to test unmanned aerial passenger vehicles in China.

In consumer drones, it is dwarfed by Shenzhen-based DJI, which is the world’s largest civilian drone maker and plans to go public in either Hong Kong or mainland China, according to Reuters.

Details: Ehang’s market capitalization could reach $742 million through its initial public offering (IPO) of 3.2 million American depositary shares (ADS) at a price range of $12.5 to $14.5 offered on Nasdaq, according to its renewed Form F-1 filed with the Securities and Exchange Commission on Thursday.

Insiders including company CEO Hu Zhihua and co-founder Xiao Shangwen intend to purchase up to a total of $7 million worth of ADS in the offering.
The company plans to trade under the ticket of “EH” on Nasdaq.
In a previous version of the filing, Ehang set a placeholder of $100 million, more than double the size of the new target raise. An Ehang representative declined to comment, citing the company’s quiet period ahead of the IPO.

Context: The company filed its IPO application on Oct. 31, joining a wave of Chinese IPOs on US markets during the month.

The company delayed its listing plans in April after lukewarm investor interest, according to Reuters.
Ehang was valued at $420 million in its latest fundraise, a Series B backed by GGV Capital, Zhen Fund, and others in August 2015.
Chinese drones are facing fierce criticism from US authorities, who introduced in September a bill barring federal agencies from buying drones with China-made equipment.

AV startup AutoX applies for permits to test fully self-driving cars in California

Jill Shen — Thu, 05 Dec 2019 10:19:02 +0000

Chinese self-driving startup AutoX has applied to test autonomous vehicles (AV) without human safety drivers in California, Reuters has reported.

Why it matters: AutoX’s move is the latest example of Chinese autonomous driving companies stepping onto the global stage in the race for dominance in driverless mobility. AutoX is seeking to leapfrog its domestic rivals Pony.ai and WeRide, both of which have reached the 1 million-kilometer fully autonomous test drive mark in November.

AutoX declined to disclose the number of kilometers its fully autonomous cars have test driven.

Details: AutoX has applied to the California Department of Motor Vehicles (DMV) for a permit to test self-driving cars on public roads without human safety drivers present, the company’s chief operating officer Jewel Li confirmed to Reuters on Thursday.

The permit would allow the company to operate its autonomous cars without a human safety driver in each vehicle, but requires a remote operator for emergency system intervention.
The state of California began accepting applications for the fully driverless vehicle tests on public roads beginning April 2018. Waymo was the first and is currently the only company that has been granted a permit. It tests about three dozen vehicles without human drivers in a designated area in Mountain View, Calif.
AutoX in September revealed plans to launch a fleet of 100 self-driving cars in the outskirts of Shanghai by the end of year or early 2020, as reported by TechNode. No progress has been made in government approval, people close to the matter told TechNode on Thursday.
The company said that it hopes to launch a robotaxi pilot service in Shanghai early next year, as well as in a number of other domestic cities including Shenzhen. The company added that it will soon expand the size of its fleet, but did not reveal additional details.
Several industry insiders TechNode spoke with said they believed for AutoX to gain approval would prove to be, in the words of one person, “super difficult,” as regulations in California are very strict.
AutoX and Pony.ai are two of the only four self-driving companies in California which have gained approval to offer self-driving rides to the public with a human driver behind the wheel.
Pony.ai declined to comment on whether it had applied for fully driverless tests in California.

Context: Founded by Xiao Jianxiong, a former Princeton University assistant professor, three-year-old AutoX announced in September that it had closed its $100 million Series A led by China’s second largest automaker, Dongfeng Motor, in September.

Other investors included Silicon Valley’s Plug and Play China fund, and Alibaba Entrepreneurs Fund, a Hong Kong and Taiwan-based investment program launched by the e-commerce giant.
Guangzhou-based AV startup WeRide announced the launch of its robotaxi pilot service with a fleet of 20 Nissan cars in Guangzhou Science City, an area 144.7 square kilometers (around 55.8 square miles) in size.
Pony.ai partnered with Korean automaker Hyundai and mobility firm Via to transport passengers in Irvine, Calif. starting this month. The company told TechNode that it averages more than 70 rides every day and had completed 1,271 orders as of end-November.

AutoX to launch 100 robotaxis in Shanghai by year-end, challenging Didi

Huawei sues FCC over a federal subsidy ban, calling it ‘unconstitutional’

Wei Sheng — Thu, 05 Dec 2019 04:11:48 +0000

Huawei has filed a lawsuit against a top US telecommunications regulator over its decision last week to bar state-subsidized carriers from buying equipment from the Chinese company, Huawei chief legal officer Song Liuping announced Thursday.

Why it matters: Huawei has filed a number of lawsuits challenging the US government’s attempts to exclude it from the country’s telecom market, though they are widely considered a component of a global public relations campaign.

The company is pursuing legal action against an array of overseas critics including a French researcher and a small newspaper in Lithuania, and has threatened to sue the government of the Czech Republic for claiming that the company’s smartphones are insecure, according to the Wall Street Journal.
The US government has banned from its 5G network rollout any equipment made by the Shenzhen-based company, the world’s largest telecommunications equipment maker, and in May added it to a trade blacklist.

Details: Huawei filed a lawsuit on Thursday with the Fifth Circuit Court of Appeals in New Orleans against the US Federal Communications Commission (FCC) over an order that bars US carriers receiving federal subsidies from purchasing equipment from Huawei and its rival ZTE, Song announced at a press conference at Huawei’s headquarters in Shenzhen.

The company argues that the FCC order, which the agency unanimously approved on Nov. 23, violates the US Constitution and the Administrative Procedure Act.
The order could potentially eliminate Huawei’s sales to rural carriers that receive federal subsidies and seek lower-cost equipment from the company. Song claimed that the FCC decision would “harm their interests.”
“The FCC claimed Huawei is a national security threat, but the FCC chairman Ajit Pai didn’t provide any evidence,” Song said, adding that the US government had never provided any evidence that Huawei posed a threat. “That’s because such evidence doesn’t exist,” he added.
“The FCC’s order violates the US Constitution, and we have no choice but to take legal actions,” Song said.
Glen Nager, a partner at law firm Jones Day which represents Huawei in the case, claimed that FCC has no authority to determine whether a company poses a national security threat.

“It’s simply shameful pre-judgment of the worst kind. The rule of law, to which the United States proudly adheres, does not permit this kind of arbitrary and unfair action by a government agency. Under the rule of law in the United States, agencies have to have legal authority for taking actions, they actually have to have actual evidence for the facts that they purport to find.”

— Glen Nager, lead counsel for Huawei and partner at Jones Day

Context: In March, Huawei filed a lawsuit against the US government over a law that prohibits federal agencies from using its equipment.

The lawsuit, which was filed with the US District Court for the Eastern District of Texas, seeks to overturn a provision in the National Defense Authorization Act (NDAA), which bans US government agencies from using equipment from Huawei.
In May, Huawei filed a motion requesting the court to rule in its favor in reference to the March lawsuit.
The company filed last month three defamation claims in Paris over comments made during television programs by a French researcher, a broadcast journalist, and a telecommunications sector expert.
Earlier November, Huawei claimed that a Lithuanian court had ordered a local newspaper to retract a story that said Huawei equipment was involved in a data transaction from the African Union to servers in China.

US could revive plan to ban Huawei from its financial system: report

Wei Sheng — Wed, 04 Dec 2019 05:25:02 +0000

Huawei logo on Sept. 5, 2019 in Beijing. (Image credit: TechNode/Coco Gao) Credit: TechNode/Coco Gao

The Trump administration may reconsider a stalled plan that would ban Chinese telecommunications equipment maker Huawei from the US financial system, Reuters reported on Tuesday, citing a person familiar with the matter.

Why it matters: The potential move could adversely affect Huawei’s overseas businesses, including its telecommunications equipment and smartphone segments, since almost all dollar payments clear through the US banking system.

Details: White House considered adding Huawei to the Treasury Department’s Specially Designated Nationals (SDN) list earlier this year as part of its sanctions against the company, said Reuters citing three people familiar with the matter.

The plan was ultimately shelved but one of the sources said it could be reconsidered in the coming months depending on how things go with Huawei.
The plan was considered by the White House National Security Council and seen by officials as a nuclear option to sanction Huawei, said two of the people.
White House officials drafted a memo and held interagency meetings on the issue, said one person.
Entities on the SDN list include Russia’s Rusal, the world’s second-largest aluminum company, some Russian oligarchs, Iranian politicians, and Venezuelan drug traffickers.
Huawei not respond to TechNode’s request for comment on Wednesday.

Context: In May, the Trump administration added Huawei on a commerce department “Entity List,” barring the company from importing components and technology from American companies without US government approvals.

Huawei was given three 90-day grace periods after the ban was implemented, with the latest to end in February 2020.
The sanctions against Huawei are often regarded as a bargaining chip for the Trump administration in its ongoing trade talks with China.
The SDN list is a revere financial restriction that bars US citizens and residents from trading or conducting financial transactions with named entities, and freezes all related assets held in the US.

Fintech firm One Connect plans to raise $468 million in downsized IPO

Nicole Jao — Tue, 03 Dec 2019 05:44:38 +0000

Ping An’s fintech arm One Connect Financial Technology said on Monday that it is aiming to raise $468 million in its US listing, a significant markdown from the previously reported $1 billion target.

Why it matters: One Connect is eyeing a valuation well below last year’s $7.5 billion in what may potentially be a “down round,” or a decrease in valuation following a new investment, considered rare among technology firms, according to media reports.

Details: The Shenzhen-based One Connect plans to offer 36 million American depositary shares (ADS) at a price range of $12 to $14 for a total of $4.9 billion at the midpoint of the range, according to Renaissance Capital.

The firm plans to list on the New York Stock Exchange under the ticker symbol “OCFT.”
Goldman Sachs, JP Morgan, and Morgan Stanley are among the eight main banks underwriting the deal.
The long-awaited initial public offering (IPO) is expected to be priced on Dec. 12. The company’s IPO has been in the works since the start of the year.
One Connect did not immediately respond to TechNode’s request for comment.

Context: One Connect focuses on providing financial technology solutions to small- and mid-sized financial institutions. It is an instrumental part of Ping An’s ongoing efforts to transform into a technology-driven company. The company in recent years has become one of the largest commercial blockchain platform operators.

According to the company’s amended filing to the US Securities and Exchange Commission (SEC), One Connect’s losses for 2019 widened to more than RMB 1 billion for the first nine months of this year from RMB 579 million in 2018.
One Connect had previously planned to raise $1 billion in Hong Kong at a valuation of about $8 billion. It changed the listing destination to New York from Hong Kong in June, hoping to achieve a higher valuation. New York, considered home to more mature markets, was a more attractive choice amid the trade tensions between China and the US and the months-long protests in Hong Kong.

Chinese manufacturer tests advanced military drone: report

Eliza Gkritsi — Fri, 29 Nov 2019 09:55:34 +0000

(Image credit: BigStock/Principal)

A Chinese drone manufacturer is testing reconnaissance and strike drones designed for use in cities, according to a South China Morning Post report on Thursday.

Why it matters: This is likely the first made-in-China unmanned aerial vehicle (UAV) and one of the few in the world that can carry out attacks and reconnaissance missions in densely populated urban environments, signaling that China is catching up with the US and Israel in defense drone technology.

Details: The Tianyi quadcopter is designed by Tianjin Zhongwei Aerospace Data System Technology, an aerospace corporation based in northeastern China that also makes radar systems for government and civilian use, according to the report which cites an article in Modern Weaponry, a Chinese defense magazine.

It is capable of navigating “asymmetric combat, counter-terrorism and special forces [operations] and street battles” and it can carry out close-range strikes, the Modern Weaponry report said.
The multi-rotor drone weighs 38 kilograms (around 84 pounds) and has a maximum flight altitude of 600 meters (around 0.37 miles), can carry two shells and strike up to a kilometer (0.6 miles) away, according to the report (in Chinese).

Context: Little is known about specific models and applications for defense drones. The People’s Liberation Army showcased its progress in drone technology during China’s 70th Anniversary parade held in Beijing during the Oct. 1 to 7 national holiday, but the most advanced drones are shrouded in secrecy.

Military UAVs is another area in which the US and China are sparring. In March 2018, US President Trump was reportedly trying to relax export restrictions on military drones, to compete with China and Israel.
Israel’s ongoing conflicts within its borders has fostered its leadership in defense drone technology. A 2019 report by the Israeli Ministry of Economy and Industry found that drones account for 10% of Israel’s total exports of military equipment, which in 2018 totaled $7.5 billion.
China has been stepping up its exports of military drones to the Middle East and Africa, where the US and Israeli military equipment is a harder sell because of political tensions. Beijing placed export restrictions on military UAVs the next year, citing “national security concerns.”

Bytedance moves to separate TikTok from its Chinese operations

Tony Xu — Wed, 27 Nov 2019 11:27:06 +0000

Bytedance has stepped up efforts to separate short video platform TikTok from its Chinese operations as a US national security panel scrutinizes data safety on the app, Reuters reported.

Why it matters: Several US lawmakers, such as US Senate Minority Leader Chuck Schumer and Republican Senator John Hawley, have been raising questions about TikTok’s content filtering practices as well as the potential national security risks it poses as a Chinese company.

TikTok said it stores all US user data in the US with backups in Singapore.
The company also stated that it hasn’t and wouldn’t remove content at the request of the Chinese government.

Details: Bytedance is seeking to reassure the Committee on Foreign Investment in the United States (CFIUS), which launched the probe to investigate TikTok’s 2017 acquisition of Musical.ly earlier this month, that personal data on TikTok won’t be compromised by Chinese authorities.

Bytedance started separating TikTok operationally before the probe to enable some of its staff to better focus on TikTok, according to the report citing people familiar with the matter.
The Beijing-based company also finished separating TikTok’s product and business development, marketing, and legal teams from those of Douyin in the third quarter.
Since CFIUS launched the probe, TikTok has been pushing to set up a team in Mountain View, California, to oversee data management. The team will have control over whether Chinese-based engineers have access to TikTok’s database , and will be able to monitor their activity.
TikTok is also hiring US engineers to become less dependent on Bytedance employees in China.
The CFIUS probe is currently focused on TikTok’s handling of personal data, not censorship.

Context: TikTok has repeatedly denied claims that it censors content deemed politically sensitive by the Chinese government, yet former employees of the company have said otherwise.

Former employees of the company said they had to follow content moderation rules set by managers in Beijing, who routinely ignored their requests not to block or penalize sensitive content.
TikTok US general manager Vanessa Pappas, however, told the Washington Post that the company is no longer using a universal set of standards for content moderation, adding that her California-based team is managing the US market.

XAG unveils delivery drone developed with Airbus

Eliza Gkritsi — Wed, 27 Nov 2019 04:27:42 +0000

XAG co-founder Justin Gong handing out food delivered by the “Project Vesper” at XAG’s headquarters in Guangzhou on Monday, Nov. 25, 2019. (Image credit: XAG)

Drone maker XAG unveiled a new cargo delivery drone in a test flight on Monday at its headquarters in Guangzhou, a project developed in collaboration with Airbus, the world’s second-largest aviation manufacturer.

Why it matters: The “Project Vesper” initiative brings a global aerospace heavyweight into the already-crowded race for automating China’s delivery services.

The project marks a shift for XAG, which had targeted agriculture applications for its unmanned aerial vehicles and internet of things (IoT) solutions.

Details: The drone flew 1.6 kilometers (around 1 mile) in 3 minutes, from a nearby restaurant to a terrace on the top floor of XAG’s headquarters, three stories up. It delivered noodles and rice in a box similar to those widely used by food delivery drivers as the crowd gathered for the event cheered.

The drone can lift up to 4 kilograms (8.8 pounds) of payload and travel at 12 meters per second.
XAG has been granted a license from the Guangzhou government to run a trial in the area near its headquarters. Customers can use a special WeChat mini-program to order food from a noodle shop.
The drone requires a carrier box to execute deliveries.
The drone is only part of XAG’s vision for the future of deliveries, Gong said during the event. The company hopes to build infrastructure for food and cargo delivery drones in the world’s urban centers, much like Airbus’s air traffic control infrastructure, so that drones can be a “public transit facility” that runs on a schedule.
The companies began discussions on collaboration in September 2018, and the agreement was signed in July at the World Economic Forum in the northeastern city of Dalian, China.

Context: Other companies have run similar trials in the past both in China and the US. In China, most major players developing such technologies are software and logistics companies, with millions of delivery orders at hand, and lack expertise in aeronautics and hardware.

JD won the first license granted in China to pilot drone deliveries in February 2018. Alibaba’s Ele.me tested drones for food delivery in May 2018 in Hangzhou. Hangzhou-based startup Antwork, which in July demonstrated KFC deliveries using drones, is valued at $300 million.
In the US, Amazon has been developing drones for six years and Alphabet subsidiary Wing is testing drug prescription deliveries with Walgreens and package delivery with FedEx.

Amazon marketplace resurfaces in China with store on Pinduoduo

Emma Lee — Sun, 24 Nov 2019 13:18:07 +0000

Amazon will launch a storefront on Chinese social e-commerce platform Pinduoduo, people familiar with the matter told TechNode on Sunday.

Why it matters: While Amazon appeared to have drawn down its business in China earlier this year amid fierce competition with rivals such as Alibaba and JD.com, a partnership with e-commerce upstart Pinduoduo could help the US e-commerce giant to retain a presence in one of the world’s biggest consumer markets.

The deal grants Amazon access to Pinduoduo’s 429.6 million monthly active users.
A tie-up with Amazon, meanwhile, would be important for Pinduoduo to build a relationship with overseas retailers as well as expand its product categories. This could be particularly critical for the Tencent-backed social e-commerce app, which is feeling the squeeze from “forced exclusivity” in competition with other marketplaces for sellers.
The Amazon brand helps boost Pinduoduo’s reputation as a platform for bargain-hunters as it moves to expand its presence in higher-tier markets.
Pinduoduo’s users from first-tier cities spend well over RMB 5,000 ($710) per year, based on annualized figures for the third quarter of 2019, company founder and CEO Colin Huang has said.

Details: The new storefront will launch Sunday evening at midnight, according to the source.

Context: Amazon announced in April that the company would be shutting down its China e-commerce marketplace to sharpen focus on its cross-border selling and cloud computing service businesses in the country.

Amazon China held less than 1% share of China’s total e-commerce market as of June 2018, according to market research institute eMarketer (in Chinese).
“Amazon’s commitment to China remains strong,” the company said in a statement in response to the withdrawal in April.
Pinduoduo posted weaker-than-expected third quarter earnings on Wednesday due to slowed revenue growth and wider losses, specifically citing heightened forced exclusivity practices in the industry.

Outpaced by local rivals, Amazon struggles to remain relevant in China

Y Combinator ends plans for China accelerator

Eliza Gkritsi — Fri, 22 Nov 2019 04:24:15 +0000

Y Combinator (YC), the Silicon Valley seed accelerator behind Airbnb, Reddit, and Dropbox, has abandoned plans to build a China accelerator, it announced yesterday, ending its formal collaboration with former Baidu executive Lu Qi.

Why it matters: The China branch would have been Y Combinator’s first overseas expansion, offering an opportunity for Chinese entrepreneurs to build companies from the ground up with one of the world’s most successful team of consultants.

Details: A recent change in leadership made YC rethink its strategy and return to its “tried and true approach of supporting local and international startups” from its headquarters in Silicon Valley, it said in a statement.

Sam Altman stepped down as president in May 2019 and was replaced by Geoff Ralston, a former c-level executive at Yahoo.
Lu will shift his efforts to another program called MiraclePlus, and remains someone that “YC will support and collaborate with for years to come.”
A representative confirmed to TechCrunch that YC will have “no involvement with MiraclePlus or Qi Lu whatsoever, and that the company will no longer have any local presence in China at all.”
The announcement doesn’t say whether Lu will continue to head YC Research, the accelerator’s non-profit lab, a position he assumed along with his role as YC China’s founding CEO. However, language in the statement indicates that Lu will end all collaboration with YC.

Context: Y Combinator announced in August 2018 its plans to open a program in China. Former Microsoft and Baidu executive Lu was to head the effort.

There was little indication about the location, timeline, and investment into the venture. “China has been an important missing piece of our puzzle,” Sam Altman said in 2018, and Y Combinator would be building “a long-term local organization that will combine the best of Silicon Valley and China.”
Combined valuations for YC’s top companies exceeds $155 billion and it has worked with 102 companies that are now worth more than $150 million each, according to its website.

Y Combinator is officially coming to China

Chinese mining rig maker Canaan Inc. raises $90 million in US IPO

Nicole Jao — Fri, 22 Nov 2019 03:43:46 +0000

After a volatile market debut on Nasdaq, Hangzhou-based cryptocurrency mining rig maker Canaan Inc. raised $90 million on Thursday, falling short of its $100 million target.

Why it matters: Canaan was the first major bitcoin mining rig marker to list on the public markets, and its initial public offering (IPO) was seen as a bellwether for other Chinese blockchain startups.

Several blockchain startups from China were expected to go public in the US and Hong Kong this year, but many have delayed or even scrapped their plans due to the sluggish cryptocurrency market in the first half of 2019.
The crypto market has been showing signs of thawing over the past few months, prompting some Chinese blockchain companies, including Ping An’s fintech arm OneConnect and mining rig maker Bitmain, to revive their IPO plans.

Details: Canaan priced its shares at $9 each, at the low end of the expected range, and raised $90 million, missing its $100 million target which had been a drastic downsize from its original $400 million goal.

The company’s shares popped within the first hour of trading, but soon after fell below its offering price and closed at $8.99.
Weeks before its IPO, the company lost one of its lead underwriters, Credit Suisse, and downsized its fundraising target.
This is the third market that Canaan has filed an application to, after scrapping its plans for IPOs in Hong Kong and mainland China.

Context: Founded in 2013, Hangzhou-based Canaan specializes in blockchain servers and ASIC microprocessor solutions for bitcoin mining use. The company said in its prospectus that it is the second-largest mining machine maker in the world after Bitmain in terms of computing power, according to consulting firm Frost & Sullivan.

Canaan’s performance has been heavily influenced by bitcoin prices, which slumped in early 2018 and remained lackluster into the first half of 2019. Its sales fell 96% in the first quarter, according to a report by Renaissance Capital.
The company booked $177 million in sales for the 12 months ended September 2019.

Chinese blockchain unicorns Canaan, OneConnect file for US IPOs

Senate bill would ban TikTok, Apple from storing US user data in China

Eliza Gkritsi — Tue, 19 Nov 2019 10:08:37 +0000

A bill introduced to the US Senate on Monday could make it illegal for internet companies to transfer American user data and encryption keys to China, in an effort to prevent user data leaks to the Chinese government.

Why it matters: If passed, the bill introduced by Republican Senator Josh Hawley would be the first to ban tech companies from storing US user data in China citing national security concerns.

In a statement announcing the bill, Hawley singled out Apple and TikTok, two companies which only two weeks ago declined to testify at a Congressional hearing on their data transfer practices to China.
This could mean trouble for companies which operate in China, which are required to store Chinese user data in the country.

“If your child uses TikTok, there’s a chance the Chinese Communist Party knows where they are, what they look like, what their voices sound like, and what they’re watching. That’s a feature TikTok doesn’t advertise.”

—Senator Josh Hawley

Details: The bill would also stop Chinese companies from collecting non-essential data from US citizens.

Hawley also wants the US Committee on Foreign Investment (CFIUS) to pre-approve any acquisition of US tech companies by Chinese businesses.
The bill also singles out Russia as a “country of concern.”

Context: Hawley held a congressional hearing Nov. 5 exploring security risks brought by social media platforms and their ties to Beijing. Executives from Apple and TikTok declined to attend.

TikTok has said that all of the data from its American users is stored in the US.
Just a day before the hearing was set to take place, CFIUS opened an investigation in TikTok’s parent company Bytedance’s 2017 acquisition of Musical.y.
Apple had to comply with Chinese data localization laws, which prohibits storing Chinese user data abroad, and partnered with a Chinese company to continue operating its iCloud service. Critics say that Beijing can force Apple’s local partner to hand over these encryption keys, which could open access to US user data as well. Apple said that it has control over the encryption keys, not its partner.
TikTok is reportedly more popular than Facebook among young Americans, surpassed by only Facebook’s WhatsApp and Messenger in number of downloads this year.

TikTok declines to testify to Congress about China ties

US failed to halt Chinese theft of academic research: report

Eliza Gkritsi — Tue, 19 Nov 2019 05:19:43 +0000

Chinese and American flags during US Army Chief visit to the People’s Liberation Army in Beijing, 2014. (Image credit: Wikimedia Commons/Sgt Mikki Sprenkle)

The US is failing to respond to China’s efforts to lure talent and appropriate industrial secrets from American universities, according to a report from a US Senate subcommittee published Monday which took aim at federal agencies and research institutions.

Why it matters: International cooperation and talent flow in academia has been a main source of contention in the US-China trade war.

Details: The United States Senate’s Permanent Subcommittee on Investigations (PSI) blasted federal agencies like the FBI for their lack of effectiveness, and academic institutions for lack of leadership in assessing conflicts of interest. Washington is failing to halt China’s ambitious plans to steal US technology and talent, and lacks a “comprehensive strategy to combat this threat,” the report said.

The inherent openness of fundamental research, such as physics, means that the federal agencies have “limited means to thwart China’s extralegal activities,” and this openness must be reassessed.
The PSI said multiple federal agencies have not taken adequately addressed the threat of Chinese academic espionage. The NSF, which awards about 25% of all science grants in the US, has not vetted researchers properly to avoid fund misappropriation, the subcommittee said.
The FBI has been slow in responding to Beijing’s efforts. It only identified China’s 2008 Thousand Talents Plan as a “threat vector” in 2015, according to the report.
Recommendations include declassifying information on foreign recruitment plans and distributing it to universities to aid their screening processes, as well as cultivating a “Know Your Collaborator” culture to determine whether their collaboration with overseas nationals serves US interests.
Beijing has pledged to spend 15% of its gross domestic product on improving human capital in the country from 2008 to 2020, said the report citing a 2015 FBI investigation. The subcommittee identified the 2008 Thousand Talents Plan as Beijing’s most concentrated effort to attract foreign talent, which has recruited 7,000 “‘high-end professionals,’ including Nobel laureates.”
China’s Communist Party often makes these recruits sign non-disclosure agreements about their research, thus undermining “US scientific norms of transparency, reciprocity, merit-based competition, and integrity,” and forcing researchers to put Chinese interests first.

“For the Chinese government, international scientific collaboration is not about advancing science, it is to advance China’s national security interests.”

—Senate Permanent Subcommittee on Investigations

Context: Critics have denounced the effect of mounting distrust between the US and China on global academic research.

Chinese researchers in the US have said that they are facing increasing distrust, making them question their relationship with the US.
China continued to be the US’s largest source of foreign students in the 2018-2019 academic year, followed by India and South Korea, according to a report by the Institute of International Education, a non-profit organization that provides research on global education trends.

China became by far the leading source of foreign students in the US following the implementation of the Thousand Talents Plan in 2008. (Image credit: TechNode/Eliza Gkritsi). Data: Institute of International Education

Chinese blockchain unicorns Canaan, OneConnect file for US IPOs

Nicole Jao — Fri, 15 Nov 2019 06:06:30 +0000

OneConnect, the fintech arm of Ping An Insurance, and crypto mining rig maker Canaan have each announced plans to list in the US, following a number of other Chinese tech firms in recent weeks seeking overseas capital.

Why it matters: The pair join the recent influx of Chinese companies filing applications for US listings, which could help boost the flagging US market.

Several promising startups were expected to go public in the US in 2019, but fundraising has been mixed and others scrapped or delayed plans.
Chinese firms such as OneConnect and Canaan are pressing ahead with plans for US public offerings despite ongoing trade tensions.

INSIGHTS | Politics aside, Chinese tech firms pile into US markets

Details: Both initial public offerings (IPOs), if successful, would be a long time in coming. Canaan planned to list in Hong Kong last year but let its application lapse partly due to a slumping cryptocurrency market, according to Reuters. OneConnect also considered going public in the special administrative region in February.

Ping An’s OneConnect, which is also backed by SoftBank’s Vision Fund, specified a placeholder amount of $100 million in a filing on Wednesday. Morgan Stanley, Goldman Sachs, JPMorgan Chase, and Ping An Securities Group are joint bookrunners on the deal.
OneConnect had previously planned to raise $1 billion in Hong Kong at a valuation of about $8 billion.
Hangzhou-based Canaan is planning to raise $100 million by listing at the end of the month, according to Renaissance Capital, down from its original $400 million offering plan in October.
The firm is planning a Nov. 20 debut on Nasdaq, with 10 million American depositary shares (ADS) offered at $9 to $11 per share. Canaan could potentially have a fully diluted market value of $1.6 billion and an enterprise value of $1.4 billion based on the midpoint of the proposed range.
China Renaissance, Citi Group, and CMB International Capital are joint bookrunners, while Credit Suisse will no longer act as primary underwriter.

Context: Both companies have reported losses this year.

For the first nine months of 2019, OneConnect booked a net loss of $147 million against revenue of $218 million. The company posted an $82 million net loss against earnings of $128 million for the same period in 2018.
Canaan also posted a loss of $45.8 million and net revenue of $42.1 million in the first six months of the year. In the first half of 2018, the company posted a profit of $25 million and net revenue of $275 million.

China’s focus on AI advancement could unseat US leadership: committee

Chris Udemans — Fri, 15 Nov 2019 05:03:14 +0000

A US congressional advisory body has warned that China’s focus on developing artificial intelligence (AI) could have marked effects on the global economic and military balance, shifting the seat of power from America to China.

Why it matters: Beijing has set ambitious goals to become a world leader in AI by 2030. Sensetime, the world’s most valuable AI startup, comes from China.

Nevertheless, the country faces a slew of challenges in reaching this goal. While China’s internet population generates gargantuan amounts of data that can be used to train an AI, its domestic chipmaking sector, which the AI industry relies on, is largely inferior.
Likewise, China is known for quickly implementing AI applications but lacks talent compared with the US.

“Chinese firms and research institutes are advancing uses of AI that could undermine US economic leadership and provide an asymmetrical advantage in warfare.”

—US-China Economic and Security Review Commission

Details: China is prioritizing AI as it underpins the development of many other technologies, and could lead to “substantial scientific breakthroughs, economic disruption, enduring economic breakthroughs, and rapid changes in military capabilities,” the US-China Economic and Security Review Commission said in its 2019 report released on Thursday.

The commission was set up in 2000 to evaluate the national security implications of economic ties between the US and China.
China’s military strategists see AI as a “breakout technology” that could develop tactics to exploit US vulnerabilities, the report said.
China’s policies on civil-military fusion seeking to leverage private sector innovation for the defense sector are worrisome for the US given the breadth and opacity of the campaign, the commission warned.
Washington is concerned that the close collaboration between China’s military and private sector, which in turn works with US companies, could give China a leg up in a global arms race.
The body highlighted China’s advantages in manufacturing, which could allow the country beat out the US in commercializing mass market and military discoveries made and funded in America.

Context: In the midst of the protracted US-China trade war, several high-profile Chinese AI companies have found themselves in the crosshairs.

In October, the US barred Sensetime, as well as surveillance equipment manufacturer Hikvision and AI firms iFlytek and Yitu, among others, from doing business with American firms, effectively cutting off their supply of US-made components.
Meanwhile, US-based think tank, Center for Data Innovation, has warned that the close ties between China’s military and private sector could hurt the country’s goals of becoming a world AI leader as distrust of companies linked to China’s government grows against the backdrop of US-China trade tensions.

China’s ‘military-civil’ partnerships could hurt its AI ambitions: report

DJI is developing tracking and ID tech to act as ‘license plates for drones’

Eliza Gkritsi — Fri, 15 Nov 2019 03:28:45 +0000

The world’s biggest commercial drone manufacturer DJI revealed on Wednesday that it is developing technology to track and identify drones via smartphone app in a bid to reduce airspace disruption and improve data transparency in the industry.

Why it matters: Unauthorized drones have caused flight delays and and cancellations, costing the airspace industry millions of dollars. American and European authorities are increasingly pushing drone makers for a system to better monitor the technology.

Details: Users of the app will allow be able to identify all drones flying within a certain radius, just as license plates are used for cars, DJI said in a press release (in Chinese).

It is unclear when the app will be made available to the public, as DJI is refining the tool and waiting for mandatory drone identification regulations to kick in next year.
Users can view the position, speed, altitude, and direction of drones on the app, which the company plans to make available for public use.
Drones will transmit wireless broadband signals that the app can read from up to a kilometer away without a cellular network, so it can be used in remote areas, the company said.

“It’s possible to provide this information in a direct drone-to-phone broadcast, without requiring an expensive mobile data connection, an additional transponder on the drone, or other complex tech.”

—DJI spokeswoman to TechNode

Context: The European Aviation Safety Agency will roll out mandatory remote drone tracking and identification regulations in 2020, and the US Federal Aviation Administration is in the process of drafting relevant legislation along with a cohort of industry stakeholders.

The app is compliant with a standard developed by ASTM International, a global technical standards organization, with the consensus of 35 industry players.
London Heathrow, Europe’s busiest airport, has been grounded twice this year due to unauthorized drones been sighted near its airspace. In January, the military was called in to help airport officials and police to investigate a drone sighting. In September, London police threatened protesters with life sentences in order to deter plans to shut down the airport for 24 hours by flying drones at regular intervals in its no-fly zone.
Gatwick airport in London reportedly grounded an excess of 1,000 flights carrying 140,000 passengers during last year’s Christmas holiday season due to unauthorized drones flying near its no-fly zones, the Guardian reported.

Alibaba ends relationship with US bitcoin-based retail startup

Miles Goscha — Thu, 14 Nov 2019 15:42:35 +0000

Just a day after US retail startup Lolli announced a partnership with Alibaba to offer shoppers bitcoin rewards when purchasing items on its marketplaces, the Chinese e-commerce giant has “deactivated the partnership without cause,” according to Lolli.

Why it matters: While Lolli is a US-based startup and the shoppers earning the bitcoin-based rewards are also located in the country, associating Alibaba—one of China’s most prominent tech companies—with the cryptocurrency could have proved risky.

Financial entities in China are prohibited from any dealings involving bitcoin and other cryptocurrency, and fintech giant Ant Financial is an Alibaba affiliate.

Detail: Prior to the statement from Lolli about the termination of the partnership, an Alibaba spokesperson told TechNode that “it does not have any partnership” with the firm and that a previous TechNode story about the partnership “is not true.”

Alibaba Group later characterized its relationship with Lolli as an “affiliate marketing program” brokered by a subcontractor of one of its contractors without the company’s knowledge.
Alibaba also said its “contractor is terminating the relationship with the subcontractor who was working with Lolli,” and that Lolli “never had the right to claim a partnership with Alibaba.com or imply one with Alibaba Group, the parent of Alibaba.com.”
Lolli called the deactivation a “rare and unforeseen occurrence,” but left open the possibility of working with Alibaba in the future. Lolli users can still get bitcoin back when shopping on AliExpress and Alibaba Cloud.

Context: Originally announced on Singles Day, the partnership would have allowed for US-based shoppers to earn up to 5% of their purchases on Alibaba back in bitcoin, with items being shipped from China to the US.

Alibaba, US startup Lolli partner to reward shoppers with bitcoin

China trails US, Europe in quantum computing development: researcher

Miles Goscha — Wed, 13 Nov 2019 15:24:43 +0000

Tencent’s booth at the World Artificial Intelligence Conference on August 30, 2019 in Shanghai. (Image credit: TechNode/Shi Jiayi)

Zhang Shengyu, a prominent researcher at Chinese tech giant Tencent, said that China will not be able to match the US and Europe in quantum computing “within two or three years,” the South China Morning Post reported.

Why it matters: Though commercially viable applications for the technology have yet to materialize, its potential to upend information processing makes quantum computing one of the most highly anticipated computing technologies currently in development.

The global quantum computing market is projected to reach around $5 billion to $10 billion between 2020 and 2025.
China’s quantum “megaproject,” which seeks to achieve breakthroughs by 2030 as part of its 13th five-year plan, indicates Beijing’s interest in becoming competitive in the field despite its domestic industry being significantly younger than that of the US.

“People are always talking about the possible applications, such as in materials, medicine and artificial intelligence. But how to make it a reality is a problem puzzling the world.”

—Zhang Shenyu, Tencent Quantum Lab Director

Details: In comments made on the sidelines of Tencent’s fourth Teng Yun Summit in Beijing, Zhang also said that the US and Europe are outpacing China in “breakthroughs and talent acquisitions.”

Zhang was a professor at the Chinese University of Hong Kong before joining Tencent’s Quantum Lab last January.
The lab was established early last year and “aims to connect fundamental theory with practical applications in the fast-growing sector of quantum information technology,” according to its website.
According to Zhang, Tencent is not pressuring his lab to commercialize its innovations.

Context: According to the report, Chinese tech companies have only been exploring quantum computing for the past few years, compared with US firms like Google and Intel who have been focusing on the technology for significantly longer.

According to the Wall Street Journal, the Chinese government spends at least $2.5 billion a year on quantum research—more than 10 times what the US spends.
China’s $10 billion facility for the National Laboratory for Quantum Information Sciences in Hefei, the capital of eastern Anhui province, is due to open in 2020.
It is part of a larger multi-location quantum information lab that will integrate resources from across the nation.
Scientists at the University of Science and Technology in Hefei recently announced successful experiments with their single photon detector on China’s Micius communication satellite, an important step in achieving functional quantum communication.

China is building a massive multi-location national-level quantum laboratory

US senator warns Army about using TikTok for recruitment

Tony Xu — Wed, 13 Nov 2019 10:18:50 +0000

US Senate Minority Leader Chuck Schumer has raised questions about the US Army’s use of Bytedance short video app TikTok to recruit teenagers, citing potential privacy and national security risks, BuzzFeed News reported.

Why it matters: As one of the fastest-growing apps in the US, lawmakers are scrutinizing TikTok for its content filtering practices and potential security risks associated with Chinese company Bytedance’s ownership.

At the request of Senator Marco Rubio, the Committee on Foreign Investment in the United States on Nov. 2 opened a probe to investigate Bytedance’s acquisition of Musical.ly in 2017.
In October, Senators Schumer and Tom Cotton asked for a separate review of the potential national security risks posed by TikTok.
Republican Senator John Hawley held a congressional hearing on Nov. 5 to explore the privacy and security concerns posed by social platforms such as TikTok, though the company declined to attend.
Bytedance said it hasn’t and wouldn’t remove content even if requested by the Chinese government.

US senators call for national security probe of Bytedance’s TikTok

Details: In a letter to Army Secretary McCarthy dated Nov. 7, Schumer said that while he recognizes the need for the US Army to adapt its recruiting techniques to attract young Americans, it should do so after assessing the potential national security risks associated with Chinese-owned platforms such as TikTok.

In the letter, Schumer cited concerns about TikTok’s collection and handling of user data, such as user communication and location-related data, adding that China has laws that compel companies to support and cooperate with Chinese intelligence work.
Schumer asked whether the Army had consulted with the Department of Homeland Security about the national security risks TikTok and other Chinese-owned social media apps pose as platforms for recruitment.
Schumer also requested that the Army answer whether it had conducted an analysis of alternative recruiting platforms prior to opting for TikTok.

Context: While TikTok has repeatedly denied claims that it censors politically sensitive content, former employees of the company said otherwise.

Former employees said that they had to follow content filtering rules set by managers in Bytedance’s Beijing headquarters, who often ignored their requests not to block or penalize content deemed sensitive.
While some flagged videos were removed altogether, others were simply blocked from user feeds, according to the former employees.

Alibaba, US startup Lolli partner to reward shoppers with bitcoin

Miles Goscha — Tue, 12 Nov 2019 04:44:46 +0000

Alibaba’s booth at the World Artificial Intelligence Conference on August 30, 2019 in Shanghai. (Image credit: TechNode/Shi Jiayi)

Alibaba and New York-based affiliate retail startup Lolli have partnered to give shoppers rewards paid in bitcoin when purchasing items on Alibaba’s e-commerce platforms, according to CoinDesk.

Why it matters: The upcoming holiday season could be a valuable opportunity for blockchain-based retail products to break into mainstream applications more meaningfully.

While the partnership will not initially put bitcoin directly into the hands of Chinese shoppers, a cross-continent collaboration like this one is a sign of what’s to come for the international blockchain industry.
For Alibaba, the move may be an indication of how it plans to deal with cryptocurrency moving forward despite Alipay’s recent announcement that it will be banning any transactions on its platform related to bitcoin and other cryptocurrencies in line with Chinese law.

“This partnership is a great first step to connect the two largest economies, China and the US, through bitcoin and commerce. The opportunity is available for US users only for now but we plan to expand internationally soon, letting everyone in the world easily earn and own bitcoin.”

—Lolli CEO and co-founder Alex Adelman

Details: The partnership was announced on Singles Day, China’s annual shopping holiday that has become the largest one-day shopping event in the world.

According to a Lolli press release, Alibaba shoppers using Lolli’s browser extension can earn up to 5% of their purchases back in bitcoin, applicable to “thousands of items online.”
The new program will only be available to US-based shoppers, with purchased products being shipped from China to the US.
Lolli has not provided details about how much bitcoin shoppers have earned so far.

Context: Alibaba reaped a Singles Day record this year with $38 billion in gross merchandise volume (GMV), amounting to a 26% year-on-year increase.

The company’s partnership with Lolli isn’t the only way Alibaba is looking to replicate its Singles Day success outside China: Lazada, Alibaba’s Southeast Asia subsidiary, participated in the event.
The Chinese government appears to be warming to the idea that the country must be a leading blockchain innovator, as evidenced in recent comments by president Xi Jinping stressing the need to “accelerate the development of blockchain and industrial innovation.”
On October 26, the Standing Committee of the 13th National People’s Congress in China passed a new law regulating cryptography that will take effect on January 1, 2020.
Lolli also made a previous push into international markets by partnering with Hotels.com in June.

China passes new cryptography law, laying ground for digital currency rollout

INSIGHTS | Politics aside, Chinese tech firms pile into US markets

TechNode Staff — Mon, 11 Nov 2019 02:00:23 +0000

It’s all aboard the US IPO train for Chinese firms this month. At least 10 filed in October, compared to just 23 finished listings during all of 2018. 19 Chinese firms have completed IPOs stateside this year to date.

Drone maker Ehang, podcast site Lizhi, and NetEase edtech arm Youdao are all among those that filed in October.

The US IPO boom came as China hoped to bring listings home with Nasdaq-style tech board the STAR Market, launched in July. The STAR Board, based at the Shanghai Stock Exchange, offers a number of concessions to attract tech companies to list domestically, including registration-based listing and allowing loss-making firms to list.

Bottom line: Politics matters, but businesses go where the money is. Beijing is trying to bring Chinese hi-tech listings home, while Washington is growing hostile to them. But uncertainty in Hong Kong seems to be driving firms to New York, not Shanghai.

An IPO every two business days: At least 10 Chinese tech companies filed IPOs in the US in October, and one went public in Hong Kong.

Oct. 8: FangDD.com, a Chinese online real estate marketplace, files for Nasdaq IPO.
Oct 15: Gaming giant NetEase’s learning services and products unit Youdao updates its filing to the SEC for its listing on the New York Stock Exchange (NYSE), specifying a fundraise amount of up to $115.9 million.
Oct. 25: Chinese apartment rental platform Qingke, a rival to Danke Apartment, files an IPO to Nasdaq.
Oct. 28: Hangzhou-based Canaan, the world’s second-largest maker of bitcoin mining machines, files for a US IPO.
Oct. 28: Chinese online residential rental marketplace Danke Apartment files for IPO on NYSE.
Oct. 28: Chinese interactive podcast platform Lizhi applies to list in the US.
Oct. 28: Reuters reports that China’s homegrown version of WeWork, Ucommune, filed a prospectus with the US securities regulator in late September as it prepares to go public by the end of the year.
Oct. 31: Meiliche Financial, an online auto finance company, files (in Chinese) for IPO on NYSE.
Oct. 29: Shanghai-based I-Mab Biopharma files for Nasdaq IPO as it looks to accelerate its China-based drug commercialization process.
Oct. 31: Guangzhou-based drone maker Ehang files for IPO on Nasdaq.

Nasdaq Shanghai?: China’s STAR Market is a bid to make mainland capital markets friendlier to tech firms, borrowing a number of practices from US markets not previously seen in China. These include:

Registration-based IPOs allow companies, not regulators, to decide pricing and valuations. Other markets use an approval-based system in which stock regulator China Securities Regulatory Commission (CSRC) must vet every application, making it unpredictable for companies to list.
Allows companies that are not profitable to list.
Allows listings of companies with dual-class shares or weighted voting rights. These grant more power to certain shareholders like founders and high-ranking executives.
No limits on stock prices for the first five days of trading. One of the first companies debuted on the board saw its shares rose as much as 448% an hour after trading began. If the company had listed on the Shanghai Stock Exchange, it would have been capped at 20%.
Gives issuers and investors more control over the pricing and timing of IPOs.

US closing the door? The wave of filing followed reports that Nasdaq, a major destination for Chinese tech companies seeking US IPOs, changes its listing rules that require raised the average trading volume requirements for a stock in late September.

Ahead of the Nasdaq alteration, Reuters reported that the US President Donald Trump was considering ordering the delisting Chinese companies from US stock markets, triggering a tumble of shares of Chinese firms.
The White House later clarified that delisting Chinese companies traded on US exchanges “is not on the table.”
The Trump administration, however, said it is pushing for greater transparency and compliance with a number of laws by Chinese filers for the sake of “US investor protection.”

Political factors: Politics have played more decisive roles in Chinese companies’ IPO plans in the past few months under the shadow of ongoing US-China trade conflicts.

A warm welcome in China—The STAR Market is part of China’s efforts to mobilize private capital into high-tech sectors, associated with Made in China 2025, the industrial policy at the center of the country’s trade dispute with the US.
And a cold shoulder from the White House—President Trump’s remarks on delisting Chinese companies were made days ahead before trade talks between the world’s largest two economies resume.
Situation too hot in Hong Kong—monthslong political turmoil in Hong Kong, another popular destination for Chinese firms seeking painless listings, has scared many of them off.
Artificial intelligence startup Megvii is reportedly considering a delay to its Hong Kong listing plans after the company was added to a US trade blacklist last month over alleged participation in human rights abuses in China’s Xinjiang region.

Why STAR flopped: As of Friday, some 50 companies are being traded on the STAR Market and 165 are on the pipeline, according to the board’s website (in Chinese).

This is partially due to the painful auditing process that could last months that companies have to go through before they can successfully go public.
The sectors the STAR Market intends to aid also excluded internet companies, at least for now. The CSRC said in January that the STAR Market would “mainly serve” companies in high-tech and strategic emerging sectors such as new-generation information technology, advanced equipment, new materials and energy, and biomedicine.
The lock-up period, a predetermined amount of time following an IPO where particular shareholders are restricted from selling their shares, for controlling shareholders and actual controllers of a STAR Market-listed company is 36 months while that of ordinary shareholders is 12 months, according to Xinhua News Agency (in Chinese).
The lock-up period for US IPOs usually ranges from 90 to 180 days after the date of listing.

STAR board: A New Hope? The Wall Street Journal reported Thursday that China will “reboot” the STAR Market in a second bid to get companies interested. Changes predicted by the article include:

Lowering of the market-capitalization threshold for overseas-listed companies to RMB 100 billion (around $14.3 billion) or less, halving the threshold set last year.
Easing of capital controls for that hamper investors from moving their money abroad.
Under the new system, foreign companies and Chinese businesses that are incorporate abroad will be able to list on the STAR Market.
Reduced lock-up period for investors.

The mighty dollar: James Hull, professional investor and co-host of the China Tech Investor podcast (powered by TechNode), told TechNode that companies may be pushed by their investors to go to US markets. A Chinese listing means cashing out in renminbi—and potentially seeing your money stuck in China.

Strict foreign exchange controls make it difficult to move money out of China.
“If you are a tech investor, and you have invested in these companies, you would prefer to receive Hong Kong dollars or US dollars, because you can take that money and reinvest it anywhere in the world. Whereas if you list in the STAR Market, you will get Renminbi. And then you can reinvest it in China, but it’s harder to reinvest anywhere else,” said Hull.
From an investor’s perspective, Hull also attributes the preference of US markets to the higher liquidity there and the shorter lock-up period for investors to exit.
“They [Chinese tech companies] might choose the US because they think there are more public market investors in the US who will understand their business. There are a lot of tech companies listed in the US and a lot of investors are familiar with technology in the US,” Hull added.

Former TikTok employees say videos were censored: report

Tony Xu — Wed, 06 Nov 2019 07:32:17 +0000

Several former employees of short video app TikTok have said that managers in the Beijing offices of parent company Bytedance have the final say about what content appears on the app despite executives’ repeated denials of claims that it censors politically sensitive content, The Washington Post reported.

Why it matters: US legislators are scrutinizing Bytedance out of concern about its censorship and data security practices following the leak of documents detailing its content filtering policies in September. The company has denied nearly all of the accusations, but provided little information about its policies.

“They want to be a global company, and numbers-wise, they’ve had that success…But the purse is still in China: The money always comes from there, and the decisions all come from there.”

⁠—A former Bytedance manager who left the company this year to The Washington Post

Details: According to former TikTok employees, content moderators based in Beijing routinely ignored their requests not to block or penalize videos related to certain social and political topics, possibly to prevent the Chinese government from punishing other Bytedance apps, according to the report.

The former employees also said they were instructed to follow rules set by managers at Bytedance’s Beijing headquarters, which were inconsistent and shifted frequently.
Former US-based TikTok moderators said that content rules are intended to shield the platform from anger and negativity, as well as content that is deemed culturally problematic in China, such as videos with suggestive dance moves.
While some flagged videos were removed outright, others are blocked from appearing in user feeds, making it difficult for content creators to determine that their videos had been penalized, some former moderators told The Post.
TikTok US general manager Vanessa Pappas said in a written response to The Post that the company is no longer using a universal set of standards for content moderation and that her California-based team is managing the US market.
Bytedance also said that the internal content moderation guidelines reported by the Guardian in September were retired in May, adding that the company had previously used “a blunt approach” to reduce conflict.

Context: TikTok declined to testify at a Tuesday congressional hearing organized by Republican Senator John Hawley that explored issues such as data security and censorship on the platform.

Instead of attending, TikTok sent a letter to Congress repeating its earlier claims. The company said that it hasn’t and wouldn’t remove content at the request of the Chinese government, and that it stores all US user data in the US with backups in Singapore.
During the hearing, Hawley cited The Post’s report and asked TikTok executives to appear in person and answer for the discrepancies between the letter sent to Congress and what former employees said.

TikTok reaffirms independence from China in letter to US lawmakers

TikTok reaffirms independence from China in letter to US lawmakers

Wei Sheng — Wed, 06 Nov 2019 04:49:31 +0000

Video-sharing app TikTok reiterated its independence from China in a letter to US lawmakers after company executives declined to testify at a congressional hearing on Tuesday.

Why it matters: The virally popular short-video app, owned by Beijing-based tech firm Bytedance, is attracting growing scrutiny in the United States following reports that it censors videos deemed politically sensitive by the Chinese government.

Concerns surrounding the company also include its data protection practices as the app is particularly popular with teenagers.
About 60% of its 26.5 million monthly active users in the US are between the ages of 16 and 24, the company said earlier this year.
TikTok has repeatedly denied the accusations, saying that it stores American user data in the United States and that the Chinese government does not require its content to be censored.
However, its claims failed to convince US regulators amid a wave of probes against the company.

“TikTok claims they don’t store American user data in China. That’s nice. But all it takes is one knock on the door of their parent company based in China from a Communist Party official for that data to be transferred to the Chinese government’s hands.”

—Josh Hawley, a Republican senator, at a hearing of a Senate Judiciary subcommittee on Tuesday

Details: TikTok said in the letter that it had hired a US-based auditing firm to analyze its data security practices, according to Reuters, which has seen a copy of the letter.

TikTok said it stores all US user data in the United States and backs it up on servers in Singapore, said the company in the letter dated Monday and signed by its US General Manager Vanessa Pappas.
It also said it plans to form a committee of outside experts to advise on content moderation and transparency. The committee may include two former US congressmen.
TikTok will not accept political advertisements, similar to Twitter’s recent ban on political ads.
The company said its investors were mainly big institutional investors and that the app was not available in China.

Context: On Tuesday, executives from TikTok declined to attend a hearing organized by Hawley to explore privacy and security concerns brought by social platforms and whether they comply with China’s domestic censorship rules.

Earlier this month, Reuters reported that the US government had launched a national security review of TikTok owner Bytedance’s $1 billion acquisition of US social media app Musical.ly.
The deal was struck in 2017 and led to the merging of user data from Musical.ly and TikTok in 2018.
Last month, US Senate Minority Leader Chuck Schumer and Republican Senator Tom Cotton asked the acting director of national intelligence, Joseph Macguire, for a separate review of the potential national security risks posed by TikTok.

TikTok declines to testify to Congress about China ties

AI startup Megvii mulls delaying Hong Kong IPO amid blacklisting concerns

Chris Udemans — Wed, 06 Nov 2019 03:32:07 +0000

Artificial intelligence (AI) startup Megvii is considering whether to delay its Hong Kong listing despite plans to go public before year-end, Bloomberg reported.

Why it matters: Megvii was among several of China’s biggest AI firms added to the US government’s so-called Entity List in October, effectively blocking them from sourcing American-made components.

The move has raised questions about the future of these companies, as some source components from US manufacturers, including Nvidia.
Following Megvii’s blacklisting, Goldman Sacks, one of the IPO underwriters, said it was reevaluating its involvement in the company going public.
Taiwan’s government plans to investigate the firm following the ban, after Megvii was awarded a contract to install a security system for the Taichung Power Plant.

Undeterred by US blacklisting, AI firm Megvii eyes end-year IPO

Details: Megvii is currently discussing with advisers whether to press ahead with the listing this month or postpone until the company is removed from the Entity List, sources told Bloomberg.

Investors are worried about buying shares and Megvii may have trouble hitting a valuation of $3.5 billion, one of the people said. The company was previously valued at $4 billion after its last round of funding.
The company still plans to hold its listing hearing in Hong Kong this month.
Megvii said previously that it believes its inclusion on the blacklist was a “misunderstanding,” adding that the company would be “engaging with the US government on this basis.”

Context: Megvii was expected to become China’s first AI startup to go public, acting as a possible litmus test and paving the way for other companies in the industry to follow.

The US blacklisting came after Megivii, along with the world’s most valuable AI startup Sensetime and surveillance camera manufacturer Hikvision, were accused of complicity in human rights violations against Muslim minority groups in China.
Speech recognition giant iFlytek, as well rival AI startup Yitu and surveillance firm Dahua Technology, among others, were also added to the list.

US should extend export ban, bump AI spending: Ex-Google chief

Eliza Gkritsi — Tue, 05 Nov 2019 05:16:35 +0000

Led by ex-Google chief Eric Schmidt, a US defense committee urged the government to increase its spending on artificial intelligence (AI) research and continue the use of export bans to ensure its lead over China.

Why it matters: The report is the latest and most comprehensive effort from the Department of Defense (DoD) to create a blueprint for safeguarding American interests against the rise of China as a global leader in AI. The National Security Commission on AI (NSCAI) released its first interim report on Monday, outlining key strategic concerns and proposing next steps.

“We are a pro-America Commission, and the final report will say how we will win this competition.”

⁠—Eric Schmidt, NSCAI chair

Details: The NSCAI recommended that the US enhance domestic and allied cooperation while expanding export controls on target technologies and protecting American research from “state-directed espionage.”

“US and allied AI hardware advantages,” referring to the leadership in semiconductors held by the US, Japan, and the Netherlands, must be protected through multilateral export restrictions, the commission wrote.
Due to AI’s multiple applications, traditional item-based controls may not suffice, the report said. Instead, regulators should scrutinize potential end-use and the “end user of specific items, to prevent their use for malicious purposes,” the report said.
But the US and its allies should be careful about possible retribution from Beijing, NSCAI warned.
Universities should be “part of the solution,” the report said, meaning that they should work with law enforcement and intelligence services to keep American secrets. Preventing “direct or indirect assistance to China’s military and intelligence apparatus” should be top priority, the commission wrote.
At the same time, the US should be open to collaboration with China on global standard-setting for safe use of AI.
The report named the following concerns: China’s spending on research and development of AI, the ballooning commercial competitiveness of Chinese tech giants which is “is being harnessed to promote national objectives in AI,” China’s use of AI in the military, and its transformation into a pole of attraction for global talent.

China’s share of global AI investment shrinks as headwinds take their toll

Context: The NCSAI was established by the National Defense Authorization Act of 2019, an annual US regulation that sets the defense budget. It first convened on March 11.

China’s spending AI research and development (R & D) grew by 300% from 1991 to 2015, according to R&D Magazine. In 2017, China briefly surpassed the US in AI-focused venture capital investments. It still lags the US, but is on track to surpass it by 2030, the year when Beijing has pledged to reach global AI supremacy, according to the publication.
In terms of academic research, China’s global impact has increased but is still behind the US. Researchers at the Allen Institute, a US think tank focused on AI, predicted that Chinese researchers will overtake their American counterparts in terms of citations by 2025.
Washington placed several prominent Chinese AI companies under an export ban in October 2019, including Sensetime, the most valuable AI company in the world.
American universities are increasingly scrutinizing their relationships with Chinese companies and research institutions. The Massachusetts Institute of Technology and Stanford cut their funding ties with Huawei following its inclusion on a US trade blacklist.

TikTok declines to testify to Congress about China ties

Tony Xu — Mon, 04 Nov 2019 03:06:06 +0000

Leadership of short video app TikTok has declined to testify at a congressional hearing that will explore privacy and security concerns brought by social platforms and their ties to Beijing, The Washington Post reported, citing people familiar with the matter.

Why it matters: As TikTok’s influence becomes more widespread, suspicion about its content filtering and privacy protection practices has also began to emerge, prompting regulators around the world to scrutinize the platform for potential security risks.

Beijing-based Bytedance, the owner of TikTok, has denied all accusations and maintained that TikTok stores user data locally and does not censor content at the request of the Chinese government.

Details: The hearing was organized by Republican Senator John Hawley and is set for Tuesday.

In addition to covering privacy and security concerns, the session will also focus on China’s domestic censorship rules.
TikTok’s decision came just a day after the Committee on Foreign Investment in the United States opened a probe to investigate the platform’s acquisition of Musical.ly in 2017 for potential national security threats. The probe was requested by Senator Marco Rubio last month, who cited censorship concerns.
Executives from Apple, which Hawley has criticized for its business in China, have also declined to attend the hearing.

Context: US Senate Minority Leader Chuck Schumer and Republican Senator Tom Cotton have also asked the acting director of national intelligence, Joseph Macguire, for a separate review of the potential national security risks posed by TikTok.

In a letter to Macguire, the two senators said that the number of downloads TikTok has in the US, which has reached 120 million according to research firm Sensor Tower, makes the app a big counter-intelligence threat.
The wave of investigations followed shortly after The Guardian reported on TikTok’s censorship guidelines, which involves removing videos deemed politically sensitive by the Chinese government.

Chinese passenger drone maker Ehang files for US IPO

Eliza Gkritsi — Fri, 01 Nov 2019 08:32:29 +0000

Guangzhou-based drone maker Ehang filed on Thursday an application for an initial public offering (IPO) in the US, using a placeholder amount of $100 million, following reports in late September about a confidential submission.

Why it matters: The first to receive a license to test unmanned aerial passenger vehicles, Ehang is one of several Chinese tech companies that have recently filed to float shares on US exchanges despite China’s efforts to keep homegrown tech companies from listing abroad with the debut of its new Nasdaq-style tech board.

Details: Morgan Stanley and Credit Suisse are working together on the listing.

The company cites US “security-related concerns” toward Chinese companies and products as a risk factor in its form F-1.
Citing the blacklisting of telecom equipment manufacturers Huawei and ZTE, it says that potential export restrictions from the US would strain its supply chain by limiting its access to key components and technologies.
US restrictions also feature in a section about the risk of an import ban, since US authorities have repeatedly warned against the use of Chinese drones for commercial purposes and have blacklisted other Chinese hardware manufacturers.

“We cannot assure you that our AAVs will not be placed on such trade blacklist in the future.”

—Ehang in its filing to the Securities and Exchange Commission

Context: Beijing introduced its Nasdaq-style tech board on the Shanghai stock exchange to keep Chinese companies from taking their IPOs to other countries.

The so-called STAR market opened for trading on July 22, six months after financial authorities announced relaxed regulations.
However, many major Chinese startups have chosen to go public in the US. Just in the past week, house-sharing platform Danke Apartments, WeWork’s biggest competitor Ucommune, crypto mining equipment manufacturer Canaan, and interactive podcast platform Lizhi chose to list in the US.
In August, handset maker Transsion’s listing was delayed, sounding alarms that the STAR market’s more lenient listing requirements weren’t so relaxed after all.
At the same time, as some analysts forecasted, some companies are hurrying to the Shanghai stock exchange. There are reports that Chinese semiconductor manufacturers are accelerating to complete their listings on the STAR market before the end of the year. Chinese robotics maker UBTech is also reportedly eyeing a Shanghai listing.

US Interior Department to ground Chinese-made drones: report

Ehang was founded in 2014 in Guangzhou and initially specialized in drones with commercial applications like agriculture. It pivoted to passenger-carrying drones in 2016, when it revealed a $300,000 drone concept.
Ehang is the first company to be licensed by the Civil Aviation Administration of China to test drones carrying passengers and has been carrying out tests in Guangzhou.
Chinese drones are facing fierce criticism from US authorities, who introduced in September a bill barring federal agencies from buying drones with China-made equipment.
The US Department of Interior on Wednesday grounded its entire drone fleet because of security fears related to Chinese parts or manufacture.

US Interior Department to ground Chinese-made drones: report

Eliza Gkritsi — Thu, 31 Oct 2019 07:46:52 +0000

The US Interior Department said on Wednesday that it is grounding all drones made in China or containing China-made parts on fears of espionage and cyberattacks, Bloomberg reported, a move which effectively pulls from the field its entire fleet pending an agency review.

Why it matters: The grounding is the latest in a flurry of US decisions to shun industry-leading Chinese tech companies citing national security concerns.

Details: The government agency responsible for managing all federal land, the Interior Department is concerned that the drones could be used to send classified information, mainly videos and photos, of sensitive US infrastructure that could later be attacked, according to the Wall Street Journal.

The department manages 810 drones, 15% of which were made by Chinese drone giant DJI. The rest are made in China either entirely or in part, Bloomberg quoted a department spokeswoman saying.
While the agency conducts the security review, non-essential drones will be grounded except those used for emergencies, such as fighting wildfires and search and rescue efforts.
DJI did not immediately respond to requests for comment on Thursday.

“For far too long, we have turned a blind eye to China and allowed their technology into some of the most critical operations of the U.S. Government. This has to stop.”

⁠—Rick Scott, Republican senator in the American Security Drone Act

Context: More than 14 federal agencies including the Federal Emergency Management Agency and the Department of Homeland Security use drones, the Wall Street Journal said.

On Sept. 18, Republican Senators Rick Scott and Dan Crenshaw introduced a bill that would prevent federal agencies from buying drones made in countries that “pose a national security risk” or are “subject to extrajudicial direction from a foreign government.” The American Security Drone Act singles out involvement with China and the Communist Party as reason to halt the purchase of drones. The bill has yet to go through committee review.
It is unclear whether the Interior Department’s decision will appease Republican hardliners.
In May 2019, the Department of Homeland Security issued a warning to civilian users of Chinese drones, saying that the government is concerned about devices that move “American data into the territory of an authoritarian state that permits its intelligence services to have unfettered access to that data.”
In 2017, the US Army decided to stop buying drones made by DJI due to security concerns.
Shenzhen-based drone giant DJI is by far the world’s leader in unmanned aircraft. In 2018, it held a 70% share of the consumer drone market.

Shanghai biotech I-Mab plans US IPO as part of China drug strategy

Miles Goscha — Thu, 31 Oct 2019 05:49:06 +0000

Shanghai-based I-Mab Biopharma filed for an initial public offering (IPO) on the Nasdaq stock exchange as it looks to accelerate its China-based drug commercialization process, Endpoints News reported.

Why it matters: A US IPO will aid I-Mab’s strategy for biologic development by giving it a foothold in the US, where approval of its drugs by the American Food and Drug Administration (FDA) helps get them fast-tracked to commercialization in China.

First, I-Mab conducts proof-of-concept trials in the US with the goal of getting FDA clearance for in-human studies.
The data gathered from those studies are used to speed clinical development in China.
Once a drug has been clinically validated in the US, I-Mab can retain Chinese rights for continued development and eventually commercialization.
The process takes advantage of a 2018 Chinese government reform that fast-tracks internationally developed drugs.

Details: The firm said it is looking to raise $100 million, a common placeholder figure, to use for research and development of drug candidates, to invest in trials in China and the US, and to fund construction of manufacturing facilities in Hangzhou.

Jefferies LLC and China International Capital Corp. Hong Kong Securities Ltd. are the book-running managers, representatives, and underwriters for the IPO.

Context: Founded in 2016, I-Mab Biopharma develops treatments for cancers and autoimmune diseases.

The company has raised more than $400 million in the last three years and has five treatments currently in-process or ready for phase II or phase III trials in China.
The growth of China’s biologics market has already outpaced the rest of the world and is expected to reach $189.4 billion in sales by 2030, according to a Frost & Sullivan report cited in its prospectus.
I-Mab’s filing follows the IPO of another Chinese cancer drug firm, Suzhou-based Ascentage Pharma, which listed on the Hong Kong stock exchange on Friday, netting $53 million.

China’s Danke Apartment shared housing platform files for US IPO

Emma Lee — Wed, 30 Oct 2019 08:28:23 +0000

Chinese online residential rental marketplace Danke Apartment has filed an application with the US Securities and Exchange Commission for an initial public offering on the New York Stock market on Monday.

Why it matters: Despite tightening trade tensions, there have been a spate of Chinese tech companies filing applications for initial public offerings (IPO) on US markets in recent weeks. Chinese peer Qingke filed on Monday, making Danke the second Chinese apartment rental platform that has filed for an US listing this month.

Other Chinese tech firms that have piled on include NetEase education unit Youdao, Chinese audio platform Lizhi, and crypto mining equipment manufacturer Canaan Inc.
The IPO filing followed just a day after Danke announced a $190 million Series D led by China Media Capital and Primavera Capital.

Details: The company aims to raise up to $100 million in its IPO, a figure commonly used as a placeholder for IPO filings, and may change.

The proceeds will be used for market expansion, housing renovation, technology development, and branding, according to the company.
It now manages nearly 407,000 housing units in 13 major Chinese cities including Shanghai, Beijing, and Guangzhou, according to the prospects.
The company currently earns revenues primarily from rent and service fees. Its revenue jumped 198.8% to RMB 4.99 billion ($699.5 million) in the nine months ended Sept. 30, 2019 from RMB 1.67 billion in the same period a year earlier.
However, the firm is still loss-making, recording RMB 2.52 billion in net losses for the first nine months of 2019 due to high housing rental and marketing costs.
Citigroup Global Markets, Credit Suisse Securities, and JPMorgan Securities are the deal underwriters.

Chinese rental platform Qingke aims to raise $100 million in US IPO

Context: Founded in 2015, Danke rents shared houses targeting young professionals.

The company has closed six rounds of financing to date, raising nearly $900 million from top investors including Tiger Global management, Ant Financial, and Gaorong Capital, according to data from startup database Crunchbase.
Major players in China’s rental housing market have expanded rapidly and a series of scandals have arisen concerning data theft, hidden cameras, and elevated levels of formaldehyde in apartments.
Danke, along with other home rental agencies like 5i5j.com, were included in a government crackdown on fake or misleading listings.
Danke got a talent boost earlier this year when Gu Guodong, a key figure from Baidu’s core search unit, joined the company in June.

China will stop forced tech transfer: vice minister

Eliza Gkritsi — Wed, 30 Oct 2019 04:14:25 +0000

China will no longer force foreign firms to transfer technologies in order to access the market, Wang Shouwen, a vice commerce minister said at a press conference in Beijing on Tuesday.

Why it matters: Forced tech transfer and the unequal playing field conditions on China’s mainland have been issues at the heart of the US-China trade war.

Wang signaled new directives that will add to the Foreign Investment Law effective in 2020, barring the use of “administrative tools” which force foreign companies to hand over trade secrets.
Beijing will refine policies so that foreign and domestic companies have equal market access to new energy vehicle production, Wang said.

Details: The new measures are aimed to bring about a transparent and predictable investment environment in order to stabilize foreign investment flows, according to Wang.

A spokesman for China’s Foreign Ministry, Geng Shuang, said at a separate event that lead negotiators from China and the US have had conversations over the phone recently and will do again so in the future.

“Administrative organs may not implicitly or explicitly force the transfer of technology by foreign investors or foreign-invested enterprises.”

—Wei Ye, Commerce Ministry official

Context: Wang’s pledge did not address the joint venture mechanism which forces foreign enterprises to partner with a Chinese company in order to operate in China, frequently creating conditions for unintended tech transfer.

In July 2019, major California-based chipmaker AMD denied claims of wrongdoing for passing chip designs to its Chinese partners.
China has long been accused of requiring foreign tech firms to give up intellectual property in exchange for access to the world’s second-largest economy. A 2019 survey by the European Union Chamber of Commerce showed that 20% of European firms doing business in China had been subject to forced tech transfer, up from 10% in 2017.

Briefing: European firms say forced tech transfers rising in China

Earlier this month, US President Trump revoked a $250 billion hike in tariffs that would have gone into effect on Oct. 15 after striking a tentative agreement on increased protections for intellectual property rights, agricultural goods, enhanced access to China’s financial markets, and currency policy.
China and the US are now working on the text for the so-called “Phase one” trade deal announced by the US president on Oct. 11.
Washington’s tariffs have caused foreign firms to withdraw or halt investment and production in China amid an economic downturn.
After Apple announced it was considering shifting 15% to 30% of its production out of China, Foxconn, a major supplier, unveiled a plan to move production to South and Southeast Asia to minimize tariff impact.

US to vote on barring Huawei, ZTE gear from subsidy program

Wei Sheng — Tue, 29 Oct 2019 06:24:57 +0000

The Federal Communications Commission will hold a vote on whether to ban US carriers from receiving federal subsidies when purchasing equipment from Chinese telecom equipment makers Huawei and ZTE, the Wall Street Journal reported on Monday.

Why it matters: If passed, the move would eliminate Huawei’s and ZTE’s sales to US carriers⁠—primarily rural carriers that source cheaper equipment.

Huawei already provides its gear to around a quarter of smaller American carriers. The Rural Wireless Association trade group said that the move could cost its members between $800 million and $1 billion to replace Huawei and ZTE products.
The US federal government subsidizes companies that offer broadband services in rural areas via the $8-billion-a-year Universal Service Fund supported by fees tacked onto individual phone bills.

Details: FCC chairman Ajit Pai proposed the order on Monday which names Huawei and ZTE as national security threats, and creates a process by which to designate other companies which pose a threat. The vote will take place at the FCC’s Open Meeting on Nov. 19.

Huawei lashed out against the FCC’s decision in a statement sent to TechNode on Tuesday, saying that a ban on specific vendors based on country of origin would not help protect American telecom networks.
The proposal “only impacts the broadband providers in the most unserved or underserved rural areas of the United States,” the company said. “Such action will further widen the digital divide; slowing the pace of economic development without further securing the Nations’s telecommunications networks.”
The proposal would bar US firms from buying equipment from the two Chinese companies using money from the federal fund.
If passed, the ban could take effect within 30 days, though it could take as long as 120 days if Huawei or ZTE voice an objection.
An FCC official said the agency is working to collect information on the costs that rural carriers would face to comply and how much funding has been paid out for ZTE or Huawei equipment in the past, according to the report.
The agency is also considering forcing US companies to remove Huawei and ZTE equipment from their existing networks. Pai called the use of their gear an “unacceptable risk” in a commentary published on Monday.
A ZTE spokeswoman declined to comment on the matter.

Huawei revenue for the first 3 quarters rises 24% despite US blacklisting

Context: Huawei was put on a US trade blacklist in May, effectively barring American companies from selling the telecom giant equipment and technology. A similar ban was imposed on ZTE in April 2018 and has since been lifted.

A federal bill signed by US President Donald Trump in August 2018 banned the federal government from purchasing equipment from Huawei and ZTE, citing national security concerns.
Despite the restrictions, ZTE said on Tuesday that it has secured 35 commercial contracts worldwide for next-generation 5G networks.
Huawei said on October 16 that it had signed more than 60 commercial 5G contracts globally.

Updated: the article was updated to include comments from Huawei.

Chinese audio platform Lizhi targets $100 million in US IPO

Tony Xu — Tue, 29 Oct 2019 05:29:46 +0000

Chinese interactive podcast platform Lizhi on Monday filed for an initial public offering (IPO) in the US, pulling ahead of its rival Ximalaya in the race toward becoming the first publicly traded audio platform in China.

Why it matters: As competition within the online audio market intensifies, Lizhi is seeking additional funding to maintain its competitive edge and boost growth.

Details: Lizhi said it will use the proceeds from the IPO to develop new products, invest in artificial intelligence (AI) technologies, and expand the company’s overseas operations. No pricing terms were disclosed.

Founded in 2013, Lizhi is the second-largest online audio platform in China in terms of monthly active users (MAUs) for the nine months ended Sept. 30, trailing rival Ximalaya.
The platform’s MAU for the third quarter was 46.6 million, of which 5.7 million are hosts.
Lizhi’s net revenue for the third quarter grew 32.4% year on year to RMB 486.6 million (around $70.9 million).
Lizhi features user-generated content (UGC) and is the largest online audio community of its kind in China based on statistics from research firm iResearch, hosting more than 160.6 million podcasts as of Sept. 30.
In July, the company launched Sugar Chat, an audio entertainment product targeting the Middle Eastern and North African markets.
Credit Suisse and Citi Group are the joint bookrunners on the deal.

Lens: China’s ‘ear economy’

Context: China has one of the world’s largest and fastest-growing online audio markets, with the number of users expected to exceed 901.5 million in 2023 from 377.2 million in 2018, according to iResearch.

Lizhi’s most recent round of funding was a $50 million Series D in January 2018.
In June, regulators removed Lizhi along with Ximalaya from major Chinese Android app stores for 30 days for hosting audio content that promotes “historical nihilism” and superstitions.

WeWork’s Chinese rival Ucommune eyeing end-year US IPO: report

Eliza Gkritsi — Mon, 28 Oct 2019 08:25:39 +0000

Ucommune, China’s homegrown version of WeWork, filed a prospectus with the US securities regulator in late September as it prepares to go public by the end of the year, Reuters reported.

Why it matters: The news was a surprise to many after the debacle involving WeWork, the world’s largest coworking space provider, having to scrap its own public listing plans and accept a $10 billion bailout from Softbank on Tuesday.

Details: Apart from the confidential prospectus filed with the US Securities and Exchange Commission, Ucommune has held preparatory meetings with investors to gauge appetite in the market, which will be key in determining whether the Beijing-based startup will go public, according to Reuters citing people with direct knowledge of the matter.

Citigroup and Credit Suisse are the major players involved in the listing, while Bank of America has a smaller role, according to the report.
Ucommune is an investor in TechNode.

Context: Last week, SoftBank offered a $5 billion cash infusion to WeWork, a $3 billion tender offer for existing shareholders and, according to the Wall Street Journal, $1.7 billion for CEO Adam Neumann to walk away. In return, the Japanese tech conglomerate owns 80% of the company.

Ucommune was valued at $2.6 billion after closing a Series D in November 2018 when it raised $200 million, up from $43.5 million just three months earlier.
In 2018, Beijing-based Ucommune acquired seven companies, including competitors Wedo, Woo Space, New Space, and Workingdom, architect firm Daga Architects and intelligent workplace platform Huojian Technologies.
In the same year, it also changed its name from UrWork after WeWork complained that it was “confusingly similar.”
Founded in 2015, it spans 200 locations in 37 countries and plans to expand to 350 locations.

Updated to include that Ucommune has invested in TechNode in the “Details” section.

Hyundai partners with Pony.ai, Via to launch self-driving fleet in US

Jill Shen — Mon, 28 Oct 2019 08:04:38 +0000

Hyundai Motor Group is partnering with Chinese self-driving startup Pony.ai and US mobility firm Via to launch a commercial ride-hailing service in the city of Irvine in southern California starting in November.

Why it matters: Hyundai is the latest entrant to self-driving vehicles in ride-hailing as global companies take aim at Google’s Waymo, which began trial operations in Arizona a year ago.

The South Korean automaker ramped up quickly with the help of Pony.ai, one of only four companies with permission to offer autonomous vehicle (AV) rides to the public in California. The other three are Waymo, AV startup Zoox, and AutoX.

Detail: The pilot, called the BotRide, will be introduced to several hundred Irvine residents in the very center of the city starting Nov. 4, the companies said on Friday.

As part of the pilot phase of the program, a fleet of 10 self-driving Hyundai KONA electric crossover vehicles will provide shared, on-demand, ride-sharing services for free until the end of January 2020.
Sequoia Capital China-backed Pony.ai built the driverless system in a partnership with the Korean automaker, while mobility service developer Via developed the ride-hailing platform and application with the same name.
Via said its algorithms allows multiple riders to share a vehicle in a quick and efficient way, guiding passengers to nearby stops for pick-up and drop-off.
Equipped with Pony.ai’s sensor system and self-developed software, the vehicle is expected to detect the surrounding environment, predict where pedestrians will walk, and plan actions accordingly. Two human operators will be on board during the initial trial period.

The Chinese startup battling for robotaxi supremacy

Context: Auto tech companies are stepping up efforts to roll out commercial self-driving taxi service, seen as an important step for the deployment of fully autonomous vehicles because companies can start to recoup the significant costs involved.

Waymo in December 2018 rolled out its first autonomous taxi service Waymo One after ferrying a limited pool of volunteers in a fleet of robotaxis in the Phoenix area beginning early 2017.
The company in May announced that it had enrolled 1,000 customers, revealing plans to partner with ride-hailing platform Lyft to offer a selected group of users rides in the area around Phoenix.

Chinese rental platform Qingke aims to raise $100 million in US IPO

Emma Lee — Mon, 28 Oct 2019 06:35:45 +0000

(Image credit: Qingke)

Q&K International Group, the operator of Chinese apartment rental platform Qingke, is planning to raise nearly $100 million in its US initial public offering, the company said in an updated regulatory filing published on Friday.

Why it matters: Growth potential for branded apartment rentals is significant: the market penetration rate in China was only 1.8% in 2018, and is expected to reach 11.2% by 2024, according to figures from China Insights Consultancy cited in the prospectus. Market penetration in developed countries was 46.0% in contrast, according to the data.

The company is focused on lower-tier cities and says it is the largest branded long-term apartment rental operator with average monthly rental fees lower than RMB 2,000 (around $291).
Qingke is competing against a number of peers including Ziroom, Mofang Appartment, Danke Apartment, and even e-commerce giants like JD.com.
China’s apartment rental sector faces a range of challenges including problematic construction quality and tenant security, as well as tighter regulatory control.

Details: The company plans to price its shares at $17 to $19 apiece for its debut on Nasdaq, according to the filing.

The company had 96,854 rental units under management as of June 30, 2019, centered around the eastern Chinese city of Shanghai and spread across the eastern Yangtze river region.
Qingke stressed in its prospectus that technology forms the core of its business operations from unit sourcing, renovation, and listing, to property management.
Its revenues come from home rental services, value-added services, and others which consist primarily of fees for internet connection and utility services.
The company’s net revenue climbed to RMB 897.9 million (around $130.8 million) in the nine months ended June 2019, up 51.4% from RMB 593.0 million the same period a year ago.
However, the company is still loss making. Net losses widened to RMB 373.2 million ($54.4 million) in the nine months ended 2019 from RMB 323.6 million in the same year-ago period, mainly driven by operational and marketing costs.

Context: A segment of the proptech industry, branded apartment rentals are increasingly popular in China driven by rapid urbanization, rising housing prices, openness toward the rental economy concept, and supportive government policies.

Targeting young professionals and university students, seven-year-old Qingke is focused on sourcing apartments in relatively inexpensive yet convenient locations, typically near subway stations.
Instead of buying the apartments, the firm signs long-term leases with landlords, as part of a practice widely known as “second landlord” service.
The company’s latest round was a more than $100 million Series C led by a fund managed by Morgan Stanley Private Equity Asia and consumer sector-focused PE firm Crescent Point in April 2018.
Xiong Lin, CEO of Qingke rival Ziroom, said in mid-October that the company is not “rushing for IPO” in response to IPO rumors.

US senators call for national security probe of Bytedance’s TikTok

Wei Sheng — Fri, 25 Oct 2019 04:45:39 +0000

Two US senators on Wednesday requested American intelligence officials investigate Chinese-owned video-sharing app TikTok for potential national security threats, Reuters reported on Friday.

Why it matters: The virally popular app, owned by Beijing-based tech firm Bytedance, is attracting growing scrutiny in overseas markets for content censorship and data protection procedures.

Bytedance has repeatedly denied the accusations, saying that TikTok stores American user data in the United States and that the Chinese government does not require its content to be censored.

“Our data centers are located entirely outside of China, and none of our data is subject to Chinese law… TikTok does not remove content based on sensitivities related to China. We have never been asked by the Chinese government to remove any content and we would not do so if asked.”

—TikTok in a statement on Friday

Details: US Senate Minority Leader Chuck Schumer and Republican Senator Tom Cotton asked in a letter on Wednesday to Joseph Macguire, acting director of national intelligence, for an assessment of the security risks posed by TikTok.

The senators voiced concerns about the app’s collection of user data and whether the Chinese government censors content viewed by US users.
“With over 110 million downloads in the US alone, TikTok is a potential counter-intelligence threat we cannot ignore,” the senators said in the letter.
The letter also hinted that TikTok could be targeted by foreign influence campaigns and urged investigators to look into the issue of TikTok’s collection of user location-related data and other sensitive personal information.
TikTok said in the statement that it has a dedicated technical team focused on adhering to robust cybersecurity policies, data privacy, and security practices.
“We are not influenced by any foreign government, including the Chinese government; TikTok does not operate in China, nor do we have any intention of doing so in the future,” said the company.

US official presses for review of Bytedance’s Musical.ly acquisition

Context: TikTok said last week that it plans to hire two former US congressmen as part of an external team to review its content moderation policies, including child safety, hate speech, misinformation, and bullying.

US Senator Marco Rubio earlier this month requested that the Committee on Foreign Investment in the United States (CFIUS) review Bytedance’s 2017 acquisition of short video app Musical.ly, which was later rebranded as TikTok, citing concerns that Bytedance apps are increasingly used to censor content.
The Guardian reported last month 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.
TikTok, meanwhile, may be losing its appeal. New data show there is an unprecedented slowdown in the app’s quarterly downloads, which fell 4% year on year to 177 million in the quarter ended September, according to mobile data provider Sensor Tower.

Undeterred by US blacklisting, AI firm Megvii eyes end-year IPO

Chris Udemans — Thu, 17 Oct 2019 04:09:02 +0000

(Image Credit: BigStock/Dilok)

Artificial intelligence startup Megvii will continue to seek a Hong Kong listing despite being blacklisted by the US earlier this month and is aiming for an early November listing hearing, Bloomberg reported.

Why it matters: Megvii filed for a Hong Kong initial public offering (IPO) in August following reported delays due to ongoing US-China trade tensions.

The filing came after months of political unrest in the city, with companies including e-commerce giant Alibaba opting to wait in order to gauge investor sentiment following city-wide protests.
After Megvii’s blacklisting, Goldman Sacks, one of the IPO’s underwriters, said it was reevaluating its involvement in the company going public.
Investors could be discouraged from buying stock in a company that has been banned from doing business with US firms.
The government of Taiwan is opening an investigation of the firm, which was awarded in September a contract to install a security system for the Taichung Power Plant, after the blacklisting.

Details: Megvii is currently seeking a listing hearing in November, people familiar with the matter told Bloomberg.

While being added to the US Entity List, which effectively banned Megvii from sourcing products and components from American companies, has cut off Megvii off from an essential supply of chips from Nvidia, the company has not given up on its listing goals, the people said.
Megvii said previously that its inclusion on the blacklist came as a result of a “misunderstanding,” adding that the company complies with all laws in regions in which it operates.
Megvii cited being put on a US trade blacklist as a possible risk in its IPO prospectus. The company said that, should it be prohibited from procuring “certain goods and technologies,” its “ability to develop and provide solutions might be impaired.”

Biometrics firm Megvii’s contract in Taiwan at risk after US blacklisting

Context: Alibaba-backed Megvii provides its facial recognition technology to companies including smartphone maker Xiaomi and payments firm Ant Financial. The AI firm also supplies solutions for public security bureaus around China.

Megvii was one of eight Chinese AI firms blacklisted by the US for their alleged complicity in human rights violations in northwest China’s Xinjiang Uyghur Autonomous Region.
Other companies recently included on the list include Sensetime, the world’s most valuable AI startup, speech recognition and national language processing firm iFlytek, as well as surveillance camera makers Hikvision and Dahua Technology.
A company IPO typically takes place five to eight weeks after receiving approval from the listing committee during the hearing, according to guidelines from corporate law firm Mayer Brown. Xiaomi passed its listing hearing on June 7, 2018 and floated its shares on the Hong Kong stock exchange on July 8, 2018.

TikTok hires former US congressmen to review content policies amid scrutiny

Wei Sheng — Wed, 16 Oct 2019 07:42:32 +0000

TikTok will hire two former US congressmen as part of an external team to review its content moderation policies, including child safety, hate speech, misinformation, and bullying, the company said in a statement on Tuesday.

Why it matters: The popular short video-sharing platform, owned by Beijing-based Bytedance, is stepping up efforts to adjust content policies amid scrutiny from US regulators and Western media about whether it censors content to appease the Chinese government.

Bytedance has completely separated the account systems and content access for TikTok and domestic counterpart Douyin to free the company from any potential breaches of China’s internet controls and to provide international users with a relatively censorship-free platform.

Details: The company will hire an external group from the K&L Gates LLP law firm to work with its internal US management team to review and advise on the video-sharing app’s content policies, Vanessa Pappas, TikTok’s general manager for the US, said in the statement.

The advisory team includes former US congressmen Bart Gordon of Tennessee and Jeff Denham of California.
The company said it would further increase transparency around its content moderation policies and practices.

Context: US Senator Marco Rubio last week requested that the Committee on Foreign Investment in the United States (CFIUS) review Bytedance’s 2017 acquisition of short video app Musical.ly, which was later rebranded as TikTok, citing concerns that Bytedance apps are increasingly used to censor content.

The Guardian reported last month 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.
TikTok told The Verge last week that its content and moderation policies “are led by our US-based team and are not influenced by any foreign government,” adding that the Chinese government does not request it censor content.

Biometrics firm Megvii’s contract in Taiwan at risk after US blacklisting

Miles Goscha — Wed, 16 Oct 2019 05:48:58 +0000

The Taiwan government announced that it would investigate Chinese artificial intelligence (AI) and biometrics company Megvii after it was blacklisted by the US government last week, Focus Taiwan reported.

Why it matters: The investigation could put at risk Megvii’s recent contract to install a biometric security system at Taiwan’s Taichung Power Plant, with legislators wondering whether the firm’s technology raises national security concerns.

It could also complicate Megvii’s plans for its initial public offering (IPO), which, according to co-founder and CEO Yin Qi, it planned to “firmly carry on” with despite “some disturbance” after being blacklisted along with 27 other Chinese government agencies and companies.
Yin also said the company has been preparing for possible supply shortages since May in anticipation of being blacklisted and barred from purchasing crucial x86 servers and GPUs subject to US export regulations.

Details: In response to the Economic Committee’s concerns, Minister Sheng Jong-chin said he would ask the Ministry of Economic Affairs (MOEA)’s State-Owned Enterprise Commission to launch a comprehensive investigation of the blacklisted companies and instruct the ministry’s Information Management Center to conduct a review.

Megvii won a bid to install the security system at Taichung Power Plant on Sept. 12, less than a month before being added to the US government’s blacklist.
The system uses facial recognition to monitor contractors entering and leaving the facility.
According to Shen Jong-chin, it does not include employees of the state-run Taiwan Power Company.

Context: Megvii joins seven other Chinese companies and 20 of the country’s government agencies on the blacklist, including the police bureau in the Xinjiang Uighur Autonomous Region.

Beijing has since demanded that the US reverse its decision but hasn’t said whether it will retaliate.
Goldman Sachs said in a statement Tuesday it was reviewing its involvement as a joint sponsor of Megvii’s IPO alongside JPMorgan Chase and Citigroup, according to CNBC.
The Alibaba-backed AI firm is looking to raise up to $1 billion in a listing on the Stock Exchange of Hong Kong.

Bytedance short video platform TikTok poaching Facebook employees

Tony Xu — Tue, 15 Oct 2019 03:12:03 +0000

Bytedance short video app TikTok recently set up a new office near Facebook’s headquarters in Silicon Valley and has started to poach Facebook employees, CNBC reported, citing multiple people familiar with the matter.

Why it matters: As user growth in China decelerates, Bytedance is putting greater emphasis on expanding overseas. The company has been trying to better manage TikTok’s rapid growth to guard against potential pitfalls such as regulatory backlash.

Details: TikTok has poached more than two dozen employees from Facebook since 2018.

TikTok’s new office in Mountain View, California, puts it just a few miles from Facebook’s Menlo Park headquarters.
At around the same time, the Bytedance company also posted more than 10 job openings based in the San Francisco Bay Area on LinkedIn, including positions for product managers and safety policy managers.
Two former Facebook employees told CNBC that they left for TikTok because they want to join a popular media company going through extreme growth.
TikTok offers salaries as much as 20% higher than that of Facebook when poaching from the company.
According to the CNBC report, TikTok is interested in hiring employees from companies such as Facebook because they have the ability to address issues that arise with fast growth.
In addition to Facebook, TikTok has been poaching from tech companies such as Snap, Hulu, Apple, Youtube, and Amazon.
TikTok is also planning to move its headquarters in Culver City, California, to an office with the capacity for 1,000 employees.

Context: Bytedance recorded RMB 50 billion to RMB 60 billion (around $7.1 billion to $8.4 billion) in revenue in the first half of 2019, exceeding the company’s expectations and leading the company to revise its revenue target for the year to RMB 120 billion, according to Reuters.

The company’s global headcount has increased to around 50,000 in September as a result of an increased push into new areas, compared with 40,000 last year.

Trump to allow some exports to Huawei as trade talks resume

Wei Sheng — Thu, 10 Oct 2019 09:51:25 +0000

The US government will soon issue licenses allowing a select few American companies to supply goods to Chinese telecommunications equipment maker Huawei, The New York Times cited people familiar with the matter as saying on Wednesday.

Why it matters: The move could cool tensions between the US and China as another round of high-level trade talks start in Washington today, though the Trump administration ruled earlier this week that more Chinese tech firms would join Huawei on the US trade blacklist.

The ban on Huawei hasn’t technically gone into effect as the administration issued a 90-day reprieve on August 19 to allow some exports to Huawei to continue.

Details: In a meeting last week, President Trump gave the green light to begin approving licenses for some American companies to bypass a ban placed on Huawei in May. The restrictions effectively barred US companies from doing business with the Chinese firm.

The Huawei supplies will be limited to nonsensitive goods, or so-called general merchandise, said the report.

Context: Despite repeated denials, the Trump administration has been using the Huawei situation as a bargaining chip in its ongoing trade conflict with China.

In August, the administration officially barred US government agencies from buying telecoms equipment from Huawei soon after trade talks in July failed to produce a deal.
Trump made a similar announcement in late June that American companies would be permitted to resume sales to Huawei after his administration reached an agreement with China to resume trade negotiations.

US blacklisting to have no significant impact on operations: iFlytek CEO

Chris Udemans — Thu, 10 Oct 2019 06:02:13 +0000

Speech recognition firm iFlytek’s operations and development will not be significantly affected by the company being included on a US trade blacklist, according to its chief executive officer.

Why it matters: iFlytek along with several other Chinese technology companies and government agencies were on Monday added to the so-called US Entity List, effectively banning them from doing business with American firms.

The US Commerce Department said the blacklisting comes as the companies are “implicated in human rights violations and abuses” in China’s western Xinjiang Uigur Autonomous Region, home to predominantly Muslim minorities.
Sensetime, the world’s most valuable AI startup, and surveillance camera maker Hikvision, as well as Megvii and Yitu, were also added to the list.
iFlytek is one of China’s national “AI Champions” alongside Sensetime, Baidu, Alibaba, Huawei, and Hikvision, among others. These companies are tasked with spearheading China’s AI efforts as it seeks to become a technological leader by 2030.

Details: iFlytek chairperson and CEO Liu Qingfeng wrote in an internal memo on Wednesday that the company would appeal its inclusion to the Entity List, adding that the iFlytek would see healthy growth throughout the rest of the year.

The company expects to report profits of between RMB 330 million and RMB 380 million in the first three quarters of 2019, up 50% to 73% year on year, according to documents filed to the Shenzhen Stock Exchange on Thursday.
Liu said that iFlytek has made it possible for people to “communicate freely” using its translation services, with its products being used in 200 countries and regions around the world.

US official presses for review of Bytedance’s Musical.ly acquisition

Tony Xu — Thu, 10 Oct 2019 03:27:40 +0000

US Senator Marco Rubio on Wednesday requested that the Committee on Foreign Investment in the United States (CFIUS) review Bytedance’s 2017 acquisition of short video app Musical.ly, citing concerns that Bytedance apps are increasingly used to censor content, Reuters reported.

Why it matters: As trade tensions between China and the US intensify, an increasingly wider swath of Chinese companies are facing scrutiny by US regulators.

“TikTok US is localized, adheres to US laws, and stores all US user data in the US. Our content and moderation policies are led by our US-based team and are not influenced by any foreign government. The Chinese government does not request that TikTok censor content, and would not have jurisdiction regardless, as TikTok does not operate there.”

—TikTok spokeswoman to TechNode

Details: In a letter to the CFIUS chair, Treasury Secretary Steven Mnuchin, Rubio said that Chinese apps are more frequently being used to silence open discussion of topics considered sensitive by the its government.

Rubio said that China is using apps such as TikTok to advance its foreign policies and control on freedom of speech.
CFIUS reviews mergers and stock purchases to prevent harm to national security, and has been more closely scrutinizing Chinese investments in the US, the Reuters report said.
It is unusual for CFIUS to use censorship concerns to review an acquisition, according to the Reuters report citing lawyers familiar with the committee.
Rubio previously criticized the National Basketball Association for expressing regret over a now-deleted tweet by Houston Rockets general manager Daryl Morey, which voiced support for Hong Kong anti-government protestors.

Context: Co-founded by current Bytedance executive Alex Zhu in 2014, Musical.ly was acquired by Bytedance in December 2017 for nearly $1 billion.

In August 2018, Bytedance scrapped Musical.ly and moved its users to an updated version of its own short video platform TikTok.

US sanctions won’t have long-term impact, says Hikvision

Wei Sheng — Wed, 09 Oct 2019 09:47:34 +0000

Chinese video surveillance gear maker Hikvision said on Wednesday that US sanctions against the company won’t have a long-term impact on its businesses due to its limited reliance on US technology.

Why it matters: The latest US Commerce Department’s move to blacklist the Hangzhou-based company has put it in a similar position with Chinese telecommunications equipment maker Huawei, and both of which are targeted because of their ties with the Chinese government.

The company is one of the world’s largest manufacturers of video surveillance equipment and plays a key role in China’s ambitions to export its surveillance to the world.
The company is partly owned by the Chinese government through a series of entities that report up to the State-owned Assets Supervision and Administration Commission, the country’s powerful central body that oversees its state sector.
China Electronics Technology Group Corp., a state-owned defense and military electronics manufacturer, owns 40% of Hikvision, making it its biggest shareholder.

Details: Hikvision has “relatively low” reliance on US semiconductors as it sources most of its chips from domestic suppliers such as HiSilicon, a Huawei semiconductors subsidiary, said company CEO Hu Yangzhong on a conference call with analysts on Wednesday afternoon.

Hu said the company is still heavily relies on some advanced components from the US, including some photoelectric devices and lens for its surveillance cameras but declined to reveal the percentage of US components to its total supply.
The company pledged to expand investment into research and development as well as designing their own chips, according to Huang Fanghong, the senior vice president and secretary of the board.

Context: The US Commerce Department on Monday added the company, along with other Chinese government agencies and private firms, to a so-called “Entity List,” barring them from buying technology and equipment from American companies without approval from the US government.

A similar move against Chinese telecommunications equipment maker Huawei has forced the companies to lower revenue forecasts by $30 billion over the next two years and has made it difficult for the company to sell its new smartphones in overseas markets.
Hikvision suspended trading for its shares on the Shenzhen Stock Exchange on Tuesday, saying that the company is evaluating the impact of the incident.

Blizzard bans pro gamer from tournament following pro-Hong Kong remarks

Miles Goscha — Wed, 09 Oct 2019 03:05:17 +0000

US game developer Blizzard Entertainment removed a professional gamer from a “Grandmasters” competition for the video game Hearthstone on Tuesday after he made a statement supporting the ongoing pro-democracy protests in Hong Kong, CNET reported.

Why it matters: Blizzard’s action sends a message that the company is serious about enforcing its tournament guidelines, which prohibit participants from engaging in any act that brings them “into public dispute, offends a portion or group of the public, or otherwise damages” the California-based company’s image.

The move highlights the complex politics that non-Chinese companies must navigate when operating in the country.

Details: During an interview on the official Taiwanese Hearthstone stream, Chung “Blitzchung” Ng Wai shouted “Liberate Hong Kong, revolution of our age!” in Mandarin while wearing a gas mask.

Blizzard also cancelled Blitzchung’s prize money and banned him from Hearthstone competitions for 12 months.
In an interview with Polygon before his ban, Blitzchung acknowledged the divisiveness of his comment, stating that “There will be definitely be negative consequences.”
Blizzard is facing backlash from US government officials, with Senator Ron Wyden of Oregon commenting that “No American company should censor calls for freedom to make a quick buck.”
There also appears to be displeasure within the company as well, with part of a statue on its campus being covered to hide the words “Think Globally” and “Every Voice Matters.”

Context: Blitzchung’s ban comes as the NBA deals with fallout from a similar Hong Kong-related speech issue.

After Houston Rockets general manager Daryl Morey tweeted a picture signaling support for protesters in Hong Kong, various Chinese sponsors and partners broke relations with the team.
NBA commissioner Adam Silver’s Tuesday statement did little to control the damage, with Chinese state broadcaster China Central Television (CCTV) subsequently cancelling its broadcast arrangements for the NBA preseason.
Some have pointed to Blizzard’s ownership as a contributing factor to its decision to ban Blitzching: Tencent holds a 4.9% stake in the firm through its parent company Activision.

Huawei is producing 5G base stations without US parts: CEO

Wei Sheng — Fri, 27 Sep 2019 07:57:06 +0000

The outside of one of Huawei’s buildings on July 30, 2019, in Shenzhen. (Image credit: TechNode/Shi Jiayi)

Founder and CEO of embattled Chinese telecommunications equipment maker Huawei said on Thursday that it has started making 5G base stations without components from the United States, which placed the company on a trade blacklist in May.

Why it matters: The announcement indicates that the damage to Huawei’s telecom gear business from US trade restrictions barring the company from buying American-made components and technology has been limited, though they have resulted in the loss of access to key technologies needed to support its consumer business.

Huawei announced earlier this month that is had shipped more than 200,000 5G base stations and secured over 50 5G contracts around the world.
Last week, the company launched a new 5G flagship smartphone in Europe without popular Google apps and services such as YouTube and Gmail because of the US trade ban.

Details: Huawei will start mass-producing 5G base stations free of US components next month, Ren Zhengfei said on a panel discussion at the company’s headquarters in Shenzhen on Thursday.

The company will begin with producing 5,000 5G base stations a month during the initial phase, and annual production next year is expected to hit 1.5 million units, according to Ren.
Ren said Huawei would still like to use US components if the ban is lifted because he company has “emotional ties” with long-time US suppliers.
Huawei is willing to license its 5G mobile technology to a US company, Ren said, echoing his remarks earlier this month that he is open to selling the company’s 5G technology to Western firms for a one-off fee.

Chinese drone maker Ehang files for US IPO: report

Wei Sheng — Fri, 27 Sep 2019 04:35:05 +0000

Chinese drone maker Ehang has secretly filed an application for an initial public offering with Nasdaq, seeking to raise as much as $200 million, Bloomberg reported on Thursday, citing people familiar with the matter.

Why it matters: The drone maker joins a number of Chinese startups seeking to raise funds on US stock markets, such as coffee chain Luckin Coffee, despite Beijing’s efforts to lure high-tech firms to list domestically.

China has set up a Nasdaq-style tech board on the Shanghai Stock Exchange to boost investments to the country’s high-tech sectors, but the bourse gives its preference to companies in the semiconductor and traditional manufacturing industries.

Details: Ehang plans to offer 10% to 15% of its shares in the IPO, with the company’s valuation not yet set due to volatile market conditions, according to the report.

The company is still deliberating the matter and details of the offering including timeline and fundraising size could still change.

Context: Founded in 2014, the Guangzhou-based company specializes in drones used for commercial uses such as agriculture.

The company pivoted to the passenger drone market in 2016 when it unveiled a passenger drone concept which it said would retail for up to $300,000.
Early last year, the company said it had tested the vehicle which is capable of carrying one person at speeds of up to 80 miles per hour.
In January, EHang was authorized by the Civil Aviation Administration of China as the first company to test autonomous aerial passenger vehicles.
The company is testing low-altitude drones to shuttle passengers in Guangzhou.

Five Eyes sign cybersecurity agreement, target threats from China

Chris Udemans — Tue, 24 Sep 2019 04:10:53 +0000

Member states of the “Five Eyes” international intelligence alliance have signed a joint agreement on “responsible” use of cyberspace, with the group looking to target issues including intellectual property (IP) theft coming from China.

Why it matters: China is home to a number of high-profile advanced persistent threat (APT) groups, typically state-backed organizations that conduct clandestine cyber-espionage campaigns to gather intelligence and target the private sector.

The agreement was signed ahead of a meeting of the United Nations’ General Assembly this week.
Signatories include 27 countries from around the world, including the US, the UK, Australia, New Zealand, and Canada—members of the so-called Five Eyes.
The agreement calls for countries to abide by already existing cybersecurity frameworks, while China and Russia look to rewrite the rules through a new set of accords.

“State and non-state actors are using cyberspace increasingly as a platform for irresponsible behavior from which to target critical infrastructure and our citizens, undermine democracies and international institutions and organizations, and undercut fair competition in our global economy by stealing ideas when they cannot create them.”

—Signatories of the agreement

Details: Though the document does not explicitly mention China, the complaints it details have long been seen as pain points when dealing with the world’s second-largest economy.

Most recently, social networks including Twitter and Facebook have drawn attention to China’s disinformation campaigns, in which the country was accused of using the internet to sow discord during the Hong Kong protests.
The signatories also called for human rights to be respected online and offline, “including when addressing cybersecurity.”
The agreement lays out basic guidelines for states to conduct themselves online, though it does not provide specifics.
The group said that governments should follow international law in cyberspace.

Context: China’s state-backed hackers have recently been accused of stealing overseas cancer research and patient data as mortality rates from the affliction increase and Chinese companies look to the lucrative oncology industry.

Meanwhile, a central point of the US-China trade war is alleged IP theft, in which the Trump administration has accused China of seizing US technology through cyber-espionage and tech transfers.
There is currently only one legally binding international treaty governing cybersecurity, though China and Russia have not signed it, instead calling for a new agreement at the UN.

Apple reverses plans to make Mac Pro in China after securing tariff exemption

Wei Sheng — Tue, 24 Sep 2019 03:40:19 +0000

Apple said on Monday it will keep making new Mac Pro desktop computers in the United States after the company was granted certain tariff exemptions from the US government, reversing earlier plans to move production to China.

Why it matters: The California-based tech giant has been embroiled in a trade war between the US and China, with the American President Donald Trump pressing the company repeatedly to move more of its production from China to the US and imposing billions of dollars in tariffs on Chinese-made goods.

Many of Apple’s products are designed by the company in the US but are imported from China after assembly, meaning that they are subject to the US tariffs.
The $6,000 Mac Pro desktop, which was introduced in 2013, is Apple’s only major device assembled in the US.

Details: The Mac Pro desktops will continue to be manufactured in its Austin, Texas facility, said Apple in a statement on Monday.

The company said it would begin production of the latest Mac Pro, which was unveiled at Apple’s annual Worldwide Developer Conference in June, at the same facility “soon,” without specifying a date.
Texas Governor Greg Abbott said in a statement that he was grateful for Apple’s investment and that the move was a testament to the state’s workforce and business climate, according to the Wall Street Journal.

“…every Apple product is designed and engineered in the US, and made up of parts from 36 states, supporting 450,000 jobs with US suppliers, and we’re going to continue growing here.”

—Tim Cook, Apple CEO, in the statement

Context: Apple had tapped Taiwanese contractor Quanta Computer to manufacture the Mac Pro and was ramping up production at a factory near Shanghai, according to a Wall Street Journal report in June citing people familiar with the plans.

The Monday decision follows the Trump administration’s move last week to grant 10 tariff exemptions on items Apple imports from China, including its Magic Mouse 2, Magic Trackpad 2 and some internal components.
But that will not change the fact that the company’s major products such as iPhones and MacBooks will face tariffs after December 15.

Huawei suspended from prominent global cybersecurity group

Chris Udemans — Fri, 20 Sep 2019 05:03:36 +0000

Telecommunications giant Huawei has been suspended from a prominent global cybersecurity trade group amid ongoing US scrutiny of the Chinese company.

Why it matters: While largely unknown, the Forum of Incident Response and Security Teams (FIRST) has become a first responder in major breaches and cybersecurity incidents around the world.

The organization’s members include governments, companies, and cybersecurity researchers from across the globe. Notable firms include Accenture, Cisco, Google, Apple, and Alibaba.
The company’s suspension could put a vast number of its users at risk given that FIRST members share intelligence about security threats.

Details: FIRST said that the organization resorted to suspending Huawei’s membership to comply with evolving US export regulations after Huawei was blacklisted, which blocked the tech giant from sourcing American components.

FIRST called for organizations involved in cybersecurity response to be allowed to cooperate even when sanctions are imposed.
The organization said it “regrets” being put in a position where it was forced to suspend Huawei’s membership.
The security of the internet is dependent on security professionals around the world being able to work together to mitigate security risks, FIRST said.
The organization said it would work with US authorities and Huawei to assuage any concerns about the company’s involvement in its operations.

“When regulation directly affects the ability to cooperate, the stability and security of the internet can be placed at risk.”

—FIRST in a statement

Context: Washington has made repeated calls to limit Huawei’s operations in the US, citing national security concerns.

Huawei critics have said that given the company’s Chinese roots, it could be compelled to give up sensitive information to China’s government.
The telecom giant was added to the US Department of Commerce’s “entity list” earlier this year, which bars US companies from doing business with it.

China’s Zoom users switch to local version after blockage

Emma Lee — Thu, 19 Sep 2019 05:16:00 +0000

Chinese users of Zoom are gradually migrating to a Chinese version of the video-conferencing service after the country blocked the global version last week.

Why it matters: Amid an intensifying battle over technology and trade between China and the US, Zoom has been added to a lengthy list of US internet service firms blocked in China. Blocking access to Zoom may improve growth opportunities for Chinese companies in the sector.

The size of China’s video conferencing market surged 36.2% year on year to RMB 3.1 billion ($439 million) in 2018, according to data from research institute CCW Research.
Chinese companies in the sector include Shenzhen-listed BizConf Telecom and XYlink, among others.
Mainland Chinese users began complaining that Zoom was no longer available in the country on September 8.
Although Zoom has said that international expansion is a major opportunity, its revenue from the rest of world only represented 20% of its earnings for the six months ended July 31, 2019.

Read more: Is Zoom crazy to count on Chinese R&D?

“Zoom’s website, meetings, and webinars are currently inaccessible in China. Our investigation remains ongoing, but we have determined that the cause is an inability to connect to the local China DNS (domain name system).”

—Priscilla Barolo, Zoom communications manager to TechNode

Details: Zoom users in the country are moving to the localized version, run by partner Huawan Telecom.

Local media reported that Huawan received a heads-up before the block, and required employees to switch to the local version to ensure normal workplace communication.
Intensifying international tensions and the country’s upcoming 70th anniversary are cited as reasons for the block, according to Chinese media.
Other third-party apps using Zoom as a communication tool are also recommending that users switch to the local version to ensure a stable connection.
An industry insider told Chinese media that failure to comply with local laws may have also contributed to the block. China requires communication tools for local enterprises to run services on domestic servers. The government could not locate Zoom’s server, according to the source.

Context: Founded in 2013, Huawan Telecom is a video-conferencing service provider based in Shanghai.

Couple charged in US with IP theft used to market Chinese biotech firm

Miles Goscha — Wed, 18 Sep 2019 02:49:33 +0000

Federal prosecutors have charged two former employees of Nationwide Children’s Hospital in Ohio with stealing trade secrets for the Chinese biotech company they founded in 2015, authorities said in an indictment unsealed Monday, STAT reported.

Why it matters: Trade secret theft has been a recurring theme in escalating trade tensions between the US and China. The National Institutes of Health (NIH) has been working with federal investigators to probe grant recipients’ foreign ties, particularly with China.

Nationwide Children’s Hospital is one of the top-funded research institutions in the US.

“Nationwide Children’s Hospital devoted years of work and its own money to researching exosomes in order to promote honorable medical advances.”

—Benjamin Glassman, the US attorney in Ohio’s Southern District

Details: Yu Zhou, 49, and his wife, Li Chen, 46, worked in separate research labs at Nationwide Children’s Hospital in Columbus, Ohio until around two years ago. Together they founded biotech companies in both China and the US that marketed a technology called exosome isolation, which prosecutors say is based on a Nationwide Children’s trade secret. The couple was arrested in July.

Exosomes are small bubble-like groups of molecules that transport proteins and genetic information between cells.
Effectively isolating them could open doors to more effective drug delivery techniques.
According to prosecutors, Zhou and Chen received nearly $1.5 million upon co-founding their US-based company.

Briefing: MIT scientists decry crackdown on researchers of Chinese origin

Context: While the controversial US government crackdown on intellectual property theft and misappropriation of research grant funds is sometimes lumped together as a singular effort, the consequences differ.

Researchers charged with misusing NIH grant funds or failing to disclose the extent of their foreign ties were fired from their posts at research institutions or universities.
Those accused with intellectual property theft have faced more serious consequences, with the government going as far as to request the extradition of a scientist from Switzerland on charges that also included corporate espionage.

Senators urge FCC to review US operations of Chinese telecom firms

Wei Sheng — Tue, 17 Sep 2019 05:38:08 +0000

Two United States senators on Monday asked the Federal Communications Commission (FCC) and national security agencies to review whether two Chinese state-owned telecom operators should be barred from operating in the US, Reuters reported on Tuesday.

Why it matters: The request shows that efforts to restrict Chinese telecom company operations in the US are expanding as the government highlights concerns about national security and Chinese espionage.

The FCC in May denied an application by China Mobile to provide telecom services in the US. Chairman Ajit Pai said that the Chinese government would use China Mobile to conduct activities seriously jeopardizing to US national security, law enforcement, and economic interests.
Citing national security concerns, the Trump administration in May banned Chinese telecom firm Huawei from buying US-made components and technology without special approval and effectively barred American carriers from using telecommunications equipment made by Huawei.

Details: Senate Minority Leader Charles Schumer along with Senator Tom Cotton, a Republican, asked the FCC chairman Pai in a letter to the commission to review approvals that allow China Telecom and China Unicom to operate in the US.

“These state-owned companies continue to have access to our telephone lines, fiber optic cables, cellular networks, and satellites in ways that could give [China] the ability to target the content of communications of Americans or their businesses and the U.S. government, including through the ‘hijacking’ of telecommunications traffic by redirecting it through China,” the senators wrote in the letter.
A China Telecom spokesman told Reuters that the company had been providing telecom services in the US for almost 20 years and it made the protection of customer data a priority.
Pai “has made it clear that the Commission is reviewing other Chinese communications companies such as China Telecom and China Unicom,” an FCC spokesman said.

Briefing: FCC votes unanimously to block China Mobile’s phone services bid

Context: China Telecom and Unicom have licenses that were granted by the FCC in the early 2000s, allowing them to operate in the US, but some regulators have said that they should be re-examined.

Brendan Carr, an FCC commissioner, said in May that the agency should also look at the other two Chinese carriers after it denied China Mobile’s application.

China is catching up to the US in AI: Trump administration CTO

Chris Udemans — Wed, 11 Sep 2019 05:25:13 +0000

The Trump administration’s chief technology officer warned on Tuesday that while the US currently leads in artificial intelligence (AI) development, China is quickly narrowing the technology gap.

Why it matters: China’s government has taken a top-down approach to improving the country’s technological capabilities, with emphasis on AI advancements.

The State Council, China’s cabinet, in 2017 laid out plans to become a global leader in AI development by 2030.
Some observers have dubbed the US-China dynamic an “AI arms race” amid trade tensions between the world’s two largest economies.

“Although America is the leader in AI, China is working to catch up… Today, our goal is very clear: The uniquely American ecosystem must do everything its collective power can to keep America’s lead in the AI race and build on our successes.”

—US Chief Technology Officer Michael Kratsios

Details: Kratsios added that the competition between the two nations too often focuses on the disparity in government spending on research and development, referring to China’s funding budgets as being “aspirational” and “cryptic.”

Kratsios was speaking at an event in organized by think tank the Center for Data Innovation (CDI) in Washington D.C.
He said that the US is home to 17 of the world’s 32 AI unicorns, adding that the country has around 2,000 AI companies. The CTO criticized the Chinese government for “choosing winners in the AI field,” referencing the country’s state-sanctioned AI champions—Tencent, Baidu, Alibaba, Sensetime, and iFlytek.
Kratsios said US government agencies planned to spend $1 billion on non-defense AI research during the next fiscal year.

Context: In February US President Donald Trump signed an executive order directing government agencies to increase their focus on AI. However, observers criticized the order, saying it lacked clarity and funding goals.

Kratsios is not the first to warn of China’s technological rise. In a report last month, the CDI said that China lags in AI but is catching up to the US.
The organization said the country’s civil-military partnerships, in which the government is promoting closer ties between the private sector and the military, could hurt China’s AI ambitions as distrust of companies linked to the Chinese government grows amid US-China tensions.

Trade war helping Germany-based SAP pull ahead of US rivals: CEO

Eliza Gkritsi — Tue, 10 Sep 2019 10:03:40 +0000

SAP, one of the world’s largest enterprise software companies, could outperform its US rivals during the trade war because it is free to trade with China, the company’s CEO Bill McDermott said in an interview at a TechCrunch event on September 6.

The trade war has created a binary hurdle for American rivals including Microsoft and Cisco: not only has the US banned trade with Chinese businesses, China’s state-owned firms will not let them bid on their procurement tenders.

“The fact that Germany has excellent relations at the public and the private-sector level in China, it’s no question it’s a help to us.”

—Bill McDermott, SAP CEO

Why it’s important: The Trump administration is betting on a strategy of non-cooperation to stifle China’s competitive tech companies on the global stage. McDermott’s comments indicate that the trade war is helping it gain an edge over US rivals simply because it has unfettered access to the Chinese market.

Details: SAP, with a market capitalization of $145 billion, makes financial and management software for enterprises, competing with Microsoft, Cisco, and Oracle among others. SAP’s German roots has allowed the company to target China’s gigantic state-owned enterprises as clients.

But the company is toeing a thin line. Last year, it spent $10 billion to acquire two American software companies, Qualtrics and Callidus software. McDermott said that if more than 25% of the company’s software is based on US innovation, they could also be subjected to US export restrictions.
McDermott said they have not significantly changed their software development process in anticipation of a no-deal between the world’s largest economies.
SAP does not disclose its revenue from China.
The German company has implemented a cost-cutting strategy to offset the costs of its spending spree. It implemented layoffs and has promised to boost margins by 500 basis points over the next five years.

Context: Washington has taken bold moves in the trade war, trying to force Beijing to end practices that the Trump administration sees as unfairly promoting China’s homegrown businesses and stifling foreign competition.

American companies seem to disagree with this strategy, claiming that lack of access to one of the world’s biggest markets is hurting profits.
US chipmakers reportedly lobbied hard for the US government to end a ban on trading with Huawei.

Apple and Foxconn admit to Chinese labor law violations

Eliza Gkritsi — Tue, 10 Sep 2019 01:49:32 +0000

Apple and its manufacturing contractor Foxconn admitted to breaking Chinese labor regulations by the excessive use of temporary staff in the world’s largest iPhone factory, according to Bloomberg. The accusation came in a report by non-profit advocacy group China Labor Watch (CLW), which also said that Apple’s Taiwanese manufacturer subjected staff to other illegal and harsh working conditions.

Why it’s important: This is not the first time Foxconn, China’s largest private sector employer, has broken Chinese labor laws. Last month, Foxconn fired two executives after another CLW report found that temporary staff and underage interns making Amazon Echo speakers exceeded the legal limit in its Hengyang factory in central Hunan Province.

Apple has sought to mitigate poor labor standards in some of its vendors by pressuring them to change their practices or face losing contracts with the Silicon Valley giant, as well as with an annual responsibility report on its supply chain.

Details: For its report, CLW claims it sent undercover investigators to Foxconn’s Zhengzhou plant in central China, including one who worked there for four years. At the world’s largest iPhone factory, CLW found that around 50% of the workforce in August was made up of temporary staff, including interns who were in high school. Chinese law stipulates that only 10% of a factory’s plant should be temporary.

The report said that last year, 55% of the workforce were dispatch workers including student interns, compared with 50% this August. The number now is around 30%, as teenage interns are returning to school.
Apple sent an investigator to the factory to examine findings in August, but did not stop manufacturing activity despite the violation, the CLW said on Sunday.
On Monday, Apple told Bloomberg that it is “working closely with Foxconn to resolve this issue” and that it will “take immediate corrective action” after finishing an operational review. It added that less than 1% of workers were teenage interns.
Apple denied other allegations in the report, Bloomberg reported. CLW claimed that during peak production periods, resignations are not approved, some temporary staff have not received promised bonus payments, student interns work overtime—prohibited under Chinese law, workers stay overnight for unpaid meetings, and work injuries are unreported.
The advocacy group also said that student interns work busy periods, with some working 100 overtime hours per month, far exceeding the legal limit of 36 overtime hours monthly.
Foxconn found “evidence that the use of dispatch workers and the number of hours of overtime work carried out by employees, which we have confirmed was always voluntary, was not consistent with company guidelines,” Bloomberg reported.

Context: CLW published the report ahead of Apple’s iPhone release which will take place Tuesday morning in the US. Foxconn hires thousands of temporary staff every year during key moments of the year to meet demand.

Foxconn’s labor standards have been under scrutiny for many years, which then extends to the tech companies that buy from the Taiwanese manufacturer.
In 2011, an explosion in a Foxconn factory in Chengdu serving Apple, Samsung, and Microsoft led to three deaths and 15 injuries. The next year, pictures of suicide-prevention nets in a Guangdong plant went viral.

China hackers reverse engineered NSA spy tools, researchers say

Chris Udemans — Fri, 06 Sep 2019 04:44:46 +0000

Chinese state-backed hackers reverse engineered tools used by a US-government affiliated hacking group, enabling them to expand their arsenal of espionage tactics without the need for a direct attack on US intelligence agencies, new research suggests.

Why it matters: Developing new tools for intrusion and espionage requires significant resources. The ability to mimic these tools instead allows hacking groups to develop their arsenal in a relatively short period of time.

The hackers are part of an advanced persistent threat (APT) group, which typically run extended intrusion campaigns and are backed by governments around the world.

Details: APT3, also known as the UPS Team, were able to engineer their own version of a network infiltration tool used by the Equation Group, a hacking collective linked to the National Security Agency (NSA), an American national intelligence unit.

The Equation Group’s tool was initially leaked online in 2017 by a clandestine group of hackers dubbed the Shadow Brokers. However, researchers found that a variant of this tool was used by Chinese hackers prior to the leak.
Researchers at cybersecurity firm Check Point said they cannot say with absolute certainty that the tools were developed in-house, but evidence indicates Chinese APT groups collect tools used against them to “reverse engineer and reconstruct them to create equally strong digital weapons.”
The researchers said that this could suggest the US and China are engaged in a “cyber arms race” to develop new cyber tools.

“We believe that this artifact was collected during an attack conducted by the Equation Group against a network monitored by APT3, allowing it to enhance its exploit arsenal with a fraction of the resources required to build the original tool.”

—Mark Lechtik and Nadav Grossman, researchers at cybersecurity firm Check Point

Context: APT3 is one of many Advanced Persistent Threat groups that are active in China. Others include APT41, APT40, and APT30.

These groups typically have a specific area of focus, such as particular industries or geographies.
For example, APT41 is known for having targeted the healthcare, high-tech, and telecommunications sectors in more than a dozen countries. Meanwhile, APT40’s focus is on nations important to China’s controversial Belt and Road Initiative, as well as countries in Southeast Asia.

Apple overpays Chinese developers by 7 times due to Deutsche Bank ‘issue’

Wei Sheng — Thu, 05 Sep 2019 10:27:19 +0000

Apple mistakenly transferred payouts totaling around seven times what was due to some of its Chinese app developers as a result of a recent issue experienced by its partner, Deutsche Bank, according to a screenshot of an email sent by the iPhone maker circulating on microblogging platform Weibo.

News of the error began appearing on social media Wednesday, with several Chinese developers posting that their July earnings from Apple’s App Store were paid out at significantly higher rates, multiplied by a factor of around seven times.

Why it matters: As of June, the number of Chinese developers for Apple’s App Store has topped 2.2 million and global sales exceeded RMB 200 billion since the product’s launch in 2010, according to the Xinhua News Agency, citing Isabel Ge Mahe, Apple’s vice president and managing director of Greater China.

Some developers speculated that Apple may have mistakenly paid in US dollars instead of Chinese yuan without converting the currency. The US dollar and the Chinese yuan exchange rate was 1.00 to 7.15 on Thursday.

Apple did not immediately respond to a request from TechNode on Thursday.

Details: Apple said in the email posted to Weibo that Deutsche Bank is reprocessing a payment of the developer’s July earnings, which may result in two sets of payments being paid, one of which was issued in error.

Zou Zhenlu, the developer of an SMS spam-blocking app called “Xiongmao Chi Duanxin,” or “Panda Eats Messages” (our translation), confirmed to TechNode that he had received an SMS on Wednesday morning alerting him that the payment was received. He saw that the amount was several times higher than what he was expecting.
The developer of a goal-tracking app called “My Goals,” Zhang Zhong, told TechNode that he also received an inflated July payment from Apple, and he went to the bank and refunded the first payment on Thursday after receiving the email.
“If this is the case, your bank will contact you to approve a return of the incorrectly issued payment. We appreciate your assistance in correcting this issue by approving your bank’s request and we apologize for any inconvenience this may have caused,” the email said.
It’s unknown how many developers’ payouts were affected by the issue and whether developers outside China were involved.

“I thought [the higher payment] was because sales of my app surged, so I logged into my developer’s console where I found the amount of US dollars I received was exactly the same as the amount of RMB I should receive. I talked to some of my developer friends and found that many of them have received seven times their payment amount, not just me.”

—Zou Zhenlu, app developer (our translation)

Context: The payments to developers are generated from app sales, in-app purchases, subscriptions, sponsorships, and advertising after taking a 30% commission.

Podcast startup Himalaya’s $100 million VC funding called into doubt: report

Wei Sheng — Wed, 04 Sep 2019 07:50:30 +0000

An investor that Himalaya Media, a San Francisco-based podcast platform backed by Chinese audio service platform Ximalaya FM, said contributed to its $100 million venture capital funding has denied participation in the deal, according to an Axios report on Wednesday.

Why it matters: The deal, which was announced in February, was considered to be Shanghai-based Ximalaya FM’s first international push, though the two firms say that they are operated separately.

Ximalaya FM was valued at RMB 24 billion (around $3.4 billion) after receiving an RMB 4 billion funding from Tencent and General Atlantic in August 2018.
In February, Himalaya announced that it had raised $100 million from General Atlantic, SIG, and Ximalaya FM.

Details: General Atlantic said it never invested in the US podcasting startup, according to a company spokesperson cited by Axios.

Himalaya CEO Yu Wang said that General Atlantic didn’t directly invest in the company and the $100 million was a three-year commitment mostly from Ximalaya FM, of which Himalaya has received only around $10 million to date, said the report.
Himalaya has removed a press release about the funding because, Wang said, part of the release was “a little bit confusing.”

Context: Overstating investments is an “open secret” among Chinese startups, Xu Xiaoping, the founder of ZhenFund, a venture capital firm in China, told Chinese tech news outlet Tencent Tech in 2015.

It was common for startups to exaggerate their amounts of funding by up to ten times, or to just substitute the currencies of the investments from RMB with US dollars, said an anonymous venture capitalist cited by Tencent Tech.

Huawei reconsiders Mate 30 overseas release amid Google cut-off: report

Wei Sheng — Fri, 30 Aug 2019 05:00:38 +0000

Huawei could delay sales of its upcoming Mate 30 flagship smartphone overseas due to its lack of Google services amid the US trade ban, the South China Morning Post reported citing people familiar with the matter as saying.

Why it matters: Prospects for Huawei’s smartphone business remain uncertain under the cloud of US sanctions on the world’s second-largest handset seller.

Google confirmed it won’t allow Huawei to install its apps and services on the new handsets as the temporary US government reprieve doesn’t apply to new products.
Europe is Huawei’s most important smartphone market outside of China, but its smartphone sales from the region slid 16% in the second quarter compared with the same period a year earlier, according to research firm Canalys.

INSIGHTS: Supply chain body blow: Huawei’s reliance on US tech, charted

Details: The 5G-enabled handset will continue to run on the Android operating system, but it won’t have access to Google services along with apps such as Google Play and Google Maps, said the report. The planned delay is not final and any further action by the US government may affect Huawei’s decision on the release.

Huawei will sharpen its focus on selling the new Mate 30 to consumers in its home market, where Google services and apps are not widely used, according to the report.
“The open Android operating system and the ecosystem around it are still our first choice,” Huawei said in a statement sent to the South China Morning Post. “Please stay tuned for our new products.”

ZTE recovery in process with $85 million of profits in Q2

Eliza Gkritsi — Wed, 28 Aug 2019 03:01:16 +0000

China’s second-largest 5G equipment maker ZTE is continuing its recovery from a disastrous 2018 with a profitable second quarter. The Shenzhen-based company attributed its positive results to 5G equipment sales.

Why it matters: ZTE recorded RMB 607 million ($85 million) in profits during the quarter ended June 30 as it works to turn around losses of around RMB 7 billion in 2018 following US sanctions and a $1.4 billion fine over its business with Iran.

ZTE recorded losses of RMB 2.4 billion in the same period a year ago.
The company has been working against tough competition in the 5G landscape. China’s market is dominated by Huawei and other players such as Nokia and Ericsson are competing for contracts worldwide.

Details: ZTE earned RMB 22.4 billion in revenues in Q2, more than doubling the RMB 11.9 billion in revenue from the same period a year ago.

Profits from the company’s first half of the year totaled RMB 1.47 billion (around $206 million) against a net loss of RMB 7.8 billion the same period a year ago.
The company forecasted profits in the range of RMB 3.8 billion to RMB 4.6 billion for first nine months of 2019, ending on September 30.
ZTE said that it is focusing on technologies that will boost its 5G business, such as operating systems, databases and chips.

Context: The telecom giant was hit hard by US sanctions in 2018, and continues to face aggressive lobbying from Washington, which wants to exclude Chinese companies from the development of its 5G networks.

ZTE halted a significant part of its operations for around four months beginning in April 2018.
It lost around half of its share value in the same year and faced liquidity problems to the point that it sold off property holdings in its home city of Shenzhen.
Despite Washington’s attempts to thwart international telecom operators from using Chinese products in the development of 5G networks, ZTE said that it had signed 25 commercial 5G contracts with global operators in the first half of the year. Huawei announced that it had signed 50.
Prior to US sanctions, ZTE posted record profits of RMB 1.69 billion in the first quarter of 2018.

Apple eyes China’s BOE for cheaper OLED iPhone screens

Wei Sheng — Thu, 22 Aug 2019 03:53:35 +0000

Apple is testing advanced screens from leading Chinese display maker BOE for iPhones next year, as the United States tech giant attempts to cut costs and reduce reliance on South Korea’s Samsung, the Nikkei Asian Review reported on Wednesday.

Why it matters: If Apple chooses BOE’s screens, the Chinese state-owned company could begin to challenge Samsung’s supremacy in the display panel sector.

The sector has been propped by Beijing with billions of dollars of state and public funds over the past decade.
The global display panel market is expected to rise from last year’s $25.5 billion to more than $30 billion this year, according to IDTechEx Research.
However, BOE is still vulnerable to a potential clampdown from the US, possibly restricting supplies of crucial materials from Corning, 3M and Applied Materials, said the report.

Details: Apple is “aggressively testing” BOE’s flexible organic light-emitting diode, or OLED, displays, and will decide by the end of this year whether to take BOE on as a supplier of this single most expensive component, said sources quoted by Nikkei.

Apple is currently testing BOE’s flexible OLED displays from the company’s facility in the southeastern Chinese city Chengdu, said the sources.
BOE is also building another facility in Sichuan Province, which would be allocated to Apple if it places orders, they said.

Context: An OLED display is the most expensive component on the iPhone. It accounts for nearly 30% of the total cost of the iPhone X released in 2017 and was sourced from Samsung.

BOE-made OLED displays could be 20% cheaper than Samsung’s products, said Nikkei, citing a source familiar with the matter.
BOE was founded in 1993 in Beijing as a military and defense supplier and has become a major recipient of Chinese government’s grants and subsidies. The company received over RMB 2 billion (around $283 million) in subsidies last year, said the report.

President Trump suggests no extended reprieve for Huawei

Wei Sheng — Mon, 19 Aug 2019 03:41:48 +0000

US President Donald Trump on Sunday said he did not want the United States to do business with Chinese telecommunications giant Huawei. The statement came after the Commerce Department was reportedly expected to extend a reprieve for the company, according to Reuters.

Why it matters: Trump’s remarks indicate that Huawei’s fate remains uncertain as the previous reprieve nears its expiry date.

Shortly after it put Huawei on a trade blacklist, the Commerce Department gave the company a 90-day “temporary general license” that allows some exports to Huawei to be resumed.
The license was effective from May 20 through August 19.
Reuters reported last Friday that the Commerce Department was expected to extend the grace period for another 90 days.

“At this moment it looks much more like we’re not going to do business [with Huawei]. I don’t want to do business at all because it is a national security threat and I really believe that the media has covered it a little bit differently than that.”

—President Trump told reporters before boarding Air Force One in New Jersey on Sunday

Huawei’s Hongmeng may not replace Android on smartphones after all

Details: Trump said some small parts of Huawei’s business could be exempted from a broader ban, but that it would be “very complicated.”

He did not say whether his administration would extend the “temporary general license.”
The situation surrounding the license remains fluid and the decision to continue the Huawei reprieve could change ahead of the Monday deadline, according to Reuters, citing sources familiar with the matter.

Context: The Huawei situation has become a bargaining chip in the ongoing trade conflicts between the US and China.

Trump has repeatedly said the US’s dispute with Huawei could be resolved as part of a trade deal with China.
Trump promised to allow more sales of non-sensitive products from US suppliers to Huawei at the G20 meeting in Japan in June after he met with Chinese President Xi Jinping.
His administration readied a federal purchasing ban on Huawei on August 8 after the latest round of trade talks with China ended without a deal and Beijing halted purchases of US farming goods.
The move was followed by the Trump administration’s decision to delay 50 applications from US companies asking to resume exports to Huawei on August 9.

UPS invests in unmanned truck developer TuSimple

Jill Shen — Fri, 16 Aug 2019 05:28:22 +0000

Autonomous truck startup TuSimple has received an undisclosed amount of funding from UPS, as the delivery giant looks to tap the boom in unmanned-driving projects.

Why it matters: China-backed TuSimple, one of the fastest-growing autonomous vehicle players, aims to disrupt the $700 million US freight market with fully autonomous Level 5 self-driving rigs.

The deal comes a few months after TuSimple raised $95 million in D-round financing led by Sina, the operator of China’s biggest microblogging site Weibo, making it the first driverless trucking unicorn at a $1.1 billion valuation.
The company has been testing rigs on a stretch of highway between Tucson and Phoenix, Arizona since 2018. It also won China’s first permit to trial trucks in the Lingang area of Shanghai later that year.

Detail: UPS announced on Friday that the company’s VC arm UPS Ventures had taken a minority stake in TuSimple.

The two companies began testing self-driving tractor-trailers in March, followed by the launch of self-driving services in May, with a driver and engineer monitoring behind the wheel.
TuSimple also recently completed five round trips in a two-week pilot for the US Postal Service, hauling goods between its Phoenix and Dallas distribution centers. A spokesperson for TuSimple said Friday that the collaboration would continue, without revealing details.

“While fully autonomous, driverless vehicles still have development and regulatory work ahead, we are excited by the advances in braking and other technologies that companies like TuSimple are mastering.” —Scott Price, chief strategy and transformation officer at UPS

Context: Freight companies have been struggling to find drivers to keep up with demand amid a labor shortage in the freight industry.

The American Trucking Association estimates that the US needed more than 60,000 drivers by the end of last year, and that number is expected to triple by 2028.

Cracks show in electronics supply chain as trade war continues: report

Wei Sheng — Thu, 15 Aug 2019 06:18:29 +0000

The effects of the US-China trade war on the global supply chain for consumer electronics are beginning to show, reported Bloomberg on Thursday. Many manufacturers are moving operations out of China amid the uncertainty.

Why it matters: The conflict between the world’s two largest economies is not only affecting manufacturers in China and US farmers, but is also disrupting the decades-old global electronics supply chain that produces iPhones, laptops, and 4K televisions.

Manufacturers are forced to pay special attention to where they produce goods to avoid high US tariffs on products made in China, while still looking to cater to consumers in the world’s most populous country.

Details: Some firms are uprooting production lines from China amid concerns that the tensions show no indication of cooling, Bloomberg reported.

HP laptop-maker Inventec announced plans on Tuesday to shift production of notebooks for the US market out of China within months in response to President Trump’s threat to roll out full tariffs on Chinese-made goods.
GoerTek, a Chinese acoustic components supplier for Apple’s Airpods, is trialing production of the wireless earbuds in Vietnam.
Some Chinese firms are “de-Americanizing” their supply chains, reducing their reliance on US core technology out of fear that they will suffer the same fate as Chinese telecommunications equipment giant Huawei, which was put on a US trade blacklist in May.
Foxconn, the Taiwan-based iPhone assembler, said in April that it would start producing the handsets on mass in India this year as the company reduces its footprint in China.

Peter Thiel resumes Google offensive, calls China work ‘unprecedented’

Chris Udemans — Mon, 12 Aug 2019 04:22:15 +0000

Venture capitalist and Facebook board member Peter Thiel has reiterated his stance on Google’s presence in China, saying that it is “unprecedented” for a company to refuse contracts with the US military while seeking greater interaction with China.

Why it matters: Google has faced heightened scrutiny for its presence in China following revelations that it was working on a censored search engine to comply with Chinese laws.

The discussion has expanded to encompass questions about whether the company’s presence in China is benefiting the country’s military.
Thiel previously called for the FBI and CIA to investigate whether the Chinese government has infiltrated Google.

Details: Thiel claimed that even if Google isn’t working with the Chinese military, the technology the company develops in the country “gets handed on.” Thiel, who is also founder of controversial data-mining company Palantir, made the comments in an interview with Fox News on Sunday.

Google has repeatedly denied any military involvement in China.
Thiel stopped short of referring to the company’s actions as treachery, despite previously calling Google’s work in China “treasonous.”
Thiel said that Google had decided not to renew a contract with the US government while simultaneously pursuing its interests in China, a country he said is a geopolitical rival.

Context: Google’s AI research lab in Beijing has become a major point of contention, as critics say draw attention to the possible military applications of the technology the search giant develops in China.

Despite not offering any significant consumer-facing services in the country, Google has several businesses in China, including ad sales.
A Google executive claimed in July that the company had “terminated” the censored search engine it was developing for the Chinese market.
Thiel has not been immune to controversy. Palantir, which he originally founded in 2003, has been accused of racist hiring practices and condemned for its work with US immigration authorities on deportations.

US delays Huawei licenses as China halts farm purchases

Wei Sheng — Fri, 09 Aug 2019 07:52:47 +0000

The Trump administration is delaying a decision on handing out licenses for US companies to resume shipping to China’s Huawei as the trade conflict continues, Bloomberg reported on Friday.

Why it matters: The move indicates there is no let-up from the US in its trade blacklisting of Huawei as it approaches the August 19 deadline of a 90-day-reprieve.

The decision came after Beijing said it was halting purchases of US farming goods, according to people familiar with the matter cited by Bloomberg.
Companies seeking to export US-made components and technology to Huawei must apply for a special license after the Department of Commerce put the company on a trade blacklist on May 16.

Details: Commerce Secretary Wilbur Ross said last week he had received 50 requests and that a decision on them was pending, according to Bloomberg.

US chipmakers such as Intel, Qualcomm, and Broadcom sent their chief executives to meet with President Trump in July in a bid to accelerate the process of obtaining licenses to sell to Huawei.
Trump said last week there were no plans to go back on his commitment made at the G20 meeting in Japan in June to allow more sales of non-sensitive products from US suppliers to Huawei.

US readies Huawei federal purchasing ban despite upcoming hearing

Wei Sheng — Thu, 08 Aug 2019 03:52:04 +0000

Huawei’s Shenzhen office (Image credit: TechNode/Shi Jiayi)

The Trump administration released details of a rule on Wednesday that will officially bar US government agencies from buying telecommunications equipment from Huawei, despite the Chinese firm’s efforts to fight the move in court.

Why it matters: The rule comes after the latest round of trade talks between the US and China ended without a deal, making Huawei, again, a bargaining chip in a stand-off between the world’s two largest economies.

The prohibition cites the National Defense Authorization Act (NDAA) passed last year, which restricts the use of federal money to purchase telecom equipment from companies that pose national security risks, which include Huawei.
The ban is also part of a broader US push against Huawei over the fears that Huawei gear may provide backdoors for the Chinese government into American and its allies’ networks.

“The law provides Huawei with no opportunity to rebut the accusations, to present evidence in its defense, or to avail itself of other procedures that impartial adjudicators provide to ensure a fair search for the truth.”

—Song Liuping, the chief legal officer at Huawei, commenting on the NDAA

Details: The General Services Administration, the government agency responsible for contracting, issued the rule that bans Huawei and four other Chinese firms from supplying the federal government.

The rule also applies to ZTE, surveillance camera makers Hikvision and Dahua, as well as Hytera, a manufacturer of radio transceivers and radio systems.
The move will be come effective on August 13, one year after US President Donald Trump signed the NDAA.
The government will accept comments on the rule for 60 days before a final version is released.
A broader ban, which will apply to purchases from any US company that uses equipment from the above mentioned Chinese companies, will take effect in August next year.

Context: Huawei has questioned in court whether the NDAA is in accordance with the constitution. The company said on Wednesday that the rule was “not unexpected,” and it “continues to challenge the constitutionality of the ban in a federal court.”

Huawei filed a lawsuit on March 6 in Plano, Texas, where the company’s American headquarters are located, accusing the NDAA of being unconstitutional.
The company in March filed a motion requesting the court to rule in its favor in reference to the lawsuit.
The Eastern District of Texas court has scheduled a hearing for September 19 to hear Huawei’s claims.

Forced smiles at Huawei as pressure mounts

Wei Sheng — Wed, 31 Jul 2019 06:04:04 +0000

Huawei put on a brave face for the cameras on Tuesday at a carefully planned event to announce the troubled telecom player’s unaudited first-half results.

While the world’s attention has been squarely focused on the intense US political pressure on the Shenzhen-based firm, Huawei chose to concentrate on its growing market share and booming domestic demand for handsets at a press conference on Tuesday.

The company said it has received more than 2,600 journalists so far this year at its campuses in Shenzhen and Dongguan as part of efforts to maintain an air of openness, and many were in attendance yesterday to hear from Chairman Liang Hua.

From the outset, business results for the first six months appear healthy enough—revenue rose by 23.2% to RMB 401.3 billion ($58.3 billion) and it shipped 118 million handsets. However, the company did not reveal specific figures for the second quarter, which is when the US upped the ante. The 39% surge in revenue posted for the first quarter alone implies that there was a significant drop-off in the second quarter.

Liang admitted that US sanctions had caused some disturbances to Huawei’s business, but called the impact “controllable.” Growth continued even after the US put the firm on a trade blacklist on May 16, thanks to what the company has called “market inertia.”

“There isn’t one day that we stopped production, nor did we stop shipping to our customers after May 16,” he said.

Huawei also preached that it would maintain a strong growth path with sizable expenditure on research and development even if the US ban continues. The company plans to invest RMB 120 billion in R&D this year.

But experts maintain that the company’s future performance will be dependent on the outcome of US-China trade talks, and not the company’s drive for self-reliance.

A small train runs through the center of Huawei campus in Dongguan on July 29, 2019. (Image credit: TechNode/Shi Jiayi)

Hard times

The first half of 2019 has been turbulent for Huawei. The year began with President Trump threatening to restrict US carriers’ purchases of equipment from foreign companies that pose national security risks, such as Huawei and its domestic rival ZTE. The threat later became a reality.

The Trump administration has also launched a campaign to block Huawei from competing in the global rollout of 5G networks by persuading its allies to freeze Huawei out of their future network plans.

The core issue is concerns about Huawei’s ties to the Chinese government and fears that its telecom equipment could be used to spy on other countries, which the company has repeatedly denied.

Though the campaign met wide resistance in Europe, some of America’s closest friends, including Australia and Japan, have followed the US in banning Huawei gear. Others such as Germany, Italy, and France continue to accepted Huawei hardware, arguing there is no concrete evidence that it poses a real risk.

The underlying issue of the whole Huawei dispute may be the different ways in which the Chinese and US governments view privacy, US-based wireless analyst Jeff Kagan told TechNode.

“China uses technology to track citizens for things like safety and social order. The US considers this a violation of privacy. So, this may simply be a difference in the way these two countries see the issue of privacy,” said Kagan.

“I expect the US ban on Huawei to continue at least until trade issues between China and the USA are resolved, and privacy threats can be eliminated,” he said.

Risks ahead

Though the US sanctions haven’t stopped Huawei from growing in the first six months, the company acknowledges that huge difficulties lie ahead with consumer business to be most affected. The division contributed 55% of revenue in the first half.

Google has cut Huawei’s access to future updates of the Android operating system following the US trade blacklisting, contributing to falling international sales.

Liang admitted that it is up to the US if upcoming Huawei phones will have access Android. “If the US government allows us to use Android, we will use Android. But if the US doesn’t allow us, then we will turn to alternatives,” he said.

He maintained that Huawei is yet to see any impact of the US blacklisting on its 5G business, adding that the company has so far signed 50 commercial 5G contracts worldwide, including 11 signed after May 16.

“For a company with over $100 billion yearly revenue, the US sanctions can not be deadly,” Guo Fulin, president of international media affairs at Huawei, told TechNode on the sidelines of Tuesday’s event.

Huawei has been working on a so-called “business continuance” system to address potential extreme scenarios for over 10 years, he said.

Under the guidelines, Huawei stockpiled 12 months-worth of components ahead of the blacklisting to prepare for trade friction uncertainties, Nikkei Asian Review reported in May.

Huawei will have to find alternatives to US suppliers after the stocks run out, said Arthur Dong, a professor at Georgetown University’s McDonough School of Business.

“They (Huawei) only have two alternatives. They either can start producing some of these technologies on their own, which is going to be not easy and will take a long time. Or they’re going to have to find alternative sources to us suppliers,” said Dong.

“The best scenario is that the Trump administration agrees to a sort of [solution] that allows Huawei to continue to purchase critical parts from American companies. If the negotiations go poorly, or if they go slow, we can expect Huawei sales not to be as good, and it all depends on how much inventory parts they have,” he added.

Major risks ahead for Huawei despite first-half revenue surge

Wei Sheng — Tue, 30 Jul 2019 08:36:50 +0000

Huawei’s first-half revenue grew 23.2% year on year to RMB 401.3 billion ($58.3 billion), it said on Tuesday, sending out a powerful signal that the telecom giant continues to grow rapidly despite US sanctions and related risks ahead.

Why it matters: Huawei posted a strong showing for the first six months though the full impact of US technology restrictions is yet to emerge.

The Chinese telecom giant said US sanctions had caused some disturbances to its business, but the impact was controllable.
Business was growing rapidly before the US government added Huawei to the Entity List on May 16, though expansion continued thanks to what the company called “market inertia.”
Liang admitted that Huawei faces huge difficulties ahead with consumer business to be most affected. The degree of difficulty will depend on whether the US government allows the company to continue using Google’s Android operating system in future handsets.

“There isn’t one day that we stopped production, nor did we stop shipping to our customers after May 16.”

Liang Hua, chairman of Huawei, at the conference

Details: Despite the risk of losing access to Android, Huawei shipped 118 million smartphones worldwide in the first half, driven by an 18.1% increase in domestic handset sales.

The company secured a 34.3% share of China’s smartphone market in the first half, according to market research firm CINNO Research.
Revenue from Huawei’s consumer business, which sells smartphones, laptops, and other gadgets, was RMB 220.8 billion, and its carrier business generated income of RMB 146.5 billion, said the company.

Context: Huawei was added to the US Entity List earlier this year barring them from buying parts and components from US companies without the government’s prior approval.

Although the ban has been temporarily suspended and President Trump has expressed a willingness to use the Huawei case in his efforts to secure a trade deal, the suspension is still set to expire on August 19.

Chinese fintech platform 9F Group files for US IPO, aiming to raise $150 million

Nicole Jao — Fri, 26 Jul 2019 10:10:42 +0000

Chinese fintech company 9F Group has filed for an initial public offering (IPO) with the US Securities and Exchange Commission on Thursday. The company is aiming to raise $150 million from the IPO.

Why it matters: After a series of regulatory shocks that started in 2017, fintech is one of the main industries from which US-listed Chinese companies hail. Known as Jiufu, 9F Group is one of several Chinese companies that are seeking to raise capital from a US IPO this year.

Details: The company said the proceeds from the IPO will be put toward broadening its product offerings, including consumption loans and online wealth management, as well as international expansion efforts in Hong Kong and Southeast Asia.

Credit Suisse, Haitong International, and 9F Primasia Securities are joint bookrunners on the deal.
The company plans to list under the symbol “JFG” on the New York Stock Exchange or Nasdaq, according to its latest prospectus. The company did not disclose pricing terms.

Context: Fintech regulators have been cracking down on fraudulent activities and risky financial practices especially in the peer-to-peer (P2P) lending sector, leading to the collapse of many smaller platforms. Survivors, like 9F Group, are under increasingly tight oversight.

The company has been pivoting away from P2P lending and expanding into other consumer financial services, a common move among online lenders in China as regulation tightens.
Founded in 2006 in Beijing, 9F Group has become one of the major online consumer lending service providers in China and now says that it has more than 76.7 million registered users on its platform. It owns several fintech brands including 9F Puhui, 9F One Card, and Wukonglicai.
At the end of last year, the company was seeking a license to operate virtual banking service in Hong Kong.
Chinese fintech companies including online lending marketplace Jiayin Group, Chinesischer ETF and Xiaomi-backed online brokerage Tiger Brokers both debuted on US stock exchanges earlier this year. IPO rumors have been swirling about Ping An-backed Lufax, Ping An’s fintech arm OneConnect, and Alibaba’s Ant Financial.
Online lender Lufax, which was valued at $38 billion after its latest funding round, reportedly shuttered its P2P lending service earlier this week, which may help facilitate its US listing, according to a Reuters report citing unnamed sources.

Salesforce enters China, Hong Kong, Taiwan with exclusive Alibaba deal

Nicole Jao — Thu, 25 Jul 2019 05:06:54 +0000

San Francisco-based enterprise software company Salesforce.com has entered into a strategic partnership with Chinese e-commerce giant Alibaba Group in a bid to make deeper inroads into mainland China, Hong Kong, Macau, and Taiwan.

Why it matters: The partnership with Alibaba comes at a time when Washington has made it increasingly difficult for American tech companies to sell products to Chinese customers. One hotly disputed topic in the months-long trade war has been limitations on US tech companies’ ability to retain their IP and operate their businesses in mainland China.

Foreign cloud services provider footprints in China’s lucrative cloud market are largely restricted by local regulations. For example, companies have to set up a joint venture with a Chinese partner and ownership is capped at 50%.
However, during trade talks between the US and China, authorities hinted earlier this year that the restrictions on foreign providers could be lifted.

“As the leading cloud service provider in the Asia Pacific region, our cloud infrastructure and data intelligence platform combined with Salesforce’s market leading solutions for Sales, Service, Commerce and more will provide global customers with incredible customer experiences at every touchpoint.”

—Ken Shen Tao, vice president of Alibaba Cloud Intelligence

Details: Salesforce announced its strategic partnership with Alibaba on Wednesday at the Alibaba Cloud Summit in Shanghai.

Under the agreement, Salesforce and Alibaba are mutually exclusive partners: the US company’s CRM products will be available customers in the region exclusively through Alibaba Cloud, and Salesforce is the only enterprise CRM software Alibaba will sell.
With Alibaba, Salesforce sell its cloud-based CRM solutions including Sales Cloud, Service Cloud, Commerce Cloud, and Salesforce Platform to customers in the region.

Context: Alibaba’s cloud computing arm dominates nearly half of China’s market and is on its way to becoming a major player in the global cloud market. Last year, Alibaba widened its lead over top cloud providers like Amazon Web Services (AWS) and Microsoft’s Azure in Asia markets.

Like most foreign software companies in China, Salesforce has a limited market presence. In May, its rival Oracle Corp slashed around 1,000 employees in China.
Salesforce, a top seller of CRM software, said in March that it planned to double its revenue in four years, signaling the importance of gaining access to the China market.
Although the bulk of Salesforce’s business still comes from the Americas, its sales in the Asia Pacific region (APAC) as well as Europe, the Middle East, and Africa (EMEA) each saw a significant year over year growth of 25% in 2018.

Huawei’s revenue in the first half grew around 30% despite US ban: report

Wei Sheng — Wed, 24 Jul 2019 06:27:08 +0000

Huawei’s revenue grew roughly 30% in the first half of 2019 after securing critical supplies ahead of the United States trade blacklisting, Bloomberg reported on Tuesday, citing people familiar with the matter.

Why it matters: Huawei’s revenue has not seen the full impact of US restrictions on technology exports to the Chinese telecom giant since the ban only took effect in mid-May. But Huawei may feel the pain if nothing changes after the 90-day suspension of the ban ends on August 19.

The revenue growth of 30% in the first half is a slowdown from 39% year on year in the first quarter, but is up sharply from 2018, said Bloomberg.
Huawei was granted a 90-day reprieve on the ban on May 21, which means it will lose access to its American suppliers after August 19.
Huawei founder and CEO Ren Zhengfei has said the US clampdown would wipe out the company’s production output by $30 billion over the next two years.

Details: In May, the US put Huawei and 70 of its affiliates on an “entity list” which forbids American companies from doing business with it without approval. The company said it has long been prepared for the “extreme scenario” that it could be banned from purchasing US chips and technology.

Huawei has awarded a number of employees who were responsible for stockpiling components ahead of the ban, identifying replacements for American parts, or negotiating with suppliers to keep up the flow of materials, said Bloomberg.
Huawei is now making adjustments to businesses most threatened by US sanctions, reassigning employees from the carrier and enterprise units to the faster-growing consumer division, said the report.
Huawei hasn’t confirmed the growth figure. The company said it would release official first-half results on July 30.

Context: Huawei is laying off more than 600 employees in its research arm Futurewei as it continues to struggle with the US restrictions.

The company said the layoffs were caused by the US restrictions. “Decisions like this are never easy to make. Futurewei will continue to operate in strict compliance with US local laws and regulations,” said the company in a statement.
Huawei, which reported revenue of RMB 721.2 billion (around $104 billion) last year, re-evaluated its revenue targets to around $100 billion this year and the next, according to Ren. It had initially forecasted revenue growth in 2019 of between $125 billion and $130 billion depending on foreign exchange fluctuations.

Alibaba opens its B2B e-commerce platform to US sellers

Emma Lee — Wed, 24 Jul 2019 04:26:00 +0000

Alibaba.com, Alibaba’s business-to-business (B2B) marketplace that connects Chinese suppliers with overseas buyers, is now opening its platform to small- and medium-sized sellers in the US in an effort to expand its global presence in the B2B e-commerce sector, the company announced on Tuesday.

Why it matters: The move falls in line with two of the company’s major strategic themes: globalization and a shift to business-facing services. It is also a defensive move to fend off fierce competition from global rivals like Amazon.

“Alibaba aims to empower entrepreneurs and help them succeed on their own terms. With 10 million active business buyers in over 190 countries and regions, we are reshaping B2B commerce by providing the tools and services needed for US SMB companies to compete and succeed in today’s global marketplace.”

—John Caplan, head of North America B2B at Alibaba Group on cooperate blog Alizila

Details: Alibaba.com has launched a series of new features to help new US suppliers with onboarding and marketing.

Sellers will get a dedicated interface for building and managing a digital store on the platform, CRM and communications tools for customer relationship management, and digital marketing tools to target likely customers, as well as online payment solutions.
A local customer service team was set up in the US to support sellers.
US firms Office Depot and Robinson Fresh launched stores on Alibaba.com on Tuesday.
The move will open up markets in China, as well as India, Brazil and Canada for US sellers.

Context: Currently, the platform is still focused on exporting Chinese products to the rest of the world. Around 95% of the sellers come from China, while roughly one-third of its buyers are US-based. Adding more sellers will boost the platform’s overall value proposition while also attracting and benefiting more SMBs globally, according to Alibaba.com. Meanwhile Alibaba’s shift to provide services to enterprises is reflected in various business units within its ecosystem.

To build up its global presence in the business-to-consumer service (B2C) sector, the company launched an English-language website last month for its B2C Tmall Global marketplace.
Alibaba seeks to digitize local businesses with a service package of 11 different elements under its A100 program.
Chinese tech giants like Tencent and JD are following suit in the shift to focus on enterprise services.

Huawei secretly built North Korean wireless network: report

Rachel Zhang — Tue, 23 Jul 2019 09:54:29 +0000

Huawei’s deputy chairman Ken Hu and president of its 5G product line Yang Chaobin spoke at MWC Shanghai on June 26, 2019. (Image credit: TechNode/Eugene Tang)

Huawei secretly helped North Korea build and maintain a commercial wireless network, according to a Washington Post report citing a former employee and internal documents. The Chinese telecoms giant responded in a statement that it “has no business presence” in the country.

Why it matters: If true, its actions would violate US sanctions on North Korea as Huawei uses the country’s technology in its components. The claim could again land Huawei in hot water with US authorities, which threaten to cut off its supply of American products.

“Huawei is fully committed to comply with all applicable laws and regulations in the countries and regions where we operate, including all export control and sanction laws and regulations” of the United Nations, United States and European Union.

— Huawei statement to the Washington Post

Details: Huawei allegedly hid its involvement by partnering with a state-owned firm Panda International Information Technology and they cooperated on multiple projects over a period of at least eight years, according to documents uploaded to Github by the Washington Post.

The two companies reportedly provided North Korea with base stations, antennas, and other equipment needed for communications networks. Huawei was involved in “network integration,” “software services,” and an “expansion” project for North Korean telecoms provider Koryolink.
Huawei spokesperson Joe Kelly declined to comment in detail about whether the company had ever connected with North Korea in the past, either directly or indirectly. He also did not verify the authenticity of the documents while a Panda spokesperson declined to comment.
Huawei used the code name A9 when referring to North Korea and also had other code names for Iran and Syria, according to multiple sources.

Context: The US imposed sanctions on North Korea more than a decade ago over its military developments and threatened to punish companies, banks, and individuals that conduct business with Pyongyang in 2017.

The US Justice Department charged Huawei with violations of sanctions on Iran in January and it has pleaded not guilty.
Huawei was added to the US Entity List earlier this year barring them from buying parts and components from US companies without the government’s prior approval.
Although the ban has been temporarily suspended and President Trump has expressed a willingness to use the Huawei case in his efforts to secure a trade deal, the suspension is still set to expire on August 19.
The US previously banned Panda from buying US parts in 2014, saying it had connections with the Chinese military “and/or” to countries under sanctions.

Hikvision doubles component stockpile amid fears of a US ban

Chris Udemans — Tue, 23 Jul 2019 03:51:37 +0000

Surveillance cameras watch closely as visitors walk around the Bund in Shanghai, China on April 4, 2019. (Image credit: TechNode/Eugene Tang)

Surveillance camera manufacturer Hikvision dramatically increased its stockpile of components in the first half of the year, the South China Morning Post reports, drawing attention to the uncertainty the Hangzhou-based company faces amid increased US government scrutiny.

Why it matters: The Trump administration has reportedly been considering putting Hikvision on a trade blacklist, barring it from doing business with American companies.

The Chinese firm is the world’s largest surveillance camera manufacturer and is already barred from supplying US federal agencies with its products over national security concerns.

“The [increased] inventory is a safe approach, as there’s no sanction today but it may drop in all of sudden tomorrow.”

—Huang Fanghong, Hikvision board secretary, to investors on Saturday

Details: Hikvision has nearly doubled its inventory of components and increased its holding of finished goods by a third over the past six months.

The company is taking precautions in case the US steps up its offensive, saying that it takes time to switch from one supplier to another.
The company made the decision to stockpile components following sanctions on Chinese telecommunications giants Huawei and ZTE, Huang said, adding that it enables Hikvision to “maintain supply chain security.”
Apart from possible trouble in the US, Hikvision predicts it will see dwindling orders from Pakistan and Turkey due to a drop in the countries’ currencies, and from Argentina as a result of political issues.

Context: Earlier this year, Huawei was placed on the Entity List by the US commerce department, preventing it from doing business with American firms. The US government has been looking at expanding the ban to Chinese surveillance equipment manufacturers.

Huawei rival ZTE was brought to the brink of ruin last year after it was found to have violated US sanctions on Iran and North Korea. The company was forced to pay a record fine and undergo a management reshuffle in order to regain access to American components.
Hikvision was founded in the wake of the New York September 11 attacks in 2001. Since then, the company has grown on the back Chinese government’s ambitions to create a omnipresent surveillance system within its borders.
At the same time, demand for surveillance equipment around the globe has exploded.

Peter Thiel is right to highlight Google’s work in China: ex-White House cyber chief

Chris Udemans — Fri, 19 Jul 2019 03:34:03 +0000

Venture capitalist and Facebook board member Peter Thiel was right to draw attention to Google’s dealings in China, former White House cybersecurity chief Richard Clarke said in an interview earlier this week.

Why it matters: Representatives from Silicon Valley and the US government have weighed in on the search giant’s work in China, with US President Donald Trump renewing his offensive against the company this week.

Google faces criticism for seeking to expand its presence in China while simultaneously refusing to renew US government defense contracts.
The company’s search engine was blocked in China almost 10 years ago, but it still has a significant business and research presence in the country.

“Google refused to work for the Pentagon on artificial intelligence [AI]. If you turn around and you work on AI in China, and you don’t really know what they’re going to do with that, I think there’s an issue.”

—Richard Clarke, Obama-era White House cybersecurity chief told CNBC

Details: Clarke implied that Google’s work in China made it complicit in serving the interests of the country’s government. His comments came after Thiel renewed an ongoing debate about Google’s links to China, calling them “treasonous” and requesting that the FBI and CIA investigate the company.

Trump quickly backed Thiel, calling him a “brilliant guy who knows this subject better than anyone,” and pledged to investigate Google.
The company has repeatedly denied the allegations. It told TechNode earlier this week that it does not work with the Chinese military.

Context: A major point of contention is Google’s AI research lab in Beijing. Critics have contrasted its presence in China with its reluctance to engage in AI research for the US government.

Google did not renew a contract with the US government to analyze drone footage. The company is also no longer pursuing a cloud computing contract worth $10 billion with the US Department of Defense, saying it does not align with its ethical guidelines.
After months of condemnation, a Google executive said on Tuesday it has ceased work on its controversial project to reenter the Chinese search market.

Google has ‘terminated’ its China search plans: executive

Chris Udemans — Thu, 18 Jul 2019 05:33:48 +0000

Google has abandoned its plans to launch a censored search engine in China, according to testimony by a company executive before a US Senate committee on Tuesday.

Why it matters: The tech giant has faced continued criticism from lawmakers, the public, and its employees for its work on Project Dragonfly—the initiative to develop a search product for China.

Critics have said Google would become complicit in censorship and monitoring of Chinese citizens should the company launch Dragonfly.
Google has also drawn ire for not renewing contracts with the US government while pursuing a greater presence in China.
US President Donald Trump recently pledged to investigate Google’s “treasonous” links to China.
China has become an attractive market for overseas tech companies, which are drawn by the country’s gigantic internet population.

“Yes, we have terminated [Project Dragonfly].” —Karan Bhatia, Google vice president of public policy, at a Senate Judiciary Committee hearing

Details: In response to questions by lawmakers, Bhatia said that the company has no current plans to enter the Chinese search market.

Bhatia said the company offers very few products in China, but evaded questions on whether the company censored search results when operating Google.cn, its defunct Chinese search engine.
Dragonfly would require real-name verification of users and data would be shared with a Chinese partner, according to previous reports.

Context: Project Dragonfly was effectively ended last year. Google developers lost access to data from Beijing-based website 265.com, which the company was using to learn about Chinese search habits and develop content blacklists to comply with the country’s regulations.

Employees later said that work on the project had not stopped after identifying ongoing work on an associated batch of code, according to a report by The Intercept.
In December, Google CEO Sundar Pichai said the work on Dragonfly was limited.
Google search was blocked in China in 2010 after the company redirected traffic from its Chinese domain to its Hong Kong service, effectively ending the information blockade for its users in the country.
The decision to redirect search results came following a Chinese cyberattack targeting Gmail users.
In early 2010, Sergey Brin, co-founder of Google, said in an interview that the company didn’t want to operate services that were censored.

Google bans major Chinese app developer CooTek over ad malware

Nicole Jao — Wed, 17 Jul 2019 10:00:45 +0000

Google has banned NYSE-listed Chinese app developer CooTek from its ad platforms and removed dozens of its apps from the Play store over violations of its advertising policies, Buzzfeed News reported. The Shanghai-based app developer was found to be using a malicious plug-in called BeiTaAd that bombards users with disruptive apps even after the company said it had stopped.

CooTek told TechNode Wednesday that it had fixed an “ad defect” in one of the monetization software development kits, or SDKs, integrated into their apps before Lookout reported the issue in June. The company disabled the malicious ad function in its product updates on May 23, and the apps that Lookout reported in its latest accusation re-used some of the same code frameworks found in the defective SDK. The company said that the codes do not trigger disruptive ads, but are “mainly for… normal functions” like nudges which remind users to drink water that can be turned off.

The company said it is communicating with Google to clarify the issue.

Why it matters: As concerns about data privacy and cybersecurity are on the rise, app fraud in the Asia-Pacific region continues to outpace global rates. Malicious advertising practices are not uncommon in China even among major developers as evidenced by CooTek, a large, US-listed Chinese app developer with hundreds of apps and users in 240 countries, according to its website.

The malware usually infects less popular apps and are relatively easy to catch, but plug-ins like BeiTaAd are becoming prevalent as they are well-hidden in apps that have large numbers of installs.
Google’s ban will have a significant impact on CooTek’s revenue as app development and monetization from ads are its core businesses.

“This week, Lookout [alleged] that 58 of the updated apps continued the same malicious ad activity. They claimed that ‘the BeiTaAd plug-in was gone, but the ads remained.’ However, this is NOT true. The fact is, our engineer re-used some of the code frameworks in the previous SDK in question. It didn’t re-activate any malicious ad activity.“

—Mina Luo, CooTek spokeswoman

Details: The malicious plug-in was discovered by San Francisco-based security firm Lookout in June. A total of 238 apps with more than 440 million installs were found infected with BeiTaAd in the Play store. All of the apps were developed by CooTek.

More than 60 of CooTek’s apps have been removed from the Play store. Lookout said that at least 58 of the updated apps contained old and new codes allowing malicious ad activities.
According to Lookout, the BeiTaAd plug-in displays pervasive ads to users even when the phone or the app is locked or not in use, which “render[s] the phones nearly unusable.”
After the initial allegation last month, the company claimed that it had updated its apps and removed the plugin causing malicious ad activity. But Lookout said aggressive ad activities persisted.

Context: CooTek is the second major Chinese developer to be blocked from Google’s platforms this year due to violation of advertising policies. The company is best known for its TouchPal keyboard app, which has accumulated more than 100 million installs.

In April, Google banned Chinese Android developer Do Global from its app store for committing ad fraud and hiding app ownership details from users. The app developer had more than a hundred apps in the Play store with 600 million installs.
Last year, Google removed popular apps by Chinese tech companies Cheetah Mobile and Kika Tech for engaging in malicious ad practices.

Tencent-backed Douyu raises $775 million in US IPO

Wei Sheng — Wed, 17 Jul 2019 06:16:44 +0000

China’s biggest live-streaming platform Douyu announced on Wednesday it raised $775 million after pricing its US initial public offering (IPO) at the low end of the indicated range.

Why it’s important: The deal is so far the largest Chinese IPO in the US in 2019, eclipsing that of Luckin Coffee which raised $645 million, according to Reuters, citing market data.

The Tencent-backed video game live-streaming platform in April filed its IPO application to Securities and Exchange Commission (SEC), following its largest Chinese competitor Huya, which listed in May last year.
The company delayed its IPO roadshow in May amid the intensifying US-China trade war.

When asked about the impact of short video platforms, CEO Chen Shaojie told Tencent News that they are a complement to what live-streaming platforms offer:

“Short videos are more similar to compilations of highlights whereas livestreams are like entire matches for users to immerse in. Users watch both full matches and compilations because they are different experiences, so they don’t compete directly.”

—Chen Shaojie, Douyu CEO, to Tencent News

Despite growth in Douyu’s advertising business, Chen said that the platform’s revenue will still come mainly from user subscriptions and tips.

Details: The Wuhan-based company sold American depositary shares (ADS) at $11.5 each, compared with a previously stated target of $11.5 to $14.0, said the company on Wednesday.

The company’s market cap reached $3.73 billion after the pricing. Shares in the company are set to begin trading on Nasdaq on Wednesday under the symbol “DOYU.”
Its revenue doubled year on year in 2017 and nearly doubled again in 2018 when it reached RMB 3.65 billion (around $530 million), according to its IPO filing. Net losses declined around 22% year-year in 2017 and increased 43% year on year in 2018.

Updated to include comments from Douyu’s CEO. With contributions from Tony Xu.

Trump to investigate Google’s “treasonous” China links

Chris Udemans — Wed, 17 Jul 2019 04:53:28 +0000

US President Donald Trump has renewed his offensive against search giant Google, saying his administration would investigate the company’s alleged links to the Chinese government.

Why it matters: Google’s work in China has come under greater scrutiny since news broke last year that the company was working on a censored version of its search engine for China.

US lawmakers and a high-ranking military officer have continued to question the work the company is doing in China.
Critics say that the company’s presence in China benefits the country’s military, a claim that the company has continued to deny.

“The Trump Administration will take a look!” —US President Donald Trump on Twitter

“As we have said before, we do not work with the Chinese military,” a Google spokesperson told TechNode in an emailed statement.

Details: Trump’s remarks come after Facebook board member and Trump supporter Peter Thiel said Google has “seemingly treasonous” links to China, giving no evidence.

The Paypal co-founder said that the FBI and CIA should investigate Google for its work in China, reported Bloomberg.
Thiel later appeared on Fox News saying he would like to ask Google CEO Sunday Pichai whether the company had been infiltrated by foreign intelligence agencies and why it is working with China rather than the US.
Trump took to Twitter to voice his support for Thiel, saying that the billionaire is a “brilliant guy who knows this subject better than anyone.”

Context: Since Google’s work on a filtered search engine was made public by The Intercept last year, the company has faced outcry from US officials, the public, and its employees.

Google has a significant presence in China despite its search engines and consumer-facing services being blocked. The company opened an artificial intelligence research center in Beijing in 2017.
The once-clandestine search engine, dubbed Project Dragonfly, was shelved earlier this year, according to Google.
In March, Joseph Dunford, marine general and chairperson of the Joint Chiefs of Staff, the highest-ranking military advisory committee in the US, said the company’s work in China was benefiting the country’s military.
Meanwhile, Google has opted to drop contracts with the US government to aid in analyzing drone footage. Google said it would also no longer pursue a $10 billion cloud computing deal with the country’s defense department as it does not align with its ethical guidelines.

This article has been updated to include a response from Google.

Cloud robotics firm CloudMinds opts for US IPO, seeks $500 million

Nicole Jao — Tue, 16 Jul 2019 12:08:01 +0000

Beijing-based CloudMinds, an operator of cloud-based systems for intelligent robots, has filed to raise up to $500 million in an initial public offering (IPO) on the New York Stock Exchange, joining a slew of Chinese tech companies seeking funding abroad despite efforts from the government to attract domestic listings.

Why it matters: CloudMinds says it is the first in the world to commercialize a cloud-based robotics system in a rapidly growing market. Developments in cloud and robotics are critical to smart manufacturing, an important part of China’s initiative to become a global leader by 2025 in core technologies.

The government is implementing financial reforms—of which its new STAR Market Nasdaq-style technology bourse in Shanghai is the centerpiece—in an effort to lure tech companies to list domestically and push forward this initiative.
The US remains an attractive IPO destination for Chinese companies because of its maturity and liquidity relative to domestic capital markets, which have tightened as the country’s economy slows.
CloudMinds joins China Starbucks challenger Luckin Coffee and cosmetic surgery platform So-Young in US IPOs this year.

Details: Citigroup, JP Morgan, and UBS Investment Bank are the joint underwriters on the deal, but detailed pricing terms were not disclosed in the filing. The company plans to list on the New York Stock Exchange under the ticker symbol “CMDS.”

The company said in its prospectus that it intends to use the net proceeds for research and development, marketing and sales, and strategic investments, among others.

Context: The global robotics market is expanding rapidly. The sales value of service robots reached $6.6 billion in 2018, an increase of 39% from the previous year.

In March, the cloud robotics firm aimed to raise $300 million in a SoftBank Vision Fund-backed funding round.
CloudMinds expects to triple its revenue this year. However, its revenues dropped 62.1% in the first quarter of 2019 to $12.4 million from $32.7 million in the first quarter of 2017 due to “delivery timing” related to smart city projects.
Robots that run on a cloud-based system are more intelligent and versatile because their ability to handle a large amount of data and computation are not limited by local storage space, according to the company.
CloudMinds’ client portfolio includes humanoid robots like SoftBank’s CloudPepper as well as smart vending machines, security robots, and virtual AI robots. The company is backed by prominent investors including SoftBank’s Vision Fund and electronics manufacturing giant Foxconn.

Huawei to cut jobs at US research unit despite potential for reprieve

Wei Sheng — Mon, 15 Jul 2019 03:54:10 +0000

Huawei is planning to lay off employees at its American research and development (R & D) subsidiary Futurewei Technologies, according to the Wall Street Journal, citing people familiar with the matter.

Why it matters: Chinese telecommunications equipment giant has been struggling with its American blacklisting, although the Trump administration may grant a reprieve within a month, according to a Reuters report.

US President Donald Trump said at the G20 meeting in Japan last month that he would allow some tech exports to Huawei to resume. But the US Commerce Department said on July 3 that the company is still blacklisted and requests from American companies seeking to export products to Huawei were being reviewed “under the highest national security scrutiny.”
The Trump administration may approve licenses for companies to resume sales to Huawei in two to four weeks, according to a Reuters report on Monday, citing a representative from an unnamed manufacturer.

Details: Futurewei employs about 850 people in research labs across the US, including in Texas, California, and Washington states, said the report.

The number of layoffs could be in the hundreds, but the exact number can’t yet be determined, people familiar with the matter told the Journal. Some of Huawei’s Chinese employees in the US could choose to return home and stay with the company.
Several employees of Futurewei have already been notified of their dismissal, while further planned cuts could be announced soon, sources cited by the report said.

Context: Futurewei is Huawei’s US-based research and development arm. The firm has filed more than 2,100 patents in areas such as telecommunications, the fifth-generation wireless network, and video and camera technologies.

Futurewei was also reportedly working on separating its operations from its Chinese corporate parent since Huawei was put on the trade blacklist.
Futurewei plays a critical role in Huawei’s R & D partnerships with US universities. But the partnerships are also at risk as some universities have started to limit funding and research arrangements with the firm.

Tesla seeks Apple’s help in IP theft case against Chinese engineer

Chris Udemans — Fri, 12 Jul 2019 07:34:08 +0000

US-based electric vehicle (EV) maker Tesla is looking to Apple to help build its case against a former employee it suspects stole self-driving technology before defecting to a Chinese rival, according to court documents.

Why it matters: Cao Guangzhi, a former self-driving engineer at Tesla, confirmed in a filing earlier this week that he had uploaded Tesla’s Autopilot source code to his personal iCloud account, which is run by Apple, before leaving the company.

The EV maker has now subpoenaed documents from Apple to aid in its investigation, according to a filing from last week.
Cao went on to join XMotors.ai, the US-based research division of Chinese EV maker Xpeng, following his departure from Tesla.
Apple suspects an ex-employee who also joined XMotors stole some of its autonomous driving technology.

Xpeng was not immediately available for comment when reached by TechNode on Friday.

Details: Tesla filed the case against its former engineer in March, accusing him of uploading in excess of 300,000 files as well as source code to his personal cloud storage account before quitting in January.

At the same time, the company accused four other former employees of leaking trade secrets to Silicon Valley-based autonomous driving startup Zoox.
Cao has denied any misconduct but admits that he did not disclose that he had copied the files prior to his departure.
Tesla didn’t inquire about any confidential materials or information regarding trade secrets when the engineer left the company, Cao’s lawyers said.
Cao has already provided Tesla with emails from his Gmail account.
Neither Apple nor Tesla have accused Xpeng of wrongdoing.

Context: The US Justice Department last year brought charges against a former Apple employee who it suspects stole technology from the US tech giant before joining XMotors. Zhang Xiaolang, the defendant in the case, pleaded not guilty in July last year.

The accusations came amid increased trade tensions between China and the US, in which intellectual property theft is central to US complaints.
China is pushing its capabilities in developing self-driving cars. By 2030, the country aims to become a world leader in artificial intelligence—the technology that underpins self-driving cars.

Silicon Valley looks to China for successful app concepts – report

Wei Sheng — Wed, 10 Jul 2019 10:09:43 +0000

Global technology firms are increasingly replicating successful concepts from Chinese peers like super apps and short video platforms, according to a new report from the South China Morning Post, Abacus, and Proof of Capital.

Why it matters: China’s tech sector has long held a copycat reputation, especially when it comes to Silicon Valley products, but it now appears that the situation is reversing. Companies including Facebook and Amazon are also learning from original ideas that have been proved successful in China, a country with 829 million internet users, according to the China Internet Report 2019 released at the RISE Conference in Hong Kong on Wednesday.

“At the South China Morning Post, when we write stories [about Chinese tech companies], sometimes we still use terms like China’s Uber, China’s Twitter, China’s Facebook, China’s Google. And that really reflects a trend, about 10 to 15 years ago, when Chinese companies copied from the US. But we are seeing the reverse happening.”

—Chua Kong Ho, a technology editor at the South China Morning Post, speaking at RISE on Wednesday.

Details: Global tech companies are now replicating successful concepts from their Chinese counterparts, from the super app to the short video.

Apps that provide one-stop services from instant messages to ride-hailing and money transfers dominate China’s online landscape. These include Tencent’s WeChat, Alibaba’s Alipay, and Meituan. The idea of super apps has inspired Facebook’s standalone messaging app, Japan’s instant message app Line, and Indonesia’s Go-Jek, said the report.
China’s online shopping apps, including Alibaba’s Taobao, Pinduoduo, and Mogu, have pioneered concepts such as group buying and live-streaming. The report said US e-commerce giant Amazon also launched in February Amazon Live which features live-streamed video of hosts showcasing products, which viewers can then buy directly.
TikTok, the short video app developed by Chinese company ByteDance, has been the most downloaded app on the iOS App Store for five consecutive quarters. In November 2018, Facebook launched Lasso, its short video app designed to compete with TikTok, said the report.

Context: Innovations in terms of features have helped Chinese tech firms to thrive in recent decades, but the country’s tech industry still heavily relies on overseas technology, said the report.

For instance, the global smartphone market shrunk 4% in 2018 compared with the year before, but Chinese smartphone vendors are finding a way to grow their market share by pioneering new features such as Vivo’s notch-free pop-up selfie cameras and Xiaomi’s under-display selfie cameras, according to the report.
However, the US blacklisting of Huawei revealed Chinese tech firms’ reliance on overseas technology, said the report. After being placed on a trade blacklist by the Trump administration in mid-May, Huawei is preparing for a international smartphone shipments to fall by around to between 40 million and 60 million units, according to Bloomberg.

US seeks extradition of Chinese researcher from Switzerland for IP theft

Miles Goscha — Tue, 09 Jul 2019 05:27:05 +0000

The US is pursuing the extradition of Chinese researcher Gongda Xue from Switzerland on the charge of helping his sister, Yu “Joyce” Xue, steal secret information worth $550 million from pharmaceutical giant GlaxoSmithKline (GSK), Reuters reported.

Why it matters: Prosecutors in the Xue case have labeled the siblings’ actions “economic warfare,” underscoring the harshness with which the US government is targeting researchers and scientists for their foreign ties.

With the National Institutes of Health (NIH) pressuring institutions across the country to investigate suspicious activity, many have raised concerns about racial bias against employees of Chinese origin.

Details: Ms. Xue pleaded guilty in the US last August to stealing GSK’s intellectual property, and is one of six co-defendants in the case.

According to prosecutors, the scheme included creating a Chinese state-backed company named Renopharma that could utilize the stolen information and subsequently be sold for up to $2.2 billion.
The Swiss Federal Criminal Court has labeled Mr. Xue a potential flight risk and has yet to agree on extradition terms.

Context: Just last week, Massachusetts Institute of Technology (MIT) scientists spoke of the increasingly toxic environment on US college campuses and institutions in the wake of the NIH’s campaign, describing unfair treatment by government officials and surprise visits from law enforcement.

China is the world’s largest source of DDOS attacks, but its share is falling

Eliza Gkritsi — Mon, 08 Jul 2019 09:54:53 +0000

Last month, the CEO of encrypted messaging service Telegram said that a distributed denial of service (DDOS) attack on the platform was coming from devices in China. The country was revealed to to be the biggest source of DDOS attacks globally in a recent report by security provider Nexusguard.

But according to our statistical analysis and input from experts, the fact that most compromised devices come from China does not necessarily indicate that attackers work from China, nor that security practices are worse there than in other countries.

China was the top source of DDOS attacks for the first quarter of 2019, while the US was a close second. Their overall share is decreasing, as countries like Vietnam and Brazil -which didn’t even make the top 10 two years ago- now take the fourth and sixth spots respectively.

China surpassed the US as the top source of DDOS attacks in 2017. Data from Nexusguard Q1 2019 DDOS report (Image credit: TechNode/Eliza Gkritsi)

DDOS attacks essentially overwhelm web servers with bogus traffic, hindering them from processing requests from real users.

Nowadays, “devices which perpetrate these attacks are unwilling victims,” Nexguard Product Director of Enterprise Security Solutions Donny Chong told TechNode. Hackers take over others’ devices and use them to overwhelm websites with traffic.

Theoretically, it is possible to find who is controlling the devices. In practice, however, it might prove difficult. “The IP address of who is controlling the devices can be spoofed,” said Chong, which makes it harder to track the origin of the hack.

Attacks of the denial of service (DNS) type often use IP spoofing. According to the Nexusguard report, DNS attacks accounted for around 43% of all DDOS attacks in the first quarter.

These so-called botnets are traded on the dark corners of the internet and, in the case of China, on WeChat and QQ groups, Chong said.

In other words, the devices that perpetrate the attack often do not reveal who is behind it, nor where the hacker is based, and hacked devices from all around the world are traded online.

Vietnam and Brazil are increasingly the source of DDOS attacks, whereas Germany’s share has fallen. Data from Nexusguard Q1 2019 DDOS report (Image credit: TechNode/Eliza Gkritsi)

But why are devices in the US and China making up almost two-fifths of the total used in DDOS attacks, and why are countries like Vietnam becoming more common sources?

Using data from Nexusguard’s report and the World Bank, TechNode found that a larger online population correlates to a higher incidence of compromised devices used in such attacks.

Dmitry Kurbotov, CTO of Russian cybersecurity company Positive Technologies told TechNode that the proliferation of smartphones and IoT devices have given hackers plenty of unwilling victims to choose from. “This is simply where most devices are,” he said.

Countries like Vietnam have been developing, and so people are buying more internet-connected devices. “Citizens are getting more exposed to security risks,” Chong said.

Apart from the larger pool of devices, Chong added that security practices and awareness differ from country to country, and these have a large impact on device safety. “We believe it is linked to IT security awareness and the issue of privacy,” he said.

A wifi router, for example, can be used as a launching platform for a hacker carrying out a DDOS attack. But many people “do not apply basic security practices when they buy these devices,” said Kbutrov. These include setting up strong passwords or switching off some management interfaces.

In addition, in some countries, when a new device is purchased, the network operator may enhance security controls. Kbutrov said that in some countries “the network operator says we’ll provision the ‘box’ but we will manage it for you. So maybe they will hide the management ports [from the user]” he said.

The share of DDOS sources a country has globally is more closely related to the number of broadband subscriptions. (Image credit: TechNode/Eliza Gkritsi)

But there is no clear evidence that China is doing something wrong to protect its devices, and the higher share of DDOS sources could just be a result of the sheer number of devices.

Based on data from Nexusguard and the World Bank, TechNode found that a country’s share of global DDOS attacks is most strongly correlated to the number of broadband subscriptions. This could be because wifi routers are often more vulnerable to attacks than smartphones, for reasons ranging from device settings to security habits of users.

Smartphone usage and the total online population are positively correlated to the percentage share of source of DDOS attacks, but the relation is weaker.

Because of gaps in security awareness across countries, the issue of compromised devices is harder to solve in some countries compared with others, said Chong.

In preventing cyber attacks, “the role of security awareness is huge. It’s like the safety instructions when you cross the road,” Kbutrov said.

Briefing: Huawei’s Hongmeng OS could outpace Android, iOS – CEO

Rachel Zhang — Mon, 08 Jul 2019 06:59:44 +0000

Le nouveau monde, c’est lui ! – Le Point

What happened: It is “very much possible” that Huawei’s proprietary operating system, known as Hongmeng or Ark OS, will be faster than Google’s and Apple’s systems, CEO Ren Zhengfei has told French magazine Le Point in an interview on July 4. He added that it features a processing delay of fewer than five milliseconds, making it “perfectly” adapted for the internet of things (IoT) and autonomous driving. However, Ren said that building a completely new app ecosystem remained a big challenge as Android and iOS dominate the market. It is creating an app store to lure more developers to solve the issue.

Why important: The operating system is seen as a way for Huawei mitigate its dependence on US products, namely Android. US President Donald Trump reportedly lifted some of restrictions on Huawei after the G20 summit end-June but uncertainties remain and the telecom giant is still officially on the Commerce Department’s entity list. Nevertheless, the company is pushing ahead with its own OS, which Ren sees as an innovation rather than a substitute. “We built this system to connect all objects simultaneously, this is how we move towards a smart society,” he said.

Briefing: Professor found guilty of plan to send missile chip tech to China

Eliza Gkritsi — Mon, 08 Jul 2019 03:01:11 +0000

Professor faces 219-year prison sentence for sending missile chip tech to China – The Verge

What happened: An electrical engineer and University of California, Los Angeles professor was found guilty of conspiring to export semiconductor technology used in missiles. Yi-Chih Shih’s partner, Kiet Ahn Mai, posed as a customer to obtain the key technology for an American chipmaker before sending it to a company in China that has been on the US entity list since 2014. According to a press release by the US Justice Department, Shih was found guilty by a jury in a Los Angeles court for 18 counts, including illegal exports and fraud, on June 26 and could face up to 219 years in prison.

Why it’s important: Trade secret theft is at the core of the US-China trade war. Washington claims that Beijing has built its burgeoning tech sector based on technology taken from US companies. Huawei lost a case of IP theft two weeks ago in Texas, and is facing another one. Florida-based Magic Leap has sued an employee of Chinese Nreal over an AR headset. Some in Washington meanwhile have voiced concern that Chinese students studying at American universities are contributing to tech transfer.

Handshake: Limiting Huawei via national security

Shi Jiayi — Fri, 05 Jul 2019 05:35:12 +0000

If you can’t see the YouTube player above, try watching here instead.

Looking back at how the US has used national security as a means to protect its domestic industries can provide a better understanding of the current predicament facing Huawei in the US, according to the CEO of the company behind the RISE conference that will take place in Hong Kong next week.

“I think history holds lots of lessons,” Paddy Cosgrave, CEO and co-founder of Web Summit told TechNode in a recent interview. “This hasn’t been the first time that the US has used national security as a basis for restricting foreign companies selling products into their economy.”

Back in the 1980s the US imposed huge tariffs on Japanese cars, Cosgrove said. The American government claimed that Japan was dumping cars into the US market and Japan was too heavily involved in these car companies.

“National security just tends to be the reason that’s given when countries have traditionally produced companies, countries outside of the United States that tend to out-innovate American companies in particular sectors.” Cosgrave said. Japan for example, started rapidly growing the business in other markets and were able to minimize the effect of being blocked from entering the United States back in the 1980s. He thought it was difficult to speculate what outcomes are going to be for Huawei and hopefully Huawei can find other markets they can grow.

Cosgrave also believes the history of innovation in different countries forms a fascinating pattern.

“Through the 20th century after World WarII, America started accusing Japan of doing nothing but copycatting American technology,” he said. “The Japanese were dismissed as being incapable of actually creating anything themselves and they didn’t possess a truly innovative culture much the same as Europeans is dismissed Americans. And in time Japan managed to become a truly Innovative country.”

In recent years, China has been dismissed by other countries as copycatting but Cosgrave believes the 250 years of history holds true and the country is already creating remarkable products and represents the future of tech.

Cosgrave is known for holding technology conferences all over the world. He described those conferences as “dating festivals” for people in tech. So far the company has conferences in Europe called Web Summit, in North America called Collision and in Asia called RISE. RISE will take place in Hong Kong from July 9 to 11 next week.

“It’s a serious business event, but it’s also a lot of fun as well,” he said. “And people are very open minded, very open to meeting people. It’s entirely global. I think that makes a really interesting melting pot by day and by night.”

Briefing: Ren Zhengfei thinks industrial IoT is next in conflict with US

Eliza Gkritsi — Fri, 05 Jul 2019 03:02:47 +0000

Huawei founder predicts internet of things is next US battle – The Financial Times

What happened: Huawei founder Ren Zhenfei expects conflict between the Shenzhen-based telecom giant and the US will continue, and that it will involve industrial applications of the internet of things (IoT). Huawei is trying to quickly develop the hardware and software necessary for automating factory floors, in an effort to set the standard for the industry. “They’ll fight IoT next. Let them fight,” Zhengfei said.

Why it’s important: The “let them fight” quote reflect’s Ren Zhengfei’s public statements towards US efforts to bar it from the development of 5G networks. Regarding the export ban in May, he said it could cost Huawei $30 billion in output, but that he didn’t think it would “thwart our [Huawei’s] progress.” Huawei has been fighting to become the industry trendsetter in 5G, and it is trying the same with industrial IoT. According to this statement, Ren Zhengfei thinks the US will go after them in that technology as well, hinting at deeper differences.

US confirms Huawei ban following Trump statement for reprieve

Wei Sheng — Thu, 04 Jul 2019 07:32:56 +0000

Lingering confusion about whether American companies are allowed to do business with Huawei follow contradicting comments over the weekend from US President Donald Trump and the trade department.

The US Commerce Department said on Wednesday that requests from American companies seeking to export products to Huawei were being reviewed “under the highest national security scrutiny” since the company is still blacklisted, Reuters reported on Thursday.

The US government agency said it was applying the “presumption of denial” standards with Entity Listed companies, which has included Huawei and its affiliates since mid-May, meaning applications are unlikely to be approved, according to the report.

Trump said Saturday on the sidelines of a G20 meeting in Japan that American firms could ship goods to Huawei. The comment followed a consensus between the Trump and Chinese President Xi Jinping about a ceasefire on trade.

US tech companies have been lobbying the administration to narrow the scope of the ban. Chipmakers say the ban is crimping profits and a number have resumed some sales to Huawei despite the trade blacklist.

Following Trump’s declaration on Saturday, National Economic Council chairman Larry Kudlow clarified on Sunday that sales to Huawei would be limited to products widely available around the world, and that national security remained paramount.

At the G20 meeting, Trump also said that meetings on Huawei would be held shortly. But four days after the announcement, industry and government officials alike remain uncertain about what the new policy will be, said the Reuters report.

Huawei, however, is not so elated by Trump’s decision. Huawei founder and CEO Ren Zhengfei told the Financial Times on Tuesday the move would not “much impact” its business as it adjusts to a new era of American hostility.

“President Trump’s statements are good for American companies. Huawei is also willing to continue to buy products from American companies,” Ren said.

But the Huawei executive also said last month he expected the US trade blacklist would reduce the company’s production output by $30 billion over the next two years and he was surprised at the determination with which Washington has attacked his company.

Briefing: Youku inks deal with Youtube, Amazon for Chinese detective series

Emma Lee — Thu, 04 Jul 2019 04:12:20 +0000

Youtube, Amazon to offer Youku’s “longest Day” Series – Alizila

What happened: Alibaba’s video-streaming platform Youku’s detective thriller series “The Longest Day in Chang’an” will be available overseas via Youtube, Amazon Prime and Rakuten Viki. First debuting on Youku on June 27, the series is available in Chinese, English, and Vietnamese. It will go live in Singapore, Japan, Malaysia, Vietnam, and Brunei on partnering streaming platforms and TV networks throughout the month. Youtube, Amazon, and Rakuten Viki will also offer the program to their paid-subscriber base in the US, Canada, and South America. One could also get views based on payment basis to gain that initial traction.

Why it’s important: Youku has been producing its own high-quality, original content in an effort to differentiate and attract subscribers. The company is setting its sights on global audiences. Youku has distributed more than 50 original productions overseas over the past two years, such as the romantic comedy, “I Hear You,” and detective series “Day and Night,” according to the company. The company has tapped resources across Alibaba’s ecosystem to promote the series, including full-screen advertisements on e-commerce platform Taobao.

Briefing: Microsoft, HP, Dell to shift production away from China

Eliza Gkritsi — Thu, 04 Jul 2019 02:30:05 +0000

HP, Dell and Microsoft join electronics exodus from China – Nikkei Asian Review

What happened: A new set of companies which produce notebooks, game consoles, e-readers, home assistants, and smart speakers plan to join the exodus from China, Nikkei Asian Review reported citing anonymous sources. Microsoft, HP, Dell, Sony, Nintendo, Google, and Amazon think the renewed promises of reconciliation coming from last week’s G20 meeting are too uncertain, the report said. Lenovo and Asustek are also considering similar moves. Meanwhile rising labor costs in China have already lowered production demand and will continue to do so. Companies are eyeing Southeast Asia as an alternative.

Why it’s important: Leaders from the US and China made an effort to appear reconciliatory at the G20 meeting. But observers have said no solid details have been announced, while there are many issues left to be resolved for a trade deal. The US-imposed hiked tariffs on Chinese exports have landed a severe blow to China’s position as a tech powerhouse. Apple and China’s largest private sector employer Foxconn have already announced plans to move more than 30% of production out of China. Meanwhile, other American companies are fighting to maintain access to the Chinese market.

Briefing: MIT scientists decry crackdown on researchers of Chinese origin

Miles Goscha — Wed, 03 Jul 2019 03:48:50 +0000

‘Psychological fear’: MIT scientists of Chinese origin protest toxic US climate – Nature

What happened: Massachusetts Institute of Technology (MIT) scientists of Chinese origin spoke to Nature about the increasingly toxic environment on US college campuses and institutions as the government’s crackdown on foreign influence in research has reached a fever pitch. The scientists describe unfair treatment at the hands of government officials, including surprise visits from law enforcement. Additionally, an open letter recently published by MIT’s president Rafael Reif details how “faculty members, post-docs, research staff and students… feel unfairly scrutinized, stigmatized and on edge — because of their Chinese ethnicity alone.”

Why it’s important: While the National Institutes of Health (NIH) denies any racial bias in its investigations, evidence is mounting that it has been particularly focused on academics of Chinese origin. Among others, it has been involved in both MD Anderson’s firing of three “Asian” scientists and Emory University’s firing of two Chinese-American biomedical researchers since it began its initiative last August. MIT joins 10 other institutions, including the Committee of Concerned Scientists and Yale University, in raising concerns through an open letter, although it seems unlikely that the NIH will relent as long as the trade war rages on.

Briefing: US lobbying efforts behind easing of Huawei ban were extensive

Eliza Gkritsi — Tue, 02 Jul 2019 10:12:37 +0000

How U.S. Chipmakers Pressed Trump to Ease Huawei Export Controls – Bloomberg

What happened: The semiconductor industry launched a concerted effort to lift the blanket ban on exports to Huawei, Bloomberg reported citing anonymous sources. Following reports in June that Qualcomm and Intel lobbied independently against the ban, the Semiconductor Industry Association orchestrated a full court press campaign in high-level meetings and a signed letter, Bloomberg reported. The companies argued that the blanket ban is making the US look like an unreliable trade partner, damaging the chipmakers’ chances of investment while Huawei could source parts from other countries, according to the report. They asked for a target ban of specific technologies.

Why it’s important: US President Trump announced that he will lift some restrictions on the Chinese telecoms giant on Saturday. The Huawei ban has been in place since May 16 and has roiled the semiconductor industry across the world. China is the world’s largest buyer of computer chips. In 2018, Huawei spent $11 billion on American semiconductor products. In the four weeks after the ban was announced, NeoPhotonics, a US chipmaker, saw its share value fall by more than 20%, and Qualcomm stocks fell 18%.

AMD claims no wrongdoing in passing US chip tech to China

Eliza Gkritsi — Mon, 01 Jul 2019 10:35:12 +0000

Advanced Micro Devices, known as AMD, has denied any wrongdoing for a deal that transferred key semiconductor technology to Chinese supercomputer manufacturers, universities, and supercomputer manufacturers affiliated with the military.

The Wall Street Journal reported that a joint venture signed in 2016 that led to AMD chips “rolling off Chinese production lines” had been inked without adequate regulatory oversight. The complex system of joint ventures set up by AMD in China put the transfer of chip intellectual property in a legal grey area that, until last week, remained outside the usual purview of US controls on tech transfer.

AMD responded to the claims on Friday, saying that the report made several factual errors and that it had been in touch with the Department of Defense and Commerce Department since 2015, the year before the joint venture was signed. It added that recent developments have made the topic sensitive in a way that it wasn’t at the time of the deal.

The California-based semiconductor designer licensed its proprietary designs of x86 processors for $293 million dollars plus any royalties coming from new chip designs. The chips, invented by Intel, are the foundation for modern high-speed computing and can be found in both consumer devices and state-of-the-art supercomputers.

In February 2016, AMD had set up a joint venture along with Chinese state- and privately owned companies under the name Tianjin Haiguang Advanced Technology Investment Co. Ltd. (THATIC). The newly set up company was co-owned by AMD, the Chinese Academy of Sciences, and other Chinese private and public companies.

AMD then set up another two companies in China, HMC and Hygon. AMD holds a 51% stake in Hygon, according a company filing. In 2018 Hygon produced Dhyana, a CPU processor almost identical to AMD’s EPYC model. More recent online reports say that AMD owns 30% of Hygon and 51% of HMC.

According to anonymous sources cited in the story, the Pentagon and the US Department of Commerce suspected that the joint venture violated export controls over national security risks that are reviewed by the Committee on Foreign Investment in the United States (CFIUS). They tried to block it by attempting to convince company representatives to submit the deal for review. However, the US Treasury Department, which has the final say in the CFIUS review process, agreed that AMD’s joint venture deal fell outside of its scope.

As of June 21, all three of AMD’s joint ventures in China are subject to the extended export ban. Sugon, one of AMD’s Chinese partners, “publicly acknowledged a variety of military end uses and end users of its high-performance computers,” thus US authorities decided that it is acting contrary to national security interests and placed it on the entity list.

According to the US Department of Commerce, Sugon, which manufactures half of China’s fastest supercomputers and is affiliated with the military, owns a majority stake in THATIC and minority stakes in HMC and Hygon. Sugon has used the Dhyana processor in its supercomputers, which are used by the Chinese military, the Department of Commerce said.

According to the report, AMD licensed its technology to THATIC which in turn passed it on to Hygon and HMC which produced processors and devices respectively.

In addition to the complex company structure, the Wall Street Journal reported that AMD intentionally stripped the x86 semiconductors from features that would definitively place it under export controls, such as encryption protocols.

AMD did not respond to TechNode’s requests for comment on Monday.

In 2016, AMD was struggling. Shares of its biggest competitor, Intel, was valued six times higher and the company was dependent on outsourcing the manufacturing of its IP. Under the guidance of a new CEO, it decided to monetize its precious IP to save itself from its financial problems.

The IP of semiconductors is guarded closely by manufacturers and governments alike, since design remains one of the most important and difficult aspects of the technology. Their importance in the development of supercomputers, which are used for military and other state functions, also makes them a highly coveted.

The year before AMD set up the intertwined joint ventures, the Obama administration stopped Intel from selling its Xeon processors to a supercomputer facility in China.

Briefing: US to lift some restrictions on Huawei as part of trade agreement

Wei Sheng — Mon, 01 Jul 2019 03:32:50 +0000

White House official: New sales to China’s Huawei to cover only widely available goods – Reuters

What happened: US President Donald Trump said on Saturday that American companies would be permitted to resume sales to Chinese telecommunications company Huawei, which National Economic Council chairman Larry Kudlow clarified on Sunday, saying that the sales would only apply to products widely available around the world. National security remained paramount, he added. The partial lifting of restrictions on Huawei was a key element of the agreement reached over the weekend between China and the US to reopen stalled trade negotiations.

Why it’s important: Beijing views lifting the Huawei ban as a precondition for reaching a trade deal with Washington, The Wall Street Journal reported last week. White House officials have said the administration was keeping Huawei separate from trade talks, but Trump is clearly making Huawei a part of any trade settlement. Last month, Trump indicated that the US could lift restrictions against Huawei if the US sees some forward movement on the trade talks.

Briefing: Megvii teams with Austrian sensor maker on commercial facial recognition

Eliza Gkritsi — Fri, 28 Jun 2019 06:40:37 +0000

New ams/MEGVII Partnership for Plug-and-play solutions Enabling 3D Face Recognition in Any Smart Device – Businesswire

What happened: Chinese AI surveillance company Megvii will join forces with Austrian sensor manufacturer Ams AG to make what it claims will be the first off-the-shelf facial recognition solutions that don’t rely on smartphones. The standalone plug-and-play 3D suite, featuring Ams AG’s laser technology with Megvii’s facial algorithms, will focus on smart home, retail, security applications.

Why it’s important: Once referred to as “China’s rising AI star,” Megvii, which reached a $4 billion valuation in May, has recently entered choppier waters. The firm’s role in China’s state-level surveillance has attracted criticism from abroad since a March report stated Megvii was seeking an $800 million IPO listing. Many speculate that China’s surveillance players could soon face a US administration ban similar to that of Huawei. As a result, anonymous insider sources claim it is rethinking its listing altogether. Despite the turmoil, Megvii appears committed to partnerships and product development, this time with a European partner.

Briefing: Huawei found to have stolen trade secrets, loses US chip firm lawsuit

Eliza Gkritsi — Thu, 27 Jun 2019 09:15:58 +0000

Huawei Technologies loses trade secrets case against U.S. chip designer – Reuters

What happened: A court in Texas ruled against Huawei’s claim that US semiconductor company CNEX Labs had stolen Huawei trade secrets. The Shenzhen-based telecom equipment giant had accused the Microsoft- and Intel-backed chip designer of stealing intellectual property (IP) related to memory control technology and poaching employees. CNEX, whose co-founder is a former Huawei employee, responded with a counter suit, claiming that Huawei had posed as a customer to obtain confidential information and that the lawsuit was an attempt to acquire proprietary technology. The court found that Huawei committed IP theft but did not award damages to CNEX.

Why it’s important: Huawei is a cornerstone of the US-China trade war. One of the Washington’s main grievances with China is that its rise as a global tech powerhouse has been on the back of stolen foreign technology. Two of Huawei’s business units face charges by US prosecutors for allegedly misappropriating robotic and mobile testing technology from cellular provider T-Mobile. Notably, the same judge who oversaw the CNEX lawsuit will see Huawei’s lawsuit against the US government filed in early March to overturn a law which prohibits government agencies from buying its equipment.

Huawei says 5G gear supply ‘not affected’ by US ban, secured 50 contracts

Wei Sheng — Thu, 27 Jun 2019 02:28:25 +0000

Ken Hu, deputy chairman of Huawei, spoke at MWC Shanghai on June 26, 2019. (Image credit: TechNode/Eugene Tang)

Chinese telecommunications giant Huawei said on Wednesday that is has secured 50 commercial 5G contracts worldwide and the company’s 5G equipment supply was “not affected“ by a trade ban by the United States government.

To an audience at the Mobile World Congress in Shanghai, Huawei deputy chairman and rotating CEO Ken Hu said the company had signed 50 contracts for next-generation 5G wireless networks with telecom operators from 30 countries, half of which are European carriers.

The Shenzhen-based company is the world’s largest telecom equipment maker, but its ambitions to sell 5G gear to global carriers have been crimped by a US government ban on fears of national security risk. Huawei has repeatedly denied the allegations.

The US Department of Commerce on May 15 placed Huawei on a trade blacklist that bars companies from selling American technology and components to Huawei without approval.

Hu told reporters at a press conference after the presentation that Huawei has already found alternatives, including the company’s self-developed solutions or those from non-American suppliers, for components affected by the US ban.

“In terms of where Huawei stands right now, our overall supply is not affected,” he said.

Huawei also said it has shipped more than 150,000 5G base stations to date and expects to ship 500,000 by the end of the year.

While the company’s 5G business has proved resilient, its consumer business has undoubtedly been affected by the US crackdown. Google on May 19 pulled Huawei’s license for Android, a mobile operating system used by all of Huawei’s smartphones.

Huawei founder and CEO Ren Zhengfei said last week that its overseas smartphone sales had dropped 40% without specifying a time frame. A company spokesman said he was referring to a decline over the past month, according to Bloomberg.

Hu said all Huawei smartphones in stock up to now had the Android OS installed and were not subject to Google’s restriction.

The company is also reportedly preparing an alternate operating system to Android, known as the Hongmeng OS. Hu said he could not provide further information about the developing OS and there was no timetable for launch.

Huawei’s consumer business head Richard Yu, however, said last month in an interview with CNBC that the new system would be ready for use in China by fall this year, and international markets early next year.

Hu said the company “hopes to continue using Android and Google’s services in the future.”

Briefing: China’s top supercomputer not included in competition amid trade war

Nicole Jao — Wed, 26 Jun 2019 05:51:05 +0000

China ‘has decided not to fan the flames on supercomputing rivalry’ amid US tensions – South China Morning Post

What happened: China did not enter its top supercomputer in a competition prior to a Trump administration decision to add five more Chinese high-performing computing companies to a trade blacklist, according to sources cited by the SCMP. China’s newest supercomputer, Shuguang, was not included on the latest Top500 ranking of the world’s fastest computer systems. Shuguang supercomputers are said to operate more than 50% faster than the best-performing machines in the US.

Why it’s important: China exclusion of its new supercomputer from the recent competition did not stop the US from blocking five more Chinese firms from purchasing American technology last week. China and the US have been locked in a tight race to be the first to produce the “exascale” computer, the next-generation supercomputer. China was reportedly planning a multi-billion investment to upgrade its supercomputer infrastructure after losing its top ranking last year to the US. China started building its own supercomputers without US semiconductors in 2015 after the Obama administration banned Intel, Nvidia, and AMD from selling high-end chips to China.

Briefing: US chip makers circumvent Huawei ban to resume some sales

Wei Sheng — Wed, 26 Jun 2019 05:24:08 +0000

U.S. Tech Companies Sidestep a Trump Ban, to Keep Selling to Huawei – The New York Times

What happened: A number of the biggest American chip makers including Micron and Intel have sold millions of dollars of products to Huawei despite its placement on a trade blacklist. These American suppliers began selling components produced overseas to Huawei about three weeks ago, permissible for American goods which are not made in the US and do not contain technology that can pose national security risks. People with knowledge of the sales said the blacklist on Huawei caused confusion and many executives of American suppliers who lacked deep experience with US trade controls initially suspended shipments to Huawei.

Why it’s important: Sales to Huawei comprise significant portions of revenue for many American chip makers; Huawei said it spends around $11 billion in technology from US companies each year. Micron’s shares rose as much as 10% on Tuesday after the company said it had resumed some microchip shipments to Huawei. Meanwhile, the trade blacklist effect on Huawei may be lesser than expected as chip makers grow increasingly savvy about US trade policy.

Briefing: China’s tech suppliers look abroad to minimize effects of trade war

Rachel Zhang — Tue, 25 Jun 2019 13:58:14 +0000

Vietnam and India see explosion in direct investment from China as tech suppliers shift production overseas, says Goldman Sachs – South China Morning Post

What happened: China’s technology supply chain is shifting abroad to Vietnam and India as companies that produce components for smartphones, computers, and other high-tech products try to minimize the effects of the US-China trade war. The main driver is increasing operating costs in the Greater China region, according to a report by Goldman Sachs. The move is also being motivated by trade tensions between the US and China. Nonetheless, infrastructure and inexperience among workers in high-tech industries pose a problem for companies looking to make such a move.

Why important: China has long been seen as the factory of the world. The country’s large population has helped labor-intense businesses around the world maintain scale at low costs. However, more policies to protect labor rights and the environment are starting to change this. Meanwhile, fewer young people are willing to do repetitive work as education rates in some areas increase. While the shift has been on the way for years, trade issues have served as a catalyst.

Briefing: FedEx sues US government over forced role in policing millions of parcels

Eliza Gkritsi — Tue, 25 Jun 2019 07:34:09 +0000

FedEx sues U.S. government over ‘impossible’ task of policing exports to China – Reuters

What happened: The American courier services company FedEx is suing the US Department of Commerce, claiming that it shouldn’t be held liable over unintentionally delivering Huawei parcels that violate the US ban. FedEx claimed in a court filing in the District of Columbia that the task of monitoring millions of packages is “a virtually impossible task, logistically, economically, and in many cases, legally,” and that the government has essentially “deputized” them to police parcels.

Why it’s important: FedEx has been caught between a rock and a hard place since several Chinese firms have been included in the US entity list, which prohibits American companies from doing business with them. In May, Huawei said two of its packages containing documents were misdirected, and that it will review its ties with FedEx. Yesterday, PCMag reported that FedEx refused to deliver a Huawei P30 smartphone mailed from one of its writers in the UK to one in the US. FedEx said that it was due to an “operational error.” The delivery company said that it will not deliver any Huawei-made products mailed to Huawei addresses, or others which are on the entity list.

Briefing: China tech startups choosing homegrown software over Oracle and IBM

Nicole Jao — Tue, 25 Jun 2019 06:17:13 +0000

China’s Biggest Startups Ditch Oracle and IBM for Home-Made Tech – Bloomberg

What happened: Chinese tech companies are migrating away from global software service providers Oracle and IBM and towards homegrown tech companies amid a trade war with the US. One of the companies seeing tremendous growth opportunities in this area is Beijing-based data management startup PingCAP. The company, which develops open-source database software that enables enterprises to analyze and manage data, now serves big-name clients include Meituan, Mobike, iQiyi, and Xiaomi.

Why it’s important: China has been looking to reduce its reliance on foreign technologies amid escalating trade tensions with the US, which has pushed domestic tech giants like Tencent and Alibaba to accelerate their own software capabilities including cloud services. Chinese software firms will likely see an uptick in demand as enterprises from industries such as finance and manufacturing modernize their systems. The global market of database management systems is expected to grow at CAGR of 8% annually through 2022, according to a report by Market Research Future. Growth is especially rapid in China, where heavy investment has been poured into database system development.

Briefing: Huawei’s US research arm works to separate itself

Wei Sheng — Tue, 25 Jun 2019 04:13:08 +0000

Exclusive: Huawei’s U.S. research arm builds separate identity – Reuters

What happened: Huawei’s US-based research branch Futurewei Technologies Inc has been working on separating its operations from its Chinese corporate parent since the US government put Huawei on a trade blacklist. Futurewei has banned Huawei employees from its office and moved Futurewei employees to a separate IT system, as well as forbidden them from using the Huawei name or logo in communications. Futurewei has filed more than 2,100 patents in areas such as telecommunications, the fifth-generation wireless network, and video and camera technologies.

Why it’s important: When the US Department of Commerce in May put Huawei and 71 of its affiliates on its “entity list” to bar them from obtaining US technology without approval, Futurewei was not included. However, its ongoing partnerships with US universities may still be at risk. The University of California, Berkeley allows staff and students to work only with Futurewei employees who are US citizens or permanent residents and who agree in writing not to share certain sensitive information with Huawei. Stanford also paused new funding agreements from Futurewei but has continued working with the company under “existing arrangements,” the university’s Dean of Research Kathryn Moler told Reuters.

Briefing: White House seeks to block all Chinese-made gear from US 5G networks

Wei Sheng — Mon, 24 Jun 2019 08:25:24 +0000

U.S. Considers Requiring 5G Equipment for Domestic Use Be Made Outside China – The Wall Street Journal

What happened: The Trump administration is seeking to require all equipment for next-generation 5G networks used in the US be designed and manufactured outside of China. The move would expand its ban on Chinese telecoms giant Huawei to all Chinese companies, as well as foreign companies that manufacture products in China. Officials are asking telecom equipment makers whether they can develop US-bound hardware including cellular base stations, routers, and switches as well as software outside of China. US officials said they are acting urgently because telecom operators are starting to build their 5G networks to power a “fourth industrial revolution,” which “will be built on the telecommunications networks being constructed today. It is critical that those networks be trusted,” a Trump administration official said.

Why it’s important: Without using telecoms equipment from Huawei and another Chinese firm ZTE, US carriers would have to choose from Sweden’s Ericsson and Finland’s Nokia to build their 5G networks. But the two European companies both rely on manufacturing products in China. Analysts cited by the WSJ said China represented 45% of Ericsson’s manufacturing-facility area and 10% of Nokia’s in 2018. Also, there is no major US manufacturer of cellular equipment.

Briefing: FedEx mishandles Huawei parcel, again

Eliza Gkritsi — Mon, 24 Jun 2019 02:56:55 +0000

FedEx misses delivery of Huawei package to U.S.; China paper says retaliation threatened – Reuters

What happened: American delivery services operator FedEx said it did not deliver a package belonging to Huawei because of an operational error. The package was bound for the US and “was mistakenly returned to the shipper, and we apologize for this operational error,” FedEx told Reuters in an email. State-owned newspaper Global Times tweeted in response that FedEx could be added to China’s entity list, which Chinese authorities announced earlier in June.

Why it’s important: This is the second time in a month that FedEx has mishandled a Huawei package, and the Chinese telecom giant had stated previously that it might reconsider its relationship with the delivery company. On May 28, FedEx diverted two Huawei parcels through the US, which were sent from Japan to China. More than just crucial components, such as the Android OS and ARM chips, the Trump administration’s inclusion of Huawei in the US entity list seems to be affecting its logistics. German courier DHL denied rumors in late May that it had halted deliveries of Huawei products. FedEx’s repeated “errors” also spell trouble for the delivery firm itself, raising concerns about privacy.

Briefing: Foxconn chairman steps down ahead of presidential run

Eliza Gkritsi — Fri, 21 Jun 2019 04:35:07 +0000

Foxconn chairman hands over reins ahead of presidential bid – Reuters

What happened: Terry Gou, founder and chairman of Foxconn, announced today he is handing the reigns of the world’s largest electronics contract manufacturer to a new operations committee. Gou, 68, was expected to withdraw from the daily operations of Foxconn since he announced his bid for president of Taiwan, where the company is based. He is expected to keep a seat at the board, but the company said at its first investors relations conference today that his presidential candidacy will affect his future role there.

Why it’s important: The news of Gou’s resignation has been expected since he announced his presidential bid. It comes a week after Foxconn unveiled a leadership overhaul and plans for increased transparency towards investors. The new nine-person committee is comprised of key figures in Foxconn’s various businesses, and speculation is high as to whether one of them will replace him as chairman of the board. As the largest assembler of iPhones, Foxconn is likely to undertake serious changes in its supply chain operations. The US-China tariffs impart a heavy burden on iPhones, which are mainly made in China. The Taiwanese company has said it is ready to shift production out of China.

US to overtake China as the world’s largest gaming market: report

Tony Xu — Thu, 20 Jun 2019 07:09:42 +0000

The US will replace China as the world’s largest gaming market in terms of revenue in 2019, according to a report from game market research firm Newzoo.

The US has not held the top spot since 2015. Its market is expected to bring in $36.9 billion globally in 2019, whereas China is projected to gross around $36.5 billion during the same period.

The Chinese government’s nine-month freeze on monetization approvals in 2018 weighed heavily on the year-on-year growth rate in the Asia-Pacific region, which fell to 7.6%, much slower than other regions. However, the report forecasts that China will reclaim its position as the largest gaming market by revenue in 2020.

In 2018, China suspended the game licensing process for nine months as it reassigned game regulation responsibilities to the State Administration of Press and Publication (SAPP). The process resumed in December, but just a few months later, the regulator issued a notice requesting local authorities to stop filing applications so that it could process the backlog that built up during the freeze.

In April, the SAPP started accepting new applications for game approvals under a new set of guidelines, which reject low-quality and copycat games, as well as poker and mahjong games. Game research firm Niko Partners estimated that the new rules would reduce the number of approved games to around 5,000 in 2019 from the 8,561 in 2018.

Among those hit hardest by the uncertain regulatory environment has been gaming giant Tencent. The company saw stagnating game revenue in Q4 2018 and Q1 2019. In May, the company scrapped China plans for hit mobile title “PUBG Mobile,” which can’t monetize due to the lack of an approval, and replaced it with a more patriotic “Game for Peace.” According to data from mobile app intelligence firm Sensor Tower, the new title raked in $70 million in May.

US senator proposes excluding Huawei from patent protection

Eliza Gkritsi — Thu, 20 Jun 2019 06:45:16 +0000

Republican Senator Marco Rubio is seeking to revoke the intellectual property (IP) rights of companies on government watch lists, just days after Chinese telecom giant Huawei asked for more than $1 billion from American telecoms operator Verizon over licensing fees.

The Senator submitted an amendment to the National Defense Authorization Act, a series of laws that guides American military expenditures. The amendment does not name Huawei or any other company, but proposes that foreign firms on certain priority lists be barred from pursuing legal action, filing complaints to the US Trade Commission, or receiving reparations for their US patents.

Two different federal watch lists are named in the proposal. One includes companies from countries that the US Trade Department sees as failing to provide adequate IP protection for American companies, such as China. The second includes the telecom and internet providers which “pose an unacceptable risk” to US national security under the executive order signed in May by American President Donald Trump, which banned Huawei from trading with US companies.

In short, if a company poses a national security risk or is from a country that doesn’t respect property rights, according to the US government, it will not be granted patent rights in the US.

Industry insiders in China were shocked by the news. “Nobody expected that your patent rights can be taken away,” said Yu Uny Cao, vice president at the Zhejiang Intellectual Property Exchange. “America is a good practitioner of the patent system. This damages its reputation,” he continued.

Senator Rubio tweeted yesterday that Huawei is using patent law to retaliate against the US government and that “We should not allow #China government backed companies to improperly use our legal system against us.”

Many responses from Twitter users spoke of a “double standard.”

Last week, the Wall Street Journal reported that Huawei was seeking more than $1 billion in damages from Verizon for infringing on 238 of its patents, citing anonymous sources familiar with the matter.

According to patent services provider IFI Claims, Huawei is one of the top patent-holders in the US, higher than many major American companies including General Electric, Boeing, and AT&T. It is ranked 16th with more than 3,000 patents.

Chinese tech professionals are wondering if the proposal is fair. “People take it personally, Huawei has been having bad news every day, and this engenders some kind of sympathy,” said Cao. “There is a group that says Americans are unfair, Americans are overstepping,” he said.

State-owned newspaper People’s Daily published a news report saying that “The senator from Florida intends to let the US—not steal—but blatantly grab the intellectual property and patents of Chinese companies.”

Rubio responded on Twitter, “When the official newspaper of the Central Committee of the Communist Party of China attacks you, you know you are doing something right.”

The defense bill was used in 2018 to ban federal agencies from using ZTE equipment and in 2019 to prohibit them from using Huawei equipment. The Shenzhen-based telecom giant has sued the US government over the 2019 bill, saying that is “unlawful” and hinders “fair competition.”

“I am almost certain that Huawei will sue the US government if the amendment passes,” Cao said, adding, “The question is how, and will it be frozen in the meantime?” Huawei could have no legal intellectual property protection during an ongoing legal battle, and the proceedings are likely to be lengthy.

The bill is set to be debated this week. Last year’s act passed on June 18, 2018, almost two months after the amendments were reported to the Senate, and was signed into effect by President Trump on August 13 of the same year.

Self-driving firms AutoX, Pony.AI granted California robotaxi permits

Jill Shen — Thu, 20 Jun 2019 05:44:38 +0000

Chinese autonomous vehicle (AV) startups, AutoX and Pony.ai, are joining an exclusive group of companies approved to offer self-driving rides to the public in California after receiving approvals from the California Public Utilities Commission (CPUC) on Tuesday.

The certificate, which expires on June 18, 2022, means the companies are approved to transport people in driverless vehicles for testing over the public highways in the state over the next three years under the state’s Autonomous Vehicle Passenger Service pilot. Vehicles must have a trained test driver behind the wheel ready to take over, charge no fees, and provide regulators with quarterly reports for each AV operating in the program.

AutoX said that it was the first carrier to offer robotaxi pilot service to residents in California in a press release sent to TechNode on Thursday. Around 10 Level 4 driverless vehicles will be introduced through a mobile application in some areas of north San Jose and Santa Clara cities.

Pony.ai was not immediately available for comment and so far has been quiet on whether it will roll out the service, reported Chinese media.

CPUC granted the first permit to US self-driving startup Zoox in December last year. The Foster City, California-based company reportedly plans to launch its autonomous ride-hailing service in San Francisco in 2020.

So far, more than 60 companies, including Zoox, AutoX, and Pony.ai, have already obtained permits from the California Department of Motor Vehicles (DMV) for AV testing on public roads, but they need separate permits from the state utilities commission to offer public transport services.

AutoX and Pony.ai have also been among the first batch of recipients for licenses to conduct road testing in the southern Chinese city of Guangzhou earlier this month, along with Guangzhou Automobile Group, and Chinese self-driving startups WeRide and Deepblue.

Pony.ai is so far the best-performing Chinese AV company, ranking fifth with 1,022.3 MpD (Miles per Disengagement) in the annual autonomous vehicle testing report released by the California DMV. Its outcome was far higher than its peers including Baidu (205.6), AutoX (190.8), and WeRide (173.5), but still way behind Alphabet subsidiary Waymo which had one disengagement every 11,017 miles.

AutoX, however, reported the largest number of miles traveled among the six Chinese companies at 22,710 miles between Nov. 31, 2017 through Dec. 1, 2018, followed by Baidu, whose vehicles traveled 18,093 miles in the same period.

Briefing: Uptake of Facebook’s Libra will depend more on regulations: Pony Ma

Nicole Jao — Thu, 20 Jun 2019 04:52:56 +0000

Tencent’s Pony Ma on Facebook’s Libra: “It’s Really Not Difficult” – RADII

What happened: Facebook announced early this week that it is set to launch its own cryptocurrency, Libra, in 2020. The company said users will be able to use it on its own app, Messenger, and WhatsApp. Although the social media platform is outlawed in China, the announcement still generated much discussion online. “The technology is already mature, it’s really not difficult,” Tencent CEO Pony Ma said in a comment on WeChat. “It depends more on whether the regulations allow it,” he added.

Why it’s important: Some believe that Libra is Facebook’s attempt to follow Tencent’s successful push into mobile wallets as a social media company, even though the two payment systems are based on different technologies. The Chinese internet giant created its digital QQ coin back in 2002 and it currently operates WeChat Pay, one of the largest mobile wallets in China. Compared with China, many advanced economies have been slow to embrace the cashless trend. Lawmakers in the US and Europe have already expressed concerns about Facebook’s cryptocurrency.

Briefing: Google rejects employee challenge to China search engine

Eliza Gkritsi — Thu, 20 Jun 2019 02:37:17 +0000

Alphabet employees blast policies on contractors and China at shareholder meeting – CNBC

What happened: At an annual shareholder meeting for Google’s parent company, Alphabet, a Google employee proposed a resolution to publish an assessment of the human rights impact of Project Dragonfly, Google’s secret project to launch a censored search engine in China. Tyler Holsclaw, representing a “coalition concerned about the impact of government censorship and surveillance on human rights,” told his employers that “Google’s powerful technology could give China data that it wouldn’t otherwise get.” Alphabet rejected this proposal along with all others presented at the meeting. Google founders Sergey Brin and Larry Page were not in attendance to hear their employees’ concerns.

Why it’s important: Googlers are known for speaking up against their bosses. When Project Dragonfly was revealed by news site The Intercept, Google employees pushed the tech giant to abandon its plans. After Google claimed to have ended the project, they brought evidence to the press that showed otherwise. The management’s defiance of its employees is souring internal relations. Another concern expressed at the meeting is that several leading figures have resigned, citing a “betrayal of its stated values,” including diversity and sexual harassment policies.

Briefing: Chinese investors shy away from US biopharma startups in 2019

Miles Goscha — Thu, 20 Jun 2019 01:44:34 +0000

Chinese investment in US biopharma startups down over 80% in 2019 – Bay Bridge Bio

What happened: In the span of a year, Chinese investment in US biotech has gone from providing more than 40% of the industry’s venture funding to almost zero. According to Bay Bridge Bio, new US regulations on foreign investments implemented last August are to blame for the decrease. The regulations give the Committee of Foreign Investment in the United States (CFIUS) expanded power to more closely scrutinize foreign minority investments in startups.

Why it’s important: CFIUS’s new authority makes it difficult for early-stage companies to accept foreign investments, as evidenced by the fact that Chinese VC has participated in just one US biopharma company’s Series B round so far in 2019. American VCs have filled in the gaps, though, making up 47% of Series B funding participants through June 18 compared with just 5% in 2018. In China, this could be a blessing for a domestic biotech industry that has suffered from its own recent drop in investments: now that Chinese investors are shying away from US assets, they may return their attention to local firms.

Trade war drags on business sentiment in Asia-Pacific, reaches 10-year low: report

Eliza Gkritsi — Wed, 19 Jun 2019 07:08:29 +0000

Business confidence among top companies in the Asia-Pacific region has fallen to its lowest point since the 2008-2009 financial crisis, according to the Asian Business Sentiment report, a survey by Thomson Reuters and Singapore’s INSEAD business school.

The business sentiment index fell to 53 in the quarter ended June from a rating of 63 held in the two previous quarters. The measurement tracks companies’ outlook for the next six months and a score above 50 indicates an overall positive outlook.

The fact that this quarter’s number remained just over 50 indicates that companies do not expect a global recession, but are cautious about the future as the trade war escalates.

Uncertainty over Brexit is the second biggest concern, with 25% of firms naming it as the biggest risk for the next six months.

The report was a survey of 95 companies in 11 countries which make up a third of the world’s GDP output and 45% of its population. It was administered between May 31 and June 14. Companies surveyed include South Korea’s Samsung, Japan’s Nikon, and Thailand’s state-owned oil and gas company PTT PCL.

The global trade war has become the top perceived business risk, when a little over a year ago it was only a “worry.” The report from the first quarter of 2018 found that 14% of surveyed firms put “worries” about an impending trade war at the top of their concerns. The next quarter the “worries” became a reality and in the last three months, the trade war was the top concern for 57% of surveyed firms.

The trade war has had a significant impact on global supply chains, as many companies are looking to move production outside of China. Smartphone production has been severely affected by the tariff war. Taiwanese Foxconn, the biggest assembler of iPhones and China’s biggest private sector employer, announced last week that it is ready to expand productive capacity outside of China to minimize tariff impact.

Manishi Raychaudhuri, the Asia-Pacific equity strategy for BNP Paribas, the world’s eighth-largest bank in 2018 by asset size according to Standard & Poor’s, told Reuters that the trade war is unlikely to be solved in 2019. He added that the changes that must be made to supply chains “will not happen overnight.”

Briefing: China has the most supercomputers, output lags US

Miles Goscha — Wed, 19 Jun 2019 05:14:30 +0000

ISC 2019- China Leads in Supercomputers – Pandaily

What happened: Hosted in Frankfurt, Germany, the 2019 ISC High Performance conference announced the 53rd list of the world’s “Top500” supercomputers. Every six months, the Top500 project releases a list of the 500 most powerful commercially available computer systems in the world. China has the most supercomputers on the list with 219, the fourth consecutive time it has topped the list in number of machines. Quantity does not equal quality, though: the United States leads in terms of performance, with 38.4% of total computational output versus China’s 22.9%.

Why it’s important: Despite disparities between individual countries’ performance outputs, a closer look at the list reveals how significantly supercomputing as a field has progressed. For the first time in Top500’s history, all systems are capable of delivering a petaflop or more on the High Performance Linpack (HPL) benchmark. The most powerful Chinese computer is the National Research Center of Parallel Computer Engineering & Technology’s (NRCPC) Sunway TaihuLight, which was once the world’s most powerful but is now third on the list behind IBM’s Summit and Sierra. It clocks in at 93.0 petaflops.

Briefing: American AR startup accuses Chinese ex-employee of IP theft

Eliza Gkritsi — Tue, 18 Jun 2019 10:00:52 +0000

Secretive Magic Leap Says Ex-Engineer Copied Headset for China – Bloomberg

What happened: Florida-based augmented reality (AR) unicorn Magic Leap has sued a former engineering employee and Chinese national for stealing technology used in its AR headset. Xu Chi left Magic Leap in 2016 and founded his own company in Beijing, known as Nreal, which unveiled an AR headset at a tradeshow in January, fewer than six months after Magic Leap’s device came to market. The Alibaba- and Google-backed company accused Xu of “neglecting his work duties” as he was stealing proprietary information and plotting to start his own firm. Magic Leap points to the fact that Xu’s company released a headset in less than two years, saying its own product was deployed after seven years of development and $2 billion of investment.

Why it’s important: Cases of trade secret theft have added to souring relations between the US and China. In April, the Justice Department indicted two Chinese nationals over alleged trade secret theft from General Electric. Washington claims that such incidents show China’s tech rise has boosted by appropriated technology. Chinese telecommunications giant Huawei has been also been accused of intellectual property theft. The company was indicted in January over allegations that they stole robotics technology. In May, a US chip startup also sued the Shenzhen-based telecoms operator over theft of trade secrets.

Winners and losers after the Huawei ban

Eliza Gkritsi — Tue, 18 Jun 2019 08:17:47 +0000

More than four weeks after the Trump administration placed Huawei on a trade blacklist, the stock market is still reacting. Tech companies in China and the United States alike have seen share prices fall.

Huawei’s suppliers and competitors have lost share value since the Trump administration’s ban. Chipmakers NeoPhotonics and Lumentum, and semiconductor firm Qorvo have been hit the worst. NeoPhotonics relies on Huawei for 47% of its revenue, Lumentum and Qorvo for 11%, according to Goldman Sachs data analyzed by Reuters.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. In green, Huawei’s international competitors. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

South Korean electronics giant Samsung has seen its shares increase the most, exceeding 5%. Share prices for other non-Chinese telecom equipment companies have also gained: Finland-based Nokia and Swedish telecom firm Ericsson both rose around 3%. China’s other smartphone and telecom equipment makers, Xiaomi and ZTE, have both lost share value.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

Nearly all American chipmakers which supply Huawei with electronic components have seen share prices fall. The composite index for the semiconductor industry declined about 5%.

(Image credit: TechNode/Eugene Tang)

Chinese phone makers have also lost share value, whereas Huawei’s international competitors have seen a steady rise.

Briefing: Qualcomm, Intel lobby against Huawei ban

Wei Sheng — Tue, 18 Jun 2019 05:42:33 +0000

U.S. chipmakers quietly lobby to ease Huawei ban – Reuters

What happened: American chipmakers Qualcomm and Intel are lobbying the US government to ease a ban on selling components to Chinese smartphone and telecommunications equipment maker Huawei. The chipmakers argue that Huawei products such as smartphones and computer servers are unlikely to pose the same security concerns as its equipment for the new fifth-generation networks, known as 5G. One person familiar with the issue quoted by Reuters said that the lobby was not about helping Huawei but preventing harm to American companies.

Why it’s important: Huawei spent $70 billion buying components in 2018, of which $11 billion went to US chip companies including Qualcomm, Intel, and Micron. US-based chipmaker Broadcom, a major supplier of wireless communication chips for smartphones and other devices made by Huawei has forecasted a decline in its second-quarter revenues and lowered its expectations for the rest of the year. Micron, which generated 13% of its revenue from Huawei in the six months ending late February, also said the ban brings uncertainty to the semiconductor industry.

Huawei CEO says US clampdown will throttle production output by $30 billion

Wei Sheng — Tue, 18 Jun 2019 03:21:03 +0000

Ren Zhengfei, founder and CEO of Chinese telecommunications equipment giant Huawei, said on Monday he expected the US trade blacklist will reduce production output by $30 billion over the next two years.

“We never expected that the United States would be so determined to attack us and we were unaware that the attack would be so broad,” (our translation) Ren said in a panel discussion with two Americans at the company’s Shenzhen headquarters. “But we don’t think the efforts will thwart our progress.”

The panel discussion, dubbed “A Coffee with Ren,” featured the Huawei CEO speaking about topics including network security, the US-China relationship, and global technology trends. The discussion was jointly held by American economist George Gilder and Nicholas Negroponte, the co-founder of the Massachusetts Institute of Technology (MIT) Media Lab.

Ren said in the discussion that there are still many universities working with Huawei, even in the US. “I want to invite more US politicians to visit our company. If they find out that we are being innovative, they may think we can be good friends, and we can be trusted.”

The company will invest $100 billion in research and development, as well as the reconstruction of its network structure, to make it more secure and more credible, Ren said during the discussion.

The panel offered little counterpoint to the Huawei founder’s views on the blacklisting or broader efforts from the US government to spread the ban to other countries.

Negroponte said the US President Donald Trump promised to reconsider the Huawei issue if the trade negotiation could agree on a deal. “This is obviously not about national security; it’s about something else,” he said.

The Trump administration has been campaigning for countries to ban Huawei equipment from their next-generation wireless networks, accusing the company of planting “backdoors” in their equipment to spy on other countries networks.

Ren said Huawei equipment is absolutely “backdoor-free,” and the company is willing to sign “no-backdoor” agreements with every country in the world.

“Huawei has connectivity to more than 3 billion people. Over the last 30 years, Huawei has proved that our networks are secure and have not broken,” said Ren.

After being placed on a trade blacklist by the Trump administration last month, Huawei is preparing for a drop in international smartphone shipments by 40% to 60%, according to a Bloomberg report on Monday.

Ren confirmed Huawei’s overseas smartphone sales had dropped 40%, but did not specify a time period.

Huawei revenue grew 19.5% year-on-year to RMB 721.2 billion (around $107.3 billion) in 2018, according to the company’s annual report published in March. Ren forecasted the company’s revenues in 2019 and 2020 would remain around $100 billion.

“By 2021, we will see new life, but we have a lot of changes to make, and it will take time,” he said.

Briefing: Huawei applies to trademark Hongmeng OS in multiple countries

Wei Sheng — Fri, 14 Jun 2019 08:05:39 +0000

Huawei files to trademark mobile OS around the world after U.S. ban – Reuters

What happened: Chinese telecommunications firm Huawei is aiming to trademark its self-developed Hongmeng mobile operating system (OS), an alternative to Google’s Android OS, in at least nine countries and in Europe, according to data from the U.N. World Intellectual Property Organization (WIPO). The Shenzhen-based company has filed for a Hongmeng trademark in Cambodia, Canada, South Korea, and New Zealand, the data showed. The company also applied to trademark the OS at the European Union Intellectual Property Office on May 14, just around when it was blacklisted by the United States.

Why it’s important: Huawei has sped up Hongmeng’s roll out after it was locked out of future Android updates last month. The company had to revise a goal to become the biggest smartphone vendor by the end of the year because of the US blacklist. The promised OS is expected to be available on Huawei phones in the fall, but the company still faces challenges such as how to provide alternatives to Google services and build an app ecosystem to replace those that rely on Google. It is also reported that Huawei has shipped one million smartphones with the new OS onboard for testing.

Briefing: Tesla denied US tariff exemption for Chinese-made CPU used in Model 3

Miles Goscha — Fri, 14 Jun 2019 02:10:32 +0000

Tesla Denied Tariff Exemption for Chinese-made CPU in the Model 3 – FutureCar

What happened: The U.S. government denied Tesla’s tariff exemption request for the Chinese-made CPU used in its popular Model 3 sedan. In a letter dated May 29, the US Trade Representative’s Office said the component is “a product strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs.” The CPU is manufactured by Quanta Shanghai. A separate exemption request by the supplier of the Model 3’s touchscreen, SAS Automotive USA Inc, was also denied.

Why it’s important: In a securities filing on April 29, Tesla wrote, “our costs for producing our vehicles in the US have also been affected by import duties on certain components sourced from China.” The company previously claimed that choosing a different CPU supplier would have “delayed the Model 3 launch by 18 months.” The 25% import tariff has also affected other US automakers, with General Motors stopping domestic sales of its Chinese-made Buick Envision, which accounted for nearly 15% of the brand’s sales in 2018.

Briefing: Citigroup looks to Asia, Ant Financial for future digital strategy

Nicole Jao — Thu, 13 Jun 2019 04:18:51 +0000

Citigroup Sees Asian Firms Like Ant Financial Setting the Pace – Bloomberg

What happened: US banking giant Citigroup is looking to use financial technology and services that have caught on in Asia, such as mobile payments and credit pre-approvals, as it draws up a road map for its global digital strategy. The company has been building out its mobile app back home, and is taking notes from Chinese fintech giant Ant Financial. Alibaba’s fintech affiliate has created an entire financial services ecosystem, Stephen Bird, Citigroup’s consumer banking chief, said on Wednesday at a conference in New York. “We’re using the Far East as a clarion call as to where it’s all going,” Bird said.

Why it’s important: Emerging markets in Asia, namely China and India, are adopting fintech at rates faster than many developed countries. China in particular has become an important destination for financial service providers looking to expand their digital business. China’s established companies like Alibaba and Tencent have been cultivating their fintech business and developing technologies like mobile payment apps. China is signaling that it may open up its financial markets, beckoning foreign banks and other financial service providers.

Briefing: US LegalSifter partners with China’s docQbot on AI contract review

Miles Goscha — Thu, 13 Jun 2019 02:26:39 +0000

First Ever US/China Legal AI Partnership – LegalSifter + DocQBot – Artificial Lawyer

What happened: Pittsburgh-based LegalSifter is partnering with Chinese firm docQbot to provide AI-based contract review for Chinese import-export companies, according to trade publication Artificial Lawyer. The service will aid the companies in reviewing English-language cross-border contracts more efficiently. It will also produce commercial risk reports on annotated contracts in Chinese and rank individual risk issues identified in its review. LegalSifter CEO Kevin Miller said of the deal, “We are fortunate to be partnered with docQbot. We are a global company, and the Chinese market is one we intend to serve.”

Why it’s important: The service being provided by docQbot and LegalSifter seems to be mostly unique in China’s cross-border deal space. According to Artificial Lawyer, there are few “serious” AI platforms targeting this niche in the legal industry, and the potential market is at least as big as the estimated 5 million import-export businesses currently operating in China. What’s more, docQbot reports that the vast majority of these companies review English-language contracts without legal counsel, making them vulnerable to risks that would be otherwise avoidable with the appropriate tools.

Briefing: Google will move more hardware manufacturing outside of China to avoid tariffs

Eliza Gkritsi — Wed, 12 Jun 2019 03:29:02 +0000

Google Is Moving More Hardware Production Out of China – Bloomberg

What happened: Google is preparing to move the production of smart thermostats and motherboards away from China to avoid the 25% import tariff on Chinese-made goods and to mitigate the risk of a volatile and often hostile government in Beijing, Bloomberg reported, citing anonymous sources familiar with the issue. The Silicon Valley company has already moved a significant portion of hardware production outside China. Motherboards are being migrated to Taiwan and smart thermostats to Taiwan and Malaysia, the anonymous sources said.

Why it’s important: The report shows the growing impact of the Trump administration’s tariffs on the Chinese economy, as US tech giants are caught in the crossfire and forced to explore alternatives to manufacturing in China. Yesterday, Foxconn, the largest assembler of iPhones in the world, declared it is ready to move iPhone production away from China. Google is reportedly trying to increase its foothold in China, allegedly developing a search engine that caters to Chinese censors and lobbying in Washington to continue supplying the Android OS to the blacklisted Huawei.

Foxconn revamps leadership, unveils ‘agile’ plan to minimize tariff impact

Eliza Gkritsi and Rachel Zhang — Tue, 11 Jun 2019 11:06:44 +0000

Foxconn, the world’s largest electronics manufacturing contractor and China’s biggest private sector employer, announced significant organizational changes in a conference on Tuesday as its founder, Terry Gou, prepares to run in Taiwan’s 2020 presidential election.

The company also sought to reassure investors that a plan to expand its manufacturing capacity outside China is at the ready should US-China trade tensions affect its supply chain. Chairman of Foxconn’s telecom business Sung-Ching Lu said at the conference that the firm is ready to expand its international factories should tariffs render products made in China too expensive in the US.

In its first investor conference in Taipei, the Taiwan-based conglomerate announced that it is forming a new leadership committee to make major business decisions. It also outlined an “agile” plan to deal with the escalating US-China trade war and the rise of artificial intelligence (AI).

Foxconn revealed the long-awaited news of a nine person “operation committee” which will make decisions on major business matters, overseen by the board of directors. More executives will participate in daily operations under the new structure. Gou announced his candidacy in the upcoming Taiwanese presidential elections in April and has said that he will step down from the board of directors when a new board is elected in June.

Foxconn’s stock price has fallen by more than 7% since Gou, known to be an aggressive businessman, announced his resignation.

The Taiwanese firm also said it will be holding investors conferences twice a year to increase transparency. One of the members of the operation committee could eventually replace Gou on Foxconn’s board of directors. The committee will include executives from many of Foxconn’s units, such as Foxconn CFO Chiu-Liang Huang and Zheng-Hui Ling, head of Foxconn’s giant iPhone-assembling facility in central China.

Its youngest member is Young-Way Liu, 63, who has led Foxconn’s budding semiconductor business and is a board member at Sharp Corp, the Japanese electronics manufacturer Foxconn acquired in 2016, as well as Terry Gou’s former assistant. Due to his personal relationship with Gou and his relative youth, there is speculation that he could replace Gou on the board.

The 5G arm will be led in the committee by Fang-Ming Lu, corporate executive vice president of Foxconn, and Sung-Ching Lu will lead the charge in electric vehicles (EV) manufacturing.

Foxconn manufactures electronics for some of the world’s largest tech firms, such as Acer, Hewlett-Packard, Xiaomi, Sony, Blackberry, Nintendo, and Huawei. It makes popular products such as Amazon’s Kindle and Apple’s iPhone. More than China, it has factories across South and North America, eastern Europe, Australia, and Asia, including in its home of Taiwan.

But the company is facing headwinds. In the last year, Foxconn stock has lost 20% of its value, and has fallen to the lowest level seen since early 2014.

A big part of Foxconn’s business are iPhones, and Apple’s flagship product has seen its market share in the US shrink in 2018 to 15.8% from 17.9% in 2017, according to research intelligence firm Gartner. The new 25% tariffs on Chinese goods announced by the White House could render iPhones prohibitively expensive in the US, but Foxconn has a plan.

“If Apple needs us to move our supply chain, we can do that with the fastest speed. US-China relations are changing dramatically and we are closely monitoring them, and so does Apple,” (our translation) Liu said at the conference.

“We have been seeing some of the orders [for Apple products] are shifting [from one country to another], but as long as the global consumption level maintains, it won’t affect our business,” Liu added.

In January 2019, Foxconn announced it would be investing more than $200 million in India and Vietnam, shifting production away from China as rumors of new tariffs began heating up.

The new tariffs have not affected the growth of its network products, Sung-Ching Lu said at the conference.

With additional reporting by Rachel Zhang.

Briefing: US budget chief seeks to delay Huawei ban, citing burden on industry

Wei Sheng — Tue, 11 Jun 2019 06:45:36 +0000

Delay in Huawei Ban Is Sought by White House Budget Office – The New York Times

What happened: Russell Vought, the acting director of the Office of Management and Budget, has asked in a letter to the US Vice President Mike Pence and several members of Congress to delay a measure that bars US government agencies from contracting with Chinese telecommunications provider Huawei for two years. Vought said the measure would cause too much burden for American companies if it was enacted within one year as planned. He also seeks to delay a rule that prohibits federal grant and loan recipients from using Huawei equipment.

Why it’s important: The measure targeting Huawei was included in the 2019 National Defense Authorization Act (NDAA). Huawei on March 6 filed a lawsuit in the US, arguing the NDAA was unconstitutional because it singled out Huawei. The Chinese firm filed a motion last month to accelerate the process of the lawsuit. The American tech sector has also complained that it was unrealistic to entirely cut business with Huawei because the telecommunications supply chain is intertwined with equipment from companies in multiple nations.

Briefing: Ant Financial, Vanguard form joint venture in Shanghai

Nicole Jao — Tue, 11 Jun 2019 05:04:32 +0000

China’s Ant Financial, Vanguard form Shanghai-based venture: government records – Reuters

What happened: Chinese fintech giant Ant Financial has set up a joint venture with the Shanghai unit of US-based asset management firm Vanguard, according to government records. The new entity, listed under Vanguard in the national registry for businesses, has registered capital of RMB 20 million ($2.9 million). Huang Hao, president of digital finance business group at Ant Financial, is listed as its legal representative. Ant Financial holds a 51% share and Vanguard’s Shanghai unit has a 49% stake, according to Chinese media. The scope of business is listed as investment advisory.

Why it’s important: Vanguard, one of the largest public mutual fund providers in the world, launched its Shanghai unit in 2017. The aim of the new joint venture, some experts believe, is for Vanguard to obtain a mutual fund license in China. Chinese regulators have not officially started issuing licenses to wholly foreign-owned enterprises like Vanguard. Ant Financial, which has grown to become the world’s most valuable unicorn in fewer than five years, has attracted the attention of foreign financial service providers. Last September, US-based insurance provider Fidelity Guaranty & Life announced a research partnership with Ant Financial.

Briefing: Intel, Qualcomm, LG Uplus cutting employee contact with Huawei

Wei Sheng — Tue, 11 Jun 2019 03:27:01 +0000

Exclusive: Some big tech firms cut employees’ access to Huawei, muddying 5G rollout – Reuters

What happened: Tech companies worldwide including US chipmakers Intel and Qualcomm, mobile research firm InterDigital Wireless Inc., and South Korean carrier LG Uplus have restricted employees from informal conversations with Chinese telecom giant Huawei in response to the recent US blacklisting of the Chinese firm. These companies have told their employees to stop talking about technology and technical standards with counterparts at Huawei. Intel, Qualcomm, and InterDigital have issued internal guidance to employees to ensure they comply with the US ban on Huawei.

Why it’s important: Though the US Department of Commerce has barred American companies from doing business with Huawei without approval, it has not banned their contact with Huawei. The department also authorized US companies to interact with Huawei in standards bodies through August “as necessary for the development of 5G standards.” The Institute of Electrical and Electronics Engineers (IEEE), a New York-based professional association, lifted a ban that blocked Huawei employees from participating in peer reviews for its research papers last Monday after a storm of protest from China’s academia.

Dust has yet to settle two years after China’s landmark cybersecurity law

Eliza Gkritsi — Mon, 10 Jun 2019 11:00:02 +0000

Two years after China released its landmark cybergovernance framework, cybersecurity is beginning to take root in the country’s internet. However, many in China’s tech scene are still scratching their heads.

The Cybersecurity Law, which went into effect on June 1, 2017, is broader than comparable privacy-focused measures such as the EU’s General Data Protection Regulation (GDPR). “Unlike GDPR or privacy laws in other countries, the law is not just about privacy or personal data. The purpose is to govern the whole internet space,” Keith Yuen, Greater China Advisory Cybersecurity Leader at Ernst & Young (EY), told TechNode. His firm produces an annual report surveying cybersecurity professionals around the world.

In the past two years, the law has made real-name identity verification a standard across Chinese internet services, brought Chinese companies closer to the global best practices of network security and data management, established a personal data regime, reformed content moderation policies, and enforced data localization policies that Beijing believes will support national security.

With major regulations set to take effect later this year, many crucial details are still unknown, including which companies are covered by the law. The legislative process is not complete; new rules and standards will continue to come out in the next year or two. The legal schemes set up under the law will have tech firms consulting with regulators about many aspects of their operations, yet lawyers working on China are still puzzling over several key questions.

TechNode read through law blogs and talked to experts, trying to make sense of one of the most important laws to land upon China’s cyberspace. Many refused to be quoted.

In 2017, the landmark legislation established a legal framework, upon which regulations have built standards and specifications. “The law is evolving, and the clarifications keep coming,” Richard Watson, EY’s Asia-Pacific Cybersecurity Risk Advisory Leader, told TechNode.

However, compliance remains tricky as regulators continue to fill in the details—and in the meantime, companies are getting penalized for bad outcomes. Distinct boundaries between the jurisdictions of different agencies remain fuzzy, as does the meaning of a term that is commonly used in various regulations: “social public order.”

Under the law, the State Council can restrict network communications in an area if it’s deemed necessary for “social public order,” but no definition nor examples of the term are given.

Small fines, real penalties

The law also makes network operators responsible for information transmitted through their systems, which can be controlled by other “legal or administrative regulations.” Network operators can be fined up to RMB 500,000 (about $72,000) for the dissemination of content that authorities deem inappropriate.

The highest possible fine that a company can face is RMB 1 million, for breaking rules relating to “critical information infrastructure.”

Other, non-infrastructure-related fines range from RMB 10,000 to RMB 500,000—figures which might sting small and medium-sized enterprises but are unlikely to hurt tech giants. By contrast, the GDPR spells out fines of up to $22.4 million or 4% of annual revenue. But China’s Cybersecurity Law threatens severe punishment through other means.

“If you fail to do something or you violate the law very seriously, they can shut down your business, take away your license, blacklist you, and also maybe stop you from registering another business,” Yuen said.

Since the law went into effect, one of the largest security-related fines targeted utility operator Luoyang Beikong Water Group in central China’s Henan Province. When the company’s remote data monitoring platform was hacked, law enforcement determined that their data had not been sufficiently secure, and subsequently fined the company RMB 80,000 and three managers a total of RMB 35,000.

Thus far, the BAT trio—Baidu, Alibaba, and Tencent—and other big players in China’s internet have seen trouble over content moderation policies. In September 2017, the Cyberspace Administration of China fined Baidu and Tencent for failing to manage pornographic and violent content on their platforms, as well as content that authorities deemed as promoting “ethnic hatred.”

In January 2019, Baidu, Alibaba, and Bytedance’s Toutiao were asked to meet with authorities for failing to respect their users’ right to know what data was collected. Later that month, Sina Weibo was asked to correct its moderation of content that was deemed unsuitable for children and offensive to minorities.

Foreign companies have yet to suffer severe punishments under Chinese cybersecurity law, analysts said.

The business of compliance

The law got executives’ attention by threatening to fine them personally if their companies got in trouble over cybersecurity or content moderation.

“Holding directors accountable for cybersecurity has helped move the issue from being an IT problem to a whole organization problem,” said Watson.

The cybersecurity market has yet to reach maturity, but the law has gone a long way in bringing about better cybersecurity practices, Watson said. “A lot of the homegrown cybersecurity activity in China tends to have a manual flavor to it while in places like the US or Israel the processes are more automated,” Watson said.

The Cybersecurity Law has spurred significant investment to automate cybersecurity practices. Watson expects that “it’s only a matter of time before some of those technologies begin to penetrate China.”

According to EY’s 2018 Global Information Survey, 94% of companies operating in Greater China have incorporated cybersecurity into their management strategy, a figure which is well above the world average. But the report also found that spending on cybersecurity lags behind global peers, suggesting that many of these strategies never get beyond paper.

The EY report also found that Chinese companies prefer to outsource cybersecurity practices. For example, 82% of companies in Greater China outsource risk assessment of vendors, as opposed to 35% worldwide. This is in part explained by the fact that Chinese companies have had to build cybersecurity systems from scratch since past regulations were neither clear nor strictly enforced.

As a result of this need for cybersecurity services, new companies have been popping up around China. Under the law, in order to legally perform cybersecurity tasks, they must be accredited by Chinese authorities.

“Foreign firms have a different focus. They try to see how they can make their existing global cybersecurity program fit with this regulatory environment,” Yan Luo, a Beijing-based lawyer who advises companies on cybersecurity compliance, told TechNode.

Unclear categories

On December 1, the first piece of this legislative puzzle goes into effect, but many companies are still unclear on whether it applies to them or exactly how to comply with it. The Multi-Level Protection Scheme (MLPS) divides network operators into five levels of sensitivity based on national security, privacy, and “social public order”— those designated level 3 and above are subject to enhanced security requirements.

Firms must carry out self-assessments regularly to find where they fall on this scale. If they determine that they are at level 3 or above, they must submit their assessment for review to the Ministry of Public Security.

The scope of this requirement is ambiguous, since “network operators” in the law are defined as the owners and administrators of “systems comprised of computers and other information terminals” that gather, process, exchange, and store data, according to a widely used translation of the law by Jeremy Daum, senior fellow at Yale Law School’s Paul Tsai China Center.

This definition could apply to most network information systems, including home WiFi networks or the CCTV at a neighborhood convenience store. The MLPS adds additional controls for internet of things (IoT) devices, cloud computing, industrial control, and mobile network systems, according to an analysis of the law published by Covington & Burling, an international law firm.

It’s not entirely clear how to figure out which level of the scale a network operator falls on, since the levels are outlined using terms such as “serious harm” and “damage” without further specification, according to China Business Review, a journal published by the US-China Business Council. The definitions also hang on the aforementioned “social public order,” a term which remains unexplained throughout the law.

The MLPS creates a legal framework that asks for encryption, backup of data, system monitoring, and network defense for all network operators, which would entail significant costs for small- and medium-sized enterprises. Because “network operators” have not been well defined, the exact scope of the scheme depends upon implementation, but noncompliance could lead to fines of up to RMB 100,000. Other measures that are not yet mandatory, such as data localization for cloud computing operators, could have international companies scrambling to comply.

The Ministry of Public Security has said it plans to release further guidance in the coming months.

A hammer for business deals?

The law has created a tool for Chinese authorities to block tech imports on national security grounds. Companies defined as Critical Information Infrastructure (CII) providers must submit any purchase of foreign hardware or software to review by the Cyberspace Administration of China and 11 other agencies.

The measures have not been finalized yet and are expected to apply to network operators in the telecoms, utilities, energy, e-government, finance, transport, and other industries, according to Covington & Burling.

Released only days after the US ban on Huawei was signed, the regulations for CII were seen by many observers as retaliation. However, “this has been in the books for a long time,” said Luo. The government review requirement for such deals existed in the past, but the review process was a “black box” and the new standards “make sure that operators are more aware of their obligations,” she said.

Experts agreed that the CII provisions can be used as a tool to block deals for reasons that are not clearly cybersecurity-related. Even though the information that CII operators must submit for a review is specified, how the deals are reviewed remains an opaque process, meaning there will be no way of knowing why certain procurements are scrapped. A few weeks later, China also announced plans for an “entity list,” mirroring the US restrictions that threaten Huawei’s access to critical technology.

The CII draft measures highlight the importance of the supply chain, which could affect the availability and operation of critical infrastructure. The draft guidelines call for CII operators to consider geopolitical stability, directing them to build infrastructure that cannot be held hostage by international politics. References to “control” by foreign governments as well as “political, diplomatic, and trade” risks mirror similar laws in the US according to New America, a Washington DC-based think tank. The inclusion of personal data is a novelty in the Chinese context, signaling that regulators are starting to consider personal data security as integral to national security.

However, the definitions of these terms are absent from the draft, leaving much room for interpretation.

Armed with the provision that a review can be triggered if administration officials across several agencies “believe” that a purchase could jeopardize national security—even if the network operator is not classified as a CII—regulators have a lot of leeway when assessing the risks of these deals.

CII operators which do not follow the review process can be fined up to RMB 100,000 and the purchases from foreign entities can be frozen. The highest fines for CII operators will be levied for not following the mandated cybersecurity principles, which can incur damages of up to RMB 1 million.

Cross-border data flows

In 2017, strict rules on the transfer of Chinese data through international borders caused such a stir in the World Trade Organization (WTO) that authorities had to hit the brakes on the rollout.

If implemented, those rules will require all network operators to assess the security of any cross-border transfers they wish to conduct—and, depending on the nature of the data, to get government permission should they wish to transfer them outside China.

The regulation appears to be an attempt to balance business with security concerns. The Chinese government recognizes that data flows are the norm nowadays, but also considers control of data fundamental to national cybersecurity. On paper, its regulations allow for cross-border data transfer, as long as it doesn’t include information that could damage national security.

Network operators wishing to transfer data that is “important” to national security and “social public order” must have the transfer reviewed by the government if:

The data contains personal information on more than 500,000 people
The outbound data is larger than 1,000 GB
It includes information on military and defense, nuclear facilities, public health, chemical biology, large engineering projects, marine environment, and sensitive geographical locations
It includes cybersecurity details about CIIs
It belongs to CIIs
The government administration of the sector deems an assessment to be necessary

In addition, the owners of personal data must be informed of the international transfer of their information.

Even before they come into effect, the regulations on cross-border data transfer have provoked a negative reaction from international organizations. In September 2017, the US submitted a formal complaint to the WTO, claiming that the measures effectively promote Chinese internet companies over foreign competitors.

Under pressure from trading partners, the Chinese government suspended the implementation of the regulations ahead of US President Trump’s visit to China in 2017, responding to the WTO complaint by saying “the controversy and compromise has not yet been resolved, which will continue to test the technological and coordinating capabilities of the legislature.”

A final regulation on cross-border data transfer is pending.

Personal privacy

Along with the 2017 rules on cross-border data transfer came guidelines on personal information and privacy. Further measures were drafted in 2018. A set of standards was released for public comment in May 2019.

Personal data has been defined in line with GDPR, strengthening the protection of individual privacy against tech companies. The rights to consent and to know when data is harvested, as well as to control targeted advertising, have been asserted.

One provision that has been scrutinized abroad is the requirement of real-identity authentication for online services. Registering for apps in China now almost always requires a valid mobile phone number, which diminishes people’s ability to stay anonymous to government authorities.

Overall, the law “expands the scope of privacy protection, strengthens the protection of privacy, and stipulates more detailed obligations and responsibilities for relevant subjects, making privacy regulations more clear, and has greatly protected privacy protection in China,” Qi Aimin, a professor at Chongqing University School of Law, told TechNode.

Administrative leeway

The law has gone a long way in establishing directives for cyberspace, where rules had previously been either absent, unclear, or fragmented. Clarifications will continue to roll out over the next year at least, and as implementation takes place, firms will get a better sense of how to comply.

Nonetheless, every new draft measure includes ambiguous new categories, which apply to new entities and require additional compliance measures. Every list of justifications for review and punishment ends with a provision that leaves an open window for administrators to exercise unforeseen juridical control.

Additional reporting by Chris Udemans and Wei Sheng. With contributions from Rachel Zhang.

Briefing: Google highlights security issues related to US Huawei ban

Rachel Zhang — Mon, 10 Jun 2019 05:21:15 +0000

Google warns of US national security risks from Huawei ban – Financial Times

What happened: Google is pushing the Trump administration to exclude the company from a ban that prevents US firms from doing business with Huawei, according to the Financial Times citing three unnamed sources. Google is concerned that if it is not able to supply updates to its Android operating system (OS) on Huawei phones, the Chinese company will use its own OS, which it is developing. Google says the Android hybrid is likely to contain bugs, making it more vulnerable to hacks and threatening the security of millions of Huawei handsets in the US and worldwide.

Why important: The US government blacklisted Huawei after trade talks with China collapsed in May. Since then, US-based companies, including Google, have banned Huawei and other Chinese companies from using some of their services in order to comply with the law. The US has since granted a 90-day reprieve, giving American companies time to adjust. In response, Huawei has said it is developing its own operating system, which will be able available later this year. In the meantime, senior Google executives have approached the US commerce department, asking for either another extension or to be exempt from the ban altogether.

Briefing: China warns foreign tech firms about complying with US Huawei ban

Wei Sheng — Mon, 10 Jun 2019 04:30:18 +0000

China Summons Tech Giants to Warn Against Cooperating With Trump Ban – The New York Times

What happened: The Chinese government summoned several global technology companies including US software giant Microsoft, South Korean smartphone maker Samsung, and US computer maker Dell, for talks last week, warning that complying with a US ban on selling American technology to Chinese firms may face further complications for all sector participants. British chip designer ARM was also called in by Chinese official in the meetings; the company halted supplies to Huawei last month. The talks followed the US ban last month on selling technology and components to Chinese telecom giant Huawei. Chinese officials did not mention Huawei but asked these foreign companies not to make hasty or ill-considered moves before the situation was fully understood.

Why it’s important: China has begun fighting back at the US for banning Huawei. The meeting came after China’s announcement that it was putting together an “unreliable entities list” of foreign companies and people that “blockade and stop supplying Chinese companies for non-commercial reasons.” Using American tech companies as a bargaining chip in diplomatic deals is a common tactic for China, but experts cited in the story said such a play is less likely to be effective because it forces the companies to choose between complying with pressure from Beijing and violating US law.

Briefing: US plans in place following China threats to cut off rare earth supply

Rachel Zhang — Thu, 06 Jun 2019 09:07:50 +0000

US moves to reduce reliance on Chinese rare earths exports after Beijing threatens to cut supplies – South China Morning Post

What happened: The US government will take “unprecedented” action to ensure its supply of rare earths, minerals that are overlooked but critical for modern life, US Commerce Secretary Wilbur Ross said on Tuesday. The US government published a 50-page report outlining a strategy to reduce its reliance on rare earth exports from China. State-owned media agencies including the People’s Daily and Global Times have published a number of stories and commentary on rare earth exports following the collapse of trade negotiations between the two countries, largely interpreted by western media as a warning to the US.

Why important: Rare earths are a set of 17 elements on the bottom of the periodic table, essential in electronic device, vehicle and military defense manufacturing as well as fuel refinement. The US imported around 59% of its rare earths from China in 2018, according to the US International Trade Commission. However, rare earths aren’t as hard to come by as the term signals, but its refining process is costly and generates pollution. The latest US report follows months of intense negotiations between the two countries which fell apart amid finger-pointing and now, higher tariffs on billions of dollars of exports.

Briefing: Megvii is reconsidering its IPO timing as trade war extends

Eliza Gkritsi — Thu, 06 Jun 2019 04:16:31 +0000

Chinese AI start-up Megvii rethinks IPO plan this year – The Financial Times

What happened: Alibaba-backed Chinese AI facial recognition startup Megvii is rethinking its plans for an initial public offering in Hong Kong later this year, the FT reported citing anonymous bankers and investors. It had been targeting raising as much as $1 billion. As the US-China trade war escalates and the tech industry finds itself increasingly in the eye of the cyclone, Megvii’s future relationship with the US are uncertain. The company’s main business is surveillance and security, and it is a key supplier of China’s surveillance systems. Amid a backlash against the country’s use of such technologies, Megvii is reportedly being considered for the US’s entity list, which would block business from the world’s largest economy. The company sees this as “unhelpful speculation,” but tech sector bankers told the FT that as a result, the company will at least have a hard time convincing the Hong Kong stock exchange to accept their listing.

Why it’s important: The report points to two concerning trends in China’s tech scene, the impact of the souring US-China relations and tech firms’ underwhelming financial results. Founded in 2011, Megvii has been called “China’s AI rising star” and its last funding round announced on May 8 saw its value skyrocket to more than $4 billion. However, its role in supplying surveillance in China and worldwide, along with other key Chinese surveillance manufacturers, has been criticized heavily abroad. Subsequently, some analysts expect that these types of companies could soon follow Huawei onto the American entity list. Another risk for Megvii is the disappointing performance of Chinese tech companies going public in the past year: Xiaomi shares have nearly halved in value since listing in July while Meituan Dianping shares have fallen 14% from its IPO price.

Briefing: Tim Cook thinks Apple will not be targeted by tariffs

Eliza Gkritsi — Wed, 05 Jun 2019 06:51:58 +0000

Tim Cook on tariffs, immigration and whether we spend too much time on our iPhones – CBS News

What happened: Neither Chinese nor American authorities have targeted Apple with import tariffs, the company’s CEO Tim Cook said in an interview with CBS News last night, adding that he doesn’t expect they will. He argued that because iPhone components are manufactured in several countries and the final product is assembled in China, tariffs on iPhones would hurt many countries, but especially the US. Should American authorities decide to impose a tariff on the smartphone, which is assembled in China, the company’s business would certainly suffer a blow, Cook said, but he thinks that this scenario is unlikely. He added that he doesn’t expect China to use Apple as a retaliation tool as the Huawei standoff escalates.

Why it’s important: Cook’s comments come at a time when Apple’s position in global smartphone manufacturing is facing difficulties. New tariffs launched by the US against China earlier in May could affect iPhone sales, increasing the price of Apple’s line of smartphones by more than $100. At the same time, if Apple becomes a target of the Chinese government in an attempt to retaliate for banning Huawei, the Silicon Valley tech giant could face strong headwinds. Apple’ s revenue fell in the first quarter of 2019, largely due to decreased sales in greater China.

Briefing: Huawei sells majority stake in undersea cable manufacturer

Eliza Gkritsi — Tue, 04 Jun 2019 09:58:53 +0000

Huawei to sell 51pc stake in undersea cable business after US trade blacklist – South China Morning Post

What happened: Huawei’s parent company has signed a letter of intent to sell a majority stake in its international undersea telecoms arm, which builds underwater cables that support transnational internet connections. The deal will see Hengtong Optic-Electric, a manufacturer of optical communication network products based in China’s eastern Jiangsu Province, take a 51% holding in Huawei Marine Technology. According to Hengtong’s filing to the Shanghai Stock Exchange, however, the deal has not been finalized, and the size of the acquisition remains unspecified. According to its website, Huawei Marine Technology has laid 50,000 kilometers of undersea internet cables across the world’s oceans, but accounts for a small part of Huawei’s overall business, making just $17 million in 2018, around 0.2% of the company’s total profits.

Why it’s important: Last month, the US Commerce Department added the Shenzhen-based telecoms giant to the ‘entity list‘, citing national security as its primary concern. The move effectively bans American companies from selling products to Huawei. It is unclear how Huawei’s telecoms business will fare after the ban, but the company claims its inclusion on the list is not a severe blow. The sale of its submarine cable arm could be a sign that Huawei is trying to minimize its business in telecoms infrastructure and diversifying towards new industries. Huawei’s global role in the development of communication networks has come under scrutiny as a result of Washington’s campaign, which aims to exclude the company from 5G network deployment. Finnish telecoms manufacture Nokia claims to have secured 42 commercial 5G contracts, two more than Huawei.

Briefing: China hits back at US with plans for its own ‘entity list’

Jill Shen — Mon, 03 Jun 2019 10:05:27 +0000

谁会列入“不可靠实体清单”？中国明确四种考虑因素 – Xinhua

What happened: China is preparing retaliatory measures against a US ban of Huawei by creating its own entity list that would target companies that close off a supply chain or “discriminate” against Chinese companies for non-commercial reasons. Such practices violate anti-trust laws in any country and therefore an “unreliable entity list” will be established with the aim to maintain global trade order and protect the rights of Chinese enterprises in the multilateral trade system, Wang Hejun, a senior government official of the Ministry of Commerce (MOFCOM) said Saturday in an interview in Beijing. Consequences for companies listed as unreliable entities will align with existing guidelines on foreign trade, anti-trust, and national security, said a MOFCOM spokesman on Friday during a media briefing.

Why it’s important: The move could deliver a heavy blow to foreign companies in China. Beijing on Saturday started imposing tariffs up to 25% on $60 billion worth of US goods, primarily on agricultural products like peanuts, sugar, and wheat. The central government also began an investigation of FedEx after Huawei said several of its packages destined for company addresses in Asia were diverted to the US. FedEx later apologized and pledged to fully cooperate with the investigation. The central government has yet to reveal detailed measures of its blacklist, but Wang said that listed foreign companies, individuals, and organizations will have the right to appeal.

Science publisher IEEE ends ban on Huawei employees after protest

Wei Sheng — Mon, 03 Jun 2019 08:10:17 +0000

The Institute of Electrical and Electronics Engineers (IEEE) said on Monday that it had raised a ban on Huawei employees that blocks them from reviewing submissions to its journals, according to Reuters.

The New York-based professional association said last week that it feared “severe legal implications” for using Huawei scientists as reviewers in vetting technical papers and banned employees of the Chinese telecommunications equipment giant from participating in peer reviews for its research papers.

The IEEE ban came after the US Department of Commerce added Huawei and its affiliates to a trade blacklist, requiring a license for certain companies to buy US components and technology.

IEEE China said in a statement on Monday on its website that the initial restriction was to protect volunteers and members from legal risk.

Following the IEEE ban, China Computer Federation, a Beijing-based computer professional association announced that it would suspend ties with the IEEE and would also delete some IEEE journals from its list.

As part of the protest, 10 Chinese academic societies, including the Chinese Institute of Electronics, the China Institute of Communications, and the Chinese Association for Artificial Intelligence, issued a statement (in Chinese) to condemn IEEE’s decision.

“The restriction of scientists’ participation in academic exchanges violates the common value of science and academic freedom, it has also trampled on the normal order of academic exchanges and science development,” (our translation) the associations said in the statement.

IEEE said it had received the clarification it requested from the US Department of Commerce and the risk had been addressed. Based on the new information, employees of Huawei and its affiliates are allowed to participate as peer reviewers and editors in the association’s publication process, said the statement by IEEE China.

“All IEEE members, regardless of employer, can continue to participate in all of the activities of the IEEE,” IEEE China said in the statement.

Briefing: Huawei resets aim to be world’s largest smartphone seller as orders fall

Wei Sheng — Mon, 03 Jun 2019 05:41:03 +0000

Huawei reassesses goal to be world’s bestselling smartphone vendor after US blacklist – South China Morning Post

What happened: A Huawei executive said the company is now closely assessing the effect of a US government trade blacklist. Zhao Ming, president of Honor, a Huawei smartphone brand, said that it was too early to say when the company would achieve the goal of overtaking Samsung and becoming the world’s largest smartphone vendor. Huawei’s CEO of consumer business Richard Yu said in January that the company would achieve that goal by 2020 at the latest. Huawei’s smartphone manufacturer, Taiwan-based Foxconn, has stopped several production lines for Huawei phones in recent days as the company reduced orders for new phones, according to people familiar with the matter.

Why it’s important: Huawei’s share of global smartphone shipments in the first quarter reached 15.7%, up from 10.5% in the same period last year, according to a report by research firm Gartner. The company is currently the second-largest smartphone vendor by shipments, while South Korean electronics giant Samsung is the largest with 19.2% of the market in Q1, declining slightly from 20.5% seen in the same period last year. Huawei is closing the gap with Samsung, but the escalating fallout from the US ban, especially the unavailability of Google apps and services, is taking its toll.

Briefing: US universities and pension funds are financing SenseTime, Megvii

Eliza Gkritsi — Fri, 31 May 2019 04:29:03 +0000

US Universities And Retirees Are Funding The Technology Behind China’s Surveillance State – Buzzfeed News

What happened: Some of the US’s oldest and most prestigious institutions are funding SenseTime and Megvii, two of China’s largest surveillance tech companies, a Buzzfeed analysis of investment data has found. The Massachusetts Institute of Technology, the Rockefeller Foundation, and the Alaska Retirement Board hold limited partnerships with private equity funds which have invested in the two companies. Buzzfeed also reported that another dozen US universities, retirement plans, and charitable foundations including the Mayo Clinic and Princeton and Duke Universities contributed to some of SenseTime and Megvii’s sky-high funding rounds through a Chinese venture capital firm called Qiming Ventures.

Why it’s important: China’s use of surveillance technology has aroused international scrutiny, especially with regards to minorities. Such criticisms have been common in Washington in the past year. Last week, The New York Times reported that Hikvision, a Chinese manufacturer of video surveillance equipment and software, could join Huawei in Washington’s trade blacklist, in part because of its alleged human rights violations. SenseTime and Megvii products are used in commercial authentication products but also by Chinese law enforcement.

Briefing: Machine learning community raises concerns about IEEE’s Huawei ban

Miles Goscha — Thu, 30 May 2019 02:19:52 +0000

ML Community Raises Inclusivity Concerns After IEEE Bars Huawei Paper Reviewers – Synced

What happened: Following a recent statement by the Institute of Electrical and Electronics Engineers (IEEE) that it barred Huawei scientists and 68 of the company’s affiliates from participating in both its peer review process and non-public meetings on technical subjects, researchers in both academia and the private sector responded with varying degrees of shock and disappointment. Many took to social media to voice their concerns about the potential impacts of IEEE’s actions on academic inclusivity and whether other popular research-oriented platforms might also be at risk. Reddit’s Machine Learning community has been particularly vocal about the news.

Why it’s important: The influence of New York-based IEEE on the global scientific community is undeniable: it is the world’s largest technical professional organization, with more than 422,000 members. It publishes nearly a third of the world’s technical literature in electrical engineering, computer science, and electronics, and sponsors more than 1,900 conferences in 103 countries. According to a screenshot of an apparent IEEE email that has been circulating on social media, the organization enacted the ban over fears of “severe legal implications,” likely referring to recent U.S. government sanctions on Huawei.

Huawei files new motion against US ban, aiming for swift dismissal

Wei Sheng — Wed, 29 May 2019 06:23:56 +0000

Chinese telecoms equipment maker Huawei said on Wednesday it has filed a motion requesting the court to rule in its favor in reference to a lawsuit filed in March.

The company said that the 2019 National Defense Authorization Act (NDAA), which was signed by President Donald Trump on Aug. 13, 2018, singled out Huawei without an opportunity for rebuttal or defense. The legislation banned US government agencies from buying telecommunications equipment from Huawei or its rival ZTE.

“The ban is a quintessential bill of attainder and a violation of due process,” said Song Liuping, the chief legal officer at Huawei, in a commentary published in the Wall Street Journal on Monday. “The law provides Huawei with no opportunity to rebut the accusations, to present evidence in its defense, or to avail itself of other procedures that impartial adjudicators provide to ensure a fair search for the truth.”

The Wednesday motion that Huawei filed seeks a summary judgment asking the court to declare the law unconstitutional, according to Song.

Huawei filed a lawsuit on March 6 in Plano, Texas, where Huawei’s American headquarters are located, challenging the constitutionality of the ban. The Eastern District of Texas court has scheduled a hearing for September 19 to consider Huawei’s claims.

Glen Nager, Huawei’s lead counsel for the case, said in the statement that the case was purely “a matter of law” as there are no facts at issue, justifying the motion for a summary judgment to speed up the process.

“The US Congress has repeatedly failed to produce any evidence to support its restrictions on Huawei products. We are compelled to take this legal action as a proper and last resort,” said Guo Ping, Huawei’s rotating chairman, in a statement announcing the filing.

The US ban on Huawei escalated when Trump signed an executive order banning telecom equipment and services from foreign companies that could pose a threat to national security on May 15, and the Commerce Department placed Huawei on an “Entity List” that requires the company to gain a US government license to by American components and technology.

“This sets a dangerous precedent. Today it’s telecoms and Huawei. Tomorrow it could be your industry, your company, your consumers,” said Song in a statement, addressing the addition of Huawei to the Entity List.

“The judicial system is the last line of defense for justice. Huawei has confidence in the independence and integrity of the U.S. judicial system. We hope that mistakes in the NDAA can be corrected by the court,” Song added.

Briefing: Beijing reportedly considering limiting rare earth exports to US

Eliza Gkritsi — Wed, 29 May 2019 03:18:41 +0000

China considers U.S. rare earth export curbs: Global Times editor – Reuters

What happened: Three incidents have raised suspicions that China could soon curb its exports of 17 rare earth elements, which are immensely valuable to technology manufacturers, as a retaliation in the US-China trade war. After President Xi Jinping visited rare earth mines and processing facilities last week, an official from China’s National Development and Reform Commission told CCTV that using rare earth minerals mined in China against them would displease the Chinese people. Another official told Xinhua News on Tuesday that the government would prioritize domestic demand of the precious materials. Hu Xijin, Editor-in-Chief of the Global Times, a newspaper that is close to the Communist Party, said on Twitter that given his knowledge, Chinese authorities are seriously considering this measure.

Why it’s important: China is by far the largest exporter of these precious raw materials, which are used in anything from iPhones to renewable energy solutions and oil refineries. China accounts for about 70% of global output of rare earths, and 80% of US imports. It would be almost impossible for the US to quickly find a replacement source which could supply the volume of rare earth imports it requires. US exports of processed rare earths to China are already facing a 25% import tariff, a similar measure that China took during another trade dispute with Japan in 2010.

Briefing: Huawei evaluating FedEx ties after packages diverted to US

Wei Sheng — Tue, 28 May 2019 07:20:59 +0000

Exclusive: Huawei reviewing FedEx relationship, says packages ‘diverted’ – Reuters

What happened: Chinese telecoms equipment maker Huawei said on Friday that US package delivery company FedEx Corp diverted two parcels destined for a Huawei address in Asia to the United States and attempted to do the same thing to two others without a detailed explanation. Huawei said the two packages, which were sent from Japan and addressed to Huawei in China, were diverted to the US, and FedEx also attempted to divert two more packages sent from Vietnam to Huawei offices elsewhere in Asia. Huawei said the four packages only contained documents and “no technology.” A spokesman of Huawei said the company would have to review its relationship with FedEx.

Why it’s important: After Google pulled Huawei’s Android license and UK-based chipmaker ARM cut ties with it, the US sanction against the Chinese company seems to have applied to a distinctly separate industry: logistics. It was rumored last week that German courier group DHL had suspended services for Huawei products, which DHL has denied (in Chinese). As a US company, FedEx may have to comply with the Trump Administration’s ban on Huawei by suspending its business ties, but diverting its packages to a third party raises privacy concerns, a key component of US allegations against Huawei.

Briefing: Fired Emory University professor counters China tie accusations

Miles Goscha — Tue, 28 May 2019 02:29:33 +0000

Terminated Emory researcher disputes university’s allegations about China ties – Science

What happened: Neuroscientist Li Xiao-Jiang, who was terminated by Emory University along with fellow researcher and wife Li Shihua, says that the school fired them “simultaneously without any notice or opportunity for us to respond to unverified accusations” while they were traveling in China on May 16. Both scientists are American citizens, and said that Emory has also told four Chinese postdoctoral students who were working in their now-shuttered lab to leave the country within 30 days. “I have disclosed my Chinese research activity to Emory University each year since 2012,” Li Xiao-Jiang said.

Why it’s important: This is the second publicly known case of an institution firing National Institutes of Health (NIH)-funded researchers over concerns about foreign involvement. Both sets of terminations have happened during a time of heightened concerns about racial profiling: In March, the couple along with other Emory researchers sent a letter to the university’s president warning her that “disturbing views and activities” at other American universities “also exist on the Emory campus, which negatively derides Emory faculty members and international visitors, especially those of Chinese origin.” Similarly, following Houston-based MD Anderson Cancer Center’s ousting five “Asian” faculty members, one researcher commented that “an increasingly xenophobic and isolationist” federal government might be behind the institution’s actions.

INSIGHTS: Trade battles and big power competition—more pain for the tech industry

John Artman — Fri, 24 May 2019 04:44:46 +0000

After a lull, the trade war is back on. From new moves to lock Huawei out of the US to tightening visa regulations for Chinese nationals, from new tariffs to new Trump tweets, both China and the US are ramping up for another battle after the March cease-fire. While many are still crossing their fingers in hopes of a quick resolution, leadership in both countries show no signs of backing down.

Bottom line: China has determined that to become a world power it must also become a leader in the technology industry. AI, chips, advanced manufacturing, and “innovation” are all among China’s highest policy priorities and, indeed, their declared core interests. The ongoing trade war is the most visible part of the increasing friction between the two countries. The Trump White House now agrees with China that the economy and industry are strategic assets that must be protected by policy. Western tech companies, entrepreneurs, and VCs who are hoping for a quick fix need to wake up. This issue is not going away. Deal or no deal, the way the world works is changing, and a struggle over values and global preeminence means politics will shape who you can raise money from, market your product to, and sell your company to for a long time.

A brief timeline: Rather than try to come up with a concise timeline, let me point you to others who have done a great job keeping track of the ongoing trade conflict:

A Chinese retreat: The gusher of Chinese capital in the US is drying up, driven both by a slowing economy at home and stricter rules in the US. According to the Rhodium Group:

Foreign direct investment (FDI) from China into the US fell by 84% from 2017 to 2018
Net Chinese FDI fell to negative $8 billion as Chinese investors sold off $13 billion worth of US assets
VC activity from China hit a new record high of $3.1 billion in 2018, but began to slow down in the second half of the year under increasing restrictions from the US and China’s slowing economy

Data from MergerMarket shows that Chinese purchases of US companies fell by 94.6% from 2016 to 2018.

Enter CFIUS: Silicon Valley VCs love Chinese money; willing to pay top dollar for US-developed tech and brands, it offers a great exit for many early stage investments. But the US government is becoming increasingly skeptical of these deals.

With the introduction of the Foreign Investment Risk Review Modernization Act in August 2018, the oversight powers of the Committee on Foreign Investment in the United States (CFIUS) expanded to include non-controlling investments by foreigners in US companies that have critical and/or emerging technologies.

In control of the review process is the Bureau of Industry and Security (BIS) of the Department of Commerce. As of November 2018, BIS lists 14 categories of technology as “essential to the national security of the United States,” including AI, microprocessors, and biotech.

Since 2012, CFIUS has been used to make it difficult for China to achieve parity in many areas, blocking deals or forcing divestitures of many Chinese investors in the US, including:

2012: Ralls Corporation, owned by Sany Group, had to divest itself from four wind farm projects deemed too close to a US Navy weapons training facility.
2016: A Chinese company was blocked from buying German Aixtron SE, a manufacturer of key material for semiconductor production.
2016: The US blocked a group of Chinese investors from purchasing a controlling stake in Lumileds, Philips’ light-emitting diode components business.
2017: A group of investors including China Venture Capital Fund Corporation, owned by state-backed entities, was blocked from buying Lattice Semiconductor.
2018: Broadcom, a Singapore-based semiconductor maker, was blocked from purchasing Qualcomm. Aimen N. Mir of the Treasury Department stated that they blocked the deal because a “[r]eduction in Qualcomm’s long-term technological competitiveness and influence in standard setting would leave an opening for China to expand its influence on the 5G standard-setting process.”
2019: Chinese medtech company iCarbonX was ordered to divest from PatientsLikeMe, a healthcare startup that claims to be the world’s largest personalized health network
2019: A Chinese gaming company was ordered to divest itself from Grindr, a popular LGTBQ dating app, after completing the purchase in 2018.

It’s not just CFIUS. With a May 15 executive order empowering the US Commerce Department to block foreign telecoms equipment companies on national security grounds, the White House intervened to pave the way for a formal ban on Huawei components, as a well as a possible export ban on critical integrated circuits.

Clash of civilizations?

At a security forum in Washington DC on April 29, Kiron Skinner, the director of policy planning at the US State Department, compared the current tension between China and the US as “a fight with a really different civilization and a different ideology and the United States hasn’t had that before.”
When asked whether she views this as a “clash of civilizations,” a la Samuel Huntington, Skinner said the current view was “a little different.”

“There is no way in hell China can meet those criteria because of the way they’re governed,” Senator Lindsey Graham, the South Carolina Republican who chairs the Judiciary Committee, said in a hearing of the panel. “The only way China can meet the criteria is to stop being China.”

—US Senator Lindsey Graham, speaking of Huawei’s efforts to demonstrate compliance with US security

Don’t forget the China Dream: Beijing really is out to change the world. Introduced by Xi Jinping shortly after taking power in 2012, the Chinese Dream is “the great rejuvenation of the Chinese nation” that includes becoming a “moderately well-off society” by 2021 and a fully developed nation by 2049.

In May 2013, Qiushi, a political theory magazine published by the Central Party School and the Central Committee of the CPC, published an editorial which made the argument that, after hundreds of years of failed experimentation with political models, “[o]nly the path of Socialism with Chinese characteristics found through untold hardships extensively experienced by the Chinese Communist Party, is the correct path in the human world to realize the Chinese Dream.”

Robert Kuhn, author of How China’s Leaders Think: The Inside Story of China’s Reform and What This Means for the Future, claims that the Chinese Dream has four parts:

Strong China (economically, politically, diplomatically, scientifically, militarily)
Civilized China (equity and fairness, rich culture, high morals)
Harmonious China (amity among social classes)
Beautiful China (healthy environment, low pollution)

In the introduction to his 2018 translation of Sun Tzu’s Art of War, Christopher McDonald describes the Chinese Dream as:

A narrative describing the future world overseen, but not bullied, by a virtuous and non-hegemonic China, including the modification or replacement of current international norms by a more “multipolar” one as well as the replacement of English by Mandarin and the USD by the RMB as international standards
Potentially dark, where China can only achieve its goals “in the teeth of bitter opposition from status quo powers” who use everything at their disposal to stymie “China’s peaceful rise”

Kai-fu Lee syndrome: One of the most internationally famous venture capitalists in the China market, Kai-fu Lee has had great success marketing his new book, AI Superpowers: China, Silicon Valley and the New World Order, to Silicon Valley. And for good reason: KFL, as he’s affectionately known by Valley readers I’ve spoken with, does an amazing job summarizing and explaining how China’s tech companies have been able to grow so big, so fast.

KFL then goes beyond his great account of the history to imply that Silicon Valley firms can model themselves on the Chinese giants. This implication is preposterous. Anyone who has spent time trying to understanding China quickly realizes how little the China experience is applicable outside the country. Certainly, there is room for inspiration, but that inspiration can only go so far.

Beyond dollar politics: To many investors, the trade war looks boneheaded. As Steve Hoffman, CEO of Founders Space, told me:

China is America’s largest trading partner, and if tariffs rise too high, we could wind up in a global recession. It’s my belief that it’s in the best interest of the US and China to have strong, mutually beneficial trade policies. There’s no reason we can’t reach an agreement without resorting to extreme tariffs … Most people I know in Silicon Valley sincerely hope that we can set a better course for the future, increase our ties, decrease misunderstandings, and reduce the level of fear and mistrust.

It used to be that business interests had the last word on US China policy. Bill Clinton came into office promising to isolate the country over human rights concerns—but concerted lobbying from businesses eager to enter China’s market helped it retain Most Favored Nation trade status and won Washington’s support for its entry into the WTO.

But governments on both sides of the Pacific are thinking about civilizations, not dollars. Countries that believe they’re in a long fight over world order—or dominance—may not be swayed by short-term arguments.

Tech in the crossfire: I don’t have a crystal ball, but a world with two huge countries in a no-holds barred struggle for control of technology is going to look pretty different. Here are the questions that are keeping me up at night—and that TechNode will be following:

How many Huawei’s? “National security” restrictions have extended from military technology to “influence on 5G standards-setting” to building telecoms networks in Europe. As the White House becomes more directly involved in decision-making, how many more sectors will be subject to bans? Will raising money or exiting to China remain viable for US firms?
How does China react? Market access in China is already restricted or prohibited in many consumer-facing digital services, and China is still hoping to end the trade war with a deal. If China gives up on compromise, what will happen to US firms here?
How much can individuals act as a bridge between competitors? I’ve been living and working in China since 2008. In that time, I’ve seen and experienced China’s evolution. China was the first country I ever visited outside of the US and on my first trip here, the main challenge was to reconcile my expectations with reality. My conclusion then, and now, is that a country’s government is not the same as a country’s people. While Trump and Xi duke it out, it is still real human people, living their “small” lives, that can influence the direction our future takes.

While simple to state, the task itself is gargantuan and requires hard work on both sides to recognize the commonalities we all share and reserve judgment of those elements that make us different. Is it reasonable to expect individuals on both sides to take this responsibility seriously?

Read more:

With additional research by David Cohen.

Briefing: Emory University fires two researchers over China ties

Miles Goscha — Fri, 24 May 2019 03:58:15 +0000

NEW FINDINGS: Two Emory researchers failed to disclose Chinese funding and ties – The Atlanta Journal-Constitution

What happened: Emory University has cut ties with two Chinese-American biomedical researchers because they “had failed to fully disclose foreign sources of research funding and the extent of their work for research institutions and universities in China,” according to a statement by the school. A story on uschinapress.com identifies the researchers as Li Xiao-Jiang and Li Shihua, geneticists who have been involved in work using CRISPR, the cutting-edge gene editing technology. They were working in a department using grant money from the National Institutes of Health (NIH).

Why it’s important: As the trade war rages, it hardly seems coincidental that the NIH—a government agency—has taken a tough stance on China in academia. This is the second publicly known case of an institution firing NIH-funded researchers over concerns about foreign involvement. Last month, the MD Anderson Cancer Center in Houston, Texas, ousted five “Asian” faculty who were also accused of failing to report foreign funding and business ties, sparking concerns of racial profiling. Both investigations that led to these firings were started in response to the NIH’s concerns about its grants becoming subject to foreign influence.

Briefing: Iflytek shares plunge as Trump targets more Chinese tech firms

Chris Udemans — Fri, 24 May 2019 03:22:08 +0000

China’s Siri Plunges as Trump Casts Wider Net Over Tech Firms – Bloomberg

What happened: Shares of Shenzhen-listed voice recognition firm Iflytek plunged by nearly 10% after news broke that the US is considering curbs on the company, along with several other Chinese tech companies, following Washington’s Huawei offensive. Also facing scrutiny are artificial intelligence company Megvii, data firm Meiya, and security camera makers Hikvision and Dahua.

Why it’s important: The Trump administration is casting a wider net in targeting companies affiliated with China’s vast surveillance network. Iflytek says it controls more than 70% of China’s speech recognition market with its technology being used in everything from consumer devices to the country’s courtrooms. The offensive comes after the US last week put Huawei on a trade blacklist, which forms one of a list of measures to temper China’s influence on technology around the world. Trump is now targeting companies with involvement in China’s surveillance apparatus, a system that has caused concern across the globe.

Briefing: Facing Android ban, Huawei says proprietary OS may be ready by end-year

Bailey Hu — Thu, 23 May 2019 01:31:13 +0000

Huawei’s mobile chief expects self-developed OS to be ready for market roll-out as early as year end – South China Morning Post

What happened: Huawei mobile business chief executive Yu Chengdong said that the smartphone brand may roll out an Android-compatible OS later this year, or at least “no later than spring next year.” The Huawei OS would support a broad range of devices, from phones to tablets, TVs, computers, automotive, and smart wearables. Android web and mobile applications will be compatible with the OS. The company has not confirmed or commented on the statement.

Why it’s important: The announcement comes right on the heels of a move last week that rocked China’s tech world: the blacklisting of Huawei and affiliates by the US government which effectively bans the company from installing Google services on its devices. Huawei has been preparing its own OS system, not least for just such an eventuality, which may win it some independence from US software companies. However, an additional executive order by US President Donald Trump sets up broader barriers to trade, which could also affect not only Huawei’s international market but also its long-term hardware development. Facing such obstacles, an earlier release of Huawei’s homegrown OS, if successful, may bring partial alleviation but is far from a panacea for its problems.

Briefing: Surveillance firm Hikvision may join Huawei on US trade blacklist

Eliza Gkritsi — Wed, 22 May 2019 06:46:05 +0000

Trump Administration Could Blacklist Chinese Surveillance Technology Firm – The New York Times

What happened: On Tuesday, The New York Times reported that Hikvision, a Chinese surveillance equipment manufacturer, may be banned from buying American technology, citing anonymous sources familiar with the issue. The company’s products include artificial intelligence (AI) software for tracking individuals, and they are used in China and abroad. According to the report, the Commerce Department will require approval from other US government authorities for American companies seeking to supply the Hangzhou-based surveillance giant with components. Hikvision’s stock fell as much as 10% on Wednesday. A final decision is expected over the coming weeks.

Why it’s important: The ban will place Hikvision on a US government trade blacklist, which as of last Friday includes telecom equipment maker Huawei. The blacklist is among a list of measures by the Trump administration aimed at curbing China’s global influence in technology industries, including charging Huawei and its CFO Meng Wanzhou with a series US criminal charges over alleged Chinese espionage and trade secret theft. It is likely to further inflame tensions between the world’s superpowers, which have been rising after extended bilateral tariffs. The Hikvision ban will be the first instance of US actions aimed at China’s domestic use of surveillance, a topic which has sparked heated international debate.

Briefing: Self-driving truck unicorn TuSimple pilots mail delivery for USPS

Chris Udemans — Wed, 22 May 2019 04:44:50 +0000

Self-driving truck startup TuSimple will haul mail for USPS in two-week pilot – TechCrunch

What happened: Autonomous truck startup TuSimple, which has operations in China and the US, has been awarded a contract to haul United States Postal Service trailers between Dallas and Phoenix, a trip that spans around 1,600 kilometers. The pilot will last two weeks, and each truck will be run for 22 hours, which includes overnight driving. A safety engineer will be present on all trips.

Why it’s important: TuSimple has been running daily routes for customers in Arizona and was last year permitted to test its trucks on selected roads in Shanghai. The company has partnered with Chinese automakers Shaanxi Automotive and Sinotruck and seeks to commercialize its technology by next year. The majority of the attention given to autonomous vehicles has focused on self-driving cars, but the logistics industry could see huge increases in efficiency as a result of autonomous trucking, which would be evident in the growing e-commerce market.

Briefing: US issues warning about Chinese-made drones stealing data

Jill Shen — Tue, 21 May 2019 03:57:51 +0000

DHS warns of ‘strong concerns’ that Chinese-made drones are stealing data – CNN

What happened: The US Department of Homeland Security (DHS) warned in an alert issued Monday that the US government has “strong concerns” about certain Chinese-made aircraft “that takes American data into the territory of an authoritarian state that permits its intelligence services to have unfettered access to that data.” Users were cautioned when purchasing drones from China to take extra steps to protect data, like turning off the device’s internet connection, while organizations involved in national security and critical functions are told to be “especially vigilant as they may be at greater risk of espionage.”

Why it’s important: While no specific drone manufacturer was named, nearly 80% of drones in the US and Canada are made by Shenzhen-based DJI, the world’s largest commercial drone maker, according to the CNN report citing a study from Skylogic Research. The warning comes after US President Donald Trump signed an executive order last week effectively banning the sale and use of Huawei telecom equipment. DJI drones, now widely used in US infrastructure and government departments, have been banned from the US Army since 2017 amid allegations that the company collected and shared sensitive US data with the Chinese government.

Briefing: Google restricts Huawei’s Android access after trade blacklist

Wei Sheng — Mon, 20 May 2019 04:08:12 +0000

Exclusive: Google suspends some business with Huawei after Trump blacklist – source – Reuters

What happened: Google has blocked Huawei from some updates to the Android operating system to comply with a trade blacklist that bans the Chinese smartphone maker from doing business with US companies without government approval. Huawei now only has access to the Android Open Source Project (AOSP), which is available for free to anyone who wishes to use it. The company will not be able to use popular services including the Google Play Store, Gmail, and YouTube apps on future Android phones. It also means Huawei will only be able to push security updates for Android once they’re made available in AOSP.

Why it’s important: Google apps and services are requisites for Android smartphones in markets outside of China, where smartphone shoppers are unlikely to buy an Android phone that lacks access to Google’s Play Store, which attracts the lion’s share of apps. Huawei’s smartphone business will definitely see an impact as half of the smartphones it sold in 2018 under the Huawei and Honor brands were to markets outside of China. Huawei said it has been preparing for its own technology in case it is blocked from using Android, though the ecosystem for its proprietary OS is lacking. Long term, the restriction may motivate Huawei to develop a viable alternative to Google’s operating system, as the search giant is pushing its own smartphone brand Pixel at a similar price range to Huawei handsets.

Xi should capitulate—not because US is right, but because China is vulnerable

China Money Network — Mon, 20 May 2019 02:57:44 +0000

This article by Nina Xiang originally appeared on China Money Network, the best data intelligence platform tracking China’s tech and venture capital markets (access requires subscription).

A camel, though dead, is still bigger than a horse—so goes a Chinese proverb. Such is an accurate depiction of the current US-China relationship.

America, a declining world power, can easily push China into a dead end, despite China’s economic rise over the past four decades. Xi Jinping should immediately capitulate in the trade negotiations, as this will inflict the least damage to China. For China’s long-term prospects, to accept US demands, instead of fighting against it, is the best course of action because China is currently too weak to afford any wars.

China’s vulnerability is worse than most people realize. Perhaps Trump knows this better than most. Its economy is at a critical turning point. After years of restructuring, the growth model struggles to become more sustainable. Its technology capabilities, despite Chinese media’s grandiose self-congratulations, can’t survive blows from the US. Its military power lags far behind. Its currency sits in a precarious position. It has lost a global public relations battle. China has no one’s sympathy.

When chatting with someone who works at a large Chinese AI startup a few months ago, we both laughed at the hypothesis that if Nvadia stops selling GPUs to Chinese companies, no Chinese AI company can survive. It was such an unthinkable scenario to imagine back then. Now it suddenly becomes very real, after Huawei was put on the “entity list” and Google cut off Huawei’s Android license.

The US has a tight stranglehold on Chinese industries and technology. Without American chips and operating systems, the giant Chinese IT industry skyscraper will topple. The reverse is not true. For the type of low-end assembly and manufacturing work Chinese companies are conducting, American companies can restructure their supply chain to many other countries who are more than happy to take China’s place.

China’s hands are tied in purchasing US treasuries. Its national coffers are mostly in US dollars and it must protect its own assets. China’s economy is loosing steam while the American economy is very strong. If Beijing begins monetary and fiscal stimulus again after the trade war escalates, it will make the Chinese economy further addicted to the drug of credit. Xi must realize that his cards against the US are very limited.

The US can inflict so much more pain to China, and this is only the beginning. On the other hand, China has few “weapons” in its hands. The sooner Xi caves in, the less damage to China’s economy and the better the future China can secure.

This is a bitter pill that China must swallow. To some extent, China deserves it. It got ahead of itself and was lost in a self-congratulatory mentality. After pundits called the US to wake up to “Chinese threat,” it is time for China to wake up from its illusion that it can already rival the US.

Briefing: US lawmaker calls for probe into Chinese state-owned subway car deal

Eliza Gkritsi — Mon, 20 May 2019 02:26:56 +0000

Schumer asks government to probe rail tech from China – Reuters

What happened: The US Senate Democratic majority leader Chuck Schumer has asked the federal government to investigate whether plans to install new subway cars to the New York City underground system designed by CRRC Corp Ltd, a Chinese state-owned firm, poses a national security threat. A bipartisan bill was introduced to the US House last week that would cut federal funding to transit agencies who secure contracts with the CRCC. The world’s top passenger train maker is eyeing a $500 million deal in the Washington D.C. metro and has secured contracts in Los Angeles, Philadelphia, Boston, and Chicago to provide new subway cars.

Why it’s important: The move comes as tensions escalate in the US-China trade war with both countries increasing tariffs, and just days after the US President placed Chinese telecoms giant Huawei on a trade blacklist, limiting its access to American technology. More than cybersecurity concerns, this move is aimed towards the CRCC’s takeover of the global rail market, which US lawmakers are scrutinizing as a security and economic threat. It won over the US market by aggressively underbidding competitors, and allegedly has its eyes set on the freight market.

Briefing: Huawei’s chipmaking subsidiary HiSilicon mitigates impact of US ban

Wei Sheng — Fri, 17 May 2019 04:17:06 +0000

Huawei’s Hisilicon says it has long been preparing for U.S. ban scenario – Reuters

What happened: Chinese chipmaker HiSilicon said it has long been prepared for a situation in which its parent company Huawei could one day be unable to obtain chips and technologies from the United States. The company said it had been secretly developing substitutes to American products and now it is ready to put them to use to make sure Huawei continues its business. The US Commerce Department on Thursday officially added Huawei to a so-called Entity List that would ban the company from buying parts and components from American firms without US government approval.

Why it’s important: Though Huawei has its own chipmaking business, the impact of the Commerce Department’s trade blacklist on the company may still be severe. Of the $70 billion that Huawei spent on components and other supplies last year, $11 billion went to American companies, according to the company. HiSilicon may prove a critical asset for Huawei; analysts believe that its chip technology rivals that of market leaders such as Qualcomm. But it won’t offset the US threat entirely—the company still needs American components, IP, and tools to design new chips.

As US fights tech transfer, top Mexican university opens tech hub in Hangzhou

Eliza Gkritsi — Thu, 16 May 2019 06:40:14 +0000

The same day US Republicans introduced a bill to Congress restricting study visas for Chinese nationals, one of Mexico’s top STEM universities, Tecnológico de Monterrey, opened a technology exchange center in Hangzhou.

The tech hub is co-funded by the university and the Hangzhou Jianggan government, and will act as a showroom and facilitator for Mexican technology and science research seeking to enter the Chinese market.

“The tech hub is the first overseas center of its kind for Mexico, and the opening is the proudest moment of my life,” Alfonso Araújo, director of the center, told TechNode. The new center in Hangzhou, which opened Thursday, will tap into the more than 100 research facilities in Mexico.

The private university was founded in 1943 and strives to become a leader in technology and innovation in Latin America by launching startup accelerators and partnering with banks and tech companies. It has since expanded into 32 campuses in 25 cities across Mexico.

The Hangzhou center’s first task is to introduce Mexican science to China and to materialize research, taking it from the lab into the market, according to the director, who has lived in China for the last 20 years. The center will open with 12 research projects, and there are around 30 more in the pipeline.

“It’s a very good moment to match their [China’s and Mexico’s] interests in technology development. Mexico has very good science development, China has a lot of resources and interest in doing so,” Araújo said.

The absence of lobbying and the government’s support for scientific research makes China a great place to develop new research. “In the USA, this happens at the level of the scientists themselves, but the government is invaded by lobbyists who tell you that climate change is not real,” the director said.

He is betting that China will continue “being reasonable in the next generation, as it has been in the past.”

The technologies the hub will take on will shape its work in the next 20 to 30 years, Araújo said. It is not geared towards new ways to manufacture something or “a new comfortable chair,” the director said. The center’s main areas are life sciences, such as medicine, environment, biotechnology, genetics, food safety, and next-generation technologies, like artificial intelligence, computer science, nanotechnology, advanced engineering. The latter are high on China’s priority list, the director said.

World-class science is bred in Mexico, but it lacks the environment which can successfully bring it into market, said Araújo. In places like Silicon Valley, next to the scientists is an entire ecosystem of financiers, lawyers, and marketing specialists, Araújo explained.

To create these conditions the university opened an office in Mexico last year which turns the research projects into business pitches, before the projects and their researchers are brought to China. First, they pick projects from around the country and then equip them with all the necessary expertise to make their research into a viable business.

The various projects are at different stages of development, and through the Hangzhou tech hub are paired with agents in China that fit their needs. The director explained that those which are almost ready for the market, or are already in the market but are still quite small, are connected to companies that can help them grow. Those which still need funding to finalize research, licensing or compliance are linked with government programs and grants.

“If China realizes how great our scientific developments are in Mexico, they will be eager to invest more, even make joint funds. This will help a lot the Mexican research environment,” the director told TechNode.

At the opening, three Mexicans research projects will sign contracts with two Chinese companies and a Chinese university. The projects include next-generation education, food safety for live fish transport, and nanotechnology-based oil which decreases at least 50% of CO2 emissions.

Trump signs order clearing way for US ban of Huawei

Wei Sheng — Thu, 16 May 2019 06:36:29 +0000

US President Donald Trump signed an executive order Wednesday that allows the US to ban telecommunications equipment and services from foreign companies that could pose a threat to national security, making good on a threat that escalates the battle against Chinese telecom giant Huawei.

The order doesn’t list any countries or companies by name but it instructs the Commerce Secretary, Wilbur Ross, to ban transactions “posing an unacceptable risk,” which include import of gear or services from companies that have close ties to foreign governments and could use their equipment to monitor or disrupt US telecommunications or other infrastructure.

In addition to the executive order, the Commerce Department said on Wednesday that it had placed the Huawei and 70 of its affiliates on a list of firms that are deemed a risk to national security. Companies on the so-called Entity List would not be allowed to buy American components and technologies without US government approval.

The executive order invoked the International Emergency Economic Powers Act, which authorizes the president to regulate commerce after declaring a national emergency in response to any unusual threat to the US with a foreign source.

Huawei said in a statement sent to TechNode on Thursday that “restricting Huawei from doing business in the US will not make the US more secure or stronger; instead, this will only serve to limit the US to inferior yet more expensive alternatives.”

“In addition, unreasonable restrictions will infringe upon Huawei’s rights and raise other serious legal issues,” said the company.

The executive order, together with the Commerce Department’s Entity List, have put Huawei into the same highly risky situation that its peer ZTE was in a year ago which nearly vanquished the company.

“Although Huawei is somewhat more independent from US tech than ZTE, it still relies on [the US] for key parts of its business,” said Stewart Randall, head of electronics and embedded software of Shanghai-based consultancy Intralink.

Huawei has its own chip design subsidiary, HiSilicon, so it does not rely on US semiconductor supplier Qualcomm, said Stewart. “But HiSilicon still needs American components, IP, and tools to design new chips. Without these, it would either slow down or stop chip design. Either way, products would come out behind competitors and would be highly damaging.”

Briefing: US moves to restrict visas for scholars with ties to Chinese military

Bailey Hu — Thu, 16 May 2019 02:44:29 +0000

U.S. lawmakers want to tighten visas for Chinese students, researchers – Reuters

What happened: On Tuesday, Republican members of Congress introduced legislation that could ban those working for or sponsored by China’s People’s Liberation Army (PLA) from receiving visas to study or conduct research in the US. The bill would entail categorizing science and engineering organizations with ties to the PLA; anyone associated with these institutions would be denied student or research visas.

Why it’s important: The news follows announcements of an escalation in tariffs after months of back-and-forth in the China-US trade war. It also falls in line with some US lawmakers’ longstanding accusations of intellectual property theft and industrial espionage by Chinese citizens, which helped kick off trade tensions to begin with. While it’s unclear whether the legislation will be passed, it certainly sends a message on behalf of some US Republicans, and further hints that the tiff over tariffs will be long and drawn out.

Huawei executive shrugs off threat of widened US ban against telecom equipment

Wei Sheng and Eliza Gkritsi — Wed, 15 May 2019 05:47:18 +0000

US President Donald Trump is expected to sign an executive order this week that will prohibit US firms from doing business with Huawei, Reuters reported citing three unnamed US officials.

If signed, the order will not name any specific names or companies, but bars US companies from using telecoms equipment made by foreign firms that pose a national security risk. Washington considers Huawei to be one of these companies, citing its ties with the Chinese government. The order has been in the works for over a year, but has been delayed several times, Reuters reported. It could be delayed again.

In response to the potential ban from the US market, Huawei’s President of ICT Strategy and Marketing Wang Tao stated Wednesday at an event in Beijing, “We are a global company, and we don’t have too much business in the US. Any change in any country won’t affect our global businesses.”

Just over half of Huawei’s total revenue last year was earned in China, with revenue from Europe, the Middle East, and Africa (EMEA) its second-largest region comprising 28% of sales. Revenue from North and South America region were a small but rapidly growing portion of the company’s total revenue in 2018, driven by a boom in “new digital infrastructure” construction in Latin America, according to the company.

The executive order will invoke the International Emergency Economic Powers (IEEP) Act, a federal law that grants the president authority to regulate commercial activity if there is a threat to national security. Invoking the IEEP Act essentially declares a national emergency over an “unusual and extraordinary” foreign threat to the US. It has been used to stop funding to terrorist organizations and prohibit trade with North Korea, among others.

A similar but different order was signed by President Trump in August 2018, banning US government agencies from using Huawei and ZTE equipment. This ruling was part of the National Defense Authorization Act of 2019, a bill that is passed annually by Congress dictating the Department of Defense budget and thus only applies to government agencies and contractors, not all commercial activities. The ban on ZTE was eventually lifted.

The new executive order comes at a sensitive time for US-China relations, only a few days after new tariffs were announced by both sides in lieu of a trade deal that had been in negotiation for months. Washington has been lobbying globally against the deployment of Huawei equipment in 5G networks, citing national security risks.

On the home front, the US government is conducting legal and regulatory efforts against what it perceives as Chinese companies infiltrating key US networks and industries to advance foreign interests. Less than a week ago, the Federal Communications Commission (FCC) voted unanimously to bar China Mobile from offering its services in the US market.

In January 2019, US prosecutors charged Huawei in two separate cases. The first alleges theft of trade secrets from T-Mobile, a cellular network provider that Huawei was providing phones to that is based in Washington state, where the charges were filed. The second case is a 13-count indictment filed against Huawei and its CFO Meng Wanzhou for reportedly planning to circumvent US sanctions on Iran.

Meanwhile, Huawei is trying to build relationships and secure contracts with other governments and companies around the world.

On Tuesday, Huawei’s chairman said that the Chinese telecoms giant is willing to sign no-spy deals with governments, including the UK.

“Cybersecurity is primarily a technical issue… We have seen some governments mislead the public by turning cybersecurity into a political and ideological issue,” Wang said.

Additional reporting by Eliza Gritsi.

Briefing: New US bill could make exporting American tech to China more difficult

Miles Goscha — Wed, 15 May 2019 01:46:12 +0000

GOP senator’s new bill would crack down on U.S. tech going to China – Axios

What happened: A new bill announced by US Senator Josh Hawley (R-Mo.) would restrict the export of various emerging technologies to China, making it more difficult for companies to do business in the world’s second-largest economy. The bill is focused on limiting China’s military development, its “ability to violate human rights,” tech that will lead to the “excessive drain of scarce materials” from the US, and any technology that belongs to an industry “influencing artificial intelligence, semiconductors, quantum computing and robotics.”

Why it’s important: The Trump administration’s current trade deal has included negotiations for better IP protections, but this wide-spanning proposal could put US companies on the chopping block instead of sparking a new manufacturing boom that Sen. Hawley seems to be hoping for. The race for tech superiority is nothing new between the two competing superpowers, though a law like this one has the potential to exacerbate a culture of secrecy at a time when technologies like AI and quantum computing are still in their early stages of development.

Briefing: Tech stocks slip in the wake of new tariffs as trade war escalates

Eliza Gkritsi — Tue, 14 May 2019 04:31:55 +0000

Tech stocks tumble as China retaliates in latest salvo of the trade war – TechCrunch

What happened: Stocks of US and European tech companies sank yesterday after China retaliated in equal measure to new US tariffs. Beijing announced 25% import tariffs on $60 billion of US goods starting on June 1. European companies shed 1.2% of share value, but the Dow Jones Industrial Average and S&P 500 fell by 2.4%, and Nasdaq by 3.4%, the worst daily percentage loss it has seen in the past year. Apple fell 5.8%, Netflix by 4%, Amazon by 3.6%, Facebook by 3.6%, and Alphabet by 2.7%.

Why it’s important: At the beginning of last week, an agreement between the world’s two largest economies seemed possible but, on Friday, import duties Trump had threatened to hike on $200 billion worth of Chinese goods from 10% to 25% were triggered. Industrial chemicals, machinery parts, and consumer goods are amongst the worst hit. Tech products like iPhones will face higher manufacturing costs, while tariffs on finished goods will make them more expensive for Chinese consumers.

Briefing: Renewed trade tension exposes Apple’s vulnerabilities

Wei Sheng — Mon, 13 May 2019 04:45:04 +0000

Apple and the iPhone Near Trade Crosshairs Again – The Wall Street Journal

What happened: US President Donald Trump last week threatened a tariff of 25% on $325 billion in Chinese imports that haven’t previously been targeted by duties, which would affect almost all Chinese exports to the US, including Apple’s most important devices, including iPhones, iPads, and Macs, that are assembled in China. Apple also counts on Greater China for about one-fifth of its sales, making it vulnerable if China fights back with higher duties against American companies. Apple would also be a likely target of China’s punitive actions as iPhone has 7.4% of the country’s smartphone market.

Why it’s important: As an American company that manufactures most of its devices in China, Apple is exposed in the escalating trade war. Apple last month posted its first consecutive drop in quarterly sales and profit in more than two years as iPhone sales fell 17% in the first quarter of 2019. The trade war does not appear to be resolving anytime soon as the US-China trade talks ended last week without a deal. Although Apple is diversifying its supply chain by planning to assemble devices in India, it will take time for the company to transfer production from China, making it unlikely to avoid the US tariffs this year.

Oracle workers may find age, industry expectations are hurdles in job hunt

Jill Shen — Fri, 10 May 2019 12:50:26 +0000

Employees laid off from Oracle China appear to be a hot commodity for tech companies looking to hire, according to one recruitment platform, though desirability may be tempered by candidates’ ages as industry demands shift.

Recruiters searched online resumes for “Oracle” around 100,000 times on Tuesday, according to the online recruitment platform Boss Zhipin, an increase of 30% compared with a day earlier.

News broke earlier this week that the US tech giant would lay off around 1,000 employees in the China Research and Development Center (CDC). The center, which has facilities in cities including Beijing and Shenzhen, will reportedly close soon.

In a response sent to TechNode on Wednesday, Oracle China said as its cloud business continues to grow, it is carrying out a round of restructuring so as to offer Chinese business clients the best in cloud services.

However, employee protests signal that the US tech giant’s strategy is muddled. According to Chinese media, dozens of employees held a protest near the company’s Zhongguancun Technology Park offices in Beijing, carrying signs and banners saying that the layoffs were in fact a consequence of Oracle seeking to shut down its China operations entirely. Some of the fired employees, according to media reports, were from the cloud services team.

“It is regrettable to see them being fired in their middle age,” (our translation) Xu Dandan, founder and chairman of another Chinese recruitment service Lagou, said Thursday in a Weibo post. The average age of Oracle employees now looking for jobs on its platform was 37, he added, though they are senior engineers who are mostly graduates from prestigious universities and are “highly experienced with a strong background in technology.”

“However, it is not that easy to get a good position now as the bar has been raised at local internet firms,” (our translation) Xu said in a Weibo post, following a mass exodus of tech workers that left established multinational tech companies for Chinese internet firms in 2015 and 2016.

Work environments for Chinese tech workers are changing. The 996 workday, a term referring to working from 9 a.m. to 9 p.m. six days a week, has gradually become an unwritten rule at tech heavyweights such as JD.com. Being eliminated by younger colleagues is another challenge. Rumors about Huawei clearing out workers above the ages of 34 have been widely circulated since 2017, though the company has denied the practice, reported Sina Tech.

The new developments in the Oracle’s massive layoffs is strikingly similar to Yahoo’s in Beijing four years ago. The company announced the closedown of its Beijing R&D center in March 2015, and its former programmers were enthusiastically welcomed by Chinese tech giants. Coffee shops near the Yahoo’s Beijing office were reportedly packed with HR managers from companies such as Baidu, JD.com, and Huawei, who were engaged in animated talks with candidates.

Recent comments indicate that Oracle is determined to compete in China. “If we let China’s economy pass us up, if we let China produce more engineers than we do, if we let China’s technology companies beat our technology companies, it won’t be long that our military is behind technologically also,” Oracle CEO Larry Ellison said in a Fox News interview in October.

Briefing: New US tariffs on Chinese goods target telecom equipment

Wei Sheng — Fri, 10 May 2019 06:59:13 +0000

Trump Lets Tariff Increase Go Ahead, Threatens More as Trade Talks Resume – The Wall Street Journal

What happened: The US President Donald Trump’s new tariffs on more than $200 billion Chinese imports took effect Friday with tariffs leaping from the current 10% to 25%. The hike on tariffs comes amid two days of trade talks between top US and Chinese negotiators as they look to resolve a year-long trade war between the world’s two largest economies. More than 5,700 categories of goods are subject to the tariffs and most of them are capital and intermediate goods such as circuit boards, microprocessors, vehicle parts, and machinery.

Why it’s important: Under the new tariffs, telecommunications equipment is the top category, with about $19.1 billion of goods facing higher duties. Telecom has become the worst-hit sector in the shadow of the perpetual trade war. Trade conflicts also affect US consumers and businesses. Small carriers in the US feel the brunt as they rely heavily on Chinese telecom equipment makers such as Huawei and ZTE that provide a wide range of gear at competitive prices.

Briefing: US charges 2 Chinese nationals for 2014 data breach

Eliza Gkritsi — Fri, 10 May 2019 06:40:50 +0000

US indicts two people in China over hacks – CNN

What happened: The US Justice Department charged two Chinese nationals over the 2014 hack of an American insurance company and three other unnamed US businesses in tech, raw materials, and communication services sectors. The indictment was unsealed on Thursday and named one individual, Wang Fujie, 32, from Shenzhen. The second accused remained anonymous under the pseudonym John Doe. The pair was charged with targeting employees of an Anthem subsidiary using spear-phishing emails and obtaining, within about a year, more than 80 million customer records and employee Social Security numbers, birth dates, addresses, email, and employment and income information, including information belonging to the CEO.

Why it’s important: The indictment called the attack “a brazen China-based computer hacking group that committed one of the worst data breaches in history.” It is the latest in a series of attempts by the US judiciary to crack down on trade secrets and personal data theft by China. Because Anthem’s data never appeared on the internet, security professionals speculate that it was stockpiled, potentially by the Chinese government. However, in the Anthem case, neither the Justice Department nor the security firms hired to investigate the breach could directly link the hackers to a state or military agency in China.

Briefing: FCC votes unanimously to block China Mobile’s phone services bid

Wei Sheng — Fri, 10 May 2019 04:51:41 +0000

FCC Blocks Chinese Company’s Bid For International Phone Services In The U.S. – NPR

What happened: The United States Federal Communications Commission (FCC) has decided to deny an application by China Mobile to provide international calls and other services in the country. FCC chairman Ajit Pai said the Chinese government would use China Mobile to conduct activities seriously jeopardizing national security, law enforcement, and economic interests of the US. The Thursday announcement came after a unanimous 5-0 vote from the FCC’s Republican and Democratic commissioners.

Why it’s important: The FCC decision is the latest in a series of US government efforts to block a Chinese firm from certain sectors in the country. It also comes at a time when a pivotal round of trade talks between the US and China on Thursday failed to produce an agreement, and new tariffs on $200 billion worth of Chinese goods took effect Friday. The year-old trade war shows little sign of abating. Tech firms in China have already been impacted while the launch of a new Chinese high-tech stock board hangs in the balance.

US FCC to vote on excluding China Mobile from telecom market

Wei Sheng — Thu, 09 May 2019 03:29:48 +0000

At its May open meeting that will be held on Thursday, the United States Federal Communications Commission (FCC) will vote on an order to stop a Chinese state-owned carrier from providing telecommunications services in the US.

China Mobile USA, a subsidiary of China Mobile, filed an application in September 2011 to the FCC to carry international voice traffic between the US and other countries. The company stated that it doesn’t intend to provide telecom services within the US.

Now, nearly eight years later, the FCC will make its final decision on the application—the outcome doesn’t look good for the Chinese carrier.

Last month, FCC Chairman Ajit Pai said that he did not believe that approving China Mobile’s application would be in the public interest, citing national security concerns.

“It is clear that China Mobile’s application to provide telecommunications services in our country raises substantial and serious national security and law enforcement risks,” said Pai.

He also appealed to his colleagues to join him in voting to reject the application. Pai’s party, the Republican Party, holds three of the five commission seats.

Major risk

The draft order to be voted on Thursday cited national security risk as the reason for rejecting China Mobile’s application. It also implied China Mobile might be controlled by the Chinese government to conduct computer intrusions and attacks against the US.

“The Executive Branch agencies identify significantly enhanced national security and law enforcement risks linked to the Chinese government’s activities since the Commission last granted international Section 214 authorizations to other Chinese state-owned companies more than a decade ago,” said the draft order.

The FCC requires any person or entity that provides telecoms services to or from the US to receive an authorization under Section 214 of the Communications Act of 1934. This authorization is called an international Section 214 authorization, which China Mobile USA’s 2011 application was filed to obtain.

The US government also made a similar allegation against another Chinese telecom company, Huawei. The Trump administration has banned Huawei equipment in the construction of US cellular networks over concerns that the company could be compelled by the Chinese government to spy or for sabotage.

Whether Huawei is controlled or even owned by the Chinese government has been difficult to assess due to its vague organizational structure. The ownership of China Mobile, however, is clear.

China Mobile USA discloses in its application that its indirect controlling parent company, China Mobile, is 100% owned by the Chinese government, and China Mobile was subject to the supervision of the State-Owned Assets Supervision and Administration Commission, a Chinese government body.

China Mobile USA is owned by China Mobile International, a Hong Kong-based subsidiary that is wholly owned by China Mobile.

China Mobile USA argued that as a business registered in Delaware, California, it was immune from the Chinese government’s influence and control, the draft order revealed.

However, the executive branch agencies said that China Mobile USA’s status as a US-registered company “does not diminish the national security and law enforcement risks associated with the indirect ownership and control of China Mobile USA by the Chinese government.”

China Mobile USA did not respond to TechNode’s request for comment. An FCC representative declined to comment and said all information could be found in the draft order that was listed on the commission’s website.

China opens, US shuts

In a letter sent on May 1 to FCC Secretary Marlene Dortch, counsel for China Mobile USA Kent Bressie said that the company believed that the draft order was guided more by tensions in the bilateral US-China relationship than by American commitments to market access, transparency, and timeline elements in basic telecommunications under the General Agreement on Trade in Services.

Wang Chunhui, a professor at Nanjing University of Posts and Telecommunications, told TechNode that the US should be a free market, where the government should decide whether to accept foreign carriers to provide telecoms services by bidding processes, rather than administrative instructions.

“FCC’s voting on the order to deny China Mobile’s application without any legal processes will compromise the US’s principle of the rule of law, and also disagrees with international trade rules,” said Wang.

Legal precedents do exist: BT (British Telecom), Deutsche Telekom of Germany, and Telekomunikasi Indonesia International of Indonesia all have carrier businesses in the US.

As the US shuts its doors to Chinese telecom companies, China, by comparison, is opening its telecom industry up for foreign company participation.

The total number of foreign-invested telecom firms with operation permits in China totaled 121 at the end of 2018, up 39% year on year, according to Chinese state-run news agency Xinhua, citing data from the China Academy of Information and Communications Technology.

BT in January became the first non-Chinese telecom firm to get a nationwide operating license in China. The company attained two licenses that allowed it to provide internet connection services to domestic clients.

Though the licenses don’t allow BT to provide mobile phone service in China, where the wireless carrier market is dominated by three state-owned carriers, China Mobile, China Telecom, and China Unicom, it could signal that China is opening up its telecom sector to foreign companies, the same report from Xinhua said.

Briefing: Game-streaming startup Douyu delays US IPO as trade war escalates

Wei Sheng — Tue, 07 May 2019 04:36:42 +0000

Chinese Startup DouYu Delays U.S. IPO Launch on Trade Jitters – Bloomberg

What happened: Chinese video game live-streaming platform Douyu is considering delaying its IPO roadshow, which was scheduled on Monday US time, by at least a week. People with knowledge of the matter told Bloomberg that the decision was made following global market turmoil after US president Donald Trump threatened new tariffs on Chinese goods. The Tencent-backed company filed its IPO application to the New York Stock Exchange last month, seeking to raise up to $500 million.

Why it’s important: In the past two decades, the number of public companies listed in the US nearly halved, and each has grown much bigger, a sign of unhealthy industry concentration. But Chinese tech companies have become a rich source for US IPOs in recent years. Thirty-three Chinese companies went public in the US in 2018, accounting for 17% of all US IPOs. If the trade war continues to escalate, Chinese tech firms may have to find other markets for financing. China has already set up a Nasdaq alternative, the Science and Technology Innovation Board on the Shanghai Stock Exchange, for high-tech firms seeking IPOs.

Briefing: Western allies draft 5G Prague Proposals, warn against state influence

TechNode Staff — Mon, 06 May 2019 09:40:47 +0000

Huawei says 5G network security is a technical issue and not a country one, responding to Prague proposals – South China Morning Post

What happened: Security officials and experts from more than 30 western countries gathered in Prague last week and issued on Friday a set of proposals for 5G network deployment guidelines. The non-binding Prague Proposals warned governments about equipment supplied by vendors that might be vulnerable to state influence. The proposals did not contain the names of any specific 5G equipment suppliers. Huawei responded to the proposals by saying that cybersecurity was a technical rather than an ideological issue.

Why it’s important: Neither Chinese delegates nor Huawei representatives were invited to the meeting in Prague, although participants stated that no country or company was being singled out. Besides the US, participants included member countries from the European Union and NATO, and US allies such as Japan and South Korea. Europe has become a key battleground in the dispute over the US-led Huawei ban as countries prepare to auction 5G licenses this year. By end-March, Huawei had secured 40 5G contracts around the world, and over half of them come from Europe, according to the company.

Briefing: US expects improved access to China’s fast-growing cloud market

Nicole Jao — Sun, 05 May 2019 09:06:45 +0000

U.S.-China talks show progress on cloud computing: U.S. Chamber official – Reuters

What happened: The US will likely gain more access than previously expected to China’s cloud computing market following ongoing trade talks, according to Myron Brilliant, head of international affairs at the US Chamber of Commerce. China previously proposed to allow foreign tech companies to set up their own data centers in one of its free-trade zones. The Chamber of Commerce wants US cloud service providers in China to hold licenses and retain management control over its businesses, and for data to flow freely across national borders, Brilliant said. Although uncertainty still looms over the cloud computing negotiations, he said the US will “continue to make this an issue that has to be addressed ultimately, if not in the negotiations, then shortly after.”

Why it’s important: China’s concession on cloud computing, which has been a highlight in US-China trade talks, would loosen stringent restrictions on foreign service providers. China’s fast-growing cloud market will be the world’s largest in five years, according to IDC estimates. However, growth in market share for cloud providers including Amazon, Microsoft, and Apple have been significantly hampered. Vice-Premier Liu He is scheduled to be in Washington later this week for another round of trade talks.

Huawei’s stance on ownership spurs further doubts about company control

Wei Sheng and Eliza Gkritsi — Fri, 26 Apr 2019 03:38:26 +0000

Following a recent report that cast doubt over Huawei’s claim that it is wholly owned by its employees, the Shenzhen-headquartered tech giant called a press conference on Thursday aimed at clearing the air.

During that briefing, Huawei reiterated that it is fully owned by its employees, describing, once again, its intricate corporate structure. The company, however, produced little new information that could put the ownership issue to bed once and for all and didn’t fully address questions about who effectively controls Huawei.

An academic paper arguing that Huawei’s claim of employee ownership is implausible under Chinese law was published on April 15, stirring major debate around Huawei and any ties it might have to the Chinese government.

In it, authors Christopher Balding of Fulbright University Vietnam and Donald Clarke of George Washington University examined publicly available sources, which showed that Huawei’s operating company belongs to a holding company, with Huawei founder, Ren Zhengfei, holding a 1% share.

The remaining 99% is held by a “trade union committee,” which was established under China’s Trade Union Law. However, under Chinese law trade unions answer to the state, which could mean that 99% of Huawei is effectively controlled by Chinese authorities, the academics asserted.

Earlier this week Huawei dismissed the report by Balding and Clarke, saying that it was “based on unreliable sources and speculations, without an understanding of all the facts.” To which the authors Huawei replied that the company didn’t specify what it considered to be “unreliable or wrong, or from which we drew the wrong conclusions.”

At the press conference, Jiang Xisheng, chief secretary of the Huawei’s board of directors, said that a company of Huawei’s size is legally obliged to establish a trade union, which organizes social and recreational functions for the employees and has to abide by Chinese law.

As a result, it is registered under the Shenzhen Federation of Trade Unions, the body which is responsible for overseeing Shenzhen’s trade unions. The federation certifies trade unions and carries out annual audits, but this doesn’t mean that Huawei’s trade union takes orders from it, Jiang said.

Huawei has assigned an additional function for the trade union committee by making it the owner of 99% of the holding company, thus legally entrusting it to implement the company’s employee shareholding scheme. That program covers some 97,000 Huawei current and former employees, and entitles them to shares and related dividends.

Employees buy into this employee shareholding scheme using money from their own pockets. Should they wish to forgo the shares, they can only sell them back to the company.

“Because of this employee shareholding scheme, Huawei is owned and controlled by its shareholding employees,” Jiang said during the press conference. “That is why we have maintained our independence over the past three decades, allowing us to stick to our strategies.”

But the two academics argue that the shareholding scheme amounts to, at most, a profit-sharing scheme, far from actionable ownership, which would give the employees some real control over the company.

At the press conference, Huawei said that the shareholders run the risk of seeing their shares depreciating, and that this proves that the shares are more than contractual interests in a profit-sharing system.

“Huawei’s share capital comes from our employees’ own money. Our employees will not allow external influences to compromise their own interests or damage the company’s long-term development,” said Jiang.

Huawei claims that the shareholders’ voting powers puts them at the helm. They vote for a “representatives’ commission,” which in turn votes for the Huawei board of directors, the body that makes operational decisions.

But founder Ren Zhengfei is entitled to veto power in both bodies, meaning he can dismiss the shareholders’ majority vote at any time.

Jiang said that there were seven members in the trade union committee, and none of them were members of the company’s board of directors.

The question of who controls the company is at the center of an international debate, as the US is trying to shun Huawei from the development of 5G networks.

Washington has tried to convince governments around the world to ban the Chinese company from the next generation of the internet, claiming that Huawei’s links to the Chinese government could have serious national security implications.

With additional reporting by Eliza Gkritsi.

Briefing: US charges two Chinese nationals with spying on GE

Eliza Gkritsi — Wed, 24 Apr 2019 02:42:36 +0000

U.S. accuses pair of stealing secrets, spying on GE to aid China – Reuters

What happened: An indictment by the Justice Department unsealed on Tuesday reveals that two Chinese nationals, former General Electric (GE) engineer Zheng Xiaoqing and businessman Zhang Zhaoxi, have been accused of spying on the company to benefit China, allegedly with the Chinese government’s “financial and other support.” The charges for economic espionage and trade secret theft claim that Zheng encrypted proprietary data on GE’s turbine design and embedded them in a picture of a sunset, before sending them to Zhang, who was based in China. The indictment alleges that they used the information at two turbine manufacturing companies in China, through which they also received the support of the government. The Federal Bureau of Investigation (FBI) said that Zheng confessed the theft and the government’s involvement in July 2018.

Why it’s important: This is the latest in a series of cases pursued by the Justice Department, as the Trump administration tries to crack down on Chinese theft of corporate secrets to hamper China’s technological and economic power. In their view, such tactics enable “Chinese companies to replace the American company first in the Chinese market and later worldwide,” John Demers, the justice department official who runs the China initiative, told the Financial Times.

Briefing: US cancer center firings stoke fears of racial profiling, China clampdown

Miles Goscha — Wed, 24 Apr 2019 02:10:53 +0000

After firings, MD Anderson officials try to calm fears of racial profiling – Science

What happened: At a meeting today regarding a recent report by Science and Houston Chronicle detailing how the National Institutes of Health asked cancer research and treatment center MD Anderson to investigate rule violations by at least five of its scientists, employees raised concerns about racial profiling and xenophobia because all of the investigated faculty are “Asian” and at least three of them are ethnically Chinese. Three of the investigated employees were fired for violations including failure to protect the confidentiality of peer reviews and failure to report foreign funding and business ties.

Why it’s important: This news of scientific misconduct comes at a time when academia is still reeling from the ethics scandal sparked by Chinese scientist He Jiankui’s CRISPR babies experiment. Nevertheless, MD Anderson’s chief medical executive Stephen Hahn was quoted saying, “You’re hearing from the top of the institution that we are not abandoning working with the rest of the world, including China,” a sentiment recently echoed by the CEO of Dutch chipmaker ASML, who said that the theft of the company’s intellectual property on behalf of a Chinese firm would not have “any implication for ASML conducting business in China.”

Briefing: Video of JD CEO with accuser sparks social media discussion

Wei Sheng — Tue, 23 Apr 2019 09:25:48 +0000

Surveillance Clips Show Chinese Billionaire With Accuser – The Associated Press

What happened: Two edited videos of JD.com founder Richard Liu and a woman who has accused him of rape were posted Monday to Chinese microblogging site Weibo. The woman filed a lawsuit against Liu on Apr. 16, four months after prosecutors declined to file charges citing lack of evidence. One video shows that Liu and the woman, named Liu Jingyao (no relation), left a group dinner in Minneapolis and the other shows the woman holding Liu’s arm as they walked to her apartment. The law firm representing Liu Jingyao said the videos are consistent with what she told law enforcement, but Liu’s attorney in Minnesota said the clips had dispelled “the misinformation and false claims that have been widely circulated.”

Why it’s important: Though nothing in the videos disproves Liu Jingyao’s account of the alleged attack, the two videos have sparked widespread discussion on Weibo. Many have commented that the videos reveal a “plot reversal,” indicating that Liu may have been falsely accused. The Associated Press reported that Liu’s attorney showed the news agency full, unedited surveillance videos, which contained the same footage as the online videos. The user behind the account, named “Mingzhou Events” (translated), is unknown. It was created on Jan. 31 and has no other posts.

Briefing: CIA says Huawei gets funding from Chinese security agencies – report

Wei Sheng — Mon, 22 Apr 2019 07:15:06 +0000

CIA warning over Huawei – The Times

What happened: The Times reported on Sunday that the US Central Intelligence Agency (CIA) had accused Chinese telecom giant Huawei of receiving funding from the People’s Liberation Army, China’s National Security Commission, and a third branch of the Chinese state intelligence network, citing a “UK source.” The CIA shared the claims with other members of the “Five Eyes,” an intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom, and the United States, earlier this year. The CIA awarded a “strong but not iron-cast classification of certainty” to its finding and added that the Chinese ministry of state security had approved the funding, according to the report.

Why it’s important: The latest news is the most specific to date concerning US allegations about the nature of Huawei’s relationship with the Chinese government, though the company has stressed that it is not controlled by any government agency. The allegations come as the US campaigns to persuade its allies to ban Huawei equipment from their 5G network rollouts. The US accusation was based on the assumption that Huawei would have “no choice but to comply with demands of the Chinese government,” but this time the CIA provides evidence: its funding. Again, Huawei responded by saying that the accusation is backed up by “zero evidence from anonymous sources.”

China’s AI research has grown its global impact but lags US, Europe: report

Eliza Gkritsi — Fri, 19 Apr 2019 10:37:19 +0000

A report studying global artificial intelligence (AI) trends points to progress for AI research in China in the last year, as well as persistent roadblocks.

The study, published by academic journal and research firm Elsevier, analyzed over 600,000 scholarly publications from 1998 to 2017 and found that Chinese publications are increasing in volume and show enhanced performance in some markers of quality.

Between 1998 and 2002, Chinese researchers wrote only 9% of academic publications, compared to 24% in the 2013 to 2017 time period. Europe lost 5 percentage points and the US 8 percentage points in the same time period but combined, accounted for more than half of the AI research worldwide.

Chinese research has mostly grown in the area of computer vision. In 2011, this topic overtook neural networks as the most popular among Chinese academics. That year, Chinese researchers wrote 3,000 papers on computer vision. Six year later, they wrote approximately 6,500, more than double than on the second most-popular topic, neural networks.

Europe follows a similar trend on computer vision research, but the consistent growth of this field is matched by that of planning and decision-making. In absolute numbers, the latter category maintains a lead in European research over computer vision, with approximately 750 more papers being published in 2017.

Another source of growth for Chinese research are conference papers. China’s AI-related academic publications increased by 13.8% between 2008 and 2018, compared with a 7.7% increase in Europe and 5.3% in the US.

The US may be lacking in volume of papers, but it is winning in research impact. Elsevier used the field-weighted citation impact (FWCI) to measure how often a paper is cited in other publications, adjusted for the average of the field.

Papers published from American institutions are cited 1.5 times more than the mean of the related field, a figure that has held and even increased since 1998. By contrast, European institutions started at the mean in 1998, and have progressed to about 1.25 in 2017.

China’s growth in this respect is “tremendous,” the study finds. China’s FWCI in AI research has galloped from half the world average in 1998 to reaching the mean in 2017.

This trend held true in the years from 2013 to 2017, when the top Chinese universities in terms of impact are, in order, the Chinese Academy of Sciences, Tsinghua University, Harbin Institute of Technology, Shanghai Jiao Tong University, and Zhejiang University.

Professor Chuan Tang of the Chinese Academy of Sciences (CAS) was interviewed for the paper. He finds three main obstacles in China’s contribution to global AI research. First, it is lacking the chip technology to support AI technology.

Second, “China lacks long-term efforts in AI basic research,” and scholars tend to follow Western trends, he told Elsevier. Third, it lacks experts of high quality, as only 38.7% of researchers working in China with more than 10 years of experience, he said.

Globally and in all academic disciplines, papers have higher impact, as measured by the FWCI, when they are published in partnership with industry professionals. Only 3.4% of AI-related papers worldwide involve academic-corporate collaboration, but they achieve, on average, a 2.53 FWCI score.

The US is leading in cross-sector collaboration; it is responsible for 8.9% of papers involving industrial partners worldwide. This share of American papers has an astounding academic impact, with an FCWI score of 3.41.

Europe and China have yet to work with corporate partners in AI research to this extent, with shares of 3.6% and 2.3% of global academic-corporate papers published, respectively, involving academic-corporate collaboration.

Chinese studies that involved corporate partners achieved an FWCI score of 2.64, slightly ahead of their European counterparts at 2.46.

China is also lagging behind in international collaboration. It holds the highest percentage of researchers who never leave the region, while the US has the largest number of researchers who migrate out of or into the country. Researchers who tend to stay within their region have the lowest impact and productivity on the field, compared with their migratory counterparts.

Slightly more researchers migrated to China for around two years between 1998 and 2017 to work on AI academia. China gained 0.1% more researchers in this period, close to the US’s net inflow of 0.3%.

However, researchers who stayed in the US in these two decades have the highest impact on the field, which “might indicate a reason for international inflow into the country,” the paper concludes.

Finally, the paper includes a case study of graduates from the Chinese Institute of Automation and the Chinese Academy of Sciences. The research indicates that graduates from AI-related fields are far more likely to end their education with a dispatch, meaning they are employed in jobs that the university or research institute helped them find.

Briefing: FCC chair seeks to ban China Mobile from US, citing security concerns

Wei Sheng — Thu, 18 Apr 2019 03:47:09 +0000

FCC looks to slap down China Mobile’s attempt to join US telecom system – TechCrunch

What happened: The Federal Communications Commission (FCC) chairman Ajit Pai said on Wednesday that he opposed China Mobile providing connectivity and mobile services in the US, citing security concerns, and said the commission would vote on an order to deny the company’s application in May. “It is clear that China Mobile’s application to provide telecommunications services in our country raises substantial and serious national security and law enforcement risks. Therefore, I do not believe that approving it would be in the public interest,” Pai said in a statement. China Mobile, which filed the application in 2011, was not seeking to provide domestic cell service but international connections between the US and locations abroad.

Why it’s important: The denial of China Mobile’s application is without precedent, it also comes at time when the US battle against China’s expansion in the telecoms industry escalates. The Trump administration has banned equipment from Huawei, China’s largest telecom equipment company, over fears that the Chinese government could use it as a gateway to spy or disrupt western communication networks. The FCC also said China Mobile was indirectly and ultimately owned and controlled by the Chinese government and calls through the company’s networks “could be intercepted for surveillance and make the domestic network vulnerable to hacking and other risks.”

Briefing: China to use own tech to grow nuclear energy capacity

Eliza Gkritsi — Thu, 18 Apr 2019 02:56:11 +0000

China goes all-in on home grown tech in push for nuclear dominance – Reuters

What happened: China plans to deploy its own nuclear reactor, called “Hualong One,” in new power plants built around the country, instead of using foreign designs, government officials announced on Wednesday. Beijing has settled on using the Chinese design over the American AP1000 to meet its goal of increasing total installed nuclear capacity to 58 gigawatts and to have another 30 gigawatts under construction by 2020. Nuclear plant construction had been halted for three years due to a suspension of approvals, but the National Nuclear Safety Administration confirmed it will resume this year.

Why it’s important: China is the world’s biggest energy consumer, and as it gears up to meet its emission goals and replace coal-fueled plants for 2020, it looks to invest in clean energy solutions. It has long looked to foreign companies for technology, seen as a “shop window” for France, Russia, the US, and Canada to show off their new designs. In 2006 it signed a deal with the US to make the AP1000 the “core of its nuclear program,” but when it finally arrived in China, homegrown designs had evolved to the point of viable deployment.

Briefing: Unicorn startups go for Shanghai IPOs instead of Hong Kong

Eliza Gkritsi — Fri, 12 Apr 2019 02:27:43 +0000

Shanghai Takes on Hong Kong in a Battle for Unicorn IPOs – Bloomberg

What happened: Three Chinese unicorns are expected to scrap their plans to list in Hong Kong in favor of Shanghai’s new tech board, which features relaxed trading rules and listing requirements announced in late January. Qingdao Haier Biomedical Co., Sun Car Insurance Agency Co. and Certusnet Information and Technology Co. gave a vote of confidence to the Shanghai stock exchange, which loosened its financial regulations pertaining to high-tech companies in order to encourage key homegrown and foreign tech players to trade in China.

Why it’s important: The Shanghai tech board marks a monumental change in China’s financial policy, waiving the valuation cap, a de facto rule since 2014 that has led many local publicly traded companies to take their business to the US or Hong Kong. It also loosens the rules on first day trading and allows for shares with different voting rights, a measure which gives founders greater control. The financial authorities’ bet seems to be working, but analysts have said the companies who are among the board’s list of 60 candidates are similar to those traded over-the-counter in Beijing. Whether big tech players will be convinced by Shanghai’s offering remains to be seen.

Briefing: US Senators criticize Microsoft for China AI research

Eliza Gkritsi — Thu, 11 Apr 2019 02:59:02 +0000

Senior Republicans criticise Microsoft’s China work – Financial Times

What happened: Between March and November of 2018, Microsoft researchers in Beijing co-wrote and published three papers on artificial intelligence with a university run by China’s top military body. The revelations about the American company’s involvement in building surveillance systems for the Chinese government, a possible breach of US laws, has sparked alarm from leading China hawks in Washington DC. One of the papers delineates an AI method to create accurate environmental maps by using facial recognition. Microsoft defended the academic papers, saying that they are the result of a collective effort involving an international team of scientists and academics researching key technologies.

Why it’s important: The revelation comes as American government agencies, including the FBI, are scrutinizing US academic collaborations with parties linked to the Chinese government, fearing that the resulting research could assist China’s military interests. US authorities are considering increased vetting for Chinese partners, a measure implemented last week by the Massachusetts Institute of Technology. After cutting ties with Huawei, the top university announced that potential Chinese collaborations will face an “elevated risk” review process.

Briefing: Foldable 5G smartphone Mate X arrives at official Huawei store

Wei Sheng — Mon, 08 Apr 2019 05:03:41 +0000

华为Mate X折叠屏手机上架官方商城，6月开卖 – IT Home

What happened: Huawei’s new foldable smartphone, the Mate X, is now listed on Huawei’s official online store, the Vmall, though it is not yet available for purchase. The website doesn’t specify how much the foldable phone will cost, but Huawei said it would start at €2,299 (around $2,580) when announcing its launch at Mobile World Congress (MWC) in Barcelona in February. The Chinese tech giant also said the phone would hit the market in the middle of 2019.

Why it’s important: The Huawei Mate X is the smartphone maker’s first 5G-enabled handset that folds into a 6.6-inch smartphone from an 8-inch tablet. Its whopping price tops that of the Samsung equivalent, the Galaxy Fold, which will sell for $1,980. Samsung is releasing the Galaxy Fold on Apr. 26, with AT&T and T-Mobile selling the phone in the US market. The Huawei handset, however, won’t be available in the US; the smartphone maker is cautious about the US market ever since carriers backed away from plans to sell its Mate 10 smartphone, reportedly after pressure from the US government.

Briefing: MIT halts funding ties with Huawei, ZTE amid US investigations

Wei Sheng — Thu, 04 Apr 2019 07:34:20 +0000

MIT cuts funding ties with Huawei and ZTE citing US investigations – South China Morning Post

What happened: Massachusetts Institute of Technology (MIT) pauses its funding ties with Chinese telecom equipment makers Huawei and ZTE in light of the US government warning against potential security risks associated with the two companies. MIT’s associate provost Richard Lester and vice-president for research Maria Zuber said in a letter to faculty on Wednesday that MIT “is not accepting new engagements or renewing existing ones with Huawei and ZTE or their respective subsidiaries due to federal investigations regarding violations of sanction restrictions.”

Why it’s important: MIT’s severing of ties follows similar moves by Stanford University, University of California at Berkeley, and University of Minnesota, which have all cut future research collaborations with Huawei. These actions are in response to the National Defense Authorization Act (NDAA), which US President Donald Trump signed into law last August. The act bans recipients of federal funding from using telecoms equipment made by Huawei or ZTE. US universities that fail to comply with the act by August 2020 risk losing federal research grants and other government funding, according to Reuters.

Briefing: South Korea begins 5G rollout ahead of China, US

Miles Goscha — Thu, 04 Apr 2019 01:49:01 +0000

South Korea first to roll out 5G services, beating U.S. and China – Reuters

What happened: South Korea is on pace to commercially deploy the world’s first 5G services this week ahead of companies like Verizon in the US, which plans to start launching its new networks on Apr. 11. South Korean service providers are looking to start cashing in after spending billions on marketing campaigns for the new technology. SK Telecom, the nation’s largest operator, is expecting to offer new cellular plans for up to 1 million customers by the end of the year, many of whom will be using Samsung’s industry-first 5G-enabled Galaxy S10.

Why it’s important: The news comes on the heels of a report issued by research firm Analysys Mason ranking South Korea behind China and the US as leaders in global 5G “readiness.” As it makes headway, South Korea will look to kickstart sluggish economic growth and spark innovation in its tech industries. The nation’s telecom companies have largely managed to stay out of the US-China Huawei dispute, too, as two out of the three largest do not use Huawei gear for 5G infrastructure.

GitHub password dump, UK watchdog report expose holes in Huawei’s cybersecurity

Eliza Gkritsi — Wed, 03 Apr 2019 09:18:12 +0000

The GitHub public post (redacted) that shows Huawei’s LDAP credentials for a Splunk app. (Image credit: Victor Gevers)

Two recent examples of poor cybersecurity practices could weigh heavily on Huawei, as the Chinese tech giant tries to cast itself as a reliable purveyor of international telecom infrastructure to gain ground in the race to 5G.

On March 9, Dutch cybersecurity researcher Victor Gevers revealed that he had discovered a publicly available trove of what appears to be Huawei enterprise network credentials on the open-source software development platform GitHub. The type of credentials posted, which typically grant access to potentially sensitive company data, may have been posted late last year.

Less than a month later, on March 28, the UK’s Huawei Oversight Board (HCSEC) said in its annual report that Huawei’s cybersecurity suffers from “underlying defects” in software development, “bringing significantly increased risk to UK operators.” HCSEC is Huawei’s self-evaluation subsidiary in the UK, working under the oversight of British authorities.

The US government alleges that Huawei poses a national security threat because of its ties to the Chinese government. Any question regarding the company’s ability to competently handle cybersecurity issues could further complicate Huawei’s efforts to win the trust of key governments and potential partners overseas—something it is increasingly trying to accomplish.

“The issue identified applies only on an isolated, virtual test environment. No Huawei or customer networks or data has or will be affected by this issue,” a spokeswoman for Huawei told TechNode in response to queries about the GitHub leak.

Regarding the HCSEC report, a spokesman for Huawei countered some of the claims in the report in an emailed statement that, saying the document had attested that “Huawei’s equipment has no backdoors.”

The same statement highlighted that, in November, the company’s board of directors had set aside $2 billion for a “transformation program” to enhance Huawei’s software engineering capabilities.

Still, the HCSEC report noted that, more than three months since it was announced, the transformation plan remained short on details, describing it as “a proposed initial budget for as yet unspecified activities,” and added that it hadn’t found any evidence to inspire confidence in Huawei’s capacity to successfully carry out the transformation program.

Network access

In the GitHub case, both the post and related account were deleted soon after Gevers publicized his findings on Twitter.

GitHub repositories can only be removed by the author or the site’s moderators. The open-source software development platform only removes content if it infringes on copyright or trademark, or if it “poses a security risk.”

The code posted on GitHub showed the password of an administrator account of a Lightweight Directory Access Protocol (LDAP) for a Splunk app.

LDAP is an open directory standard that provides an interface to access and structure data. The database can contain anything, such as contact lists, but it is commonly used to manage passwords, said Nils Weisensee, founder of Frontier Intelligence, a Shanghai-based cybersecurity consultancy.

The Splunk platform is a big data analytics and visualization tool that companies can use to tailor apps to their purposes. The front-end of a Splunk app is a user-friendly web-style interface that visualizes data analyzed in the back-end, which connects directly to applications and devices to collect, index, analyze, and correlate big data.

The code could not be examined directly by TechNode.

Splunk is commonly used in IoT, business analytics, and security. It has a wide range of applications, including using AI to analyze the data that a company collects, Weisensee explained.

The code on GitHub indicates that the credentials granted access to Huawei’s enterprise network, not a separate test domain. Huawei.com, the enterprise network, is named as the domain controller, the server that controls access to resources; the user shown has admin privileges, meaning it handles all security requests to access the network.

According to standard security practices, if the app were a test, the directory would have identified a separate test network, Gevers said. “You do this because accidents like this can happen. You don’t want anyone to access the enterprise network, because you lose all control,” he added.

“Either they were sloppy and testing in their enterprise network or their enterprise credentials were found online,” he said.

Taken together, the GitHub incident and the HCSEC report shed further light on how security breaches can and do take place, pointing to a lack of understanding of basic cybersecurity principles, even by tech leaders like Huawei.

“These incidents are not inspiring for a company that claims to be secure,” Gevers told TechNode, referring to the GitHub post.

Gevers, the co-founder of the Dutch NGO GDI Foundation, has been the source behind many recent revelations about security lapses involving well-known Chinese companies like Huawei, Alibaba, and SenseNets, as well as a cache of data on 1.8 million Chinese women that included information about their “breedready” status.

The GDI Foundation says that because its aims are to address security flaws with responsible disclosure, not provide hackers with paths into sensitive information, they neither attempted to log onto Huawei’s Splunk app nor publicly revealed the credentials.

Since neither Gevers nor anyone else—to the extent that could be determined by TechNode—tried to use the credentials, there is no way of knowing exactly what doors the data credentials opened.

Screenshots from Gevers show that the file was created on Sep. 1, 2018. It is likely that they were posted around that time on GitHub, said Gevers, meaning that by the time he discovered them they could have been available online for as long as four months. “Those files were there for a long time,” increasing the security risk posed to Huawei, Gevers said.

On March 7, two days before Gevers’s revelations, Huawei sued the US government. In a press conference held at Huawei’s Shenzhen headquarters, the company’s rotating chairman, Guo Ping, claimed that the US government had hacked into the company’s servers and “stolen emails and source code.”

Guo was alluding to a 2014 New York Times investigation that revealed that the US’s National Security Agency was spying on the conversations of Huawei’s top executives and accessing proprietary information about its network equipment.

Lack of understanding

Gevers’s main concern is not backdoors or malicious attacks, but the fact that people employed in positions that touch on security—not only at Huawei—may not be properly versed in cybersecurity principles.

In its report, HCSEC said Huawei’s systems exhibit “extensive non-adherence to basic secure coding practices, including Huawei’s own internal standard,” severely increasing cybersecurity risk. System vulnerabilities may be obscured because Huawei suppresses warnings from static analysis tools, which check source code against programming rules before software is run, and does not properly manage or update software.

Moreover, the HCSEC report found that Huawei uses an old version of a well-known third-party operating system for the key function of processing incoming data flows in real-time, a function similar to Splunk apps. This attracts risk and a single point of failure can compromise the entire OS, the report stated.

According to Weisensee, out-of-date software is a common problem in China. “There is a lot of outdated software in China—pirated software—that is not properly patched,” he explained.

Weisensee pointed out that for companies of Huawei’s size, it is difficult to ensure perfect security. A combination of factors exposes them to high security risks, he said. Most security breaches are due to human error, and Chinese tech giants like Huawei work with many complex databases, departments, and high employee turnover, which makes it easy for things to slip through the cracks.

In Weisensee’s view, it is too big a logical leap to assume that Huawei purposefully left the LDAP credentials on GitHub. “If someone wants to leak access to data, they will do it in a more obvious way.”

Gevers added, “Someone used the Git repository without actually knowing how it works. It’s like having the key to your front door sticking [out from] under the doormat.”

Briefing: China and US tied as leaders in 5G ‘readiness’

Miles Goscha — Wed, 03 Apr 2019 01:56:06 +0000

U.S. and China are now tied in 5G race – Axios

What happened: According to a report issued by research firm Analysys Mason, China and the US are on equal footing as global leaders in 5G “readiness.” Last year, China held first place with the US trailing in third place behind South Korea. But with 92 more 5G deployments planned than competing countries, the US is looking to move quickly against a China that will “roll out really fast when they start,” according to CEO of wireless trade group, CTIA, Meredith Atwell Baker.

Why it’s important: With Huawei already in control of the 4G market in Africa, much of the Middle East, southern Europe and parts of Southeast Asia, it is poised to capture a large portion of the global 5G market despite the US urging countries to boycott the Chinese tech giant over security concerns. And while 5G networks in developed countries may take up to 10 years to roll out completely, China may have already won the race for dominance.

Discussing Huawei in a Chinese coffee shop

Elliott Zaagman — Tue, 02 Apr 2019 02:04:30 +0000

In mid-March, I participated on a panel discussion on the future of Huawei at the annual Bookworm Literary Festival in Beijing.

With me on the panel were Huawei’s Global VP of Public Affairs Joe Kelly and the Wall Street Journal’s Josh Chin. The talk was moderated by Irishman Ian Lahiffe, a China hand who works in agtech.

While it was entertaining for the audience, we were largely unable to make progress in answering the central question of the panel, that being: “Which Way for Huawei?”

Ever since the news of Huawei CFO Meng Wanzhou’s arrest and the US government’s aggressive attempts to go after the firm on a number of fronts, discussing and writing about Huawei has been a bit awkward for me.

I’m not a US national security or cybersecurity expert. I am also not someone actively trying to take sides in what is looking increasingly like—as the Eurasia Group has coined it—a “US-China tech cold war.” I have no opinion or insight as to whether the myriad accusations from the US government towards Huawei are true or not.

When I began writing about Huawei in 2017, my interest in the company had very little to do with politics. Instead, it had to do with Huawei’s people, its culture, and the worldview that seemed to guide it. I had noticed a fairly common disconnect between how positively the company was thought of within China, and its reputation abroad for poor human resources practices, clueless public relations, and shaky legal compliance.

One of the first areas I looked was the employer-review platform Glassdoor, where Huawei had thousands of reviews. While the company’s overall score was generally average or only slightly below (between 3.0 and 3.5 stars out of 5 stars), filtering the results for specific countries displayed a much different picture. For more developed nations in particular, Huawei’s reviews from its employees ranged from mediocre to abysmal.

When sifting through the reviews from foreign countries, some very clear patterns began to emerge. While many mentioned that attractive compensation packages made the company appealing to join, the praise was often overshadowed by complaints which tended to fall along similar lines: A number of them complained of a two-tier system for staff, in which power was held almost exclusively in the hands of Chinese nationals. Many of these Chinese people, according to reviewers, lacked knowledge of or respect for local cultures or laws. Other reviews mentioned violations by Chinese management of local labor laws, racial and gender discrimination, and lack of transparency.

When speaking with over a dozen current and former Huawei employees in preparation for an article, I noticed similar themes. While Huawei’s pay, intensity, and energy was praised, the two-tier system for staff, poor localization practices, and disregard for local laws—particularly employment laws—were often mentioned.

A number of Chinese nationals sent to overseas Huawei offices spoke of a process in which issues would be discussed and decided upon among Chinese expatriate staff, and then a plan would be drafted for what to say to the local staff. “Often the message we would give the local staff was very different from the reality of the situation,” said one.

Another industry expert said bluntly about Huawei, “I cannot think of another company in the world that has such a global presence, but pays so little attention to localization and integration.”

Disregard for the public

Since first writing about Huawei’s culture and overseas operations, I have been regularly contacted by current or former (mostly non-Chinese) Huawei employees who would share their stories of similar complaints.

To be clear, I’m sure that those who chose to speak with me are unlikely to be Huawei’s happiest employees. However, when I discussed such issues with Huawei staff more supportive of the company’s practices, the feedback I received was not denial of the allegations, but more often than not defending such behavior as necessary in order to sustain the company’s success.

As one American entrepreneur who had frequently worked with Huawei teams on cross-cultural training explained to me: “Huawei has preferred to take an approach like a steamroller to the culture issue … They don’t really believe in adjusting to overseas cultures, but just overwhelming projects with resources until they get it done,” he said. “To Huawei, cultural issues are distractions from urgent short-term goals, rather than a long-term challenge to handle.”

In China, localization and integration are famously demanded of foreign companies and individuals who would like to do business there—often rightfully so. It is then therefore troubling to see China’s most globally expansive firms actively disregard those principles when the shoe is on the other foot.

This apparent disregard for the public of the overseas markets in which they operate has been seen in their PR practices in relating to overseas media, from vaguely threatening advertising campaigns and (until recently) notoriously media-shy senior executives, to a 2015 tour of their Shanghai campus in which media members reportedly had their phones and cameras confiscated. According to Angus Grigg of the Australian Financial Review, when reporters on the tour asked about the company’s connections with the Chinese government, they were told that they could not mention the Huawei tour in their articles and that the group of roughly 30 members of the media should leave immediately.

It also seems as though it may be a policy of Huawei’s to say different things to domestic audiences and international audiences, even if they seem contradictory.

As the company’s former US PR chief William Plummer wrote in his book Huidu: Inside Huawei, founder Ren Zhengfei advised Huawei executives in 2014: “In China, state that Huawei strongly supports the Communist Party of China. Outside China, stress that Huawei always follows key international trends.”

If Plummer’s recollection is correct, what he is describing sounds dishonest, or at least disingenuous.

At the Bookworm panel on which I participated, Huawei’s Joe Kelly understandably defended the tendency of his company’s top leaders to avoid communicating with the overseas public because Ren simply did not see it as a top priority or responsibility of his.

In my eyes, I view this to be indicative of disrespect and disregard for the values and interests of the billions of people in the 170 countries where Huawei does business.

Kelly mentioned that “Huawei deals with the Chinese government in the same way that it deals with the German government, the British government, or any other government.” While such a statement may be true in many logistical and administrative respects, such as with permits, licenses, and even in many cases, bidding for contracts, it does not address the fact that single-party states, by their very nature, have a different dynamic between businesses and the party-state than elsewhere.

Even since their more recent PR charm offensive, the company’s statements, while perhaps technically true, fail to authentically build trust.

Statements from Huawei’s leaders that they would reject Chinese government requests for data seem absurd, not simply because they are claiming to be willing to break Chinese law, but also because there are a multitude of ways in which governments can access data without even speaking to executives.

Who is Huawei?

In recent interviews, Huawei executives have spoken about the need for the company to honestly communicate “who they are” to the world.

I think “who Huawei is,” and what the world does or doesn’t know about that, is exactly the core problem here.

As Huawei has strong and growing footholds in future-oriented fields of technology such as 5G, IoT, and smart cities, they and other major tech firms have an increasing say in determining the future of how human societies function. We have already seen, with Facebook and Google, the extent to which those who provide our technologies can impact our lives, for both better and worse. But we also have a fairly clear picture about the cultures that they are built upon and the financial and ideological interests which motivate them. We know fairly well who they are and what they stand for, and we either trust them or don’t trust them because of it.

Both Facebook and Google seem to be acutely aware of the growing pressures to either prove themselves worthy of public trust, or to face existential challenges in the future.

That is less clear with Huawei.

Huawei has long asked the world to rely on them. But increasingly, they are asking the world to trust them. And those are two different things. Whether or not someone is reliable is based on the consistency of their behavior. But trust is about feeling confident that you can understand someone’s heart, someone’s reason for existing, someone’s core values and principles. To have trust for someone or something comes from whether or not you genuinely feel that they believe what you believe, or at the very least respect and understand what you hold most dear.

It seems as though establishing trust with the overseas public has not been a priority in recent years for Huawei. As its importance becomes more urgent, the question is if—or how—Huawei can effectively do this.

Right now, they seem more interested in fighting with the US government than honestly trying to win the overseas public’s trust.

How safety and optics could push Boeing out of China-US trade deal

Junni Park — Fri, 29 Mar 2019 11:28:31 +0000

During President Xi Jinping’s visit to Europe this week, China announced it will buy 300 Airbus jets. Coming as Beijing works to end its trade dispute with Washington, the purchase highlights the politics of aircraft procurement amidst the China-EU-US triangle.

In recent months, Chinese negotiators have been working on a shopping list of US goods to clinch a trade deal. Boeing jets are believed to be a major item on the list. However, following the second crash of a 737 Max in recent months, it is reported that Beijing may seek to exclude the troubled aircraft from any agreement. China’s new, larger-than-expected order from Airbus would seem to support this view.

This latest twist further complicates the task for Chinese negotiators seeking a landing zone for a deal to end the trade war that can be sold to both President Trump and the domestic audience.

It has been reported that China is already finding it challenging to come up with an additional $1.2 trillion of US exports over six years to eliminate the trade deficit. If the 737 Max is dropped from the deal, finding other imports to make up the value will be difficult. However, safety—and optics—will weigh more in Beijing’s calculus. Any deal seen to put the public at risk will just not fly.

Stakes on a plane

Boeing’s 737 Max was grounded in China and then worldwide following the deadly Ethiopian Airlines crash on March 10. The jet likely figured in Beijing’s plan to appease Washington by eliminating the trade deficit—which basically boils down to buying things China needs anyway and cannot easily produce itself. Agricultural and energy products also fit the bill.

There is certainly demand for aircraft like the 737 Max. Boeing forecasts China’s growing aviation market will need 7,700 jets over the next 20 years. Three quarters of that figure are expected to be narrow-body aircraft such as the 737 Max, which starts at around $100 million.

For Chinese airlines, aircraft procurement largely comes down to a choice between Boeing and Europe’s Airbus. Government agencies and geopolitics heavily influence decisions. As Boeing positions itself for a trade deal windfall, Airbus is also seeking a big order of narrow-body jets from Beijing. Both aviation giants are expanding their manufacturing footprint in China.

After Chinese orders ground to a halt in 2018, Boeing had seemed poised to win big as Beijing sought to resolve the trade war. Some suggest the deal could include orders for Boeing jets totaling more than $10 billion. However, the reported deal-in-progress has hit turbulence as safety concerns enshroud the 737 Max.

Safety concerns certainly factor in China’s policy towards the 737 Max, both in the initial decision to ground the plane and then whether it should be part of any trade deal. But Beijing’s calculation is also shaped by the leadership’s need to sell the deal to its domestic audience.

President Xi has made himself “boss of everything” and raised expectations of China’s status as a “strong country.” He cannot be seen as caving in to Trump’s demands, especially on an issue of public safety. Historical memory of “unequal treaties” make Beijing especially sensitive to looking weak in negotiations.

This is all the more so given public sensitivity to aviation disasters. Emotional scars remain from the disappearance of Malaysia Airlines Flight MH370, unsolved after five years. Most of its passengers were Chinese. Since public outcry over the Wenzhou high-speed rail crash in 2011, transport safety has become a legitimacy issue for the government.

Excluding the 737 Max from China’s shopping list would leave a difficult gap to fill. However, on the plus side, it helps the leadership frame any eventual deal as being on China’s terms, with bonus points for protecting the people—or at least the key constituency rich enough to worry about air travel.

Later, if a deal is done and the 737 gets a clean bill of health, the Chinese government can quietly green light procurement without the risks attached to including the aircraft in a high-profile deal with the US.

Not ready for take-off

If concerns around the 737 are not resolved soon, there will be an opportunity in the narrow-body jet market.

Airbus is the obvious beneficiary. The Chinese order unveiled this week consisted of mostly A320 planes, a direct competitor of the 737. The A320 is well-established and trusted by airlines around the world. However, production of the A320 is already at full capacity with a several-year backlog. This presents a gap for potential newcomers.

Civil aircraft have been a priority in China’s industrial strategy for decades. In the long term, the Chinese government aims to supply more of its own market, and those overseas, with homegrown aircraft. However, for now, China’s domestic aviation industry is not yet ready to step up to the plate in a big way.

The maiden flight of the COMAC C919, which took place in 2017, was China’s first attempt to gain a foothold in the narrow-body jet market. This was a big step for China’s aviation industry. But the aircraft has yet to be certified even at home and is not due to enter full operation until 2021. Challenges remain before the C919 is ready for large-scale roll out with a robust network for maintenance, repair and overhaul.

Aviation is a long game. The 737, the best-selling jetliner in history, has not changed much since debuting in the late 1960s. In decades to come, the C919 and other Chinese jets in the pipeline may well come to rival Airbus and Boeing in skies around the world.

Huawei’s revenue tops $100 billion on strong phone sales, carrier business drags

Wei Sheng — Fri, 29 Mar 2019 09:05:18 +0000

Is Huawei facing global scrutiny over the security of its 5G gear? Hard to tell with the strong results the telecommunications giant saw in 2018, based on its 155-page annual report released Friday.

Despite troubles that began with an August ban of its equipment by the US government, Huawei revenue grew 19.5% year-on-year to RMB 721.2 billion (around $107.3 billion) in 2018. Net profits surged 25.1% year-on-year to RMB 59.3 billion.

The company’s sales revenue from its consumer business grew 45.1% during the year to RMB 348.9 billion. As a result of a US-led boycott of its 5G equipment over security concerns, Huawei’s carrier business weakened 1.9% to RMB 294 billion, compared with a 2.5% increase the year before. As of Friday, three countries including the US, Australia, and New Zealand have banned Huawei from providing equipment for their 5G networks. A report issued Thursday by a UK government agency saying Huawei has done little to address previously identified security flaws added fresh concerns to the embattled telecom equipment maker.

Huawei invested RMB 101.5 billion, or 14.1% of its sales revenue, in research and development, ranking fifth globally in “The 2018 EU Industrial R&D Investment Scoreboard,” the report said. The Shenzhen-based firm owned 87,805 patents as of end-2018, of which 11,152 were granted in the US. “Our technological patents are valuable to the information societies worldwide, including the United States,” Huawei stated in the report. Huawei’s patent filings in the US, like other Chinese tech and telecom companies, reflect steep growth in research and development investments amid a government-led push for global technological leadership.

Huawei has secured over 30 commercial 5G contracts with global telecoms operators up to the end of February 2019, with more than 40,000 5G base stations being shipped to all over the world.

“Through heavy, consistent investment in 5G innovation, alongside large-scale commercial deployment, Huawei is committed to building the world’s best network connections,” said Huawei Rotating Chairman Guo Ping at the release of the annual report. Huawei will continue to strictly comply with all relevant standards to build secure, trustworthy, and high-quality products throughout this process, Guo added, a nod to the ongoing battle for its reputation.

The company’s enterprise business revenue grew 23.8% to RMB 74.4 billion by providing services like cloud storage, big data, and solutions for the internet of things (IoT).

Briefing: China offers free-trade zone for foreign cloud providers in US trade talks

Eliza Gkritsi — Fri, 29 Mar 2019 02:46:53 +0000

China Floats Cloud Concession to Foreign Tech Firms in U.S. Trade Talks – The Wall Street Journal

What happened: Chinese Premiere Li Keqiang briefed on Monday about 36 heads of foreign corporations, including IBM and BMW, on a proposal which will open up the country’s cloud computing market by allowing foreign tech companies to own data centers in China in a pilot free-trade zone. The pilot program is part of a larger compromise Beijing is pursuing to ensure a trade deal with the US. Until now, China had refused to budge on its cloud computing restrictions, citing national security, despite pressure from international tech giants and the US government.

Why it’s important: Data localization laws are notoriously strict in China, especially after a new cybersecurity law that came into effect in June 2017 which regulates data flow and storage facilities. Foreign cloud providers like Apple and Amazon must either partner with a local company and license their technology and data, or give up on China’s market altogether. The pilot proposal is a discretionary concession, under which the government will maintain control over the cloud industry but unleash some forces of liberalization. Beijing hasn’t addressed whether it will allow data to flow freely from the zone to the rest of the country.

Briefing: Pompeo ‘hopeful’ that EU countries will shun Huawei

Eliza Gkritsi — Thu, 28 Mar 2019 03:12:31 +0000

U.S. made progress in convincing EU on Huawei technology risks: Pompeo – Reuters

What happened: In his testimony to Congress on Wednesday, the US Secretary of State said that he is “hopeful” EU countries would follow US advice and shun Huawei from their 5G networks. He added that progress has been made convincing them and that the US will not partner with or share intelligence with countries which use Huawei equipment.

Why it’s important: The statements come two days after a deal-packed meeting in Paris between China, France, Germany, and the EU Commission which paved the way for strengthened EU-China relations. The US has been trying to exclude Huawei from building next-generation internet infrastructure around the world. Europe is a key battleground due to its market size and 5G readiness. Germany launched its 5G spectrum auction on Mar. 19, refusing Washington’s request to ban Huawei. The Chinese telecoms giant is fighting back with a global public relations campaign and a lawsuit filed Mar. 7 against the US government for banning its agencies from using Huawei equipment.

Briefing: Chinese firm looking to sell Grindr after US raises security concerns

Miles Goscha — Wed, 27 Mar 2019 15:41:01 +0000

Told US security at risk, Chinese firm seeks to sell Grindr dating app – Reuters

What happened: The owner of popular LGBTQ dating app Grindr has canceled plans for the app’s IPO and is now seeking to sell it at auction after the Committee on Foreign Investment in the United States (CIFUS) said its ownership poses a national security risk. Gaming company Beijing Kunlun Tech bought Grindr in 2016 for $93 million but never submitted its acquisition for CIFUS review, which made committee action possible even years after the purchase was completed. Grindr has hired investment bank Cowen Inc. to spearhead the sale.

Why it’s important: While CIFUS has not commented on its rationale for undoing the acquisition, this is not the first time it has blocked the purchase of US companies by Chinese firms. According to Jason Waite, a partner at law firm Alston & Bird LLP focusing international trade regulations, “Personal data has emerged as a mainstream concern of CFIUS.” Grindr collects a broad range of information it about its users, including location and sometimes HIV status, and has come under fire by privacy advocates.

Briefing: Google CEO to meet Pentagon top brass over company’s AI work

Chris Udemans — Wed, 27 Mar 2019 09:06:00 +0000

Google’s AI Work in China Spurs CEO Sitdown With Pentagon Brass – Bloomberg

What happened: Google CEO Sundar Pichai will meet with General Joseph Dunford, chairman of the Joint Chiefs of Staff, the highest-ranking military advisory committee in the US, to discuss topics that will likely include Google’s work in China. The search giant invited Dunford to the meeting after he said that Google’s work in China benefits the Chinese military.

Why it’s important: Dunford previously referenced a Google AI lab that the company opened in China in 2017. US President Donald Trump picked up on the senior military official’s comments, tweeting that Google is “helping China and their military, but not the US.” Google denied the claims. The conflict, which poses a risk to the company’s cloud-computing business, has arisen in part because both China and the Pentagon are potential buyers of Google’s services. The company has tested a filtered search engine for the Chinese market but has also turned down or terminated contracts with the US military and Department of Defense, leading to the accusations that the company is, directly or indirectly, helping China.

Nvidia-Mellanox deal underestimates China anti-monopoly risk

Rami Blachman — Wed, 27 Mar 2019 02:45:18 +0000

Eyal Waldman, co-founder and CEO of Israel-based Mellanox, who earlier this month sold his company to California-based chipmaker Nvidia for $6.9 billion, got no phone call from Prime Minister Benjamin Netanyahu, an ardent nationalist who is known to congratulate Israeli entrepreneurs who make a financial exit.

Waldman does not shy away from controversy in his country. In the midst of one of Israel’s most divisive election campaigns, Waldman took heat from hardline activists after reminding the Israeli public that Mellanox has dozens of Palestinian employees in the occupied West Bank and even in the isolated Gaza Strip. “It’s a win-win situation—we need the talent and it helps the Palestinian economy,” said Waldman.

Yet this is the least of Waldman’s worries: the more daunting challenge he faces is integrating the company he founded in 1999 with Nvidia and clearing regulatory hurdles—particularly in China. With these uncertainties in mind, the deal is expected by its chaperones to close at the end of 2019. But not everyone is comfortable with the risk: New York-based activist investment fund Starboard decided to sell its entire holding in Mellanox in February, ahead of the deal’s announcement.

With 24% of Mellanox’s $1.1 billion in 2018 revenue earned in China, Mellanox faces the idiosyncrasies of Chinese anti-monopoly regulators. In the politicized atmosphere of the US-China trade spat, it’s even harder to anticipate if China will allow a deal in the sensitive semiconductor industry.

Sound business

By joining forces, Nvidia and Mellanox are betting that together they are better positioned to win over large corporate data centers, especially those working on AI and mega databases. Nvidia’s cash cow in the past several years has been selling graphics processing units to video gamers and miners of cryptocurrency, but in the fourth quarter of 2018 Nvidia’s gaming unit took a big hit with revenues sinking 45% year-on-year. As this business slows, Nvidia CEO Jensen Huang is betting $7 billion that the synergy will set Nvidia on a new course.

He told Bloomberg that data centers in the future will increasingly be built as though they are single giant computers. These computers process reams of data for artificial intelligence that power anything from image recognition to self-driving cars “with tens of thousands of compute nodes,” requiring Nvidia’s coprocessors in cloud installations and Mellanox’s inter-connections. The result, according to Huang, is warehouses full of more effective and efficient servers that work in parallel.

Mellanox’s chips power high-speed networks connecting servers. The company’s switches, adapters and other interconnection hardware are crucial components in transferring information both within and between computer servers that make up corporate data centers and Internet-based cloud services. Together the two companies hope to produce what Huang labels “next-generation datacenter-scale computing solutions.”

About a quarter of Nvidia’s revenue comes from data centers, yet despite its best efforts, growth in this business has been fraught with difficulty. “In data centers, revenue… came in short of expectations,” the company announced in January, due to softness in demand from China and from the large cloud providers such as AWS, Microsoft Azure and Google Cloud. Nvidia thinks that Mellanox will expand its reach and create new sales channels.

But risky politics

Both Waldman and Huang appear certain about approval by China’s State Administration for Market Regulation: According to Mellanox’s report to the SEC, Nvidia has promised to pay Mellanox $350 million if the deal is struck down by regulators.

They have a strong economic argument: Nvidia is not buying a competitor, but taking over a company with a complementary product, which ought not antagonize the trust busters. But China’s approval is far from guaranteed: it could wield its antitrust power to strike back at the US in the trade war.

China’s Anti-Monopoly Law came into force 10 years ago, but its current enforcer was created only a year ago when three antitrust bodies were consolidated into SAMR. Its scant track record makes forecasting the decisions of the Chinese regulator nearly impossible, adding to the uncertainties surrounding the deal.

Politically too, the deal does not appear to land in the trade war line of fire. Government watchdogs in both the US and China are busy safeguarding their telecoms infrastructure and want to prevent the other side from using equipment to install a “backdoor” to computer systems or encrypted data that bypass security mechanisms. The US government accuses Huawei of using these mechanisms to collect intelligence on America and its allies. But the systems affected by the deal are used for computing inside data centers, not for communications across the Internet.

Beijing’s desire for an end to the conflict could make it lenient. President Xi Jinping said in December that he would consider approving the previously rejected Qualcomm bid for chip rival NXP were it presented to him again. Another indication of China’s peacemaking mood is its approval in February, after almost a year of deliberations, of US company KLA-Tencor’s $3.4 billion acquisition of Israeli electronics maker Orbotech. By then the deal had been approved by regulators in South Korea, Israel, the US, Taiwan and Japan, where the companies also operate.

But as long as the trade negotiating teams continue their deliberations, the Nvidia-Mellanox deal could fall prey to posturing as the Chinese side attempts to make a last-minute coup de force to the American counterparts.

Huang’s business rationale may prove to be wishful thinking that does not give enough weight to political considerations. China has made it a national priority to build out domestic chip manufacturing and the consolidation of foreign suppliers goes counter to its national interest. Government is one of the biggest buyers in areas such as energy and defense, which may skew the decision-making process against the deal.

This will not be the first time American companies fall prey to a simplistic view of China based on uninformed, emotional interpretations. After betting big on Chinese approval of the deal, Jensen and Waldman may wake up later this year to realize that they took on a lot more risk than they anticipated.

Briefing: China lags behind US in high-tech unicorns

Chris Udemans — Tue, 26 Mar 2019 05:44:21 +0000

China no match for US unicorns in AI, big data and robotics as it continues to play catch-up in R&D, says Credit Suisse – South China Morning Post

What happened: Despite China producing nearly one-third of the world’s startups valued at more than $1 billion, the country’s share of high-tech unicorns is far smaller than that of the US, according to a report by Credit Suisse. The report said that China accounts for just 14% of unicorns in sectors that require advanced research abilities, including artificial intelligence (AI), big data, and robotics, compared to the US with 40%.

Why it’s important: Artificial intelligence and robotics form an important part of China’s technological development plan. The country aims to move up the industrial value chain through its Made in China 2025 initiative and become a leader in AI by 2030. However, according to Credit Suisse, the country is a relative newcomer to the “games of R&D and innovation.” Its report said that nearly half of all Chinese unicorns are internet and e-commerce companies, and the main focus is business model innovation, not new technological products.

Briefing: Pentagon talking to Huawei rivals Ericsson, Nokia about 5G – official

Wei Sheng — Tue, 26 Mar 2019 05:23:21 +0000

Pentagon eyeing 5G solutions with Huawei rivals Ericsson and Nokia: official – Reuters

What happened: The US Department of Defense is talking to Huawei rivals Ericsson and Nokia about its 5G development plans, according to Ellen Lord, the Pentagon’s chief weapons buyer. The US is also laying the groundwork to develop its own technology to support 5G-enabled communications, Lord said. She added that the military-to-military discussions about future 5G networks were going well for the United States, with many European allies “leaning forward” to engage in a dialog on its development.

Why it’s important: Following its August ban of Huawei equipment purchases citing security risks, the US government has also warned European Union members about using Huawei technology, which it said could undermine transatlantic military and intelligence co-operation. The European Commission will ignore US calls to ban Huawei equipment and leave it to individual countries to decide on national security grounds while recommending that members share more data to tackle cybersecurity risks related to 5G networks, according to Reuters.

Briefing: AT&T CEO accuses Huawei of blocking European carriers from shifting 5G suppliers

Eliza Gkritsi — Thu, 21 Mar 2019 06:15:28 +0000

AT&T CEO says China’s Huawei hinders carriers from shifting suppliers for 5G – Reuters

What happened: On Wednesday, Randall Stephenson, AT&T’s CEO said in a speech in Washington that Huawei is making it very difficult for European internet carriers to drop the Chinese tech giant from their supply chains for 5G. “If you have deployed Huawei as your 4G network, Huawei is not allowing interoperability to 5G—meaning if you are 4G, you are stuck with Huawei for 5G,” he said, adding that the US government could do a better job of explaining security risks related to using Huawei.

Why it’s important: Stephenson’s statements add to the brewing row between Huawei and the US. As the Chinese company tries to convince foreign governments to allow internet carriers to use its equipment in building the next generation of the internet, Washington is advocating that this would come with huge security risks. Europe is a key battleground due to its market size and 5G readiness. The discord has mainly revolved around data privacy, but Stephenson’s remarks point to national security risks related with IoT infrastructure.

Briefing: Li Feifei to lead Stanford institute for ‘human-centered’ AI

Chris Udemans — Wed, 20 Mar 2019 04:31:27 +0000

Stanford University launches the Institute for Human-Centered Artificial Intelligence – Stanford University News

What happened: Former head of Google AI’s China Center Li Feifei will lead Stanford University’s Institute for Human-Centered Artificial Intelligence with the university’s former provost John Etchemendy. The institute aims to advance AI research, education, and policy in order to “improve the human condition.” It will focus on the societal impact of AI and designing applications to augment human capabilities, among others.

Why it’s important: The move comes amid broader concerns over the effects of AI on society. Li has been grappling with these concepts for some time. In early 2018, she wrote an op-ed for the New York Times in which she expressed her concern that enthusiasm for the technology is preventing a level-headed look at its effects on society. Leaders of some of China’s biggest tech companies have expressed similar opinions. At the Two Sessions, China’s annual meetings of its national legislative and political advisory bodies, Baidu CEO Robin Li and Tencent head Pony Ma called for ethical rules governing the development of AI. Robin Li also asked the government to participate in the global conversation about AI ethics.

Briefing: Google denies working with the Chinese military

Chris Udemans — Mon, 18 Mar 2019 03:57:04 +0000

Google denies working with the Chinese military after Trump criticism – NBC News

What happened: Google has denied claims it is working with the Chinese military following public criticism from US President Donald Trump, who tweeted on Sunday that the company is “helping China and their military, but not the US.” Trump’s remarks came just days after Joseph Dunford, chairman of the Joint Chiefs of Staff, the highest-ranking military advisory committee in the US, testified before Congress that China is benefiting from Google’s involvement in the country.

Why it’s important: Trump’s comments highlight a sore point. He obviously views Google as not having fallen in line with his “America first” rhetoric. The company has opted to drop a contract to help the US military analyze aerial drone footage. It has also said it would no longer pursue a $10 billion cloud computing deal with the Department of Defense, saying its ethical guidelines aren’t aligned with the project. Meanwhile, Google has been exploring a China-focused search product dubbed “Project Dragonfly.” The company says it has no plans to launch the search engine, although work seems to be ongoing, as Google eyes the world’s largest internet population.

What Facebook needs to learn from WeChat’s group-chat pains

Rui Zhong — Fri, 15 Mar 2019 06:27:45 +0000

When Facebook’s Mark Zuckerberg outlined plans to merge Whatsapp, Instagram, and Facebook’s flagship platform into a small group-focused network, it immediately drew comparisons to WeChat.

“With all the ways people also want to interact privately, there’s also an opportunity to build a simpler platform that’s focused on privacy first,” Zuckerberg wrote in a post titled “A Privacy-Focused Vision for Social Networking.” He claims that in addition to a digital “town square,” people “also want to connect in the digital equivalent of a living room.” Facebook is trying to address concerns about privacy and misinformation on the platform—but small groups do nothing to improve the quality of information users share.

Just look at WeChat to see small groups in action. Allen Zhang, the founder of WeChat, built most its multitude of functions out of intuitions about how groups on the platform work. Zhang, a user-experience design obsessive, recently gave a four-hour speech on his design philosophy, in which he talked about cultivating a space as friendly and familiar to users as “an old friend.”

WeChat has a misinformation problem of its own: friend-sourced content isn’t necessarily factual, objective, or higher quality. Zuckerberg’s assumption that a digital living room will stop misinformation is misleading. This change will simply hide some of the present information problems, as WeChat’s own problems show.

Neither Zhang nor Zuckerberg seems to understand the political and cultural spaces that they’ve created. Neither Facebook nor Tencent are government agencies—but both corporations handle information, data, and decisions that are increasingly political.

Lies in living rooms

According to a report by the Tow Center, 79% of US-based WeChat users use it as a primary source for political information. In political campaigns with candidates of Chinese descent, WeChat has also become a political clearinghouse that can foster “digital intimacy” between candidate and voter, and can personally field voters’ policy questions within politics-related group chats. Most of these fast-paced, strongly worded conversations are difficult to find out and track without group membership.

Chinese government regulators censor all WeChat data. But even after content goes through censorship filters, information on WeChat remains siloed within groups.

WeChat’s most active communications channels are person-to-person and group chats, as opposed to more public-facing walls that fueled Facebook’s rise.

Within these groups, members pass along viral articles, allowing rumors to spread just as quickly as in a Facebook news feed. For example, a news item about a driver with an expired visa fatally hitting a Chinese jogger quickly turned into the misleading headline “Kill a Chinese person, get a green card.”

Given Wechat’s current content standards, stories like the traffic accident headline wouldn’t necessarily register as a high-priority information problem. Wechat prioritizes content deemed politically sensitive to Chinese authorities, and sensitive current events, including critical excerpts of U.S. lawmaker speeches.

Self-appointed fact checkers have emerged to challenge falsehoods on WeChat, but despite their efforts chats are fast-moving and tend to lump together reliable and unreliable sources . Because group membership is the only way to truly locate the memes, false health advertisements, and hate speech circulated, the few fact-check reports produced by volunteers must be forwarded to groups in order to counterbalance bad information in the first place.

Further, since private information ecosystem are invisible to non-members, it’s almost impossible to know exactly how much damage misinformation campaigns have done. For media organizations and government entities already struggling to combat bad information, false information campaigns previously shared in publicly observable spaces will go into hiding.

Moderation tools within WeChat groups remain limited, as well, and group admins have no control over what information is shared. Instead, they are simply given a tool to boot troublesome users and responsibility for all communications within the group.

Lessons for Facebook

WeChat-like group chat won’t solve the problems that are plaguing Zuckerberg in the digital town square. With a souped-up group interface, it will be even more of a challenge to pinpoint and manage the spread of hate speech and curb foreign political influence on the United States.

While the idea of having users engage with smaller peer groups is a nice sounding idea, WeChat’s current iteration of the “digital living room” demonstrate that misinformation can thrive in smaller environments as well. Without considering the myriad misinformation problems that group-based platforms cannot easily resolve, Zuckerberg risks simply sweeping bad information under the rug. There, it would sit untraceable until the next time hoax-inspired violence resurfaces.

Facebook’s suite of messaging apps matter to more nationalities than WeChat, which still primarily serves mainland Chinese, at home and overseas. Facebook’s handling of misinformation overseas has been clumsy: insufficiently answered questions linger about its role in anti-Rohingya violence in Myanmar.

Zuckerberg’s proposed changes to Facebook’s messaging tool kit must learn from the reality of WeChat—or risk fanning the flames of future upheavals. Lofty mission statements about connecting people aside, both Facebook and WeChat should remember that their design decisions affect the news intake, security, and wellbeing of billions.

Briefing: China holds the highest number of blockchain patents

Eliza Gkritsi — Thu, 14 Mar 2019 07:45:36 +0000

Data: China has the most blockchain patents, despite banning cryptocurrency – The Next Web

What happened: The Next Web analyzed data made available by the UN’s World Intellectual Property Organization (WIPO) and found that, to date, the majority of patents related to blockchain technologies were approved in China, followed closely by the US. However, Chinese entities were not among the top four institutions holding patents; Alibaba ranked fifth. Americans dominate the top 15 companies whose applications were granted. The total number of approved patents skyrocketed in 2017, when 917 blockchain-related patents were granted. In 2018, during the bitcoin crash, the number of patents continued to increase. It is unclear how many of the patents are related to virtual currency or other blockchain applications.

Why it’s important: Blockchain is increasingly relevant, especially for banks. Global spending on blockchain technologies is expected to reach $12.4 billion by 2022, most of which will be used for finance, particularly cross-border ($453 million) and trade ($285 million) payments, according to US market intelligence firm International Data Corporation. As with patents, the US will spend the most ($1.1 billion), followed by Western Europe ($674 million) and China ($319 million). Patents are important for protecting intellectual property in this burgeoning sector, especially for ambitious companies participating in a global economy. China banned cryptocurrency exhanges and initial coin offerings (ICOs) in 2017. However, following a 2014 Supreme Court decision, it is US law that poses the strictest scrutiny to patent requests which apply an abstract idea via computing, such as the distributed ledger.

Briefing: Chinese AI research on track to surpass US, says study

Miles Goscha — Thu, 14 Mar 2019 01:58:03 +0000

China may overtake the US with the best AI research in just two years – MIT Technology Review

What happened: A new study from US-based Allen Institute for Artificial Intelligence, or AI2, has found that the US will lose its lead to China in the most-cited 50% of research papers this year, and the top 1% by 2025. Using its AI-powered Semantic Scholar tool, AI2 examined more than 2 million research papers originating in China according to the number of citations they receive in other work. Kai-Fu Lee, a Chinese AI investor, thinks “the time horizon is farther out,” but all signs point to China cementing its place as the world’s AI powerhouse.

Why it’s important: Findings like this largely confirm that China is on track to achieve its goal of matching the US in AI expertise by 2020. As the Trump Administration seeks to cut America’s science funding, the technological divide between the two countries could widen at an accelerating pace. The Chinese government has taken up a central role in AI research, with government-affiliated AI research papers increasing 400 percent in the last 10 years. It remains to be seen if the US will answer back before it falls behind in a race that stands to affect nearly every facet of life for years to come.

Briefing: More Chinese in US blocked from working on key technologies

Eliza Gkritsi — Wed, 13 Mar 2019 03:06:01 +0000

Casualties of trade war: Chinese in US denied licences to work with sensitive technologies – South China Morning Post

What happened: Chinese nationals working tech jobs in the US with national security implications are increasingly being denied government licenses to do so, SCMP reports. “Deemed export” licenses allow non-US nationals access to otherwise classified technology, more than half are generally approved. But as the US-China trade war plods on and bi-partisan concerns linger about China as a competitor in technological dominance, Chinese nationals are seeing their licenses expire without renewal or are being denied licenses altogether. The trend is likely to continue, Doug Jacobson, a lawyer who specializes in the licenses, told SCMP.

Why it’s important: As the trade war continues, concern deepens in Washington D.C. about the presence of Chinese nationals close to home. Reports about spies frequently surface in American media. Approximately one out of every 350,000 Chinese who study in the US seek insider access to its science and technology for China’s benefit, experts told CNN in February. FBI Director Christopher Wray testified before the Senate Intelligence Committee the same week that Beijing was recruiting spies at American universities.

Briefing: Seeking to reassure, Huawei opens cybersecurity center in Brussels

Eliza Gkritsi — Wed, 06 Mar 2019 03:30:41 +0000

Huawei opens Brussels security lab in bid to reassure EU – AP News

What happened: Huawei opened a new lab in Brussels on Tuesday where government, industry, and standards institutions will collaborate on cybersecurity research. Internet and wireless client companies will be able to test the Chinese tech giant’s network equipment on the lab grounds. To facilitate this bid at transparency, Huawei will make available its source code, Huawei global cybersecurity and privacy officer John Suffolk told AP News. The lab has been interpreted as an attempt to convince European governments that the company’s 5G equipment is safe to use due to its proximity to the EU Commission, which has criticized Huawei in the past. The Commission was cautious in its response, emphasizing “reciprocity in terms of market openness” and that the EU is “rules-based.”

Why it’s important: The US has been trying to undermine Huawei’s bid to build 5G infrastructure around the world, claiming that the firm’s ties to the Chinese government pose a security threat to the nations that take up its offer. Huawei continues to eye other markets despite the Trump administration’s staunch campaign and a ban on US federal agencies using Huawei products, for which the Chinese company is allegedly planning to sue the White House. The EU is a key battleground; it is Huawei’s biggest market outside China, and has prioritized 5G development as part of its Digital Single Market initiative.

Briefing: Mastercard teams up with online clearing house to retry China entry

Nicole Jao — Mon, 25 Feb 2019 04:04:31 +0000

Mastercard Renews Effort to Enter Chinese Market – WSJ (paywall)

What happened: American credit card company Mastercard is partnering with Chinese online payment clearing house, NetsUnion Clearing Corp or Wanglian, a company with close ties to the regulator in charge of approving credit card businesses. Mastercard plans to hold a majority stake in the new joint venture, though no formal agreement has yet been signed.

Mastercard will reportedly refile its application to set up a card-clearing service in the country with the People’s Bank of China after establishing the JV.

Why it’s important: Mastercard has seen little progress in its attempts over the past several years to crack the vast transaction clearing market in China, known for of discriminating against foreign credit card companies. Its smaller rival, American Express, took a similar route and won approval to set up card-clearing services as a JV with a Chinese fintech firm in November.

The entrance of Mastercard would channel more competition to China’s online payment clearing market, which is currently dominated by China UnionPay and online payment platforms like Ant Financial’s Alipay and Tencent’s TenPay.

NetsUnion, launched in 2017, is supervised and partially owned by Central bank-affiliated institutions.

US unicorn Branch moves into China, looks to fill B2B solutions gap

Emma Lee — Fri, 22 Feb 2019 11:57:57 +0000

Jason Li, China director of Branch (Image credit: Branch)

China’s citizens are fully connected, but its enterprises are still in the early stages of digitization.

E-commerce and mobile payments are major drivers of the tech industry, but, increasingly, Chinese startups and tech giants are shifting their focus to business-to-business (B2B) products. The sector shift is attracting prominent startups from abroad, including US unicorn Branch.

Founded in 2014 by four Stanford graduates, Branch is a mobile marketing company that uses a deep linking solution to seamlessly integrate core marketing channels such as email, social media, and ads. It enables businesses to drive organic growth by connecting users to relevant app content.

Deep links are internet links that point to specific content inside an app rather than just the homepage. Without a deep link, locating a certain product involves multiple steps from finding the app in the App Store or Play Store, opening the homepage, locating the search function, before finally searching for the desired product.

Instead of directing users to a homepage, Branch redirects them from a website, promotion email, or a friend referral in messaging apps to a specific page of product or service. This B2B product helps businesses achieve higher user conversion and retention by providing a seamless redirecting experience.

Deep linking is a complex landscape for developers because it involves many different standards, which work differently across platforms. Branch combines every standard into a single package, thus deferred deep links can effectively route users even if the app is not installed.

Branch was one of the first movers during the industry transition from web to apps, and now powers over 50,000 applications. These include Airbnb, Pinterest, Slack, Amazon, and Tinder. “Over half of the top 200 apps are using Branch links, ” Jason Li, Branch’s China country director, told TechNode.

The Silicon Valley startup reached unicorn status in late 2018 after receiving more than $100 million in its Series D funding round, led by the venture capital firm founded by Android co-founder Andy Rubin. Its total funding is now $242 million, according to Crunchbase.

While deep linking is a useful tool, it’s not a novel technology. The market is riddled with competition, so Branch is expanding into mobile measurement, using its deep link infrastructure and data. By providing a service to help advertisers track their customers and to optimize their campaigns, it hopes to stay ahead in the B2B game.

Crossing the Pacific

What is more, Li described how the startup is planning to launch in China at the end of March. The unicorn is a stark example of where Chinese tech is underdeveloped, and why its San Francisco counterparts are moving in.

“China’s B2C mobile internet market is probably leading the game global wise, but China’s enterprises are way behind the Western counterparts in terms of business management and operation,” said Li.

The rising marginal cost for attracting individual users and fierce competition in business-to-consumer (B2C) verticals are the main reasons driving China’s tech industry towards B2B services, he continued. There is great opportunity in the sectors of CRM, recruitment, stock exchange solutions, and others, he added.

In 2018, B2B comprised almost 40% of Chinese startups, overtaking e-commerce as the most popular sector, according to a national business report by NetEase Cloud and startup database IT Juzi.

Image credit: TechNode/Emma Lee

Even before officially launching, Branch has locked in several Chinese clients. These are transnational e-commerce platform Global Egrow, B2B e-commerce operator DHgate.com, Android developer APUS, fitness and workout trainer Keep, and airline Cathay Pacific.

“Chinese companies are seeking growth through ‘rough’ methods. They rely heavily on the advertisement for overseas expansion, while US firms strive for organic growth through omnichannel coverage from mobile web, email, word-of-mouth, etc.,” Li says. These require specialized solutions, which have birthed a developed B2B industry in the US.

Services and team are the two major differentiators of Branch in facing competition from global and Chinese rivals, according to Li. “We will provide premium services to clients, responding within 2 hours when they have inquiries. On top of that, we got an experienced team coming to form Salesforce, LinkedIn, Gartner, etc.,” he added.

“In China, we going have an entirely different product portfolio for Chinese market specifically. We also consider to build a local R&D team, local product manager in China in the future,” he added.

Branch’s first targets are Chinese companies looking to expand overseas. The firm is planning to tap China’s local market toward the end of 2019 or early 2020.

Briefing: Top UK official defends Huawei’s bid for 5G

Eliza Gkritsi — Thu, 21 Feb 2019 03:31:18 +0000

Ciaran Martin’s CyberSec speech in Brussels– UK Cyber Security Centre

What happened: Ciaran Martin, Director General of Cyber security for Britain’s Government Communications Headquarters, defended Huawei’s bid to develop 5G networks. In a speech in Brussels on Wednesday, he confirmed an anonymous report published in the Financial Times earlier this week, saying that UK authorities have been mitigating potential threats to networks from Huawei for 15 years and that their regime is “arguably the toughest” in the world. He added that this is a question of setting a national standard, and not indicative of hostile activity from China.

Why it’s important: The US is trying to push Huawei out of the race for 5G, claiming that its links to Beijing pose national security risks. Some governments are convinced, others remain doubtful. New Zealand is carrying out an independent assessment, whereas German authorities released a preliminary ruling in favor of Huawei on Tuesday. The UK and New Zealand rulings could sway other countries because they are privy to sensitive US intelligence as members of the Five Eyes intelligence alliance. The Chinese tech giant is a key element in the US-China trade talks, and it is unclear how its 5G stake will affect the negotiations. Earlier this week Huawei’s founder, Ren Zhengfei, said the firm would not carry out espionage, even if it meant defying Chinese law.

Briefing: China abandons cybersecurity truce with US

Chris Udemans — Wed, 20 Feb 2019 03:12:32 +0000

China Has Abandoned a Cybersecurity Truce With the U.S., Report Says – Bloomberg

What happened: China has largely abandoned an Obama-era hacking truce with the US. The agreement led to a slowdown in Chinese hacking in 2015, but the effects of the truce have been reversed, according to cybersecurity firm Crowdstrike, which recently released a report reviewing US rivals’ cyber activity. A representative from the company said that hacking activity resumed in 2017, and reached a peak in 2018. Crowdstrike expects the heightened activity to continue.

Why it’s important: The report comes as the US and China seek to reach a trade deal ahead of a Mar. 1 deadline. Chinese hackers targets included telecommunications infrastructure, currently a sensitive issue as the US and its allies attempt to limit the deployment of Chinese-made 5G equipment. Huawei has borne the brunt of the increased scrutiny for its alleged ties to the Chinese government, prompting concerns over the security of its infrastructure.

Briefing: UK says Huawei poses ‘limited’ risk to 5G

Eliza Gkritsi — Tue, 19 Feb 2019 04:24:52 +0000

UK says Huawei is manageable risk to 5G – Financial Times

What happened: The Financial Times reported that UK National Cyber Security Agency has concluded that security risks posed by Huawei in 5G networks can be mitigated. Quoting two anonymous sources close to the investigation, the report runs contrary to US claims that Huawei should be barred from future 5G networks because its close ties to Beijing jeopardize national security.

Why it’s important: As a member of the Five Eyes Intelligence Network, an intelligence-sharing alliance that also includes the US, Canada, New Zealand, and Australia, the UK has unique access to sensitive US intelligence. Earlier on Monday, New Zealand announced it will conduct an independent assessment. If the UK endorses Huawei publicly, it could sway governments across the European continent in favor of the Chinese telecoms giant. Most recently, the US approached Canada and Eastern European states, arguing that 5G is a greater liability to national security since it will embed a range of objects to the internet, notably cars. China claims that the US is trying to hinder Huawei’s development, which last year overtook Apple in terms of smartphone sales. Despite Washington’s efforts, Huawei has secured 25 commercial contracts to supply 5G technology. It is running tests with a further 50 companies worldwide.

Briefing: TikTok found to be testing new ad product

Tony Xu — Fri, 15 Feb 2019 10:38:08 +0000

A new ad product test was spotted on TikTok – TechCrunch

What happened: The US app of short video platform TikTok was found to be testing a native video advertisement that links users to the advertiser’s website. A “Learn More” button in the ad video enables users to open the profile page of an advertiser named “Specialized Bikes.” The blue check mark next to the advertiser’s username, which is different from the yellowish-orange ones that appear on popular creators’ and official accounts’, suggests that advertisers have a different kind of account. Several glitches indicate that the video ad is still being tested.

Why it’s important: This is the latest advertising-related experiment by the Bytedance-owned app. Prior to this video ad, the only public test in the US or UK was an app launch pre-roll ad, according to TechCrunch. While advertiser accounts have been present in Douyin—TikTok’s sister app in China—for almost a year, they’ve only just appeared in TikTok. The appearance of an advertiser’s account, together with video ads that direct users to it, could mean that Bytedance is ready to up its monetization game in markets outside of China.

Briefing: Alipay to reach 7,000 Walgreens stores in the US by April

Nicole Jao — Thu, 14 Feb 2019 03:09:49 +0000

Walgreens adding Alipay to 7,000 stores – Alizila

What happened: Alibaba-backed mobile payment tool Alipay is expected to reach 7,000 Walgreens stores by April, Ant Financial announced on Wednesday. The mobile payment service is currently available at 3,000 Walgreens pharmacies across major US cities, including New York, San Francisco, and Las Vegas.

Why it’s important: Ant Financial claims about 4 million Alipay users travel to the US annually. The deepening partnership with Walgreens, the second largest pharmacy store chain in the US, is a strategic move to increase Ant Financial’s presence outside of China. Ant Financial and rival WeChat Pay have been eager to expand their mobile payment services overseas, hoping to cash in on the spending power of Chinese travelers. Last September, Walgreens made its first move into the Chinese consumer market by launching a flagship store on Alibaba’s cross-border e-commerce site, Tmall Global. Walgreens currently operates more than 9,500 drugstores in the US.

US boxes in ‘Queen’ Huawei in global tech chess game

Elliott Zaagman — Tue, 29 Jan 2019 15:08:02 +0000

After weeks of uncertainty, the US Department of Justice has finally filed charges against Huawei and its chief financial officer Meng Wanzhou.

The indictments concern two separate cases.

The first alleges that Huawei and Meng actively misled US authorities and an unnamed financial institution regarding the relationship between two subsidiaries—Huawei Device USA and Skycom Tech—in an effort to evade US sanctions and conduct business with Iran. The indictment comes with an official request from the US to Canada for the extradition of Meng, who is currently under house arrest at her Vancouver home after being apprehended while transiting there on Dec. 1.

The second set of charges alleges that Huawei stole technology from US phone carrier T-Mobile, and accuses the Chinese firm of obstructing justice and committing wire fraud. The technology in question, known as “Tappy,” was a robotics system developed by T-Mobile and used in testing the durability of smartphone screens. The indictment cites evidence, including a series of internal Huawei emails, in accusing the company of conspiring and agreeing to obtain the Tappy technology without authorization over a period spanning from 2012 to 2014.

The Tappy case, which has received considerably less public attention than the high-profile arrest and diplomatic drama around Meng, paints a picture of a company engaging in a coordinated attempt to steal the technology and cover up its wrongdoing. The indictment also includes details of a formal bonus system within Huawei China, regularly encouraging and rewarding staff for stealing confidential information from its competitors.

In a statement, Huawei expressed disappointment in hearing of the charges. It noted that the intellectual property (IP) theft was already the subject of a civil suit between the two parties, settled in 2014, and denied any of the indictment’s asserted violations of US law on the part of the company, its subsidiary, or affiliate. The statement went on to say that it was not aware of any wrongdoing by Meng and that the company believes the same conclusion will be reached by US courts.

A legal and political tangle

This is about far more than merely IP theft and wire fraud. Indeed, these are two components of a far broader more complex set of legal and geopolitical tensions.

While there is every reason to believe that the US federal courts processing each case will be fair and impartial in their proceedings, it is safe to assume that the context around the case is rife with political interests. This is certainly the case for the increased attention that Huawei has received from the US government.

In a statement made regarding the indictments, Federal Bureau of Investigation director Christopher Wray was explicit in his language as to the broader context of the case, accusing Huawei of “brazen and persistent actions to exploit American companies and financial institutions, and to threaten the free and fair global marketplace.”

He went on to directly connect Huawei to the Chinese government, and frame both as a threat to fundamental American norms, institutions, and national security, saying: “In pursuit of their commercial ambitions, Huawei relied on dishonest business practices that contradict the economic principles that have allowed American companies and the United States to thrive.” Adding that, with the Chinese government’s influence over companies like Huawei, the telecoms giant poses a threat to US national and economic security.

This is not the first time that Wray has spoken of China, its tech firms, and its people in these terms. In a February 2018 Senate Intelligence Committee hearing, Wray warned of a “whole-of-society threat” from China, citing the areas of academia and cybersecurity in particular.

There appears to be a broad consensus across the US national security apparatus that taking a harder line on China is in the country’s best interests. A national security strategy plan issued in 2017 framed China as a “strategic competitor,” along with Russia, both of which were characterized as “revisionist powers.” There now appears to be widespread agreement in Washington that China is seeking to, and acting in ways which challenge key US global interests.

Huawei: ‘Queen’ on global tech chessboard

As Washington’s posture towards Beijing becomes less friendly, Huawei has been placed in its sights. A symbol for many of the underlying commercial, cybersecurity, and cultural issues that lie at the heart of US-China tensions, Huawei is also perhaps China’s single most important technology firm. As 5G network infrastructure and cybersecurity become critical battlegrounds in the two countries’ battle for global influence, China, in many ways, goes as Huawei goes.

With this in mind, it is no surprise that the US and its security allies have been pressuring Huawei, and raising concerns—whether valid or invalid—about the cybersecurity risk posed by the company’s equipment, and placing the company under greater scrutiny for its practices.

On the geopolitical tech chessboard, Huawei is China’s queen and the US is doing its best to box her in.

Briefing: US files charges against Huawei and CFO Meng Wanzhou

Nicole Jao — Tue, 29 Jan 2019 06:56:28 +0000

U.S. charges China’s Huawei over alleged Iran sanctions violations – Reuters

What happened: The US on Monday announced criminal charges against Huawei Technologies and CFO Meng Wanzhou for allegedly violating US sanctions against Iran violations and, in a separate case, conspiring to steal trade secrets from network operator T-Mobile. The US claims the charges against Huawei are “wholly separate” from US-China trade negotiations scheduled to take place this week. Canadian officials arrested Meng on a US warrant on Dec. 1. She has since been on monitored bail.

Why it’s important: The charges against Huawei, the world’s largest communications equipment manufacturer, will very likely escalate the prolonged trade tension between the US and China. The US has been trying to ban American companies from purchasing Huawei equipment and urging its allies in the West to do the same. Countries have become increasingly wary of using Huawei’s products over the fear that the company’s close ties to the Chinese government could make its network equipment vulnerable to surveillance and interference.

Briefing: Apple’s main assemblers shift production away from China

Nicole Jao — Mon, 28 Jan 2019 04:52:01 +0000

Apple’s Partners Quicken Shift From China as Trade Tensions Rise – Bloomberg

What happened: Taiwanese iPhone supplier Foxconn announced over the weekend that it is investing more than $200 million in India and Vietnam as it shifts more of its output to Southeast Asia. Foxconn’s smaller rival Pegatron Corp. also announced on Sunday that it has moved part of its manufacturing of networking gear to Indonesia and is now looking to expand its production base to Vietnam and India.

Why it’s important: Taiwanese electronics manufacturers, which are responsible for making a large portion of the world’s electronics, have been shifting production bases outside of China and into other countries as US tariffs on Chinese imports escalate. Many of these companies are turning to countries in Southeast Asia to decrease their dependence on China. The tension between the world’s two largest economies is a delicate situation, especially since a new round of trade talks is scheduled at the end of the month. The White House has threatened to raise the tariff rates significantly on $200 billion in Chinese goods if a deal isn’t reached by March 1.

Why Huawei’s ‘wolf culture’ will help telecom titan fight off attacks and thrive

John Artman — Fri, 25 Jan 2019 11:35:45 +0000

Huawei finds itself in an unenviable position. Absent proof that it doesn’t have deep ties to the Chinese intelligence apparatus is not enough to prove an absence of the same.

Perhaps one of the most aggressive companies in the world, Huawei’s greatest strengths—dedication to customers and products, relentless expansion, and a work-first culture—just aren’t applicable to its current situation. The company’s greatest weaknesses—opacity and an insular culture—are working directly against it.

But just because Huawei is the scapegoat of choice in the ongoing tension between the US and China, doesn’t mean it won’t survive this rough period.

Huawei has been under a harsh spotlight since 2012 when the US Congress released a report naming Huawei and ZTE as potential threats to US national security. Since then, this bugbear has hung over both companies—Huawei more so than ZTE, however—and it came to the forefront again almost two years ago with the formal implementation of China’s National Intelligence Law.

In previous eras, access to information from the outside about China was severely limited, sometimes intentionally so. However, in the Information Age, Chinese domestic policy has a direct impact not only on foreign policy but also on issues related to market access.

The National Intelligence Law is a case in point. Passed on June 27, 2017 by the National People’s Congress and effective just one day later, the Law has been cited by foreign governments as a primary point of concern for any Chinese company operating abroad. Media and experts mostly cite the clauses in Article 7 that mandate cooperation with China’s national intelligence work.

Indeed, the whole issue around Huawei raises much bigger questions about global security and intelligence. In 2013, Edward Snowden revealed to the world a global surveillance initiative led by the US National Security Agency and three other Five Eyes partners (the UK, Australia, and Canada). The Snowden revelations offered direct evidence that not only were the fears officially stated by the US government valid, but that the US government was also engaged in similar activities.

Hungry Huawei

As TechNode contributor and China Tech Investor co-host Elliott Zaagman has pointed out elsewhere, much of Huawei’s problems stem from them being “stubbornly Chinese.” While not incorrect, this could be said about almost any Chinese company. Huawei is getting so much attention more for being the “tallest tree to catch much wind” (shuda zhaofeng) due to its stunning success outside of China and that it operates in telecommunications, a sector considered potentially sensitive.

Huawei is a fierce company, but one that’s always shown a deep dedication to its customers and products, favoring intense competition over dirty marketing tactics common in the Chinese market. From what I have seen and experienced—I previously worked for a vendor that serviced Huawei—the company’s culture puts productivity over everything else and creates a meritocracy around very aggressive KPIs.

As a service provider, this can make it very difficult to work with, but as a customer the company is the epitome of a customer-centric company, breaking the “choose cost, speed, or quality” rule that governs most businesses. Their customers routinely praise Huawei for its low price, high quality, and dedicated customer service.

The recent public relations push from Huawei’s founder has little to do with market access, however. The company’s biggest areas of growth lie in emerging markets and developing countries while even in the EU, UK, and Japan, customers are still looking to Huawei for upgrades, maintenance, and new equipment.

Ren Zhengfei’s recent media roundtable certainly won’t be enough to convince skeptical policymakers. The US has made it clear that it will neither present evidence tying Huawei to the Chinese state nor does it believe they have to prove their claim. The real issue for Huawei, however, is whether it will face similar punishment as ZTE did, cutting it off from licensing US patents and perhaps even a full export ban of chips.

Unlike ZTE, however, Huawei is in a much better position to deal with these repercussions. Not only do they have their own chips in development and production—the Ascend 910, Ascend 310, the Kirin 980, and Kunpeng 920—but their culture has been intentionally designed to survive in a hostile environment. The oft-cited “wolf culture” of Huawei has been incorrectly equated with a dog-eat-dog culture when actually it refers to the tendency to act as a group to fight off threats.

Ren Zhengfei’s recent letter to staff, interpreted by many as a sign of weakness, was, in fact, a call to continue what they’ve always done: set extremely ambitious goals and strive fiercely to achieve them. Huawei may be set for a very rough patch, but the company’s not going away any time soon.

Briefing: US pursuing Huawei for alleged theft of trade secrets

Jill Shen — Thu, 17 Jan 2019 05:03:25 +0000

Huawei Targeted in U.S. Criminal Probe for Alleged Theft of Trade Secrets – WSJ

What happened: Chinese telecommunications giant Huawei could face charges over the theft of trade secrets in a new investigation. US federal authorities in Seattle are pursuing charges against Huawei for allegedly stealing trade secrets from US business partners. The secrets include a T-Mobile robotic device called “Tappy,” which is used in testing smartphones. In a 2014 filing, T-Mobile claimed that Huawei employees stole the trade secrets for the company’s research and development in China. The investigation is reportedly at an advanced stage, and an indictment could come soon.

Why it’s important: The probe against Huawei comes at a time of tension between China and the US, and concern that Chinese-made telecom equipment could be compromised has been rising. In a rare roundtable with international media in the southern Chinese city of Shenzhen on Tuesday, Ren Zhengfei, founder and CEO of the company, said Huawei never spied for China. He also praised US President Donald Trump and his efforts at forging a new trade deal with China, while underscoring the negative impact “the detention of certain individuals” could have on Sino-US relations. Last month, Huawei’s CFO Meng Wanzhou was arrested and later released on bail in Vancouver for alleged violation of Iran sanctions. Meng is also Ren’s daughter.

Founder, father, patriot: The conflict at the heart of Huawei chief’s identity

Elliott Zaagman — Wed, 16 Jan 2019 09:34:19 +0000

Life is full of diverse, and sometimes contradictory, roles and obligations. For just about all of us, we must balance between family, profession, individual wants and needs, perhaps religion, and even our country.

The struggle to reconcile these values, interests, and loyalties is difficult, and at times impossible. It is also a challenge that is universally human.

At this moment in time, Huawei founder Ren Zhengfei must be feeling the pressure of these conflicting elements of his identity with pronounced intensity.

Huawei founder Ren Zhengfei. (Image credit: Huawei)

He is the founder and figurehead of one of the world’s largest technology and telecommunications firms, embroiled in a series of security and credibility scandals that threaten to bar the company from many of its most lucrative international markets.

He is also a patriotic Chinese citizen, and member of the Chinese Communist Party, as tensions between his country and the US and its allies seem to be rapidly deteriorating.

Finally, he is a father, whose daughter and heir apparent to his business empire, Huawei CFO Meng Wanzhou, is under house arrest in Vancouver, Canada, awaiting a potential extradition to the US. If granted, she would stand trial on charges which could put her in prison for what would possibly be the rest of the 74-year-old Ren’s life.

It was within this context that the famously private executive made a rare appearance before journalists in Shenzhen on Tuesday. In his remarks he spoke of his relationship with Meng and his other two children, hinting at regret for a life spent devoted to his work, first in the military and later at Huawei.

Ren’s prioritization of work over family was evident in the culture of the organization he created, and the expectations to which he has held its employees. Huawei is known to intentionally place employees in separate cities, or even countries, from their families, in an attempt to limit distractions from their work. The company also reportedly encourages many of its new recruits to sign a “striver pledge,” in which they voluntarily forego their rights to paid leave, so as to devote themselves and their time entirely to the company. It’s even rumored that Ren ordered a senior executive to get divorced. Ren himself has been divorced twice, and is currently on his third marriage.

Customer over country, Party

In his remarks, Ren also addressed speculation and accusations that his company and its equipment pose risks to the national security of some of the countries where it does business, and that Huawei could be used to spy on behalf of the Chinese government and military.

“When it comes to cybersecurity and privacy protection we are committed to be sided with our customers,” said Ren, speaking through a translator. “We will never harm any nation or any individual.”

Ren attempted to clarify in no uncertain terms that for Huawei, it is accountable first and foremost to its customers, over even its home country, or Ren’s Communist Party affiliation.

“The values of a business entity is customer first, is customer centricity,” he said. “We are a business organization so we must follow business rules.”

“And in that context I don’t see close connection between my personal political beliefs and our business actions we are going to take as a business entity. And I think I already made myself very clear right now, we will definitely say no to such a request,” he added.

While his declaration regarding the priorities of his company was explicit, many observers wonder if he has made commitments to disobey Chinese law.

Article 14 of the country’s National Intelligence Law, passed in 2017, grants intelligence agencies authority to insist on the support of Chinese businesses, stating that “state intelligence work organs, when legally carrying forth intelligence work, may demand that concerned organs, organizations, or citizens provide needed support, assistance, and cooperation.”

The law also requires that organizations and citizens also protect the secrecy of “any state intelligence work secrets of which they are aware.” This law has been cited by numerous foreign governments in explaining decisions to ban Huawei 5G equipment.

Ren’s statement declaring Huawei’s prioritization of its users also, and perhaps most importantly, seems to put him at odds with core doctrinal tenets of the Chinese Communist Party.

The Party famously demands that its members prioritize its wellbeing above all else. The intensity of this mandate, however, has fluctuated throughout the Party’s history.

In the days following the devastating Tangshan earthquake of 1976, Party newspaper the People’s Daily told the story of Che Zhengming, a senior cadre whose son and daughter were buried as their house collapsed. The girl cried out for her father to save her, but the newspaper pointed out that Che knew his priority was to retrieve the local Party chairman from the ruins of a nearby apartment. While he was digging him out, his own children died. The article praised his political commitment.

At 74 years old, this ethic of intense political loyalty is one that came to define China during some of Ren Zhengfei’s most formative years.

However, today’s China is a very different place. The Reform and Opening Up period saw the Party dial down both its ideological intensity as well as its prominence in Chinese nonpolitical life. It began admitting private businesspeople as well, seen by many as an acknowledgment of the various priorities and interests that influence the lives of the Chinese people, and an acceptance of some of the contradictions that define so many human lives and societies.

In 2019, the questions of loyalties, obligations, and identity are once again at the heart of the discourse regarding China. Ideology has begun to play a greater role in the Party, and the Party is playing a greater role in China’s tech sector as well.

As geopolitics intensify, China’s global tech champions are facing a dilemma between competing interests that offers no easy solution.

Briefing: Huawei founder Ren Zhengfei says company never spied for China

Bailey Hu — Wed, 16 Jan 2019 02:38:12 +0000

Huawei founder Ren Zhengfei denies firm poses spying risk–BBC

What happened: In his first interview with foreign media in over three years, Huawei founder and CEO Ren Zhengfei said that his company has never been asked to spy for his country. There is no Chinese law that requires enterprises to “install mandatory backdoors” to gather intelligence, he said. In any case, the ex-army engineer said, Huawei wouldn’t comply with such requests. His statements in part address the recent arrest of a Huawei executive in Poland on spying charges; the employee has since been fired. Ren also spoke on the arrest and detainment of his daughter and CFO Meng Wanzhou. Meng, who Ren says he “misses very much,” awaits extradition to the US on allegations that she took part in Huawei’s violation of Iran sanctions.

Why it’s important: The telecommunications company’s expansive plans to support 5G networks have been curtailed somewhat by multiple bans. Australia and New Zealand have forbidden Huawei equipment from being used for 5G, while the US has leveled a governmentwide restriction on all Huawei devices. Ren remained calm in the face of these setbacks, praising Trump–who is considering a broader ban–as a “great president,” and saying the company will shift towards “countries that welcome Huawei.” In firmly upholding Huawei’s innocence, he also maintains the company’s stance of distancing itself from the ex-employee arrested in Poland.

Briefing: Crypto-mining company Bitmain closes second office in two months

Bailey Hu — Tue, 15 Jan 2019 02:50:35 +0000

Chinese Mining Giant Bitmain Is Closing Another Overseas Office – Coindesk

What happened: Chinese bitcoin mining company Bitmain confirmed that it’s shutting down its Amsterdam office, just a month after it announced it would shutter its Israel branch. After American media reported that mining operations had halted at a new site in Rockdale, Texas last week, Bitmain also said that a portion of employees there had been laid off. The company is undergoing personnel cuts across the board, including in its China offices. Co-CEOs Wu Jihan and Micree Zhan may also step down from their roles, according to a SCMP source.

Why it’s important: Bitmain grew rapidly last year, and cutbacks may be partly the result of a too-hasty expansion: The Rockdale site alone originally planned to employ 400 people. Its scale down is also tied to cryptocurrency’s falling fortunes in 2018, which the company cited as the reason for the Israel office shutdown. Last September, following the lead of fellow Chinese mining competitors, Bitmain filed for a Hong Kong IPO. No further progress has been announced since then, however. Either way, the mining company faces an inauspicious start to 2019 amid a chilly crypto climate.

A trust not trade deficit lies at the core of US-China tech tensions

John Artman — Fri, 11 Jan 2019 10:51:56 +0000

It’s been 189 days and we’ve still seen no substantive progress in the so-called trade-war between the US and China.

However, even if a deal is reached, and no matter how satisfying it may be for both sides, it will still not be able to solve a fundamental problem between the two superpowers—or indeed between China and the West. The two countries have assumptions about the world that are fundamentally different, including varying ideas about the role of the state.

Like great tectonic plates, the US and China have been constantly rubbing up against each other and it is only recently that the friction has become enough to be felt. Ultimately, the two sides just do not understand each other well enough to trust each other. For example, look at China’s strong reaction to the arrest of Meng Wanzhou in Canada while “experts” in the US consistently oversimplify China’s economic and political situation.

So while an eventual trade deal may be positive, it won’t address underlying problems, especially those related to technology and investment. Last week we saw a surprising announcement from Apple: they were going to miss their projected revenue targets by a significant margin (8% to be exact). Apple blamed it on the trade war. Apple bears blamed it on the company.

China hawks in the US took it as a sign that trade pressure on Beijing by Washington was working to weaken the overall Chinese economy. And indeed, the economic outlook does not look great for China with pessimistic economists predicting GDP growth as low as 5.9% in 2019.

Heating and cooling cycles are a natural part of any economy and, in China, it’s particularly obvious in the tech sector where regulation is a bit looser and users are hungry for the new and improved. So it’s easy to look at the tech cycles in China and assume rapid die-offs of swathes of startups presage economic doom. That assumption, however, only shows a startling ignorance and neglects the equally rapid growth of whole industries, such as O2O and the entire rental economy, from nothing to mainstream adoption.

Many of these discussions, however, don’t focus enough on the real drivers of economic growth: small and medium-sized businesses, aka startups.

Level playing field for startups?

For startups, though, the situation is still very much the same: a mixture of risks and rewards. Doing business in China has always been a challenge for the smaller players, especially those that are foreign-owned.

It’s harder for non-Chinese founders to raise money from local venture capitalists. Oftentimes, VCs have little confidence that foreign founders understand the market well enough, or are willing to do what it takes to scale at the necessary speed. In addition, opaque regulations and restrictions make it difficult for entrepreneurs to navigate Chinese bureaucracy.

For international startups, the trade war might actually be a boon, however, allowing them to leverage their advantage while avoiding much of the uncertainty local players have to endure.

“Whether they want to or not, foreign startups will have to partner with some kind of Chinese affiliate or partner for marketing purposes,” Sam Mosca, a business development executive with Beijing startup Mass Medical International, told TechNode.

But foreign entities have their own advantages too, Mosca says, such as being able to develop their product nimbly in the Chinese business environment but then use foreign marketing channels and social media to develop overseas markets. “Chinese startups rarely have this flexibility and must struggle and suffer in a stifled and regulated business environment,” he says.

What’s clear, however, is that China and the US have a responsibility to deal with each other. While the lack of clear resolution is certainly painful in the short-term, the fact that both sides are actively talking and seem to take this seriously has positive implications for the future.

China’s Trump wager

It’s going to take real action, however, to improve what is a fundamental lack of trust around technology investment.

“It really annoys people that Tencent or Alibaba can make investments in the United States, but Amazon and Google can’t do the same in China with the same degree of flexibility and freedom,” Matthews Asia investment strategist, Andy Rothman, told TechNode on the sidelines of a recent finance event in Shanghai. “I think the Chinese government is going to have to pay more attention to that.”

Both China and the US have to make practical steps to address the trust gap, including concessions around investment and market access, said Rothman. The key for China, he said, is the country’s lack of transparency on key issues such as technology transfers and intellectual property protection.

While the central government has certainly made a lot of progress with intellectual property, technology transfers remain a grass-roots issue. Local officials are very protective of home-grown players to the detriment of foreign and domestic companies and are reluctant to do anything that makes their champions less competitive.

As always, these proscriptions are easy to say and hard to do. I remain skeptical as to the long-term impact of any deal. China may decide to make concessions now in the belief that in the next presidential election, Donald Trump would be voted out of office. But in the absence of any meaningful change, the US will continue to remain suspicious of companies it perceives to be close to the Chinese government.

With contributions from Colum Murphy.

Briefing: China’s tech patents in US surge despite trade war

Bailey Hu — Thu, 10 Jan 2019 03:05:20 +0000

Chinese companies increase number of tech patents awarded in US – Financial Times

What happened: According to data from IFI Claims, China was the only country whose number of US patents grew in 2018. Most of those applied to developments in computing and communications technology. China is also on track to beat Germany’s patent figures by as early as next year, although it still only accounted for 4% of all patents issued in the US in 2018. Phone-maker Huawei ranked 16th in terms of most patents filed, followed by fellow Chinese company BOE Technology.

Why it’s important: Current trade war tensions between China and the US center around accusations of IP theft, including forced technology transfers. Although the sheer number of patents filed doesn’t necessarily reflect the quality of innovation, China’s figures do point towards a still-growing tech research and development scene. It also shows that Chinese companies are increasingly anxious to protect their intellectual property as they aspire to enter overseas markets.

Briefing: Self-driving startup taps Baidu tech to launch Walmart delivery service

Bailey Hu — Wed, 09 Jan 2019 07:12:11 +0000

Walmart taps startup Udelv to test autonomous grocery deliveries in Arizona –TechCrunch

What happened: US self-driving delivery startup Udelv announced that it’s using Baidu self-driving technology to trial a grocery delivery service for Walmart beginning in February. The second generation of Udelv’s delivery van, which is being shown at CES 2019, was developed using Baidu’s open-source autonomous driving software platform, Apollo 3.5. Udelv previously launched a delivery service in San Francisco and plans to hit roads across the US with as many as 100 self-driving vehicles in 2019 thanks to multiple partnerships.

Why it’s important: Udelv’s announcement highlights autonomous vehicles’ potential when it comes to last- and middle-mile delivery of goods. Unlike with self-driving cars for consumers, companies face fewer ethical quandaries and questioning. It also shows the long reach of Baidu’s AI expertise. Although the company already has permission to test its autonomous vehicles in California, Beijing, Fujian, Chongqing, and Changsha, Baidu has shown that it’s also open to different types of partnerships to deliver a variety of self-driving solutions.

Briefing: Huawei files suit against US firm over patent practices

Nicole Jao — Tue, 08 Jan 2019 04:49:38 +0000

Huawei sues U.S. firm InterDigital in China over patent practices – Reuters

What happened: Chinese telecommunications firm Huawei filed a lawsuit against US tech firm InterDigital earlier this month, accusing the company of failing to license its patents in China fairly. In the filing to the Shenzhen Intermediate People’s Court, Huawei accused InterDigital of violating its obligation to license patents, specifically those that are essential to 3G, 4G, and 5G wireless telecommunication requirements, on fair terms. InterDigital said its patent licensing agreement with Huawei expired at the end of 2018.

Why it’s important: The lawsuit comes amid escalating trade tensions between the US and China. Just last month, US President Donald Trump was reportedly considering an executive order that would limit US carriers and companies from using network equipment from Huawei and ZTE. In the months prior, the US urged its allies to exclude the Chinse telecom equipment maker from their 5G rollout plans. Although China and US agreed on a temporary ceasefire in December, the news of the indictment of Huawei’s CFO that came days later seemed to further drive a wedge between China and the US.

Briefing: Chinese draft law may strengthen protections against forced IP transfer

Cassidy McDonald — Sat, 29 Dec 2018 03:55:32 +0000

China’s draft foreign investment law bans forced tech transfer, emphasizes reciprocity – Reuters

What happened: The Chinese government Wednesday released a draft of a foreign investment law that would ban illegal government interference in foreign businesses and the forced transfer of technology. The draft law prohibits authorities and their staff from using administrative means to forcibly transfer intellectual property. The draft also emphasizes reciprocity, stating that China reserves the right to use “corresponding measures” to retaliate against countries that discriminate against Chinese investment.

Why it’s important: This law, if adopted, would significantly upgrade foreign firms’ IP rights in China. In December, President Donald Trump and President Xi Jinping agreed to begin negotiating issues including forced technology transfer and intellectual property protection, and on paper, the law seems to address some of Washington’s concerns. Questions remain, however, as to how extensively the proposed law can be enforced. China has long stated that forced technology transfers are illegal and do not happen, though analysts say that forced technology transfers occur often, mainly as a result of industry-specific policies.

Briefing: White House ponders Huawei and ZTE purchase ban through executive order

Nicole Jao — Fri, 28 Dec 2018 10:15:52 +0000

Exclusive: White House mulls new year executive order to bar Huawei, ZTE purchases – Reuters

What happened: President Donald Trump is reportedly considering an executive order that would limit US carriers and companies from purchasing network equipment from foreign companies that pose a threat to national security. The order would include prohibitions on purchasing equipment from China’s Huawei and ZTE. The order has reportedly been developing for over eight months and may be issued early next year.

Why it’s important: The executive order to ban Chinese telecom equipment most likely would escalate the trade tensions between the US and China. Over the past year, the US has been urging its allies to shut Huawei and ZTE’s out of their 5G deployment plans. The two Chinese telecom equipment manufacturers have come under scrutiny for their close ties to Beijing, which many suspect would make their network equipment vulnerable to interference and surveillance. Huawei’s 5G network gear is now banned in several countries including Australia and New Zealand. ZTE was slapped with a seven-year sales ban by the US government earlier this year for violating Iran sanctions. The ban was lifted after the company paid a hefty fine and agreed to overhaul its top management.

Briefing: Huawei bid to give US football fans free Wi-Fi marred over government concerns

Chris Udemans — Thu, 27 Dec 2018 04:21:05 +0000

Huawei Had a Deal to Give Washington Redskins Fans Free Wi-Fi, Until the Government Stepped In – Wall Street Journal

What happened: A 2014 deal between Chinese telecommunications giant Huawei and US football team the Washington Redskins to provide Wi-Fi in viewing suits at FedEx Field came undone after a government advisor issued an “unofficial federal complaint” to the team, citing national security concerns. Huawei would have received advertising in the stadium and during broadcasts in exchange for the Wi-Fi services. However, the football team walked away from the agreement as a result of the complaint.

Why it’s important: The deal came years before the arrest of Huawei’s CFO and moves to block the company’s equipment from 5G networks around the world. However, the complaint highlighted the same concerns congress members and US intelligence agencies have raised for a number of years—the company’s alleged close links to the Chinese government. Despite the US, Japan, Australia, and New Zealand moving to limit Huawei’s equipment in their 5G networks, the company shipped a record-breaking 200 million smartphones in 2018.

Briefing: Chinese hackers indicted over campaign against US firms

Nicole Jao — Fri, 21 Dec 2018 05:20:02 +0000

Exclusive: China hacked HPE, IBM and then attacked clients – Reuters

What happened: Hackers working on behalf of China’s Ministry of State Security allegedly breached the networks of American government agencies and businesses, according to a US federal indictment of two Chinese nationals. The campaign, known as Cloudhopper, reportedly compromised the networks of IBM, Hewlett Packard Enterprise, and other prominent tech companies. Cloudhopper used the access to networks of large companies as a “launchpad” for hacking into their clients’ computers, stealing confidential corporate information. According to the indictment document, Cloudhopper attacks date back to at least 2014.

Why it’s important: After the details of the indictment surfaced, the US and its allies, namely the UK, Australia and New Zealand, denounced China for economic espionage. A British security official calls Cloudhopper “one of the most serious, strategically significant, persistent and potentially damaging” cyber-attacks the country has ever seen. The indictment comes amid rising tensions between the US and China. Earlier this month, Meng Wanzhou, CFO of Huawei, was arrested in Canada for allegedly bypassing US sanctions against Iran less than a week after China and the US decided on a temporary ceasefire in the trade dispute.

Lack of IP addresses could stunt China’s tech development, expert says

Bailey Hu — Wed, 19 Dec 2018 06:42:58 +0000

In the near future, a lack of Internet Protocol (IP) addresses to support tech companies could lead to “brownouts” or inability to “deploy certain technologies,” creating big problems across a variety of fields in China.

According to Peter Thimmesch, chairman and CEO of US-based Addrex, this lack of IP addresses could affect fast-developing fields like artificial intelligence.

“[If] you want to add additional services or add additional customers … you cannot do so without additional address space,” he said.

Internet Protocol is the set of rules through which data packets are sent between computers, forming the basis for the internet. IPv4 is its fourth incarnation and by far the most commonly used version today.

Thimmesch’s business provides a “global secondary marketplace” for businesses selling their unused IPv4 addresses, the vast majority of whom are based in the US.

He added that both Chinese and American internet giants are actively buying up addresses as they plan for future growth. As a limited resource that supports most of the internet today, addresses are crucial for cloud and mobile businesses, Thimmesch said, as well as the broad range of industries they support.

However, outside big names like Tencent or Alibaba, Thimmesch doesn’t see the same kind of demand in China as there is in regions like the US or Europe.

There are alternatives. The updated IPv6 protocol was developed in the 1990s as a replacement for IPv4 systems. It offered more addresses, promised better security, and on top of that, was supposed to give faster internet.

Some refute the latter two claims, however. In addition, worldwide implementation has been slow, in large part because IPv6 is not compatible with the current system. That means that in order to stay connected to the rest of the internet, companies or organizations must also keep running IPv4 at the same time.

Also, China has not been an early adopter: a 2018 report by Internet Society says that less than 5% of internet traffic is deployed via IPv6.

That may change. As of last December, TechNode reported the Chinese government was pushing forward an initiative to build the largest IPv6 network in the world.

But Thimmesch questions whether that’s a cost-efficient proposition when his company estimates there are still close to 1 billion unused IPv4 addresses.

“This supply could meet the demand of the entire world for more than 15 years, at the current pace of additional growth, while technical solutions are worked out,” Thimmesch wrote in a follow-up email.

He’s not entirely pessimistic about the future for the domestic tech industry: “China has such incredible know-how and smart people that maybe it could come up with ways of subdividing the network into a way that works.”

“But someone has to, otherwise the fragile gains of the economy are at risk,” he added.

Update: The image has changed to one of Addrex Chairman and CEO Peter Thimmesch.

Briefing: Samsung fights reports of ‘fake Supreme’ brand partnership in China

Bailey Hu — Tue, 11 Dec 2018 05:08:05 +0000

被质疑与山寨潮牌合作，三星称其“联合的是 Supreme 意大利品牌”–TechNode Chinese

What happened: At the China launch of its Galaxy A8s phone, Samsung announced it had entered a strategic partnership with fashion brand Supreme. The purported CEO of the company also appeared, announcing that his brand has big plans for China, including a seven-story flagship store in Beijing and its first show in Shanghai. Sharp-eyed Supreme fans, however, pointed out that the CEO’s own windbreaker didn’t match up with the American brand’s wares. A marketing manager for Samsung’s China operations responded that the partnership is with Italian Supreme, since “Supreme US doesn’t have authorization to sell or market in China.”

Why it’s important: According to Engadget, the brand “Supreme Italia” falls into “a gray area of intellectual property law.” Since the New York-based company, known for its iconic rectangular logo, never registered in Italy, a local enterprise was technically free to ‘borrow’ its look and name. A Samsung partnership lends the brand a facade of legitimacy in China, although the smartphone brand has also faced–and lost–its fair share of intellectual property disputes. In the end, mainstream Chinese consumers may not care much either way. Despite the fact that Supreme US can’t sell goods domestically, clothing and accessories emblazoned with its easily-copied logo are already commonplace across popular e-commerce sites like Taobao or JD.com.

Briefing: Huawei’s CFO arrested in Canada for extradition to US

Bailey Hu — Thu, 06 Dec 2018 02:51:50 +0000

Huawei CFO arrested in Canada: Canada’s Justice Dept – Reuters

What happened: Meng Wanzhou, Huawei CFO and daughter of the company’s founder, was arrested in Vancouver on December 1, Canada’s Department of Justice revealed Wednesday. She faces extradition to the US. An unnamed source said the arrest was related to accusations that Huawei violated US sanctions against Iran, although this couldn’t be confirmed. Huawei said it was not informed of the charges or “of any wrongdoing by Ms. Meng,” while the Chinese embassy in Canada called for her release. Meng’s court hearing is set for this Friday.

Why it’s important: US accusations that Huawei bypassed its sanctions against Iran and other countries have come up against the Chinese company’s firm denials. That didn’t stop one American senator from declaring that Meng’s arrest was “for breaking US sanctions against Iran,” however. Stock futures in the US and Asia have dropped over the uncertainty of the case, which once again highlights Sino-American tensions. The arrest comes less than a week after Xi Jinping and Donald Trump decided on a temporary ceasefire in the US-China trade war. In another conciliatory gesture, Xi also said he’d reconsider approving US chip-maker Qualcomm’s $44 billion bid for NXP, which had previously failed.

Faraday Future takes ‘tough decision’ to send more workers on leave

Bailey Hu — Wed, 05 Dec 2018 07:31:05 +0000

Electric carmaker Faraday Future (FF) is placing another batch of employees on leave, citing the company’s “very tight cash flow.” The move comes as founder Jia Yueting comes under pressure from another ailing company he founded that wants him to use FF assets to repay it.

“This was an extremely tough decision to make, and we recognize the emotional stress and financial strain this puts on people’s personal lives,” FF said of the temporary layoffs in a statement posted to Twitter.

It added that it takes its relationships with its suppliers “seriously,” and hopes it will receive support from its partners.

Some 250 more Faraday Future workers may have been placed on furlough, unnamed sources told The Verge. The company says it now has 1,000 workers globally. Before this past October, however, it employed 1,000 people in the US alone. That month, Faraday lost its co-founder Nick Sampson and other staff after a series of furloughs, layoffs, and pay cuts.

Faraday’s admission of more furloughs comes after developments in its ongoing dispute with its main shareholder, a subsidiary of Chinese property conglomerate Evergrande. The cash-starved EV startup wrangled permission to seek $500 million in emergency funding, pending Evergrande’s approval. However, it failed to loosen the company’s hold over its assets, which include intellectual property.

In its recent Twitter announcement, Faraday repeated its claims about Evergrande breaching contract, making it difficult for the startup to find funding. Although it will file another application for emergency relief with its Hong Kong arbitrator, it expects the “ruling may be delayed by two to three months.”

Faraday Future: How a “Tesla-killer” became a zombie company

Evergrande rescued Faraday from its financial straits in December 2017 with a promised $2 billion investment, to be paid out over time. The two companies then became linked through a network of offshore companies and Evergrande Health gained a 45% stake in Faraday.

The two have since quarreled over a promised $700 million advance, which Faraday claims Evergrande has not fulfilled. Evergrande says Faraday’s co-founder and main backer, debt-ridden Chinese tech tycoon Jia Yueting, has not held up his side of the bargain by stepping away from the company’s China operations.

Faraday has also been accused of withholding money from “key suppliers,” with numerous contractors filing lawsuits against it.

The company says it is still “receiving interest from investors from around the world.” No mention was made of an earlier claim by a blockchain EV startup that the two were negotiating a $900 million security token offering.

Despite the cash crunch, Faraday also doesn’t mention any changes to plans for its first vehicle, the FF91. The company previously promised to begin production in California by the end of 2018.

The electric vehicle startup’s main backer Jia Yueting is facing pressure from debt-ridden Leshi Internet, the Chinese streaming giant he founded, reports the Securities Daily (in Chinese).

At the end of October, around the same time, Faraday experienced a cash squeeze, and the Shenzhen Stock Exchange froze Jia’s roughly 25% stake in Leshi due to unpaid debts. In June, the former company head was banned from luxury travel for a year after reneging on loan payments.

With over RMB 90 million (around $131 million) of its assets now frozen, the company insists Jia pay up using assets or equity from Faraday, if necessary.

Leshi Internet, also known as Le.com, faces a lawsuit by Tianhong Innovation. According to Tianhong, which was a Series B investor in streaming service LeSports, the company’s original shareholders had agreed to repurchase their stakes if LeSports failed to IPO by the end of 2018.

Briefing: Xi may consider Qualcomm-NXP deal again, White House says

Bailey Hu — Mon, 03 Dec 2018 04:33:12 +0000

Xi Open to Approving Qualcomm-NXP Deal if Presented Again: U.S. – Bloomberg

What happened: President Xi Jinping said he would be willing to consider approving US chip-maker Qualcomm’s once-failed $44 billion bid for NXP Semiconductors if the option were presented to him again, according to the White House. The statement came last Saturday at a dinner during which President Trump also declared a temporary hold on a planned increase in tariffs. Due to trade tensions Chinese antitrust authorities originally withheld their approval of the Qualcomm-NXP deal, causing it to eventually fall through.

Why it’s important: Qualcomm’s purchase of its rival NXP would have helped to solidify its standing, but instead the firm ended up paying a $2 billion breakup fee and spent another $22.6 billion buying back its own stock over a 12-month period. The bid was the most prominent to fail as a result of trade tensions between China and the US. Xi’s declaration that he would reconsider the deal reflects renewed hope that those tensions can be resolved over the 90 days that the ceasefire will last. However, the tentative offer also shows the uncertainty of the current situation, which has affected companies on either side of the dispute.

Briefing: US warns allies away from Huawei’s equipment

Nicole Jao — Fri, 23 Nov 2018 03:14:00 +0000

Washington Asks Allies To Drop Huawei – The Wall Street Journal

What happened: The US government is trying to persuade wireless and Internet providers in foreign ally countries including Germany, Italy, and Japan to avoid using telecom equipment from the world’s largest telecom maker Huawei Technologies. Officials say they are concerned about the prospect of Chinese telecom equipment manufacturers spying on and gaining access to essential infrastructure. The US is also considering offering financial aid for telecom development in countries that agree to block Huawei.

Why it’s important: In the past year, the US government rallied against leading Chinese electronics manufacturers including Huawei and ZTE, fearing these companies’ close relationship with the Chinese government would pose national security risks. Consumers in the US also have been warned about using Chinese-made Huawei and ZTE branded smartphones. The US recruiting allies to drop Huawei comes amid an ongoing trade war with China. Earlier this year, the US slapped billions of dollars’ worth of tariffs on Chinese goods.

Briefing: Albuquerque cancels deal with BYD over bus quality issues

Elliott Zaagman — Mon, 19 Nov 2018 06:35:58 +0000

Mayor pulls the plug on electric bus deal – Albuquerque Journal

What happened: Albuquerque, New Mexico Mayor Tim Keller has announced the city’s plans to reject and return all 15 of the electric buses manufactured by the US subsidiary of Shenzhen-based automaker BYD, also known as Build Your Dreams.

Although the city cited a number of quality and safety concerns ranging from electrical issues to brake failure, the chief issue seemed to be with the vehicles’ batteries. The contract with BYD calls for buses to operate for 275 miles, yet according to city officials, the buses are unable to go more than 177 miles before they need recharging. Mayor Keller also referenced problems with the batteries overheating and having inadequate fire protection.

Why it’s important: This isn’t the first time that BYD’s buses have run into quality issues. An investigation by The Los Angeles Times in May of this year revealed similar problems with the automaker’s buses, causing headaches for the mass transit system of the second-largest American city. The Times investigation also revealed evidence of official corruption and mistreatment of employees at BYD’s Southern California plant. In August of this year, reports out of Cape Town claimed that the city’s newly-purchased buses would stall when going uphill.

Briefing: Facebook says China return is possible but human rights come first

Bailey Hu — Thu, 15 Nov 2018 05:25:29 +0000

Facebook refuses to rule out a return to China despite human rights concerns–The Telegraph

What happened: Facebook has followed up on earlier statements about the possibility of returning to China with a written response addressed to the US Senate intelligence committee. The letter says that “no decisions have been made” over what conditions would make a return possible. However, human rights – including concerns over privacy and free expression – would be “carefully considered” in any such decision. The careful statements followed Facebook COO Sheryl Sandberg’s testimony before senators this past September. At the time, Sandberg said that the company would “only operate in a country where we can do so in keeping with our values.”

Why it’s important: Facebook’s careful statement comes after an uproar, both internal and external, over Google’s plans to launch a censored version of its search engine in China. The social media giant likely hopes to avoid the same fate, especially after revelations over its loose data-privacy rules and role in polarizing US politics over the last year. Although it’s been blocked in China since 2009, however, Facebook still has China staff selling ads to companies that wish to market themselves abroad. Last August, the company also quietly put out a photo-sharing app in the China market called “Colourful Balloons,” which fell flat soon after release.

Faraday Future: How a “Tesla-killer” became a zombie company

Bailey Hu — Thu, 15 Nov 2018 03:59:27 +0000

About one hour’s drive south of Guangzhou, in southern China’s Guangdong Province, a vast plain of upturned soil is dotted with a few concrete-loaded trucks and a handful of piling rigs. The faint clanging of construction echoes through the air.

Here, electric vehicle startup Faraday Future (FF) is building its much-anticipated China factory.

One truck driver, who looks like he’s in his twenties, stops pacing outside his vehicle and removes his spotless white earbuds. He’s been working on-site for a month now, he tells TechNode, ferrying in concrete tubes for the groundwork-laying phase.

As he speaks, he mispronounces Faraday’s Chinese name (法拉第, faladi) as falaji. Spoken quickly, the last two syllables sound almost like laji, meaning “trash.”

His mistake is telling, hinting at the deeper confusion and uncertainty surrounding Faraday—its production plans for China and the US, as well its broader strategy and leadership.

The electric vehicle’s startup may have begun with high hopes for futuristic concept cars, but its narrative has since turned into a saga of ugly corporate wrangling and unbridled ambition gone awry. Faraday Future offers a cautionary tale about the pitfalls of charging full speed ahead into China’s alluring yet still developing electric and autonomous vehicle industries. It’s also a story of how Chinese investment paired with US tech talent can go terribly wrong.

A step back

From the outset, the company was a California startup with an international outlook. It brimmed with ambition. Employees were recruited from Tesla, BMW, Apple, and other top companies, with more than 100 former Tesla employees making the switch to Faraday.

Chinese tech tycoon Jia Yueting was among the founding members and also its majority shareholder, tying Faraday’s fortunes together with those of his conglomerate LeEco. Later, he also became Faraday’s chief executive officer.

In the beginning, Faraday planned to expand into autonomous driving and other fields, registering 380 patents in the US and China related to batteries, connected vehicles, self-driving cars, and more.

In addition, Faraday is one of 60 companies—including China’s Baidu, Didi Chuxing, Nio, and Pony.ai—with a permit to test-drive autonomous vehicles in California.

Faraday hasn’t been the only promising cross-culture company with a mixed bag of investors. EV startup Nio, which went public in the US this past September, has received funding from both Baidu and Tencent, which are each developing their own autonomous driving initiatives. Although Nio is headquartered in Shanghai and outsources manufacturing to a state-owned company, its design and self-driving team members are spread out across California and Europe.

However, the fact that Faraday’s CEO specialized in producing content, not cars, may have affected its prospects. In 2004, Jia Yueting founded streaming platform LeTV (now Leshi or Le.com). Eventually, Le.com became the basis for a sprawling tech empire that produced televisions, smartphones, and—even as Jia was still supporting Faraday—an electric vehicle branch that has since stalled.

Photo credit: Sohu News.

As LeEco’s expansion efforts overloaded the company with debt, Faraday too began seeing its cash flow cut short. But the problems started even before that. In early 2015, The Verge reported that when company executives wanted to build a small factory to produce 50,000 vehicles a year, Jia insisted on a much larger, more expensive facility like Tesla’s.

The plan to construct a $1 billion plant from the ground up in North Las Vegas, Nevada, eventually fell through. Instead, Faraday opted for the considerably less flashy option of renovating a former Pirelli tire factory in Hanford, California.

Jia, who ranked 37th on Forbes’ 2016 Rich List, saw his personal fortune plummet, and was placed on a national blacklist last year for defaulting on payments. When Chinese authorities ordered him to return to the country by the end of 2017, he didn’t comply, saying that he needed to stay in the US to oversee Faraday.

But Bill Russo, founder and CEO of advisory firm Automobility, said that choosing to manufacture in the US contributed to the Faraday’s ongoing cash crunch. In an already “capital-intensive” industry, Faraday should have first chosen a country with cheaper component supply chains where “more than half the world’s EVs” are already built—China.

New energy vehicles and equipment are one of 10 priority sectors highlighted in Made in China 2025, the comprehensive road map for development laid out by President Xi Jinping’s administration three years ago.

Production of electric and hybrid vehicles have since surged phenomenally thanks to a combination of subsidies, quotas, and tax breaks. By 2020, the government predicts, the country will be producing 2 million vehicles annually, by which time there will be 5 million electric vehicles on Chinese roads.

Yet while the stakes are high, Faraday could lose out on the opportunity. Russo describes the current company as belonging to “the walking dead of the EV startups.”

“They’re still animated but there’s no way to determine whether there’s a pulse,” says Russo.

Rivalry and wrangling

Based on news headlines over the last two years, it seems miraculous that Faraday is still alive.

Late last year the California-based company appeared to have reached the end of the line. Facing suits from unpaid suppliers and forced to scrap plans for its Nevada factory, it announced a last-minute cash infusion in November from what was then an unnamed benefactor. The investor has since been revealed to be a unit of the Chinese real estate conglomerate Evergrande.

In return for $2 billion to be paid out over two years, Evergrande Health acquired a 45% stake in FF through a network of offshore holding companies. The deal also extended to at least some of Faraday’s “technical assets,” and in August, a new company named Evergrande FF Intelligent Automotive (China) Co. Ltd. was established to handle the startup’s new operations in China.

Prior to the announcement Evergrande, like LeEco, had little to do with electric cars. In a statement published this past June however, the real estate giant announced it was “diversify[ing] its businesses” by entering the “fast-growing new energy automotive industry.”

Evergrande has a history of holding a diverse investment portfolio in apparently unrelated companies and industries. It has, for example, invested in mineral water, milk powder, and agriculture, as well as high-tech areas such as aerospace and AI. Evergrande set an industry record for first-half profits this year, suggesting that the company’s strategy is successful—its gigantic debt pile notwithstanding.

The EV investment also gave the real estate giant a chance to acquire extra land, a prized commodity in China. The 99-acre construction site near Guangzhou, which was leased for $58 million via a Faraday affiliate in April of this year, was part of a local government initiative to attract tech companies.

Yet since their deal was struck, Evergrande and Faraday’s relationship has rapidly deteriorated. On October 7 Evergrande filed a statement on the Hong Kong Stock Exchange claiming Faraday was attempting to get out of their arrangement. It alleged that less than a year after their initial agreement, Faraday had already spent $800 million and requested an advance of another $700 million, to be paid out over seven months.

In a suit filed on November 8, FF said that that advance came with a price. In return for the money, Evergrande demanded that Jia step down from the country’s China operations. The real estate giant never delivered on the first installment of the $700 million, however, citing Jia’s continuing influence over the company as well as his status as a debtor.

On that basis, Faraday filed for arbitration in Hong Kong. In a fiery official statement, the company declared its biggest shareholder intended to gain control and ownership over Faraday China and all of its intellectual property.

Evergrande “shouldn’t be permitted to withhold the funding and simultaneously prevent FF from accepting alternative financing or investments,” Faraday asserted.

On November 14, a suit filed by three Faraday employees also claimed that Evergrande took advantage of the situation to assume control over the car company’s China operations, The Verge reports. In addition it allegedly withheld money from “key suppliers,” contributing to FF’s financial straits.

While the arbitration case is still ongoing, in late October Hong Kong’s International Arbitration Centre allowed for FF to receive up to $500 million in emergency funding pending Evergrande’s approval. Both sides claimed it as a victory.

Yet with Faraday facing financial uncertainty and Evergrande’s investment in jeopardy, the issue seems far from resolved. Neither Evergrande nor Faraday Future representatives responded to requests for comment from TechNode.

Faraday’s troubles are once again spinning out of control, with a “serious and unexpected cash shortfall” resulting in downsizing and pay cuts, a press statement from Faraday in late October said.

Five days later, Faraday’s senior VP of product strategy Nick Sampson resigned. On LinkedIn, he wrote that the troubles of the company he helped found are having a negative “ripple effect on lives throughout our suppliers and the industry” and a “devastating impact on lives of our employees, their families and loved ones.”

His departure followed those of three other key employees earlier in the month. (Last year, a similar exodus took place, with two former executives setting up electric car competitor EVelozcity.) On November 1, FF manufacturing manager Hector Padilla even created a GoFundMe campaign to help team members affected by “lay off[s] or mandatory furlough.” So far 40 contributors have raised $21,172 in donations, but the campaign is still $28,000 short of its goal.

Blockchain electric car startup EVA.IO says it’s currently in negotiations with Faraday over a $900 million investment over the next three years through indirect security token offering, or STO—a form of funding viewed as less vulnerable to fraud than ICOs. But even if it were successful, it wouldn’t address Evergrande’s apparent claims over at least some of Faraday’s operations and intellectual property.

Hype machine

Despite, or perhaps because of, all the drama surrounding it, Faraday has yet to deliver on its smart, “autonomous-ready” luxury electric SUV, the FF91. The company still promises to begin production at its California plant by the end of this year.

In July, local media outlet the Hanford Sentinel published a piece on Faraday taking over the former Pirelli factory. The cover image shows a beaming Jia Yueting in an orange hard hat shaking hands with a local senator. The article cites Hanford Community Development Director Darlene Mata saying that Faraday employees were collaborative and even “gracious” in their dealings with city government.

More recently, Mata told TechNode that Faraday officials “haven’t told us they aren’t moving forward,” adding: “We are not involved in the daily operations of Faraday Future.”

Faraday hasn’t released an official statement about its operation plans for China, but work is clearly underway and local community members are being relocated because of the new plant.

A line of houses and gardens lie just across the street from the Guangzhou construction site. (Image credit: Bailey Hu/Technode)

Elderly lifelong resident Fang Gundai says that last April, authorities informed her that she’d have to move away. That’s also the month that a Faraday affiliate bought up the neighboring land. She’s reluctant to leave her home and says the district government isn’t offering fair compensation for her family’s property.

Her neighbor, who lives in a two-story tiled building across the street from the construction, echoes Fang’s opinion. From her backyard, the construction equipment being used to build the new plant can be seen in the distance. She says that the noise doesn’t bother her very much, but she doesn’t want to move away from her vegetable patch and the clean air.

Residents were told they’d have to leave the vicinity of the construction site, although no timeline has been given yet. (Image credit: Bailey Hu/TechNode)

The local neighborhood committee secretary, who gave only his surname, Liang, tells TechNode that “of course people who grew up here won’t want to move.” But most of the 500 or more residents there understand the need, he said. Many younger residents have already left, searching for work closer to Guangzhou’s city center or other urban hubs. “All of Guangdong is developing,” he said.

In line with that goal, authorities in the district have reportedly been recruiting new energy vehicles and other high-end tech enterprises, offering preferential policies for companies who open up shop. Even if Faraday and Evergrande’s efforts fall through, new facilities for building connected cars or advanced IT equipment may rise in their place, laying the groundwork for the area’s future.

Additional reporting by Alysha Webb. With contributions from Tristin Zhang.

Quora CEO goes to Chinese counterpart Zhihu for answers

Bailey Hu — Mon, 05 Nov 2018 10:22:11 +0000

Image credit: Zhihu

On November 1, Quora co-founder and CEO Adam D’Angelo posted a deceptively simple question on Zhihu, China’s answer to popular Q&A forum.

“What can American internet companies learn from Chinese internet companies?”

D’Angelo is one of 10 big-name tech personalities in Zhihu’s ongoing “internet prophet” event, which challenges users to give the best response for each question within a month’s time. The guest list of questioners includes Tencent’s Pony Ma, author of the Three-Body Problem sci-fi series Liu Cixin, Sinovation Ventures founder Lee Kai-fu, and Zhihu founder and CEO Zhou Yuan.

As of writing time, D’Angelo’s post had received the least number of answers so far, with only 84 venturing their opinions. (Pony Ma reigns supreme with over 3,300 answers). Some of those following up on the challenge have a lot to say, however. The most up-voted respondent so far has written a bilingual manifesto with eight different sections, explaining both how US companies can learn from China (more work hours, cutthroat competition, better localization) and what Chinese enterprises can learn from America.

While not everyone had so lengthy a response, more than one person brought up similar points about China’s “996” work schedule (9am-9pm, 6 days a week) and Darwinian, “wolf-like” (狼性) business environment.

Of course, read another way D’Angelo’s question can seem tongue-in-cheek. Zhihu was modeled in the image of Quora, after all, although it’s since outgrown its American counterpart. Thanks to features like its bookstore and live-streaming experts, the Chinese platform has grown in both size and scope. After its latest round of funding in August of this year, its $2.5 million valuation even surpassed Quora’s most recent April figure of $1.8 billion.

Zhihu staff told PingWest that D’Angelo and the other 9 questioners came up with their own queries after a process of assessment and discussion. Zhihu also stated that future cooperation with Quora is a possibility, meaning that D’Angelo might get a direct answer to his question from his Chinese counterpart very soon.

Briefing: US lawmakers call for probe into Chinese microchip hack allegations

Bailey Hu — Fri, 02 Nov 2018 05:53:48 +0000

US senators demand probe into China’s alleged hacking of tech giants’ supply chains–South China Morning Post

What happened: In mid-October, SCMP reports, two US senators sent a letter to Department of Homeland Security secretary Kirstjen Nielsen and FBI director Christopher Wray, requesting that they look into allegations that China has used tiny chips embedded in motherboards to spy on major US tech companies. The letter also asks for a classified briefing on the matter no later than October 25. Both senators lead the Committee on Homeland Security and Government Affairs, which previously held a hearing on the hacking allegations. During the hearing, Nielsen and Wray suggested that there was insufficient proof of China infiltrating the US’ tech supply chain. A representative of one of the letter’s authors said that the request has been received and is being processed, although neither the Department of Homeland Security nor the FBI have commented to media on the matter.

Why it’s important: Although experts have cast doubt over whether the motherboard microchip hack is actually feasible, the aftershocks of Bloomberg’s explosive report earlier this month apparently still continue. In its story, Bloomberg BusinessWeek alleged that companies including Apple and Amazon have been hacked, and that motherboard supplier Supermicro was the unwitting key to the espionage effort. All three have vigorously denied the report. However, Bloomberg continues to stand by its story, which has gained considerable attention. That’s likely because it falls in line with a larger American narrative of tech trade secret thefts by China that have escalated the ongoing tariff battle.

Briefing: Xiaomi demands that Lyft stop renting out its scooters

Bailey Hu — Thu, 01 Nov 2018 02:37:23 +0000

Xiaomi doesn’t want Lyft using its electric scooters–TechCrunch

What happened: Xiaomi has sent a letter to US ride-rental company Lyft, demanding that it stop using its electric scooters for rental services. In the letter, Xiaomi complained that its brand had been associated with Lyft’s in advertising about the “shared scooters.” The smart device manufacturer also did “not condone Lyft’s unauthorized modification or retrofitting” of scooters, citing legal and consumer safety concerns. Xiaomi has said that it may follow up with legal action over the matter. In response, a Lyft spokesperson said the company is not aware of having used any suppliers’ trademarks in their ads. They added that “Safety modifications, including slowing scooter speeds, have been made to satisfy local regulatory guidelines.”

Why it’s important: Although electric scooter rental is still a fairly new phenomenon in the US, several companies have already entered the field. Among them, Lyft is currently a fairly small player, having only entered three cities so far. It’s not clear why Lyft was singled out, as it isn’t the sole company using Xiaomi scooters; American companies Spin and Bird also use the brand. The letter might be explained in part by Bird’s May announcement that it has an exclusive contract for Xiaomi scooters. However, another scooter rental company later told TechCrunch that they also have a contract, casting some doubt on that claim.

Briefing: JD.com to launch US store on Google platforms by yearend

Bailey Hu — Fri, 19 Oct 2018 03:03:31 +0000

JD.com to Launch Flagship U.S. Store on Google–Bloomberg

What happened: By the end of this year, China’s second-largest e-commerce platform will be hosted on Google platforms, according to JD Logistics strategy director Bao Yan: “When Google Shopping launches, JD will have a flagship store.” JD.com will sell directly to American customers, shipping out products from US-based fulfillment centers. The platform already has laid the foundation for a shipping infrastructure system in Los Angeles, but will “work closely with partners to build a full network.” Google, which invested $550 million in JD.com this year, will take charge of processing orders and payments.

Why it’s important: At home, JD.com faces heavy competition from the likes of Alibaba and Pinduoduo, suffering losses of over $300 million in the second quarter of this year. In response, it has entered new fields like express package delivery in China. By expanding internationally, the shopping platform likely hopes to continue supplementing its income and spurring new growth. Google, too, has been switching up its approach to e-commerce this year, issuing a direct challenge to long-time rival Amazon.

Briefing: Tim Cook meets with China official as trade war continues

Bailey Hu — Fri, 12 Oct 2018 05:21:55 +0000

Apple Boss Tim Cook Stays Low-Key in Busy Visit to China–Caixin Global

What happened: Besides shaking hands with Bytedance’s founder and visiting a Beijing middle school on his latest China trip, Tim Cook also found time to meet with Shanghai government official Li Qiang. According to a Chinese statement, the two discussed cooperation between the city and Apple. The official statement also expressed the hope that the company would take a bigger role in bringing the US and China closer together. According to at least one source, however, the political meeting wasn’t Cook’s main objective for the trip – instead, it was his responsibilities as the board director at Tsinghua University’s School of Economics and Management.

Why it’s important: So far, Apple hasn’t been affected by the massive tariffs leveled on both sides of the ongoing US-China trade war. However, President Trump has stated that he wants companies such as Apple to move their manufacturing out of China. On the other side, the Chinese government previously encouraged US companies to take a proactive role in protecting their interests in the country. Caught in the crossfire, Cook is undoubtedly feeling the pressure; the China market still makes up a significant portion of Apple sales, despite the latest iPhone’s disappointing performance.

Alibaba’s stock hits 52-week low amid trade war

Bailey Hu — Wed, 10 Oct 2018 10:49:55 +0000

This past Tuesday morning, Eastern Standard Time, Alibaba’s stock hit a 52-week low of $146.73 per share. That figure had risen only marginally by the time trading closed at 4pm.

The Chinese tech titan, which is listed on the New York Stock Exchange, has seen a significant drop in share value since its high point earlier this year. The going rate of $211.70 also marked a record for the company. In just a few months, however, that price has dropped over 30%.

The latest figures also represent a 19% decline from the beginning of this year, when Alibaba was trading at $183.65 a share.

Alibaba is far from the only Chinese tech company suffering from a sagging stock price. Just two days ago, soon after announcing a large-scale company restructure, Tencent shares hit a 15-month low. Both companies’ dips in value are likely symptoms of China’s slowing economy as well as escalating trade tensions with the US, which are hitting supply chain-dependent tech companies especially hard.

In addition, on September 10 Alibaba’s patron saint-cum-founder Jack Ma announced that he would step down from his position of company chairman in a year, although he’d likely keep a stake in the company. The news triggered a small fall in Alibaba’s value, to $157. (Ma, however, topped this year’s Hurun’s China Rich List anyway.)

But despite the apparent downturn in fortune, US analysts remain fairly positive about Alibaba’s future. Morgan Stanley lowered its price target for the company to $220 but maintained a “hold” rating on BABA stock. Similarly, Goldman Sachs kept its “buy” rating for Alibaba, and even raised its price target by $6, to $247.

And at least one Goldman Sachs analyst maintains that he’s pretty optimistic about a change in fortunes for Alibaba, citing factors such as the company’s cloud services, food-delivery business, and Ant Financial, currently valued at $150 billion.

Briefing: Foreign criticism of iPhone XS’ “beauty filter” stumps Chinese media

Bailey Hu — Sun, 30 Sep 2018 03:45:47 +0000

“我的颜值配不上iPhone XS”，国外用户吐槽新iPhone的美颜功–搜狐新闻

What happened: Chinese media outlets are reporting on some user backlash against a perceived skin-smoothing feature on the new iPhones. Coming mainly from English-speaking Apple customers, the complaints say that new models XS and XS Max automatically brush up selfies without users’ consent. Apple has yet to confirm or deny such a feature, but users have shared photos apparently comparing selfies taken by older models with ones shot on the newest iPhones. The pictures show users’ skin looking both brighter and smoother, with blemishes blurred out. In China, of course, beauty filters are common features for domestic smartphone brands and often turned on in new phones’ default settings.

Why it’s important: The author of the Sohu News article writes that Apple has ignored “cultural differences” by apparently adding an automatic beauty filter to its new models. Features that whiten skin, slim faces, enlarge eyes, and more may be popular in China, but the Western market is different. The commentary further drives home the fact that selfie-enhancement is a booming business in the PRC and even the basis for many online celebrities’ popularity. For Chinese users, a new, automatic beauty filter in the new iPhones might seem commonplace – it’s others’ backlash that’s surprising.

Briefing: Bitmain’s Antpool sponsors Houston Rockets NBA team

Bailey Hu — Tue, 25 Sep 2018 05:50:37 +0000

Bitmain sponsors NBA’s Houston Rockets as cryptocurrency goes mainstream–SCMP

What happened: Crypto mining giant Bitmain Technologies is making a splash by sponsoring the US National Basketball Association’s Houston Rockets team. Antpool, Bitmain’s bitcoin mining company, seeks to “lead the conversation and conversion of consumers to adopt and understand digital currencies” through the deal, the head of Antpool’s overseas operations told SCMP. According to the same source, Antpool settled on the Rockets due to their status as the “#1 team in China.” The news follows last month’s announcement that the company will build a data center in Rockdale, Texas, as part of its plan for US expansion. Antpool has also pledged to sink $500 million in Texas’ economy over seven years.

Why it’s important: The high-profile deal is intended to bring more public attention to Antpool’s operations. While Bitmain still dominates the field of cryptocurrency mining gear, Bitcoin and other currencies have dropped in value since their peak last December. In addition, the audience for crypto remains limited, as a recent iQiyi documentary called Bitcoin Girl strives to show. Bitmain is not the first to attach itself to a big-name sports team; in January, Arsenal welcomed US company CashBet Coin as the soccer club’s “first official cryptocurrency partner and official blockchain partner.”

Briefing: ZTE sells Shenzhen property after huge losses

Bailey Hu — Fri, 21 Sep 2018 06:42:24 +0000

Cash-Strapped ZTE Sells Shenzhen Property–Caixin Global

What happened: ZTE, China’s second biggest telecom equipment manufacturer, has signed an agreement to transfer land and property holdings in Shenzhen. In the first half of this year, the company suffered record-breaking losses after the US government singled it out for selling American-made products to Iran. The Trump administration backed off from cutting off ties to ZTE’s US suppliers, but still leveled a $1.4 billion fine in a deal reached in July. ZTE did not specify the total sum it will gain from selling the property in Shenzhen. It did, however, state that its first installment will be worth RMB 2.2 billion ($321 million).

Why it’s important: ZTE stated that it expects to be profitable once again in the third quarter, drawing at least RMB 24 million. According to Caixin, though, ZTE’s net loss may eventually reach RMB 7.8 billion. In addition, on Wednesday, the US Senate introduced a bill proposing to reinstate harsh bans on ZTE if it violates the terms of the July agreement. The bill has yet to pass, but it reflects ongoing scrutiny of the company in the US, as well as deeply held suspicions towards the actions of Chinese enterprises.

Briefing: Alibaba will no longer bring 1 million jobs to US, Jack Ma says

Bailey Hu — Thu, 20 Sep 2018 04:41:13 +0000

Alibaba’s Jack Ma backs down from promise to Trump to bring 1 million jobs to the US–CNBC

What happened: In a meeting with President Trump before his inauguration last January, Jack Ma declared that Alibaba would bring 1 million jobs to the US over the next five years by connecting local businesses to Asian customers. Yesterday, the cult company leader retracted his pledge in an interview with Xinhua, explaining, “[the] promise was made on the premise of friendly US-China partnership and rational trade relations.” Despite the ongoing trade war, however, Ma said that Alibaba would keep “working hard to contribute to the healthy development of China-US trade.”

Why it’s important: Analysts have been skeptical of Jack Ma’s lofty claim from the start, so the announcement doesn’t come as a huge surprise. It does highlight the ongoing impact of the China-US trade conflict, however, which increasingly promises to be a painful and drawn-out battle. Ma’s reneging on his promise comes shortly before China’s planned tariffs on an additional $60 billion of US goods. The taxes are an apparent retaliation against the US White House, which announced tariffs on Chinese imports worth $200 billion on Monday.

Briefing: Pony.ai aims for 200 self-driving taxis by next year

Bailey Hu — Wed, 19 Sep 2018 06:44:22 +0000

China’s Waymo challenger Pony.ai hits the accelerator to speed up to a robotaxi fleet of 200–South China Morning Post

What happened: At the World Artificial Intelligence Conference in Shanghai yesterday, autonomous driving startup Pony.ai announced that it plans to expand its fleet of self-driving taxis to 200. The company aims to have around 100 vehicles each in China and the US by early next year. Company co-founder and chief executive James Peng didn’t provide a specific date, but the expansion would be a significant step up from its current 20 taxis. According to Peng, Pony.ai’s current goal is to “build a fleet” and “achieve scalability.” Additional vehicles would help provide more data, and push the company further towards commercialization.

Why it’s important: Alphabet’s Waymo currently leads the autonomous taxi pack, and in March ordered 62,000 more minivans for its fleet. Although Pony.ai still lags far behind, Peng showed confidence in the company’s ability for “fast iteration” in a field with vast potential for development. But it may be a rough road ahead – Pony.ai has to contend not only with international competitors, but also startups like Jingchi as well as Baidu, Alibaba, and Tencent.

Briefing: US lawmakers question Google over China search engine

Bailey Hu — Fri, 14 Sep 2018 04:21:29 +0000

Google’s China plan spurs inquiry from U.S. lawmakers, staff departures–Reuters

What happened: Yesterday, a bipartisan group of 16 US lawmakers addressed a letter to Google questioning the company over its reported plans to re-launch its search engine in mainland China. In the letter, the lawmakers said they had “serious concerns” over possible concessions to local internet regulations, and asked whether Google could ensure that Chinese citizens and resident foreigners alike “will not be surveilled or targeted through Google applications.” The letter follows similar concerns expressed by human rights groups, 6 US senators and over a thousand of Google’s own employees. In response to the issue, Google has stated that a search engine for mainland China “is not close to launching,” and that any work on such plans are still “exploratory.”

Why it’s important: Last month’s announcement that Google might re-launch a censored version of its search engine in China has made waves around the Western tech world. Critics say that in considering such a move, Google is compromising its own motto: “don’t be evil.” The latest letter from lawmakers continues to put heat on the internet giant, and demonstrates concern over Google’s plans in the US that crosses party lines. It also comes ahead of Google’s appearance at a September 26 US Senate panel, where it will face questioning over privacy issues.

Reactions to JD founder’s alleged sex crime show just how far #MeToo has to go in China

Bailey Hu — Wed, 05 Sep 2018 10:27:31 +0000

Let’s talk about the alleged sex crime and subsequent arrest of JD.com chief Liu Qiangdong. After all, everyone else is.

US police say that the allegation of first-degree rape, which reportedly took place in Minneapolis, is still under investigation, although they’ve released Liu from custody and allowed him to return to China. JD.com has consistently stated that their founder is the victim of ungrounded accusations.

Meanwhile, the Chinese internet remains aflutter. Four days after the initial arrest, “Liu Qiangdong incident eyewitness” was still ranked at the top of Weibo searches, with 1.8 million hits.

Weibo screenshot from Sep 4 2018

Click the keyword and you’ll find many, many police mug shots of Liu Qiangdong, as well as (unconfirmed) receipts for 32 bottles of expensive wine on the night that the alleged crime took place.

Accompanying headlines – “Woman in Liu Qiangdong incident revealed to have been pressured to drink lots of wine ” – and content paint a picture of a powerful tech titan using his money and privilege to (again, allegedly) take advantage of someone.

Look more closely, though, and you’ll find another, equally ugly narrative. Dotting Weibo posts and WeChat groups are photos of a busty babe in a series of revealing outfits, who some netizens claim was the victim. You can almost hear the air quotes around the word, not-so-subtly shifting the blame from attacker to the attacked.

In fact, the woman is Chongqing net celeb Jiang Jieting, who has since publicly announced that she has no connection with the case and is planning to file a legal complaint against rumormongers.

By that, she’s referring to posts and even articles over the last few days that have called her out or compared her to Liu’s wife, slimly-built Zhang Zetian of “milk tea sister” fame. The implied question – who would you/Liu Qiangdong pick? – has been answered in microblogs like the ones below.

A Weibo user contrasts pictures of the two, concluding that “I still choose ‘milk tea’ [Zhang Zetian]”

Obviously, unsavory gossip on social media isn’t an accurate reflection of China as a whole. But it shows that national discussion of sexual assault, as well as gender-inflected balances of power, still revolves in part around staid attitudes towards women.

As the online furor around Liu Qiangdong’s (still alleged) crime continues, a likely unrelated woman has been drawn into the fray and cast as a seductress. And while netizens have expressed sympathy for Zhang Zetian, others have implicitly criticized her appearance. It’s not exactly a triumph of feminism.

Elsewhere in the Chinese tech world, ride-hailing companies are still dealing with the fallout after two female passengers were murdered by Didi Hitch drivers over the course of four months. While Didi has rushed to make amends and add safety features, multiple media outlets and observers have questioned the design of the carpooling service in the first place. By marketing it as a way to meet pretty women and letting drivers leave comments on passengers’ appearances, China’s biggest ride-hailing app may have set the scene for abuse.

Similarly unhelpful, although for opposite reasons, were online recommendations for Chinese women to take measures like staying home at night in the wake of the first Didi murder case. As SupChina reported, a professor at Chinese People’s Public Security University drew particular criticism for his impractical and sometimes insulting suggestions.

This past July, women and men in China’s burgeoning #Metoo movement were making waves as well as headlines for standing up against powerful people in a range of industries. A little over a month later, news of Liu Qiangdong’s arrest in the US has again highlighted the issue of sexual assault, but without empowering anyone in the process.

Briefing: JD.com founder arrested, then released for sexual assault in the US

Bailey Hu — Mon, 03 Sep 2018 02:24:23 +0000

Chinese billionaire under investigation over sexual assault allegations in Minneapolis–Washington Post

What happened: JD.com founder and chief executive Liu Qiangdong was arrested last Friday night on suspicion of sexual misconduct in the US city of Minneapolis. Financial Times quotes two sources as saying that a Chinese student at the University of Minnesota was the victim of the alleged assault. Liu was released the following day, and police say that the investigation is ongoing. On Sunday, however, JD.com released a Weibo statement claiming that Liu was in the US for a business trip, and was arrested and questioned “based on unsubstantiated claims.”

Why it’s important: In July, Liu was identified to be indirectly involved with an Australian sexual assault case. Although he was not charged for any crime, the multibillionaire reportedly tried to keep his name out of the press. The most recent case subjects Liu to scrutiny once again just as discussion of corporate responsibility is rife following recent ride-hailing scandals.

ofo scales back US operations amid international retreat

Chris Udemans — Thu, 19 Jul 2018 17:03:33 +0000

In ofo’s latest retreat from the international market, the company is scaling back its operations in the United States after laying off 70% of its staff in the country.

Additionally, three executives from ofo’s US business have resigned in the past two weeks, a source told TechNode. The layoffs were announced internally on July 18, with the company planning to halt operations in numerous US cities. However, exact areas were not specified.

The company has also shuttered its businesses in Germany, India, Australia, the Middle East, and parts of the United Kingdom.

ofo’s operations in the United States (Photo Credit: ofo)

The company was operating in 30 cities across the US, with plans to serve more than 100 by the end of 2018. In April, it announced that it had facilitated more than one million rides in the US during its first three months of operations.

The future of ofo’s e-scooter plans is also unknown, with sources saying it is uncertain whether they will be launched after everyone is gone.

However, a company spokesperson said the company is focussing on what it deems to be priority markets in order to move towards profitability. “We are communicating with our local markets about plans going forward,” ofo said, without specifying on which markets the company plans to focus.

Nonetheless, talk of ofo’s financial woes has been circulating for the past few months. In June, a source told TechNode that the company had laid off nearly half of its 60 employees at its Singapore office. Additionally, ofo co-founder Yu Xin denied claims that the company was retrenching 50% of its staff in China due to cash trouble. The company countered news of the layoffs by sending lawyers letters to media companies involved in writing what the company referred to as slanderous and defamatory articles.

After Australia, ofo exits Germany amid push into priority markets

Interestingly, Xu also denied that its international operations were being shut down following the departure of COO Zhang Yanqi. However, in early July ofo announced that co-founder and CEO Dai Wei would begin overseeing its global business.

In addition, ofo’s Chinese business began selling advertising on its bicycles and in its app in May. This, however, was short-lived as some cities moved to ban placed ads on bikes. This, along with a limitation on the number of bicycles allowed on city streets and an imposed lifespan on bicycles, has made the bike-rental industry a difficult one to make profitable.

Ofo applies for e-scooter scheme license in San Francisco

Frank Hersey — Mon, 11 Jun 2018 04:16:41 +0000

Ofo is one of 12 companies including Lyft and Uber applying for licenses to run an electric scooter hire scheme in San Francisco. Ofo’s protracted application for a permit to run the city’s first bike share scheme was rejected by authorities, meaning the US scooter craze could be the bike company’s chance to have a visible (bright yellow?) presence in the tech center.

The quality of the Chinese unicorn’s bicycles is much derided and although the company does not yet have a scooter design, it would launch thousands of scooters in via its new scheme in summer 2018 if granted a license, as wells as e-bikes across the US, according to the head of ofo North America.

San Francisco’s steep learning curve

Ofo faces tough competition and an even tougher local authority. Five companies will be picked by San Francisco’s transport agency to join a year-long pilot, according to PitchBook. In the first six months there will 1,250 scooters on the streets and, if deemed successful, the number could be doubled for the rest of the year.

Scooter heavyweights Bird, Spin and Lime which already run e-scooter hire schemes in the city have applied as have car ride-sharing firms Lyft and Uber (via Jump, the scooter brand it bought). The other companies are Scoot, Skip, Razor, Hopr, USSCooter and Ridecell. Companies already running schemes in San Francisco were ordered to remove their scooters from sidewalks by June 4.

Jump already operates a dockless electric bike share in San Francisco after winning the city’s only permit to operate a pilot in January 2018. Ofo, which has its US HQ in San Francisco, had worked with the city’s authorities for six months to try to secure a place in the pilot and complained about the process.

“Tens of thousands of e-scooters and e-bikes”

Chris Taylor, head of ofo North America took to Medium to declare ofo’s plans: “We’re about to kick things into an even higher gear in the US — literally and figuratively — with the introduction of tens of thousands of e-scooters and e-bikes in the summer of 2018.”

Taylor explains how the e-scooters and bikes that can be pedaled with a battery boost will fit into the range:

“While our traditional bike will remain the backbone of our dockless fleet, our pedal assist e-bikes and e-scooters serve different needs. Our traditional bikes are versatile and easy to ride; our e-scooters will be terrific for shorter, zipier trips around cities; and our e-bikes are ideal for longer trips and hilly terrains. The expanded ofo lineup will be the largest, best-built, and most reliable for consumers in the industry.”

The image accompanying Taylor’s announcement shows a typically yellow e-scooter with ofo branding, and also a clear Segway logo. Segway was acquired by China’s Ninebot in 2015 and is backed by Xiaomi. Ninebot is already making the scooters for Bird, Lime, and Skip.

Ofo is bullish about its US future. According to Taylor, the company is “now serving more than 30 US cities, with the aim to be in at least 100 by the end of this year.” Meanwhile, our reporting in Singapore finds signs that ofo is struggling to pay the bills and a warehouse may be selling off ofo bikes.

ZTE prepares to resume operations as US-China trade tension relaxed

Nicole Jao — Wed, 23 May 2018 10:13:50 +0000

As Washington and Beijing prepare to move forward with a deal that would lift the sales ban on ZTE, the Chinese telco has reportedly been busy getting ready to resume the operations that were ceased due to the ban.

The seven-year sales ban imposed by the US in April, which stopped US firms from supplying chips and components to ZTE, has forced the Chinese telco to halt some of its major business operations.

While the deal has not been finalized yet, ZTE is reportedly putting an action plan in place and making sure it is able to resume its business operations soon as the ban is lifted according to local media reports (in Chinese).

Now that the air has started to clear for ZTE, “all that’s left is the condition and the timing [of ZTE’s reprieve],” a ZTE employee said, quoted by Cailian Press (in Chinese). “Now compliance is the number one priority. After the ban is lifted, the company should be resuming its operations within hours,” the sources added.

Yesterday, Reuters reported that the reprieve for ZTE could include China removing tariffs on imported US agricultural products and pledging to purchase more farm goods.

With major operations shutting down and clients pulling out of deals, ZTE is reportedly seeing at least RMB 20 billion ($3.1 billion) in losses from the sales ban.

Venture capital firm GGV raises 1.5 billion in new RMB fund

Nicole Jao — Thu, 03 May 2018 11:33:19 +0000

GGV Capital has raised close to RMB 1.5 billion in its first RMB fund, the venture capital firm announced in a press release. The new RMB fund will focus on early stage and growth stage startups in areas including internet services, consumption upgrade, cutting edge technology, smart hardware, corporate services, and digital services.

Founded in 2000, the venture capital firm has invested in over 200 companies in the US and China including Alibaba, Airbnb, Xiaomi, Didi Chuxing, and Square. GGV operates in both China and the US with offices in Silicon Valley, Shanghai, and Beijing. GGV was one of the first venture capital firms in Silicon Valley to invest in Chinese companies. The firm currently manages 8 USD funds and one RMB fund. With the new RMB fund, the company manages over USD 4 billion worth of assets.

Faraday Future shows off the FF91 at exclusive test drive event

Nicole Jao — Tue, 09 Jan 2018 10:05:13 +0000

Faraday Future had a test driving event on Monday to show off the prototype of its flagship FF91, exactly a year after they unveiled the electric luxury car at last year’s Consumer Electronics Show (CES) 2017 in an overly hyped-up reveal.

According to local media (in Chinese), only a handful of journalists and guests were invited to the exclusive event that was located not far away from the Las Vegas Convention Center, where CES events are held. Representatives from Lenovo and Haier, as well as Fang Xingdong—the founder of ChinaLabs embroiled in controversy lately—were reportedly on the guest list

The electric vehicle startup had a tough year in 2017, to say the least. Bad news seems to haunt the automaker non-stop, including FF’s main financial backer Jia Yueting being knee-deep in financial woes and the departure of three top executives as its manufacturing stalls. Much has been written about the company’s struggles and empty promises ever since it debuted the FF91.

At the test drive event, an FF executive said the company’s financial problems have been alleviated and 75% of its suppliers have resumed their operation. However, the representative refused to comment further on the source of funding.

Image credit: ThePaper.cn

The FF91 has gone through some modifications since its debut last year, including the replacement of the interior and exterior rearview mirrors with a display screen and cameras. The FF91 is kitted out with sensors that enable full level 3 autonomous-driving capabilities and partial level 4 autonomous-driving features.

Image credit: ThePaper.cn

According to the reporter who got to test drive the FF91, the test drive went smoothly for the most part, but there were a few minor hitches including tire burnouts and a rear door malfunction. The company’s corporate communication executive told local media that “The funding issues did hold up the production, but now we are doing series of testing including engineering verification tests. For example, we are testing the vehicle on extreme road conditions to ensure its reliability… We are planning to deliver a small batch by the end of this year…”

The official price of the FF91 has yet to be released, but it is rumored to start at $120,000. “We are not matching Tesla’s price point,” the company said. Adding that they are comparing themselves to luxury car brands like Bentley and Rolls-Royce, but with a significantly lower price.

China, US cooperates on satellite navigation to offer better GPS & BeiDou services

Timmy Shen — Fri, 08 Dec 2017 08:10:51 +0000

China seems to move a step forward in the field of satellite navigation technology, as China and the US have cooperated to establish compatible signal characteristics that will both protect and advance service quality for GPS users and those of the Chinese BeiDou Navigation Satellite System (BDS).

The news broke earlier this week that the US and China has signed a joint statement on civil signal compatibility and interoperability between the Global Positioning System (GPS) and the BeiDou Navigation Satellite System (BDS). This means that users can receive BeiDou signals with GPS devices, and vice versa, ensuring a more accurate system.

In fact, the two countries have worked together for three years on the matter. The joint statement pointed out that in May 2014 China Satellite Navigation Office and the Office of Space and Advanced Technology, US Department of State jointly established the US-China Civil GNSS Cooperation Dialogue—a bilateral government-to-government mechanism to promote cooperation between the US GPS and the Chinese BDS.

“Over the past three years, representatives and experts from both sides have studied and discussed various topics related to civil service provision and user applications, among which BDS compatibility and civil interoperability with GPS is one of the core focus areas,” wrote the statement, adding that both sides have carried out extensive in-depth analysis, and have engaged in persistent discussion and coordination.

It’s worth noting that China is progressing in the field by allying with the US. “Both sides agree to continue their consultations and cooperation related to compatibility and interoperability in order to provide better services for global users,” wrote the statement.

Chinese microlender Lexin files for a $500m US IPO

Timmy Shen — Tue, 14 Nov 2017 03:31:58 +0000

Lexin Fintech Holdings, an online microlending platform targeting young Chinese consumers, on Monday filed for IPO in the US to raise $500 million.

According to the company’s IPO prospectus, Lexin plans to list on Nasdaq under the stock code LX. The joint book runners include Goldman Sachs (Asia), BofA Merrill Lynch, Deutsche Bank, and China Renaissance.

Founded in 2013, the Shenzhen-based company taps the growing spending power of China’s younger generation and saw $810 million in revenue for the 12 months ended September 2017. Also, the company had 3.3 million active customers during the nine months ended September 2017, up 34% from the prior year, as Nasdaq’s website pointed out.

It’s worth noting that Lexin is backed by China’s e-commerce giant JD.com, which in March spun off its own lending unit, JD Finance, in a $2.1 billion deal.

The prospectus shows that Xiao Wenjie, Lexin’s founder and CEO, along with other senior executives together hold 37.3% share of the company. No pricing terms were disclosed.

China has seen a US IPO spree in the fintech sector. Qudian, which listed last month, raised around $900 million in an IPO in New York. It later, however, came under fire when local media began questioning the company’s sustainability and morality. Besides Qudian and Lexin, other Chinese micro lending players, such as PPDAI, Hexindai, and Rong360, have also filed with the SEC for a US IPO.

There is, however, growing risk in the microlending market as the data isn’t always reliable, customers are able to take out multiple loans from different lenders, and collection mechanisms are not yet robust.

Ofo launches in US capital, hopes to conquer US market within a year

Timmy Shen — Tue, 10 Oct 2017 23:48:12 +0000

Ofo, China’s leading bike rental company, announced October 10 its launch in Washington, D.C., following Seattle and Massachusetts.

The fast-expanding firm will deploy 400 of its yellow bikes over the course of its first week, as the local government only allows 400 bikes on the streets during the “demonstration stage.” The local regulator appears to be extra cautious with the bike number, especially when ofo’s rival Mobike also launched in the same city last month.

“The US government is taking a more careful approach,” Grace Lin, Vice President of ofo US, told TechNode during a phone interview. “[The local government] want to make sure the dock-less operators can be a major part of the city instead of bringing in something they can’t control,” she said.

Ofo launches in Washington, D.C., follwing Seattle and Massachusetts. (Image credit: ofo)

Users in the US capital can now download the ofo app to locate nearby bikes, scan the QR code to unlock, and will be charged $1 for each one-hour ride.

“I believe we’re changing their way of transportation here,” said Lin, adding that the company’s operation in Seattle starting about two months ago has seen some positive feedback and has deployed about 2,000 bikes in the city. “We’ve seen so many adoptions. It’s very encouraging for us.”

“We anticipate that in all major cities and some smaller cities, dockless bike share will be one of their [the locals] major transportation methods,” said Lin. “I believe it’ll happen just in a year. We will try to make it happen.”

While ofo’s operation in China has been widely criticized for its vandalism issues and the uncontrollable amount of broken bikes, it may be a different story for the company’s US expansion.

“I don’t believe anything like this [vandalism] will happen in the United States,” said Lin. “For the US market, we will not start with a lot of bicycles, although each city will end up with a reasonable amount of bicycles to make the service convenient enough for users,” she said.

“The US is not a market where quantity is the most important thing,” said Lin.

Founded in 2014, ofo now operates in over 180 cities across 15 countries and generates more than 25 million daily transactions. Washington, D.C. marks the startup’s fourth official city in North America, in addition to Seattle, Washington; Worcester, Massachusetts; and Revere, Massachusetts. The company plans to expand to Aurora, Colorado and some more cities in Massachusetts within the month.

Mobike lands in Washington D.C., their first US city

Timmy Shen — Thu, 21 Sep 2017 07:19:13 +0000

Mobike, a major Chinese bike-rental company, has just placed their first batch of bikes in the capital of the United States as part of its ambitious global expansion plan.

Closely following its largest rival ofo’s footprint, Mobike chose Washington D.C. as the first city in America to start running its business, whereas ofo just a month ago launched services in Seattle (in the state of Washington) with 1,000 bicycles for rent at $1 per hour.

As local governments of major cities in China have halted more bike placements, it’s no secret that the two bike-rental companies from China both vie for market share overseas, following their success in the domestic market which has seemingly been saturated.

“We are thrilled to call Washington D.C. Mobike’s first home in North America,” said Hu Weiwei, CEO of Mobike, in the company’s press release. “Mobike is committed to developing a global bike share culture by collaborating closely with cities, and the US capital is key in achieving this. We look forward to working with more cities across the nation to make cycling the most convenient, affordable, and environmentally friendly transportation option for residents and tourists alike.”

To better serve the local riders, Mobike has partnered with US telecom giant AT&T and Qualcomm. With the internet-of-things (IoT) partnership along with Mobike’s app, local users are able to locate, unlock, and pay.

“We are working with a number of cities across the country and are confident this successful pilot will be the first of many partnerships, allowing us to make cycling the most convenient and affordable choice for transportation all around America,” said Rachel Song, General Manager of Mobike US, in the statement.

Prior to the United States, Mobike has debuted in Malaysia, Singapore, Thailand, Japan, Italy, and the UK, while ofo has also launched its dockless bikes in Singapore, Thailand, Kazakhstan, Austria, Britain, and the US.

How Chinese tech firms are changing global markets: Q&A with Hagai Tal, CEO of Taptica

Sheila Yu — Wed, 24 May 2017 03:59:49 +0000

As China’s domestic market continues to develop, many of the country’s internet giants are beginning to look elsewhere for future growth prospects. As growth slows and the market becomes saturated, companies including Tencent, Alibaba, and many others are eyeing not just Southeast Asia, but also Israel, the US, and the EU.

To learn more, we talked with Hagai Tal, CEO of Tel Aviv-based mobile advertising company Taptica. He has invested, led and developed companies for growth, continued investment, and IPO/disposal, including Kontera, Amadesa, Payoneer, BlueSnap (formerly Plimus), and Spark Networks (NYSE: LOV). He is a Fellow of the third class of the Middle East Leadership Initiative of The Aspen Institute and a member of the Aspen Global Leadership Network.

How active are you in China?

We have an office in Beijing with around 10 people already. We are serving clients like Cheetah Mobile, Tencent and other big guys, like Alibaba. We help them first of all to find a channel for us to form a relationship with customers outside of China. So our biggest asset value will be helping those companies to figure out what to do when it comes to companies in the West. Sometimes we get involved in the content as well.

But the majority of our help is to help them to figure out which market is the right market for them. The Chinese market is an interest for us because we see the mobile proliferation in China. We see companies in China that have a lot of potential to grow.

Hagai Tal, CEO of Taptica

In recent years, most of them are trying to grow outside of China, either through just distributing their content or buying companies outside of China. So we’re seeing a lot of activity coming from the Chinese market. And I have to say that in the recent years, also there’s some sort of matureness in the Chinese market, where in the past it was more a jungle, you know, everyone was trying to do different things. Now it’s becoming much more organized and there are more standards.

And there’s much more interaction between China and Western countries, so also the way of doing business and communication between both sides are becoming better and better. Payment terms are better, legal stuff is becoming easier to run.

What do you think is driving this shift?

Most of the companies we are dealing with are public. So I think the public market already gave them a high valuation and they’re all trying to find ways to continue to increase the growth or the keep the growth they have. They all understand that it’s probably outside of China that will be the best way for them to do it.

They all seem to hire people who have the language, buy companies who can give them the bridge to get those countries invested in money in order to try to market their products and fit their product to different market. When we go to the contracts, we see a lot of people knocking on the door and asking questions about how to get to users outside of China.

How is the Chinese focus on revenue growth affecting the global markets?

There are different ways of different stock markets around the world. You know, there’s NASDAQ everyone is looking at. We are a public company on London stock exchange. There’s also Chinese companies going public in China. Currently, there’s sort of an arbitrage between the valuation the company gets in different markets and different markets have different ways to measure a company. In London, if you have the EBITDA, then you can get the valuation whereas in China if you have the net profit, you can get the valuation. So there’s a big focus on the net profit.

Now, at the same time, the net profit of many companies, especially those in the gaming sector, in China is very high. It’s much higher than other places. So there is an arbitrage between the different markets. It means that on the mobile client, China is very high to companies in my space, that if we get approached by companies from China, we need to adapt or we need to see the same way that the Chinese are looking into the companies. And they do look at the net profit and because of that, we need to think about how to present the company in the net profit as well.

The Chinese, because of what we mentioned before, they need to keep the growth that they have. They need to buy companies. They need, if a Western company wants to be bought by the Chinese, they need to understand how the Chinese are looking into it. They can’t just compare with the EBITDA where they do it in London Stock Exchange, they have to look at the net profit.

It’s not so bad because the Chinese are looking at cash. Really how much money you’re generating, where the rest of the players are looking at the stories around it and the future potential.

How do you think this will affect companies that are attracting Chinese-led investment?

They’re not just looking for companies to buy, they’re also looking for management or people who can manage for them.

They’re not necessarily coming into the company and saying, “We know how to do it better than you, you’ve got to do whatever we tell you.” They see it a different way, they say, “We don’t understand all this. We want you to continue running the business.”

They want the management to stick around, they build the contracts around the composition of the management if they stick around. They have no interest in getting involved in the daily running of the business.

What about innovation? Will Chinese ownership affect the innovation of these companies?

I don’t think that statement is relevant anymore to the future. I think the Chinese are becoming innovators. You know, I saw these new bike-rental companies. I think this is great. This is innovation. I think the Chinese maybe have been copying in the past few years, but I think in the recent year or two, the Chinese have become more innovative.

You know, for us, we can’t be innovative only for the people who live in Israel because the market is too small. But for the Chinese, they don’t need to go so far. They need to look at their local history they have. And then if you look at the mobile devices in China, it’s innovative already. You know, I’ve gone to the conferences, I do think there’s been design in China already happening.

The culture gap between China and the west is getting smaller and smaller and we’ll see much more innovative people. I see Chinese starting to grow mostly in the US. They come back now to China. They can be a good group of people that can lead innovation in China.

What about problems in communication? Do you see that as a possible stumbling block?

In ten years’ time, we’re all going to be on the same standard. Whoever is not operating on the same standard will be left behind. Because Chinese companies need to compete globally, and not just with other Chinese companies, they will have to change how they communicate.

How ofo is bringing China’s latest export to the rest of the world

Emma Lee — Tue, 28 Mar 2017 01:58:29 +0000

Ofo, China’s latest bike-rental unicorn that Apple CEO Tim Cook paid his tribute to during China visit, is looking beyond the borders of the middle kingdom.

“The act of bike-sharing could someday become a lingua franca, connecting people around the world,” said Dai Wei last week at Boao Forum for Asia.

The company’s bold global expansion initiative comes as arch local competitor Mobike and a group of smaller players are looking at the overseas market. However, it’s still not clear whether it’s a smart move for the new upstart company to open a new battlefield in comparatively developed markets while it’s still entangled in a tough war with domestic players.

Apple CEO Tim Cook (center right) with ofo CEO Dai Wei (center left) (Image credit: ofo)

Where’s ofo overseas now?

Amid hot local competition with Mobike and a slew of smaller rivals, ofo has expanded strategically since the end of last year.

Companies have their own expansion styles, so it didn’t surprise us when ofo rolled out its service in Singapore earlier this year as the first Chinese bike-rental company to operate overseas.

Up to now, ofo Singapore has launched thousands of bicycles, attracted tens of thousands registered users, according to the company. They also say they have been running trials in San Diego and London area.

“Ofo chose those areas because of the strategic locations for further expand into the US, Europe, and South East Asia,” said a spokesperson.

Closed areas and beyond

Founded by Peking University alumni, ofo was born out of a project to address campus transportation problems and gradually developed into a cycle-rental platform for urban residents. The Beijing-based startup takes closed or semi-closed areas like the office parks and college campuses as their entry points for overseas market.

However, it is widely believed expanding beyond small communities and schools would be difficult for the company in the U.S. or other foreign countries, given they are far less populated than China and have higher car penetration rate. Furthermore, people would consider bike cycling more of a lifestyle or recreation than a transportation means.

“Surprisingly, the demand for bikes are quite high in many cities in foreign countries. The demand for short-distance commute is high in a lot of places, people are not biking mostly because of the lack of convenient means,” said the spokesperson. “Most bike-sharing programs in foreign countries are the ones with docking stations, usually expensive and do not have wide coverage.”

Bike sharing is nothing new for the US nor the UK. But in old bike-sharing programs, like New York City’s Citibike, the expensive cycles are borrowed from and returned to docks in inconvenient locations. Citibikes, at $163 dollars a year, are also prohibitively expensive for many. The Chinese company is having an edge with a much cheaper alternative of 1 RMB ($0.15) to the crowded metro or the gridlocked highway.

Localization and regulation

The company plans to adopt localize in accordance with regional laws and regulations, as well as the preferences of local users. For example, ofo’s signature yellow bike is larger in the US and UK markets to better fit the figures of local cyclists. The company has also added lights to its bikes to stay compliant in the US.

“The challenge is to adapt to the local market, not just from an operational angle, but also culturally. We don’t see it as an obstacle but a challenge which any services would face when going to a foreign country,” said the spokesperson. “Ofo believes with its experience and values, more markets will see the potential of our value and services.”

“Ofo is working with municipality management and help with making rules and regulations which will contribute to a more orderly city planning in the places we operate in,” they added. “The countries we have started our pilot programs are very supportive of ofo’s operation plan.”

2017 could see China dominate in artificial intelligence

Junse Lee — Wed, 01 Mar 2017 08:20:19 +0000

This year could be the year China solidifies it’s lead in artificial intelligence.

The growing presence of Chinese AI was strong enough to affect the date and location of the 2017 Association for the Advancement of Artificial Intelligence (AAAI) conference, in which top AI researchers, scientists, practitioners, and invited speakers were held in one place. When AAAI first announced the 2017 meeting will be held in New Orleans in late January, Chinese AI experts were not pleased, since the dates happened to conflict with Chinese New Year. In the end, the meeting was relocated to San Francisco, CA in February instead.

While top-level AI experts are still from North American and the UK, over 40% of the leading AI research papers in the world are published in Chinese. Chinese researchers also have the advantage of being able to speak both English and Chinese, giving them access to a much wider knowledge pool. The language barrier creates an information asymmetry of the West and the East allowing a room for the Chinese to dominate the field.

Moreover, Chinese government’s full support and investment has been the major fuel for the growth of the field. The government spending on science and technology research doubled its digits every year for the past decade, as outlined by the 2015-2020 Five-Year Plan . According to the plan, which contains little concrete details on the exact numbers and measures but a long list of priorities instead, Beijing promises to increase its R&D investment for 2.5% of the gross domestic product, compared with 2.05% in 2014.

As a part of the government’s ambitious plan to become a global leader in AI, Chinese National Development and Reform Commission (NDRC) recently approved the plan to set up a national artificial intelligence lab for researching deep learning technologies. While major Chinese top tech companies like Baidu, Didi, and Tencent are all betting on AI, Baidu will be in charge of the lab in partnership with other Chinese elite universities such as Tsinghua, the Beijing University of Aeronautics and Astronautics, and other Chinese research institutes.

The online lab is responsible for researching topics in seven major fields: machine learning-based visual recognition, voice recognition, new types of human-machine interaction and deep learning intellectual property. The project will be led by Baidu’s deep learning institute chief Lin Yuanqing and scientist Xu Wei, along with academics from the Chinese Academy of Sciences, Zhang Bo and Li Wei. The goal of the project is to enhance efficiency and to boost China’s overall competence in AI by designing a machine that mimics human brains’ decision-making process.

“As an open platform itself, the national lab will help more Chinese researchers, companies, and universities to access the most advanced AI technologies in China,” said Yu Kai, the former head of Baidu’s deep learning institute and a lead of NDRC lab project.

While the exact size of the investment involved is yet to be revealed, the highly competitive Chines AI environment demonstrates the enormous potential China has to unlock.

This Silicon Valley VR startup is poised to capitalize on China’s burgeoning VR market

Eva Yoo — Thu, 12 Jan 2017 02:28:29 +0000

The VR industry is grappling with a serious chicken or egg question: what will open the market, accessible hardware or killer content? uSens, a Silicon Valley-based VR company, thinks that this question is looking in the wrong direction.

“People keep complaining about the lack of content in the VR space. However, the real problem is the HMD (head mounted device). It is not good enough because it doesn’t provide natural HCI for developers to create intuitive content and they cannot think about any good use of HMD,” Dr. Eunseok Park, General Manager at uSens told TechNode. Dr. Park previously served as a researcher and overseas R&D director for five years at Samsung, and will now help uSens expand within Silicon Valley market.

uSens, a provider of hand-and-head tracking technologies for augmented and virtual Reality, announced last week that its technology is now compatible with the Epson’s AR smart glasses. Epson Moverio BT-300 Developer Edition augmented reality smart glasses can add uSens hand-tracking capability through a uSens Fingo module connected via USB cable.

“HMDs should be equipped with hand-and head tracking technology. We can contribute in this VR world with our head position tracking and hand tracking sensors, and VR companies can think about more use case and content,” Dr. Park added.

Last year, uSens revealed Fingo, a 100 USD hand tracking module for VR and AR headsets. With Fingo, VR and AR headset companies can equip their headset with hand-and-head tracking technology without having to hire technology lead.

As a new General Manager, Dr. Park said that he will focus on two things: to improve core technology of uSens and to facilitate AR and VR developers to work with their solution.

“We are about to release a developer kit in this year. And I also focus on finding partners for our solution. We are now discussing with several HMD companies to put our solution into their HMD device,” Dr. Park added.

Capitalizing Both Markets: VR arcade market and low-end headset market

Although investment in VR is expected to slow down in 2017 compared to 2016, VR applications will continue to develop. Besides the fact that China boasts a massive size of VR market, Chinese VR market has its own particular aspects: a rapidly growing VR arcade market and a great diversity of low-end headsets.

VR arcades are out-of-home entertainment that offers monetization opportunities. Because the high-end, PC-based VR experiences are not so accessible for most people in China, VR arcades provide the average consumer with curated VR content above the average level.

Another interesting thing about Chinese VR is that there are a lot of low-end headsets. There are over 100 types of VR headsets in China, with most of these on the lower end, comparable to Google Cardboard. Early leading HMD manufacturers include 3Glasses, DeePoon, and Baofeng Mojing.

uSens is poised to capitalize on both these trends. Selected as the best technology startup at TechNode’s 2016 China Bang, uSens focuses on creating VR tracking solution for VR headsets, not the headsets themselves.

Most Valley startups wait until their home market is stable, but not uSens. They entered the China market soon after they were founded in 2014.

“The reason why we focused on China is because we are not a headset manufacturing company but a VR tracking technology company. Our goal is to implement our tracking sensors on as many headsets as possible,” said Jan Olaf Gaudestad, head of Business Development.

Because uSens wants to be the industry standard, China is a very attractive market since China’s VR market is quickly outpacing that of the US.

“Although we usually think that US is the home for VR with leading companies such as Oculus and Leap Motion, those high-end headsets are not widely distributed to the public. On the other hand, in China, the absolute number of headsets purchased is much higher. A lot of households own low-end, cheap headsets. Our target is those low-end, cheap ones which desperately need our technology to improve the user experience,” Jan emphasized.

According to a report on VR user behavior in China by Baofeng Mojing in early 2016, the number of Chinese people that had used a VR headset at least once is over 17 million, the number of people who had bought VR headset is over 960,000, and the number of potential users is over 286 million, about one-fifth of the Chinese population.

There are so many headset companies because there are a lot of manufacturers in Shenzhen where OEMs make VR headsets. Since the strength of Chinese VR companies lies on price competitiveness rather than the level of technology, most of them have chosen to focus on mobile VR.

MJ Kim contributed to parts of this post.

Image credit: uSens

TechNode’s Top 10 “Other” Stories of 2016

John Artman — Mon, 02 Jan 2017 05:30:00 +0000

It’s official: 2016 is finally over. From celebrity deaths to surpise elections, no one could have predicted how it went. That certainly is true for us at TechNode as well. After delving into our top posts for many different verticals, we all agree that 2016 was disappointing, unpredictable, but also amazing in it’s own way.

In that spirit, we present you with our top 10 “other” stories: stories that don’t fit our usual categories.

1. This Chinese Lingerie Startup Crowdsources Their Underwear Models

Shanghai-based startup O2 (氧气) crowdsources their lingerie ads from their users. For every three sets of lingerie photographed, models receive one set for free. O2 calls their models “lingerie experience masters.”

2. Chinese Delivery Companies Are Selling ‘Empty’ Packages To Boost E-Commerce Sales

An investigative report by The Beijing News revealed China’s illegal market of “empty package scalping” (空包刷单, our translation), whereby shop owners on Taobao and Tmall inflate their sales statistics though fake package deliveries by using “empty package” service websites and delivery services.

3. Chinese New Year Special: Top 3 Memes For The “Year of the Monkey”

猴腮雷 (housailei, the Cantonese pronunciation for “very impressive” or “intense”)，六小龄童 (Liu Xiao Ling Tong, the stage name of Zhang Jinlai, famous for portraying the Monkey King), and 耍猴 (shuahou or “putting on a monkey show”) all made the list of monkey memes. We can’t wait to see what’s in store for the Year of the Chicken!

4. Meet The Chinese Tinder-Like Sugar Daddy Dating App For Students

Sudy is a swipe-based dating app that only pairs rich men with attractive women, and especially caters to college students looking for financial help on tuition fees.

5. 5 Things You Should Know About China’s Luxury Market

A look at the main trends in luxury market from 2015, including an overall decline, steady growth in some verticals, more purchases in Japan, South Korea, and Europe, crossborder e-commerce taking off, as well as brands pricing their items globally instead of regionally.

6. Lyft Looks To Didi, Apple, G.M. For An Exit Lane

After Didi agreed to take over Uber China, Lyft struggled to figure out how it could survive. At the time, they were reported to be in talks with different companies to sell the company.

7. Announcing The Winner of TechCrunch Beijing 2016 Startup Competition: Ruff

Ruff, a startup focusing on building an IoT development system, took home the top prize at this year’s TechCrunch Beijing. Lack of compatibility and standardization among devices and operating environments slow down development and release of innovative IoT solutions. By using Ruff’s platform, developers do not have to double-compile or go through another kernel.

8. This Company Is Bringing Ethereum Blockchain Tech To China’s Tech Giants

China is a powerhouse when it comes to Bitcoin trading. According to a report published by Goldman Sachs last March, about 80% of Bitcoin transactions are driven by the Chinese yuan. However, awareness around Ether, another cryptocurrency, is much lower. ConsenSys wants to bring Ethereum to China’s tech and finance giants, such as Tencent, Ping An, Ant Financial, and Alibaba.

9. Xiaomi Is Expanding Their Smart Transport Empire With Bicycles

After tackling Segway-style smart transport in 2015, Xiaomi Inc. expanded further into smart hardware. Xiaomi-backed smart bicycle company IRiding released a ‘smart’ bike called the ‘QiCycle’, as part of Xiaomi’s Mijia white-label strategy. In late 2016, Lei Jun, CEO of Xiaomi, announced they expected sales to reach 2.2 billion USD by the end of the year.

10. Is China’s Startup Incubator Bubble Set To Blow?

As more government attention is paid to innovation, more money is flowing into incubation. In April, we questioned whether or not there was a bubble in the incubation space. At the end of 2016, incubation and co-working were still going strong with no signs of stopping.

Image credits: Technode, Shutterstock

SendBird Makes In-App Messaging Easy For Developers

mjkim — Thu, 29 Dec 2016 07:30:29 +0000

This is the eleventh post in our series: Discover Korea’s Tech, where we talk to a mix of Korean startup entrepreneurs who stood their own ground with their technology in Korea’s economy notoriously dominated by gigantic companies. Stay tuned over the coming month as we talk to Korean entrepreneurs. You can follow our updates @technodechina for new stories in the series.

Take out your phone and go to the apps you use most frequently. What would say is the one feature that can be found in all of them? No matter the use case, they probably have a chat or messaging function.

Prevalence of In-App Messenger
Let’s take a look at some of the most predominant platforms in China. On Didi’s app, the biggest ride-hailing App in China, users exchange messages with their drivers. On Taobao’s app, the biggest C2C e-commerce platform, you can use Alibaba Trade Manager (阿里旺旺) where consumers can talk with sellers one-on-one to learn more about the product or even ensure the authenticity of the product and reliability of the seller.

This kind of in-app messenger helped lessen trust issues for ever-increasing decentralized C2C platforms where individuals exchange among themselves without the company in the middle.

Don’t Reinvent the Wheel
Although it is possible for all these service platforms to develop their own messaging function, why would you want to do recreate a service others have already perfected?

“Don’t reinvent the wheel,” says Mark Lee, Head of Growth at SendBird, a Silicon Valley-based startup that just graduated from Y Combinator’s 2016 batch last March.

Snapshot of SendBird integration (Image credit: SendBird)

The point is that services such as SendBird are there to help platforms establish in-app messaging in just minutes, the whole package from the front-end UI to the backend. This way, startups can focus more on the core business and reduce the cost of developing and maintaining the API. For instance, on an e-commerce platform, the company can fully concentrate on their commerce business, while SendBird implements the best chat API inside the platform to facilitate transactions.

“When Chinese platforms enter the global market, they would seek for the global service providers for their functions inside the platform,” Mark added.

Although in the domestic market, it is common to use Chinese service providers such as AliCloud whose servers are all in China. However, in global markets, partnering with global service providers who can handle the traffic from all over the world is absolutely crucial. This is what JoyCrafter, a Beijing-based gaming company thought when entering the global market. In publishing a game called ‘World Warfare’ worldwide, it partnered with SendBird to make sure users could seamlessly communicate with each other.

Mass Communication Embedded on Mobile and Web
In fact, in-app social functions are now more than mere one-on-one messaging but further advancing into an in-app community with open channels where thousands of users interact in interest based groups and live-events.

SendBird supports public chat room, grouping, and one-on-one messaging. (Image credit: SendBird)

“The more fundamental motivation behind chatting inside the app is to create community and maximize engagement. And to do this, scalability has to be guaranteed,” said Mark. This means that platforms should be able to handle massive amount of users at the same time.

One representation of this is on the live-streaming apps that are equipped with interactive communication. This marks the fastest growth in 2016 with Facebook and Youtube introducing their own live streaming services and Twitch, the world’s leading video platform and community for gamers. In China, a lot of live-streaming mobile apps have also flourished.

Mass communication in live streaming app in China (Image credit: Sina)

SendBird Provides Scalability
Think of the technological difference between one-to-one chat and several millions of people chatting simultaneously. The fundamental design of programming architecture is different between the two. SendBird’s strength lies in the fact that it can allow for scalability, hosting over 100,000 concurrent viewers per live video stream for maximum engagement.

Being able to maintain the reliability of the system with ever-growing traffic from all over the world purely depends on the level of technology this SDK is built on and the location of servers (Tokyo, Singapore, and Europe for SendBird).

Pikicast, the leading media contents curating platform in Korea, added massive chat function through SendBird. (Image Credit: SendBird)

“Actually, these massive communication means a lot of data, precious for the platform to better understand its users and at the same time, to facilitate the process,” says Mark. “So, SendBird provides the clients with administration toolkits which can be used to proactively monitor and moderate the chat rooms and allow for automatic filtering of profanity and prevent message flooding.”

SendBird is supported by K-ICT Born2Global Center, a major Korean government agency under the Ministry of Science, ICT and Future Planning (MSIP).

Image credit: SendBird

Analyse Asia Podcast: Xiaomi (Part 2/2) – The Future Of Xiaomi

Guest Editor — Wed, 24 Aug 2016 00:40:20 +0000

http://content.blubrry.com/analyseasia/Episode_130__The_Future_of_Xiaomi_with_Eva_Xiao.mp3

Eva Xiao from TechNode continued our discussion on Xiaomi, focusing on what kind of company Xiaomi truly is, and the current challenges they are facing to justify their US$45B valuation. We discussed the company’s recent failures to hit their 100 million smartphones target, their loss of smartphone market share, their failure to expand aggressively into international markets such as U.S and India, and their bet on Internet-Of-Things and consumer electronics. We conclude our conversation with where Xiaomi might be in five years time.

Download MP3 here (20.1 MB) or Subscribe via RSS

Analyse Asia with Bernard Leong is a weekly podcast dedicated to the pulse of technology, business & media in Asia. They interview thought leaders and leading industry players and gain their insights to how we perceive and understand the market. Analyse Asia is a content partner of TechNode.

Notes:

Eva Xiao, Reporter at Technode.com
- Xiaomi has a reputation as the “Apple of China”, even though their business model in China is much more similar to that of Amazon (with its focus on software services) or Dell, etc. Exactly, how should one perceive Xiaomi as a company – are they more hardware or software? [1:10]
  - Most of their profit is still from hardware (94% smartphones, 11/2014)
  - Innovative business model: flash sales, customer feedback, local supply chain (Foxconn, ‘made in India’), save on advertising, relies on WOM
  - livestreaming from Lei Jun to leak Mi Band 2 and Mi Max
  - Their ability to sell online (cut costs)
- Business models with software as a service for Xiaomi with in-app purchases. [2:55]
- Where is the current footprint of Xiaomi across the world? They have expanded to India and Southeast Asia, and avoided US on a whole (though recently they did partnered with Microsoft on patents and software productivity services) [5:31]
  - Singapore, Malaysia, Philippines, Indonesia, Thailand, India, HK, Taiwan, China, Brazil
- How is Xiaomi different from competitors, such as Huawei and Oppo? [8:15]
- Xiaomi has a strong fan base in China and other parts of the world – can you explain the demographic of Xiaomi users?
  - younger users
  - low-middle market
- Who are the key investors of Xiaomi? (Ref: Crunchbase) [9:15]
  - Ratan Tata from Tata Group – India, Robin Chan.
  - IDG Capital, Shunwei Capital, Qiming Venture Partners, Morningside Group, Qualcomm Ventures, Temasek Holdings
- Xiaomi has also made investments in startups. What are the key categories of their interest and important startups we should watch? [10:42]
  - hardware incubator (Huami, Zimi, Yunmi)
  - Media and content recently: Iqiyi, Hungama, Blue whale media (online business media startup)
- Can Xiaomi live up to its US$45B hype? [13:32]
  - They have not done well in 2015 with expansion in India and Southeast Asia, reaching only 70-80M target for sales as compared to the 100M target, what happened?
    - saturating smartphone market in China
    - Huawei sold 100 million smartphones in 2015, 3rd largest smartphone maker after Apple and Samsung
    - Competition in developing markets: Lenovo, Huawei, OnePlus, Meizu
    - Betting too much on IoT ecosystem [15:30]
  - Xiaomi’s reliance on contract manufacturing compared to Huawei [16:50]
- Xiaomi faced an onslaught from Huawei and other smartphone makers such as Oppo, which disrupted them from the low end. In addition, Xiaomi is unable to compete in the high-end space, compared to competitors like Samsung or even Apple with the iPhone. Where do you see them going in the smartphone space? [17:50]
- In your opinion, what are Xiaomi’s current priorities and where do you think that they will be in 5 years time? [18:53]

Baidu, Ford Invest $150M In Detection Tech For Autonomous Cars

Eva Xiao — Wed, 17 Aug 2016 06:54:03 +0000

As tech giants like Baidu and Google refine the technology to make fully autonomous cars feasible, one important barrier still stands between research and mass production: affordability.

On Tuesday, Baidu and Ford announced a $150 million USD joint investment in Velodyne LiDAR, Inc., a Silicon Valley-based company that develops laser-based LiDAR (Light Imaging, Detection, and Ranging) sensors, which are used for mapping, localization, object identification, and collision avoidance. According to Velodyne, the latest round of funding will go towards cost-reduction and scaling the company’s technology.

“This investment will accelerate the cost reduction and scaling of Velodyne’s industry-leading LiDAR sensors, making them widely accessible and enabling mass deployment of fully autonomous vehicles,” stated David Hall, founder and CEO, Velodyne LiDAR, in a press release.

In LiDAR technology, lasers bounce light waves off nearby objects to measure their distance from sensors. It’s faster than radar, which uses radio waves. As a result, LiDAR sensors can collect more data and produce more detailed 3D maps of the sensor’s surroundings. In the context of autonomous cars, LiDAR sensors help cars ‘see’ the road.

Currently, Velodyne’s latest generation of sensor, the Velodyne Puck, costs about $8,000 USD. That’s cheap compared to older generations of Velodyne sensors, which cost more than $80,000 USD. In developing the Velodyne Puck, the company scaled down the number of lasers per sensor from 64 to 16, significantly lowering its cost. Still, the company’s sensors will have to become even cheaper in order to scale to the mass consumer market.

“Baidu is developing autonomous vehicles with the intention to increase passenger safety and reduce traffic congestion and pollution in China,” stated Jing Wang, Senior Vice President and General Manager of Autonomous Driving Unit of Baidu, in a press release.

“Our investment will accelerate our efforts in autonomous driving with what, in our view, are the best LiDAR sensors available today and advance Velodyne’s development of increasingly sophisticated LiDAR sensors,” he stated.

Baidu’s investment in Velodyne marks another milestone in the tech giant’s ambitions for its autonomous driving unit. Two months ago, Jing Wang announced Baidu’s plan to mass produce autonomous cars and have them on the road within the next five years. The Chinese tech giant also launched an autonomous car driving zone in the Anhui province earlier this year and signed an agreement with the Wuzhen Tourism Bureau in July to let tourists book Baidu self-driving cars.

Baidu is also expanding its R&D resources for its autonomous car technology. In April, the company announced the formation of a 100-person R&D team based in the Silicon Valley.

Image credit: Shutterstock

China Startup Pulse Podcast: Reporting On Silicon Valley With The COO of TechCrunch

Guest Editor — Fri, 12 Aug 2016 00:18:56 +0000

https://media.simplecast.com/episodes/audio/44389/CSP.ep39.NedDesmond.mixed96.mp3

TechCrunch is a leading technology media platform, dedicated to obsessively profiling startups and reviewing new internet and tech news. In this episode, we pick the brains of Ned Desmond, the COO of TechCrunch, who joined us live at TechCrunch Shanghai this year. Ned chats with us about the hottest cross-border startups, the $6 billion USD that TechCrunch companies have raised, and also looks back on the biggest challenges that TechCrunch has faced. We also discuss the cultural phenomenon of Silicon Valley, its representation in popular media, and the impact this image has had on global startups. It doesn’t matter whether you’re in Silicon Valley or Silicon Alley in Beijing, this episode has something for every curious entrepreneur and investor!

Download the MP3 14.1 MB) or Subscribe via RSS

China Startup Pulse is a weekly podcast designed to give startup enthusiasts around the world a behind the scenes and on-the-ground understanding of what’s happening in China’s startup ecosystem. Founded and hosted by Ryan Shuken and Todd Embley, and produced by Vivian Law and David Xu, China Startup Pulse is sponsored by Chinaccelerator, People Squared, and TechNode.

TechNode does not endorse any commentary made in the program.

Meet The Robotic Suitcase That Follows You Around

Eva Yoo — Thu, 28 Jul 2016 01:41:37 +0000

Robotic suitcase COWAROBOT R1, which autonomously follows its owner, launched on crowdfunding platform Indiegogo on Tuesday. The campaign has already completed 93% of its $100,000 campaign.

Rolf Pfeifer, AI Robotic Specialist and Tommie He, founder and CEO of COWAROBOT

“Robotics and artificial intelligence are really hot topic these days, both on the investment side and the business side. However, it’s difficult to bring them into our lives,” founder and CEO of COWAROBOT, Tommie He, told TechNode.

“By using reliable sensing, controlling and AI techniques, we develop robots that can really help to improve our lives.”

COWAROBOT R1 adds robotics technology to traditional luggage. It is able to sense and monitor its surroundings in real time. Based on what it ‘sees,’ the robot will find the optimal path to walk with its owner. With an early bird price of $429 USD on Indiegogo and retail price of $699 USD, the robotic luggage can go up inclines as steep as 15 degrees, but is best used on flat and smooth surfaces.

The robotic luggage comes with an app that lets users control smart locks, record and share their luggage’s traveling path, and monitor the status of the suitcase in case it gets lost. The portable battery is inserted into the luggage and charges both the suitcase as well as external devices via USB.

“I visited most of the biggest luggage manufacturers are in Shenzhen, Dongguan and Taiwan, and found that they lack in R&D ability and were not willing to make big changes to their luggage,” Mr. He said.

“At first we wanted to co-work with them. But we soon realized that it’s impossible, so we did by ourselves.”

While hardware companies based in Shenzhen usually find local manufacturing partners to cut costs, COWAROBOT’s R&D and manufacturing units are based in Shanghai, with another office in San Francisco for distribution, marketing and branding.

Some companies are also coming up with their own smart luggage solutions including Bluesmart, Trunkster, and Andiamo iQ. COWAROBOT says they excel in detailed functions such as smart locking, portable power banks, and a one-push opening lid.

Mr. He hails from the Hirose Fukushima Robotic Lab, with a background in robotics and connected cars. After working in Japan and the US, he came back to China to focus on robotics.

“[COWAROBOT] focuses on building intelligent mobile service robots, that can help users to complete… tasks in human [daily] life,” Mr. He says.

In the future, Mr. He aims to build other mobile robot-based hardware focusing on autonomous mobility, hinting at a possible AI-enabled “a passenger companion robot.”

Image Credit: COWAROBOT

This Company Is Bringing Ethereum Blockchain Tech To China’s Tech Giants

Eva Xiao — Thu, 21 Jul 2016 06:34:42 +0000

“Bitcoin was a great experiment in monetary policy,” says Andrew Keys, the Head of Global Business Development at Consensus Systems (ConsenSys), a venture production studio for blockchain-based applications and tools.

“What it proved was that I can send you a Bitcoin without a bank,” he says. “Ethereum […] can do peer-to-peer agreements.”

Ether is the cryptocurrency used on Ethereum, a blockchain-based software platform that came five years after Bitcoin. While Bitcoin was designed primarily for peer-to-peer monetary transactions, such as payments, Ethereum was invented to fit a much broader context. Any software application can be uploaded onto Ethereum’s decentralized platform: housing rental, equity distribution, voting, and more. The Ethereum Foundation calls it a “programmable blockchain.”

Put another way, Ethereum is a way for software programs, or what are known as ‘contracts’ on Ethereum, to execute the way they were programmed to without interference. That means that two parties can agree on and be held to a digital contract without lawyers, the police, or any kind of intermediary. Trying to change the contract or take it down would be almost impossible, as contracts on Ethereum are stored on a distributed network of servers – the Ethereum blockchain.

ConsenSys wants to bring Ethereum to China’s tech and finance giants, such as Tencent, Ping An, Ant Financial, and Alibaba.

“Every single one [of them] is open to a proof of concept, where we give them a private instance of the Ethereum blockchain,” says Mr. Keys.

For Chinese companies and financial institutions, such as banks and insurance companies, the lure of Ethereum lies in its potential to cut costs. But Ethereum’s blockchain could be useful in other contexts as well. ConsenSys is working on about thirty different decentralized applications – or ‘dApps’ – for Ethereum’s blockchain. They range from event management to online poker, to a smart music contract dApp that musician Imogen Heap used last October to release one of her singles.

“Over the next month, we’re going to do webinars and demonstrations with the CTO and technical teams of all those companies I just mentioned,” says Mr. Keys. “We kind of show them the art of the possible, then from that they say, ‘Okay, we have a pain point here and a pain point there – can we apply the technology to ameliorate those pain points?’”

“When we come back [in September], we’re going to further elaborate on how we work together,” he says. That could include joint ventures or something simpler, where ConsenSys educates its partners on Ethereum and gives them the infrastructure to build their own Apps, he says.

The meetings are still in early stages, but ConsenSys is serious about putting down roots in the Chinese market. Founded in 2014, the company has moved quickly through its partnership with Microsoft and its Azure cloud computing platform to discuss and seal deals with other companies.

In China, the buzz around blockchain technology is starting to pique interests among tech companies and financial institutions. In June, a group of more than thirty technology and financial firms, including Ping An Bank and Tencent, created a consortium dedicated to blockchain applications. A month before that, a non-profit called ChinaLedger Alliance launched with the aim of promoting blockchain technology in China. The non-profit is led by Wanxiang Blockchain Labs, a Shanghai-based non-profit by Chinese auto conglomerate Wanxiang Group.

Image credit: Ethereum Foundation

Opportunities For Startups In Healthcare: SparkLabs Demo Day

Eva Xiao — Fri, 24 Jun 2016 11:09:12 +0000

The ‘quantified self’ movement might still have a future, despite the tanking wearables market. Digitizing our health and monitoring our bodies could well be the future of healthcare.

“We can take all the DNA in our body and turn it into letters on a hard drive,” says Jimmy Lin, the Chief Scientific Officer for Oncology at Natera, a genetic testing company. “So that actually makes it a data problem. That’s really exciting.”

“It’s no longer that we [will] see a doctor once a year or only when we’re sick,” he says. “[There are] possibilities for us to have constant monitoring of our health, 24/7. That sort of rethinks how healthcare can be provided.”

On Wednesday at SparkLabs’ Demo Day in Seoul, Dr. Lin and Laurent De Vitton, the co-founder of Apricot Forest (杏树林), a healthcare startup based in Beijing, highlighted opportunities and challenges for startups eyeing the healthcare industry, which is in many ways one of the final frontiers for consumer technology.

“I think the ecosystem is very, very young,” said Mr. Lin. “Even if you look at all the excitement of the Apple Watch, or ways that people can use a cellphone, it’s still not much more advanced than a pedometer.”

The smartphone has revolutionized a multitude of industries, especially consumer-facing verticals, such as virtual reality, e-commerce, and social media. Smartphone applications in the healthcare industry, however, are much more niche, like smartphone microscopy, which can help doctors without access to expensive medical devices detect diseases like skin cancer or malaria. In addition, despite the wealth of technological advances in healthcare – gene editing, robotic surgeons, in-body sensors – the experience of end users, or patients, still falls short compared to other consumer products.

“Individuals in the West, but also Asia, understand less and less why their shopping experience [has] been so revolutionized by the smartphone, why their entertainment life has been so deeply transformed, [but] why their health is barely impacted as far as their personal experience goes,” says Mr. De Vitton.

Improving user experiences in the healthcare industry is a huge opportunity for startups. In China, for example, overextended doctors juggle excruciating caseloads, sometimes seeing fifty patients a day, averaging to about less than five minutes per patient, says Mr. De Vitton. Lowering the rate of misdiagnosis and improving patient service can come from simple solutions, like Apricot Forest’s suite of apps, which digitizes patient case files and enables doctors to crowdsource solutions and diagnoses from other doctors.

Big data also opens a lot of doors for healthcare startups. From medical records to genomic data, the healthcare industry will need products and services to sift through and make sense of vast amounts of data.

“Until we’re able to derive value from big data, it’s just a bunch of data. That’s where a lot of opportunities exist for startups,” says Mr. Lin. “From taking the data that’s from your DNA to a file, to ultimately an action that a physician can then recommend you to do, all those steps are potential… companies, [and problems] that startups can be able to address.”

In China, where an alarming number of doctors are physically assaulted by their patients, disruption of the country’s healthcare system is badly needed. According to a report by the Chinese Medical Doctor Association in 2015, almost 60% of medical staff reported verbal abuse from patients and more than 13% said they had been assaulted.

The country’s healthcare system also suffers from a lack of trust, which is further entrenched by medical scandals, such as the 21-year old student who died in May after undergoing experimental treatment advertised on Baidu.

Image credit: Shutterstock

Beijing Rules To Ban iPhones In Patent Spat

Cate Cadell — Mon, 20 Jun 2016 00:47:45 +0000

Apple’s meteoric success in the Chinese market has hinged on a golden rule for foreign tech firms: stick to hardware, stay away from content, and you should be fine.

That premise broke down at the end of last week, when Beijing’s Intellectual Property Office revealed a ruling against Apple in a patent case brought by little-known Chinese smartphone vendor Shenzhen Baili. The Chinese company claims the iPhone 6 and 6s infringed on a patent held for their 100C phone.

The gravity of the order is enormous, as it could potentially halt sales of the iPhone 6 and 6s in Beijing. Apple says that they have appealed to a higher court, and the phones remain on sale across China. The case was settled late last month, though the decision was only revealed at the end of last week.

It’s the latest storm cloud in an increasingly complex relationship between the U.S tech company and Chinese authorities. Beijing has recently being coaxing foreign tech firms to extend their strategic cooperation in China, singling Apple out by name on multiple occasions. Apple CEO Tim Cook has made a series of symbolic and strategic moves to charm the country’s regulators, including numerous visits to the capital.

Apple’s Path To The Chinese Consumer Is Becoming More Complex

It’s been a tumultuous six months for Apple in China. In May, a drop in sales on the mainland contributed to the company’s first revenue decline in 13 years, as China’s purse strings tightened amid market saturation. In April the U.S company received a very public blow, when their iBooks and iTunes movie services were banned under a sweeping crackdown on foreign content by the Chinese government.

Last month the U.S. smartphone vendor laid deep roots in the market with a $1 billion USD strategic investment in Chinese Uber competitor, Didi Chuxing. The investment saw Apple join a club of investors which includes several top Chinese tech companies as well as a handful of state-backed investors, including sovereign wealth fund China investment Corporation.

According to the Wall Street Journal, the company behind Apple’s latest patent dispute, Shenzhen Baili, appears to be affiliated with better-known brand Digione, which counts Baidu as their largest investor. Baidu is also Uber’s biggest strategic partner in the Chinese market.

The latest patent roadblock shows that Apple’s passage in the Chinese market continues to be perilous, despite their deepening commitment.

Chinese Firms Are Taking Advantage Of Stronger Intellectual Property Laws

Interestingly it’s not Apple’s first brush with the law this year. In May, Beijing’s Municipal High People’s Court ruled against the U.S. smartphone maker in a bizarre case of trademark infringement. A Chinese leather goods maker called Xintong Tiandi successfully defended their claim to the ‘iPhone’ name, which they had trademarked in 2010. Apple said they would continue to pursue legal action against the company, which currently sells leather wallets and phone cases imprinted with the iPhone trademark.

It’s one in a series of cases highlighting the newfound confidence of Chinese companies, who are increasingly expressing their intellectual property rights. In May Chinese smartphone vendor Huawei filed a series of high-level patent suits against Samsung, marking their first patent dispute against the South Korean electronics maker.

US Ad Tech Platform Smaato Acquired By Chinese Firm For $148M

Emma Lee — Sun, 12 Jun 2016 23:15:25 +0000

Smaato, San Francisco-based real-time ad tech platform, announced this Friday that they have reached an agreement with China’s Spearhead Integrated Marketing Communication Group for a full acquisition valued at $148 million USD.

According to a company statement, the deal, which is still subject to final regulatory approvals, will be conducted through an M&A fund backed by one of Spearhead’s fully-owned subsidiaries.

As one of the world’s leading real-time bidding and supply side platforms (SSP) for mobile advertising, the 11-year-old startup claims to have a combined reach of more than one billion mobile users.

China’s booming mobile ad market has long been a strategic focus for Smaato. In a previous interview with TechNode, the company’s CEO Ragnar Kruse detailed the company’s plans for China hinted at a local partner for their entry. The deal will give Spearhead a pool of resources to fuel a global expansion, while Smaato will be able to finally tap the Chinese market with a well-established local partner.

“This collaboration creates enormous new opportunities for both partners. Spearhead brings to Smaato not only its expertise and a trusted partnership but opens up the Chinese market for us,” said Smaato CEO and co-founder Ragnar Kruse said in a statement. “Smaato allows Spearhead to expand very quickly outside of China.”

Despite the advantages brought about by the collaboration, the company still have to compete against a slew of rising local competitors like Mobvisa, which acquired NativeX for $24.5 million USD this February.

Analyse Asia Podcast: Will Apple’s Asia Focused Car Strategy Work?

Guest Editor — Tue, 31 May 2016 09:30:26 +0000

http://media.blubrry.com/analyseasia/content.blubrry.com/analyseasia/Episode_114__Will_Apple_s_Asia_and_Car_strategy_work_with_Sameer_Singh.mp3

Sameer Singh from Tech-thoughts.net analyzed the recent Apple Q1 2016 earning and challenged the notion whether Apple’s Asia (India and China) and their rumored car strategy will bring them back to growth. Through the lens of the Apple’s rumored car strategy, we dove deeper into a conversation on artificial intelligence and autonomous vehicles from the China to the U.S.

Download MP3 (32.6 MB) or Subscribe via RSS

TechNode does not endorse any commentary made in the program.

Notes:

Sameer Singh
Apple’s iPhone Blip and will their Asia strategy with China and India work?
- Apple’s recent Q1 2016 earnings: What happened? [1:47]
- How did the Apple miss the forecast of the iPhone earnings? [3:00]
- Apple’s upgrade cycle is not a cause but an effect. [4:11]
- Has the switch from Android back to Apple during the iPhone 6 been saturated? [5:25]
- Is iPhone SE the solution to push up the upgrades? Is Apple using screen size as a way to price their ASP in the Asia context? [6:10]
- Has the smartphone industry reached a structural change when the technology is now good enough? [8:30]
- iPhone 6 cycle depressed the entire Android premium phone industry and allows Samsung to return to profitability with the Galaxy S7. [9:40]
- What does that mean for Apple in the next iPhone 7 iteration? [10:33]
- Apple’s “services” narrative will not work in Asia. [11:15]
- Apple watch as a trojan horse with the watch bands rather than the watch. Taiwanese (happened to be in Asia) Apple analyst Ming Chi Kuo predicts Apple watch sales will fall in 2016. [13:00]
- Is Apple’s expansion to India (with their current focus to China) going to save them? [14:48] Note that China has just banned Apple movie and books services.
- Can Apple’s rumored car restore their growth? [17:50]
Self Driving Cars, Business Models & Regulation [18:25]
- The best autonomous cars has to be electric. [18:50]
- The different models for autonomous and electric vehicles [19:30]
  - On demand transportation which destroys car ownership: Uber, Lyft (and their recent deal with General Motors).
  - Internet services model with web and mobile: Baidu, Google using maps and search linking it with cars.
  - Car OEMs and hardware makers: Tesla, Apple, and car makers such as Toyota, Nissan, VW Group, Audi, BMW.
- What is the path forward for self driving cars? Full Autonomy vs Incrementalism [20:18]
- Asia governments testing the concept of self driving car zones. [22:17]
- Self driving cars are more focused on creating fixed and optimized routes rather than creating complexity to transportation. [23:40]
- Google’s self driving car and potential ride sharing service. [24:30]
- AI and self driving cars. [26:23]
- When a car turns into a computer, how much semiconductors does OEM need? [28:10]
- Tesla’s hybrid model OEM and services with their supercharging stations. [28:48]
- China’s foray into electric cars, and the launch of LeSee, with the same backer to the Faraday car. [29:20]
- Tesla’s model 3’s successful crowdfunding campaign and what does it mean for the automotive industry in the next few years? [30:00] (Tesla sees 300K orders upon crowdfunding).
- Uber submits 800 COEs bids in Singapore, changing the game for cars. What does that mean for countries viewing car ownership as a prestige? [33:15]

Secretive Alibaba-Backed Magic Leap Is Suing Its Staff… And Making Robots

Cate Cadell — Sat, 28 May 2016 23:33:31 +0000

In a rare glimpse into the secretive Alibaba-Google-backed augmented reality startup, Magic Leap, the company has filed a lawsuit against two former employees, claiming they worked on proprietary robotics technology while building a similar project outside the company for over a year.

The company claims that Gary Bradski, a senior vice president at the company “was aware of and involved in projects and plans that involved deep-learning techniques for robotics.” Bradski and another Magic Leap employee, Adrian Kaehler, allegedly began working on a new company while still employed at Magic Leap.

Magic Leap has attracted its fair share of attention, in part because of its secrecy, and also because it has so far attracted over a billion USD in investment from the likes of Alibaba and Google, valuing the company at around 4.5 billion USD.

So what do we know about them?

Up until now we already knew the company is working on a VR-style headset and imaging technology that allows users to overlay high-quality 3D imagery onto real life scenes. According to the company’s eccentric CEO, Rony Abovitz (who once dressed as an astronaut to deliver a TED talk), the technology “replicates” the field of light human experience in regular sight.

Following the lawsuit it’s clear the technology could have much more diverse applications: “Magic Leap’s Proprietary Technologies are not limited to its head-mounted virtual retinal display”, the lawsuit noted, “and extend to many different applications and devices, including, but not limited to, robotics.”

Before founding Magic Leap, Abovitz built a company specializing in medical robots called Mako, which went on to sell for $1.65 billion USD in 2013. Magic Leap is developing an optical chip using silicon photonics to bridge the gap between regular and virtual sight – it’s not difficult to see how the company’s technology could encroach on the field of robotics.

SoftBank, Foxconn Commit $30M To Chinese AI And Cloud Startup

Eva Xiao — Tue, 24 May 2016 04:41:04 +0000

China’s artificial intelligence and cloud computing industry has been very busy this year.

Last week the industry saw another important round of funding, as CloudMinds (达闼科技), an AI and cloud computing startup, announced a $30 million USD round of seed funding, led by SoftBank International, the Tokyo-based telecommunications company that invested early in Alibaba.

Other participating investors included Taiwanese electronics manufacturer, Foxconn, and Walden International, an investment firm that funds early stage companies in the semiconductor sector, among other verticals.

“When early stage startups are choosing investors, they can’t just think about the money – they also have to consider their resources,” said Bill Huang (黄晓庆), the CEO of CloudMinds in an interview with Caixin (link in Chinese). “SoftBank, Foxconn, and Walden International are all strategic partners.”

All of CloudMinds investors will partner together on “operations resources, manufacturing, and semiconductor downstream resources,” according to the company’s press release last Tuesday.

These partnerships will be key to achieving CloudMinds’ ambitious plan to construct a global framework for cloud computing, a “new standard for information security” that CloudMinds calls the “Mobile-Intranet Cloud Service” (MCS). This service aims to provide enterprises with a secure cloud computing platform for XaaS (X as a Service) products, and includes services like image recognition, voice recognition, and big data analysis.

CloudMinds’ MCS will be built on top of a network called the “Skynet”, which is specifically designed for connected devices and robots. According to CloudMinds’ press release, Skynet is separate from the internet and uses blockchain technology for more secure and high speed service. The company plans to extend Skynet’s coverage to all continents except Antarctica within two years.

“With [our technology], users will….be able to access a hidden virtual space, similar to planes in stealth-mode,” said Mr. Huang in an interview with Caixin (link in Chinese). “Hackers will not be able to find you, they’ll have no way to attack you. This is the core of the next generation of mobile technology. It will be vital for finance, healthcare, government, and big corporations.”

In addition to CloudMinds, China’s artificial intelligence and cloud computing industry includes big, corporate players suck as Alibaba Cloud, the cloud computing arm of Alibaba. This year, Alibaba Cloud has closed partnerships all across Asia with companies like SoftBank, SAP, Accenture, and NVIDIA, the graphics processing unit (GPU) manufacturer. Other tech giants have taken the approach of investing in cloud computing and AI startups, such as Lenovo, which announced the launch of a $500 million USD fund for robotics, AI, and cloud computing startups earlier this month.

Founded in 2015, CloudMinds plans to seek another round of investment following this completion of seed funding. Future funds will go towards the development, production, and marketing of the first phase of MCS. The company is also developing a robotics product for the blind called Meta, which uses computer vision, machine learning, and language processing to provide users with information about their surroundings and interactions.

Image credit: CloudMinds

Opera Launches Free VPN Service, But It’s Off-Limits To Chinese Users

Eva Xiao — Wed, 11 May 2016 10:58:37 +0000

Norwegian software company Opera launched an iOS app called ‘Opera VPN’ on Monday, a free and unlimited VPN (virtual private network) service that comes with other web browsing perks, such as ad-blocking and preventing ad-tracking cookies from sharing your data with advertisers and marketers.

However Chinese netizens will be disappointed to discover that the Norwegian-based company management have not made the service available in China.

“We are in good sync with our consortium partners,” says Peko Wan, Opera’s Head of PR and Communication, Asia, when asked about the possible conflicts between Opera VPN and Opera’s Chinese backers.

In February of this year, a consortium of Chinese companies, including Qihoo 360 and Kunlun Tech, entered a $1.2 billion USD bid to acquire Opera. Chinese internet company Qihoo 360 has a controversial record when it comes to user privacy, as it was accused of stealing confidential information from users in 2013, which the company denied. Thankfully, it looks like the Norwegian company is still independent when it comes to product development, especially since foreign VPNs are not supported by the Chinese government.

“They are supportive with the primary goal being providing good user experience to our users.”

“With the new Opera VPN app, we help people to break down the barriers of the web and enjoy the internet like it should be,”said Chris Houston, President of Surfeasy, Opera’s VPN division, in the company’s press release.

Opera VPN will remain unavailable in the Chinese market for the foreseeable future. Despite the regular crackdowns on VPNs by the Chinese government, a large number of VPN services both foreign and local, such as Astrill and VPNinja, cater to customers in China. Virtual private networks are a way to connect securely over the internet, which makes them handy for anyone who wants their web traffic encrypted, like privacy advocates and corporations.

VPNs can also mask a user’s location, since their IP address is replaced once they connect to a virtual private network. That means VPNs can be used to get around all kinds of content filters, from workplace bans on social media to the ‘Great Firewall’, China’s internet censorship apparatus.

So far, users of Opera’s new VPN app can choose to connect with servers in five different countries: the U.S., Canada, Germany, Singapore, and the Netherlands. The app has already been localized into a number of different languages, including English, Japanese, Arabic, and Spanish.

Qihoo 360 declined to comment on Opera’s new VPN feature.

Image credit: Opera

Correction (5/11/2016 21:26): This post was updated to correct the fact that Opera’s acquisition is still awaiting approval from shareholders and the U.S and Chinese government.

Chinese Universities Turn To Tech Companies To Prep Their Students For The Real World

Eva Xiao — Fri, 22 Apr 2016 07:02:38 +0000

As China’s tech scene continues to evolve at a rapid pace, Chinese universities struggle to prepare their students for the world outside of the classroom.

“We need to reduce the gap between the theories and concepts taught in class and the expectations and realities of the corporate world,” says Jianwei Jiang, the Vice Director of “the Office of MOOC” at Shanghai Jiao Tong University. “That’s why we have to take the knowledge and tools from the corporate world to prepare students for the future.”

Specifically, Shanghai Jiao Tong University wants MOOCs (Massive Open Online Courses) that are designed by tech companies. On Thursday, IBM and Shanghai Jiao Tong University announced that the university’s online platform for free MOOCs, CNMOOC (好大学在线), now features courses from IBM’s ‘Big Data University‘. IBM is CNMOOC’s first corporate partner and has contributed 22 courses on big data analytics topics, such as Hadoop, Spark, and data analysis with ‘R’, an open source programming language.

“In the past, all we did was computer science. Now, we need to learn about software development, because the way of working is totally different,” says Mr. Jiang. “You have to make sure that [your code] is usable, that your users won’t break your application.”

IBM’s courses follow Big Data University’s ‘5-5-5’ template: five lessons with five five-minute long videos each. In addition to course content, IBM has also launched a Chinese version of their ‘Data Scientist Workbench‘ platform, where students can use open source tools, like Python and R, without downloading any software. So far, not all of IBM’s Big Data University courses have been localized and translated into Mandarin.

IBM Big Data University’s “Accessing Hadoop Data Using Hive” course on CNMOOC.

Completing an IBM course results in a digital certificate, which CNMOOC hopes will give students a leg up during the job application process. At the very least, like other courses on CNMOOC, IBM’s classes will count as school credit at the 66 universities currently partnered with the platform. These incentives are meant to keep students engaged, as MOOCs are notorious for high rates of attrition. In particular, big data analytics can require more patience on the student’s part than other tech topics, like app development. Leon Katsnelson, the Director and CTO of IBM Analytics Emerging Technologies, calls it “80% janitorial services – cleaning the data – [and] 20% analysis.”

In fact, most of Big Data University’s students aren’t university students, says Mr. Katsnelson. They’re IT professionals that want to pivot their career towards big data, such as former database administrators (DBAs) or IT professionals in the service industry. According to Mr. Katsnelson, Big Data University’s course completion rate is 40%, a high percentage that speaks to the professionalism of IBM’s students, not their discipline.

“When a student comes to take a course, the enthusiasm lasts for about fifteen minutes because then it becomes hard,” says Mr. Katsnelson. “If your boss says, ‘Hey, this is a great idea’, it’s a little harder for your interest to wane.”

That’s why tying CNMOOC to local curricula is essential, explains Mr. Jiang. “MOOCs are helpful, but they can’t replace the traditional classroom,” he says. Instead, local universities will use CNMOOC to revamp and supplement existing courses by integrating offline and online materials. That way, students not only benefit from face-to-face instruction and guidance, but they’ll also be held accountable for online coursework.

Though U.S-based MOOCs, such as Coursera, edX, and Udacity, have taken off, their Chinese counterparts have been less successful. In the past few years, domestic companies have received their fair share of limelight, like Uniquedu, which raised 300 million RMB (about $46.3 million USD) in 2015. However, a large number of Chinese students still opt for foreign MOOCs, some of which are actively targeting the Chinese market. In 2015, Coursera added Alipay as a payment option to its website, and on Sunday, Udacity announced the launch of “Youdaxue” (优达学), its Chinese equivalent.

Still, Chinese MOOCs have a unique advantage over foreign companies when it comes to integrating online courses with local schools and their curricula.

“Teachers can’t force students to take classes on foreign MOOCs,” explains Mr. Jiang. “There can be educational content on there that conflicts with our [political] system.”

Launched in 2014, CNMOOC is Shanghai Jiao Tong University’s initiative to open educational resources from China’s top universities to students all over the country. Other Chinese universities have created their own MOOC platforms as well, such as Tsinghua University’s Xuetangx (学堂在线), which is powered by U.S-based edX’s open source platform.

China’s Ministry of Education has treated the country’s MOOC movement with both support and caution, as MOOCs are another form of content that require supervision and monitoring. In 2015, the Ministry of Education announced that it would set up an inspection system to prevent “harmful information” from being disseminated by domestic MOOCs.

Update (4/22/16 15:41): This post was updated to clarify Leon Katsnelson’s position at IBM.

Twitter Appoints New China Head, Seeking To Boost Enterprise Business

Cate Cadell — Fri, 15 Apr 2016 07:16:55 +0000

Twitter has appointed a new head of Chinese operations, as the number of Chinese companies using the medium to market overseas continues to rise.

Kathy Chen will take over from Peter Greenberger, heading up the Hong Kong headquarters, which oversees China. Chen previously worked with Microsoft and Cisco before joining Twitter. CEO Jack Dorsey tweeted his congratulations to Chen earlier today:

A big welcome to Twitter, @KathyChen2016! She joins us as our MD for China!
— Jack (@jack) April 15, 2016

The San Francisco-based social media network remains blocked on within mainland China, though tools like Twitter have become an important medium for Chinese companies seeking to reach out to foreign markets.

In an interview with the South China Morning Post, Twitter VP for Asia-Pacific, Shaliesh Rao, noted that the company had seen a 340 percent growth in the number of Chinese advertisers, (though the article didn’t mention the timeframe for that growth).

While China’s government is not willing to allow the company access to the mainland, they have no qualms working with Twitter outside the country. In a panel hosted by Technode in December, Twitter’s head of Online Sales, Alan Lan, said that the company’s biggest client was in fact Xinhua News, the official state media outlet of the Chinese Government. Many other state media outlets also use Twitter to advertise globally, including state broadcaster CCTV.

As Twitter’s presence has evolved in the region, they still shy away from the fanfare employed by other blocked tech companies including Google and Facebook. Jack Dorsey has done no public engagements in China, unlike Facebook CEO Mark Zuckerberg who has become a well known public figure in the country through multiple tours and partnerships.

The government has given no indication that western social media outlets, including Twitter and Facebook, will be permitted in China anytime soon. It’s likely the China operations overseen by new head Kathy Chen will include building out the company’s back end data analytics services for enterprise clients seeking new audiences overseas.

Kathy Chen’s posted a welcome video and message earlier today:

Thank you for your support as we connect Greater China to the world! A video by @kathychen2016 , MD of @TwitterGCN pic.twitter.com/aX9GzZe2sc
— Twitter GCN (@TwitterGCN) April 15, 2016

Chinese Netizens Mourn Over Kobe Bryant’s Last Game

Eva Xiao — Thu, 14 Apr 2016 09:15:06 +0000

Weibo, the Chinese equivalent of Twitter, was filled with sobbing emojis today as Chinese netizens paid tribute to Kobe Bryant’s last NBA game with mournful tweets and nostalgic messages.

Hashtags like “It’s not just a game” (不只是比赛) and “I was alive during the time of Kobe” (我活在科比的时代) have flooded Weibo’s newsfeed, and celebrities, such as Taiwanese pop star Jay Chou and Chinese actor Yifeng Li, are honoring Bryant’s 20-year career with throwback pictures of the time they hung out with the “Black Mamba.”

#ILivedDuringTheTimeOfKobe I just cried my eyes out at work (literally “crying myself into a dog”), I feel so ashamed! But I’ll never be able to find that kind of exciting youth again!”

“An era of an idol, a kind of ‘mamba’ spirit, ‘snail shell’ (nickname for Kobe Bryant), memories, youth, deep love, brotherhood.”

“The beginning of English class.”

China’s obsession with the NBA spans decades, which many trace back to 2002 when 7-foot tall Chinese basketball player Yao Ming was drafted by the Houston Rockets. In 2007, over 200 million Chinese people tuned in to one of the most watched NBA games of all time, when Yao Ming faced off another Chinese basketball player, Yi Jianlian, in a match between the Houston Rockets and the Milwaukee Bucks. In comparison, an average of 15.5 million Americans are estimated to watch NBA Finals on T.V.

Though Yao Ming retired in 2011 due to injuries (fun fact: he’s now the celebrity front man for English education company VIPABC), China’s fever for the NBA grew. In 2012, the NBA claimed that its previous three seasons received 9 billion video views on their Chinese website, an increase of 180% from the year prior. Currently, the NBA has more than 30 million followers on its Weibo account.

The numbers behind the NBA’s following in China are so impressive that tech giants like Tencent and ZTE have invested in NBA partnerships to boost marketing. The latter is sponsoring five NBA teams, including the Chicago Bulls and Houston Rockets. In July 2015, Tencent and the NBA extended their five-year partnership, which brings live NBA games and other NBA programming and content to Tencent’s various content platforms, including Qzone, Tencent Video app, Tencent News app, and more.

It’s a sad day for Kobe Bryant fans in China, who call the basketball star by various nicknames, including “Old Kobe” (老科), “My Kobe” (我科), or even “snail shell” (蜗壳), which is a homonym of “My Kobe.” Though other NBA players, like Vince Carter and Tracy McGrady, are just as loved and worshiped by Chinese NBA fans, for many, Kobe Bryant’s departure from the professional basketball signals “the end of their youth.”

500Startups-Backed University Mentoring Platform Launches Career Mentorship Service

Eva Yoo — Wed, 13 Apr 2016 06:36:53 +0000

University mentoring service ChaseFuture announced on Wednesday that they have launched a careers mentorship services to guide students through the job search and recruitment process. The launch coincides with a name change to ‘Dyad’.

The Shanghai-based company also announced the completion of $600,000 USD in new funding led by 500 Startups and SOSV, with participation from a NASDAQ-listed education company. These funders join existing investors, including New York-based Artesian Capital Management, Banyan Partners, and Silicon Valley-based Harbor Pacific Capital and numerous leading EdTech angel investors. This round brings Dyad’s total funding to $1 million USD.

The latest injection highlights China’s growing interest in career services. Hangzhou-based education and career information provider Quanrenjiaoyu (全人教育) was acquired by Xiuqiang Glasswork Co., Ltd. in December last year, with a total value of over 210 million RMB ($32.4 million USD).

“There’s nothing an Asian parent will spend more than making sure their child gets the very best education, especially if it means getting help from Dyad,” said Khailee Ng, Managing Partner of 500 Startups.

“Most universities offer career service but it’s difficult for students to get a lot of personalized attention or custom service,” Greg Nance, founder and CEO of Dyad told TechNode.

“While there are many startups helping young professionals with skills development, like web design or data science, we can help young people shape their career search from base principles while they are still in school and exploring their professional options.”

Dyad connects students and young professionals with 200+ mentors on Dyad.com through online face-to-face video-conferences and a digital workspace for document reviews. Students can connect at their convenience by scheduling consultations or revisions according to their availability, and consultation fees vary based on the duration of the video-conference and mentoring frequency. Mentors are from the world’s top universities and firms such as Google, JP Morgan, Goldman Sachs, McKinsey & Co and numerous others.

Since their founding at Cambridge University in 2012, the company has focused on top university mentorship and helped over 1,700 clients earn admission to universities in 23 countries. The company claims 37% of clients are admitted to a ‘Top 25 University’ and 135 admissions to Ivy League universities.

In the test preparation market, there are Chinese players like New Oriental (新东方), offering private educational services and TAL education, offering K-12 after-school tutoring services.

Image Credit: Shutterstock

Didi Speeds Up Globalization To Take On Uber

Emma Lee — Tue, 12 Apr 2016 15:25:18 +0000

Until recently, the competition between Didi Chuxing (former Didi Kuaidi) and Uber was mainly focused on China’s mobile transportation market. It seems that China’s leading ride-hailing service intends to escalate the ride-hailing war by opening up a new battlefield in Uber’s homeland: the U.S.

On Tuesday, Didi Chuxing announced the launch of the public beta version of its Didi Chuxing app with U.S. roaming capabilities in collaboration with Lyft, Uber’s major rival in its domestic market which Didi holds a stake in.

From this week, Didi’s users will be able to request rides in the U.S and access Lyft’s driver network of almost 200 major U.S. cities, including San Francisco, Los Angeles, New York, Seattle, and Washington D.C., through Didi’s app, according to the company’s announcement.

Targeting Chinese travelers, the app provides a cross-border transportation service that switches from Didi’s Chinese version to an overseas version within the native app once the international roaming service is activated. The same Chinese user interface is adopted, allowing the whole process from hailing and paying to providing feedback entirely in Chinese.

The payment can be made through existing in-app payment options on their app in Chinese Yuan, including WeChat and Alipay, at official exchange rates. Other features include on-demand Chinese-to-English human translation to assist driver-passenger communication and 24/7 emergency customer service support in both English and Chinese. An e-invoice function is provided for business travelers as well.

In December 2015, Didi announced a strategic partnership with US-based Lyft, India’s Ola Cabs, and Singapore’s Grab Taxi in an alliance against mutual rival Uber, which is gaining traction beyond its domestic market.

The partnership with Lyft is among the first to connect services of the two apps. Lyft users will be able to use similar services from Didi’s network when roaming in China in Q2 2016.

The roaming products between Didi and other partners are expected to launch throughout the year to cover over 50% of the world’s population, the company added.

As Didi’s presence in the market intensifies, the company is setting its new funding target at 1.5 billion USD which puts effectively its valuation at 20 billion USD.

Investors, Entrepreneurs Rally Around Hong Kong’s FinTech Scene At SuperCharger’s Demo Day

Eva Xiao — Sun, 10 Apr 2016 21:02:38 +0000

These are interesting times for Hong Kong’s nascent startup scene, as the city grapples with China’s slowing economy and struggles to define itself in an increasingly globalized world. As a small market home to 7 million people, Hong Kong will have to specialize and claim something as its own, in the same way that markets like Israel and Singapore have with tech R&D and fintech, respectively.

“If you just look at fintech, it’s having a vibrant ecosystem in Hong Kong,” said Gregory So Kam-Leung, the Secretary for Commerce and Economic Development, at fintech accelerator SuperCharger‘s demo day on Thursday. “We see…DBS, Accenture, and Nest, and of course TusPark, all coming to Hong Kong, really pointing the direction that we have something going really good right now.”

Along with IoT, government officials, as well as other players in Hong Kong’s startup scene, see fintech as a potential pillar for the city’s startup ecosystem. Hong Kong is one of the top financial centers of the world, and ex-bankers, such as David Rosa, one of the entrepreneurs in SuperCharger’s batch, have jumped into the fintech space, eager to apply their banking knowledge in a less rigid environment.

However, whether or not Hong Kong’s strength in traditional banking will translate over to fintech, remains to be seen.

“If you’re talking about fintech, it matters if you’re talking about fin or tech,” says Dong Shou, the CTO of Wecash, a Beijing-based startup in SuperCharger’s batch. “If you’re talking about fin, definitely. But if you’re talking about tech, I’m not so sure if Hong Kong can compete with mainland cities like Beijing.”

Hong Kong’s government is keen on promoting fintech and has even created a dedicated fintech team under Invest Hong Kong, a government organization aimed at “attract[ing] and retain[ing] foreign direct investment,” according to its website. In January, Hong Kong’s Chief Executive Leung Chun-ying announced a HK$2 billion ($257.8 million USD) “Innovation and Technology Venture Fund” for early-stage startups, and Cyberport, a state-owned “innovation and technology hub”, announced in February that it would dedicate three thousand square meters of its co-working area to fintech startups over the next five years.

At SuperCharger’s demo day on Thursday, the accelerator’s first batch of eight startups pitched their companies and products, from bitcoin exchange Gatecoin to cashless payments startup Eko. Founded in 2015, the Hong Kong-based accelerator is backed by three corporate sponsors: Standard Chartered Bank, Baidu, and TusPark Global Network.

Here are the eight SuperCharger startups that pitched on Thursday:

Neat

Neat is a digital banking solution aimed at millennials. Users can open a Neat bank account through Neat’s smartphone app, which uses facial recognition to authenticate the user on the frontend. The startup is working with an undisclosed regulatory partner to conduct KYC (Know Your Customer) checks offline, in the background.

The company also has Mint-like analytics, where users can track their spending habits and set limits and goals for themselves. The company also plans to monetize their users’ payment data by providing business intelligence to merchants. Neat’s product also comes with a bank card, a concession to the Hong Kong market where QR codes have not been well received.

Wecash

Wecash uses data analytics to generate credit scores and offer customized loans services.

“We are focusing on the long tail market. Our customers are usually young, like students, or blue collar workers, or farmers,” says Mr. Shou. “It is really hard to get loans from banks without a mortgage. From us, they get a micro loan up to 500 USD.”

By connecting to the user’s accounts on social media and e-commerce sites, such as Weibo and Taobao, Wecash can analyze the user’s social network and activity, and use information like the user’s university degree to generate a credit score. For users that are not active on social media, the startup analyzes their phone contacts and text messages instead.

Amareos

Amareos analyzes data from social media and news articles to provide market sentiments, such as “disgust” and “joy.” Currently, Amareos is only available in English, though the startup wants to localize it in Mandarin and Japanese, and is working with Baidu to access mainland China’s market. The startup also has plans to expand to the U.S, London, and Paris.

Gatecoin

Gatecoin is a trading platform Bitcoin, Ether, and DAO tokens for individuals and institutional investors around the world. The startup also offers cross-border money transfer solutions for banks and payment service providers.

Funding Societies

Funding Societies is an online P2P platform for SMEs and investors in Southeast Asia.

Eko

Eko‘s products enable customers in India to conduct payments on their mobile phones without installing software or an app. The company also provides customer payment services, merchant transactions, bill payment, and cash collection services.

Microcred

Founded in 2005, Microcred offers loans to Micro and SMEs. It’s currently operating in Africa and China.

Jade Payments

Jade Payments is a payments provider and program management company for events payment systems, prepaid card programs, and payment platforms.

Are Chinese Consumers Ready To Trade Stocks Again?

Eva Xiao — Wed, 06 Apr 2016 04:48:19 +0000

The past twelve months have not been great for China’s financial industry. The sharp plunge of China’s stock market, coupled with the $7.6 billion USD scandal by P2P lending platform Ezubao (e租宝), has chipped away at the zeal Chinese consumers once had for trading stocks and dabbling in online finance.

Still, Robinhood, a U.S fintech startup, believes that 2016 is the right year to enter China.

“China is a massive market where we know we can make a big impact,” Jack Randall, Robinhood’s Head of Communications, told TechNode. “There are many barriers to entry for Chinese citizens looking to access the US exchanges, and we are happy to lower them.”

On Monday, the company announced its plans to launch a Chinese version of Robinhood (罗宾侠) by Q2. Robinhood’s app lets users buy and sell U.S listed companies and ETFs (Exchange Traded Funds) without any fees, unlike its brick-and-mortar competitors, such as Scottrade and E*Trade. The company’s goal is to “democratize access to financial markets,” and has appealed to users not only through its zero-fees policy, but a minimalist and simple UI. In May 2015, the company raised a $50 million USD round of Series B funding and announced plans to expand into Australia, its first market outside of the U.S.

To prepare for its launch in China, Robinhood has started a ‘Pioneer Program’ so Chinese-American users of the app can invite friends and family in China to sign up for the waitlist.

“Our Chinese-American customers love Robinhood and we [want] to encourage them to share their love of Robinhood with their friends and family in China,” says Mr. Randall.

It’s unclear how effective Robinhood’s ‘Pioneer Program’ will be, as Chinese-Americans are significantly different from their Chinese counterparts and, in some cases, do not even identify with mainland China. Robinhood’s assumption that Chinese-Americans qualify as an entry point into the Chinese market suggests that the startup has not yet realized how challenging localizing their product for China will be.

Compared to Australia, entering China is a whole other game, and Robinhood will have to work hard to establish strong, local partnerships and adapt to China’s regulatory framework. The company has not yet disclosed any details regarding their strategy for the Chinese market, including information about local partners.

Founded in 2013, Robinhood is backed by a number of well-known investment entities, including Google Ventures, Andreessen Horowitz, and Index Ventures, and has raised a total of $66 million USD in funding.

Image credit: Robinhood

ZTE Overhauls Top Management In Attempt To Lift US Trade Ban

Cate Cadell — Wed, 06 Apr 2016 04:35:32 +0000

ZTE has overhauled several top management positions, effective immediately, as they seek to mend bad blood with the US Department of Commerce over Iran trade sanction violations.

Former CTO Zhao Xianming will take over as CEO, a position previously held by Shi Lirong, who took up the post in 2010. Mr Zhao will also replace founder Hou Weigui as the company’s chairman. Two executive vice chairmen, Qiu Weizhao and Tian Wenguo, will also step down after failing to be reelected among seven new roles. Former CEO Shi Lirong will remain on the board though he will no longer involved in ZTE management.

ZTE, which sells telecommunications equipment as well as smartphones, was blacklisted but the US Commerce Department last month after documents from 2011 showed company was forward selling US-made components to Iran through at least one shelf company.

The US has strict rules against providing technology which could potentially aid in the development of an Iranian nuclear program. While some sanctions have recently been lifted, US companies are still banned from selling certain software and hardware to Iran or to companies, like ZTE, that then plan to reexport to Iran.

ZTE was blacklisted by the US Department of Commerce following the investigation, meaning they were cut off from U.S. suppliers. ZTE sources a number of components from US companies, including the Qualcomm chips within their handsets. The company has since been granted temporary approval to continue working with U.S. companies, though they remain blacklisted. According to sources who spoke with the Wall Street Journal, the management overhaul was one of the requirements for the temporary license.

In a statement on the reshuffle, new CEO Zhao Xianming said that “at this juncture, we must take time to rethink. We will be taking extra measures to ensure that legal compliance and anti-corruption processes eliminate any possibility of non-compliance.”

He also noted that the company would be taking steps to eradicate “top-down culture” within the company, pointing to bureaucracy as one of the weak factors in the organization. “We will put practical measures in place to rebuild our operational philosophy and turn the challenges into opportunities,” said Mr Zhao.

[Update] US Temporarily Relieves Sanctions On ZTE Over Iran Sales

Cate Cadell — Mon, 21 Mar 2016 06:43:00 +0000

After a nerve-wracking two weeks for one of China’s biggest telecommunications companies, ZTE, it appears sanctions laid against them by the US will be temporarily lifted, easing diplomatic and commercial tensions between the world’s two biggest superpowers.

A senior official at the US Department of Commerce said on Sunday that the sanctions would be temporarily lifted this week, allowing ZTE to once again source components from the US.

The sanctions were put in place earlier this month following a statement by the US Department of Commerce which claimed the Chinese company had violated trade restrictions on Iran by re-exporting US made components to the black-listed country. The blacklist is designed to clamp down on companies that could potentially aid in the development of an Iranian nuclear program.

The restrictions barred ZTE from purchasing US components without going through a complex licensing process that would most likely be denied. The company uses several types of US technology, including Qualcomm chipsets in their smartphones.

ZTE lashed out at the restrictions while the Chinese Ministry of Commerce also expressed “resolute opposition” to the “severe” effects of the move. ZTE has suspended trading for two weeks now, and have pushed back the date for their end-of-year final report, as they reassess targets under the new conditions.

The relaxation of licensing restrictions is expected to be temporary, though it is a positive sign of progress in such a diplomatically sensitive case. More information will be released on the loosened sanctions later this week.

Technode reached out to ZTE to confirm the reports and we will update with any further details.

Related: Could Sanctions Harm ZTE’s US Smartphone Ambitions?

Chinese Eaters Are More Picky Than Those In The US: 15-Year-Old Expat-Founded Shanghai Food Delivery Service

Eva Yoo — Mon, 21 Mar 2016 02:36:30 +0000

The founder of Shanghai-based Food delivery service Sherpa’s, Mark Secchia, believes China’s tech savvy middle class are very pedantic about their food.

“[Chinese] customer demands are higher than outside of China. For example, in the U.S., customers are happy with the delivered hamburger if it’s hot. But Chinese people want fresh and quality food,” said Mark Secchia, the founder of Sherpa’s Delivery Service, in a Startup Grind event held in Shanghai last Wednesday.

At the same time, the Chinese government’s crackdown on food safety has brought attention to highly popular services including Ele.me, which was issued a penalty ticket for their poor food quality.

“High-end food consumers account for the top 5% of the whole population, while the customers that Ele.me and Dianping are targeting account for 70% of the market. Their market is bigger than us,” Mr. Secchia says. “We don’t compete with them. People already know what service they want to use, based on occasions. If they have 16 yuan they will order on Ele.me, and when they have some friends invited to your house, and you have 400 yuan to spend, they will order on Sherpa’s.”

The expat-founded company originally began as an MBA internship project in 1999. Mr. Secchia launched the website in 2001 and started the food delivery call service mostly for foreigners living in Shanghai. In 2008, customers could order food online. Later on, Chinese food delivery services Ele.me and Dianping launched and seized the market, backed by tech behemoths Alibaba and Tencent, respectively. Last year, food delivery saw consolidation as Tencent-backed Dianping and Alibaba-backed Meituan merged to form an O2O giant.

Mr. Secchia says he has learned a lot about the food delivery market as he has run the business for 16 years.

“First, people have more money, more stress, and less time. Second, it’s economic pressure. Sherpa’s sales depend on the economic situation, because people wouldn’t order high-end food once they lose their job. Third, when expanding to other cities, there is high competition for local carrier staff. For example, when food delivery services reach out to the new area, they push the couriers wages higher,” he says.

The company now has 500 restaurants registered on its platform, operating in Shanghai, Suzhou and Beijing. It was not easy for a foreign company to expand to other cities, Mr. Secchia says.

“We gave up Hangzhou, because it had 1% of Shanghai’s sales, but needed 20% of the resources that Shanghai needed,” he says. “Shenzhen completely banned motorbikes and two-wheeled transport is illegal there.”

Mr. Secchia also tried a range of product deliveries such as dry cleaning, film, flowers, magazines, event planning and cakes, but found that it’s better to only focus on food delivery.

“When people are hungry, they tend to make spontaneous decisions to order food and ignore the price. We discovered that sales of the products we provided were not as big as we expected, so we decided to focus on food delivery,” he says.

The company does not have a mobile application yet. Mr. Secchia said the company will soon be launching an app and throwing 3 million yuan ($463,000 USD) on technology development.

Image Credit: Startup Grind

Huayi Brothers Taps Hollywood Veterans To Launch Animation Unit

Cate Cadell — Tue, 15 Mar 2016 07:44:39 +0000

Animated films in China are breaking the box office and Tencent-Alibaba-backed film studio Huayi Brothers Media Corp. is taking a bite of the action.

The Chinese company said on Monday that they will launch their own animation untit, headed by Hollywood veteran Joe Aguilar as chief executive. Mr Aguilar was formerly a producer at DreamWorks Animation as well as Twentieth Century Fox.

In a statement to the Shenzhen stock exchange Huayi Brothers also announced that Markus Manninen will be the art director for the new company. Mr. Manninen worked on visual effects for the Kungfu Panda 3 movie, which grossed a record $146 million, the highest amount for any animated film in China.

The new unit is the latest in a series of links growing between the US film industry and China’s tech giants. Alibaba and Tencent have embarked on aggressive, individual spending sprees for IP content, as demand for entertainment continues to create a vacuum for local platforms. Just last week Tencent led a 500 million RMB ($76 million USD) funding round for boutique film studio Linmon Pictures, following a series of other deals including Disney partnerships covering ESPN and Star Wars. The Chinese tech giant also launched their own film production unit in September 2015.

Alibaba has expanded into all aspects of the film industry, from production to distribution, ramping up investment since the launch of Alibaba Pictures in early 2015. The company acquired the total remaining stake in Youku Tudou late last year, forming the cornerstone of their online subscription business. In 2015 the company forged strong links with Hollywood, including distribution deals with Disney and Paramount Pictures.

Huayi Brothers, which also counts Chinese finance institutions CITIC and Ping An among their core investors, has been laying the infrastructure in early 2016 for a cross-border expansion. In December the company revealed an investment in a Hong Kong shell company alongside Tencent Holdings and Jack Ma-backed Yunfeng Capital. The new entity will oversee the production of 10 live-action films and 3 animated films in cooperation with unnamed US production houses. Huayi Brothers also signed an 18-movie deal with Robert Simonds’ STX Entertainment last April.

The Company Behind The Roomba Wants To Tap A Xiaomi-Like Formula in China

Eva Yoo — Sun, 13 Mar 2016 23:00:34 +0000

Roomba, the robotic vacuum cleaner

iRobot, the company behind the Roomba automatic floor vacuum, has turned their attention to China, setting up an office in Shanghai and seeking local investment opportunities. The company is seeking to grow its presence in the market, and lower manufacturing costs for their brand of home robots, the same formula that saw Xiaomi build a multi-billion USD ‘smart home’ empire.

“There is a strong startup culture in China, and we would be pleased to be closer to companies working on robotics. Not only to provide early stage funding, but we would also like to work as a strategic partner to share resources and bring down the cost of manufacturing,” Glen Weinstein, executive vice president of iRobot home robots told TechNode.

Last month, the company sold their defense and security robot business to Arlington Capital Partners, to wholly focus on the consumer robotic market.

Headquartered in US, iRobot has subsidiaries in Hong Kong, Guangzhou, and now the company is establishing a branch in Shanghai with a dedicated sales and marketing team to focus on the China market; something they have not done in markets outside the US.

“I see two different ideas when talking about robotics in China. On one side, there is a government push to lead the automation of robots in the workplace and reduce the necessity of labor in manufacturing; that trend is accelerating. The other trend we see is consumer robotics. China is becoming the world’s largest market for the robots we make, robots that empower people to do more around the home. Increasing our penetration in the China market is a core part of iRobot’s global strategy,” says Mr. Weinstein.

Glen Weinstein, executive vice president of iRobot

According to the company, iRobot’s square-shaped hard floor cleaning robot Braava comprises 10 % of its global sales volume, while round-shaped home sweeping robot Roomba takes 90%. In China, these products that are designed in the US of the market through Chinese popular commerce sites like Tmall and JD.com. Without localization functions, the products are globally identical.

“Now, we are just entering the robot revolution, which is very different from past computer revolution and mobile revolution. The robot revolution is not about manipulating data; it’s about technology manipulating physical objects in the world.” he added.

The home robot market is heating up with a handful of Chinese players, including dancing robot Alpha 2, egg-shaped Rokid, and child-friendly Pudding. These robots commonly play an entertainment role to mingle with family members, educate children, or guard the home. However, Mr. Weinstein says iRobot will stick to building home maintenance robots.

“Eventually, homes will take care of themselves. We will focus on building robots that can perform practical tasks rather than bringing in entertainment value.” Mr. Weinstein states.

Currently, Roomba 980 can be remotely manipulated using an Android and iOS-based app, but is not yet available in the Chinese market.

Image Credit: iRobot

Kunlun Continues Overseas Expansion, Invests $3 Million in AI Company

Eva Xiao — Sat, 12 Mar 2016 01:16:29 +0000

Chinese gaming company Beijing Kunlun Technology Co. Ltd. announced on Wednesday a $3 million USD investment in Kunlun AI, a new company jointly established by Kunlun Tech’s Hong Kong subsidiary and a few undisclosed partners. Kunlun Tech will own a 15% stake in the new company.

Based in Palo Alto, California, Kunlun AI will develop big data and AI-driven corporate solutions in advertising, content recommendations, security, marketing, finance, and speech recognition, according to a press release. The company also claims to have pulled hires from well-known tech giants like Facebook, Dropbox, Pinterest, and Baidu.

“Our work in artificial intelligence is a long-term investment,” says Sophie Chen, a spokeperson from Kunlun Tech. “To put it into perspective, we’re investing in the future ten to twenty years from now. This is not something that will immediately yield profit. As you know, artificial intelligence is still in the basic stages of research and development.”

Kunlun Tech joins a growing number of Chinese companies, including Alibaba and Baidu, that are investing in the interconnected fields of big data, artificial intelligence, and cloud computing. In January, Alicloud launched its Big Data Platform and announced a strategic partnership with NVIDIA, an American company known for its graphic processing units (GPUs) and chip units. According to a press release from AliCloud, the company will work with NVIDIA to create China’s first GPU-based cloud HPC (high performance computing) platform.

“It’s precisely because China’s biggest companies, like BAT, are doing this that we’re investing in AI,” says Ms. Chen. “That’s why we’re being proactive and taking a far-sighted view. If we enter this red ocean and only look three to five years ahead, we’re worried that we might lose to other internet companies.”

Besides moving forward in AI research and development, Kunlun Tech is also focusing on overseas expansion. In February, Kunlun Tech made a joint bid with Chinese search and antivirus company, Qihoo 360, to acquire Norwegian-based mobile browsing company Opera Software ASA. In January, Kunlun Tech also bought a 60% stake in Grindr, the world’s most popular gay social-networking app, and announced a $800,000 USD investment in an American robotics company, Woobo Inc..

Image credit: Shutterstock

Alibaba Seals $3 Billion+ Loan To Fuel Expansion

Cate Cadell — Thu, 10 Mar 2016 11:44:13 +0000

Battles in China’s 2016 tech market are won by capital, and Alibaba is gearing up to fight.

The Chinese tech behemoth announced the settlement of a $3 billion USD five-year loan to add fuel to their expansion both locally and abroad. According to an SEC regulatory filing on Wednesday the syndicated loan could even increase according to the company’s demands.

The company has ramped up investments across several major verticals in the beginning of 2016, including online banking, intellectual property, media and entertainment.

Alibaba, along with other local tech giants, have pumped up expenditure as competition stiffens in the maturing Chinese tech sector. The number of cross-border mergers and acquisitions continues to rise through record levels, as Chinese companies seek to build out their businesses globally.

The loan suggests Alibaba will continue to depend heavily on mergers and acquisitions for the foreseeable future. It also points to the limitations of a saturated Chinese market, as acquisitions save the company from the costly localization process when expanding abroad.

The $3 billion USD+ loan will be spread between eight lead arrangers, according to the filing.

Xiaomi’s Video Call Provider Agora Introduces Its Tools To Startup Developers

Eva Yoo — Thu, 10 Mar 2016 02:45:09 +0000

Xiaomi’s real-time video call provider Agora.io announced on Monday that they will be opening their software up to the general public to allow real-time voice and video communication. Using Agora Video, people can deliver premium multi-party video conferencing globally among mobile devices.

“As more organizations and application developers embed video and voice directly into their workflows, they quickly discover the quality and reliability challenges of simply relying on the internet for real-time communications,” Agora.io’s founder and CEO Tony Zhao said in a statement.

Agora’s software is currently used by Xiaomi and HelloTalk, an international language learning community. The Agora-powered Mi Video Call was introduced to the public at the Mobile World Congress on February 24th 2016.

“In the mobile internet space, real-time voice and video chat is a complex technology and it is difficult to ensure high quality around the world,” said Wang Qi, Senior Deputy General Manager, Xiaomi Entertainment & Media in a statement.

“We selected Agora.io as our global real-time video call technology partner because we believe the Agora.io global virtual network, and their unique mobile-based algorithms, can truly bring high quality video chat experiences to Xiaomi users everywhere.”

Apart from supplying their technology to Xiaomi, Agora.io is backed by Shunwei Capital, whose founding partner and chairman is Xiaomi CEO Lei Jun. Agora’s other investors include Morningside, SIG, GGV Capital, and IDG.

“I think China is second to the US in regards to the market of PaaS and development tools. Because the maturation of such a market is closely related to the stage of mobile internet. China is actually in a leading position in the mobile internet age only second to the U.S.,” Agora’s marketing manager Jenkin Xia told TechNode.

Image Credit: Agora.io

Could Sanctions Harm ZTE’s US Smartphone Ambitions?

Cate Cadell — Wed, 09 Mar 2016 09:08:45 +0000

Nothing riles the often fragile relationship between China and the US like a heated spat over sanctioned technology, and the latest clash over ZTE’s Iranian reexports is attracting fire from all sides.

ZTE, which makes smartphones and telecommunications equipment, allegedly breached US sanctions by selling US-made goods to Iran, according to a statement released on Monday by the US Department of Commerce.

Since then, Chinese officials have leapt to the aid of the local telecommunications equipment maker and smartphone vendor. A statement from the Chinese Ministry of Commerce website expressed their “resolute opposition” to the move, noting that the new license requirements would “severely” affect the operations of ZTE.

Diplomatic gymnastics aside, the sanctions have the potential to threaten a movement at the heart of ZTE’s current mobile operations: a two-year long push to put handsets in the hands of American consumers.

A Break In ZTE’s Supply Chain

While the latest restrictions won’t stop ZTE from shipping handsets to the US, they have a significant impact on the technology used in them. ZTE has made no secret of the fact that their latest high-end handsets are designed in the US, for the US.

Last year saw a handful of energetic Chinese smartphone sellers throwing off ‘made-in-China’ stereotypes by releasing high-end smartphones. At the beginning of 2015 ZTE initiated a brand overhaul and began selling handsets to the US. Previously the company had sold handsets in the US under white label agreements, meaning the ZTE phones were branded under other names, mostly carriers.

ZTE’s Axon was their enthusiastic high-end debut, defined by a significant upgrade in component quality. The phone was designed and tested in the US with the help of foreign teams, including Blackberry. The company branched out to sponsor five NBA teams among a series of decadent marketing commitments designed to push the new brand in the US market. In November, Senior Director of Strategic Marketing at ZTE, Andrew Elliot, told Technode that the company had tested every stage of the phone’s development, including the name, with 5768 American consumers.

And it worked. The company’s market share in the US almost doubled to 8.2 percent in 18 months. In a symbolic display, the Axon was even released in the US before China.

But as the company faces a lockout from US technology companies, they are also facing a lockout from the current, and potential, high-end components that helped them build their US flagship brand.

One of the major US tech companies that will be affected by the latest US ruling is Qualcomm. Qualcomm provides the MSM8994 Snapdragon 810 chip used in ZTE’s Axon. Under the new restrictions Qualcomm would be required to apply for a license to sell to ZTE, which would likely be turned down.

ZTE’s Relationship With US Consumers

The latest case with ZTE brings to mind the riff between Huawei and the US government. Huawei’s telecommunications business was blacklisted in the US over spying allegations. While the two cases are markedly different, it’s worth noting that Huawei’s handset business has made healthy gains in the US market despite the previous damage done to their brand. Like ZTE, Huawei has managed to encroach on Samsung and Apple’s high-end domain, notwithstanding a slowing smartphone market.

While consumer sentiment may not be harmed by ZTE’s latest sanctions, a dip in quality components could. The latest restrictions will also likely drive ZTE to search out new suppliers, further promoting the Chinese government push to localize and control core technologies.

The US sanctions against Iran, many of which were recently relaxed, are designed to halt the development of Iranian nuclear programs by locking them out of trades involving US technology.

According to the US Department of Commerce ZTE “planned and organized a scheme to establish, control, and use a series of ‘detached’ (i.e., shell) companies to illicitly reexport controlled items to Iran in violation of U.S. export control laws.” ZTE has a registered company in Iran, and was allegedly utilizing shell companies to export goods that include US technology from China to Iran.

ZTE has suspended trading this week in reaction to the news. The company has not responded to a request for comment at the time of publishing but released a statement noting they are “working expeditiously towards resolution of this issue.”

Running A Coworking Space In China: Q&A With Bob Zheng, Founder Of People Squared

Eva Xiao — Sat, 05 Mar 2016 04:28:37 +0000

China’s coworking space industry has exploded over the past few years, matching the fast growth of the country’s startup ecosystem. According to the Wall Street Journal, there were 3,200 coworking space companies in 2014, compared to 400 in 2008.

Bob Zheng, founder and CEO of People Squared

Not all coworking spaces are connected with startups, however. China Vanke, a real estate company, launched UR Work in April 2015. Hotel development and management company naked Retreats opened their first coworking space naked Hub in Shanghai last November. As the coworking space market continues to saturate, companies will have to offer more than a polished, beautiful space to be unique.

Founded in 2010 by Bob Zheng, People Squared (P2) is one of the oldest coworking spaces in China. P2 has offices in Shanghai and Beijing and plans to expand to other cities such as Shenzhen. Before founding P2, Mr. Zheng founded another startup, liuxueok.com, a social platform for Chinese high schoolers with western universities. In addition to being P2’s CEO, Mr. Zheng is also a mentor at Chinaccelerator.

TechNode had a conversation with Mr. Zheng about his view on coworking spaces in China, specific challenges, and what P2 has planned for 2016.

1. How can a coworking space remain unique in China as more competitors move in?

I actually think that China doesn’t have enough coworking spaces. [For example], Shanghai has a very mixed and cosmopolitan culture. People who work have their own requirements for different working styles. Currently, a lot of coworking spaces are just for startups because the environment exists. But actually, coworking spaces don’t have to be just for internet companies. Every coworking space has a different audience.

For example, New York City has General Assembly. Their model is about teaching workshops to their clients. That’s their business model. A lot of coworking spaces [in China] are very limited or homogeneous.

2. What’s the biggest difference between coworking spaces in the US and coworking spaces in China?

In San Francisco, there was an owner of a night club who was very successful, but didn’t know what to do with the upper levels of the building. They rented it out to other offices. WeWork opened across from them, which brought them a very different option for making profit. Now, the basement is still a nightclub but the upper levels are a coworking space for artists. At the same time, there are internet companies who work inside as well.

There are more of these kinds of coworking spaces [in the U.S]. You can find more inspiration there. In China, there are still too many spaces that only serve one purpose. It’s a pity. We still haven’t given the [most creative] people the chance to interact in a community, know each other, and encourage new ideas.

3. How do you create a community that’s open to both foreign and local Chinese startups?

This is something that P2 decides. Our users in China are 80% to 90% Chinese. P2 had a lot of events like Startup Weekend, Startup Grind. We discovered that if you want to combine or merge the Chinese ecosystem with the foreigner circle, it’s always hard. For example, if you want to enter the internet industry, you have to either choose the Chinese community or the foreign community.

During some period of time, especially in 2013 – 2014, our spaces had a lot of foreigners. You know, foreign and Chinese communities don’t talk in China. It’s like you have two communities in one space. It’s a very strange thing. And it’s not clear where everyone stands.

We thought, well, we’re in China after all. If we want to make coworking spaces, we need to make spaces for Chinese people, let them realize their value in our spaces. Just how spaces select their people, people select their spaces. This is a very natural phenomenon.

At Techyizu events [an organization in Shanghai that organizes startup, design, and tech events], for example, you’ll see that there are a lot of Chinese people. Most of them are returning from abroad, or they want to practice their English, or they want to learn more about overseas and international culture. It’s very different from ITJuzi and 36kr events. Their purpose is very clear, they want to understand venture capitalists, etc.

4. In your opinion, can community be scaled, and if so, how?

You’re right. Scaling community is really hard. We’re very lucky at P2 because we grow with the community, we’re not just scaling [it]. Like you mentioned, the internet, this whole wave of “innovation” and “startup culture” – the scale has grown bigger and bigger.

To build a community, there are a few parts. It has to be open yet exclusive. In our spaces, we have a lot of rules. We’ve even pushed a few teams out of our spaces because startups are kind of a mentality. If you invite teams that only need physical space, they not only don’t help the community grow, they can hurt it.

Startups need to understand our space and why we need to have a community. You need to be selective. P2 has a long wait list. We even have a special team called “community” to choose the right teams.

5. You mentioned that P2 is launching a coworking space for artists this year. Can you tell me more about that?

This year, we’re opening a new space in Baoshan, Shanghai. This space will be used for musicians, photographers, and artists. It will be their working and living space.

The recording studio, etc. and office space will not be separated – it’ll be shared among all users. The dormitories will be open as well. They’ll be on Airbnb. Anyone can come in and enjoy this space. We’re calling it “Ocean 10.” We hope that ten artist groups will live there and lead the culture. They will develop the artistic atmosphere around the area.

This will make the space even more interesting. It will have a core group of artists, as well as “living water.” The space needs “living water,” a group of people who are attracted by the community, can interact with the artists, understand their products, their work.

Artists will also be able to invite their friends, as many of them will be from London, the U.S, etc. They can invite them over and live with them for a period of time. The nature of the space will still be exclusive [like other P2 spaces], but we wanted to add a more open part.

Image credit: People Squared

Qualcomm Settles Fine For Repeatedly Bribing Chinese Officials

Cate Cadell — Wed, 02 Mar 2016 05:15:12 +0000

Qualcomm Inc. will be hoping to bury another piece of unfortunate history between the company and Chinese authorities, paying out a $7.5 million USD fine in response to allegations that they bribed Chinese officials with gifts and offers of employment, they said in a release on Tuesday.

According to a statement released by the US Securities and Exchange Commission (SEC), Qualcomm violated anti-bribery provisions by hiring relatives of Chinese officials in charge of the country’s telecommunications markets.

The SEC says that Qualcomm also “provided gifts, travel, and entertainment to try to influence officials at government-owned telecom companies in China.” The reports shows that Qualcomm referred internally to relatives of Chinese officials as “must place” or “special” hires for full time jobs and internships, describing the positions as “quite important from a customer relationship perspective.”

“For more than a decade, Qualcomm went to extraordinary lengths to gain a business advantage with foreign officials deciding between Qualcomm’s technology and its competitors,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

Among other listed offenses, Qualcomm also provided a $75,000 USD research grant on behalf on an official’s son, and a company executive provided a $70,000 USD loan to the son of a Chinese official to purchase a home.

Qualcomm has agreed to pay the $7.5 million USD civil penalty to close the matter, as well as committing to tighten internal controls, including monitoring the network of political and familial relationships of new staff.

“Qualcomm is pleased to have put this matter behind us. We remain committed to ethical conduct and compliance with all laws and regulations, and will continue to be vigilant about FCPA compliance,” said Don Rosenberg, Executive Vice President and General Counsel of Qualcomm. The company’s statement also says the alleged offenses all occurred prior to 2012.

It’s not the first time Qualcomm has come under fire as as they strive to maintain dominance in the geopolitically fierce battlefield of Chinese telecommunication contracts. In early 2015, the San Diego-based company paid out a $975 million USD fine following a year-long investigation by Chinese antitrust authorities, who claim the company violated the country’s antimonopoly laws.

The case shed doubt over Qualcomm’s ability to settle contracts with China’s largest handset vendors, causing their stock to stumble 38 percent percent in 2015. The company, which makes approximately 60 percent of their revenue from licensing fees, recently settled on licensing fees with Lenovo in February, following a deal with Xiaomi in December.

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