China Roundup
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China roundup: Beijing wants tech giants to shoulder more social responsibilities
Hello and welcome back to TechCrunch’s China roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.
This week, the gaming industry again became a target of Beijing, which imposed arguably the world’s strictest limits on underage players. On the other hand, China’s tech titans are hastily answering Beijing’s call for them to take on more social responsibilities and take a break from unfettered expansion.
Gaming curfew
China dropped a bombshell on the country’s young gamers. As of September 1, users under the age of 18 are limited to only one hour of online gaming time: on Fridays, Saturdays and Sundays between 8-9 p.m.
The stringent rule adds to already tightening gaming policies for minors, as the government blames video games for causing myopia, as well as deteriorating mental and physical health. Remember China recently announced a suite of restrictions on after-school tutoring? The joke going around is that working parents will have an even harder time keeping their kids occupied.
A few aspects of the new regulation are worth unpacking. For one, the new rule was instituted by the National Press and Publication Administration (NPPA), the regulatory body that approves gaming titles in China and that in 2019 froze the approval process for nine months, which led to plunges in gaming stocks like Tencent.
It’s curious that the directive on playtime came from the NPPA, which reviews gaming content and issues publishing licenses. Like other industries in China, video games are subject to regulations by multiple authorities: NPPA; the Cyberspace Administration of China (CAC), the country’s top internet watchdog; and the Ministry of Industry and Information Technology, which oversees the country’s industrial standards and telecommunications infrastructure.
As analysts long observe, the mighty CAC, which sits under the Central Cyberspace Affairs Commission chaired by President Xi Jinping, has run into “bureaucratic struggles” with other ministries unwilling to relinquish power. This may well be the case for regulating the lucrative gaming industry.
For Tencent and other major gaming companies, the impact of the new rule on their balance sheet may be trifling. Following the news, several listed Chinese gaming firms, including NetEase and 37 Games, hurried to announce that underage players made up less than 1% of their gaming revenues.
Tencent saw the change coming and disclosed in its Q2 earnings that “under-16-year-olds accounted for only 2.6% of its China-based grossing receipts for games and under-12-year-olds accounted for just 0.3%.”
These numbers may not reflect the reality, as minors have long found ways around gaming restrictions, such as using an adult’s ID for user registration (just as the previous generation borrowed IDs from adult friends to sneak into internet cafes). Tencent and other gaming firms have vowed to clamp down on these workarounds, forcing kids to seek even more sophisticated tricks, including using VPNs to access foreign versions of gaming titles. The cat and mouse game continues.
Prosper together
While China curtails the power of its tech behemoths, it has also pressured them to take on more social responsibilities, which include respecting the worker’s rights in the gig economy.
Last week, the Supreme People’s Court of China declared the “996” schedule, working 9 a.m. to 9 p.m. six days a week, illegal. The declaration followed years of worker resistance against the tech industry’s burnout culture, which has manifested in actions like a GitHub project listing companies practicing “996.”
Meanwhile, hardworking and compliant employees have often been cited as a competitive advantage of China’s tech industry. It’s in part why some Silicon Valley companies, especially those run by people familiar with China, often set up branches in the country to tap its pool of tech talent.
The days when overworking is glorified and tolerated seem to be drawing to an end. Both ByteDance and its short video rival Kuaishou recently scrapped their weekend overtime policies.
Similarly, Meituan announced that it will introduce compulsory break time for its food delivery riders. The on-demand services giant has been slammed for “inhumane” algorithms that force riders into brutal hours or dangerous driving.
In groundbreaking moves, ride-hailing giant Didi and Alibaba’s e-commerce rival JD.com have set up unions for their staff, though it’s still unclear what tangible impact the organizations will have on safeguarding employee rights.
Tencent and Alibaba have also acted. On August 17, President Xi Jinping delivered a speech calling for “common prosperity,” which caught widespread attention from the country’s ultra-rich.
“As China marches towards its second centenary goal, the focus of promoting people’s well-being should be put on boosting common prosperity to strengthen the foundation for the Party’s long-term governance.”
This week, both Tencent and Alibaba pledged to invest 100 billion yuan ($15.5 billion) in support of “common prosperity.” The purposes of their funds are similar and align neatly with Beijing’s national development goals, from growing the rural economy to improving the healthcare system.
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China roundup: Games are opium, algorithms need scrutiny
Hello and welcome back to TechCrunch’s China roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.
The question for the tech news cycle in China these days has become: Who is Beijing’s next target? Regulatory clampdowns are common in China’s tech industry but the breadth of the recent moves has been unprecedented. No major tech giant is exempted and everyone is being attacked from a slightly different angle, but Beijing’s message is clear: Tech businesses are to align themselves with the interests and objectives of Beijing.
Education curbs hit tech giants
The government’s motivation isn’t always ideological. It could lead to policies that rein in the unruly private tutoring sector in the hope of easing pressure on students and parents. Recent orders from Beijing have strictly limited after-school tutoring, though they also sparked a wave of sympathy for public school teachers who work at lucrative tutoring centers to compensate for their meager salaries.
The effects of the education crackdown are also trickling down to internet companies. For the past few years, ByteDance had been aggressively building an online education business through a hiring and acquisition spree in part to diversify an ad-based video business. Its plan seems to be in shambles as it reportedly plans to lay off staff in its education department following recent the clampdown.
The restraints are also hitting American companies. Duolingo, the language learning app, was removed from several app stores in China. While it’s not immediately clear whether the action was the result of any policy change, the government recently, along with its restraints on extra-curriculum, barred foreign curricula in schools from K-9.
Games are opium
It could be tricky to read the top leaders’ minds because their messages could come through various government departments or state-affiliated media outlets, carrying different weights.
This week, Tencent is in the authorities’ crosshairs. About $60 billion of its market cap was wiped after the Economic Information Daily, an economic paper supervised by China’s major state news agency Xinhua, published an article (which was taken down shortly) describing video games as “spiritual opium” and cited the major role Tencent plays in the industry. Shares of Tencent’s smaller rival NetEase were also battered.
This certainly isn’t the first time Tencent and the gaming industry overall were slammed by the government for their impact on underage players. Tencent has been working to appease the authorities by introducing protections for young players, for instance, by tightening age checks several times.
Tencent, which has a sprawling online empire of social networks, payments and music on top of games, has also promised to “do [more social] good” through its products. And following the recent op-ed from the state paper, Tencent further restricted the amount of time and money children can spend inside games. But after all, the company still depends largely on addictive game mechanics that lure players to open loot boxes.
Tencent share prices over the past six months. Image Credits: Google Finance
Fix the algorithms
The other camp of tech companies feeling the heat is those dependent on machine learning algorithms to distribute content. The Propaganda Department of the Chinese Communist Party, the country’s watchdog of public expressions, along with several other government organs, issued an advisory to “strengthen the study and guidance of online algorithms and carry out oversight over algorithmic recommendations.”
The government’s goal is to assert more control over how algorithmic black boxes affect what information people receive. Shares of Kuaishou, TikTok’s archrival in China, tanked on the news. Since its blockbuster initial public offering in February, Kuaishou’s stock price has tumbled as much as 70%. Meanwhile, the Beijing-based short video firm is shuttering one of its overseas apps called Zynn, which has caused controversy over plagiarism. But its overseas user base is also rapidly growing, crystalizing in one billion monthly users worldwide recently.
End of “two-choose-one”
The week hasn’t ended. On Friday morning, The Wall Street Journal reported that the country’s antitrust regulator is preparing to fine Meituan, China’s major food delivery platform, $1 billion for allegedly abusing its market dominance. In 2020, Meituan earned 114.8 billion yuan or $17.7 billion in revenue.
Until recently, forcing suppliers to pick sides had been a common practice in China’s e-commerce world. Alibaba did so by forbidding sellers to list on rivaling platforms, a practice that resulted in a $2.75 billion antitrust penalty in April. We will see where the government will act next as it continues to curb the power of its tech darlings.
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China Roundup: Enterprise tech gets a lasting boost from coronavirus outbreak
Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. This week, a post from Sequoia Capital sounding the alarm of the coronavirus’s impact on businesses is reaching far corners of tech communities around the world, including China.
Many echo Sequoia’s observation that the companies that are the “most adaptable” are the likeliest to survive. Others cling to the hope of “[turning] a challenging situation into an opportunity to set yourself up for enduring success.”
Two weeks ago I wrote about how the private sector and the government in China are working together to contain the epidemic, bringing a temporary boost to the technology industry. This week I asked a number of investors and founders which of these changes will stand to last, and why.
B2B on the rise
The business-to-business (B2B) space was rarely a hot topic in China until online consumer businesses became relatively saturated in recent times. And now, the COVID-19 epidemic has unexpectedly breathed life into the once-boring field, which stretches from virtual meetings, online education, digital healthcare, cybersecurity, telecommunications, logistics to smart cities, analysis from investment firm Yunqi Partners shows.
For one, there is an obvious opportunity for remote collaboration tools as people work from home. Downloads of indigenous work apps like Dingtalk, WeChat Work, TikTok’s sister Lark as well as America’s Zoom jumped exponentially amid the health crisis. While some argue that the boom is overblown and will dissipate as soon as businesses are back to normal, others suggest that the shift in behavior will endure.
Like other work collaboration services, Zoom soared in China amid the coronavirus outbreak, jumping from No. 180 in late January to No. 28 as of late February in overall app installs. Data: App Annie
“People are reluctant to change once they form a new habit,” suggests Joe Chan, partner at Hong Kong-based Mindworks Ventures. The virus outbreak, he believes, has educated the Chinese masses to work remotely.
“Meeting in person and through Zoom both have their own merits, depending on the social norm. Some people are used to thinking that relationships need to be established through face-to-face encounters, but those who don’t hold that view will have fewer meetings. [The epidemic] presents a chance for a paradigm shift.”
But changes are slow
Growth in enterprise businesses might be less visible than what China witnessed over the SARS epidemic that fueled internet consumer verticals such as ecommerce. That’s because software-as-a-services (SaaS), cloud computing, health tech, logistics and other enterprise-facing services are intangible for most consumers.
“Compared to changes in consumer behavior, the adoption of new technologies by enterprises happen at a slower pace, so the impact of coronavirus on new-generation innovations [B2B] won’t come as rapidly and thoroughly as what happened during SARS,” contended Jake Xie, vice president of investment at China Growth Capital.
Xie further suggested that the opportunities presented by the outbreak are reserved for companies that have been steadily investing in the field, in part because enterprise services have a longer life cycle and require more capital-intensive infrastructure. “Opportunists don’t stand a chance,” he concluded.
As for changing consumer behavior, such as the uptick in grocery delivery usage by seniors trapped indoors, the impact might be short-lived. “The only benefit that the epidemic brings to these apps is getting more people to try their services. But how many of them will stay? The argument that people will keep using these apps over concerns of getting sick in offline markets is unsubstantiated. The strength of a business lies in its ability to solve user problems in the long term, for example, providing affordability and convenience,” suggested Derek Shen, chairman of Danke Apartment, the Chinese co-living startup slated to list on NYSE.
Summoned by Beijing
The adjacent sector of enterprise services — at-scale technologies tailored to energizing government functions — has also seen traction over the course of the epidemic. Private firms in China have teamed up with regional authorities to better track people’s movements, ramp up facial recognition capacities aimed at a mask-wearing public, develop contact-free consumer experience, among other measures.
Tech firms touting services to the government are no stranger to criticisms concerning the lack of transparency in how user data is used. But the appeal to private firms is huge, not only because state contracts tend to provide a steady stream of long-term revenue, but also that certain public-facing projects can be billed as a fulfillment of corporate social responsibilities. Following the virus outbreak, Chinese tech companies of all sizes hastened to offer contributions, with efforts ranging from making monetary donations to building tools that keep the public informed.
On the flip side, the government also needs private help in emergency management. As prominent Chinese historian Luo Xin poignantly pointed out in podcast SurplusValue’s recent episode [1:00:00], some of the most efficient and effective responses to the public health crisis came not from the government but the private sector, whether it is online retailer JD.com or logistics firm SF Express delivering relief supplies to the epicenter of the outbreak.
That said, Luo argued there are signs that some local authorities’ tendency to centralize control is getting in the way of private efforts. For example, some government offices have stumbled in their attempts to develop crisis management systems from scratch, overlooking a pool of readily available and proven infrastructure powered by the country’s tech giants.
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