In episode 345, Shai Oster, Asia Bureau Chief from the Information joined our returning host, Bernard Leong to answer the most important question in Asia, "What just happened to the Chinese tech giants?" We dived deep on why they are facing a regulatory crackdown and its downstream impact not just to Chinese tech CEOs stepping down from their jobs but also to the successful US companies from Apple to Tesla that are based in China.
"What Alibaba and Tencent have done is created national banking infrastructure. In China, national infrastructure is a national security. It's like highways, it's like power. And if huge amounts of your economy are being transacted behind closed doors effectively, through a private enterprise, that's not okay for the Chinese government." - Shai Oster, The Information
Here are the links and show notes for this episode:
- Shai Oster (@beijingscribe, LinkedIn, TheInformation Profile), Asia Bureau Chief in The Information
- Since our last conversation two and half years back, what have you been up to?
What just happened to the Chinese Tech Giants?
- [Opening statement] BL to provide the chronology of Alibaba, Tencent, ByteDance, Pinduoduo, JD, the government’s regulation of the edutech and gaming industry followed by the courts declaring 996 is illegal, and then the first question: What just happened?
- There are commentaries written that the Chinese government is finally waking up to regulate these companies as China is sliding to the “gilded age” similar to the US (in the 1900s). Do you agree with that point of view?
- Let’s start with anti-trust, given that both Chinese and US governments are actively pursuing the tech giants in their respective countries. What is the definition of anti-trust for the Chinese government on Chinese tech giants?
- Key tech giants such as Tencent and Alibaba have been fined by the State Administration for Market Regulation in China over their monopoly. From their perspective, how have the Chinese tech companies abused their power and why is there a sudden urge to enforce regulations against them?
- After watching all the different issues, I have observed the pattern in China and it goes in the following order, and I will use the recent 996 clampdown given that I agree with the Chinese government on their position (and this has happened in Japan and Korea in the 1980-1990s and took a long time to allow their work environments evolve towards a better state). First, they put an opinion in China Daily and ask nicely to the tech companies, “please look into this and do something about it”. Next, the tech companies (maybe with the exception of Tencent) will do nothing about it and finally, we will run a bulldozer all over you either charging the Chinese tech companies that 996 is illegal under labor law. Why have the Chinese tech companies reacted so slowly?
- In the past few months, we have seen the founder-CEOs of Chinese tech giants stepping down (and try to imagine Mark Zuckerberg stepping down from Facebook). Here’s the list: Richard Liu (JD), Colin Huang (Pinduoduo) and Zhang Yi Ming (Bytedance). Is the pressure getting onto them? Will we see more CEOs taking that position, for example, Pony Ma (Tencent) and Wang Xing (Meituan)?
- I want to get the Chinese perspective by separating out the different threads and diving deep into them. We will go in the following order: Tencent, Didi, Alibaba (or Ant), Meituan, ByteDance, Pinduoduo, JD and the edutech startups such as Zuoyebang and VIP Kid.
- [Tencent] If you look at the tech giants, whenever we read an important opinion from China Daily that criticizes the tech companies, they are the first to react. For example, the Chinese newspaper has labelled gaming as “spiritual opium” which have connotations to the Opium Wars fought in 1839-1842, they have reacted by providing parental controls. But obviously, it’s not enough. Moving forward, what can Tencent do to cope with the increasing demand that China does not want their citizens to indulge in the gaming or esports business?
- [Alibaba] Let’s start with Ant Financial. Ever since their IPO stalled, Alibaba Group has been under intense pressure. FT has reported that they will break up Ant’s Alipay and force Ant to separate from its main business the company’s two lending units — Huabei, which is similar to a traditional credit card, and Jiebei, which makes small unsecured loans — into a new entity and bring in outside shareholders. What are the major changes that we are expecting with Ant Financial?
- [Alibaba] In a year’s time, how do you look at the businesses for the Alibaba Group: ecommerce, cloud computing (Alicloud) and financial services (Ant)?
- One of the key criticisms of the tech companies is that they are focusing on consumer technologies that are not aligned with where the government wants to go specifically in deep tech, for example, semiconductors, quantum computing and spaceship building.
- [Didi] What is the current status of Didi after the Chinese government took them off the app stores and investigated them for the data breaches?
- [Edutech Startups] Can I ask why the Chinese government has nuked their entire edutech industry? What are the underlying factors that drove them to this decision?
- [Venture Capital] What happens to the VCs who are heavily invested in the edutech space in China? With the new regulations, where are the VCs and private equities placing their bets?
- Are the Chinese tech companies focusing on overseas expansion from now on? For example, Bytedance is in talks to borrow up to $5 Billion to fund their overseas expansion.
- Does the future look bleak for US tech companies based in China, for example, Apple, Tesla and LinkedIn?
- Where are we now with the Chinese tech companies? Is the worst over or is this just at the beginning?
- What would Chinese technology space look like when the dust settles?
- Since this is our first conversation after I stepped down for a while, I remember that you made an interesting observation on the tech company I used to work for. Of course, I still love the company even after I departed. Every now and then, when I bump into my ex-colleagues, and tell them a wise friend of mine made this quote to me, they wholeheartedly agree. So, I am giving you the microphone. Do you want to tell them what your advice to me is: [which I believe that it should be minted into a NFT]?
- Any recommendations of books, movies or podcasts that inspire you recently? Shai's recommendation: Dune Movie 2021 and TSMC by Acquired FM Podcast
- How can my audience find you?
- Shai Oster, How China is asserting control of the tech sector, The Information
- Beijing to break up Ant’s Alipay and force creation of separate loans app, Financial Times
- Companies including Tencent Holdings each fined $77,000 over monopoly, Global Times
- Sequoia Capital’s China Affiliate Launches Hedge Fund for Health, Biotech Stocks, The Information
- Martin Peers, The Real Lesson of Didi’s stock drop, The Information.
- Juro Osawa, ByteDance in Talks to Borrow Up to $5 Billion to Fund Overseas Expansion, The Information
Podcast Information: The show is hosted and produced by Bernard Leong (@bernardleong, Linkedin) and Carol Yin (@CarolYujiaYin). Sound credits for the intro music: "Run it" by DJ Snake, Rick Ross and Rich Brian