A bad week for the internet in China

Access Archive

Dear Access member,

  • Paul French will join us on Slack on Tuesday, September 11, at 11 a.m. EST. Paul came on Sinica a few weeks ago to talk about his outstanding new book called City of Devils: A Shanghai Noir, the story of two foreigners who ruled the underworld of Shanghai in the 1930s.

  • As a reminder, we have stopped sending Access members morning emails on Mondays and Fridays. These are sent several hours before the Access email goes out, and contain just a couple of links to preview what non-members are missing. Here is a link to the one we sent today — let me know at jeremy@supchina.com if you received it by accident and didn’t want it, or if you would rather receive two emails from us on Mondays and Fridays.

  • We’ll take Monday off for American Labor Day. Have a great weekend and see you on Tuesday.

  • —Jeremy Goldkorn, Editor-in-Chief


    1. A crisis of trust on the Chinese internet

    In 2017, the Financial Times published a story titled Silicon Valley faces a revolt after losing public trust (paywall), which said that technology executives were at risk of “attracting an opprobrium often reserved for bankers”:

    A backlash against Big Tech is gathering momentum, propelled by Silicon Valley’s clumsy mistakes. The stereotype is shifting from plucky Californian underdog to faceless, malevolent behemoth. From terrorist content, sexism claims and trolls to mind-reading privacy invasion, unpaid tax and robots taking jobs, the charge sheet is growing rapidly.

    Perhaps Chinese internet users never had illusions about tech companies — no Chinese-based tech company ever set itself up with a slogan like “Don’t be evil.” Nonetheless, one of the selling points articulated by pioneers of car-hailing and other Chinese “sharing economy” companies was precisely that such services were helping to build trust between citizens in a society that severely lacked it.

    The recent murder of a Didi Chuxing passenger seems to have resulted in a widespread feeling of unhappiness with Didi that has coincided with a rough week for the Chinese tech industry. Here is some of the unhappy news:

    Fallout of Didi murders

    Both customers and the government are reacting:

    • The government will inspect all ride-hailing service companies nationwide starting September 5, the Ministry of Transport ministry said in a statement (in Chinese) today.

    • Downloads of Didi’s app “have taken a nosedive following the second passenger murder that sparked nationwide outrage,” reports TechNode. The app was the ninth most popular on Apple’s Chinese iOS store on August 20, but fell down to 61st place by August 29.

    Tencent in crosshairs as government targets games

    On August 15, we noted that Tencent announced its first decline in quarterly profits in nearly 13 years. The stock market reacted by wiping out $25 billion from the company’s market value, the latest decline in an uncharacteristically bad year for Tencent.

    • “Weak gaming revenue” was the reason cited by Tencent for the fall in profits — the main problem is that like all gaming companies in China, Tencent has been waiting on government approvals for games since March, after a regulatory reform.

    • Myopia is the latest problem to be blamed on games. The Ministry of Education and the State Administration of Press, Publication, Radio, Film and Television of China (SAPPRFT) have rolled out new rules restricting gaming for minors with the aim of reducing short-sightedness caused by too much screen time.

    • Tencent’s stock fell more than 5 percent after the news of the myopia regulations, reports CNBC.

    See also: Tencent, NetEase stumble as China tightens video-game rules on Market Watch, or listen to Tencent and the case of the missing $140 billion, a relevant China TechBuzz podcast on SupChina.

    Winter coming for Chinese tech firms on U.S. stock markets?  

    One of the odd features of the Chinese internet is that while it may be de facto off limits to Western tech firms, many leading Chinese internet companies have listed on stock exchanges in the U.S.

    In the current atmosphere of hostility between China and the U.S., those U.S.-listed companies may come under a great deal of new scrutiny. Here is a leading indicator — politically mainstream Beltway denizen and Washington Post columnist Josh Rogin’s latest piece: It’s time to end the ‘China hustle’ on U.S. stock exchanges. This is the argument:

    The growing presence of Chinese companies in U.S. stock exchanges poses a dangerous and growing risk for U.S. investors and the American economy as a whole — a problem that has been overlooked for far too long.

    The risk lies in Beijing’s refusal to allow U.S. regulators to do their jobs and verify that Chinese companies are in compliance with U.S. laws. Chinese companies’ systematic use of irregular investment structures to do business on U.S. exchanges without real financial transparency has been going on for more than a decade.  

    2. Huawei — a view from the inside

    William B. Plummer was, until 2017, president of external affairs at Huawei with the unenviable job of persuading Washington, D.C., that the company was cuddly. He has just published a book on his time there: Huidu: Inside Huawei. Paul Mozur, crack tech correspondent for the New York Times, tweeted a thread about the book. Excerpts:

    He describes a broad lack of trust of foreign employees and an HQ that often made decisions without regard for the DC office opinions. Despite being excluded from top decision making, which happened in Shenzhen HQ, he says he doesn’t think Beijing “unusually influenced” Huawei.

    He attributes poor decision making in managing DC to cultural clashes and HQ stubbornness. He also argues that Huawei’s mismanagement of US government pressures has led to a cancer that is spreading, with other countries now beginning to follow US cues in blocking Huawei.

    He says Huawei’s reticence with the USG often stemmed from fear of angering founder Ren Zhengfei or worse the CCP: “Huawei was acting out of fear of going sideways of the Chinese government, of opening up another can of worms…”

    Also on Huawei: TechNode reports that Huawei has become the biggest private company in China.

    —Jeremy Goldkorn

    3. Trade war, day 57: Trump wants next $200 billion in tariffs as early as next week

    As with many of the previous escalations in the trade war, it was Bloomberg that broke the news (paywall):

    President Donald Trump wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as a public-comment period concludes next week, according to six people familiar with the matter.

    The public comment period ends September 6, Bloomberg notes. China has previously said that it would respond to the next round of American tariffs with $60 billion in countermeasures.  

    Bloomberg also conducted a full interview with Trump at the White House yesterday. Here’s some of the other things he said about trade and China, according to the full transcript:

    • He essentially confirmed that the plan is in place to go forward with the tariffs very soon, saying, with a smile, that Bloomberg’s sourcing was “not totally wrong.”

    • The EU is “almost as bad as China, just smaller,” Trump said, in reference to trade barriers that he perceived “as restrictive as any single country in the world — including China.”

    • The U.S. is closely monitoring China’s currency — “we’re doing all the studies…we are looking very strongly at the formula,” Trump said, again accusing China of “trying to make up for lack of business by cutting their currency.”

    • “The WTO was the single worst trade deal ever made. And if they don’t shape up, I would withdraw from the WTO. We rarely won a lawsuit except for the last year.” (This is false.)

    As Trump pushes forward with trade grievances against China and the world, China and the world continue to come closer together on trade:

    • Trump has “given us the urgency” to push forward with RCEP (Regional Comprehensive Economic Partnership) negotiations, Ramon Lopez, the Philippines’ secretary of trade and industry, told CNBC.

    • RCEP involves China, along with Japan, South Korea, India, Australia, New Zealand, and all 10 countries in ASEAN (Association of Southeast Asian Nations), all together accounting for one-third of the world’s economy.

    • But Japan is undergoing the “biggest” change in the Trump-prompted “reordering of economic relationships,” the Financial Times writes (paywall), pointing to a series of unusual bilateral contacts this year:

      • The first “high-level economic dialogue” in 10 years in April.

      • Chinese Prime Minister Li Keqiang’s visit to Japan in May — the first by a Chinese premier since 2010.

      • An invitation extended last month to Japan’s ambassador to Beijing to write an opinion column in the People’s Daily — “the first such instance in a decade.”

      • Talks between financial ministers that happened just today in Beijing. See Reuters for more.

    While China puts a friendly face on for some of its neighbors, it has recently dropped much of its modesty when talking about Trump.

    • Trump’s tweets are “messages from some alternative universe,” an editorial in the China Daily said on August 30.

    • The editorial was referring to Trump’s claim, provided without evidence and quickly denied by the FBI, that China had hacked Hillary Clinton’s email server.

    • China Daily goes on to argue that Trump is “smearing China’s image as he desperately needs a scapegoat in the run-up to the midterm elections, so he can divert public attention from the troubles the White House has become mired in.”

    • This comes after state broadcaster CGTN published an unusually sarcastic video mocking Trump last week — and then just as Chinese negotiators arrived in Washington, D.C., for talks that ended fruitlessly, the propaganda was pulled.

    Other trade war and related reporting:

    • Health of China’s economy
      Trade war: China suffers three-month export downturn as Donald Trump’s tariffs bite / SCMP
      “The ‘new export order’ subindex in China’s official purchasing manager index — the first available indicator to gauge China’s export sector’s health every month — fell sharply in August even when only a small portion of Washington’s threatened additional tariffs on Chinese products kicked in, according to the National Bureau of Statistics.”
      “The subindex dropped by 0.4 points to 49.4 in August, the lowest since the China-US trade tension escalated in March, according to data released by the statistics agency.”
      China’s manufacturing gauge ticked up in August / WSJ (paywall)
      “The official manufacturing purchasing managers index edged up to 51.3 in August from July’s 51.2, data released by the National Bureau of Statistics showed Friday. The uptick bucked the forecasts of many economists, including those polled by The Wall Street Journal who expected the index to tick down to 51.1. A level above 50 indicates an expanding economy rather than a contracting one.”
      China plans tax cuts for foreign bond investors to aid growth / Bloomberg (paywall)
      “China will exempt foreign institutions from paying some taxes on interest gains in the onshore bond market as part of efforts to support the economy.”

    • Companies in crosshairs
      Brilliant CEO says company caught in crosshairs of US-China trade dispute / CNBC
      “Aaron Emigh, the CEO of Brilliant, said the supply chain for consumer electronics is based in China and that moving production to the U.S. is ‘not an option.’”
      Ford scraps plan to import China-built small car due to tariffs / WSJ (paywall)
      “Ford Motor Co. F -2.27% has ditched plans to import its Focus compact vehicle from China to the U.S., citing an expected hit from import tariffs the Trump administration put into effect in July.”

    • Long-term outlook
      Experts expect Trump’s trade war with China to go well into next year / Axios
      Ian Bremmer, president of the Eurasia Group, said, “By the end of 2019, I suspect the biggest headlines on U.S.-China will be more focused on a changing global power balance than a direct trade war.”

    —Lucas Niewenhuis

    4. The Great Beijing Indaba  

    The 2018 Forum on China-Africa Cooperation (FOCAC) takes place September 3 and 4 in Beijing, although I wish they’d rename it the Great Beijing Indaba. If you’re following it:

    —Jeremy Goldkorn

    —–

    Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@supchina.com.

    —Jeremy Goldkorn, Editor-in-Chief


    Here are the stories that caught our eye this week:

    • The rape and murder of a female passenger on Didi Chuxing’s Hitch ride-sharing service — the second in three months — caused nationwide outrage, and an apology tour from Didi wasn’t sufficient to stem much of the resulting loss of trust.

    • Public statements from officials on Xinjiang didn’t improve the grim outlook for Uyghurs there and the protection of their culture, and both a UN human rights panel and a bipartisan group of U.S. senators raised alarm about the mass detentions of Muslims in Xinjiang.

    • The trade war saw a busy week: $4.7 billion in subsidies for American farmers was announced, signs grew that both sides were buckling up for a much-extended conflict, the U.S. confirmed that it is in no rush to find a deal with China, Trump tied the North Korean issue to trade — again — and all this in just four days, before current reports came out that another escalation in tariffs could come as soon as next week. Meanwhile, polling from the Pew Research Center indicated that Americans were slightly more negative on China than a year ago — though young people were more positive. Also relatedly, Chinese telecom giant ZTE said that its “main operating business has resumed completely” after the Trump administration unexpectedly lifted a ban on the company for violating sanctions on North Korea and Iran.

    • Baidu sued an online jokester, giving the wag more publicity than he could possibly have achieved otherwise.

    • China hasn’t handed over H7N9 avian flu specimens to the U.S. for research for over a year, for unexplained reasons. Taiwan and Hong Kong sent samples instead.

    • Beer sales went up again, after four years of sales shrinkage.

    • Gay dating app Grindr, which is owned by the Beijing-based Kunlun Group, is reportedly planning to IPO.

    • China’s military and espionage operations were in the news, including stories such as the South China Morning Post’s report that Beijing was “fully funding” a military camp in Afghanistan’s Wakhan Corridor, and The Australian’s report that the “Five Eyes” intelligence services were prepared to name foreign countries meddling in markets and public discourse.


    BUSINESS AND TECHNOLOGY:

    POLITICS AND CURRENT AFFAIRS:

    SOCIETY AND CULTURE:


    VIDEO OF THE DAY

    Click Here

    What is China watching? This week: Medicine gets airborne in Jilin, a hoverboard explodes, and tourists destroy a 200,000-year-old landscape.

    This week, we also published the following videos:


    ON SUPCHINA

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    Chinese Corner: The woman who made ride-hailing ‘sexy’

    Jiayun Feng’s introduction to what China’s reading this week.

    China Sports Column: Baseball is trending the right direction in China

    The Philadelphia Phillies recently signed Bruce Wang Yang, becoming the fourth Major League Baseball organization — joining the Baltimore Orioles, Pittsburgh Pirates, and Boston Red Sox — to pick up a player from mainland China. Also in this week’s China Sports Column: Esports at the Asian Games, and Xi Jinping playing soccer (psst, Gaelic football, actually).

    Sinica Podcast: Legendary diplomat Chas W. Freeman, Jr., on U.S.-China strategy and history: Part 3

    In part 3 of Kaiser and Jeremy’s conversation with Ambassador Freeman, he talks about U.S.-China military cooperation in the 1980s and discusses some aspects of that cooperation that might really surprise you. He also shares his unconventional take on the “three Ts” — Tibet, Taiwan, and Tiananmen.

    Blockchain in China: Local is everything

    City governments in China have invested $3.57 billion since 2016 to support blockchain startups and R&D. Here’s a guide on who’s doing what.

    The SupChina Quiz: Music in China

    Thirteen questions to test how much you know about Chinese singers and songs and landmark events in the China-related music scene. Let us know how you do — tweet your score to @supchinanews.

    Kuora: The greatness that could have been for the Song dynasty

    Could the Song dynasty have been the greatest one in China’s history if there had been no invasion from the North? Little doubt remains that had its nomadic neighbors left it alone, the Song would have stood out as the paramount Chinese dynasty.

    TechBuzz China: Tencent and the Case of the Missing $140 Billion

    China’s leading internet company, Tencent, lost $140 billion in value since January. Ying-Ying Lu and Rui Ma discuss many aspects of its fall and potential recovery, including: What was the significance of COO Mark Ren taking over the company’s stalwart gaming sector, which accounts for over 50 percent of Tencent’s revenues? And is Tencent’s mantra of “connect everything,” its official vision since 2014, being realized to the extent that it can be, in our increasingly AI- and algorithm-driven world?

    Director of ‘worst movie on Douban’ sues review website for rating

    The producers of Pure Hearts: Into Chinese Showbiz (纯洁心灵·逐梦演艺圈), which received a score of 2.1 out of 10 on Douban, one of China’s most widely used review websites, are suing the platform for “faulty and irregular rating.” Director Bi Zhifei 毕志飞 contends that only one-star ratings of his movie appeared on Douban after the movie’s premiere, and that two- to five-star ratings were excluded.

    Movie and TV productions in China halted by salary cap on celebrities

    On August 10, three of China’s largest streaming websites issued a notice announcing they were capping the pay of China’s stars, in response to an announcement issued by five governmental agencies in late June to curb exorbitantly high star payments. Different shows are being affected in different ways.

    The Caixin-Sinica Business Brief, episode 60

    This week on the Caixin-Sinica Business Brief: Next month’s forum on China-Africa Cooperation, the downfall of Chinese monk Shi Xuecheng, China’s online population, Doug Young on Tencent’s abrupt removal of its highly anticipated game, and more.


    PHOTO FROM MICHAEL YAMASHITA

    Taking a dip in Erhai Lake

    Children swimming in Erhai Lake in Dali, Yunnan Province. The lake covers an area of more than 250 square kilometers (96 square miles) and is a popular tourist destination.

    Jia Guo