Good morning. I am in Utah for the holidays and mourning the dearth of snow. In between dodging rocks and ice on the slopes, I’ve been pondering changes in China’s tech scene this past year. To me, the biggest development is clear: 2017 was the year Chinese tech companies finally went global.
Way back in 2003, as Alibaba battled eBay for control of China’s online shopping market, Jack Ma predicted that in their home market, Chinese startups like his would inevitably triumph over Barbarian invaders, no matter how deep the foreign firms’ pockets or how sophisticated their technology. EBay, he famously proclaimed, may be a “shark in the ocean,” but Alibaba was a “crocodile in the Yangtze River.” As Ma put it: “If we fight in the ocean, we lose—but if we fight in the river, we win.”
That prophecy proved prescient. Alibaba’s online platform Taobao vanquished eBay’s China subsidiary, Eachnet. In the decade that followed, Silicon Valley giants like Google, Facebook, Amazon were held to a token Chinese presence. In summer of 2016, Uber, despite declaring China its “number one priority” and spending billions of dollars trying to secure a foothold there, surrendered to Chinese rival Didi Chuxing. Early this year, Netflix settled for a “modest” content sharing arrangement with local Internet company iQiyi. And until recently, the other half of Ma’s prediction was also true: China’s tech giants were mostly domestic creatures, with no real presence overseas.
No more. China’s crocodiles are evolving fast. They’re learning to swim in saltwater, and proving themselves formidable ocean predators. Over the past two years, China’s largest tech firms have made a slew of major investments in India and Southeast Asia, and bankrolled ambitious bike-sharing ventures in the U.S., Europe and Japan. This week brought the clearest demonstration yet of Chinese tech firms’ global ambitions as Didi Chuxing raised $4 billion in new venture funding and signaled its interest in acquiring control of the largest taxi-on-demand service in Brazil.
Didi’s latest cash infusion, received from investors including Japan’s SoftBank Group and Mubadala, an Abu Dhabi state fund, follows a $5.5 billion fund-raising round in April, also led by Softbank. All told, Didi’s valuation is said to have swelled to $56 billion. That would make Didi the second-most valuable startup in the world after Uber, which was valued at $68 billion after its latest funding round in June 2016. But a current Softbank offer to purchase a large chunk of Uber at a discount would lower Uber’s valuation to less than $50 billion. Didi vast warchest puts it in a strong position to challenge Uber globally by developing autonomous vehicles and new public-transportation management programs, as well as expanding its use of electric vehicles.
Didi’s bid for a majority stake in Brazil’s 99, first reported in The Information, would pose a direct threat to Uber, which now dominates Brazil’s car-hailing market. Brazil is the largest economy in Latin America, a region crucial to Uber’s global expansion plans. Didi has announced plans to expand into Mexico next year.
Globally, Uber operates in more cities than Didi. But the Chinese company is gaining ground. In addition to controlling China, the world’s largest car-hailing market, Didi has bested Uber in Southeast Asia, where it and SoftBank own a $2 billion stake in Grab, the region’s leading car-hailing service. In India, Didi and SoftBank are major investors in market-leader Ola. It has been widely speculated that in exchange for its investment in Uber, SoftBank will seek to play a consolidating role, restricting Uber’s investments in Asia.
Didi appears to have abandoned hopes of expansion in the the US market. A few weeks ago Didi discontinued its US app service and now encourages users to book rides with Uber’s domestic nemesis, Lyft. Still, Didi’s global expansion comes at a difficult time for Uber, which is grappling with mounting losses and stricter regulatory scrutiny at home and in Europe.
It’s too soon to say whether Uber or Didi will prevail in markets beyond their own borders. But if nothing else, it’s plain Chinese tech firms have emerged as significant global competitors. It will be interesting to see whether, in 2018, Chinese crocodiles’ newfound success in navigating the high seas of the global economy will create new pressures for China to open the Yangtze to a few more foreign sharks.
Happy holidays! Sino-Saturday will return with more China insights in the Year of the Dog.
Politics and Economics
Debt? No sweat! Beijing wrapped up a meeting of top Communist Party economic leaders Wednesday by endorsing a document entitled “Xi Jinping Thought on Socialist Economy with Chinese Characteristics.” The document called for curbing industrial overcapacity, reining in the growth of money supply and stabilizing China’s housing market. Conspicuously absent: serious discussion of the nation’s swelling mountain of debt. New York Times
Quality over quantity. The rate of growth of China’s economy is no longer China’s number one concern, Chinese state media Xinhua News reported at the conclusion of the country’s annual economic policy-setting conference. Beijing will focus instead of “high quality” development, adhering to its “proactive fiscal policy and prudent monetary policy” and pursuing its three-year target to clean up its financial sector and air pollution. South China Morning Post
On the defensive. China’s defence ministry has called out the United States for creating “sensational hype” over China’s military modernisation, after the White House released a national security strategy report this week that singled out China and Russia as “revisionist powers” keen to curtail U.S. power and harm its security and prosperity. Reuters
Upwards and onwards. The World Bank has revised China’s 2017 economic growth upwards from 6.7% to 6.8% on the back of increased personal consumption and foreign trade, it said in its latest quarterly report released this week. But the country’s GDP growth will slow to 6.4 percent in 2018 and 6.3 percent in 2019 due to monetary policy changes and the government’s efforts to curtail credit and debt, it added. Financial Times
Technology and Innovation
Tencent’s fake news problem. Fake news isn’t just a tricky issue for Western media outlets. China’s Tencent censors about 1.4 million false articles per day on its various social media platforms including WeChat, according to its annual report. That amounts to about 490 million untrue stories in 2017. The company has also been publishing articles to educate users on telling the difference between fact and fiction. South China Morning Post
AI alliance. Chinese telecommunications provider Huawei has partnered Internet search behemoth Baidu to found an artificial intelligence alliance. The combination of hardware and software in Huawei’s hiAI platform and Baidu Brain, the company’s AI unit, would create a new mobile and AI ecosystem that would give Apple a run for its money in the smartphone sector. ZDNet
Flaws and all. TensorFlow, Google’s machine learning platform used by Airbnb, Twitter and Uber has a “significant security loophole” that exposes it to malicious software and destruction by hackers, according to Tencent. The latter’s security team found the vulnerabilities while conducting reviews on the free, open-source platform released by Google in 2015. Caixin
In Case You Missed It
The global backlash against China The Washington Post
‘Dream Town’: China’s Charming Villages The Diplomat
Bike rental companies aren’t collecting abandoned bikes because it’s too expensive: report TechNode
Fish with bicycles Reuters
Chinese company Xunlei plans US cloud computing service Associated Press
Qihoo 360 shuts down surveillance camera live streaming platform TechNode
12 Tech Stories That Rocked China This Year Tech in Asia
Technology Beyond Borders
Playing by our rules. Facebook and Google are welcome to operate in China – on condition that they abide by China’s censorship and cybersecurity laws, Chinese regulators said at a UN conference on Internet governance this week. The Chinese Communist Party further tightened access to its 751 million Internet users this year by passing new laws that require foreign firms to store data locally and to comply with data surveillance measures. Reuters
It’s been worked out. WeWork and Chinese co-working counterpart URWork have settled their legal disputes in the US and London, after URWork said it would be branded with only its Chinese name, You Ke Gong Chang, in markets outside of China. WeWork filed a copyright infringement lawsuit against URWork in September after URWork said it plans to expand to New York, Los Angles, and London. TechNode