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Mangkhut, Apple, and Google: The Gathering Storm

Greetings from Hong Kong, where we are battening the hatches in anticipation of Typhoon Mangkhut, a tropical storm said to have the equivalent force of Hurricane Florence. According to some experts, Mangkhut could be the biggest storm to hit Hong Kong “since records began.” We’ll see. But since moving a few years ago from a downtown high-rise to a beachside village on Hong Kong Island’s southeastern tip, I’ve learned the hard way to take typhoon warnings seriously. As I write, I can hear the waves booming; they’re expected to reach 23 feet by tomorrow night.

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Typhoons aren’t the only area in which China is giving the U.S. a run for its money. Tech Node founder Gang Lu complains in an essay published yesterday that virtually all the features touted by Apple CEO Tim Cook at Apple’s Sept. 13 launch event as breakthrough innovations unique to the latest generation of iPhones are, in fact, derivatives of technologies already widely used in China. Lu describes himself as a die-hard Apple fan. But he laments that big screens, borderless screens, dual-cameras, and dual-SIM cards are commonplace in China. Lu’s conclusion after watching the Apple roll-out: “For the first time, I found iPhone is replaceable.”

The Wall Street Journal concurs that Apple’s “Chinese rivals already offer similar features for less money.” The Journal argues Apple has adopted many of those new features for the express purpose of hanging on to Chinese consumers, who account for about a fifth of the company’s global sales. Will a copy-cat strategy be enough to help Apple maintain, much less grow, its China market share?

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While Apple has assiduously courted the China market, Google has—until recently—remained a conscientious objector. The U.S. search giant began operating in China in 2000. In 2005, Google hired Microsoft tech leader Kai-Fu Lee to head its China operations and, by 2009, claimed a 36% market share in China with a limited search product that bowed to some government censorship restrictions. In 2010, Google abruptly withdrew from China, citing repressive censorship rules and attacks on its own systems by Chinese government-backed hackers.

Recent reports suggest Google is having second thoughts about that decision and is developing a censor-friendly search product called “Dragonfly.” In a New York Times column Kara Swisher argues Google’s return to China would be a far greater scandal than its refusal to provide a platform for conservative extremists in the U.S.. Swisher ascribes Google’s eagerness to abandon its principles in China to data lust. She cites a central thesis of Kai-Fu Lee’s new book, “AI Superpowers: China, Silicon Valley, and the New World Order”: the future of computing “will be enjoyed only by those with the ability to essentially shove increasing amounts of data into the maw of the machine.”

But is that thesis true? Does the future of AI belong to those with access to the deepest oceans of crunchable data? Or are there alternative approaches to AI that don’t depend on scale alone? It’s a topic we’re thinking about a lot at Fortune these days, not least because “Innovation in the Age of AI” is the theme of this year’s Fortune Global Tech Forum in Guangzhou. If you have insights, we’d love to hear from you.

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Economy and Trade

Let’s talk trade. Treasury Secretary Steven Mnuchin has invited Chinese officials to open a new round of trade talks ahead of U.S. threats to impose further tariffs on up to $200 billion of Chinese goods. President Trump previously contradicted terms Mnuchin had agreed with China’s Liu He. Consequently, Chinese officials have grown wary of the administration’s seemingly erratic decision making. China’s state media warned that people shouldn’t expect a quick resolution to the conflict. President Trump has reportedly already told senior officials to push ahead with a new round of tariffs, despite the promise of talks. Wall Street Journal

WTO to weigh in. China is seeking permission from the World Trade Organization to impose sanctions up to $7 billion on the U.S. over alleged non-compliance with a 2016 ruling. Beijing’s complaint is that the U.S continues to impose anti-dumping levies on several Chinese exporters despite the WTO ruling that these duties are calculated illegally. The Hill

Pakistan plans. Days after China’s foreign minister wrapped up a trip to Islamabad, the Financial Times reported that Pakistan was reconsidering deals struck under China’s Belt and Road Initiative, which would make the central Asian nation the latest BRI beneficiary to question the fairness of China’s flagship foreign policy. The Pakistan High Commission in London then rejected the Financial Times report and Abdul Razak Dawood, the Pakistani official the Financial Times interviewed for the story, claimed he had been taken out of context. Financial Times

Maduro seeks dinero. Venezuelan president Nicolas Maduro met with Xi Jinping yesterday at the start of a four-day trip to China, during which time Maduro hopes to secure a sorely needed loan. As Maduro departed for Beijing, Venezuela’s finance minister claimed China had already agreed to a $5 billion cash line. China has already bankrolled Venezuela some $50 billion over the last 10 years, and the oil rich South American country has yet to repay around $20 billion. On Friday Maduro inked deals granting Chinese firms a larger share of Venezuelan oil fields, but it was unclear what Beijing was paying in return. Reuters

Innovation and Tech

And the forty thieves? Ant Financial, Alibaba’s fintech affiliate, has denied accusations that it stole from U.S. credit firm, Equifax, in order to launch its own credit rating system, Sesame Credit. In the previously undisclosed incident, security officials feared that former employees had removed thousands of pages of proprietary information before leaving and heading to jobs in China. Wall Street Journal

Didi picks up. A week-long suspension of late night ride hailing services at Didi has come to an end. The company announced it now has stricter requirements for drivers who wish to collect fares late at night. During the suspension, Didi trialled new security measures, including mandatory audio recording during all rides, which some users say is an invasion of privacy. Reuters

Xiaomi shuffle. Smartphone maker Xiaomi announced the creation of two new departments that will help advise CEO Lei Jun as well as overse the hiring of new staff. In a memo, Xiaomi said the new departments would give space to new talents, suggesting the company is formulating a succession plan for its CEO. The announcement comes weeks after the arrest of JD.com’s CEO, which has led to greater scrutiny of Chinese tech companies’ “strongman” corporate structures. South China Morning Post

Meituan delivers. China’s number one O2O services app has raised $4.2 billion from its IPO, pricing shares towards the top end of an indicative range. The total raised could reach $4.85 billion next week if an over allotment option is utilized when shares begin trading. CNBC

NIO IPO. NIO, the Chinese electric car maker, priced its IPO at $6.26 per share on Wednesday, just one cent above the bottom of its range. Stock then traded in the red during the day before closing up 5%. NIO raised $1 billion from the offering, valuing the company at $6.4 billion. NIO had initially targeted raising $1.8 billion from the stock offering. The company has only been operational for the past year and has sold a little over 1,000 units. Wall Street Journal

Blockchain bust. Star Xu, CEO and founder of bitcoin exchange OKCoin, was questioned by police in Shanghai over complaints regarding the platform’s recent performance. Investors had complained about how OKCoin’s platform suddenly crashed during a steep decline in bitcoin value, leaving investors exposed. Some have accused OKCoin of orchestrating the crash to help it short the cryptocurrency. Caixin

Apple core. Apple will deliver an iPhone tailor-made for China, CEO Tim Cook revealed at the company’s product launch event this week, marking a rare departure from Apple’s insistence on standardization. The China-version of the iPhone Xs will feature a dual sim card slot, allowing users to insert two sim cards. This is a feature already common among China’s domestic smartphone makers. Bloomberg

In Case You Missed It

China Sees Hints of a Past Threat: Inflation New York Times

China Unveils Shake-Up of Credit Ratings Industry After Scandal Caixin

Alibaba appoints Daniel Zhang to succeed Jack Ma as chairman  SCMP

Concerns missing Chinese actor Fan Bingbing has fallen foul of authorities The Guardian

China’s HNA defaults on Rmb300m owed to Hunan Trust Financial Times

Senior Google Scientist Resigns Over “Forfeiture Of Our Values” In China The Intercept

Politics and Policy

Start multiplying. China’s health commission is closing three offices dedicated to implementing family planning in a further indication that authorities are planning to lift restrictions on family size, as China faces a crisis of an aging population. Reuters

Sanction action. The U.S. is reportedly considering placing sanctions on China over reports that ethnic Uighurs in China’s western Xinjiang province are being forced into “re-education camps”. Human Rights Watch released a report on Monday detailing how authorities use big data, AI voice biometrics and the collection of DNA to track residents of Xinjiang, violating “fundamental rights”. Foreign Ministry spokesperson Geng Shuang declined to respond to the details of the report, accusing Human Rights Watch of “treating China with prejudice, distorting facts and stirring up troubles.” The Guardian

Bear hug. In a photo-op showcasing the camaraderie between their nations, Xi Jinping and Vladimir Putin cooked up blini’s (pancakes served with caviar and sour cream) and washed them down with vodka, on the sidelines of an economic forum held in Vladivostok. Xi described relations between Beijing and Moscow as being at an “all-time high” and criticized protectionist policies, at a time when China and the U.S. are sinking deeper into a trade war. China also joined Russia’s largest ever war games, which kicked off this week. CNBC

 

This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.