A bad week for the internet in China

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.

—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 The China Project.

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:

• Tiny eSwatini, formerly Swaziland, will not be attending FOCAC. For background, see this South China Morning Post story: Beijing ups pressure on eSwatini, but Taiwan’s last African ally stands firm.

• The 2018 China-Africa Reporting Guide is available as a free download from the Africa-China Project and Wits Journalism School’s Africa-China Reporting Project.  

• Scholars Deborah Brautigam, Lina Benabdallah, and Janet Eom have published The Path Ahead: The 7th Forum on China-Africa Cooperation for free download.

• Other reading: For African countries, China forum provides shot at better deals / VOA; Is this really the best time for a China-Africa summit? by Eric Olander.

—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@thechinaproject.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:

• Electric vehicle bubble softening?
  SoftBank pulls plug on plans to invest in Chinese Tesla rival / WSJ (paywall)
  “Japan’s SoftBank Group, which was in talks earlier this year to take a stake in Chinese electric-vehicle maker NIO Inc., has decided not to invest in the Shanghai-based startup’s initial public offering.”

• Income tax cut brings no joy
  China tax cut finalized but leaves many unimpressed / SCMP
  “The final bill approved by the Standing Committee of the National People’s Congress increases individual taxpayers’ annual tax-free threshold to 60,000 yuan (5,000 yuan per month) from the previous 3,500 yuan per month, expands the income range for the lower tax brackets, and adds new tax deductions, including one for parental elderly care, on top of the existing deduction for social insurance payments.”

• Malaysia deals
  AirAsia’s $100m China hub deal collapses as bilateral relations cool / Nikkei Asian Review
  “A deal for an AirAsia hub in China supported by Malaysia’s previous government has ended with no prospect for renewal, the budget carrier said on Thursday.”

• How to make a B-movie look like a blockbuster
  Movie madness: Why Chinese cinemas are empty but full / BBC
  “Some investors are apparently financially backing movies with the sole goal of boosting their stock price that can shift on the perception of a movie’s performance, irrespective of its true popularity.”

• Drones: eHang still flying despite U.S. troubles
  Chinese drone maker says it’s ‘on a good track’ to profitability, even after filing for US bankruptcy / CNBC

• Airport infrastructure
  Beijing’s upcoming mega airport set to be the busiest in the world / AFP via HKFP
  “Aimed at easing passenger load from Beijing’s other two airports, Daxing International Airport is scheduled to become operational in June 2019.”

• Economic development in history
  Carving Chinese jade with Western stone: KFC’s role in reform and opening / MacroPolo
  The first of several on historical business cases from the early days of reform and opening.

• Airlines, Taiwan, and Orwellian nonsense from Beijing
  China says ‘no way’ to United Airlines’ workaround reference for Taiwan / Bloomberg (paywall)

• Google invokes whataboutism for Chinese censorship
  Alphabet’s chairman on government, China and fake news / WSJ (paywall)
  “WSJ: Why would Google go back into China?”
  “Mr. Hennessy: It’s hard to ignore one of the largest countries in the world. The question to ask yourself is, are the Chinese people better off with a limited version of Google, or are they better off with no access at all? And that’s not so clear to me. There’s a shifting set of grounds of how you think about that problem, and how you think about the issue of censorship. The truth is, there are forms of censorship virtually everywhere around the world.”

POLITICS AND CURRENT AFFAIRS:

• Xinjiang and Uyghurs
  Muslim governments silent as China cracks down on Uighurs / Bloomberg (paywall)
  China’s Muslim crackdown extends to those living abroad / WSJ (paywall)
  “China’s mass detention campaign against Muslims in its far west is targeting people who have moved overseas, with Chinese authorities investigating whether members of the Uighur ethnic group are involved in any antigovernment activities.”
  Is China holding Uyghur Muslims in secret camps? / Al Jazeera
  A discussion featuring scholars Andreas Fulda and Adrian Zenz, and consultant/analyst Andrew Leung.
  See also: The China Project’s explainer on everything we know about the detention camps.

• Thailand: China becomes election issue
  Thai politicians criticize China as election comes into focus / Bloomberg (paywall)
  “Growing Chinese investment has led military leaders to think they can boost wealth without a return to democracy, Thanathorn Juangroongruangkit, a former business executive who now leads the upstart Future Forward party, said in an interview Wednesday.” Several opposition politicians are now pushing back.

• Competition in the Pacific
  Are fears of a Chinese port facility on Manus Island justified? / Diplomat (paywall)
  “Manus Island would be a strategic outpost for China, astride the western Pacific Ocean. On Tuesday, The Australian reported growing concern that China may be courting Papua New Guinea to establish a strategic — potentially dual-use — port facility on Manus Island, the largest of the Admiralty Islands, located in the Western Pacific Ocean.”
  See also: A brief guide to China and the Pacific island nations (Access members only).

• Party to minions: Obey the leadership!
  China cracks down on bureaucracy ‘paralyzed by fear’ / SCMP
  “Updated Party rules released this week state that failing to implement policies from the top is now officially a breach of discipline that can see cadres lose their jobs or even be expelled from the party.”

• South China Sea
  Philippines informs China of grounded frigate amid sea feud / AP via Washington Post
  “Two officials say the Philippines has notified China about a Philippine navy frigate that ran aground in the South China Sea to avoid any misunderstanding because the incident happened near a hotly disputed region.”
  Beijing sends coastguard vessels after Philippine warship runs aground in South China Sea / SCMP

• Espionage
  China using LinkedIn to recruit Americans, claims US spy catcher / Reuters via SCMP
  “William Evanina, the US counter-intelligence chief, said intelligence and law enforcement officials have told LinkedIn, owned by Microsoft, about China’s ‘super aggressive’ efforts on the site.”

• China-built aircraft carrier
  China military: Type 001A aircraft carrier starts more advanced testing as sea trials begin in earnest / SCMP

• Trees trap smog?
  More trees, more smog? How Beijing’s huge planting campaign may be trapping pollution / SCMP
  “Beijing’s massive tree planting campaign has worsened air pollution in the city, a new study by Chinese scientists suggests.”

• Hong Kong: Occupy Mong Kok, corruption
  Five Hongkongers found guilty of criminal contempt for blocking clearance of Occupy Mong Kok site / HKFP
  Hong Kong’s anti-graft agency charges former official and tycoon over alleged HK$510k bribe / HKFP

• Livestock disease
  African swine fever kills 80 pigs and 379 culled as China reports fifth case / SCMP
  China’s agriculture ministry says containment of African swine fever complex and serious / Reuters

SOCIETY AND CULTURE:

• Shenzhen photography
  The anxious, hopeful faces of young people in Shenzhen, China / New Yorker
  Jiayang Fan writes, “In October of last year, the photographer Christopher Anderson received an open commission from Shenzhen’s Daken Art Organization to document life in China… Instead of panoramas of glittering skylines and cloud-piercing towers, though, Anderson chose to tell the story of Shenzhen through the study of faces. Many of his photos are tightly cropped, decontextualized portraits that feel at once unnervingly intimate and otherworldly.”

• C-sections and the competition for schools
  China education: Why some mothers want August C-sections / BBC
  “Chinese media have noticed a trend of pregnant women rushing to have Caesarean sections before the end of August, so that their yet-to-be-born children will be in the academic year ahead of September-born babies.”

• Extreme measures for gold medals
  China to genetically screen its athletes to ensure the best compete in 2022 Winter Olympics / SCMP

• Inequality
  Chinese girl grows up in secret cellar as poor family hides illegal expansion to tiny home / SCMP
  “A mother and daughter in eastern China have been living for the past decade in an illegally excavated basement without windows or ventilation, in the same city district that has garnered large-sum investment from real estate developers in recent years.”  

• Big Brother lifeguard
  ‘Please leave at once’: Chinese city installs facial recognition cameras to stop children from drowning / SCMP
  Cameras use facial recognition technology to identify students from a local school database in the city of Pingdingshan, in Henan Province, and then warn them by name if they get too close to the water. Loudspeakers say: “You have entered a dangerous water zone where there have been drowning incidents — please leave at once. I have already sent text messages to your parents and teachers.”

• Socialist smart speakers
  “Alexa, read me a Communist lecture”: A smart speaker for party members / Abacus
  “Ximalaya FM, one of China’s most popular podcast apps, has a ‘Party-building’ edition of its Xiaoya smart speaker. It’s entirely in red and comes complete with the hammer-and-sickle logo.”

• Taiwan language policy
  Taiwan to make English an official language next year, says official / AFP via HKFP

• Online culture
  Man charged $5,850 for haircut becomes China’s latest meme / Sixth Tone

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:

• ‘The Story of Yanxi Palace’ wins Chinese audiences by placing focus on production, not stars

• Self-defense or murder? A heated debate over the killing of a BMW driver by a cyclist in China

• Tourists at their worst: Destroying a 200,000-year-old landform in Gansu

• Hoverboard explodes in living room

• Air 120 brings medical care to the sky in Jilin Province

• Wanna eat fast? Try eating while standing

• This scanning makes stealing easy!

• Dog gets rescued thanks to teamwork

ON SUPCHINA

Click Here

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.

• Subscribe to the Sinica Podcast via Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

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 China Project 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?

• Subscribe to TechBuzz China on Apple Podcasts, Overcast, or Stitcher, or click here for the RSS feed.

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.

• Subscribe to the Business Brief on Apple Podcasts, Overcast, or Stitcher.

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