Q&A: Veteran analyst Rui Ma on Beijing’s tech crackdown and common misconceptions about China’s tech sector

Rui (pronounced “rey”) Ma was born in China but grew up in the U.S., mostly in the San Francisco Bay Area, where she is currently based. She has over 15 years of experience in investment banking and investing, spanning seed stage to pre-IPO investing, and spent eight of those years working across multiple industries, including real estate and media as well as technology, in Shanghai and Beijing.

In 2018, Ma started Tech Buzz China to educate investors, funds, and entrepreneurs on Chinese tech companies with original insights and research. She is currently an angel investor and adviser to several startups and funds. Rui is also active in philanthropy and currently runs Rookie.Fund, a nonprofit student venture fund network in mainland China, Hong Kong, and Taiwan.

Ma will speak at the The China Project Women’s Conference 2022, which is slated to take place virtually on May 19 and in person on May 20. Get your tickets here before they sell out!

We talked to Ma ahead of the conference. Below is a lightly edited transcript of our conversation:

You have been in tech and especially investing in Chinese tech for some time now. What do you think changed between when you started and now?

There have been huge changes over the last 15 years. First, the mobile internet revolution beginning around 2010 completely remade China’s domestic internet landscape and really made some of the Chinese internet companies into the world leaders in gaming, ecommerce, and digital entertainment that we know them as today. Today’s China, whether you look at it in terms of physical infrastructure, human capital, or financial capital, looks completely different and is much more upgraded and mature than at the beginning of the last decade. The country is very digitally connected, more so than even many other developed countries due to the fact that it began from a place where it could leapfrog some of the old legacy analog technologies entirely.

Over the past year, China has tightened regulation on its domestic tech sector in many areas, from data protection to antitrust. The swift moves have caught many international investors off guard, wiping billions of dollars off the value of the country’s giants. What do you make of Beijing’s tech crackdown? What advice would you give to international investors who are trying to navigate the uncertainty?

While many signs were pointing to a tightening regulatory environment, versus the very much “anything goes” attitude of the last decade, the speed at which these regulations were announced and implemented, and punishments doled out was unprecedented. There are two facts one should always remember when it comes to China tech.

First, the government is in favor and indeed prioritizes building a highly digitized society, because it believes that is the next evolution of the economy and governance, and platform/software companies will undoubtedly play a key role, so there is no motivation to “kill” the industry.

Second, the government also believes that private enterprises need to be reined in by regulations and higher socio-political-economic objectives than just financial returns. In their minds, they need to balance these two forces, which they believe to be complementary and both necessary, instead of choosing one over the other.

Going forward, investors are going to have to be much more thoughtful about the businesses they are investing in because some of the rules have changed. The way I generally think of the regulations is dividing them into three buckets — China idiosyncratic rules (such as what happened to the after-school tutoring industry), rectification/”catching up” to developed countries, and rules over emerging technologies where China actually hopes to be a regulatory leader (such as algorithm regulation).

The first bucket you can only try to stay alert and avoid entirely as there is no mitigation, the second is actually telegraphed quite far in advance and is largely completed, and the third is something that you can try to anticipate and is also somewhat predictable — as in, so far we’ve largely seen China implement what has already been discussed (just not implemented) in developed-country peers. This requires investors to be much more knowledgeable about China and spend time on understanding its policy goals and challenges as well as individual company or sector dynamics.

What are you most optimistic and most concerned about for China’s tech sector right now?

On the public market side, I think the recent layoffs are actually quite good for the industry, as companies cut away the bloat and start to really focus on efficiency. Many of the largest enterprises are still in quite good shape and are largely cutting away the excess hiring they accumulated during peak market euphoria. That being said, streamlining and rightsizing will only do so much if the economy continues to sputter, which is what we are seeing as China is weighed down by its dynamic clearing COVID policy. So that is very worrisome.

In addition, U.S.-China tensions continue to remain very high and important issues such as audit requirements continue to be unresolved, while other issues such as sanctions are actually getting worse (see news re: Hikvision sanction rumors). So I’d be very cautious overall in the public markets in the near term.

As for the private markets, that’s a different matter. There is a lot of momentum and opportunity in sectors like climate tech, advanced manufacturing, healthcare, enterprise software, and cross-border ecommerce. The first three should be a bit more resilient to poor macroeconomics and COVID while the latter two could be a bit more affected. But I think the long-term prospects of these sectors combined with the ingenuity of Chinese entrepreneurs, as long as they are able to continue to raise capital and the world remains somewhat stable, should be pretty good.

You pride yourself on your dedication to narrowing a divide between English coverage of Chinese tech companies and what actually is happening on the ground in China. Could you tell us some common misunderstandings or misperceptions about Chinese tech in general or certain companies that you see in the Western press? How are you helping to bridge the gap?

There are quite a few, and I’ll just mention two. One is a misunderstanding about the efficacy of favorable government policies and how they affect tech. While subsidies, tax breaks, and the like can really help accelerate a market, they cannot force a market into being if the business opportunity isn’t there, latent, and ready to be exploited. It’s not always so clear, though, when a market is “ready” to be accelerated, so you see some government initiatives go to massive waste sometimes. This is of course not a desirable outcome, but it’s a cost China will accept in exchange for the times that it does work.

We see this happening in the semiconductor industry right now. China has been trying to promote the sector forever, but it wasn’t really until U.S. sanctions kicked in and created new market opportunities that activity greatly increased.

Second, I think the effects of the Great Firewall are grossly exaggerated in the history of Chinese internet development. It is very difficult for me to believe that Facebook could have competed against WeChat, or even Twitter against Weibo, should they have been operating in China. These companies were very poor at localizing their product and operations a decade ago, and remain uncompetitively so today. Many of the other companies that entered China and failed to varying degrees — Amazon, eBay, LinkedIn, etc. — know that winning in China is not just a matter of having access and capital. The only company that would have probably won against its domestic counterpart would have been Google.

So yes, the Great Firewall, intended to moderate content, did end up being a sort of shield for domestic enterprises against foreign competition, but it’s a stretch to say that it is among the top reasons that Chinese internet companies dominate domestically today. Through my company Tech Buzz China, I spend a lot of time communicating with other analysts, investors, and media to address some of these misconceptions head on.

What tech trends in China are you watching closely this year?

I’ve been spending increasing amounts of time on leading investments into early-stage ventures, so that’s what I’m looking at more closely, although my focus is global and not specific to China. In fact, my favorite thesis is “China-inspired” businesses where I can help a company’s strategy based on my understanding of what has and hasn’t worked in China and why. To that end, I think there’s still some very interesting things in ecommerce (livestreaming, community ecommerce, cross-border) that I hope to find investments in this year. These aren’t new trends, I just think they’re ripe for adoption globally.