The decoupling of venture capital

Chinese startups stand to lose more than just U.S. investors’ money as American venture capital (VC) funding for Chinese tech startups is drying up amid fears that it could benefit the P.R.C.’s military.

• A new executive order from the Biden Administration will likely cut many AI startups off from non-financial perks like ​​managerial assistance and access to investment and talent networks.
• U.S. VC funding for Chinese firms is already slowing down, hitting a 10-year low of $1.3 billion last year.

American VC firms are often hands-on with their portfolio companies, offering strategic guidance and insider know-how.

• Investors and analysts told us that startup founders can leverage the networks and in-house technical expertise offered by VCs.
• In the case of AI, American VCs have advisors from the likes of top firms like OpenAI of ChatGPT fame and Google’s DeepMind that bring unparalleled experience to the table.

But some sources told The China Project that Silicon Valley VC’s value-add was overblown — and that Chinese startups could easily look to other countries for both money and expertise.

Eduardo Jaramillo

China’s internet regulator is reaching out to Walmart, Paypal, and other foreign firms to discuss how to handle Beijing’s new data-security rules, which come into effect in November. Officials from the Cyberspace Administration of China (CAC) have been fielding questions and concerns from dozens of international firms in the latest effort to reassure their ability to operate in the world’s second-largest economy.

Travelers are scrambling to buy Cathay Pacific’s dirt cheap airline tickets, which are going on sale today at some of its lowest prices in more than three-and-a-half years. As plane ticket prices soar, the Hong Kong-based airline is running the promotional offer to more than 30 destinations for travel between January to June 2024, a week after the company posted its best half-year profit in 13 years. But some customers are complaining of long waiting times and website crashes.

The Chinese government should crack down on a rise in anti-Black racism on the internet, Human Rights Watch said in a new report that reviewed hundreds of posts on Chinese social media since late 2021.

The report said that a growing number of posts and videos on major platforms like Bilibili, Douyin, Kuaishou, Weibo, and Xiaohongshu often “portrayed Black people through offensive racial stereotypes” and do not routinely address such content. Popular racist tropes include Chinese influencers in Africa posting videos that depict Black Africans as primitive or dependent on Chinese “saviors,” as well as Black spouses who married Chinese people being accused of “contaminating” and threatening the Chinese race.

Tyson Foods, the biggest U.S. meat maker, plans to sell its China poultry business, in the latest foreign company looking to split off its operations in the country.

Notable reads: “China should crack down on illicit fentanyl flows regardless of U.S. rhetoric,” argues Peking University scholar Zhā Dàojiǒng 查道炯, translated by the Pekingnology newsletter.

Chinese state media: Government and Party media are still on a summer holiday slowdown. The People’s Daily’s front page today highlights a piece on how the island province of Hainan is “optimizing” its business environment. Another article notes that a total of 614 million passenger trips were taken on the country’s trains between from July 1 to August 15 this year, and that the railways run an average of 10,578 passenger trains per day, an increase of 18.9% over the same period in 2019.

Xinhua News Agency’s home page top story today is an infographic comprising a word salad of Xí Jìnpíng 习近平 quotations about the Party, Marxism, integrity, and innovation.

• In July 2022, Hikvision claimed it had stopped fitting its digital cameras with software able to identify ethnic minorities, including Uyghurs, the mostly-Muslim Turkic people of northwest China who have been detained en masse since 2016 in what Beijing calls a re-education campaign.

Yet in December 2022, Hangzhou-based Hikvision sold $6 million in facial recognition-enabled surveillance technology to the Chinese government, a copy of a contract obtained by Internet Protocol Video Market (IPVM), a U.S. research firm dedicated to reviewing security and surveillance technology, showed.

• The 85-page contract showed that the government of Chengmai County on Hainan Island in south China purchased a Hikvision product in which Uyghur detection was part of a “Standard Configuration.”

Uyghur human rights advocates decried Hikvision’s actions, but their exhortations are unlikely to spur the firm (and other tech firms involved in the Xinjiang abuses like Sensetime, Megvii, Yitu, and Cloudwalk) to stand up to Beijing’s policies in China’s northwest.

Ruth Ingram has all the details in this week’s Uyghur Bulletin.

Ruth Ingram

• Snow does not over-labor the book with battle details and minutiae, and is not, unlike many who have written about the fight for Hong Kong in December 1941, so obsessed with second-guessing his fellow war practitioners.

The book is about more than just a battle between the British and Japanese — it’s divided into two halves, with the second half being a discussion of Hong Kong post-August 1945 and the Japanese surrender.

• The book is more interested in how the British reasserted control and then continued to govern the colony for another 52 years than it is in the reasons for the military collapse.

The Fall of Hong Kong is the latest entry in Paul French’s Ultimate China Bookshelf.

Paul French

Welcome to the Jing is a photobook project shot by French photographer Laurent Hou (罗鸿 Luó Hóng) between 2013 and 2017. The photobook captures a special moment in the city’s history: after the Olympics and before the citywide demolition of illegal buildings that began in 2017, Hou snapped around 100,000 shots, mostly of quirky people and happenings inside the city center.

Below are links from our NewsBase to other noteworthy reports published in the last 24 hours from and about China.

BUSINESS AND TECHNOLOGY:

Economic gloom or boom
China’s Xi calls for patience as Communist Party tries to reverse economic slump / AP
“Chinese leader Xí Jìnpíng 习近平 has called for patience in a speech released as the ruling Communist Party tries to reverse a deepening economic slump and said Western countries are ‘increasingly in trouble’ because of their materialism and ‘spiritual poverty.’”
China’s government tries to defuse economic fears after real estate developer’s debt struggle / AP
“China’s government is trying to reassure jittery homebuyers after a major real estate developer missed a payment on its multibillion-dollar debt, reviving fears about the industry’s shaky finances and their impact on the struggling Chinese economy.”
Why is China not rushing to fix its ailing economy? / Reuters
“With China at risk of tipping into prolonged stagnation and a spiraling property crisis threatening financial stability, there is growing unease over why its leaders are not rushing to revive the world’s second-largest economy.”
Debt overhang economics with Chinese characteristics / FT (paywall)
“​​Beijing should avoid the mistakes the west makes again and again — but it probably won’t.”
China’s growth model under strain, but stimulus faces high hurdles / Nikkei Asia (paywall)
“China’s depressed property market is undermining the country’s economic growth model, but strained local government finances and a weak yuan have made authorities hesitant to embark on the massive stimulus used after the global financial crisis.”
Opinion: To restore confidence in China’s economy, help consumers spend / Caixin (paywall)
“There have been some changes to China’s economic policy direction, the most evident of which is a pivot toward prioritizing economic growth.”
Opinion: Is China past its peak? / WSJ (paywall)
China stocks slump as economic gloom spreads / NYT (paywall)

Gloomy investors
Global investors dump Chinese securities as state support hopes fade / FT (paywall)
“Foreign investors have dumped Chinese stocks and bonds after losing confidence in Beijing’s promises of more help to shore up the country’s wobbling economy.”
Foreign investors ditch China shares as economic outlook darkens / Nikkei Asia (paywall)

Gloomy real estate companies
Country Garden: How bad is China’s property crisis? / Reuters
“The debt crisis at Country Garden, China’s largest property developer before this year and once considered a financially sound company, has triggered fresh contagion fears just two years after China Evergrande Group defaulted.”
China real estate: would-be buyers ask whether it’s a home or a hindrance as they seek to wait out market turmoil / SCMP (paywall)
“Property downturn persists as Beijing is rolling out consumption initiatives to get people spending again on big-ticket items and economy-boosting services.”
Evergrande unit probed by Chinese securities watchdog / Nikkei Asia (paywall)
“China’s securities watchdog has initiated an investigation into a core subsidiary of embattled property developer China Evergrande Group.”
Evergrande onshore unit says it’s being probed by China watchdog / Caixin (paywall)

Shadow banking alarm
Five facts about China asset manager whose troubles fanned spillover fears / Reuters
“A liquidity crisis at one of China’s top asset managers Zhongzhi Enterprise Group has fuelled worries that the country’s deepening property sector crisis is spilling over into its $57 trillion financial industry, even as the economy is weakening.”
Turmoil at Zhongzhi sparks alarm over China’s $3tn shadow finance sector / FT (paywall)
China police visit shadow bank investors at home to quash unrest / Bloomberg (paywall)

Lithium
In China, bidding wars for lithium top out at 1,300 times the starting price / WSJ (paywall)
“In the first six months of 2023, global lithium prices have more than halved. But Chinese companies have been spending heavily on domestic lithium sources as they try to secure access to the metal at the heart of the energy transition.”

Electric vehicles
EV battery imports face scrutiny under U.S. law on Chinese forced labor / Reuters
“Electric-vehicle batteries and other car parts are the latest products under scrutiny as part of Washington’s effort to stamp out U.S. links to forced labor in Chinese supply chains, according to a document seen by Reuters, agency statistics and sources.”
CATL’s new EV battery charges 400 km range in 10 minutes / Nikkei Asia (paywall)
“Chinese automotive battery giant CATL introduced a battery Wednesday that delivers 400 kilometers on a single charge of 10 minutes, with the new cell to be equipped in more affordable electric vehicle models.”

Youth unemployment
China’s young, restless — and jobless / WSJ (paywall)
“U.S. stocks took a header on Tuesday after fresh economic data showed a continued softening in China’s economy. Another reason for investor unease is the Chinese government’s suspension of youth unemployment data, which comes amid a Communist Party campaign to limit transparency.”

Semiconductors
State investors to inject $1.7 billion in Shenzhen wafer foundry / Caixin (paywall)
“State investors including China’s biggest government-backed chip investment fund agreed to pour 12.6 billion yuan ($1.7 billion) into a wafer production project in Shenzhen as the country strives to boost its domestic chipmaking capacity.”

Smartphones
China smartphones: demand for long life handsets shrinks the market / FT (paywall)
“Up until 2019, mobile phone company contracts successfully encouraged customers to replace handsets every two years. Since then, upgrade cycles have lengthened. Chinese consumers now hang on to their phones for about 40 months. Combine that with the popularity of Apple smartphones, and it spells trouble for local manufacturers.”
China is dragging smartphone market to worst year in a decade / Bloomberg (paywall)
“Global smartphone shipments are headed for their worst year for over a decade as prolonged economic uncertainties in China and beyond are hurting consumer spending.”

Banking
Chinese banks should keep a ‘proper level’ of profit margins -central bank / Reuters
“Chinese commercial banks need to maintain a proper level of profit and net interest margins to ensure sustainability in supporting the real economy, China’s central bank said in a monetary policy implementation report on Thursday.”
China told state banks to escalate yuan intervention / Bloomberg (paywall)
“Chinese authorities told state-owned banks to step up intervention in the currency market this week, in a push to prevent a surge in yuan volatility, according to people familiar with the matter.”

U.S.-China flights
American Air plans to add flights to China, joining rivals / Caixin (paywall)
“American Airlines Group Inc. plans to expand its aviation to Shanghai early next year, joining rivals in taking advantage of a U.S.-China agreement to increase the number of flights allowed between the nations.”

Tencent, Alibaba, and AI
China’s high hopes for AI and Vietnam’s new net clampdown / Nikkei Asia (paywall)
“China’s biggest tech companies are pinning their hopes on generative artificial intelligence to unlock fresh growth.”
Tencent says AI model coming this year Is among China’s best / Caixin (paywall)
“Tencent Holdings Ltd. said it plans to unveil a proprietary artificial-intelligence model later this year that it believes will be among the best in China, an early sign the internet powerhouse expects to compete in the field against early leaders such as Baidu Inc. and SenseTime Group Inc.”
Chinese super app WeChat gets bigger and more profitable as it takes on TikTok in short videos and lures ad dollars / SCMP (paywall)
“China’s super app WeChat continues to get bigger and more profitable as its TikTok-like short video function generates strong advertising revenue and e-commerce sales, according to the latest data released by the app’s owner Tencent Holdings.”

ByteDance
NYC bans TikTok on city-owned devices / The Verge
“New York City is banning TikTok from city-owned devices and requiring agencies to remove the app within the next 30 days.”

SCIENCE, HEALTH, AND ENVIRONMENT:

China’s ‘silver tsunami’
China population: 100 million more senior citizens expected in next decade as aging crisis enters ‘crucial juncture’ / SCMP (paywall)
“China’s aging society problem will accelerate over the next decade, with the number of citizens aged over 60 expanding by an average of 10 million per year, according to a leading demographer, adding further strain to the state pension fund, elderly care facilities and medical services.”
Plight of older unemployed Chinese stirs emotions on social media / Nikkei Asia (paywall)
“The adult children of older unemployed workers in China are turning to social media to express anger over their parents’ plight in a dramatic sign of public discontent with the state of Asia’s largest economy.”

Fertility
China’s fertility rate hit a record low last year / NBC
“Concerned about the country’s declining and rapidly aging population, Beijing is trying an array of measures to lift the birth rate.”

Renewable energy
Can U.S. and EU unseat China as the dominant supplier of green energy tech globally? Highly unlikely, experts say / SCMP (paywall)
“China will dominate the global green tech industry well into the 2030s even as developed nations introduce policies to promote their domestic supply chains to cut reliance on the Asian nation, according to analysts.”
China’s updated green power market guidelines set to drive interprovincial trading / Caixin (paywall)
“One of China’s main power exchange centers has released new guidelines for green power trading in a move that aims to drive interprovincial transactions of renewable energy across most of the country.”
China’s solar capacity eclipses hydro, green power trading gets a rule update / Caixin (paywall)
“Solar power has edged out hydropower to become China’s second-largest power source in terms of installed capacity, state broadcaster CCTV reported Friday. Coal power, though, still leads by a large margin.”

POLITICS AND FOREIGN AFFAIRS:

Hong Kong economy and demographics
Hong Kong’s jobless rate drops to 2.8 per cent, as economists say imported workers vital to growth amid labor shortage / SCMP (paywall)
“Hong Kong’s jobless rate improved slightly to 2.8 percent for the May to July period, the government on Thursday said, as economists warned any further drop was unlikely and imported workers were needed to fuel further growth.”
Hong Kong families now have fewer than one child each on average, survey shows / Caixin (paywall)
“The average number of children per couple in Hong Kong plunged to a new record low of 0.9 in 2022, while the proportion of childless couples more than doubled in five years, displacing one-child families as the majority, according to a twice-a-decade survey released Tuesday.”

Tibet propaganda
Chinese academics want Tibet to be known as Xizang to help ‘reconstruct’ image / SCMP (paywall)
“Academics have called for Beijing to use the Chinese name for Tibet — Xizang — when referring to the autonomous region in English to help ‘reconstruct’ its image.”

U.S.-China competition and tensions
China says it would welcome a visit by U.S. commerce secretary after imposition of investment controls / AP
“China says it would welcome a visit by U.S. Commerce Secretary Gina Raimondo following the imposition of foreign investment controls by her agency that have stung numerous Chinese companies.”
Opinion: Wrong timing for Biden to further squeeze China’s economy / Nikkei Asia (paywall)
William Pesek writes: “As Biden aims fresh trade policy headwinds China’s way, he is adding to the forces already throwing Asia’s biggest economy off balance at the worst possible moment.”

BRICS
Opinion: Why China’s dominance puts BRICS expansion plans and very existence in jeopardy / SCMP (paywall)
Nicholas Spiro writes: “The differences in fortunes between China and the other BRICS members are complicating plans for expansion and challenging the U.S. dollar. The more dependent the group is on China, the deeper the fault lines within the bloc and the more difficult it is to coordinate policy.”

Vietnam and South China Sea disputes
Beijing appears to be building runway on disputed island claimed by Vietnam / SCMP (paywall)
“China appears to be building a runway on an island also claimed by Vietnam, according to satellite images, in Beijing’s latest move to build military facilities in contested South China Sea territory.”
Amid South China Sea tension, Beijing’s top diplomat Wang Yi urges Vietnam to help uphold Communist ideals / SCMP (paywall)

Belarus
China defense chief Li Shangfu hails ‘fraternal relations’ in Belarus trip, marking first visit since Russia invaded Ukraine / SCMP (paywall)
“Chinese Defence Minister General Lǐ Shàngfú 李尚福 kicked off his visit to Belarus by hailing the “truly fraternal relations” between Beijing and Minsk during a meeting with his Belarusian counterpart on Wednesday.”

Eritrea
China and Russia pursue Eritrea for its strategic location in Africa, resources and transport potential / SCMP (paywall)
“China and Russia are showing growing interest in Eritrea, a small African country in a strategic location but whose president is being shunned in the West for his autocratic governance.”

East Asia
Eye on China, Biden pulls Japan and South Korea closer / NYT (paywall)
“The president will host the leaders of the two Asian democracies at Camp David, as Russia’s invasion of Ukraine spurs them to rapidly mend relations.”

SOCIETY AND CULTURE:

Social media
How China’s underclass creators act poor to get rich / Sixth Tone
“Some Chinese have accused marginalized digital entrepreneurs of playing up their poverty. The reality is more complex.”

Gas explosions
After string of gas explosions, China updates safety guidelines / Sixth Tone
“In the first half of 2023, 294 gas explosion incidents led to 57 fatalities and 190 injuries, with over half attributed to liquefied petroleum gas.”