Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Business analyst Shaun Rein looks at the nervewracking few weeks for the global IT industry, starting with the DeekSeek moment of fame, proving that China was way ahead of the US competition in AI. Also, TikTok, Trump’s curtailing of Nvidia, RedNote’s success, censorship in the US, and Silicon Valley get his verdict on East-West Investment opportunities.
What’s the relationship between TikTok and the Chinese Communist Party?
TikTok is a private company, and it’s now registered offshore from China — but, of course, historically most of its operation has been in China. As of five or six years ago, maybe even a bit longer, the Chinese government has required large, private companies to have branches of the Chinese Communist Party within the company structure.
For the Chinese equivalent of TikTok, Douyin, there’s a party committee in the company. And the parent company, ByteDance, which is located in China, also has a Chinese Communist Party branch. Most of the people in the party committee would not be full-time government officials — they’re just workers or executives who had already belonged to the party. That’s actually a common thing to happen. You will soon be recruited into the party at a university or in the workplace, and a lot of people do it just to advance their careers.
There are certain requirements for joining the party, and the No. 1 requirement is that you have to obey the party no matter what. I think that’s where a lot of U.S. lawmakers and people in the government really have an issue.
More recently, within the past four years, the party has demanded top tech companies to give part of their shares to entities of the Chinese government. So China has sovereign wealth funds. Through that mechanism, the government becomes a minority shareholder of these tech companies, so then it can send members to the management boards of these tech companies, and these board members are full-time Chinese government officials.
How has this relationship between ByteDance and the party played into Chinese President Xi Jinping’s larger goals?
Xi Jinping recognizes the power of social media and the internet in general — not really as something to control people’s minds with, but certainly something to use to sway people’s opinions. He has ordered internet companies in China to work for the party on behalf of the party. It’s very well known that the Chinese counterpart of TikTok is ordered by the Chinese government to convey propaganda to users within China all the time, even if TikTok claims that it doesn’t do that for audiences outside of China.
Xi has also said that he wants users around the world, not just in China, to use Chinese technology. And of course, TikTok has been the most successful case of this, certainly on the software side: it’s used by over a billion users worldwide.
Is there reason for the U.S. to be legitimately concerned about how TikTok might make users’ personal data available to the Chinese government?
I don’t buy the argument that we should be alarmed how the Chinese government can get all this data on users from TikTok — because all the other internet platforms active in the U.S. already sell user data to data brokers, and China can obtain it that way. To be clear, I’m sure TikTok is feeding some data to the Chinese government; I’m just saying that it’s probably not that much worse than what they could do already using all the other sources of data.
The other worry is that TikTok is so powerful, and that it’s used by so many people that the people behind the app can bias the politics within the United States. I think that TikTok does have the potential to do that. But then, compare that with other people who are influencing opinion on social media. You have to ask yourself, “Who has done more damage to the quality of American democracy: Elon Musk or TikTok?”
Is the ban a wise move? How could it affect relations between the two countries?
It’s really difficult to assess because former government officials, sometimes at 21st Century China Center events, will say, “If only you knew what we knew, you would definitely support the ban.” But we don’t know what they know.
One consideration is that the Chinese government has banned pretty much all of our social media and search platforms, including Facebook, Instagram and Google.
From a pure competitive technology perspective: I don’t think the ban is optimal, but at least it’s fair game. But of course, TikTok has great currency in the United States: people make a living off of TikTok, so a ban is going to affect them, and as a result, for domestic political reasons it may not be the smartest thing to do.
The 2023 Hurun China rich list sees changes, and Rupert Hoogewerf, the Hurun Report chairman and chief researcher, sees efforts to go global as a key factor for growing riches, he tells Reuters. PDD’s Temu, ByteDance’s short-video platform TikTok, and ultra-fast fashion brand Shein he sees as examples.
Reuters:
The founder of PDD Holdings saw his wealth swell by US$13.8 billion (S$18.8 billion) in a year, as a slowing global economy drove more shoppers to the Chinese company’s discount e-commerce platforms Temu and Pinduoduo, an annual rich list showed on Tuesday.
Mr Colin Huang, who founded PDD in 2015 and stepped down as chief executive in 2020, was the fastest riser in 2023’s Hurun Rich List, leaping seven places to be ranked China’s third-richest man, with a US$37.2 billion fortune. It also marked the first time he had broken into the top three ranking.
The growth of his fortune reflects the changing e-commerce landscape both in China, where consumer confidence remains low after three years of Covid-19 curbs, and abroad, where shopping platforms such as Temu and Shein are gaining steam. PDD did not immediately respond to a request for comment.
Billionaire Jack Ma, founder of rival Alibaba, which is currently going through a restructuring and working to fend off competition from the likes of PDD, fell one place from 2022 to the 10th spot.
The number of Alibaba shareholders on the list, which ranks China’s wealthiest people with a minimum net worth of 5 billion yuan (S$952.4 million), fell from 18 in 2022 to 12 this year.
Mr Richard Liu, who founded e-commerce giant JD.com, saw his wealth, and that of his wife Zhang Zetian, fall by US$6.2 billion since 2022 to US$8.26 billion, according to Hurun’s list.
JD.com’s shares fell to a record low earlier in October after banks cut its price targets, citing a weaker-than-expected recovery in consumer spending.
“Going global has been one of the key sources of growth this year,” said Mr Rupert Hoogewerf, Hurun Report chairman and chief researcher, citing PDD’s Temu, ByteDance’s short-video platform TikTok and ultra-fast fashion brand Shein as examples.
The founder of bottled water brand Nongfu Spring, Mr Zhong Shanshan, retained his first place on the list for the third year running, with a US$62 billion fortune; while Mr Pony Ma, founder of social media and gaming giant Tencent, was second, with US$38.6 billion.
Bytedance, the mother company of Douyin and TikTok, became the first to use artificial intelligence to hook their users in an unprecedented way, says China internet expert Matthew Brennan to Play Crazy Game. The TikTok algorithms turns its users into addicts, in the same way drugs do, says Brennan.
Play Crazy Game:
According to Matthew Brennan, a technology expert and author of the book Attention Factory, Chinese ByteDance, creator of TikTok, knew very well what she was doing when she developed the app.
The author claims that TikTok uses one of the most sophisticated recommendation algorithms in the world and that its resounding success did not happen by chance. “Living in China, I saw firsthand the growth of Douyin (TikTok’s name in that country) in 2017, and the impact it had on everyone around me,” he says.
Behind the application is a highly efficient technological engine, capable of automatically auditing the millions of videos published, categorizing them one by one with keywords. First, each video is released to a few hundred active users for a kind of test. Then there is a crossing of information, the so-called metrics, which map the number of views, “likes”, comments, average viewing duration, shares, etc. All to identify the most popular content and send it to the next level, where it will be released to thousands of active users. The process repeats itself and, according to the result, the content continues to be sent to the next level, released to ever-larger audiences, reaching into the millions.
“ByteDance was the first Chinese internet company to fully dedicate itself to the then-new recommendation technology and to commit to the difficult task of creating a tool that challenges the status quo of human curation. The initial gamble paid off. The foundations of TikTok’s success were laid many years before the app itself was built, and it’s no coincidence that ByteDance was the company that created it,” says Brennan.
All the success of TikTok comes down to the recommendation tool, as it is what hooks the user to content that they like, giving them the false feeling of controlling what they see by moving their thumb up, triggering an infinite scroll bar, where you lose track of time.
By falling into recommendations, the user submits to what the application wants him to see. The more the tool gets it right, the more likely the user is to stay online, ingesting the little reward pills that, like any other drug, will become increasingly irresistible and uncontrollable.
To better understand how the chances of the tool getting it right are high, making the content addictive, we can make an analogy of how recommendations between humans are and how the tool works. Normally, when we read a book that we believe is of interest to someone, we recommend reading it, but buying the book, actually reading it and giving us feedback is a long process, which is 100% at the person’s discretion, and may even not work. in nothing.
The algorithm doesn’t work that way. Brennan explains that it has so-called “machine learning”, that is, it has the ability to learn by tracking user behavior. “What makes TikTok so addictive is that it learns what you like and what you don’t. And it does it very quickly because in one minute you can watch five or six videos. In that time, you have to discard or watch the video, revealing your preferences. In this way, ByteDance can get a lot of information in a very short time”, clarifies the author and adds: “It is an extreme customization”.
The way the algorithm works, the control that the user has over what he sees is practically non-existent. While the person thinks they are making their own choices, they do not realize that they are only providing information on the “substances” that should be put in their addictive reward pills.
The US and China continue to lead the Hurun global unicorn list for 2021, says chief researcher of the report, Rupert Hoogewerf, although China is slightly behind the US, according to the Free Malaysia Today. “With its flagship TikTok closing in on 3 billion daily users, [ByteDance] has now grown to become a serious challenger to Facebook,” the report said.
The Free Malaysia Today:
China fell further behind the US in the number of startups valued at more than US$1 billion, according to a report published today by China-based researchers. However, the two countries continue to dominate the worldwide list of “unicorns”, as the highly valued unlisted companies are called.
The Global Unicorn Index 2021, compiled by Shanghai’s Hurun Research Institute, showed that Chinese unicorns accounted for 301, or 28%, of 1,058 unicorns worldwide, as of the end of November.
In all, 42 countries had at least one unicorn. Collectively, the companies were worth US$3.7 trillion.
Some 74 new Chinese unicorns were added to the list, compared with 254 in the US, which had 487, or 46%, of the global total. Despite the slower growth in China, the two countries together accounted for nearly three-quarters of the world’s unicorns.
India, which added 33 companies to the list, for a total of 54, ranked third.
“The US and China continue to dominate, with three-quarters of the world’s known unicorns, despite representing only a quarter of the world’s population,” said Rupert Hoogewerf, chairman and chief researcher for the report.
But Hoogewerf added: “The rest of the world is playing catch-up, growing their share of the world’s unicorns from 17% two years ago to 26% this year.”
ByteDance, the parent of video app developer TikTok and Chinese sister app Douyin, was the most valuable unicorn on the list, with its valuation surging to US$350 billion, up from US$270 billion at the end of March last year.
“With its flagship TikTok closing in on 3 billion daily users, [ByteDance] has now grown to become a serious challenger to Facebook,” the report said.
Valued at US$150 billion, online financial service provider Ant Group fell to second place after Chinese regulators blocked its listing last year and ordered a revamp of its payment and lending businesses. The moves were part of Beijing’s antimonopoly investigation into parent company Alibaba Group Holding…
Hurun called 2021 the most successful year for startups, backed by the presence of an entrepreneurship ecosystem comprising affluent business people, world-class universities and, more importantly, venture capitalists.
“The role of investors is evolving to mentorship and scale-up opportunities, rather than just providers of cash,” said Hoogewerf. “The world’s leading unicorn investors are building ecosystems with their portfolio, [which is] hugely attractive to the world’s fastest-growing startups.”
Sequoia led the ranks of US investors, which also included Tiger Fund, Accel and Goldman Sachs. All of these more than doubled their investments in the 2021 unicorn list compared with last year.
SoftBank of Japan, Tencent of China and Temasek Holdings of Singapore were among active Asian investors.
The unicorn list also saw 201 companies removed from the ranking: Of those, 137 went public, 25 were acquired and 39 saw their valuations fell below US$1 billion. Some of the biggest decliners in value included Katerra, a US construction company, and Ucar, a Chinese ride-sharing company.
“For every successful unicorn you see, there are thousands of failed companies, as well as a new generation of future unicorns coming through,” said Hoogewerf.
Bytedance, the mothership of both Douyin and Tiktok, has reorganized its leadership and its internal organization, including founder and CEO Zhang Yiming. A good sign at a maturing giant, says Shanghai-based VC William Bao Beanat the Asia Nikkei.
Asia Nikkei:
The leadership changes are a sign of the internet sector’s maturation, according to William Bao Bean, general partner of venture capital group SOSV and managing director of its Chinaccelator affiliate in Shanghai.
“The role of a leader of a large internet conglomerate, especially in China is twofold: It is investor relations and government relations,” he said. “So the skills of building an amazing product and making users super happy and then monetizing them through a creative business model are not the skills necessarily required to communicate on a quarterly basis to investors.”
When Zhang Yiming, founder and CEO of successful internet giant Bytedance, left last week his post, speculations on a relation with the government crackdown on internet firms was easily made. Internet analyst Matthew Brennan, who wrote a book on Bytedance, says there might be a link, but different from what was mostly suggested, he says in Marketscreener.
Marketscreener:
People who work with him say Mr. Zhang is introverted and prefers engineering over handling government relations. ByteDance is expanding into online shopping and education, areas that have come under fresh government scrutiny recently, and the increased government engagement would be unappealing for Mr. Zhang, one senior employee at the company said.
“It’s always been the case that a big part of any top CEO’s job in China is government relations, and I doubt Yiming is very comfortable schmoozing with officials,” said Matthew Brennan, a China tech analyst who has published a book on ByteDance.
Mr. Brennan said ByteDance’s overall strategy was unlikely to change and Mr. Zhang had long ago started preparing for a transition. Over the past two years, the founder has gradually transferred management responsibilities to other staff, appointing leaders for its China operations, Mr. Brennan said.
Most recently, Shou Zi Chew, the chief financial officer, was named CEO of TikTok.
Mr. Zhang steered the company through turbulent times in the U.S. The U.S. government last year investigated whether TikTok poses a risk to national security over concerns that China could have access to the personal data of American users; the Trump administration issued an executive order last year that would ban the app unless it found an American buyer.
The order was never enforced and the Biden administration in February shelved plans requiring the sale.
Mr. Brennan said ByteDance would lose a leader known for his cool head and persistence.
“That really helped last year with them holding out and not selling TikTok — perhaps another CEO would have been more emotional,” he said.
