How the state moves into tech – Shaun Rein

China’s booming tech sector was mainly funded by private and sometimes overseas investors. Those days might be over as the state takes over that funding, with ride-hailing company Didi as a prime example, says business analyst Shaun Rein in Pymnts.

Pymnts:

Didi’s troubles include a ban on the company from registering new users until regulators have concluded an investigation into its data security.

This is a reversal from the situation just two years ago, when Didi was viewed by investors as largely bulletproof and rival companies were starved for capital. After the regulatory investigation into Didi was announced, things changed. In one instance, China’s leading food delivery platform, Meituan, jump-started the ridesharing service it had stopped offering in 2019, according to the report.

“The government wants tech players to have state-owned money,” said Shaun Rein, founder of China Market Research Group, per the report. “Beijing was not happy about Didi trading overseas, with the backing of foreign players including SoftBank and Uber.”

Regulators have been more closely scrutinizing unfair market practices by ridesharing companies, including Didi and Meituan. One example of such unfair market practices alleges unlicensed or unregulated drivers are hired by ridesharing companies, with the risk of operation then put onto those drivers. There’s also the order regulators have given to the ridesharing companies to quit taking so much of a percentage from transactions and to better protect users’ data.

More in Pymnts.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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How China started to control its tech companies – Shaun Rein

 

Shaun Rein

When China’s authorities cracked down on Jack Ma’s Alibaba, it was only the start of ongoing efforts to control tech companies and manage their data streams, says Shanghai-based business analyst Shaun Rein to WRAL. “Now Chinese people are quite concerned about data privacy because Alibaba and Tencent have so much data – even more data than the government,” he adds.

WRAL:

China’s Communist Party leaders are uneasy with the growing influence of big technology firms. Key issues are monopolistic practices and handling of user data.

Until recently, tech firms operated in a regulatory gray zone, with relative freedom to create their business models, demand merchants and vendors sign exclusive contracts with their platforms and collect user data to better understand their customers.

After China introduced health monitoring and quarantine apps during the pandemic, it became clear that tech companies like e-commerce giant Alibaba and gaming company Tencent controlled huge amounts of data, said Shaun Rein, founder and managing director of China Market Research Group in Shanghai.

“I think it was in the last year and a half that you can start to see just how much power these technology companies have,” said Rein.

Alibaba Group Holding recently was fined a record $2.8 billion over antitrust violations. Other big tech companies have been fined or investigated for alleged anti-competitive behavior and lapses in financial disclosure.

“Two years ago Chinese consumers didn’t care, they thought the convenience of apps outweighed any negative benefits,” Rein said. “But now Chinese people are quite concerned about data privacy, because Alibaba and Tencent have so much data – even more data than the government.”

Rein believes stricter oversight of the technology industry will make it more sustainable, with fairer competition that will benefit consumers.

More at WRAL.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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How China uses Didi-crackdown to discourage US IPO’s – Ben Cavender

 

Ben Cavender

Just a week after Didi’s massive IPO at the US stock market, the company faces a crackdown by China’s authorities. Business analyst Ben Cavender sees a hit to other Chinese firms, contemplating a US IPO: go to one of China’s stock markets to avoid problems, he tells at RTHK.

RTHK:

Regulators have ordered the country’s biggest ride-hailing firm, Didi, to be removed from app stores and accused it of violating rules on the use of personal data.

It comes a week after Didi raised billions of dollars when its shares were listed on the New York stock exchange for the first time.

“I think there’s potentially some subtext here which is basically saying ‘if you’re going to be a big tech company’ and you want to (do an) IPO, you’d better be doing it on the mainland'”, Ben Cavender, the principal at China Market Research Group, told RTHK’s MoneyTalk programme.

Cavender said he believed the government wanted “to tighten up its access to data that’s being collected while at the same time sort of trying to codify a little bit better what kind of data practices are actually OK in China”.

He added that the government is sending a message that it wanted more control over money flows.

He said the days of China initial public offerings (IPOs) being a sure thing were over for investors, and described the development as worrisome.

Cavender also said there was increased pressure “about this idea of consumer rights and what data actually is being collected.

“So I think you’re going to see companies like this that really do peddle in data come under a lot more scrutiny going forward,” he said.

China’s tech giants have in recent months been swept up in a regulatory crackdown — hitting companies ranging from Alibaba to Meituan — by government authorities fearful of their supersized influence on consumers.

More at RTHK.

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China tops 2019 global unicorn list - Rupert Hoogewerf

Rupert Hoogewerf

Three Chinese companies, Ant Financial, Didi Chuxing and Bytedance top the inaugural global unicorn list 2019 for startups in this century, says Hurun chief researcher Rupert Hoogewerf according to the CEO Magazine.

CEO Magazine:

The 10 top unicorns, businesses created in the 2000s, are worth US$542 billion, according to Hurun Research. 

Hurun Research Institute has released the inaugural Hurun Global Unicorn List for 2019. All the top unicorns are not on a stock exchange and valuations are a snapshot on 30 June. 

“We have found just under 500 unicorns in the world. The Hurun Global Unicorn List 2019 is designed to inspire entrepreneurship among wannabe entrepreneurs and encourage investors. These young companies, only seven years old on average, are the world’s most exciting start-ups, leading a new generation in disruptive technology,” said Hurun Report Chairman and Chief Researcher Rupert Hoogewerf, also known by his Chinese name Hú Rùn. 

Hurun Research Institute found 494 unicorns in the world, based in 25 countries and 118 cities. They were created seven years ago on average, are worth US$3.4 billion on average and US$1.7 trillion in total.

More at the CEO Magazine.

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Didi: still a lot of trouble with the authorities - Ben Cavender

Ben Cavender

Ride-hailing company Didi Chuxing, the main competitor of Uber, is trying to move upscale, into self-driving cars, foreign cooperation and projects out of China, but at home, they still face basic challenges, says Shanghai-based business analyst Ben Cavender. Local authorities focus on illegal drivers, according to Reuters.

Reuters:

The ministry (of Transport) said that there are still a large number of illegal cars and it will urge local authorities to target unqualified drivers, which could exacerbate the shortages. 

“Didi’s service times have been drastically affected over the last few months following removal of drivers from the platform who did not have local registration in the cities that they were driving in,” said Ben Cavender, Shanghai-based principal at China Market Research Group. 

“The majority of consumers that we speak to who use ride sharing platforms used Didi first but are increasingly looking at other options.”

More at Reuters.

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Foreign car markers keep on lining up for domestic players - Mark Schaub

Mark Schaub

China has promised to open up its markets for foreign players, but most car makers keep up lining up for domestic partners. For good reasons, says London-based lawyer Mark Schaub, since domestic partners still have huge advantages, he tells in Bloomberg.

Bloomberg:

GM has chosen Alibaba-owned AutoNavi for its Super Cruise driver-assistance system on Cadillacs it plans to sell in China. SAIC Motor Corp., the country’s biggest carmaker, bought shares in license holder Wuhan Kotei Informatics Co. and formed a joint venture to develop driver-less mapping. Didi Chuxing, the country’s largest ride hailing startup, obtained a license in 2017 and has a team working on maps and driver-less technology. Even online retailer JD.com has applied for a HD mapping license as it works on driver-less delivery trucks. 

The lure of the Chinese market is likely to keep foreign carmakers lining up for local partners and give the domestic players an edge, said Mark Schaub, a partner at King & Wood Mallesons in Shanghai who specializes in foreign investment in China. 

“It’s true these guys do have an advantage already,” he said.

More in Bloomberg.

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Mark Schaub has been publishing extensively about the automotive industry and the new rules for self-driving cars. More you can find here.  

Ant Financial, Didi Chuxing and Xiaomi top 2017 best Chinese unicorns - Rupert Hoogewerf

Rupert Hoogewerf

Ant Financial, Didi Chuxing and Xiaomi made it to the top-3 Chinese unicorns in 2017 on a list of 120 most successful unicorns in Greater China, announced the Hurun Greater China Unicorn 2017 Index last week. Beijing is leading the pack, says Hurun founder Rupert Hoogewerf, followed by Shanghai, Shenzhen, and Hangzhou. Keeping up with the amazing growth is tough, Hoogewerf tells AsiaVenturepedia.

Asiaventurepedia:

The Hurun Research Institute released today the Hurun Greater China Unicorn Index 2017, where Ant Financial, Didi Chuxing, and Xiaomi top the chart. The report listed out 120 best unicorns in the Greater China region that are valued over $1 billion as of the end of November 2017. 

“We select the companies valued over $1 billion based on the initial definition of a unicorn startup. However, for many investors nowadays, only those valued over $10 billion or over $15 billion are considered unicorns,” says Rupert Hoogewerf, chairman of Hurun Report, in a statement. 

It’s worth noting that Beijing accommodates the most unicorn startups, holding up 45% of the companies on the list, followed by Shanghai, Hangzhou, and Shenzhen. Among the selected companies, 17 of them are from the internet finance industry with valuations totaling RMB 700 billion (roughly $106.5 billion). 

On top of that, the list also sees a slew of startups from the internet service and e-commerce sectors, both of which account for 18% of all the listed companies. Startups from the entertainment, transportation, and health sector are active as well. 

Also, among the top 10 unicorns, eight of them are valued over RMB 8 billion ($12 billion). Sequoia Capital, on the other hand, became the venture capital that invested in the most unicorns, followed by Tencent and MatrixPartners China. 

On the list, Ant Financial, Didi Chuxing, and Xiaomi are named the top three unicorns with valuations respectively at RMB 400 billion ($60.84 billion), RMB 300 billion ($45.63 billion), and RMB 200 billion ($30.42 billion). The other unicorns include China Internet Plus, Toutiao, CATL, Lufax, DJI, Koubei, Cainiao, JD Finance, and Ele.me.

More in Asiaventurepedia.

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How to enter the China market - William Bao Bean

William Bao Bean

Innovation expert William Bao Bean, managing Director of SOSV’s Chinaccelerator, discusses entering the China market is tough, if not impossible for foreign players in many industries. In the Hutong podcast, William  looks at the way he trains Chinese startups for a global play, and foreign startups for the China market.

William: "China is the #2 economy in the world and thus on everyone's list but penetrating it is elusive for global Internet leaders - Uber did the best spending usd2bn to get a usd7bn stake in Didi Chuxing 滴滴出行 after which their service was basically shuttered." (Key points of the podcast below).

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more innovation experts at the China Speakers Bureau? Do check out this list. Key points at the podcast: 0:00 William’s background and introduction to Chinaccelerator. 4:52: How has the investment thesis differed amongst Softbank China, Singtel and SOSV? 11:00 What are the differences between Chinese consumers and SE Asia consumers? 14:10 How to do social commerce in China? 16:50 Why does SOSV only invest in startups going through its accelerators? 17:40 Chinaccelerator invests in convertible notes. What are differences in convertible note terms between China and the West? 20:10 Have there been any issues working with local Chinese investors and how to resolve them? 25:40 What is a portfolio company that has succeeded and why? 30:24 What are examples of companies or sectors where things did not go well? 32:23 Chinese B2C startups prioritise market share. Is burning cash for market share a necessary first step? How has that changed recently? 36:46: As China market matures, how has SOSV’s investment thesis changed? 45:05: What is the one most absurd investment term William has come across?

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Didi needs to go international - Shaun Rein

Shaun Rein

After beating Uber, Didi Chuxing is now preparing to go international. And they have to, says business analyst Shaun Rein to Digital Trends, because at home they face growing governmental limits in expanding their business.

Digital Times:

Didi has also made it possible for users to register with a Hong Kong, Taiwan, Thailand, South Korea, Japan, United Kingdom, France, Australia, Canada, United States, or Brazil phone number. This marks a departure from its long-held previous stance of requiring a Chinese mobile number in order to set up an account. And finally, the company will also begin accepting “major international credit cards,” so you don’t have to get a WeChat Wallet or Alipay just to take a ride. 

“The internationalization of local services is an important part of Didi’s global strategy,” the company said in a statement. Indeed, Didi hopes that it will soon be in countries beyond China, as the South China Morning Post reported that the firm had established an international division to look into exploring new markets. Part of the motivation to go abroad has to do with bureaucratic pressures in China, Shaun Rein, managing director of China Market Research Group, told the Financial Times. He noted, “[Didi has] to expand abroad because they’re being hit by the regulators at home.” 

Already, Didi has moved into South America by way of a partnership with Brazilian ridesharing service 99. So look out, Uber and Lyft. Didi may be coming for you on your home turf, too.

More in Digital Times.

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Why is Didi raising so much capital? - Jeffrey Towson

Jeffrey Towson

Since last year car-hailing giant Didi Chuxing has been raising over US$15 billion, even after it won the costly competitive struggle with Uber. Beida business professor Jeffrey Towson sees at his weblog four reasons why Didi continues to raise so much capital. Here are two of them.

 Jeffrey Towson:

Explanation 3: Going international. 

Another natural use of the newly raised funds would be to expand abroad given that Chinese app users are already going abroad in great numbers. Didi led a $100 million fundraising round for Brazilian ride-sharing app 99 in January and earlier invested in India’s Ola, Southeast Asia’s Grab and American app Lyft as part of an alliance of the four companies to take on Uber globally. In March, Didi opened an R&D center in Silicon Valley. I would not be surprised to see another string of international investments over the next twelve months, especially in Southeast Asia. 

Explanation 4: There is a big disruption coming. 

In theory, self-driving cars (i.e., autonomous driving) could reduce costs dramatically for Didi. Some reports suggest that driver fees, insurance and driver acquisition costs add up to two-thirds of the company’s operating expenses. 

However, the cost-saving argument misses the bigger implication of self-driving cars. If the technology is successful, it could wipe out the business model and competitive advantage of most ride-sharing services and could be a body blow to Didi’s current business. 

The reason this sector has consolidated down to just one or two dominant companies per region is because of the powerful economics of two-sided platforms. To get drivers, you need riders. To get riders, you need lots of drivers. Being bigger in a region not only creates a superior service — since more drivers means shorter wait times for pick up — it also creates an insurmountable barrier for new entrants. 

Self-driving cars will disrupt this competitive strength. If you no longer need drivers, you no longer have a two-sided network. Didi and Uber will then be exposed to new entrants with good cars, clever technology and different operating systems. Self-driving cars could make driver-rider networks obsolete or marginal at best. 

So Didi and Uber have a strategic imperative to transition to this new technology and search for a new source of competitive advantage. This could be by becoming the transportation ecosystem in which self-driving cars operate. It could be by becoming the operating system, the “Microsoft of moving computers.” It could be by integrating with public transportation services. Possibly though there may just not be an opportunity to be so dominant in this emerging market. 

Google, Apple, Uber and lots of major Chinese companies are rushing into self-driving cars (article here). One to keep an eye on in China is Baidu. It is developing an open-source autonomous driving platform involving hardware, software and cloud data services. This could enable lots more automotive and autonomous driving companies to enter the business. Code-named Apollo, Baidu’s project will provide capabilities in obstacle perception, trajectory planning, vehicle control and vehicle operating systems. Note that Baidu first successfully road tested its self-driving cars on the highways of Beijing back in December 2015.

More reasons at Jeffrey Towson's weblog.

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Now Didi comes after Uber globally - William Bao Bean

William Bao Bean

China's ride hailing app Didi Chuxing just raised over US$5 billion, more than it would need for its China operation. After kicking Uber out of China, Didi might be preparing to go after the US company on a global scale, suggests managing director of the Chinaccelerator William Bao Bean to Bloomberg.

Bloomberg:

Didi's record funding round is said to value the company at more than US$50b and gives it a war chest to ramp up efforts to harness artificial intelligence, build driverless cars, and compete more aggressively in foreign markets. 

The cash infusion coincides with a rough period for Uber, which is facing lawsuits and an image problem, and follows a detente in China after Uber agreed to essentially cede the market to Didi in exchange for a significant stake. 

"The bruising battle with Uber taught [Didi] a lot," said William Bao Bean, a Shanghai-based partner at venture capital fund SOSV. "Now it's battle-hardened, and can buy the best talent in the world to attempt to go big in China, and also go global."... 

Didi has expanded outside its home turf mostly by making investments or forming partnerships with ride-hailing companies such as Grab in Singapore, Ola in India and Lyft in the US. 

For Uber, which is present on every populated continent, India represents its largest overseas market and a pivotal battleground. 

As Didi develops its autonomous driving technology, it could have the capacity to knit together a far-flung global network of allies, focused on developing markets in Asia and the Middle East, Bao Bean said.

More in Bloomberg.

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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