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
A US judge has delayed US President Trump’s action on Tiktok, and now the Chinese government is watching closely what happens after November 12, the next deadline, says political economist Shirley Yu at Bloomberg. And what will Tencent do, now a ban on WeChat is still pending?
Digital insurance has become one of the post-corona winners in China, says Rupert Hoogewerf, chief researcher of the Hurun China Rich List as his firm published the first list of top-10 digital insurers, according to Asia One. Health insurance was one of the key winners, he says.
Asia One:
The post-pandemic era has seen health becoming one of the hottest topics and diversified insurance products, said Rupert Hoogewerf, the chairman and chief researcher of Hurun Report. Quoting statistics from Insurance Association of China, Hoogewerf said Chinese insurers’ premium income increased by 6.5 percent year on year to 2.7 trillion yuan in the first half of the year.
Insurance agencies have played a crucial part in insurance purchases, whose premium income has accounted for over 80% of the total premium income for the past consecutive years, Hoogewerf noted, adding that the practice of independent service providing and marketing has shaped the insurance sector, and, at present, near 70% of China’s 700 national insurance agencies are eligible to market online.
Digital insurance in China has enjoyed leap-forward development in the past years, Hoogewerf said. He further explained that, besides internet giants Baidu, Alibaba, Tencent and JD.com, Ctrip, Didi, Meituan and other platforms have rolled out insurance services. Relying on massive active users and taking advantages of big data and cloud computing technologies, those companies have designed insurance products in accordance with the consumption scenarios of their original platforms, including entertainment, shopping, travelling and mutual health aid, to meet the insurance needs of different customer groups, said Hoogewerf. For instance, Hoogewerf added, Ant Insurance provides shipping insurance for online shopping and Ctrip offers insurance for flight accidents and delay.
In digital insurance business, there are other companies that worth gaining people’s attention, such as scenario-based health insurance marketing agencies represented by Qingsong Health Group’s insurance platform, and China’s earliest online platforms that obtained online insurance brokerage licenses represented by Huize Insurance, said Hoogewerf.
As insurtech embraces a new development era in both China and the global market, multiple business players have been competing for the position of industry leaders, Hoogewerf noted. He said the prospects of Chinese digital insurance agencies are promising, given the trend of independent service providing and marketing in insurance industry as well as the rapid development of internet technology.
Derailing China’s economic reforms is the only way the US can stop losing its leverage as the largest economy in the world, says political economist Shirley Ze Yu in the South China Morning Post. Improved market liberalization has every time helped China to improve its economic position, and the US has no other alternative to win this fight instead of blocking market forces in China, she argues.
Shirley Ze Yu:
It is understandable that the world’s predominant economic power wants to win an economic war against China, but how? One way is for the US economy to rise faster than China’s. The other is to stifle China’s rise.
It is hard to see any major technological breakthrough on the horizon in the US that would induce a significant economic take-off. Until that happens, the second-best strategy for the US is to damage
the Chinese economy.
Some of China’s hi-tech companies are under siege. TikTok and WeChat have been put on the White House 45-day banned list on August 6. Trump administration officials have also suggested that Chinese companies listed in the US should be delisted by January 2022 if they cannot comply with the Securities and Exchange Commission’s audit requirements.
Sifting through more than 70 years of the People’s Republic of China’s history, every period in which the Chinese economy has thrived has been accompanied by deeper liberal market reforms. Every major round of liberal market reform has unleashed enormous amounts of economic vitality.
Greater market liberalisation will therefore put China on a more robust economic growth track, pushing the nation towards the commanding heights of the global economy even faster than current projections.
The US, in principle, wants to see a more liberal China. In practice, though, it will benefit from an illiberal China by winning the economic war.
Ultimately, it is better to defeat an enemy without having to fight, rather than winning every battle, according to ancient wisdom. Thus, the most expedient way of winning for the US would be to derail the liberal market reform process in China.
Observers got alerted when internet giant Tencent said it wanted to take search engine Sogou private, even tough Soguo is smaller than Baidu. Marketing specialist Ashley Dudarenok explains to KR-Asia why the move makes sense, "Sogou lacks Baidu’s larger market share but possesses better search technology and algorithms, allowing for better user experience," she says.
KR-Asia:
Sogou has performed well with a 21% market share in the Chinese search engine market. If Tencent was marking its territory in the search engine sector with its previous investment, a potential bold acquisition now plants a flag.
“It is probably in Tencent’s best interest to gain a secure share of the search market. By doing so, Tencent has to increase the width and depth of its contents,” told KrASIA Ashley Galina Dudarenok, marketing expert and founder of ChoZan and Alarice.
“Tencent would be able to improve ad performance and potentially benefit from higher revenue in ads, as Sogou’s search contains a large amount of users’ baseline data,” she added.
According to Dudarenok, Sogou lacks Baidu’s larger market share but possesses better search technology and algorithms, allowing for better user experience. In particular, its ability to scour specific verticals such as WeChat, Mingyi (Medical), Xueshu (Scholar), and Zhihu (China’s Quora) are core differentiators.
The privatization also makes sense for Sogou since its performance on the public markets has not been ideal. Since Sogou’s listing in 2017, its stock price has fallen below intrinsic value. Privatization under Tencent would offer a modicum of financial assurance to push forth with its extensive R&D ventures.
In addition, Tencent’s ecosystem of apps already contributes to over 35% of Sogou’s traffic, while competition is increasing Sogou’s traffic acquisition costs. As of the first quarter of 2020, this remained the primary driver of Sogou’s costs of revenues, increasing by 27% year-on-year (YoY) and representing 70.5% of total revenues compared to 56.6% the previous year.
Sogou’s acquisition is an anomaly in Tencent’s playbook, however, as Tencent is known to shy away from outright acquisitions and instead favor strategic partnerships, in contrast to other giants such as Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU).
Yet, the high stakes behind the search engine market might be the reason behind Tencent’s move. “Internet companies have now very tight control over their own content and data, and have very clear-cut strategies in locking users in their own platform,” suggests Dudarenok, emphasizing the security perspective as essential in this acquisition.
Already before COVID-19, American and Chinese internet giants fought for dominance in the booming market for food and grocery delivery, and the coronavirus crisis has caused another boom in the market, says William Bao Bean, managing director of global venture capital firm SOSV in Shanghai in Marketplace. Having dominance in their home market helps the Chinese players.
Marketplace:
William Bao Bean
“Ordering groceries online is much more advanced in China than the U.S., and when I say ‘advanced,’ it’s market penetration. I’d say more than double the amount of groceries are ordered in China for delivery versus the U.S.,” said William Bao Bean, with the global venture capital firm SOSV in Shanghai.
According to iResearch, the customers it surveyed used grocery delivery services one to two times a week in 2019...
These differences matter, given that U.S. grocery and food apps are now competing against Chinese giants for customers in Latin America and India. This is a global food fight.
“When you look at India, they’re definitely going more towards the China model,” said Bao Bean, the venture capitalist in Shanghai. “Whereas the U.S., the big-box format, with large parking lots and everybody driving a car, you’re simply not going to see that in Southeast Asia and South Asia.”
He said Amazon is not doing as well in India compared to Chinese tech firms, and Chinese money is backing Indian startups. A report by the MacroPolo think tank found that Chinese apps overtook U.S. apps in 2019.
Shaun Rein, founder of the China Market Research Group, believes a major challenge will be the growing strength of China's online movie sector, which is hugely competitive with platforms such as Iqiyi, Youkou and Tencent Video.
He said subscriptions were cheap at around $2 a month for a basic package, while movie tickets often sell for $20.
"Chinese players are just so cheap, often because they are subsidised as they are owned by giant internet players like Alibaba, Baidu or Tencent," he said.
"Aside from fears over catching Covid-19, consumers won't go back to cinemas anytime soon as the digital offerings are too good and cheap,"
He also predicted more pain for cinemas if film companies start to launch direct-to-digital offerings and charge higher prices for online movie releases on a pay-as-you-go basic on top of subscription rates. "I expect the cinema sector to face a massive bloodbath and many will go out of business," he added.
The annual Hurun Global Rich List counted today more billionaires in China than in the US and India combined, says Rupert Hoogewerf, chairman of the Shanghai-based Hurun Report after its publication on Wednesday, to Caixin. In 2019, China created 182 billionaires, three times the number as those in the U.S., according to the Hurun Report.
Caixin:
Despite a slowdown in the economy and trade tensions with the U.S., China had 799 billionaires in 2019, more than both the U.S. and India put together, according to the annual Hurun Global Rich List, which measured the wealth of some 2,816 billionaires from 71 countries and regions. “China today has more billionaires than the U.S. and India combined,” said Rupert Hoogewerf, chairman of the Shanghai-based Hurun Report, which published the rankings Wednesday. He added that a boom in tech valuations and strong stock markets in China, the U.S. and India pushed the number of global billionaires to a record high of 2,816. In 2019, China created 182 billionaires, three times the number as those in the U.S., according to the Hurun Report. Alibaba founder Jack Ma, who retired in September last year, climbed a place to become the world’s 21st richest person with a net worth of $45 billion last year, retaining his title as China’s wealthiest person. Ma ranked just ahead of Tencent’s Pony Ma with a net worth of $44 billion and Xu Jiayin of property developer Evergrande with $33 billion. An overseas pushback against Huawei and a U.S. blacklisting did not prevent the company’s founder, 76-year-old Ren Zhengfei from growing his personal fortune by 7% to $3 billion. He ranked at 903rd, the same as U.S. President Donald Trump. Amazon founder Jeff Bezos was the world’s richest man for a third consecutive year with a $140 billion fortune, according to the list.
At the China Speakers Bureau we have started to explore WeChat Work as a social platform, next to Twitter, Facebook and LinkedIn. Are you interesting in following us on this journey? Check out our instructions here.
China internet giant Tencent has a gigantic investment portfolio, but has a rather hands-off approach when it comes to those investments. Tencent watcher Matthew Brennanexplains at Technode how to look at that strategy.
Technode
According to Matthew Brennan, founder of research consultancy China Channel and co-host of Technode’s China Tech Talk podcast, Tencent’s relatively hands-off approach can be attributed to the experience and personalities of two of the company’s top decision-makers: Executive Director and President Martin Lau, and Chief Strategy Officer James Mitchell. “Both Martin and James think more like investment bankers than operations-focused managers,” explains Brennan. “Much of Tencent’s profit generation still lies in gaming, a sector in which they are known to take more controlling and larger stakes. Yet for the rest of their investments, they seem comfortable trusting existing management and taking a much less active role.”
As of the end of Q2 2019, Tencent reported an investment portfolio amounting to over RMB 417 billion (about $59 billion), including China and overseas.
Private companies in China have become more important than sometimes appreciated, says Rupert Hoogewerf, chairman of the Hurun Research Institute in its latest report, according to the South China Morning Post. They have grown eight times in the past decade, pay most taxes and create most jobs. "Creating value is more than making sales," says Rupert Hoogewerf. The China Morning Post:
China’s 10 largest companies have grown eight-fold in value over the past decade, according to an inaugural Hurun Research Institute report, shedding light on a sector that contributes half of the nation’s tax receipts and 80 per cent of jobs.
The South China Morning Post:
The 10, led by e-commerce behemoth Alibaba Group Holding, were valued a combined US$1.8 trillion, a size that would rank them as the 10th largest by gross domestic product surpassing Canada, were they an economic entity, based on International Monetary Fund data. The snapshot comes from an inaugural list of 500 most valuable private companies released by Hurun on Thursday, and based on data up to November 2019.
Alibaba (US$545 billion), Tencent Holdings (US$408 billion), Ping An Insurance (US$215 billion) are the top trio. Huawei, the subject of US security scrutiny over alleged embedded spyware in its telecoms systems, was ranked fourth, with a valuation of US$172 billion while Alibaba’s unlisted affiliate Ant Financial came in fifth at an estimated US$143 billion...
“Companies on the Hurun China 500 create significant value for local governments, in terms of GDP, industry development, tax revenues and skilled labour,” said Rupert Hoogewerf, chairman and chief researcher of the Hurun report.
Half of them are in emerging industries, especially in the fields of advanced manufacturing, health care, media and entertainment and e-commerce, the report shows. About two-thirds are listed companies, while the rest are non-listed companies or only partially listed, he added.
“We are in an era when it is about value created rather than sales generated that ought to be used to differentiate the best companies in China,” Hoogewerf said. “Some of the Hurun China 500 make only relatively small revenues, but create massive shareholder value.”
Tencent might still dominate social media in China with WeChat and QQ, but competition is heating up, and the internet giant is preparing for more competition, says Tencent watcher Matthew Brennan in Asia One.
Asia One:
"WeChat and QQ are like huge ships … too big to change course to catch a new trend before others," said Matthew Brennan, managing director of consulting firm China Channel.
WeChat and QQ both saw quarter-on-quarter declines in monthly active users in September, while in the same month Chinese netizens spent 42 per cent of their online time using Tencent apps, down 4.2 per cent from the same month last year, according to a report from Chinese data analytics firm Quest Mobile...
Tencent also fends off potential competition by blocking access to its ubiquitous WeChat, which has resulted in accusations of monopoly practices.
Early this year, links to three social media apps - Matong, Duoshan and Liaotianbao - were blocked from opening within WeChat's browser for "containing unsafe content and receiving user complaints", according to Tencent. None of the three potential competitors has been able to pose a serious challenge to WeChat.
"Social applications have a high rate of failure. Hundreds of WeChat challengers fizzle out, but it doesn't mean Tencent can stop trying," China Channel's Brennan said. "Innovations can still appear, often unexpectedly, so it's sensible for a company like Tencent to have new teams out in the field to explore the boundaries."
Consumers, often, are all but forced to use some super apps, like it or not. In Hangzhou, the birthplace of Alipay, a number of restaurants, coffee shops and supermarkets only accept the e-payment service. Similarly, few people bring stacks of business cards to conferences in China -- they simply add each other on WeChat.
With two out of three Chinese on WeChat, the app "is so ubiquitous" that it has essentially become a "public utility," said Matthew Brennan, managing director of Shanghai-based tech consultancy China Channel, who specializes in WeChat-based marketing.
"It is like your phone number, water, gas and electricity," Brennan said.
As popular as it is now, WeChat is still in expansion mode. Tencent has made companies and developers an offer that is hard to refuse: They can build a mini-app for WeChat cheaper and faster than a conventional app...
Companies that helped drive WeChat's rise are showing they are not necessarily wedded to it. Brennan, who is writing a book about the super app, said top Chinese ride hailer Didi Chuxing used to rely on WeChat to attract passengers. Now, he said Didi -- which is also backed by Tencent -- gets about 90% of its orders through its own app.
"They want direct access [to users]," Brennan said. "Otherwise, their business is at risk."
In China, the internet is the economy. SOSV managing director William Bao Bean explains how international firms can enter the China market. With magic information on how Tencent and their WeChat dominate the playing field, and how you can win that war. And how Chinese companies are conquering the world.
Investor Jim Rogers tried to buy an ice-cream in Beijing but discovered you cannot buy it for money, you need a mobile. Alibaba and Tencent have become giant technology firms that have changed day-to-day life.
Sequoia, Tencent, and IDG are the top investors in Chinese unicorns, says last weeks Hurun report on 202 unicorns, start-ups valued at more than US$1 billion, in China as of the first quarter of 2019. Shanghai’s new tech board would be an attractive listing option for Chinese unicorns, said Rupert Hoogewerf, founder and chief researcher of Hurun at the South China Morning Post.
The South China Morning Post:
The Hurun report lists 202 unicorns, start-ups valued at more than US$1 billion, in China as of the first quarter of 2019. Sequoia China has invested in 53 of them, Tencent has put money into 31 and IDG has invested in 25.
“China has the largest number of unicorns in the world,” said Rupert Hoogewerf, chairman and chief researcher at Hurun.
More than 70 per cent, or 146, were in sectors such as internet services, e-commerce, internet finance, health care, culture and entertainment, artificial intelligence, and logistics, according to the report. The 202 unicorns have a combined valuation of more than 5 trillion yuan (US$732 billion)...
The Hurun report found that Beijing was home to 82 unicorns, 41 per cent of the total in China, followed by Shanghai with 45, Hangzhou with 19 and Shenzhen with 16. Hangzhou is the headquarters of e-commerce giant Alibaba Group, the parent company of the South China Morning Post.
Alibaba’s financial arm Ant Financial, TikTok owner Bytedance and ride hailing giant Didi Chuxing topped the Hurun unicorn list.
Sequoia China has invested in Ant Financial, Bytedance, drone maker DJI, short video app Kuaishou, JD Logistics, and education start-up VIPKID, while Didi Chuxing, Kuaishou, JD Logistics and health platform WeDoctor are in Tencent’s portfolio.
The report also included a list of 70 “future unicorns” that have potential to become US$1 billion start-ups in the future, including gay dating app Blued, e-commerce company Club Factory and fitness app Keep.
Shanghai’s new tech board would be an attractive listing option for Chinese unicorns, said Hoogewerf. He added that while 20 per cent of unicorns might fail, and less than 10 per cent would be acquired, most would go on to a public listing.
Facebook is struggling to remain relevant for its users and has a good look at China's WeChat where group interactions are more private than the chaotic mess Facebook offers. But business analyst Ben Cavender wonders if the Chinese approach works at Facebook, he tells the South China Morning Post.
The South China Morning Post:
“Facebook has struggled to find ways for its users to feel that they have valuable ways to share and engage in interesting discussions with relevant groups of people versus the wider platform in recent years,” said Ben Cavender, a Shanghai-based analyst at China Market Research Group.
“They've seen just how popular WeChat has become as a platform for sharing within smaller, more private groups and realised that this is something that might work similarly well for them ... the challenge though is that in more mature markets like the US, consumer trust in the platform is very low.”
WeChat, developed by Tencent Holdings and with over a billion users, is heavily centred around the basic functions of messaging and social media. Moments, its social media space that Messenger’s new ‘close friends circle’ resembles, is open only to WeChat friends.
Compared to Facebook’s efforts to help users discover new groups by recommendation, WeChat employs a more hands-off process. Users can only join groups by invitation of an existing member, but the group can boost its visibility by sharing a QR code that works as a link to the group.
Wow! China Airport face recognition systems to help you check your flight status and find the way to your gate. Note I did not input anything, it accurately identified my full flight information from my face! pic.twitter.com/5ASdrwA7wj
Fighting Alibaba on e-commerce is a tough struggle, but Tencent's WeChat is clearly delivering on improving its shopping environment, even when it does not beat Alibaba, says Tencent watcher Matthew Brennan to TechNode.
TechNode:
[T]he latest update seems to fit with Tencent’s aim to make mini-programs easy to use. It’s “very much in line with what they said they would do,” says Matthew Brennan, co-founder of China Channel.
“The whole mini-program initiative is about helping startups, helping more businesses,” Brennan told TechNode. That applies to e-commerce as well. Just a few years ago, WeChat “wasn’t a very natural environment” for online shoppers, said Brennan. Now the whole in-app retail experience has become much smoother thanks to pushes from Tencent.
Brennan doesn’t see the company’s e-commerce initiative as a direct competitor to Alibaba. Instead, like the “runaway hit” platform Pinduoduo, WeChat is finding new models “to let social e-commerce flourish.”
And fast-growing mini-programs, launched in January 2017, happen to be a convenient tool for alternative means for growth. As of the second quarter of 2018, Tencent reported that WeChat hosted over 1 million mini-programs on its platform, a 72% jump from the same period in 2017. Total users reached 600 million, with close to one half accessing them four to six times a day.
Growing used to be easy for Tencent and other Chinese IT giants, as mobiles proliferated and consumers got used to the internet. But, as the limited growth by Tencent showed last week, the company has to diversify its key games asset into other industries and global expansion, says Tencent watcher Matthew Brennanto the South China Morning Post.
The South China Morning Post:
Tencent’s roller-coaster year also took place as China’s technology giants came of age. Baidu, Alibaba Group Holding and Tencent – the trio of internet companies that has come to represent Chinese Big Tech – are all around 20 years old and have expanded their presence beyond China's shores.
“We’re coming to the tail end of a decade of gangbuster high growth due to the mobile revolution,” said Matthew Brennan, managing director of consultancy China Channel. “The incremental increases in number of users and time spent online per person is getting less and less. All the low-hanging fruit is long gone.”
He said the business-to-business market “is an area many technology companies, both in the US and China, feel holds more opportunities for growth”.
For years the business community feared China's central government would kill the so-called VIE's (variable-interest entity). The tool to circumvent the country's strict ownership regulations was never endorsed by the government but has also never been in serious trouble, tells China veteran and lawyer Mark Schaubto Bloomberg. The ban even did not show up in the draft foreign investment law, last week.
Bloomberg:
In the latest draft, Beijing dropped language that would have invalidated the so-called “variable-interest entity” structures employed by Chinese tech giants from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. But it’s also proposing to scrap special laws governing Sino-foreign tie-ups -- a move that could force them to re-examine longstanding contracts, lawyers say.
Those twin strands emerged from China’s Foreign Investment Law, intended to govern every aspect of the world’s No. 2 economy for global investors. This particular edict has gained newfound significance as tensions flare between Beijing and Washington; the revisions to VIEs and JVs were little-noticed amid an array of other moves that span curbs on forced technology transfers to leveling the playing field for foreign firms.
In the case of VIEs, the missing language assuages concerns about a corporate structure that circumvented foreign-ownership restrictions. The model has never been formally endorsed by Beijing but has been used by tech titans such as Alibaba to list their shares overseas.
Pioneered by Sina Corp. and its investment bankers during its 2000 initial public offering, the VIE framework rests on shaky legal ground and foreign investors were thus nervous their bets would unwind overnight.
The original version of the legislation was dubbed by a number of “hysterical commentators as ‘the VIE killer,’” said Mark Schaub, a partner at King & Wood Mallesons.
“However, as its successor has dropped any reference to VIEs, we believe it should be business as usual. China’s regulatory position on VIEs may still evolve, but we do not believe there will be a U-turn, ” Schaub said...
Foreign firms that control their ventures may take advantage of the new regime to eradicate “inflexibility,” King & Wood Mallesons’s Schaub said. He cited the need to secure directors’ unanimous consent to amend company articles, adjust capital, or even just to dissolve the venture. “Likely, the Chinese partners may also seek to adopt the new law if they are in a controlling position.”
Companies are still studying the potential effects and aren’t yet sure how it would impact existing ventures, said Xu Heyi, chairman of Daimler AG’spartner Beijing Automotive Group Co. Changan Auto, which is allied with Ford Motor Co., said a half-decade should be more than enough time to avert disruption.
