The complicated relation between tech firms and the government - Kaiser Kuo

Kaiser Kuo

It´s complicated, says former Baidu communication director Kaiser Kuo about the relationship between China´s booming tech companies and the government. The outside world sees even private companies often as extentions of the government. Wrong, explains Kaiser Kuo in interview with the Young China Watchers.

YCW: The government investigated Baidu because a student died of cancer after receiving treatment from a hospital he found through the search engine. The case highlights how even private companies have to work closely with the Chinese government and how easily they can fall out of favor. How do China’s largest private companies—Alibaba, Tencent—operate in this environment, and do you think it holds them back at all? 

KK: Yes, I think the environment ultimately hobbles much more than it helps. In Baidu’s case, there’s a commonly held belief among Chinese and non-Chinese observers alike that the company is the creature of the Party—a national champion that’s played on an uneven pitch with government help. As I only recently left the company I can’t say too much here. But this is not the first time that Baidu has been thrown under the bus and not the first time it’s been made a scapegoat toward which public outrage has been deliberately directed. The interesting thing about the major Internet companies in China is that many, if not most, were founded by either returnees or by Chinese nationals with extensive Western (and mainly American) exposure. They were initially funded—and sure, there are exceptions like Tencent—by American venture capital and listed on American stock markets. All this was happening under the watch of a Party that ordinarily insists on dominating the commanding heights of any strategically important sector. It all happened too fast, and all the Party could do to assert controls over this creature with so much Silicon Valley, libertarian DNA was to impose ex-post facto controls. There’s always going to be tension between the powerful Internet companies and the Party state. I believe collision, not collusion, will be the order of the day.

More in the Young China Watchers.

Kaiser Kuo 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 political experts at the China Speakers Bureau. Do check out this list. 

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How subsidy wars killed brand loyalty - William Bao Bean

William Bao Bean

When the ride-hailing wars between Uber and Didi has confirmed one feeling among Chinese consumers, it is that loyalty to brands does not pay off, says Shanghai-based VC William Bao Bean to Bloomberg. Brand loyalty was already low, but the latest Uber-Didi wars have made things worse.
Bloomberg:

Startups backed by Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. once offered plentiful and steep discounts on everything from on-demand massages to personal trainers in a massive land grab. But as consolidation revs up -- seen most recently in Didi Chuxing’s acquisition of Uber Technologies Inc.’s Chinese operations -- this peculiar golden era for smartphone-wielding consumers is waning. Didi’s deal wasn’t the first merger intended to end internecine subsidy wars, and it won’t be the last -- and that means fewer doorbusters for Li and millions of her cohorts. 

The subsidy “wars have just been brutal. Well, great for the consumer, but brutal in terms of burning cash,” says William Bao Bean, an investment partner at SOSV. “And they’ve trained Chinese consumers to not be loyal, but instead to go anywhere to seek out bargains. Consumer loyalty means nothing in China.”

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.

Are you looking for more branding experts at the China Speakers Bureau? Do check out this list.

The dynamic state of the social media in 2016 - Sam Flemming

Sam Flemming

China´s social media have been developing fast and Sam Flemming, CEO of Kantar Media CIC, gives an update on the five most important developments for AdAge. China´s social media landscape is different from the West:  It's unique, fragmented and dynamic.

Sam Flemming:

The Chinese social media landscape moves fast – and if you haven't been paying attention closely, there's a lot you've missed. New platforms have popped up, while main players including Alibaba and Tencent have consolidated their power. In general, China's social landscape is involved in innovations in video, engagement and payment that have evolved differently and faster than anything in the West... 

The BATS, the core of China's digital and social landscape, have grown ever more powerful 

Chinese internet powerhouses Baidu, Alibaba, Tencent and Sina (referred to by the acronym "BATS") together have upwards of eight different social media and/or e-commerce platforms, each with hundreds of millions of active users. They are the absolute core of China's social and digital landscape because of their cumulative 2 billion users. These key players are at the heart of making the Chinese internet viral, informative and practical. Let's call that "VIP." The "I" and the "P" are particularly important in differentiating China from the rest of the world. Trusted Information in China can be scarce, while the plentiful information on social media such as news, word of mouth and rumors is often the type of content that cannot be found anywhere else, even with government regulators keeping a close watch. This makes social media more important in China than most global markets.

Four more points in AdAge.

Sam Flemming 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 internet experts at the China Speakers Bureau? Do check out this list.

China and US regulators move on US-listed Chinese firms - Paul Gillis

Paul Gillis

Both Baidu and Alibaba might be the first US-listed Chinese companies whose books are going to be checked buy the US regulator PCAOB, after a decade-long stale-mate where China refused such controls, citing state security. Accounting professor Paul Gillis is carefully optimistic, he tells the Wall Street Journal, but warns it is not yet a done deal.

The Wall Street Journal:

It is still possible the Alibaba- and Baidu-related inspections might not proceed. The audit documents provided to the PCAOB may be heavily redacted and the board may face other restrictions in conducting the inspections, said the people familiar with the situation, raising questions about whether the board will be allowed to conduct the thorough inspections it is seeking. 

The move toward inspections is a “good first step” in thawing relations between U.S. and Chinese regulators, said Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management. “But that doesn’t mean that the inspections will be meaningful.” 

Mr. Gillis says he expects audit work papers to be moved to Hong Kong for inspection, a way to ease the Chinese government’s concerns about foreign regulators working on Chinese soil.... 

In theory, the impasse over inspections could lead the U.S. to bar audit firms that haven’t been PCAOB-inspected from auditing U.S.-traded companies, which would force those companies to find an acceptable auditor or be delisted. U.S. regulators have continually held back from such a step, however. 

The Chinese “are trying to do whatever is necessary to prevent a disaster, which is their companies being delisted,” said Mr. Gillis. “U.S. regulators are trying to make this problem go away.”

More in the Wall Street Journal.

Paul Gillis 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 interested in previous stories by Paul Gillis? Do check out this list.

How Baidu is revolutionizing take-out delivery - Andy Mok

Andy Mok

Baidu, one of China´s giant internet companies, is making big inroads into the take-out delivery market for white collar workers, writes startup investor Andy Mok at LinkedIn. "Baidu Takeout Delivery has an estimated market share of almost 80% in Tier 1 cities."

 Andy Mok:

The white collar market is an industry bellwether because this market segment not only uses third party takeout platforms most frequently but also spends the most money per order. Specifically, the white collar segment on Baidu Takeout Delivery orders on average 4.2 times per week with 31% ordering more than five times per week and 40% of customers with an order average of more than RMB30. In addition to being the most frequent users and delivering the highest average revenue per transaction, the white collar segment is also the least price sensitive. There are two reasons for this: First, they have high incomes and so have more money to spend on takeout. Second, according to Future X/DCCI this market segment cares most about food safety, delivery speed and accuracy of delivery time. As a result of this focus on the white collar market segment, Baidu Takeout Delivery has an estimated market share of almost 80% in Tier 1 cities. 

Baidu Takeout Delivery also has one of the most vertically integrated third-party take out delivery offerings with more than 40,000 delivery people serving about 30 million users in 140 cites throughout China. Also, Baidu Maps with more than 300 million monthly active users and Baidu's leadership position in search provide it with important advantages in efficient routing for food deliveries and large scale lead generation, respectively. According to TechInAsia, a leaked Baidu document suggests that Baidu Takeout Delivery did RMB 8 billion ($1.2 billion) in transactions in 2015, and that its target for 2016 is a total transaction volume of over RMB 25 billion ($3.8 billion). 

Baidu Takeout Delivery is well-positioned to reap significant financial gains as a leading third-party takeout delivery platform due to its strengths in customer acquisition and to-the-consumer “last mile” urban logistics. However, its potential impact on the supply chain of its merchants is less obvious but perhaps more profound. Internet+ (or IoT in American parlance) is based on providing every imaginable object with an IP address. With respect to food production and delivery, there are significant areas of wastage and inefficiency as well as food safety issues for which Internet+ applications are uniquely well-suited to address.

More at LinkedIn.

Andy Mok 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 experts on e-commerce at the China Speakers Bureau? Do check out this list.  

China is not pushing for a new imperial future - Kaiser Kuo

Kaiser Kuo

Getting the US-China relations right is tough because so many misunderstandings persist in the US when it comes to China. Recently returned China veteran Kaiser Kuo sits down with The Diplomat trying to deal with some of those wrong perceptions. "China has been far more of a rule-taker than it has been a rule-maker."

Kaiser Kuo:

Beijing isn’t interested in pushing its developmental model. China has been far more of a rule-taker than it has been a rule-maker, and has conformed to the extant international order to a far greater extent than it has actually reshaped it. China has its own exceptionalism, sure, but it’s quite the opposite of its American counterpart. Where American exceptionalism tends to see the values and institutions of the U.S. as universal and appropriate, ultimately, for all of humanity, China tends to view its own values and institutions as unique and only really applicable to China. The two forms of exceptionalism may be equally arrogant. But there is no “Beijing Consensus” that the PRC is keen to push out into the world. 

Of late some analyses of China insist on couching Beijing’s intentions in terms of revival of the imperial “tribute system,” or assume that a latent Chinese belief in China as the natural center of human civilization will somehow shape Chinese foreign policy as China’s relative power rises. These are unhelpful and misleading, and ignore the tremendous extent to which China has accepted a place among Westphalian nation-states, has internalized that thinking, and has played according to those rules. That said, in China’s own backyard Beijing will likely continue to push for primacy, and will bristle at interference. It’s important to remember that the international order to which I’ve suggested China has largely acquiesced was created in a time of Chinese weakness. This doesn’t mean we can expect aggressive Chinese revanchism, but Beijing will continue to be very prickly about the sovereignty of borders it claims.

Much more at the Diplomat.

Kaiser Kuo 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 political experts at the China Speakers Bureau? Do check out this list.

Expanding China´s information horizon - Kaiser Kuo

Kaiser Kuo

Kaiser Kuo is leaving China after twenty years, and internet giant Baidu after six year. On May 4 he will get an award of the  Asia Society Northern California, where he will settle down to work professionally on his Sinica Podcast. For Asia Society Kaiser looks back, on the internet and foreign correspondents.

Asia Society:

As an early entrant to China’s innovation wave, Baidu serves as an online portal for consumers in China.  How has Baidu leveraged this role to affect Chinese society?  

At a very fundamental level Baidu exists to expand the information horizon for ordinary Chinese internet users. It’s not perfect, and can’t always be done to the extent we’d all like, but the company has to work within certain parameters. The senior management of Baidu are very serious about their mission to provide the best and most equitable way for people to find what they’re looking for, and they do all they can. 

Equitability of access has always been a priority, whether it’s in creating the most naturalistic and intuitive interfaces — recently, we’ve made enormous strides in AI-based speech recognition, that can understand even quite heavily-accented regional dialects of Mandarin — or in making teaching materials used in top Beijing and Shanghai schools equally available to rural teachers and students.  Baidu has also contributed immensely to the development of the public sphere in China. China-watchers focus on Weibo and, more recently,  Weixin  when they talk about China’s online public sphere, but let’s not forget Baidu  Post Bar, which was and is still very much the place where the national conversation is happening — the place from which so many of the memes and themes emerge. 

On  Sinica, you've interviewed dozens of foreign correspondents over the years. How has the picture that foreign reportage paints of China evolved since you’ve been there? What do you think is being over-emphasized or under-emphasized?  

This is an enormous topic so I’ll just limit my comments to a few things. Foreign correspondence on China has obviously improved in many ways: More reporters on the ground representing an ever-greater number of media outlets covering a wider selection of stories, more journalists with Chinese language skills and generally deeper background on China’s history, and of course with the internet, much more data to draw on. There are things to be improved, and some of it is quite fundamental and boils down to differing views on the mission of foreign correspondence. While speaking truth to power and reporting what “the man” — whether governments or big businesses — doesn’t want reported is the right approach when covering domestic stories for a domestic media market, we have to remember that in a domestic market (say, the U.S.) the readership can be assumed to have much of the context already. They live there. The whole paper is filled with stories on America, too, so those mud-raking pieces, those exposés on malfeasance by some politician or company, can be seen in proportion to all else that’s happening.

More at Asia Society.

Kaiser Kuo 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 e-commerce experts at the China Speakers Bureau? Do check out this list.

Earlier we discussed with William Bao Bean how this other internet giant Tencent is structured. Some details here.

 

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Ctrip, Qunar team up in travel market - Kaiser Kuo

Kaiser Kuo

While competition can be fierce in China, another feature is even more remarkable. Competitors team up, like Ctrip and the Baidu-supported Qunar have swapped shares. Baidu communication director Kaiser Kuo explains in the New York Times why the companies together can serve better the travel market.

The New York Times:

Despite fears about the health of the Chinese economy, the travel market is still growing. Ctrip’s second-quarter revenue rose 47 percent, to $408 million, from a year ago. Qunar’srevenue increased 120 percent, to $142.1 million in the second quarter. 

Kaiser Kuo, the international communications director for Baidu, said the agreement with Ctrip would give Qunar more opportunities to cooperate on mobile search and map-based products. 

He also said the two companies would be able to benefit from each others’ strengths in different markets. 

“Ctrip is big on high end business travel, Qunar has been more leisure, personally booked travel,” he said. “We’re covering more bases, a broader demographic.”

The travel industry is not the only sector that is seeing companies team up amid steep competition. 

Meituan, a group buying service, and Dianping, a consumer review site, agreed to join forces this month with the goal of creating an e-commerce juggernaut.

More in the New York Times.

Kaiser Kuo 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 e-commerce experts at the China Speakers Bureau? Check out our list here.  

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Why Baidu is much more than just Google - Kaiser Kuo

Kaiser Kuo

China´s Baidu is often dubbed China´s Google, but Kaiser Kuo, Baidu´s director of international communications, is happy to explain the SF Chronicle what American and European internet users are currently missing when they rely on Google, and what they might can get in the future.

SF Chronicle:

Kaiser Kuo: Let me just start with what we do with maps. (Pulls out his phone.) I open up maps, and it shows me of course where I am. But this is the cool thing, this vicinity button. I click on this vicinity button, and all these services pop up. I can book a table at a restaurant and get a discount, a really substantial discount. It’ll show me all the meal deals that are available to me. And it knows something about me — it knows the history of what I’ve eaten before. If I’m traveling in another city, I can book a hotel. I can get an Uber from here. I do not leave the Baidu map environment. Let’s say I want to see a movie. I like Matt Damon, so I’m going to go see “The Martian.” And then it will show me all the discount shows. I’ll say I want to go with four of us. I click this button, and through Baidu wallet I’ve paid for it. Baidu food delivery is a true marvel. At peak deliveries we do about a million a day. We deliver food generally in 40, 45 minutes, and when you think about what’s going on there, it’s just an insane logistical thing. We can do incredibly efficient automated dispatch. Because we know where you are, we know where the restaurant is, how long that meal will take to prepare, how much it matters how hot it is when it’s delivered.

Q: Does Baidu employ the delivery people? 

A: We use employment agencies. But they wear Baidu uniforms, Baidu helmets. Baidu delivery is everywhere. We add thousands a month. So the guy’s riding along, another order comes in that will be convenient for him to pick up and deliver, and his route is mapped entirely. They’re riding these little electric scooters. And we want obviously to be able to pack as many of those deliveries into a day’s work as we can. It’s good for the driver — he makes more money — it’s good for us. 

Q: So it sounds like you’ve really got down the ability to combine entertainment and Uber and other services into Baidu. Why do you think the United States doesn’t have anything quite like that? 

A: There’s a lot of different reasons. Let’s start with restaurants. It’s a terrible, sad fact, but most of the time when we eat in restaurants in America, it’s at a big chain. It’s Sizzler or Olive Garden. And these restaurants are national or they’re regional, and they have large back-office staff that’s capable of designing online campaigns. Not so with China. China is extremely fragmented that way. Often, we’re talking about merchants that don’t have a Web presence at all. There’s no reason to — they’re a noodle shop on the corner. We provide that infrastructure for them. But also, it’s having this steady stream of rural migrants coming into the city, who can take a low-skill job. They don’t even need to know the city well, they just follow the map. In China, you can have literally anything delivered. You can order a foot massage, you can have a guy come up and teach you how to throw a pot with a potting wheel, come to your apartment and cook you an astonishing gourmet meal, or give you a guitar lessons. 

Q: It sounds like this model of branching into on-demand services probably would work better in places like Brazil or India than Google’s business model would. It might give you a competitive advantage as you expand around the world. 

A: We actually are betting on that. When you’re talking about India and Brazil, you’re talking exactly about the sorts of markets we’re looking at. We’re looking at markets that do in many ways resemble China, that are populous, have large urban centers, have quite a pronounced bifurcation between a more developed, tech-savvy coast with larger urban centers and a pretty underdeveloped hinterland. And we think the experience we’ve had in this market might very well be relevant in those markets.

 

More in SF Chronicle.

Kaiser Kuo is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch of fill in our speakers´request form.

Are you looking for more experts on innovation? Do check out this list.  

How Baidu became a leader in Big Data - Kaiser Kuo

Kaiser Kuo

As China´s largest search engine, it was obvious that Baidu has access to an enormous amount of big data. Communication director Kaiser Kuo explains how Baidu has been building on that main asset for Knowledge CKGSB.

Knowledge CKGSB:

Big data began in China much as it did in the West: as an effort to use the information that websites were gathering about customers to sell more products. 

Advertising an e-commerce are still the largest uses for big data. One of the earliest examples was Baidu´s use of big data in its search engine. "Search engines have been doing what is now called big data since the very beginning," says Baidu spokesperson Kaiser Kuo. "In order to have a good search engine, what you´re doing is massive data management." 

In addition to providing search results, Baidu made money by selling ads alongside them. Baidu would monitor what its users were searching for, and then charge companies for ads that were tailored to that activity. And, as the company´s big data capacities improved, it found it could tailor advertisements further. Says Kuo, "You can use that massive set of data and analyze it and figure out what advertisements are likely to be clicked on more. If we display more of those, the click through rate will go up and our revenues will reflect that." 

Since then, Baidu has expanded its big data efforts into other areas, including opening a Beijing Big Data lab under its Baidu Research arm.To demonstrate its big data capacities, Baidu has developed predictive programs for monitoring diseases like hepatitis, Lunar New Year travel, earthquakes, FIFA World Cup victories and movie box office successes. The company also has an open platform that allows developers to use Baidu´s algorithms to make predictions. 

Zhang and Kuo argue that Baidu is the leader in big data in China because of its massive amount of data and its strength in technology. There are even some aspects in which Baidu´s big data efforts are more advanced than US companies, like building large sophisticated models and infrastructure...

More in Knowledge CKGSB.

Kaiser Kuo 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 internet experts at the China Speakers Bureau? Do check out our list here.  

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Baidu rebuilds Nepal virtually - Kaiser Kuo

Kaiser Kuo

Baidu, China´s largest search engine, has launched an initiative to rebuild Nepal virtually, in 360 degrees using the many existing pictures of destroyed sites. Communication director Kaiser Kuo explains on his Facebook page how it works, and how tourists´pictures will be used.

Kaiser Kuo:

In order to do that, our Quanjing Map team needs to process massive amounts of image data, and so we’re now collecting photos from people who have been to Nepal and taken pictures of the cultural sites, including the Bhimsen Tower （达拉哈拉塔）, Swayambhunath (斯瓦扬布纳特寺), Bodhnath (博达哈大佛塔) and Durbar Square （杜巴广场）in Kathmandu, Patan, and Bhaktapur.   

It doesn’t matter whether there are people on the photos, as long as the are no obvious logos or watermarks on them and the pictures are clear enough. We may not get back to you immediately after your upload, but you have a chance to take part in an important digital restoration project, and we think you'll be amazed when the immersive imagery is finally done!

More at Kaiser Kuo´s post at Facebook, including links to participate. (Here for people without access to FB)

Kaiser Kuo 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.  

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Reasons Chinese firms fail and succeed abroad - Joel Backaler

+Joel Backaler 

Chinese companies are increasingly going abroad, for a large variety of reasons, and with an even larger variety of success and failure, says Joel Backaler in Knowledge CKGSB. The author of China Goes West: Everything You Need to Know About Chinese Companies Going Global looks at Huawei, Lenovo, Baidu, Xiaomi and TCL.

Knowledge CKGSB:

Chinese technology companies are looking for a variety of things in their investments and acquisitions abroad. They may take controlling stakes or minority stakes in foreign companies to access new markets, to acquire useful technologies, capabilities or talented personnel, or just to diversify their investment portfolios.

Of all these goals, accessing new markets typically offers both the highest risks and highest returns. As Joel Backaler, the author of China Goes West and a director at Frontier Strategy Group, says, “There [are] some very real business reasons why these Chinese companies, particularly tech companies, are going out. The market [especially for smartphones or consumer electronics] is highly competitive within China. Therefore if you can take that kind of product and adapt it for other markets, it can be a good way to diversify your business and maintain your margins.”

Chinese companies have tried their hands at both developed and developing countries. Companies operating in the former, such as Huawei, the telecoms manufacturer, and Wanxiang, an automotive parts maker, have had success focusing on hardware. While Baidu and Xiaomi, a company best known for its smartphones, have targeted the latter, with Baidu focusing on Southeast Asia, the Middle East, North Africa and Latin America....

Backaler points out that many of China’s early failed acquisitions were the result of Chinese companies with plenty of money going after assets that were failing for complex reasons. Chinese companies like TCL Corporation “weren’t necessarily in a position to go overseas, let alone to bring a company facing tough times back to life,” he says. He also cites Huawei as another Chinese company that failed to listen to the market, made mistakes in managing its image, and now is essentially barred from doing some types of business in the US.

On the positive side, Backaler says that Lenovo has done a great job of managing its US-based acquisitions. By retaining the acquired company’s management and staff, and only gradually making changes to the business model, Lenovo has convinced its American employees at IBM and Motorola Mobility that it was ready to learn from their experiences and dedicated to managing the company for the long haul.

There are other obstacles to Chinese outbound investments: hurdles to financing and approvals within China, or potential security threats with high-tech investments. However, the biggest obstacle to Chinese outbound investment appears to be connecting interested Chinese companies with potential targets. Very often, investors and investees just don’t know how to find each other.

“I think it’s challenging, because on one hand there is tremendous interest on the Chinese side to go out, and then if you’re looking from the American perspective there’s a strong desire for that investment, however there’s a really big gap in between,” says Backaler. Typically, interested Chinese investors go on tours or attend conferences where they can meet investment targets, and foreign states, cities and other local governments set up organizations inside China to recruit investment. However, both methods fall short of connecting all the interested parties.

More in Knowledge GKCSB.

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Reasons for Baidu to look abroad - Kaiser Kuo

Kaiser Kuo

China´s internet giants are looking increasingly abroad, not only to find new markets, but also to find new technology and good engineers, says Kaiser Kuo, director international communication at China´s largest search engine Baidu. In Knowledge CKGSB.

Knowledge CKGSB:

Some of Baidu’s recent acquisitions suggest the company is also interested in “studying abroad”—for example, its purchase of a minority stake in the Finnish company IndoorAtlas in September. IndoorAtlas makes a cutting-edge mobile product that allows users to map and navigate indoor spaces. Its President Wibe Wagemans explains how it could enable people to “find a friend indoors. You could find a booth or a product at a conference. You could search for shoes in the mall and it would take you all the way to the actual shelf.”

The technology could have big potential for Baidu, which controls roughly 80% of the mobile search market in China and a little more than half of the market for mobile maps. “We’re looking to introduce that technology into our existing product line,” Kaiser Kuo, Baidu’s Director of International Communications, says of IndoorAtlas...

In other cases, Chinese firms may also seek to tap the talent base and management experience of companies abroad, for example in Baidu’s high-profile investment in an R&D center and artificial intelligence lab in Silicon Valley in 2014. “We want to go where the talent is,” says Kuo. Not every great engineer happens to be located in China. Talent is distributed globally, and R&D should be too.”

More in Knowledge CKGSB.

Kaiser Kuo 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 experts on innovation at the China Speakers Bureau? Check out this list.    

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Winners and losers at the new foreign investment law - Paul Gillis

+Paul Gillis 

The proposed law for foreign investments is up for discussion, and offshore VIE companies controlled by Chinese would be treated as domestic companies, legalizing current practices. Accounting professor Paul Gillis lists the winners and losers of the proposed law on his weblog.

Paul Gillis:

But there is a twist. If Chinese individuals or corporations control the foreign company (parent companies of overseas listed Chinese companies are typically incorporated in the Cayman Islands) then the foreign company will be treated as a domestic company for purposes of the foreign investment rules. That would mean the VIE is treated as being controlled by a domestic company and would not be subject to the foreign investment rules. 

Companies that are controlled by Chinese will have their existing VIE arrangements validated. That means that existing VIE contracts should be enforceable. At present, Chinese law will not enforce contracts where an illegitimate purpose is concealed under the guise of legitimate acts. The proposed law will legitimize foreign investment through a VIE when the company is controlled by Chinese. That should make the contracts enforceable. The new law will create winners and losers in China. 

Winners 

Alibaba, Baidu and other companies with dual class share structures or other arrangements that keep founders in control. These companies can continue to use their VIEs. Hopefully, they will be allowed to transfer the VIE to the public company structure so that it becomes a WFOE. That would remove many of the operational difficulties associated with VIEs and provide some better legal protection for shareholders. 

Ant Financial Services Group (ANT), Alibaba’s finance arm formerly known as Alipay. Alipay was a former VIE of the Alibaba Group that was taken out of the group in 2011 by Jack Ma much to the chagrin of Yahoo! investors. Alipay has been the poster child for VIEs gone wrong. The new law may allow ANT to be listed in a U.S. IPO, since the new rules would appear to allow a company like ANT to have foreign investment provided it remained Chinese controlled. 

US Exchanges. Few stock markets permit the use of control structures that allow unders to remain in control of their companies even when they sell down their shares below 50%, but the US exchanges do. Those control structures usually involve two classes of shares – a Class A owned by founders with full voting rights, and a class B owned by public shareholders with identical rights as class A except for no right to vote. Alibaba achieved a similar result using the Alibaba partnership. Hong Kong and China do not permit companies to list with control structures, insisting on one share/one vote. The Hong Kong Stock Exchange lost the Alibaba IPO because of its unwillingness to change its rules. 

Losers Tencent,

 CTRIP, and other companies that are not controlled by Chinese. Some overseas listed Chinese companies have not used the control structures. Their VIEs are likely to be treated as foreign invested enterprises, and will need to comply with the negative list. The regulator could give special permission for these companies to continue to use their VIEs, and I expect they probably will.  An alternative may be for these companies to move their VIE to the Shanghai Free Trade Zone, which has indicated it intends to allow wholly owned foreign investment in e-commerce.  

Multinational companies (MNCs). Many MNCs use the VIE structure although this is rarely disclosed (Amazon is an exception, disclosing use of a Chinese VIE).  These VIEs will be subject to the negative list. I am less optimistic that MNCs will be able to obtain special permission, and may need to rely on using the Shanghai Free Trade Zone.  

Hong Kong Stock Exchange. Hong Kong does not allow companies to list using control structures to keep founders in control. The Hong Kong Stock Exchange lost the Alibaba IPO over this rule, and stands to never see another IPO of a Chinese company in a restricted sector if they do not change their rules.

More at ChinaAccountingBlog.

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