January 10, 2021: Mexico City, More Chinese Tech Ban, Intel Woes

Hello Interconnected Readers:

Last week, I shared my five big themes to explore in 2021, one of them is non-US innovation cities and corridors. As someone who tends to act quickly (almost to a fault sometimes), I’ve decided to spend time in one of them starting later this month: Mexico City.

[If you’d like to skip ahead to the six news stories and commentaries – three from English language sources, three from Chinese language sources -- here are this issue’s items:

• “U.S. Weighs Adding Alibaba, Tencent to China Stock Ban” (English Source: Wall Street Journal)
• “Intel Talks With TSMC, Samsung to Outsource Some Chip Production” (English Source: Bloomberg)
• “Did the EU rush into the China investment deal before the 2020 deadline?” (English Source: SupChina)
• “Tsinghua graduates love to work for Huawei” (Chinese Source: CSDN)
• “Far from 996, they started businesses in non-first-tier cities” (Chinese Source: China Venture)
• “Douyin gets punished for pornography; ByteDance ‘angry at’ Tencent: no reason to block Lark” (Chinese Source: InfoQ)]

This decision is not a reaction to escape some version of the American decline, though given what happened in Washington DC last week, there are good reasons for people to assume so. To the contrary, if “buying low” is the wise investment strategy it’s supposed to be, I think now would be a good time to “buy America.”

Having a better understanding of where innovations are happening around the world is important to continue refining my “Global by Nature” investment thesis for the next 10 years. As I outlined in the four-part “Global by Nature” series, more technology products will be created that transcend borders and address a global market from day 1, especially developer-focused products. More of these creations will happen outside of the US as technical know-hows become more distributed and accessible. Yet, this trend will benefit the US enormously, given that it is still home to the world’s largest tech companies, largest cloud platforms, and the most advanced R&D programs, thus the largest customer of technology for decades to come.

Mexico City, along with Guadalajara, could be one of these innovation hubs. Mexico’s top universities are graduating more than 130,000 engineers a year. Guadalajara is already the designated LATAM engineering hub for US tech giants, like Oracle, IBM, Intel, and Tesla. Mexico City, in particular, has a higher concentration of full-stack developers, IT operators, and sysadmin professionals, which is where my sweet spot lies as an open source and enterprise tech focused investor.

Good attributes aside, Mexico’s startup ecosystem is undercovered by the tech media. Some of that appears to be intentionally; successful founders tend to shun the media spotlight to avoid criminals and kidnappers. Another reason is simply the self-fulfilling prophecy of “news desert.” The less a place is covered, less the interest there is about that place, and less the demand still for more information about that place. Silicon Valley has the opposite problem.

Whether Mexico City’s potential is hype or real, my only solution is to get to know people there and see for myself. So if you happen to be in Mexico City, or know of any local entrepreneurs, developers, or open source hackers, please make an introduction via email (kevin AT interconnected DOT blog) or DM me on Twitter. I’d love to buy you lunch while I’m there (with a mask on and socially distanced of course).

Kevin

Before you read on, please check out last week's deep dive post: "Lame Duck Delisting"

“U.S. Weighs Adding Alibaba, Tencent to China Stock Ban” (English Source: Wall Street Journal)

My Thoughts: After delisting three Chinese telcos and banning transactions with eight Chinese apps, US regulators are weighing whether to add Alibaba and Tencent to the Defense Department’s “Communist Chinese military companies” list as well. If that happens, it will trigger the delisting of two of the most valuable tech companies in the world. Unlike the state-owned telcos delisting, which I deemed minimally damaging and largely symbolic, removing Alibaba and Tencent from Wall Street will hurt. It’ll hurt the two companies, who have an increasingly large global presence and ambition for more. It’ll also hurt the many US funds and indexes that are exposed to them. For example, MSCI Emerging Markets Index has a $7.8 billion market cap and 11% of that value is from its exposure to Alibaba and Tencent.

“Intel Talks With TSMC, Samsung to Outsource Some Chip Production” (English Source: Bloomberg)

My Thoughts: Intel’s continued decline in its chip manufacturing capabilities is a microcosm of America’s broader inability to make anything. This news of outsourcing to TSMC and Samsung isn’t surprising. What is surprising is the lack of information on Intel’s own plan to revamp and reinvent itself. Influential investors, like Dan Loeb of Third Point, are more actively and publicly voicing their concerns, couched in both lack of innovation and national security grounds. On January 21, one day after Joe Biden is inaugurated president, Intel is due to report quarterly earnings. That’s when Intel will have to communicate some kind of plan forward or continue on its path of decline.

“Did the EU rush into the China investment deal before the 2020 deadline?” (English Source: SupChina)

My Thoughts: I personally did not track the EU-China Comprehensive Agreement on Investment until it was signed, so the event was a bit surprising to me. This SupChina article does a good job of sharing and compiling the main concerns about the agreement, most of which is labor and human rights related. It’s also safe to say that given everything that has been happening in Hong Kong, this deal might not have happened if Britain was still part of the EU. The European economy has been stagnating, hovering around 0% for the last 10 years until the pandemic, which is projected to cause a 7.8% contraction in 2020 before bouncing back in 2021. China is the only major country projected to have any economic growth in 2020. The big question in my mind is how will the EU balance its relationship between the incoming Biden administration, decidedly more multilateral than Trump, and China? In more blunt terms: how much money are decades-old alliances since WWII worth?

“Tsinghua graduates love to work for Huawei” (Chinese Source: CSDN)

My thoughts: Tsinghua University is the undisputed leader in training the top technical talent in China. This list of the top companies its 2020 graduates decided to work for is telling of these companies relative strength and future potential (image of list below). Huawei is number 1 and leads by quite a wide margin over Tencent and Alibaba, number 2 and 3 respectively. ByteDance is number 10, Meituan is number 13, and Baidu is nowhere near the top 20.

“Far from 996, they started businesses in non-first-tier cities” (Chinese Source: China Venture)

My thoughts: 996 is back in the headlines and for all the wrong reasons, with the death of a Pinduoduo employee and also the firing by STO Express of someone who refused to work 996. It was only two years ago that the anti-996 movement caught wide attention with 996.icu. It doesn’t look like much has changed since then. Instead of piling on, I’m linking a different story that shares the experiences of entrepreneurs who work in non-first-tier cities in China to, at least in part, hopefully escape the 996 trap. Based on these anecdotal experiences, the 996 culture seems to permeate some non-first-tier cities too, like Hangzhou, or the ceiling of entrepreneurial success is very low, like Jinan.

“Douyin gets punished for pornography; ByteDance ‘angry at’ Tencent: no reason to block Lark” (Chinese Source: InfoQ)

My thoughts: There are a couple of ByteDance-related items I want to highlight in this news compilation from InfoQ. One is Douyin getting fined and punished by the Beijing municipality for having pornographic content on its app, after apparently more than 900 user complaints. It’s a level of punishment we don’t see in the American regulatory environment, even though porn-like content certainly exists on TikTok, as well as Snap and YouTube. The other is ByteDance’s own complaint against Tencent, which has held Lark (ByteDance’s workplace enterprise product) in review for more than two months without explanation. Tencent of course has a competing product in WeChat Work. This type of behavior would be considered “anti-competitive” in China’s newly drafted set of antitrust regulations. Will Tencent be punished when the regulations are fully implemented?

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