June 14, 2020: ByteDance, Zoom, Semiconductor, AliExpress, Matlab, IPO

Note: This issue of Interconnected Weekly covers the period between June 8-14, 2020, with six news stories – three from English language sources, three from Chinese language sources – hand-picked by your humble author to further our exploration of the interconnections between technology, business, investment, and geopolitics. All translated article titles are done by me; they are not official translations from the media outlets.

“ByteDance Cuts Domestic Engineers' Data Access to TikTok, Other Overseas Products” (English Source: PingWest)

My Thoughts: From both a technical and geopolitical perspective, this is the most fascinating story of the week. ByteDance’s global traction, combined with its already sizable user case in China, makes it one of the most valuable private tech companies in the world. Its valuation is larger than Twitter, Snap, and Pinterest combined, and its headcounts are growing everywhere to meet that expectation. How do you wall off different engineer teams from accessing different databases of different products will be an immense technical challenge to implement. How effectively and transparently can ByteDance carry through with that implementation will, of course, influence how well it can alleviate geopolitical concerns from the U.S., India, and other large markets. If successful, it’ll be a playbook many Chinese tech companies with global ambitions will emulate.

“Zoom closed account of U.S.-based Chinese activist ‘to comply with local law’” (English Source: Axios)

My Thoughts: Zoom’s challenges and difficulties in navigating the new terrains of being a consumer-facing product reaches a new height of controversy with this news. Perhaps not surprisingly, this news received no attention in the various Chinese language news sources I regularly read (if you have seen any, please send them my way!). How Zoom design its global policy, due out in its soon-to-be published transparency report, will determine whether Zoom can chart a new path or become yet another American tech company with limited services inside China. Pre-IPO and pre-COVID, Zoom often advertises itself as one of the few videoconferencing products that work well inside and outside of China; that pitch may not be true for much longer.  

“U.S. lawmakers propose $22.8 billion in aid to semiconductor industry” (English Source: Reuters)

My Thoughts: this development comes less than one month after SMIC received a $2.2 billion USD equity investment from Chinese government-affiliated funds. In last week’s Interconnected Weekly, I also referenced SMIC’s intention to publicly-list in Shanghai’s new STAR exchange as an example of “Patriotic IPO”. It’s worth noting that this $22.8 billion USD is: 1. Still a proposal; 2. A form of government aid, not an investment, where the government becomes a stakeholder with the possibility of generating financial returns for the taxpayers. Being a staunchly free market economy, it’s politically untenable for the U.S. government to take equity stakes in companies, given that it will look like “socialism”. Yet, it clearly recognizes the semiconductor industry as one of national and strategic importance in need of government support and can no longer be left to a pure market economy’s own devices.

“Will AliExpress Be Able To Expand the ‘Taobao Livestream’ Model Overseas？” (Chinese Source: 36Kr)

My thoughts: AliExpress’s ambitious plan to take “livestream e-commerce” globally have many interesting dimensions at play. First, it’s a form of business model export, where the model is increasingly mature in the Chinese domestic market. Second, it’s in the right place at the right time, with COVID-19’s global impact accelerating the adoption of e-commerce and other forms of the digital economy. Third, there are very few non-Chinese competitors to Alibaba/Taobao in this space -- Amazon Live has hardly any traction and Facebook Shop launched last month is in its infancy. This ambition will still take a few years to play out. Whether e-commerce, the least controversial of business verticals, will still trip certain geopolitical wires and get politicized, is what’s worth watching.

“Harbin Institute of Technology and Other Chinese Universities Can No Longer Use MATLAB, Are There Open Source Alternatives?” (Chinese Source: Xinzhixun)

My thoughts: This is the first example to my knowledge where the U.S. government’s various export control sanctions on China is impacting Chinese universities in a direct way. Most college students who have ever taken a technical course, whether in the U.S. or China, have used MATLAB to learn and do their homework. As a big proponent of open source technology, I have confidence that a mature open source alternative to MATLAB will emerge soon to meet this new demand, especially given China’s own burgeoning open source ecosystem, which I’ve written about at length before. Will the only entity that actually gets hurt from this sanction MathWorks, the company who developed MATLAB?

“Hong Kong vs Shanghai, Where Will Chinese Companies Go To IPO?” (Chinese Source: iponews)

My thoughts: Hong Kong or Shanghai is becoming an increasingly important question for Chinese companies currently listed in New York. There is rumor that Wall Street is trying to lobby President Trump to not sign the Holding Foreign Companies Accountable Act, which is still making its way through Congress, arguing that it’ll hurt American investors. Meanwhile, Netease just completed its secondary listing in Hong Kong and JD.com is poised to do the same next week; both companies are currently listed on the NASDAQ. Hong Kong is the winning destination so far; Shanghai’s STAR exchange is new, though its various policies appear to be maturing quickly to attract more quality companies, as indicated in this article. Even though Hong Kong’s struggle to maintain its autonomy vis-a-vis Mainland China continues, its ability to attract a global investor base for companies to raise funds has not diminished.

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