June 28, 2020: Semiconductor, Xiaomi, Facial Recognition, GPS, EDA Equipment, Agora

Note: This issue of Interconnected Weekly covers the period between June 22-28, 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.

“Sino-U.S. tech race turbo-charges China chip investment, triggering bubble fear” (English Source: Reuters UK)

My Thoughts: There are three reasons why this sudden increase of private investment into China’s semiconductor industry is interesting: 1. This aligns with a larger shift in focus of the Chinese VC industry towards B2B, SaaS, cloud computing, and infrastructure technology, away from consumer sectors. Almost all the Chinese VCs made their money from betting on the hyper-growth, consumer tech industry, which is now more mature with less big opportunities. These investors also generally have less expertise in non-consumer products, not just hardware, which explains the higher valuation for these young semiconductor startups and fear of a bubble; 2. Most Chinese VCs have been shut out of the US tech scene due to the U.S.-China trade war and increase in overall tension. The U.S. still produces more high-quality startups than other countries, this increase in investment is partially due to necessity, not choice; 3. The origin of the venture capital industry was rooted in betting on the first generation of semiconductor companies in Silicon Valley. In a fascinating twist of history, the venture capital trade is returning to its roots but in China, while American VCs generally still shun hardware and prefer software.

“India’s top smartphone maker Xiaomi says growing anti-China sentiment has not affected business” (English Source: CNBC)

My Thoughts: Xiaomi looks smart here for both manufacturing and selling its smartphones in India, which I noted in a previous article “Is Leaving the China Supply Chain a Pipe Dream?”, thus its claim of “Made in India” in front of its stores is at least believable. Fully localizing its leadership team in India also helps -- a company-building practice that’s worth modeling for any company looking to expand into a new country. But it’s too early to know how the China-India border conflict, something that was noted in the very first issue of Interconnected Weekly with the “Remove Chinese Apps” app, will impact tech, business, and the geopolitics of the APAC region. The proposed tariffs of Chinese goods going to India likely won’t amount to much, because India has much less leverage over China than say the U.S. with its tariffs. However, this will further strengthen Indian Prime Minister Narendra Modi’s brand of Hindu Nationalism, solidify his call for more “self-reliance” (just like China), and potentially lead to a tighter U.S.-India alliance against China, especially if Trump wins re-election (remember #HowdyModi?)

“The Facial Recognition and Biometric Technology Moratorium Act” (English Source: Senator Ed Markey Press Office)

My Thoughts: Instead of linking to a news report about this proposed legislation in the U.S., I linked directly to the original announcement, because it’s alway interesting to read how legislators position themselves when they propose a bill. From a legislative process angle, this bill is interesting because it’s a simultaneous, bicameral proposal, by two Senators and two House of Representatives; typically, a bill starts in either one or the other chamber, not both at the same time. From a technology angle, this proposal comes during an intense period of public protests and discussion around police brutality and racial justice, and on the heels of Amazon, IBM, and Microsoft all halting the sales of their facial recognition technology to police departments. And from a government structure angle, one of the elements of the Act is to “allow states and localities to enact their own laws regarding the use of facial recognition and biometric technologies.” But earlier this week, the city of Santa Cruz in California already banned the use of AI algorithms and facial recognition from its local policing practices. In the U.S., how policing is practiced in real life is mostly dictated by local governments; the U.S. Congress, while powerful, has comparatively little influence.

“Not losing on GPS! 30 Satellites in place!” (Chinese Source: Pengpai News)

My thoughts: The successful launch and orbiting of the 30th Beidou satellite is no doubt a BFD; the news is covered in western media as well. With all the heated discussions about the incoming decoupling between the U.S. and China, this most tangible example of decoupling the two countries’ GPS system began well over two decades ago. The national pride that emanates from the event is undeniable, as the exclamation marks of the article title show. Two technical elements of the Beidou GPS system that are worth noting: 1. The system allows messages to be up to 1200 Chinese characters long, compared to the 120 character limitation from the previous generation of Beidou GPS. (That’s about 8.5 tweets, since each Chinese character counts as two characters on Twitter.); 2. The system possesses enhanced capabilities that allow “relevant parties” to locate users, not just for users to locate themselves. This enhanced power is presented as a big plus for future search and rescue missions and already applied to industries, like fishing. Of course, the flip side of this coin is more surveillance and tracking capabilities of any one who uses the Beidou GPS system.

“Matlab is banned, CAD is also in danger; How can domestic industrial software have a breakthrough?” (Chinese Source: CSDN)

My thoughts: The recent prohibition of MATLAB usage in the Chinese universities listed on the U.S. export control entity list has definitely touched a nerve in the Chinese technology community, while receiving relatively little attention in American media. This article expands on the vulnerability of China’s technology reliance to not only MATLAB, but also CAD (computer-aided design) tools and especially EDA (Electronic design automation) tools, which are critical to the semiconductor manufacturing process. According to the article, 95% of the EDA suppliers in China are foreign companies, e.g. Synopsys, Cadence, Siemens, Ansys; domestic companies’ products barely register. The commentary looks for hope in open-source, which has powered some home-grown technologies in the IT infrastructure space, e.g. TencentOS and Alibaba’s own microprocessor based on the open source instruction-set architecture, RISC-V. But pinning China’s self-reliance on an open-source EDA, which currently does not exist, feels like grasping at straws.

“Agora successfully lands on NASDAQ: first share traded of the ‘real-time engagement cloud’” (Chinese Source: iponews)

My thoughts: Dubbed by some people in tech as the “Twilio of China”, Agora’s IPO on the NASDAQ serves as quite the counterexample to all the narratives about the impending decoupling of the U.S.-China technology community and capital markets. (Also, kudos to Agora for snagging arguably the best stock ticker symbol, API, of the 21st century economy.) Its stock popped 150% on its first day of trading, and seeing a big first-day pop always reminds me of a quote from Box CEO Aaron Levie:

“IPOs: If your stock shoots up, you left money on the table. If it drops, you screwed investors. If it's flat, you're boring.”

From a solely fundraising perspective, Agora certainly left money on the table. (And by the way, so did it’s American doppelganger Twilio, whose stock rose 90% on its first day.) However, for a Chinese tech company to go public during this precarious time is an accomplishment, pure and simple. While regulatory risks like the pending Holding Foreign Companies Accountable Act and delisting are always present, companies like Agora, Dada (IPO’ed on the NASDAQ in early June), and Beike (about to IPO in New York in the coming weeks), clearly see these risks as worth taking, in order to access the American capital market.

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