12/4 Tech Buzz China Insider Digest
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Insider Digest 12/2/21: Didi Delists! Kuaishou Q3 Results, KAWO Social Media Report, WeChat Algorithm Change & External Links
Housekeeping / Announcements:
Ah, the newsletter was supposed to go out Sunday (a day we are trying out) but I messed up on the scheduling! My bad. But we are seeing improved open rates on the weekend so we will probably stick to that schedule. Let us know if you have any other suggestions and sorry about the tardiness this week!
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Here are our articles for the week!
12/2/21 Discussion on the Didi Delisting & VIEs
Note: There’s actually a TON of discussion on the Discord server about this issue, so if you are not tuning in, you are missing out, as the situation is dynamic and changing quickly … !
This is just a short post to share with you all I know from rumors and various talks I've had with more knowledgeable folks than I about everything that's happening in China re: VIEs & Didi. I've posted many of these things in Discord already, but wanted to collect them here for ease of access.
So, let's start with what's been the rumor on-the-ground for a few months now (I believe I heard it in September) that VIEs were going to be more restricted going forward in terms of listing location. This has been much more explicitly confirmed yesterday by the CSRC, who said, per this Caixin article, that "the regulatory principle is to support companies in choosing their listing locations. Overseas listings through VIE structures will not be completely banned and companies will be regulated differently based on their sectors."
Important words there -- "not completely." Thus, partially, and it will be sector dependent.
Note that this article came about because of the Bloomberg bombshell two days ago that VIEs were going to be completely banned. The consequence was that the CSRC immediately put a one sentence rebuttal on its website. But Bloomberg is directionally correct, as far as I'm concerned. There is clearly going to be a "blacklist" of some sorts for industries that will not be allowed to list abroad. And it's possible that blacklist is so extensive, or covers such popular industries, as to be an effective ban. Maybe that's what the Bloomberg source meant. It doesn't matter though, really, because if there is one thing that the US and Chinese governments agree on, it's that neither want Chinese companies to list in the US. The SEC just reaffirmed that today, and finalized the framework for the law that will count down the days to when Chinese companies, because they are not authorized to turn over audit papers to the US.
12/2/21 Is Kuaishou a Victim of Narrative?
Kuaishou was probably the lone bright spot of China internet ADR earnings seasons this quarter in that it didn't do so badly that it actually went up a bit on the day of announcement (although gains wiped out since then). But there are a lot of conflicting opinions about the future of the company, so let's get some discussions started:
Livestreaming is no longer growing ... but we all knew that, right?
For Q3 2021, Kuaishou's otal revenue was $3.2Bn, an increase of 33.4% YoY. Of this, 38% came from livestreaming, or $1.2Bn. Annualized, that's $4.8Bn, which really is the same as livestreaming revenue from ... 2019! That's right, livestreaming has been pretty stagnant in general in China and also on Kuaishou. A lot of it is just because core users haven't grown that much, right. DAUs on core app is only up 18% YoY.
WeChat Opens Up To External Links
The other, arguably bigger WeChat news of the week is that Tencent announced it would change some rules regarding external links (in Chinese):
In one-on-one chat, users will be able to "directly access external links"
"We will try to open direct access function of e-commerce external links in group chats"
The follow-up plan is to develop a model where users can independently select how to deal with external links.
So far, and I'm not sure if it's for everyone, but I can access the Alibaba Taobao links sent to me in group chats without having to make a jump. It does require you to log into Taobao again once you log in though, and you are not logging into the app or mini program version of Taobao, but the webpage version, so there's that. I do believe we can expect to see a lot of users drop off just on that alone.
What a Taobao link share looks like in WeChat:
WeChat Has Finally Given In ... to Algorithms, Kind Of
For those who are unfamiliar, WeChat creator Allen Zhang has long been against algorithms, even publicly stating in his 2019 developer conference speech that he thought algorithms would basically make people less and less able to think (intellectually less curious and lazier). WeChat should be a meaningful product, he thought, and not default to simple KPIs, like how many pageviews the platform accumulates every day. He took this issue so seriously that he likened it to that of Google employees protesting against the use of AI they developed in military technologies. The implication being that these are serious ethical decisions shaping society in deep, perhaps irreversible ways. His opposite, of course, was pre-2018 Zhang Yiming, who is to this day mocked for his statement that "algorithms have value, but no values." (Since strong government actions and public backlash since then, he's changed his tune, of course, but he was Zuckerberg's twin on these issues for a long time.) WeChat vs. Toutiao / Douyin, naturally, has been used as the pinnacle examples of "people-powered" vs "recommendation engine-powered" content products. And with ByteDance's success in getting an ever-larger share of Chinese internet users' time spent, it's been pretty much a foregone conclusion that as far as business outcomes go, algorithms are the better bet. So for years now, it's not been a question of if WeChat will give in, but to what degree, and in what timeline?
Have any comments or questions? See you on the Discord server!
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