12/14 Tech Buzz China Insider Digest
View this email in your browser
Insider Digest 12/14/21: Alibaba Reorg, Economic Work Conference, SenseTime & IPO Pause, VC Structural Changes, Convo with Liqian Ren!
Housekeeping / Announcements:
OK this week’s newsletter is late because I wasn’t feeling well and just got behind on things. Apologies! As a reminder, there will only be one more newsletter before the end of the year, and then we are off for two weeks for Christmas and New Year’s!
Thanks to all those who signed up for the Hirect Series A, our first Tech Buzz China Investment Syndicate deal! The company successfully landed a top tier lead investor (which I’m sure you’ll hear about in the news soon and am ultra excited about) and we were one of the only two small investors allowed into the round! Those of you who are investing, please do all your paperwork and wiring soon, as we will be closing the deal shortly!
We have one last event this FRIDAY 12/17 8-9AM PST (11-12PM EST) with fellow Insider Liqian Ren on China’s markets and macro. Liqian is someone you should definitely be following on Twitter for China stuff, but she runs an ETF at WisdomTree, and used to work at Vanguard and the Fed. She has a PhD in Economics from the University of Chicago and is a PKU CS undergrad. Click here to reserve a spot and get a reminder on your calendar!
Finally, I did a fun debate last week vs. Matt Sheehan (who you should follow for great China vs US AI takes) for CSIS, the think tank. The topic was “Beijing’s Crackdown Will Stifle Chinese Technology and Scientific Innovation” and I took the “against” side. You can find the YouTube video here. I must say I went into it thinking it would be an easy win and I won by the slimmest of margins. Matt had some really interesting arguments that I thought over and rebutted more in one of the posts below. Hah!
The Discord Event Calendaring didn’t quite work as well as we liked for the last event, but let’s try again! It’s very simple, just go to the top of the channels where it says “Events” and you can indicate interest there.
If you are interested in sharing what you’re working on with the community, provided that it’s about China tech / investing, please do reach out!
Here are our articles for the week!
12/8/21 The Alibaba ReOrg, Jiang Fan, Dai Shan, Etc.
So, it's been a few days since the Alibaba reorg, and I was waiting for more commentary to trickle out on the key personalities featured, as well as hearing back from friends who know them more intimately, before summarizing it all for you here. So yes, this is meant to be all opinion and hearsay, because I'm more focused on the abilities of these newly established core leaders rather than the strategy, which seems simple enough, and I would love to hear from you if you have had any interactions with these folks or further insights. If it is not convenient to say so publicly, you can always message me your thoughts and I can keep it anonymous.
But a brief overview of the strategy before we go into the people involved anyway:
Alibaba is now split into 4 "large business units" headed by 4 core executives, who provide a sort of intermediate layer between the 20 or so "industry groups" that previously represented the key divisions, and they are:
China Digital Commerce (65% of revenues): all Alibaba retail and commerce in China including Taobao, Tmall and Alimama as well as the new MMC group which includes CGB product Taocaicai, Taobao Deals, etc. This will be overseen by Dai Shan, the MMC head, whom we've written about before as part of the April reorg and will write more below.
International Digital Commerce (7%): Includes Lazada, Aliexpress, etc. New head is Jiang Fan, who previously oversaw Taobao and Tmall.
Cloud and Technology (10%): Includes Alicloud, Dingding, Damo, the chip initiatives, etc. Zhang Jianfeng, I believe this is unchanged.
Local Services and More (6%): Feizhu, Gaode (Autonavi), local services and more, Yu Yongfu, unchanged, and we've also written about him before, as this reorg took place earlier this year in July.
12/12/21 Summary of the Central Economic Work Conference
First of all, if you don't know what the Conference is, you can read up on it here! The Wikipedia page says: "The Central Economic Working Conference (中央经济工作会议) sets the national agenda for the Economy of China and its financial and banking sectors. It is convened by the Central Committee of the Communist Party and the State Council following themes, keywords, set by the Politburo Standing Committee of the Chinese Communist Party." That's pretty much right, and it's considered a really big deal in terms of outlining the contours of policy, as it comes straight from the top, and isn't you know, easily defied.
The main message: Stability is the most important thing, and contractionary measures need to be cautiously deployed. In other words, growth is back as the top priority, but it will have to be stable growth, as the government's been saying for the last couple of years. Stability also refers to macro policies - so they have to be continuous, stable, and sustainable. As this is an economic and especially financial / banking focused conference after all, the commentary on financial risk was that "there are quite a few, but largely controllable." Local regulators must stay on top of and digest risks.
12/12/21 SenseTime IPO & Implications
I literally wrote on Monday that these investment sanctions worked a little too well and that I’m expecting the US government to use it more often and we have news that dozens more companies will be added to the list.
This post is only a little bit about SenseTime the company, and a lot more about the IPO pause and my pessimism that there will be a lot more Chinese companies to be blacklisted, some probably for legitimate reasons but many more for probably not so good reasons. We'll see ... do let me know what you think at the end of the post.
So, a bit about SenseTime the company:
Founded: 2014 by Professor Tang Xiao'ou, of the CUHK Multimedia Lab in Hong Kong, along with other lab members. The company remains highly R&D focused with 5,000 employees but 2/3 scientists & engineers.
Business Model: Sales of software (licenses, platform, embedded hardware designed by SenseTime but sourced from third parties, and services). Software sold via license installed on customer devices / on-premise. Pricing dependent on number and complexity of models provided, devices powered, computing resources, and services. There is also some AI-as-a-Service for customized model production.
Dec. 2021 The Structural Changes Happening in China Tech VC
China's chief problem stems from the fact that there was a basic lack of innovation. Even though I am now launching an investment syndicate for companies inspired by Chinese models, it's pretty clear that I'm not talking about fundamental technological breakthroughs for the most part but business model innovations. They are still important, of course, but it doesn't change China's own perception of its tech industry, encapsulated in this oft-stated phrase: "Americans research technology, invent tools, and Chinese people use other people's tools to make their own applications." This has become much more urgent in China of course after the trade war began and all sorts of sanctions and blacklists began appearing. True technological knowhow is what society and the markets will now reward. Compared to the dismal performance of internet ADRs, there are some standout large cap Chinese tech companies this year: BYD (+48%), CATL (+134%), Great Wall (+66%). They are all playing in the EV space of course, but they all actually have their own tech! Great Wall, if you'll remember, has that exciting spinoff SVolt we wrote about recently that could be very promising. CATL, in particular, is an immensely strong new entrant. It's the first truly technology-led private enterprise to break into the top 10 for Chinese companies (by market cap) in many years. (Internet largely won with scale.) An achievement and maybe a sign of things to come.
And while China isn't yet "tech-led," it's certainly no longer dominated by internet. For the first time, companies that are servicing the secondary economy (manufacturing sector) took 30% of the spots in the top 100 fundraising events in China (in Chinese). That share was just 10% five years ago. When you consider that most of these companies are still in early stages of development, and the top 100 deals are by size and so are heavily skewed towards more mature industries, this is very impressive indeed.
And this I'm taking from the same report as above, but the % of top 100 deals that had state capital (national, local-led, etc.) was also 30%, up from 10% ten years ago. While it doesn't seem like there is a match between this 30% and the 30% manufacturing deals, there does seem to be a noticeable trend, which is that state capital is increasingly active. If I had to conjecture, then I think it is because of the shifting nature of investments. Manufacturing upgrade / advanced manufacturing, which is what I'm going to call this category, is much easier for state capital to participate. That is because, as others have noted, governments can give resources besides capital such as land, infrastructure, etc. that can greatly accelerate the projects.
Click through for more ….
Have any comments or questions? See you on the Discord server!
Copyright (C) *|CURRENT_YEAR|* *|LIST:COMPANY|*. All rights reserved.
*|IFNOT:ARCHIVE_PAGE|**|LIST:DESCRIPTION|**|END:IF|*
*|IFNOT:ARCHIVE_PAGE|**|HTML:LIST_ADDRESS_HTML|**|END:IF|*
Update Preferences | Unsubscribe
*|IF:REWARDS|* *|HTML:REWARDS|* *|END:IF|*