Beijing’s new antitrust guidelines for tech companies could be a ‘game changer’ © Financial Times

One thing to start: Please register here to join our free webinar on Thursday, Nov 26th at 18.00 JST (17.00 HKG/09.00 GMT) to discuss - "US-China tech cold war: will Biden bring a new approach?". Our guest speaker will be Dan Wang of Gavekal Dragonomics, a Beijing-based tech expert who focuses mainly on China's technology policies and progress, as well as the intensifying rivalry between the US and China. If you would like to ask him a question, please send it to me in advance at James.Kynge@FT.com

Hi all — James here in Hong Kong. Shockwaves from Ant Group’s suspended mega-IPO are still reverberating. Our Big Story this week delves into Beijing’s comprehensive plan to bring China’s tech titans, Alibaba and Tencent, under control. We think this trend will run for years to come and have huge implications.

Every now and again, a fairly esoteric aspect of technology goes mainstream. Check out the TSMC article (Mercedes’ top 10) for an example of how semiconductors are set to become more powerful. If you have appetite to read more about Jack Ma vs the Party, Henny Sender (top 10) has insiders’ perspectives. The engrossing tale of how an obscure Turkish scientist helped Huawei with 5G shows yet again how global the marketplace for science has become (top 10).

John Thornhill, the FT’s innovation editor, test drove GPT-3, a global AI sensation (Best of comment). Is machine intelligence growing more human or exposing humans to be mechanistic?

The Big Story

The climate is cooling rapidly for China’s tech giants. Beijing is signalling that it does not like how Big Tech in China is behaving, casting clouds over the futures of companies such as Alibaba and Tencent, write Ryan McMorrow, Primrose Riordan and Nian Liu of the Financial Times.

The publication of new antitrust guidelines (in Chinese) for the sector zeroes in on monopolistic practices by internet platforms. The protocols issued by the State Administration for Market Regulation are set to prohibit practises such as demanding vendors to buy and sell exclusively on one platform.

Key implications: The striking thing about the guidelines is how comprehensive they are, covering how companies should use customer data, how they should price offerings and what sort of promotions and subsidies they can use to attract customers.

Observers suggested that Alibaba was the biggest target, since it now accounts for three-quarters of the country’s online sales — and nearly a fifth of China’s total retail sales.

“Beijing has felt that tactics by ecommerce companies are not leading to healthy development of the retail industry . . . They don’t want three or four companies [dominating], they want 1,000s of companies,” said Wong Kok Hoi, chief investment officer at APS Asset Management. “This is big, this is a game changer,” he added.

Upshot: The comprehensive nature of the guidelines, which were followed by more rules on shopping through livestreams, shows that Beijing is serious. From this perspective, it appears that the suspension of Ant Group’s $37bn share offering this month was part of a bigger reimposition of regulatory control.

Mercedes’ top 10

  1. The next chip battleground? Taiwan’s TSMC is working with Google and other US tech companies on making semiconductors more powerful.

  2. A lot of deals were announced this week, from Huawei and Pinduoduo in China to Grab and Gojek in south-east Asia.

  3. Amazon is jumping into South Korea's ecommerce market, giving consumers access to products sold by the US retail titan. 

  4. China's domestic automakers have a loyalty problem: consumers’ preference for foreign brands is growing.

  5. This deep dive on Jack Ma vs the Party following the Ant IPO saga is well worth reading.

  6. Here’s a terrific read on Sony’s PlayStation 5 and its symbolic launch event. Will the games console prove Japanese gadgetry is still world-beating?

  7. South-east Asia’s Grab is going all in on food and grocery delivery as its ride-hailing revenues remain 30 to 40 per cent below pre-Covid levels.

  8. Here’s another great piece — this one on an obscure Turkish scientist who helped Chinese tech giant Huawei with its 5G breakthrough.

  9. India has moved to regulate digital media platforms including Netflix and Amazon Prime, raising censorship fears.

  10. As countries around the world endure third, fourth and fifth waves of the virus, we bring you some of the latest tech for your lockdown — sorry home — office.

When sages speak

  • Supply chains and Xinjiang: two vexed issues in China. Amy Lehr at the Center for Strategic and International Studies looks at traceability and its challenges in this report.

  • David Bandurski tells the tale for Brookings of how a Chinese company released an app, called Tuber, that allowed users to burrow under the Great Firewall and browse sites including Google, YouTube, Twitter, Facebook. But on closer inspection, it was clear that Tuber was also censored.

  • Romi Jain has written a paper for the Observer Research Foundation in India on artificial intelligence in India and China. Beijing estimates that by 2049, 278m workers will have been replaced by AI, or 35.8 per cent of the workforce.

Best of comment

John Thornhill, the FT’s innovation editor, had the opportunity to interact with GPT-3, a new language-generation model that has caused a sensation in the artificial intelligence world.

He writes that he enlisted its help in drafting a new biography, infused with the spirit of Star Wars hero Luke Skywalker. Trained on pretty much all the text accessible on the internet, GPT-3 is remarkable for its speed, scale and versatility. This is what it instantaneously produced: “John Thornhill was already a decorated war hero when he joined the Rebel Alliance. He was experienced with a blaster and intuitive when it came to the art of war, but his true skill lay with his squadron. Rising to command a squadron of his own in the Rebellion, John would lead his team through numerous battles, making him a steadfast leader with the spirit of a true Rebel.” Time to update my business cards.

Thanks to recent advances in machine learning, language generation systems are becoming increasingly commonplace. Narrative Science’s Quill can ingest data on the performance of a portfolio of stocks and write summaries for investors, for example. But for sheer adaptability, none can match GPT-3, unveiled in May by OpenAI, a San Francisco-based research company. At an estimated cost of $12m, the model contains 175bn language parameters, 100 times more than the previous prototype. It is, to adapt a phrase of the pioneering British computer scientist Alan Turing, the most impressive “imitation” machine yet built.

Spotlight

For evidence of the seismic shift in manufacturing out of China look no further than Pegatron, a Taiwanese supplier to Apple, Google, Microsoft and others. The company, a smaller rival of Foxconn, was already expanding into countries including India and Vietnam. But as of last week, S J Liao, president and CEO, said it will make its first investment in the US.

Like its larger rival Foxconn, Pegatron cited requests from clients to build products closer to home. US president-elect Joe Biden has made clear his desire to bring more manufacturing back to American soil. “We see strong demand from almost every customer that they hope the products could be built locally rather than shipping from China or Asia,” Mr Liao said. “So we have decided to go directly to the US to service our customers.”

The shift overseas comes as companies like Apple double down on plans to create China-only supply chains. Pegatron and Foxconn are both facing an emerging threat in the form of Luxshare Precision Industry, which is looking to become the first China-based iPhone assembler.

Art of the deal

Mixed in with Baidu’s latest earnings results this week was the news the Chinese search giant would acquire the domestic operations of YY, a local video streaming platform, for $3.6bn. The decline of its core advertising business from search means Baidu is now looking to develop its social and livestreaming ecosystem, one of the fastest growing areas of ecommerce.

But Baidu’s expansion into video streaming — it already has a video streaming platform in iQiyi and a short video app called Haokan — feels a little late to the party. It has stiff competition, notably from ByteDance’s Douyin app, Tencent’s Mini Programs and Kuaishou Technology, another Beijing-based video service.

YY has around 4m paying subscribers, who watch influencers perform and sell a range of items on the video app, and about 40m active users. Is that enough to compliment Haokan’s growth and help it catch up in an increasingly heated market? For one thing, YY owner JOYY’s overseas platforms are all growing much faster than its China business. Despite its early start in livestreaming, YY has lost customers to Douyin and Kuaishou.

Not to mention, of course, that Baidu is stepping further into risky regulatory territory. Beijing introduced more rules last week for online shopping through livestreams.

Smart data

Line chart of Share price ($) showing Lufax shares are trading above their IPO price

A Chinese fintech company bent on international expansion, especially in south-east Asia. A record international equity listing that defied China-US tensions. An IPO priced at the top end of its range.

No, it was not Ant Group. Enter Lufax, the Chinese fintech group that went public in New York late last month days before its peer Ant was due to start trading in Hong Kong and Shanghai. The less-hyped fintech IPO, which was easier for investors to get their hands on than the in-demand Ant, is on the rise. That is despite tough new rules for China’s online finance groups announced just days after its debut — the very same that helped upend Ant’s IPO.

Even with a sharp plunge yesterday, Lufax shares are still up more than 17 per cent since their debut.

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