Hello from Beijing & Hamburg,

even though these are tough times on the ground here in Beijing as the trade war seems to be slowly evolving into a high-tech cold war, the mood is still elated as no one really fears that things will go seriously downhill in the long term. Also because, no effort is now being spared to become even more independent from US technology in an even shorter time.

Mary Meeker just published her annual report on Internet Trends this week and the China part of the report still gives hope for optimism. Among the 30 top internet companies in the world, 7 are Chinese (if you would also include private companies, there would be 2 more on that list: Bytedance and Alipay). That’s still a lot less than the 18 companies from the US. But it shows how these two countries have come to dominate the space. Europe has just one contender in the race, literally and almost symbolically finishing last: Spotify. Food for thought….

Topics for this issue:

We know, it got a bit long. But we think it is worth the time. What do you think?

As always, we are looking forward to any kind of feedback!! So pls send us an email (feedback@chinabriefs.io) or leave a comment on one of our channels on Twitter, Facebook and LinkedIn.

Thx & best wishes

B. & M.

We at ChinaBriefs want to let you know when we see interesting developments going on in China. And that is the case right now with NEVs - New Energy Vehicles. 

So far, China has put a lot of effort into becoming the world leader when it comes to electric cars: every motor scooter is already electric for nearly 10 years, buses and taxis are being replaced at an amazing speed and there are hundreds of startups working hard to become the electric version of Volkswagen or GM. Just last week, Business Week had an interesting cover story about how China strategically turns whole cities into manufacturing hubs for EVs by pouring billions into the development of the necessary ecosystems.

So far the focus clearly has been on BEVs (battery electric vehicles), but that is where we see a change right now: subsides for BEVs are being cut and there are more and more reports in Chinese media or social media about the advantages of hydrogen / fuel cell powered cars over those with lithium-ion batteries. According to some media reports the change in thinking came after China’s premier Premier Li Keqiang visited a Toyota factory in Hokkaido Japan last year, where accompanied by the Japanese prime minister they inspected the hydrogen powered Toyota Mirai - another report about the visit form CCTV in Chinese (Flash needed).

Whatever he saw there, seems to have left quite an impression and apparently caused the Chinese government to consider fuel cell powered cars now as an alternative to BEVs. So when the Japanese premier Abe visited China shortly thereafter in October 2018, the two countries signed a cooperation agreement which contained also the set-up of a hydrogen charging station network. Five months later in March 2019 the word “hydrogen power” was mentioned in the Annual Work Report 2019 of the Central Government for the first time ever. On March 26 several Central Government ministries and commissions jointly released a notice announcing severe cuts to NEVs - especially BEVs, with the surprising exception for fuel cell vehicles and commercial (non-passenger) NEVs. For those two variants new government regulations are in the pipeline. In the same document, the local governments were specifically instructed to use the savings on efforts to build out a better charging infrastructure for hydrogen powered cars.

All this at a time when most Western car brands have finally decided to focus more or less 100% on battery technology and BEVs - in some case despite the decades of research effort some of them already have put into fuel cell technology, but obviously to no avail so far.

Right now there are still very few car companies in China using fuel cell technology. One example is Grove Automotive based in Wuhan.

As part of our overall mission - educating Western companies about what is happening in DigitalChina - we are occasionally organizing tailored trips for Western senior executives to visit digital champions in China. And just two weeks ago we finished the latest of these trips visiting companies in Shanghai, Hangzhou and Beijing. Main lesson: even though our last tour of those companies has only happened five months earlier, massive changes have been witnessed already - again!

We started in Shanghai with a visit to a small startup in the HR - AI space called Seedlink Technology. They have developed an amazing technology: a “cultural fit prediction model” that uses the company’s self-developed AI to measure a candidate’s cultural fit to the company simply by answering a set of three randomly chosen questions. L'Oreal, INDITEX and Coca Cola are some of their early customers in Europe. If you want to learn more about them, there is an interesting report about Seedlink by the BBC available. What is surprising about this company and its founder Robin Young is that from the outset they were focussing on internationalizing with an early second office in Amsterdam to head sales in Europe.

Next stop was Xiaohongshu aka RED or Little Red Book, China’s homegrown social commerce content powerhouse and app. Xiaohongshu is often described as “a sharing platform for young people’s lifestyles through user generated content. The platform is designed to help users discover and purchase products, share recommendations, and provide helpful tips. You could think of Xiaohongshu as a combination of Pinterest and Instagram.

They were just going through some tumultuous times as they were in the process of cleaning out their - admittedly - huge stable of on-the-platform KOLs (Key Opinion Leader aka Influencer). Some people called it a purge as the number went from 17,000 down to “only’ 5,000 influencers - depending on their number of fans. At the same time, they changed the business model for influencer: RED would now also charge a commission on the influencer’s earnings, who will have to register with the platform to be eligible for cooperation (For more on this topic, check out PanDaily or this article on Chinese with Google Translate)

They also just made a big splash by announcing that Louis Vuitton has launched an account with them, the first luxury brand to have an official presence on the female-led platform to capitalize on its 200 million-plus users, 60 percent of whom are from tier-one and tier-two cities, and more than 70 percent are China’s post-Nineties generation or young Millennials.

Xiaohongshu is expected to double its revenue to US$2.9 billion next year. 

Last stop for the day was a visit to the office of the ever impressive William Bao Bean and his company SOSV - The Accelerator VC, which is investing in a whopping 150 startups a year on average.

The office is basically a very cost-effective co-working space where most of the portfolio companies are based for between 3 to 6 months of an acceleration period with access to mentors with deep market and technical expertise and an unparalleled infrastructure of fully outfitted laboratory & maker spaces. After an intro by William we saw pitches from three of their current portfolio companies: 247, Ocheng and Shopal.

Day 2 started with a tour of the brand new showroom of BYTON - one of China’s most prominent electric car startups - which by the way has a German CEO: Daniel Kirchert (who wrote the intro to our first newsletter).

After the exit of one of the founders earlier this year, the company had gotten some negative media coverage. But they faced all challenges head on and Byton is now on its way to close the C round of fundraising with FAW as lead investor.

We saw a presentation of the new factory that is currently being built and scheduled to be completed by year-end in nearby Nanjing and inspected the two BYTON models in the showroom. The nascent brand is already known for having revolutionized the way we think about car interiors - just take a look at this enormous dashboard display in the front of the car.

Afterwards we headed straight to the office of Parklu.com - China’s premier influencer platform, where you can create, activate, track and analyze KOL campaigns. CMO Eli Whaley gave us an intro into China’s influencer/KOLs world. It was a fascinating insight into the rich social media landscape that China has to offer as it’s not only Wechat and Weibo, but also Douyin, Kuaishou, Yinke, Meitu, Meipai, Weitao, Yzhibo and many more. Eli is one the few foreigners with a deep understanding of all these platform and how to segment and leverage them according to a brand’s positioning. If you’re interested in Eli’s presentation, please let us know.

Last but not least on the list - the giant in China’s online travel space: Ctrip - with a revenue of US$4.5B in 2018.

Their offices are way out near the Hongqiao airport and train station. The company has already 30,000 employees with branches in Singapore, Japan, Korea, Australia, Thailand, America and the UK. For our German readers we have just learned that the Germany office is scheduled to open in Frankfurt in June this year. The company is currently only generating 30% of its revenue with overseas trips which they want to increase to 50 per cent over the next years.

Always keep in mind that at present still only 7% of the Chinese population is holding a passport. Also, Ctrip is increasingly adopting M&A to stave off competition and expand its ops globally as seen in the acquisition of 49% in Indian online travel company MakeMyTrip.

Leaving Shanghai we boarded a high-speed train to Hangzhou - the ecommerce city of China and where the headquarters of Alibaba are located. More about that in the next issue. Stay tuned.

Facial recognition, hotly debated in the West, is already ubiquitous in China, with many very useful day-to-day applications. You can use just your face to…

Of course all this is a double-edged sword. It made huge waves in the media around the world when China showcased how its education system started using facial recognition and AI in classrooms. But the outrage was not limited to an overseas audience! Also in China parents and progressive teachers began immediately questioning the approach and called it “the jailification (in Chinese: 监狱化) of the classroom”. If you want to give Google Translate a try, check out this article on Baidu to get some insights into how Chinese feel about this.

When San Francisco started banning the use of facial recognition in public, this piece of news got hotly debated on China’s Toutiao app where some articles had many thousands of comments which really went to show that Chinese do care deeply about the topic - contrary to some of the Western media depictions. One funny commentator from Beijing cynically remarked: “no wonder that so many people in Beijing are wearing masks every day - it’s not just the pollution! 😉”

A recent article on Abacus gives a good overview of how Chinese people reacted to some news lately that Alipay reportedly abused facial recognition on its popular payment app. This case shows that Chinese people often accept certain behaviour from government institutions but not from private companies. While being suspicious of too much government surveillance, they do seem to appreciate the positive effects of it: e.g. Facial recognition being used to find missing children.

Applying facial simulation algorithms can deliver astonishingly accurate renderings of children faces even five, ten or fifteen years after they have been abducted or went otherwise missing. Last month in Sichuan province, police used facial recognition technology to reunite 13-year-old Gui Hao with his family. The AI was able to use a photo taken when Gui was 3 years old to simulate his current face based on various biological characteristics.

By the way, the imaging technology was developed by Tencent which lately has announced its new company mission statement: 科技向善(“Tech for Social Good”).

Aldi just opened its first two brick & mortar stores in China, both located in Shanghai. Aldi has been active on Alibabas online stores in China since 2017 - with the help of service provider Web2Asia’s George Godula (you will read more about him in Part 2 of our ChinaBriefs on Tour).

Aldi’s cross-border ecommerce business mostly leveraged not German but Australia sourced goods and bonded warehouse deliveries. One remarkable but often seen trick used by foreign brands entering China: a markedly higher brand positioning as compared to their home market - giving Aldi a bit of a luxury touch! But the higher prices are obviously justified by a much higher cost structure due to import duty and shipping costs, not to mention Shanghai’s sky-high real estate prices.

Btw, the Aldi Stores in China come with some technical wizardry their western counterparts are still missing, like…