1. CAC suspends new user registrations on four major Chinese apps
Palm strike to the nose!
Late last Friday, the Cyberspace Administration of China (CAC) ruined our weekend by announcing that it will conduct a “cybersecurity review” of ride-hailing firm Didi Chuxing.
- New account registrations were suspended.
Flying roundhouse head kick! On Sunday, the CAC announced that the investigation revealed “serious violations of laws and regulations in collecting and using personal information.”
- CAC ordered the removal of the app from app stores.
- Existing users can still use the app normally.
- It’s still unclear what Didi is accused of.
Three-finger death punch! On Monday, the CAC kicked off cybersecurity reviews of three more companies:
- Job-hunting app BossZhipin
- Land logistics and trucking app Yunmanman
- Logistics and moving app Huochebang
So what’s going on?
Well, there’s the official version…
- Cybersecurity reviews were designed to assess the security of network equipment and services purchased by Critical Information Infrastructure (CII) providers — i.e. important internet platforms.
- Reviews are specifically focused on mitigating national security risks.
…but it doesn’t tell us very much:
- These days, “national security risks” means whatever regulators want it to mean.
The targeted companies have one thing in common — they all recently listed in the US.
- That said, it’s not certain that the investigations are related to the overseas IPOs.
The big question: Is Beijing angry at big tech for going abroad without first getting a clean bill of compliance health from domestic regulators?
2. The Didi cybersecurity puzzle
The cybersecurity review into Didi and three other companies is puzzling everyone (see previous entry).
Our burning question: What’s the real motivation driving this round of investigations?
The short answer: It’s too early to tell.
But we’ll speculate anyway 🙂
Our take: The crackdown on these companies is linked to their US IPOs.
- All of the companies under investigation were listed in the US within the last month.
Possibility #1: The Cybersecurity Administration of China (CAC) is genuinely concerned about data security risks posed by overseas listing.
The evidence: In late May, Chinese regulators pressured podcast platform Ximalaya to abandon plans to list in the US over data security concerns (Reuters).
The counterargument: It’s very difficult for the US or other foreign actors to access data from these companies, as they are required to store all “sensitive” data on servers physically located in China.
Our question: Does the CAC see risks that we’re missing?
Possibility #2: There aren’t real concerns over data security. Instead, Beijing is angry that these companies pursued expansion during an active series of investigations into big tech.
The message: Companies are welcome to IPO overseas as long as they have been cleared for domestic regulatory compliance.
- The head of the securities regulator, Yi Huiman, has basically said as much.
- In June, state media ran an article criticizing Didi’s IPO plan and highlighting the risks posed by ongoing antitrust probes into the company.
The big picture: China still wants its tech companies to go abroad — but only if they have their houses in order at home.
3. A Marxist light to guide you
On Friday, leading cadres from the main pillars of the Party-state apparatus got back to school.
Quick reminder: Those four pillars are the government (State Council), legislature, (NPC), consultative body (CPPCC), and anti-corruption authority (CCDI).
The occasion: Studying Xi’s major speech from the July 1 celebration of the Party’s 100th birthday.
The meetings had nothing but praise for Xi’s speech, calling it a “guiding light” of Marxism on the way to the Party’s next major achievement – the second centenary goal:
- “The speech is full of the light of Marxist truth.” (Xinhua 2)
- “[Xi’s speech] charts the course for the Party and the Chinese people…toward the second centenary goal of building China into a great modern socialist country in all respects.” (Gov.cn 1)
The meetings also reiterated key takeaways from the speech, namely:
- The Party is large and in charge
- The Party’s mission is to serve the people
- Party-building should continue full steam ahead
- Xi is in charge of the Party
Get smart: We’re not sure anybody enjoyed these meetings. But we do think that Xi’s efforts to restore faith in the Party have been successful.
4. Uncorrupting the youth
Won’t somebody think of the children?
- Don’t worry, the Party-state’s way ahead of you.
Over the past few weeks, provincial education departments have been disseminating orders to scale back the presence of private players in primary and middle schools.
The Party’s goal is ambitious (Caixin):
- Cut the percentage of kids enrolled in private school to just 5% within two to three years
Some context: The private sector provided compulsory education services to around 10% of Chinese students in 2019 (MoE).
Quick math: The 5% goal means public schools have to take over the education of seven to eight million kids from private schools.
Officials have a four-pronged plan to make it happen:
- Ban new private investment into primary and middle schools
- Cut down enrollment in existing private schools
- Convert some private schools into public institutions
- Set up new public schools
That said, education don’t exactly come cheap:
- The plan will cost the government hundreds of billions of yuan to fund additional services.
Get smart: Beijing’s calculation is more political than economic. Compulsory education is a critical channel for inculcating youngsters with patriotic ideals and loyalty to the Party.
Get smarter: Beijing also views promoting public schools as a means to push forward educational equality.
5. Outstanding achievement in the field of industrial excellence
On Saturday, the Ministry of Industry and Information Technology (MIIT) released new guidelines on the development of high-quality manufacturing enterprises.
The following five agencies cosigned the policy:
- The Ministry of Science and Technology
- The Ministry of Finance
- The Ministry of Commerce
- The State-owned Assets Supervision and Administration Commission
- The China Securities Regulatory Commission
Some context: Leaders are obsessed with moving China’s economy up the value chain from low-end manufacturing toward to high-end production.
Innovation is the name of the game in the latest guidelines, with the ministries calling for increased support for and development of:
- “Single item” manufacturing champions
- Leading manufacturing chain industries
- “Little giant” enterprises
Little giant enterprises? (CGTN)
- “‘Little giants’ refer to the industry leaders recognized by the [MIIT] with specific market orientation, excellent innovation capabilities, large market shares, core technologies, and high product quality and profitability.”
Try to contain your shock – the guidelines are also concerned with supply chain risk, calling for efforts to:
- “Prevent and resolve potential risks and improve the independence… of the industrial supply chain.”
Get smart: Promoting industrial innovation and securing key supply chains are two of THE biggest economic objectives for China’s leadership.
- Beijing sees its high-quality domestic manufacturing champions as critical to both.
6. Ruili outbreak redux
China’s COVID-19 situation was looking great last week – no domestic infections have been reported in Guangdong since June 22.
Not so fast! Just as we got comfortable with COVID-free life, three confirmed cases were reported in Ruili, Yunnan along China’s border with Myanmar on Sunday.
- The three cases were discovered during routine testing.
- Two cases were Chinese nationals and one was a Myanmar national.
Some context: This is the second outbreak in Ruili this year. Six weeks in March and April saw a small outbreak.
Local authorities in Yunnan rushed into action:
- Individuals that departed from Ruili since June 20 were asked to register in their local communities and seek COVID testing.
- On Monday, authorities in Ruili, along with neighboring Yingjiang County and Dehong Prefecture, began requiring people to present negative COVID-19 test results obtained within three days in order to depart the region.
- Efforts are underway to test everyone in Ruili by Tuesday.
Meanwhile, in Guangdong, authorities have begun relaxing containment measures after stamping out the recent outbreak.
- Authorities stopped requiring people departing Guangzhou and Foshan to present negative COVID-19 tests on Saturday.
Get smart: Guangdong’s economic wellbeing hinges on lifting lockdown measures.
Get smarter: The new cases in Yunnan are a painful reminder to authorities that the risk of COVID-19 outbreaks along national borders remains high – and that vigilance will be needed for the foreseeable future.