Chinese social media app RedNote was filled with cute, heartwarming moments last week after some 500,000 American users flocked to it to protest the U.S. government’s impending TikTok ban.
These users call themselves “TikTok refugees” and pay the “cat tax” to join RedNote by posting photos and videos of cats. They answered many questions from their new Chinese friends: In rural America, does every family have a big farm, a big house, at least three children and several big dogs? Do Americans have to work two jobs to support themselves? Americans have very poor geography knowledge. Many people think Africa is one country? Most Americans have two days off per week?
The Americans also had questions for their new friends. “I heard that every Chinese person has a giant panda,” wrote an American RedNote user. “Can you tell me how to get it?” one person in the eastern province of Jiangsu responded: “Trust me, it’s true.” The person deadpanned and posted a picture of a panda doing laundry. photo.
I spent hours scrolling through those so-called cat tax photos and laughing at the adorable and earnest reactions. That’s what the Internet is supposed to do: connect people. More importantly, RedNote shows how competitive a random Chinese social media app can be from a pure product perspective.
With 1 billion people online and a team of hard-working and resourceful engineers, China’s internet platforms are world-class in design, functionality and user experience – as TikTok and now Xiaohongshu have proven.
But why don’t more people outside of China use Chinese apps?
For a while, China’s internet giants seemed poised to take over the world. Do you still remember the excitement when Alibaba went public in New York in 2014, Didi acquired Uber in China in 2016, Facebook imitated WeChat, and the partners of Andreessen Horowitz in Silicon Valley promoted the power of WeChat? Once upon a time, 5 of the 10 largest Internet companies in the world by market capitalization were Chinese companies. Now, WeChat creator and gaming company Tencent is the only one in the ranks.
China’s largest Internet company still makes products that can compete with any company in the world. Their employees work harder than their colleagues in Silicon Valley. (Many work “996” — six days a week, 9 a.m. to 9 p.m.) They have made impressive advances in artificial intelligence in the face of the U.S. semiconductor ban. But the world seems to have forgotten about China’s online leaders, viewing them only as part of a technological and geopolitical threat.
The industry has not delivered on its promises. Why? What happened?
In 2017, I wrote a column in another publication titled “Behind the Great Firewall, China’s Internet is Booming.” I tell English readers to look beyond China’s impulse to censor and copy Western businesses, because China is digitizing at an incredible scale and speed.
That year, Tencent’s revenue grew 56%, while e-commerce giant Alibaba’s revenue soared 60%. Didi has raised nearly $10 billion in funding, mostly from international investors.
All of this feels like a lifetime ago. It is now much more difficult for Chinese Internet companies to develop and grow.
The country has plunged into its worst economic recession since the days of Mao Zedong. Few believe the government’s announcement of a 5% growth rate for 2024.
When the country’s economy is in recession, it is difficult for one of its pillar industries to perform well. Technology company earnings already reflect this.
As China’s population continues its steady decline — for the third consecutive year — big tech platforms are running out of new users. WeChat has about 1.4 billion accounts, more than the population of China. Even a second-tier social media app like Red Note, which is popular among young, urban and affluent female users, has more than 300 million users. For these companies, international expansion is a natural next step.
TikTok’s parent company, ByteDance, is the envy of the industry for the success of its overseas business, which is growing much faster than its domestic business.
But the United States’ efforts to ban TikTok highlight the difficulty of Chinese Internet companies’ overseas expansion. As the Chinese Communist Party tightens its control over the country’s private sector, it becomes increasingly difficult for the world to entrust the personal data of its citizens to Chinese companies that will ultimately do Beijing’s bidding.
There are good reasons for outsiders, including the U.S. government, to distrust these companies. In a country where the government owns most everything and wields power haphazardly and ruthlessly, the private sector has been wary. Internet companies are subject to intense scrutiny and must self-censor to survive. In recent years, all major companies without exception have had their apps removed from app stores or been fined or disciplined by regulators.
It is no secret that Chinese leader Xi Jinping is not keen on the digital industry unless it is used to further his national rejuvenation agenda.
He said in 2018: “The real economy is the foundation of the national economy and the source of wealth. Economic development must not deviate from the real economy and rely too much on the virtual economy.”
In that speech and on other occasions, Xi made it clear that he valued advanced manufacturing over the Internet and favored state-owned enterprises over private companies.
That sets the tone for a crackdown on the video game businesses of Alibaba, Ant Group, Didi and Tencent in 2020 and 2021. financial losses.
It was also at this time that the Chinese government’s Wolf Warrior diplomacy and its alliance with Russia forced many countries to reconsider their view of China as an important part of the global economy. Some now see it as a threat to democratic institutions and world peace. Views of China have worsened in many Western countries, and fewer people are interested in visiting China than a decade ago.
China’s internet companies and investors are increasingly caught between an authoritarian government at home and suspicion and even hostility abroad.
Due to geopolitical tensions and China’s unpredictable policies, most Western investors now believe that China’s technology sector is not worth investing in.
U.S. university endowments and pension funds stopped providing venture capital firms with funds to invest in Chinese startups. A generation of Chinese investors who helped create some of the most successful technology companies took up golf, marathons and hiking.
Investors in global stock markets are similarly uninterested in Chinese internet companies.
An investor who was not authorized to speak publicly recently told me that in 2017, when she joined a hedge fund with more than $100 billion under management, about 40% of the fund’s emerging market holdings were in Chinese technology stocks. Now their proportion is less than 3%.
The ecosystem that fostered a vibrant tech industry has been broken. Lower investment means fewer new startups, far fewer overseas initial public offerings and stock valuations that are much lower than their U.S. peers. RedNote is a social media application used by TikTok users in the United States. It was founded in 2013 and has not yet been launched.
The investor said the companies remain competitive. But they no longer matter in the eyes of the world, she added.
