China’s data privacy hornet’s nest stings multinationals

Hi everyone — James here in Hong Kong. Asia is bursting with important tech news this week, topped by data privacy issues in China (The Big Story). This is a big theme because China is crucial for many tech multinationals, yet Beijing can insist on intrusive levels of oversight. Elsewhere, Ken Koyanagi’s take on India’s growing powers of state censorship is a worthy read (Our take). Don’t miss China’s emerging lead in quantum computing technologies (Smart data). Take care till next week.

The Big Story — Exclusive

Two stories this week highlighted the stark data privacy risks faced by multinationals in China. The Financial Times reports in this exclusive that some of China’s biggest tech companies are testing a tool to bypass Apple’s new privacy rules.

Separately, Japanese messaging app Line allowed Chinese engineers at a Shanghai affiliate to access data on Japanese users without gaining their consent, according to Nikkei Asia.

Key implications: The issue of data privacy is a hornet’s nest for tech multinationals, particularly in China.

Apple is expected in the coming weeks to roll out changes to give iPhone users more privacy. But Chinese tech giants, including Tencent and ByteDance, are testing a new system, called CAID, to track and identify iPhone users, circumventing the rules.

In the case of Line, which is owned by SoftBank’s Z Holdings, the data on Japanese users made available to Chinese employees in Shanghai included names, phone numbers, IDs and some unencrypted chat content.

Upshot: Intensifying demands for data privacy are a headache for Big Tech everywhere. But in China, the task of safeguarding users’ privacy is complicated by the state’s insistence on maintaining surveillance capabilities.

Mercedes’ top 10

1. The crunch in the global chip supply chain goes far beyond the auto industry, as troubles at South Korea’s Samsung and Taiwan’s Advantech demonstrate.

2. This fascinating Tech Tonic podcast from Taiwan shows how innovation is solving big challenges brought on by the pandemic.

3. Jack Ma may be down (in the eyes of Beijing) but he does not appear to be out. This FT scoop reveals his private jet is still criss-crossing China.

4. But there are ominous rumblings for Ma’s tech empire. Chinese internet companies have pulled an Alibaba browser from their app stores.

5. The climate is cooling for China’s tech sector. Tencent and Baidu were also slapped with fines, following in the wake of Meituan and Pinduoduo last week.

6. Meanwhile, Ant-backed Megvii is set to be the first Chinese AI group to go public. But the US-sanctioned company is bleeding cash.

7. South Korean internet giant Naver is tapping allies to counter the meteoric rise of ecommerce rival Coupang, which is now listed in the US.

8. Huawei is heeding Beijing’s call for homegrown innovation, recording its biggest-ever annual jump in the number of patents it owns.

9. In a Chinese funding head-to-head, Tencent outspent Alibaba on start-up investments in 2020, pouring $12bn into 163 companies, 40 per cent more than a year earlier.

10. Apple supplier Foxconn will start to assemble the 5G-enabled iPhone 12 in India, the first time the flagship device has been made outside China.

When sages speak

• Jane Nakano of CSIS, a Washington-based think-tank, has an interesting piece on the geostrategic competition around rare earths — essential materials for clean energy. Competition between China and the US over rare earth supply chains is intensifying.

• For an excellent in-depth case study of Chinese investment in German tech start-ups, check out the work of Sabrina Korreck at the Observer Research Foundation, a New Delhi-based think-tank.

Our take

India’s new rules on online news, social and streaming video media are drawing a chorus of criticism from both inside and outside the country.

The “Information Technology Rules, 2021” essentially give central and local governments discretion to order the deletion of online news stories, social media posts or streamed videos in order to safeguard the “sovereignty and integrity” of India and maintain “public order”.

The rules, however, do not give clear criteria on what constitutes “public order” or “integrity”. Such blanket powers of state censorship are not found in liberal democracies. But enforcement is a question. If foreign social and news media companies resist government takedown orders, what will New Delhi do?

If the government decides to shut down access, India will embark upon a transition toward autocracy reminiscent of China, where a “Great Firewall” prevents access to many foreign social and news media, such as the New York Times, Twitter, Facebook and Nikkei Asia. 

The Indian government has proven its technological capability to shut down access to foreign servers, enforcing a ban since last June on more than 50 Chinese mobile apps, including the highly popular TikTok short-video sharing platform. TikTok’s videos are inaccessible in India even with VPNs. This shows that India is capable of banning Twitter or Facebook if it really wants to. The world will be watching.

— Ken

Spotlight

Adieu, Mr Hu. It’s hardly encouraging when a chief executive resigns in the midst of a major restructuring. But that is what happened at Ant Group last week when Simon Hu unexpectedly stepped down due to “personal reasons”. Ant chairman Eric Jing has become chief executive with immediate effect.

Hu was instrumental in Ant’s transformation into the world’s most valuable fintech company. He became Ant’s CEO in December 2019, having joined Alibaba’s Alipay unit in 2005 from China Everbright Bank.

Powerful regulators in Beijing are reining in China’s previously freewheeling fintech industry with a raft of measures. The Jack Ma-backed company, whose planned $37bn blockbuster listing in Shanghai and Hong Kong was blocked last November, may now face a ceiling on its future growth.

Art of the deal

In most sectors, Japan’s local companies enjoy home-team advantage. Ecommerce is one of the very few exceptions. Despite being a late contender, Amazon is Japan’s biggest online retailer. The US group offers same-day delivery service covering nearly 80 per cent of the population.

That could be about to change. Rakuten, Amazon’s homegrown rival, will raise $2.2bn through a stake sale to companies including Japan Post, Chinese group Tencent and US retailer Walmart. The investors will also double as useful business partners. Japan Post, for example, will help Rakuten overcome a costly logistics network buildout.

Rakuten will need the boost. In addition to Amazon, it faces tough competition at home after Z Holdings, a subsidiary of SoftBank’s telecoms arm that operates Yahoo Japan, completed its merger with messaging app Line this month.

Smart data

When it comes to technology patents, China used to play catch-up with the US, Japan and Europe. Then, it surpassed them. By 2017, it had become the world leader by the number of patent applications received.

Now, the country has extended its lead into the arena of quantum technology, which is set to revolutionise computing.

China has more than 3,000 patents related to quantum technology, about twice as many as the US, according to Valuenex, a consultancy. In terms of patents related to hardware in this field, such as devices that exchange photons, Huawei is ranked second with 100 patents.