Chinese social media app RedNote is full of cute and touching moments after around 500,000 American users fled to it last week to protest the US government's impending ban on TikTok.
Calling themselves “TikTok refugees,” these users paid the “cat tax” to join RedNote by posting photos and videos of cats. They answered many questions from their new Chinese friends: Is it true that in rural America every family has a big farm, a huge house, at least three children, and several big dogs? That Americans have to work two jobs to support themselves? That Americans are terrible at geography and many believe Africa is a country? That most Americans have two days off a week?
The Americans also asked questions of their new friends. “I heard that every Chinese person has a giant panda,” wrote one American RedNote user. “Can you tell me how I can get it?” Someone from eastern Jiangsu province responded: “Believe me, it's true,” the person deadpanned, posting a photo of a panda doing laundry.
I spent hours going through those so-called cat tax photos and chuckled at the cute and heartfelt responses. This is what the Internet is supposed to do: connect people. More importantly, RedNote demonstrated how competitive a random Chinese social media app can be from a purely product standpoint.
With access to an online population of billion and an army of resourceful and hard-working engineers, China's internet platforms are world-class in their design, functionality and user experience, as demonstrated by TikTok and now RedNote, or Xiaohongshu in Chinese.
But why aren't more people outside of China using Chinese apps?
For a time, the Chinese internet giants seemed poised to take over the world. Remember the excitement when Alibaba listed its IPO in New York in 2014, when Didi took over Uber in China in 2016, when facebook was imitating WeChat, and when a partner at Silicon Valley firm Andreessen Horowitz preached The power of WeChat? At one point, five of the world's 10 largest Internet companies measured by market capitalization were Chinese. Now Tencent, the creator of WeChat and a gaming company, is the only one left in those ranks.
The largest Chinese Internet companies still make products that can compete with anything in the world. Their employees work harder than their Silicon Valley counterparts. (Many work a “996” schedule: 9 am to 9 pm six days a week.) In the face of semiconductor bans in the United States, they have made impressive advances in artificial intelligence. But the world seems to have forgotten about China's internet leaders, except to see them as part of a technological and geopolitical threat.
The industry did not keep its promises. Because? What happened?
In 2017, I wrote a column in another publication with the headline: “Behind the Great Firewall, China's Internet is booming.” I told English-speaking readers to think beyond China's drive to censor and copy Western companies because China was digitizing at a mind-boggling scale and speed.
That year, Tencent's revenue grew 56 percent, while e-commerce giant Alibaba's revenue rose 60 percent. Didi raised nearly $10 billion in funding, mostly from international investors.
All of this seems like a lifetime ago. It is now much more difficult for Chinese Internet companies to prosper.
The country is mired in the worst economic recession since the Mao era. Few people believe the 5 percent growth rate the government has announced for 2024. Consumer confidence is low: Both Uniqlo and Starbucks, two consumer brands that had thrived in China for years, are losing customers to bigger brands. cheap
When the country's economy suffers, it is difficult for one of its pillar industries to do well. The profits of technology companies have reflected this.
As China's population continues to steadily decline (it fell for the third year in a row), big tech platforms are running out of new users. WeChat has around 1.4 billion accounts, more than the Chinese population. Even a second-tier social media app like RedNote, which is popular among young, urban and wealthy female users, amassed more than 300 million users. For these companies, international expansion is the natural next step.
ByteDance, TikTok's parent company, is the envy of the industry for the success of its overseas businesses, which have been growing at a much faster pace than its domestic operations.
But the US effort to ban TikTok highlights how difficult it is for Chinese internet companies to expand abroad. As the Chinese Communist Party tightens its control over the country's private sector, it is becoming increasingly difficult for the world to entrust its citizens' personal data to Chinese companies, which ultimately answer to Beijing.
There are good reasons why the outside world, including the US government, does not trust these companies. In a country where the government owns much of everything and wields power haphazardly and often ruthlessly, the private sector has been on alert. Internet companies are heavily censored and must self-censor to survive. All of the big guys, without exception, have had their apps removed from app stores or been fined or sanctioned by regulators in recent years.
It is well known that China's leader Xi Jinping is not a fan of the digital sector unless he uses it to promote his national rejuvenation agenda.
“The real economy is the basis of a nation's economy and the source of its wealth,” he said. saying in 2018. “Economic development should never deviate from the real economy toward over-reliance on the virtual economy.”
In that speech and thereafter other On several occasions, Xi made clear that he gave a higher priority to advanced manufacturing than the Internet and that he liked state-owned companies more than the private sector.
That set the tone for the crackdown on Alibaba, Ant Group, Didi and Tencent's video game business in 2020 and 2021. Tough “zero Covid” restrictions in 2022 that crippled the country's economy sank some of the biggest internet companies. in financial losses for the first time in years.
Also around this time, the Chinese government's wolf warrior diplomacy and its alliance with Russia forced many countries to rethink their view of China as an important part of the global economy. Some now see it as a threat to democratic systems and world peace. Perception of China has deteriorated in many Western countries and there are fewer people interested in visiting China than a decade ago.
Chinese Internet companies and investors are increasingly caught between their authoritarian rule at home and suspicion, even hostility, abroad.
Most Western investors now consider China's tech industry not worth investing in due to the country's geopolitical tension and unpredictable policies.
American university endowments and pension funds stopped giving money to venture capital firms to invest in Chinese startups. A generation of Chinese investors who helped create some of the most successful technology companies have taken up golf, marathon running and hiking.
Investors in global stock markets are also not interested 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 that managed more than $100 billion, about 40 percent of the fund's holdings in emerging markets were technology stocks. Chinese. Now they are less than 3 percent.
The ecosystem that cultivated a vibrant technology sector is broken. Less investment means fewer startups, far fewer foreign IPOs, and much lower stock valuations than their U.S. counterparts. RedNote, the social media app adopted by American TikTok users, was founded in 2013 and has not yet gone public.
These companies remain competitive, the investor stated. But in the eyes of the world, he added, they are no longer relevant.
