China's Internet Giants are Expanding, But So Is Government Regulation

Editor's Note: For luxury brands doing business in China, it is impossible to ignore the influence of China's internet companies. Giants like Alibaba and Tencent are now expanding their presence into almost every industry sector. China’s internet industry is one of the most active across the globe and as a new report by Abacus, 500 startups, and South China Morning Post shows just why. The China Internet Report 2018 shows that China tech trinity Baidu, Tencent, and Alibaba, collectively known as “BAT”, are expanding their businesses to every corner, ranging from retail to fintech. Even if they don’t have business in one industry themselves, they invest in or acquire companies that do. For instance, in retail, Baidu didn’t build its own retail operation but invested in Nasdaq-listed Uxin, an online second-hand car trading platform. Alibaba, which is not a part of the sharing economy itself, invested in Didi, ofo, as well as overseas ride-hailing app Lyft. Chinese internet companies are embracing the notion of “Social+”, to attract new users and retain old ones, according to the report. The Social+ business model focuses on building and maintaining an online community that is expected to drive user engagement. Alibaba-backed e-commerce platform has a post sharing forum where users can share their favorite products, even if they are not sold on Xiaohongshu, beauty tips, and life hacks. With the ambition to satisfy the demand for every Chinese consumer, companies have looked beyond large cities and entered China’s rural regions, changing local economic landscapes. In the meantime, statistics have shown rural residents’ income grows along with the Internet penetration rate. Disposable income per capita increased to 1,870 in 2016, up 47 percent compared with that in 2012, and Internet users grew to 209 million from 156 million in 2012, according to the report. Chinese authorities are trying to utilize technology and the Internet to help improve economic situations in rural areas. E-commerce platforms are built to help the transaction of agricultural products between farmers and consumers as well as agricultural materials. There are also fintech companies that focus on agriculture loans. However, the internet doesn’t only have the happy stories of China’s less developed regions. Kuaishou, one of China’s largest short video platform, is perceived to be popular especially among rural regions. The popularity of Kuaishou brought their less told stories to the general public and many of them were deemed as vulgar and impropriate for circulation. Many streamed videos of people swallowing glass and raw meat and some featured teenage mothers. With increasing smartphone ownership and parents working in remote regions, many children in China’s countrysides are addicted to mobile games and lose interest in schools. They escaped classes, failing exams, and in the end, drop out of school at early ages. The government is clearly watching. Amid pressure from the Chinese government, in July 2017, Tencent Games introduced an anti-gaming addiction system that only allows children under 12 to play only one hour a day. In May 2017, Ministry of Cultural and Tourism of China implemented a series of regulations on the gaming industry, including credentials needed to operate gaming businesses as well as in-game purchases. Apart from gaming, the government has cracked down several content providers since the beginning of 2018. One of the most noted cases is that the media regulator ordered the permanent removal of Bytedance’s joke app for vulgar content. The administrative interference has appeared beyond the content industry. According to the report, China banned cryptocurrency exchanges and initial coin offering in September 2017 and blocked all related platforms in early February. In December 2017, China’s central bank and regulatory commission tightened rules around internet financing and peer-to-peer online ending. On July 10, according to local media, the authorities stated to prolong the regulatory period. This article by Jiefei Liu originally appeared on TechNode, a leading authority on technology in China

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China's Internet Giants are Expanding, But So Is Government Regulation