CEO Daily: Surveillance Capitalism with Chinese Characteristics

Like the memes it incubates and spreads, TikTok, the Chinese lip-synching app that boasts more than half a billion global users, has gone viral this past month–at least in the global business press.

Fortune‘s Ellen McGirt was among the many observers to marvel that country trap artist Montero Hill (a.k.a. Lil Nas X) was able to use TikTok to create a huge following for his record-breaking crossover hit “Old Town Road.” CNBC notes that, in this year’s first quarter, TikTok was the third-most downloaded app in the U.S., just behind Facebook Messenger and a game called Color Bump 3D. The Boston Globe‘s Michael Andor Brodeur hails TikTok as “a promising solution to the gripes of many disaffected Facebook users, who loathe the daily slog through its endless stream of ads, articles, arguments, and aggrandizement.”

Meanwhile National Public Radio last week aired a TikTok “explainer” enlisting help from a Rolling Stone editor who described the app as “a weird hodgepodge of every sort of viral thing that could happen in a short-form video app.”

For many American parents of “tweens,” the popularity of TikTok will be old news. (Thankfully, my daughter, about to turn 16, disdains the app as “a bunch of lame 19 year-olds trying to make money off of 12 year-olds.”)

But TikTok has made headlines for reasons other than its viral appeal. Last July, Indonesian authorities banned the app for fomenting “inappropriate conduct and blasphemy.” In February, U.S. regulators fined TikTok $5.7 million for illegally collecting the names, email addresses, pictures and locations of children under 13. In India, the app was banned for two weeks last month after a local court ruled the platform could expose children to sexual predators, pornographic content and cyberbullying.

A recent analysis in the South China Morning Post faults TikTok’s parent company, Beijing ByteDance, for its failure to understand legal, political and cultural sensitivities in the markets in which it operates. Even so, the venture’s financial prospects haven’t suffered. ByteDance’s investors, which include SoftBank and KKR, have valued the company at more than $75 billion, making it the world’s most valuable start-up.

The Telegraph’s Robin Pagnamenta argues TikTok and its parent company pose a far greater global security concern for Western economies than Chinese telecommunications equipment giant Huawei Technologies. ByteDance’s suite of apps, Pagnamenta warns, “are hoovering up oodles of data on hundreds of millions of foreigners – British, American, Brazilian and Indian – many of them children.”

What happens to that data? How it will be regulated? The U.S. recently pressured Beijing Kunlun Tech, a Chinese gaming company, to sell its stake in Grindr, a popular gay dating app. The Committee on Foreign Investment in the United States (CFIUS), which vets foreign deals for national-security risks, expressed concern that personal data submitted by Grindr’s users could be used by the Chinese government to blackmail American officials.

Is TikTok any different?

I’m thinking about all this because I’ve been re-reading Shoshana Zuboff’s Surveillance Capitalism. In her telling of the rise of America’s tech industry, U.S. lawmakers and regulators seem mostly “captured” by well-funded, fast-growing U.S. tech companies. By contrast, in China, “private” tech companies like Beijing Bytedance serve at the pleasure of the ruling Communist Party. How should we integrate such firms into the rest of the global economy?

More China news below.

Clay Chandler
@claychandler
clay.chandler@fortune.com

Innovation and Tech

Watching Huawei. It could have been the smoking gun Huawei’s objectors are looking for. Bloomberg reported this week events from 2011 and 2012 where British telecoms multinational Vodafone found backdoors embedded in components provided by Huawei. However, Vodafone has since disputed details of the report, claiming that the “backdoors” were remnants of a common diagnostic protocol, rather than clandestine access points implemented by Huawei. But Huawei’s handling of the situation in 2011 remains troubling. According to the report, Huawei lied to Vodafone when the British firm asked it to remove the “backdoors.” Huawei simply hid them instead. Bloomberg

Swipe left. The government has suspended Tinder-like dating app TanTan from multiple app stores in China. The ban appears to be part of Beijing’s sweeping efforts to clean up China’s cyberspace. Nine apps were shut down last month for spreading pornography or facilitating prostitution. TanTan’s parent company Momo, which began as a location-based meetup app, has been accused of facilitating prostitution before – or rather, not doing enough to stop it. Momo’s Nasdaq-listed shares fell 8% after news broke of TanTan’s ban. South China Morning Post

A five-year bet. In 2013 Lei Jun, CEO and founder of smartphone maker Xiaomi, bet Rmb1 billion ($148 million) that Xiaomi’s revenues would surpass aircon manufacturer Gree’s within five years. That seems like a mismatched race, but Lei Jun chose his target because he and Gree chairwoman Dong Mingzhu were both being honored at the same award ceremony. The bet was also a proxy for the battle between new and old retail. Xiaomi, a young tech innovator, made all its sales online while Gree, an old school appliance manufacturer, primarily sold offline. This week Gree released its earnings for 2018, racking up Rmb200 billion in revenue, beating Xiaomi’s Rmb175 billion and winning the bet. Lei Jun likely won’t pay up though – Dong already called the wager void when Xiaomi abandoned its web-only model and opened real world stores. The Economist

Economy and Trade

Trade War. Trade negotiations are progressing between China and the U.S. at a good clip – supposedly because the U.S. is softening on many of the most important issues, such as data ownership and cyber theft. Trump appears eager to reach a deal in the year-long conflict he initiated but there’s still the chance the war could drag on much longer. Fortune

This piggy stays at home. China has suspended pork imports from two Canadian suppliers. Canada’s agricultural minister says the ban is due to a labelling issue, but pundits say the ban is retaliation against Canada for the arrest of Huawei CFO Meng Wanzhou. Earlier this year China stopped buying canola oil from two of Canada’s largest exporters as punishment for the arrest. However, it’s a strange time for Beijing to limit pork supplies – China’s domestic pig stocks are being decimated by African Swine Fever and pork prices are surging. Reuters

Traps shut. Deborah Brautigam, director of the China-Africa Research Institute at John Hopkins University, argues the fear that China is engaging in “debt-trap diplomacy” through its Belt and Road initiative is at odds with the facts. “[We] have found scant evidence of a pattern indicating that Chinese banks, acting at the government’s behest, are deliberately over-lending or funding loss-making projects to secure strategic advantages for China.” New York Times

Politics and Policy

All at sea. Last month President Xi celebrated 70 years of China’s navy. The president has overseen a major restructuring of China’s military, shifting focus away from ground troops and towards air and navy units – creating a more assertive military force. China needs a strong navy to protect its claims to overseas territory. This week, U.S. warships sailed again through the Taiwan Strait, despite Beijing’s objections. Senior officials say China fears suffering a U.S.-led naval blockade in the event of a war. China wants to open new polar trade routes and, this week, the Pentagon warned China might station nuclear subs in the arctic, to protect the new northern passage. Reuters

Praised, but prohibited. One hundred years ago today, thousands of students marched through Tiananmen Square to protest the government’s capitulation to Western powers. The May Fourth movement, as it became known, marked a cultural epoch. Earlier this week, Xi Jinping gave a speech praising the patriotism of yesteryear’s protestors, but warned modern youth against likewise opposing today’s government. “Chinese youth in the new era must obey the party and follow the party,” he said. New York Times

 

This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.

http://fortune.com/2019/05/04/ceo-daily-surveillance-capitalism-with-chinese-characteristics/

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