Wednesday, October 27, 2021

China cops on WeChat: How deep tech links to Facebook are disrupting business

Image Credit: Facebook

An unprecedented crackdown on Chinese companies’ links to Facebook (FB) and Alphabet’s (GOOGL) Google has forced Tencent (TCEHY) to expand its WeChat instant messaging platform to every partner with web pages and other links.

The measure, described by the Beijing-based company as an order by Beijing’s internet regulator, underscores a wider crackdown in the world’s second-largest economy on social media and content deemed contrary to government desires.

Tencent’s actions come after Chinese authorities blocked millions of WeChat accounts last month, reportedly due to WeChat posts from accounts called “Friend Protection Detector”, “Bribery Detector” and “Yahada Troopers”, which disclosed how government officials are able to make money from illegal activities.

“We will implement a policy to provide a uniform user experience within Tencent ecosystem,” said a company spokesman.

Chinese authorities in recent years have taken to arresting owners of blogs and disseminating such content through social media.

“China is going through a radical shift in social media regulation because it has become the biggest social media economy in the world,” said Anthony King, Asia founder at technology advisory firm Alvarez & Marsal.

Since 2000, China’s social media market has grown almost tenfold, delivering about 700 billion yuan ($100 billion) in revenues, according to an annual report from Alibaba (BABA) .

By removing links to any page that showed links to sources of media articles – many of which were cited in court verdicts – Chinese authorities are prioritizing the protection of Chinese companies over the protection of users.

“Unfair competition” is an old Chinese saying that aims to prevent companies being supported by large amount of public funding – whether for a business or social cause.

“The more money social media puts into popular social information portal (DSP), the fewer funds are available for public social information (PSI) portals, and this directly translates into anti-competitive behavior,” said Mr. King.

Mr. King’s view is often echoed by other experts who believe that China’s social media market is increasingly becoming a marketplace for channels controlled by a handful of private social media companies – either home-grown or also from overseas.

“These social media platforms have a lot of asymmetric advantage over PPI portals… and they have for years been ripping off the economics of PPI sites, and that is what we are seeing today in terms of Chinese media,” Mr. King said.

While Tencent and Chinese mobile payment and e-commerce giants such as Alibaba and Baidu (BIDU) are the clear leaders in a market which has largely been white-washed by the government, this is far from the case in verticals such as financial services or internet search.

The crackdown is not only the government trying to control the fate of its own social media giants such as WeChat and Weibo (WB) but also to deter foreign internet companies such as Google, Facebook and Facebook subsidiary Instagram from entering China.

“Google’s argument is that for a Chinese business to thrive, they need to have Google in China,” said Deloitte’s senior partner in China, Nicolas Klien, adding that other companies, including those from the US have taken the opposite path.

“Facebook, once a verb in China has become a zero-sum game. Before, it was a way for Chinese brands to build their global audience. It is no longer like that,” Mr. Klien said.

The dilemma: Developing deep connections on social media such as WeChat that keep China brands at the top of the global market could be useful, but maintaining brands with broad-based appeal is proving difficult for Chinese brands, especially those owned by their own businesses.

Latest article