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SupChina: China newsletter

Wednesday, July 11, 2018



TOP STORIES

GIF by Lucas Niewenhuis. View pronunciation video from Jia.

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Dear reader,

Today’s news shows us two very different sides of Beijing:

There is the inspirational pluckiness and energy of Luckin, a youth-focused coffee shop chain based in the capital whose founders just raised $200 million.

And then there’s the grim grinding down of Unirule, a globally respected, independent, Beijing-based think tank. Unirule’s publications and founders are sometimes critical of government policies, but their work is focused on economics. Just a few years ago, economics was a safe subject for open-minded inquiry in China.

In total, we’ve got six stories at the top for you, including our now daily trade war update, plus the usual boatload of links below.

—Jeremy Goldkorn, Editor-in-Chief

1. A billion-dollar coffee company and the woman behind it

The hard-charging style of Chinese tech entrepreneurs has arrived in the coffee shop sector: Luckin Coffee (瑞幸咖啡 ruì xìng kāfēi), a chain of cashless, app-powered stores, has raised $200 million, according to Reuters.

The founder of Luckin is the wonderfully named Qian Zhiya 钱治亚 — her surname qián literally means “money” and zhìyà means “rule Asia.” She spent most of the last decade as COO of Shenzhou, a car rental app and website. She is also co-founder of UCAR, a ride-hailing service spun off from Shenzhou.

In November 2017, she launched Luckin. By the end of May, Luckin had already opened 525 stores in 13 cities across China.

ABOUT LUCKIN

“Unicorn” is the tech industry buzzword for an unlisted startup valued at $1 billion. The Financial Times says (paywall) Luckin has joined the club — this funding round “values the chain at $1 billion as it builds a war chest to try to challenge Starbucks’ dominant position.”CEO Qian sees the coffee shops like a tech business. She said that the new investment would be used for “product R&D, technology innovation, and business development,” according to Chinese-language media reports.Starbucks has 3,300 stores in China, so Luckin has a way to go to catch up, but the FT says Luckin “has already overtaken Britain’s Costa Coffee, which has just 420 stores in China after a decade in the country.” According to the same article, Starbucks “has 80 percent of the country’s coffee chain market, up from 60 percent in 2012, and is opening new outlets at a rate of 500 a year.”In May this year, Luckin threatened to sue Starbucks for “engaging in monopolistic practices by signing exclusive rental contracts and pressuring suppliers.” Starbucks dismissed the accusation, calling it “promotion hype,” according to the China Daily. Luckin has apparently got the publicity it desired and there has been no further news of a lawsuit.Luckin is aggressively targeting young office workers with its locations, delivery services, and low prices: Quartz says a large Americano from Luckin in Beijjng “costs 21 yuan ($3.15)…roughly 20-30 percent lower than comparable items from Starbucks in China.”Luckin stores are cashless: You need the Luckin app to order in a store or via delivery, and you can pay using WeChat or Luckin’s own “coffee wallet.” Quartz says Luckin’s delivery services are key, explaining that “of its 525 outlets, 231 are kitchens dedicated exclusively to filling orders placed in offices, homes, or elsewhere.”The marketing is slick: Take a look at the video on Luckin’s home pagefeaturing popular actors Chang Chen张震 and Tang Wei 汤唯.Coffee consumption is growing 15 percent annually in China. TechNode reports that Coffee Box 连咖啡, a coffee delivery platform, previously “raised 158 million yuan in series B+ funding.”“Our goal is to defeat Starbucks in China,” said Qian, according to Xinhua News Agency (in Chinese).

ABOUT QIAN ZHIYA

More than 40,000 employees at Shenzhou were under Qian. The Xinhua article linked above calls her “the right hand” of Shenzhou’s CEO, Lu Zhengyao 陆正耀. Lu provided most of the initial investment for Luckin.“The face of a Buddha, but she workslike thunder” (菩萨面庞,雷霆手段 púsà miànpáng, léitíng shǒuduàn) in “an industry thick with the scent of male hormones” (浓郁雄性荷尔蒙的行业 nóngyù xióngxìng hè'ěrméng de hángyè) is how one former colleague described her work style at Shenzhou, according to one article circulating on the internet (in Chinese).“Frequent overtime work made Qian Zhiya become a heavy lover of coffee,” says a different article (in Chinese).There is not much information about Qian in the public domain. She graduated from Wuhan Textile University in 1999, and has an executive M.B.A. from Peking University.

2. And then they came for the economists

Chris Buckley of the New York Times reports (porous paywall):

An independent think tank that was one of China’s few remaining bastions for liberal-democratic ideas was shut out of its Beijing offices on Wednesday, throwing its survival into doubt.

Some workers at the think tank, the Unirule Institute of Economics, found themselves briefly trapped inside when the company that manages the lease on the institute’s offices locked and welded its door shut…

...The institute’s executive director, Sheng Hong 盛洪, said the landlord appeared to be acting under pressure from the government authorities. Finding another landlord who would tolerate its presence would be difficult, he said.

“We’re very pessimistic because we clearly understand that there are more senior people behind this, although we don’t have the evidence to prove it.”


The South China Morning Post also has a report on the Unirule’s harassment. Other relevant links:

In January 2017, the government shut down two websites affiliated with Unirule. Unirule fought back with an unusually critical letter of complaint.Unirule’s U.S.-hosted website is here. Executive director Sheng Hong is on Twitter and has been vocal about the recent events.Mao Yushi 茅于轼 is the key intellectual leader of Unirule — here is a brief bio. Another interesting character sometimes associated with Unirule is the former Marxist theoretician, businessman, and critical writer Rong Jian 荣剑.

Other grim news — the BBC reports:

One of China's highest-profile democracy campaigners has been sentenced to 13 years in prison for "subversion of state power." Qin Yongmin 秦永敏, 64, has already spent a total of 22 years behind bars. Qin had "refused to cooperate with the court" and stayed silent throughout his trial.


See also reports in the Guardian and the South China Morning Post about Qin Yongmin’s sentencing.

—Jeremy Goldkorn

3. Trump targets another $200 billion — trade war update, day six

The U.S.-China trade war is getting ugly, fast.

Before day five of the confrontation even came to the end, Bloomberg broke the news (paywall) that American officials were drawing up lists of additional Chinese products totaling $200 billion to tax at a 10 percent rate, to be published “likely this week.”

NEW U.S. DEMANDS

That list was released only hours later by the U.S. Trade Representative — see the full 205-page PDF of it here — along with a firm statement by the office’s head, Robert Lighthizer, who promised more escalation until the U.S. could achieve “the elimination of China’s harmful industrial policies” and see “China opening its market to U.S. goods and services.”

“The new tariffs won’t take effect for at least two months,” and “hearings on the products are scheduled for Aug. 20-23,” the Wall Street Journal reports(paywall).“Chinese fish, petroleum, chemicals, handbags, textiles” are among the products to be taxed if this second large round of much broader tariffs is implemented, the New York Times notes (paywall).“Tonight’s announcement appears reckless and is not a targeted approach,” Orrin Hatch, the Republican senator from Utah, said in a statement cited by the Journal and the Times, highlighting the increased controversy that the new tariffs could bring.Not on the schedule, at least for now, are any negotiations to de-escalate the conflict, according to “officials in both nations,” the Journal says.China is highly unlikely to back down on its industrial policies, by which Lighthizer means the Made in China 2025 initiative.The U.S. wants unilateral market opening, rather than a negotiated settlement on trade in goods through, say, the World Trade Organization. Dennis Shea, the U.S. ambassador to the WTO, told that body that “the WTO currently does not offer all of the tools necessary to remedy this situation,” and urged, “The best solution is for China finally to take the initiative to fully and effectively embrace open, market-oriented policies,” according to Reuters.

CHINESE GOVERNMENT REACTIONS

Officials are branding China as a protector of free trade in the conflict:

“This is a fight between unilateralism and multilateralism, protectionism and free trade, and between hegemony and rules,” Ministry of Finance spokeswoman Hua Chunying said, the Washington Post reports.“They go low, we go high,” Li Chenggang, an assistant minister at China’s Ministry of Commerce, said at a forum in Beijing with the City of Chicago, employing a Democratic Party slogan popularized by former first lady Michelle Obama in 2016, according to Bloomberg (porous paywall).Beijing sees this as an “economic cold war,” a “source close to decision makers in Beijing” told the South China Morning Post, and is “trying to convince governments, organizations and companies — including U.S. firms — that it is a champion of free trade, and send a message that, in contrast to Trump’s ‘America first’ policy, China is ‘still open for business’ and wants to keep globalization on track.”“To defend the core interests of the nation and the fundamental interests of the people, the Chinese government will, as always, be forced to take necessary countermeasures,” a spokesperson for China's Ministry of Commerce said, according to Xinhua.

MARKET REACTIONS

Chinese domestic financial markets are nervous:

“On Wednesday, China’s stocks fell,with the benchmark Shanghai Composite Index losing 1.8 percent and the Hang Seng Index in Hong Kong down 1.3 percent. The offshore yuan weakened to test 6.7 against the U.S. dollar — a level that Beijing defended only a week ago,” the SCMP notes.To prevent Chinese markets from further tumbling, or from a boycott against U.S. goods from taking off and escalating the conflict further, government officials have instructed state media to downplay the conflict and “be careful not to link [criticism] to Trump and instead to aim it at the U.S. government,” Reuters reports.“The Dow Jones Industrial Average fell 219 points, or 0.88%, to 24,700, the S&P 500 slid 0.71 percent and the Nasdaq was down 0.55 percent,” reports TheStreet.com, while the Financial Times said (paywall), “U.S. futures slid” and “industrial stocks were back under fire again” after the new tariff announcements: “Boeing is down 1.2 percent, Caterpillar dropped 1.5 percent and Deere shed 2 percent.” CNBC reports that “Nvidia, Advanced Micro Devices and Broadcom were among those falling more than 1 percent in trading… on fears about the escalating trade war.”

OTHER TRADE WAR NOTES

Industrial espionage
Chinese firm denies involvement in alleged theft of Apple self-driving car tech by its new employee / SCMPEffect on China-Germany relations
U.S.-China trade row helped BASF land $10 billion Guangdong chemical coup: Sources / ReutersForeign ownership of auto plants
After Tesla deal, Shanghai to speed up cancellation of foreign ownership limits / ReutersZTE
ZTE executives meet with U.S. Commerce Department officials to work out final details of compliance deal / SCMP

—Lucas Niewenhuis

4. Chinese people don’t like smart speakers

The South China Morning Post’s new publication, Abacus, has released its 2018 China Internet Report, and a short summary of it. Some highlights:

China has nearly three times the number of internet users as the United States, and there’s still plenty of room to grow. With China’s 772 million users, internet penetration is only at 55 percent, while America’s 292 million users comprise 89 percent of its population.China’s internet giants are in every tech sector: “From streaming video to self-driving cars, the big three (Baidu, Alibaba and Tencent) are present…either by investing in startups or by building it themselves.”Physical stores that allow customers to shop seamlessly with smartphones are a major area of development for China’s big ecommerce players.The government can destroy an industry at any time: “Any trend can disappear overnight — if Chinese authorities want it to.”Short videos are huge: “Nearly 600 million people in the country actively use short video apps,” almost 80 percent of all mobile internet users in China.WeChat’s mini-programs “are cementing its place as China’s virtual mobile operating system.” There are now more than a million WeChat mini-programs, apps that function within the WeChat app itself.China still lags behind the U.S. in artificial intelligence (AI), but there is strong government support for the sector, with the goal of making China the world leader in AI by 2030.“There are now over 100 smart speaker developers in the country (including all of the tech giants), but…in 2017, only 350,000 smart speakers were sold in China, compared to 25 million in the US.”China is the world’s biggest gaming market, accounting for more than a quarter of the world’s total gaming revenue.

—Jeremy Goldkorn

5. ‘Fresh young meat’ — a threat to national masculinity?

In the Chinese entertainment industry, there is a cohort of men, very often middle-aged, who have some strong opinions about the massive popularity of “fresh young meat” (小鲜肉 xiǎoxiānròu). This is the slang term for soft-skinned, slightly effeminate, young male actors. The anti-fresh-young-meat group now seems to have found its spokesman.

In a press conference for his new show, The Patriot 爱国者, screenwriter Wang Hailin 汪海林spent over three minutes addressing (in Chinese) his issues with fresh young meat. Click through to SupChina for details.

—Jiayun Feng

6. Orwellian nonsense watch

The Global Times — the People’s Daily-owned nationalist rag — has been outdoing itself recently. Today, it brings us an article titled “Properly managing dissidents a challenge for China.” Excerpt:

Liu Xia indeed has been within sight of Chinese authorities over the past year, but definitely not under house arrest… Chinese authorities have never said "no" to Liu Xia's going abroad. Her departure on Tuesday proved that she is able to choose to leave.…


Recently dissidents have been somewhat limited in making their voices heard on public platforms, but they enjoy ample personal freedom under most circumstances.

More on Liu Xia:

‘They can hear everything that goes on in this apartment’: A glimpse inside Liu Xia’s flat, on the eve of her freedom / AFP via HKFPLiu Xia spends first night of freedom with friends in Berlin after being released by China / SCMPLiu Xia’s release: half-way house toward freedom / Blog of Jerome A. Cohen

—Jeremy Goldkorn

VIRAL VIDEO ON WEIBO

The Chili King of Hunan

Chairman Mao’s home province is known for its spicy cuisine — and a crazy chili-eating contest.

TODAY ON SUPCHINA

China Unsolved: The Village that Vanished

Humans, cats, dogs, livestock — all disappeared from a Shaanxi village, seemingly overnight. Was it state-sponsored? Or is the story mere myth, as credible as theories of UFOs?

TODAY’S NEWS ELSEWHERE ON THE WEB:

BUSINESS AND TECH:

Live streaming
China's risqué live-streaming apps are now objectifying men too / Bloomberg (porous paywall)
“Companies including YY Inc. (which has a $6 billion-market capitalization) and Momo Inc. ($9 billion) are adjusting their product offerings as educated women in China with higher incomes demand virtual entertainment that caters to their needs. The platforms are coming up with content that caters to women — adding sections targeted to their interests in gaming, outdoor sports, anime, and ahem, good-looking men.”Facial recognition 
Check-in with a smile: Marriott, Alibaba trial facial recognition at China hotels / Reuters
Chinese guests will need to scan their IDs, take a photo, and input contact details on an automated machine, the firms said. The device will then dispense room key cards after verifying identities and booking information.GMOs
Producer admits illicit sale of genetically modified corn seeds / Caixin (paywall)
In China, genetically modified (GM) seeds are highly regulated — practically banned.
Shandong Denghai Seeds “said on Tuesday that its subsidiary in Yili prefecture in the Xinjiang autonomous region sold GM seeds to a local corn farmer who planted them over more than 420 acres of farmland in Gongliu county in Yili.”Supercomputers
The U.S. may have just pulled even with China in the race to build supercomputing’s next big thing / MIT Technology Review
Exascale computing “involves building a machine within the next few years that’s capable of a billion billion calculations per second, or one exaflop.” The U.S. may have taken back from China the title of world’s fastest supercomputer last month, but exascale computing is five times faster than even the world’s fastest right now.Huawei shunned again
Australia prepares to ban Huawei from 5G project over security fears / Reuters
“Australia is preparing to ban Huawei Technologies Co Ltd from supplying equipment for its planned 5G broadband network after its intelligence agencies raised concerns that Beijing could force the Chinese telco to hand over sensitive data.”Dying on-demand bike companies
China’s first official bike rental bankruptcy leaves RMB 800 million of deposits in limbo / TechNodeBye-bye, Bitcoin 
Crackdown turns China from Bitcoin's epicenter to a wasteland / Bloomberg (porous paywall)
“Yuan-denominated trading in Bitcoin has dropped to below 1 percent of the global volume, according to China’s state-run Xinhua News Agency, which cited the country’s central bank.”Self-driving vehicles
AV startup Pony.ai grabs its second funding this year worth $102 million / TechNode
“Autonomous driving startup Pony.ai (小马智行) just nabbed an A1 funding round worth $102 million led by ClearVue Partners and Eight Roads. The funding is set to speed up the commercialization of Pony.ai’s products.”Emoji politics
Typing ‘Taiwan’ will no longer crash some iPhones / Inkstone

POLITICS AND CURRENT AFFAIRS:

Expanding the Belt and Road 
Belt and Road reality check: How to assess China’s investment in Eastern Europe / Mercator Institute for China Studies
“The reality of Beijing’s investment in Central and Eastern European countries falls short of the rhetoric at the 16+1 summits… Only a fraction of the reported sums is connected to actual infrastructure projects on the ground.”Belt and Roadblocks in Malaysia and Pakistan
China's silk road isn't so smooth / Bloomberg (porous paywall)
Many experts’ warnings have materialized in China’s most recent setbacks in Malaysia: “Projects that might be easy to execute in China would run into delays and cost overruns in less-regimented countries; growth in debt, deficits and Chinese immigration would spark political opposition; and, when a new political leadership cancelled those projects, bilateral and multilateral tensions would spike.”
Chinese official denies alleged Malaysian 1MDB mastermind Jho Low fled Macau for mainland China / SCMP
“The playboy businessman — also known as Jho Low — is accused of corruption, bribery and money laundering by law enforcement agencies in several countries in connection with the 1Malaysia Development Berhad (1MDB) financial scandal.”
‘Deeper than the oceans,’ in debt / India Today
“Chinese and Pakistani officials often like to boast that their relations are ‘higher than the Himalayas, deeper than the oceans and sweeter than honey.’ Deeper than the oceans could soon capture the extent of Pakistan's growing financial debt to its 'all-weather' ally.”Hong Kong train station controversy
Court to hear 5 legal challenges against joint checkpoint plan in October; will allow report from mainland legal expert / Hong Kong Free Press
“The High Court has decided to hear five legal challenges against the controversial joint checkpoint plan for the upcoming Express Rail Link altogether. The two-day hearing will begin on October 30, weeks after the rail link is set to begin operations. The five applications all claimed the plan for the West Kowloon station was unconstitutional on different grounds.”Dissidents and protests
Hong Kong lawyers and activists hold silent protest 3 years into China’s crackdown on human rights lawyers / HKFP
“A group of lawyers and activists held a silent protest on Monday outside Hong Kong’s Court of Final Appeal, marking the third anniversary of the Chinese government’s large-scale crackdown on human rights lawyers.”
Why Berlin is the favorite city of Chinese dissidents / Quartz
“Compared with many other Western countries, Germany has been the most consistently vocal about China’s human rights issues, even as economic relations between the two countries have deepened.”
EU urges China to free activists three years on from 709 crackdown / SCMPCambodia hacking blamed on China
Chinese hackers train sights on Cambodia in run-up to elections, cybersecurity firm says / SCMP
“Chinese cyberspies have targeted Cambodian government institutions, opposition party members, diplomats and media, possibly to gather information ahead of elections later this month.”
U.S. firm alleges Chinese hacking of Cambodian government / SCMP
China-based hackers take an interest in Cambodia's elections / The Register
Chinese cyber-spy hackers target Cambodia as elections loom / Bloomberg (porous paywall)Corruption
China charges former No 2 securities regulator for taking US$10.5 million in bribes and insider trading / SMCP
China's biggest bank corruption criminal repatriated from U.S. / ReutersNorth Korea
Crisis in U.S. nuclear talks with Pyongyang not China’s doing, experts say / Foreign Policy (paywall)
Opinion, by Victor Cha: Trump’s deal is all show, no reality in Pyongyang / Foreign Policy (paywall)

SOCIETY AND CULTURE:

Censoring #MeToo
Minitrue: Stop resurgence of campus harassment issue / China Digital Times
Government authorities have issued the following censorship instructions to media to silence the conversation on campus harassment: “…Do not allow the issue of sexual harassment in higher education to become inflamed again.”Legacy of Empress Cixi
Was this powerful Chinese empress a feminist trailblazer? / NYT (paywall)
“Cixi, a peer of Queen Victoria’s and apparently iron-willed, has invited revisionist interpretations that view her as a feminist, at least in the context of the late 19th century, when women in China were treated little better than spittoons.”Shop till you drop, literally
Family demands redress after man dies sightseeing / Sixth Tone
“A family is seeking compensation from a travel agency after a 74-year-old died during one of the company’s tours, a Nanjing-based newspaper reported on Tuesday…”LGBTQ representation
Human Rights Watch calls on Hong Kong government to put LGBT-themed children’s books back on open shelves at public libraries / SCMP
“An international human rights group has called on Hong Kong’s government to immediately reverse its decision to hide 10 children’s books with LGBT themes from public view in libraries, warning the move sent a discriminatory message.”
Telling ambiguous, ambitious gay stories / Sixth ToneSmoking in the cockpit
Pilots investigated, suspected of smoking in cockpit, after Air China flight from Hong Kong to Dalian drops 25,000 feet in 10 minutes / SCMPQinghai woman delivers quadruplets
750,000-to-1: Chinese mother gives birth to quadruplets / Inkstone

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