Acquired - Special: 2021 China Tech Trends (with Tech Buzz China)

Episode Date: May 5, 2021

We team up with two of the very best English-language analysts covering China tech today, Rui Ma and Ying Lu from the Tech Buzz China podcast, to talk about the big trends happening on the ground in China right now. We've had Rui and Ying's episodes on repeat in our own podcast players for many years as we researched our Meituan, PDD, Tencent and Alibaba episodes, and we're so excited to have them finally join us live. We had a blast and learned much more about what's actually happening in the world's largest market than the relative trickle of news Western audiences normally receive. Tune in!Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics and trends covered:How Rui and Ying stay on top of trends in China tech remotely from the USThe rise of “tech company like” CPG and other consumer brands in China and extremely fast product development and iteration: e.g., Genki Forest, Perfect Diary and SheinCommunity group buying and the reinvention of commerce in rural China (along with an eye-opening discussion of what qualifies as “rural” in China... which is very different from the West!)Autonomous and electric vehicle design and production in China (which is the world's largest car market), and the government's push for China to become a global leader in bothThe current state of anti-trust in China and why investors and operators on the ground in China are optimistic about recent developmentsLinks:Tech Buzz China: https://www.techbuzzchina.comTBC's fantastic Insider community for investors and operators: https://www.techbuzzchina.com/insider

Your format on TechBuzzChina is, well, probably a similar amount of piles of research to Acquired. Your format is way different. You actually write the whole thing out beforehand, right? Yeah, we actually do. We don't even record synchronously at this point. That's the craziest thing. So wait, can you explain what that means? We just record separately. I record my part and then Yingying records her part. It's more like an audio book each episode, but sort of like two people reacting to each other who are not in real time in the same room. It's wild. Yeah, yeah.

Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I am an angel investor based in San Francisco. And we are your hosts. On today's show, we have a crossover episode with Ray Ma and Ying Liu from the Tech Buzz China podcast. Woo. So excited about this one. Been thinking about doing this for a while. I know. I've been listening to Ray and Ying for many many years listening many, many times over on repeat while doing research for

Meituan and PDD and Tencent and Alibaba and Xiaomi and all of our Chinatech episodes. They are the best English language Chinatech podcast out there. And so excited to finally do this crossover. Yeah, no kidding. We wanted to cover a few things and thought that the best way to do sort of a broad general China episode that's not specifically about a company would be to collaborate on one and do it together. So today we're going to talk about trends in 2021 for China Tech, how Ray and Ying do their research, given that they both live in the US, their views on the China Tech landscape and how those have evolved over the last decade as that ecosystem has rapidly developed

as we've covered on the show and a little fun comparing and contrasting our two shows. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know, from listening to us all year, ServiceNow is pretty remarkable about

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Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. Now onto our conversation with TechBuzzChina. All right, Ray and Ying, great to be doing an episode with you. Yeah, yeah. So totally. We're big fans of Acquired. Our goal is to be like the Acquired, but for, you know, China Tech. Oh my God.

That's true though. you guys are great well why don't we turn it over to you real quick for give us your personal backstories a little bit about the show uh both of you live in california right not actually in china yeah yeah we live both in the bay area right now i was born China, immigrated to the States as a kid when I was eight and grew up primarily in Silicon Valley, actually, you know, went to school at Berkeley. And then when I graduated, went into investment banking, doing technology, because I wasn't good enough to be an engineer. So I studied engineering college and then went into finance. And in 2007, for personal reasons, moved to China and then ended up staying there for the next eight years working in a variety of jobs, but starting first in real estate, investing, and then going into even did some cross-border M&A, and then media private equity, and then finally really, really early stage startup investing at 500 startups which is very very early stage accelerator and seed fund and then moved back to the bay area at

the very end of 2015 didn't think i was going to do much with china anymore but was you know still keeping tabs on on things uh and i was like, podcasts are all the rage. This is in 2017. Should do a podcast on China Tech. Seems like it could be fun. And then very quickly, what I realized is that, you know, by the end of 2019, I would call it, I was like, wow, some of these companies that I'm just sort of covering for fun and personal passion for TechBuzz are actually really doing really, really well. And I should really think harder about whether or not I want to drop the China connection. And then so in 2020, decided to really pick it up full time. We took some investors to China with us in 2019 to visit a bunch of the companies that

we talk about on the podcast. And then we were going to do that last year more, you know, as part of Tech2Buzz, but then the pandemic cut short all that. So we've pivoted into more of a community now online for investors. And then I personally do a bunch of consulting for funds interested in investing in China Tech.

That's great. Well, it comes through on the show. Yeah. I can't talk about everything I get. A lot of information is proprietary, but I try to share what I can. There's so much that is happening that is reported if you are Chinese, but if you're American, you're like, I just occasionally get this random story about Jack Ma disappearing. I would love to understand thematically what's going on under those headlines in China. Yeah. And, you know, I think one thing I should point out when it comes to my personal experience, and also this happens to jive with Ying, because we, that's where we met, we met when we're both

living in Beijing, which is that we were there in retrospect at a very auspicious time in China Tech because prior to, let's call it 2013, 14, China Tech was really, really small. So I was really there when the first couple of years, really, you could count on your hand the number of people doing angel investments in China, right? So there literally was a book called Angel Investors of China. I think it had like 12 men in it. Oh my gosh. It's like the Warren Buffett used to go through the Moody's Manual of Companies to look at all the companies that there's like a manual of the angel investors. Here you go. Here are all the people. And then so I happened to then join 500, which at the time, by the way, a lot of people were

like, why are you doing this? This is way too early. This is really bizarre. This is not a business model that works in China. And then it's not like I knew what policies were coming. But then two years later, boom, you have a couple thousand accelerators. You have hundreds of early stage funds and you have a total sea change shift in attitudes around entrepreneurship and startups where people went from thinking that was something honestly only losers did if they

couldn't get a real job to now, oh, all the best and brightest would of course go and create their own startups. And that happened really around 2014 or so. And I think you can see it in the types of companies that are public today, right? Some of the most popular companies that are always talked about in media, you know, Pinduoduo, ByteDance, Meituan, et cetera, all these companies really started in the last decade. And Pinduoduo is a great example of a company that started in the last, you know, five, six years. This is when it all happened. Basically, all the capital started flooding in and the social attitudes changed. Before the pandemic, both of us used to go back quite often, I would say probably quarterly. Now, because of the travel restrictions, then it is primarily online. But the good thing is that because of the pandemic, actually, everyone in

China is also more used to being online. In fact, some of the VCGPs that I talked to, they themselves are not even based in China right now. They're like in Singapore or Taiwan or something. Very cool. All right, Ying, what's your story? So I think Ray brought me into the story when she mentioned that we met in China. It's been like 10 years ago when I went to China right after college. And even when we started this podcast, China wasn't a super hot topic

in China tech, even three years ago, was not as appreciated. And I feel like things have just totally changed. And it's interesting to be able to say, oh, I've seen the rise of different sectors of tech, especially like online to offline companies going overseas, like the rise of all the digital live streaming and e-commerce happen in China while also watching concurrent trends in the US. But to go back, I came to the US when I was two from Guangxi, actually a fourth tier city. And a lot of my extended family that I'm very close with are still in like fourth tier and some third tier cities and they're all in Guangxi, except my parents and brother. So throughout my career, I've been more on the operator side. I've worked with over,

I would say over half, so over 50% China-based fully Chinese teams, like embedded as part of the team. I've been an employee. I've been a startup co-founder in China. This was like 2012 to 2014. I fell into this niche initially when I moved to the Bay Area from China in 2014. And that was the year that a lot of Chinese apps were trying to go overseas. You guys might know about this. And I'd be brought on to help them with their US business deals or set up an office or like do PR and tell their story. And today I have two partners in China. Most of my deep rooted opinions and like cultural schemas of China have been shaped by a combination of family background and early personal and

professional experiences. But I do want to emphasize that we really have to put in time to gather current knowledge. So, you. So when people use the term like China expert or refer to tech buzz, I do think it's not something we just can spit off. It's just like you guys making an acquired episode and you have to put in a lot of the time to do the research. Well, you could not have teed us up better to discussing what is happening now in China in terms of trends for entrepreneurship. So I'd sort of like to turn it back to you. Feel free to start wherever you want. But for both of our audiences, what are some trends that they should be paying attention to and that

we'll be covering three to five years from now in the next Meituan and the next Pinduoduo in future episodes? So actually, that's a great question. And at least in the near future, what we're focused on at our insider community, what I said for this year, what I think are going to be really interesting are a couple of things. One is consumer brands, and that's specifically on consumer brands being run like internet companies, which we can talk about. There's also community group buying, which is very disruptive. And it's a new form of e-commerce that's happening now in rural China that really kicked into high gear last year because of the pandemic. And then actually, the third thing, I will briefly mention it,

but I don't actually have too much to share on the topic at the moment, which is if we think about China tech more broadly than just internet or than even just software, then this whole new thing of electric vehicles and autonomous driving is really, really interesting in China as well. And actually, a lot of experts I talk to think that the U.S. and China are really kind of on par, or some people even think China is ahead in that sector. And that's definitely something I'm watching. I'm more familiar with the AV front and less with the actual vehicle making. But those are all interesting things. Well, maybe let's first start with that direct to consumer and that brand piece

and kick it over to Ying. How do you think about that and what's going on in China there? So at a high level, I think we've always thought that, you know, in my observation, the level of quality of Chinese consumer brands, like Ray mentioned, is going to go up. And this is totally in parallel with innovation in China continuing, China no longer being a copycat, manufacturing and designing a lot of its own products. Ray, you mentioned consumer companies being run more like tech companies, but I'll delve more into specifically the DTC side, so direct-to-consumer brands. So I think there's a huge market opportunity for domestic Chinese brands to gain market share in China.

And that's not just because, again, the media narrative is all about the youth being very nationalist, but actually it's because if you look at developed countries, right? So for example, the United States, we actually have something like a quarter of FMCG products are foreign brands are non-US. But if you go to China- What's FMCG? FMCG, fast moving consumer goods. Ah. Yeah. So you're basically consumer staples, et cetera., right? But if you look at China, again, the foreign brand penetration is actually north of 40%, very, very much higher than that for certain other categories. And so if we assume that China is going to look more like the rest of the world in terms of how strong its domestic economy and brands are relative to foreign ones, then, right, there's a huge market share that domestic brands can capture. And this is accelerated by the fact that in recent years, manufacturing, design, all these things that go into brand has significantly improved. So like I was saying to

you, Ben, the OEM of the past, the original equipment manufacturers were, you know, the model is that you go to China, you already have your product spec, you already have your brand, you have your design, you go there just looking for someone to make it for you. Those days are long past. OEMs are now ODMs, right? They also do a lot of design where you can just go there with some sort of much fuzzier, let's call it product spec, and then they'll actually design something for you as well as manufacture it. Today, I hear people call these factories OBMs, right? Original Brand Manufacturings, where literally they're doing pretty much everything for you except the final

branding. They even will do a lot of the marketing copy, etc, for you as well, because they've just gotten so much better at all these parts of the entire process. I should caveat with saying, that is still, in my opinion, a lot of PR. So not all the so the the quote unquote, original brand manufacturing is is basically still, you know, ODMs. But the point is that they're significantly better than before, right? So you will see, again, you see this already on like in the US and Amazon, right? You already have a bunch of brands from China, like trying to brand themselves, right? On Amazon selling commodity products. What we're talking about, however, is not your no-name, unpronounceable

brand from China selling an Apple Firewire or something. Right. iPhone chargers or stuff. Yeah. We're talking more now about people building real brand IP, right? So I think one of the examples that is very, very popular in China right now is probably less well-known outside of China is this brand called Genki Forest. And it is right now a $6 billion valuation company that wants to be the Coca-Cola of China, right? So we already saw last year, this company called Yatsen, aka Perfect Diary, wants to be the L'Oreal of China. And then last year, we actually already also saw the listing of the P&G of China. So there's all these brands trying to take over the consumer staples categories.

And the newest entrant, and I think it's really interesting, is Genki Force, which is Coca-Cola of China. And they're just starting off with basically your carbonated beverages. And the different thing that they're doing is that the company is actually run by people who come from a social gaming background. So they think about everything in terms of, you know, marketing ROI, right? And doing very, very quick A-B testing and very, very quick iterations. And are they using OBMs, ODMs to actually make the soda? They're just a brand. They're just a brand. They're just slapping on their brand and marketing, right? So they did start with their own factory, but it was only in mid last year. And that's a few years after

they started, right? So same thing with Perfect Diary, by the way, the cosmetics brand. When they went public, they had also just started their own factory. I will say in the beverage industry, even in the US, that's super common. So this is going to sound a little trite, but I know the founders of Four Loko. And at one point in 2011, they had 100 people working at the company. 96 of them were salespeople. Oh my God. And they had the founders and a CFO, and they work with a contract manufacturer. So I think it's technically a contract brewer. And this is the most common way for any beverage, or especially alcoholic beverages in the US

to start, is to contract out everything but the distribution and the branding. That makes a lot of sense. I don't think Yankee Forest looks quite that. I mean, they are doing more R&D, but I think what differentiates them is how many SKUs that they're constantly trying. So they do small batch testing, and then they will do it on both the marketing front as well as sort of the physical products of course and then you know according to the founder only five percent of their products make it into sort of mass channels right because the mass the mass offline channels are actually very hard to penetrate and also to manage but so like this isn't like coca-cola where

it's the recipe that has been one soda that's been sold for 150 years. It's lots of different products. Yeah, it's a lot of like, so maybe even a better example is to look at Perfect Diary, which is they're doing a lot of collaborations, right? So like all the new brands these days, right, they're doing a lot of collaborations. They're making like very sort of seasonal-ish products. So they'll put out something, I think their average is one new product a week. And then whatever makes it, you know, quote unquote, becomes a bestseller,

then they'll put more resources around it. And it's the same thing for Genki Forest, right? So they are supposedly coming out with a new product every few days. And then they'll do sort of small batch testing with it. And then 5% or so of these products will then become, you know, a sort of further bestseller that they'll put into more distribution. And that is basically how, if you think about it, it's very similar to how you iterate on a internet software product, right? So this is what I mean by companies and brands in China are now trying to do this, applying it to physical products. And they're doing this because they have such good access to a very, very advanced and flexible supply chain.

I think a lot of people, when I talk to them, they're thinking of factories as still very manual and people on these long lines. But I visited some of these factories factories and they're actually quite advanced, right? So there's a lot of automation. Like I said, they're all running software to manage themselves and they have a lot of design in-house talent. And the advancements in manufacturing have really primarily focused on speed in China. So when you think about manufacturing, the minimum order quantity is always a barrier for most people, right? So especially in consumer products like clothing

and well, clothing being, I think the main one, China has really been able to push forward on having more flexible manufacturing. By what I mean is when we visited Ruhan, who is a, I don't even know how you say their English name is Ruhan. But anyways, they're just about to go private, but they were previously, you know, we did an episode on them, how they were started by the quote unquote Kylie Jenner of China.

So it's basically influencers making their own clothing and branded products. And when you say about to go private, are they public now? They are public now. Yeah, about to go private. Haven't done that well. But when we visited them, we saw all their, you know, like all their clothing and all this stuff. And then we also visited Mo Gujie, who is a, you know, live streaming shopping app. And, you know, both of them told us that like, number one, you know, they had such good access to manufacturing and turnaround times were so fast. It's about seven days, right? From a design to being made and then shipped out the door, right? Seven days. That's actually really, really fast. And for a company like Shein,

which Ying can talk about, that is apparently down to five days. And. And for a company like Shein, which Ying can talk about, that is apparently down to five days. And yeah, like a company like Shein is pushing out 1000 new SKUs every day on their website. Amazing. Yeah. Yeah, I want to hear about Shein. Yeah, I've heard about this. This is crazy. Ying, bring us up to speed here. Okay, so I think that what Ray talked about with marketing and really flexible supply chains, enabling the tech-based teams to focus on marketing and online marketing, which is actually a highly valued skill, just like it is in the US. So Shein takes five days of designing to ship. This is on average. They're producing a thousand new designs a day.

They have $10 billion in revenue. Amazing. It's all women's clothes, right? Yeah. All women's clothes. It's kind of like H&M fast fashion. They might have some men's clothes. I feel like they might have some men's clothes. I don't know. We can check. We should check. I can check. Do you want some, David? I do. I do. It's super cheap too. It's super cheap. I don't know if you want to wear them. Well, no, they do have men's and kids and beauty.

So I can order something that was designed five days ago? Yes. It might take longer to ship and get to you, but five days, yeah. It will take a long time to ship. It's like Wish shipping times. Yeah. Slightly better. Have you guys ever ordered from Wish?

I haven't. I've been tempted to, but I never have. I know only of Wish because I've seen it on Laker jerseys. Yeah, this sounds like Wish. I do think that's a good comparison. So you order and the quality of clothes, in my opinion, isn't very high. I think I did an order just to test it, but this was because I was benchmarking to another company. But Shein has, as of time of recording, 19 million fans on Instagram. So note that I'm saying Instagram. This is not a Chinese social media platform. And we'll get a little bit into

that too with some of the cross-border DTC happenings. This is amazing. I'm on the men's section and you can get swimsuits for $3.90. It's true. Wow. Oh my God. Yeah. And for reference, Uni clothes at $26 billion. So we're kind of benchmarking Shein as the success story of overseas DTC brands coming out of China. And then Ray had mentioned we visited Mogujie in October 2018. And they're also doing small batch designs and producing a lot of new designs. So this is all innovations within the supply chain and shortening the time it takes

to get new designs to market. And when people used to refer to fast fashion, you'd look at like a Zara or something, the knock was, oh, they're busting their ass to get this to customers' hands five weeks after they come up with the concept. And now we've shortened it to like five days. Is that right? Yeah. Well, there's the shipping aspect of it. But yeah, if this was happening in China, then you can get, I think you probably get it shipped the next day. Yeah, that's right. Wow. Wow. And there's always been a bunch of people that are concerned about the environmental impact. And at least I know there's a lot of negative sentiment around fast fashion. How does that play into how all this is developing? I would say at least right now,

like for a company like Shein, right? First of all, Shein is called ultra fast fashion now, I guess. I don't think the environmental impact is probably fully baked into it. And I'm personally not a fan of the model. But I think the point we're trying to make is just that the supply chain is really flexible now. And the end goal really is to have it to be so flexible that you can make it as demand comes in, right? So that it is completely just in time. And then you have zero inventory risk or zero inventory. You basically lower your cost so much. Yeah. It's like not even inventory. It's not even like just in time manufacturing. It's just in time creation and design of products. So they're like, there's no,

there's not even any product risk. Yeah, exactly. Well, that's where people are trying to get to. We're definitely not quite there yet. Yeah. But that is the future. And yeah, we picked these categories. Shein is actually an old company. It's over 10 years old. Because again, these supply chain innovations take a long time, right? But the supply chain innovations then can also be extended to other industries, like you were saying, you know, or like we were saying, the drinks, as well as cosmetics, etc, and all these other categories. There's a growing proportion of Chinese companies that want to sell into overseas markets, including the US, that are DTC fashion brands. I've personally seen a number of business plans, including one women's fashion brand that I'm currently working with, and all of themselves benchmark themselves to Shein.

So they'll have a graph on their pitch deck of like, here's the supply chain process. Here's like what Shein does. Here's what we're doing. Pretty much looks the same, or there will be some minor tweaks. And then the end product is a little different, but it's usually in fashion, women's clothing. I haven't seen cosmetics yet, but while's usually in fashion, women's clothing. I haven't seen cosmetics yet, but while their innovation in how they handle the supply chain and how they position themselves to consumers might vary a little bit, what they share with Shein is a commonality of low price, a heavy reliance on social media.

So remember when we said Shein had 19 million Instagram followers? This is something that I personally see as kind of similar to a heavy-handed version of the whole utility apps overseas craze of like 2015, 16, or 14, in that you can have a domestic-based team really master social media as long as they speak English and get some help with your customer management and then get the right operational scale. So kind of like use labor to make up for what you don't have in either local savvy or necessarily like B2B software technology in order to just like get the performance marketing right and sell purely online straight to consumers. And like there's some tweaks with this, but in general, investors seem to think it's worth betting on. And Shein, it's also on Amazon, right?

Yes. Yeah. I don't think all their stuff is though. Not everything. We're not the target customer here. It's funny because I asked on Twitter, I was like, have anyone heard of this app called Shein? And then all the people who replied were basically dads who had teenage daughters. They were like, yes! My daughter orders for this all the time. Fascinating. Interesting. So there's another factor in this overseas expansion, which is that within China, DTC brands insist on having a gross profit margin of 30% to 40%. So that's kind of just the benchmark.

Otherwise, consumers will think, oh, your prices are too high, and it won't work. But depending on the industry, brands can charge like a roughly 10% margin on their costs. But when someone like Xiaomi enters the same market, then they'll kind of push all of the prices down to something like 5%. And all of the other players will die. So this is kind of another case of like the market in China is so saturated in many categories that some people think it's less vicious to try to sell overseas, even though they don't have the native competitive advantage. Oh, that's fascinating. It's very similar to what we were talking about, David, on the Meituan episode where you have to move so quickly and grow so quickly because there's like 10 times the number of people at any given time trying to do the same company

that you're doing. And there's enough consumers to sort of like support several different companies at once. And if there is any winner take all dynamic, then it's just going to accrue very quickly to whoever gets out ahead the fastest. And otherwise, there's just like a massive race to the bottom on who will be willing to compress their margins the most. Yeah. I totally agree with that. It's just so competitive. Yeah. It's so competitive unless you can create the superior brand or customer experience, right? So for Xiyin and all these other brands in China, how is offline playing into this?

Are they also doing physical retail in China or overseas? Or are these purely online brands? Yeah, so for Xi'an, that's actually a purely online brand selling exclusively outside of China. But for a lot of the new innovations that we're seeing inside of China, it's actually emerging of online offline, right? So it depends, it's happening at two levels. The earlier we were talking about primarily at the brand level, there's also innovation happening at the channel level. And by channel, I basically mean like retail stores, right? So I think one thing that China definitely leads in that gets lost a little bit in all the coverage is that, yes, China leads in e-commerce, but China actually also leads in digital retail.

By digital retail, what I mean is actually an offline experience that is highly digitized, right? So that's very, very different from the U.S. And I actually, this is something you can sort of intuitively understand when you go shopping in China. But I think the, we did an episode with Jordan Burke, who is the former head of Walmart e-commerce and digital experience in China. And I think the way he breaks it down is really smart. And during the pandemic, we saw U.S. stores, right, use their shops as pickup points for e-commerce, right? But in China, actually, that's something that's been happening for the last 10 years, where shops are designed that way from the get-go because e-commerce has such a high penetration. So it's totally normal

for people to, you know, shop online and go pick up at their local store. So the way the store is laid out is even different, right? Like where the warehouses are, how much, you know, what the flow of the store, etc. And this is because, you know, if you ask Gen Z here in the US, like they see less and less difference between online and offline. Well, I think in China, because the society is so highly digitized, that's actually the typical experience for many, many consumers. They just think of it as shopping. They don't think of it as necessarily like- Online shopping versus going to the store, huh? Yeah. The stores have, like I said, number one, their outfit for being able to be picked up.

They're also much more integrated with their apps, right? So how many times you go to Costco, or at least I go to Costco, and I'm asking for some help and they're like, we can't help you because that's Costco.com, right? And you're in the store, right? But in China, like a lot of these experiences are fully integrated. And then the app is also something people use when they're inside the store. And then there's also a lot more personalization, right? Because again, personalization is very important to the average Chinese consumer. But it's been shown that Asian consumers in general actually require a lot higher personalization or want a lot higher personalization than Western consumers. And what's an example of that when you say

personalization? Like what's a company that's done it well? What's an example of personalization? Well, what I mean is like actually all the e-commerce, I would say all the e-commerce companies in China do it fairly well, like in the sense that the user behavior on some platforms, especially like Pinduoduo, is much more of a feed-based and recommendation-pushed experience. Is it like the merchandising that you're seeing in your shopping experience? Yes, yes. Versus you walk into a Target and literally everybody who walks into that Target gets

the same merchandising experience. Yeah, that's a big part of it. It's basically getting recommended what the store thinks you want based on your past purchases, based on your experiences, but right, based on your, you know, experiences, but also getting very personalized promotions, right? So I think something that, I don't know if this is too much of a tangent, but in China, like there is a huge team called operations that's really hard to find an analog in the, you know, in Silicon Valley companies. But all the e-commerce platforms actually have

huge operations teams that are constantly working through promotions and working with merchants, so that every time that you log on as a user, you're seeing, you know, different content than when you logged on, you know, the day before or this morning or whatever. Yeah, because people expect like, you know, people expect, you know, new content and new things to be offered to them constantly. It's funny that while this is not really a big thing in e-commerce in the US, I'm sure some companies do it well. But to your point, much more common in China, it's actually very common in gaming companies in the US to have a live operations team. I spent a year working in the gaming industry, and you'll frequently see people whose background includes live ops. And that basically means they were running the in-game stores promotions for, you know, a live period of time with a lot of personalization built in.

Oh my gosh, that's, I didn't realize that, but that makes a lot of sense now that I think about it. First of all, gaming was basically how, like, I would say 10 years ago, most people were working on some sort of gaming company. Or if they weren't working on a gaming company, their ultimate monetization was gaming, right? So they could be working on XYZ, but they were basically trying to funnel people into games because that was the only, like, that was basically the only business model that worked in China. Yeah. Yeah. So a lot of people of people have this we got a tangent here for a sec what kind of gaming are we talking like like legal like League of Legends or like mobile gaming oh Ying thinks

I'm a gamer just because like I played more games than she did but yeah in college she was like I played games all through school yeah I did yeah there we go yeah exactly in college she was like i played games all through school yeah i did yeah there we go yeah exactly in college i played a lot of starcraft and you know everquest and this is very this is very much dating myself everquest is like setting the bar yeah that is uh well we i mean the way that um yeah when we had uh rahul vorah from Superhuman on the show, I mean, he really like, yeah, Superhuman is great and all, but he really like won cred with me when he was like, oh, yeah, like I was a game designer. I'm like, wait, I did the research. You were like an original game designer on RuneScape. Oh, wow.

RuneScape. Yeah. Wow. That's crazy. That was one of the deals I worked on at Rain, actually. I love it. Rain invested in Jagex, which was the company of RuneScape. That's right.

That's hilarious. But I think, you know, Ben, what you said is just a really good point that I think actually that's a lot of where Chinese companies probably get their inspiration. But to this day, right, operations remain really, really important. And, you know, everything is quote unquote, operated on, by the way, even the bullet comments on Bilibili have operators, right? Like getting special promotions or planting comments. Oh, yeah, we haven't covered Bilibili yet on the show. So introduce us to that company. What is Bilibili? Bilibili likes to call itself the YouTube of China, but it's basically the stickiest platform for Gen Z to create and watch videos.

I mean, that's not really how they make money. They have a more diverse set of revenue sources, but what they're really known for is this platform, much like YouTube, where people are uploading creative videos generally between, I think, five and 20 minutes. So longer, not short videos. Oh, so not like Douyin, like TikTok type. Exactly. And much, much more like YouTube. That's why they do compare themselves to YouTube, except their business model is different, right? They don't make much money off of advertising. They have also a gaming platform. They have live streaming, e-commerce. It's actually pretty diverse at this point. Yeah. Huh. I mean, that's just so much more common in China than the US

where it's just not an advertising-driven economy. Yeah. Yeah. You're right. Yeah. With the exception of ByteDance, who has made huge strides in advertising, yes, that I would say, you know, well, actually, Alibaba as well is really an advertising based company in many senses. But in China, it seems like it never really was the default answer that so many people are like, oh, we'll put games in or we'll steer you toward commerce, like there will be a more direct way to create and capture value. That's absolutely right. I mean, it has a lot to do with the fact that it was just kind of early, right? Like China just crossed like $10,000 in GDP per capita. I don't know if you guys know the US number, but it's over 65,000, right? There's a pretty big gap. And, you know, for I would say the first couple of years I was in China, I had a lot of friends in advertising and they could tell you that it was really difficult to sell advertising. Well, why? Because at the time you really, you should just invest your profits into growing

distribution that you got way more bang for your buck out of just organically growing you know distribution points than trying to advertise because advertising if you think about it's really for a kind of saturated economy where all the distributions already built out right and you're just trying to compete with each other but at the you know with china uh until recently at least it really just like, just get your products in front of the customer. Yeah. You know, versus like trying to say I'm better than the other guy.

It's like, no, no, you win just by being there. So this is a great transition point to the next big trend I think we wanted to discuss, which is community group buying, which we discussed a good bit with Lillian on the Meituan follow-up on the LP show. But for everybody else, to me, this is a perfect example of the focus on distribution in China. That's what it's all about, right? Distribution, yeah. This is exactly a distribution play, yeah. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today.

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Community group buying is very simple. People are applying a group buying mechanism to buying fresh groceries to start with, but now also moving into other goods to parts of rural China where there isn't a lot of choice and isn't great logistics for such products. And then the platforms basically send it to you the next day for your own self-pickup, thereby saving money on the last mile logistics. And these are like to the previous discussion about advertising and not needing to differentiate your products. These are the ultimate unbranded. These are products from rural farmers, like vegetables and vegetables and stuff, right? That people are buying through community group buying platforms. And the platforms are Meituan, PDD, Alibaba, like enormous tech companies, right? Yeah. Although actually, if you look at community group buy, we just did a call with an alternative data firm on this.

And you can see that people are so so while fresh food is sort of like the way to get people hooked onto your platform. So like in China, for example, like everyone sells eggs because I don't know why like eggs are just people just love cheap eggs. And then I heard that nowadays, actually, they're trying to get people to get vaccinated by gifting you free eggs along with your vaccination. eggs. And then I heard that nowadays, actually, they're trying to get people to get vaccinated by gifting you free eggs along with your vaccination. So eggs are just like- We get donuts. They get eggs.

Eggs are like one of the best sellers on all these platforms, actually. But you can also see from some of these platforms are shifting into more branded and non-perishable products as well. So like boxed milk, juices, and then there was one platform, I think they're just trying to brush their GMV. I won't say their name, but their best seller was actually the iPhone 12. Wow. Yeah, that doesn't quite seem like the same thing. So there's a platform that's selling iPhones via this community group buying model in rural China. It's one of the top ones that are well-funded. So what I'm saying is that this is a model, but while it's starting off with groceries, you can see pretty clearly that this is really just rural e-commerce. And the group buying aspect is, you know, if you consider group buying as something like the order only happens when

enough people order it, that's not really happening right now anymore either, right? So like even the group buying aspect, I always say everything about these words is kind of up for debate. I would just call it hyperlocal rural e-commerce. Which by the way, Alibaba, their new initiative, that's what they're calling it. They're calling it hyperlocal e-commerce. And the way this all works is fascinating, right? The platforms are pushing so much of the logistics work onto users and leaders of these group buying platforms themselves, right? So it's not like PDD or Meituan or whomever is actually doing very little to get these products in the hands of customers. Well, that's not strictly correct. You are correct in that they're not doing the last mile, but they have to do the entire

procurement, which in the past in China would be, you know, you go to the farms, there were two or three layers of distribution before you as the final end customer, you know, got it from a grocery store or the wet market or whatever. But now then Meituan or Pinduoduo has to do this entire thing, which requires actually a lot of cold chain logistics for perishable foods that most of them don't have, right? So we did an episode on e-grocery in China, and I don't remember the exact stat, but you can compare the per capita, I guess, cold storage sort of capacity. And China is like a fraction of what's here in the U.S.

So that is actually a really, really good sector for you to invest in. Interesting. So they're doing all of the higher level supply chain. It's the last mile that they're pushing down onto users. Yeah. And, you know, it's arguable whether or not it's really, really all that much cheaper because the Pinduoduo CEO, Chen Lei, has actually said in agricultural e-commerce,

it's not the last mile that's expensive. It's the first mile. Huh. And why is that? Because getting it from the farmer, I guess, to the warehouse and then doing all that is actually, you know, that part of the supply chain isn't as well developed as if you think about it, sort of the same day, same city

courier system, like a lot of the e-commerce actually already accommodates that. They've already built that out. Yeah. Well, and just the refrigeration and cold storage. Yeah. I assume none of that is happening during the last mile no no so it yeah the way it works right now for all the platforms because we we actually like took some deep dives into the warehousing because that that is really where you're going to understand if if this platform is doing it correctly or sustainably and can make it right so they actually franchise out the warehouses so you can go for example and become like a matua and cgp warehouse pickup point i guess and then you you need to have like a you have a certain number of capital you have this building that fits the requirements and then you

need to have like cars or like some type of vehicle that fits their requirements, et cetera, and this number of laborers, and then you can go and become a franchisee of the system. Yeah. Wow. So I think to frame this, this is one of the areas that I'm personally really excited about seeing up close and in person when we can travel again, Because again, a lot of the content that we're seeing around this is reported on and it's not people that Ray and I talk to on a daily basis because they're usually in first or second, maybe second tier cities. But this is really about, like we said, digital penetration into rural China. It is also about micro entrepreneurship. So the community leaders

who are taking a cut of the total sales within their community are essentially, you know, being contracted and get like a nice partial salary every month for playing that role. And it's a way for the large platform. So you mentioned Pinduoduo PDD, but also Alibaba and JD of putting almost, I would say almost billions of dollars, US. Yeah, no, no, not almost. Yeah, they are billions of dollars. Like billions of dollars into their own platforms or into their investments. And sort of like at a high level to what we talk about a lot on TechBuzz is the whole,

what was it? Trickle up consumption in, what was that phrase, right? It's hard to translate, but consumption upgrade is when people in China talk about the first and second tier cities, you know, increasing in their consumption and basically being like developed economy consumers. And then there's also the consumer quote unquote downgrade, which is when all the brands are now discovering that rural China is where it's at. Exactly. Yeah. And is this race pouring billions of dollars into the tier three and tier four cities? Is that just

because they're out of growth in tier one and tier two cities and this is where they need to go to grow? Or why is there a capital battle going on there? Yeah, huge. Because if you look at China, the growth has slowed down for all of China. But if you look at rural China, it's actually still something like 10% GDP growth per capita year on year, right? And this is about, depending on how you slice it, but I generally like to take just the first and second tier cities out. The rest of China, quote unquote, rural China, third tier and below is still a billion people. Yeah, this is, you know, for Western audiences, just to give a sense of scale, tier one and tier two cities in China are like bigger than any cities in the West, right?

Right. Yeah. Like tier three and tier four are two. They're sometimes bigger, especially San Francisco. SF is really small. It's like a town. Yeah. So we're still talking about, yeah, as you say, a billion people in tier three and tier four cities in China. Yeah. Yeah. And below. And even, you know, again, tier five, it's really interesting because China has really good infrastructure in some sense, but then, again, tier five, it's really interesting, because China has really good infrastructure in some sense, but then and a lot of people, but when you think about like retail distribution, think about like in the US, right, we have access to really good, you know, grocery stores, supermarkets, because it's been over 100 years that people have been investing in these

logistics, real estate, cold chain, etc. And in China China, it's just going to take some time, right? Like they're already growing really, really fast. But to give you an example of what a fifth tier city looks like, a fifth tier city, because I was trying to explain to an African entrepreneur exploring CGB. I was like, oh, well, in China, it really works well in these types of cities and fifth tier cities. She's like, what does that look like? So anyways, I found some stats and pictures for her. It's about a million people usually. So which is the size of San Francisco. Yeah, exactly. It's about a million people. Typically, I looked up like 10 cities, they're all about a million. And you know, if you look at the skyline, they don't have like necessarily a ton of skyscrapers,

but they have some tall buildings. The main thing is that you'll find, I thought this was like hilarious, is that all of them have either a Starbucks about to open or just opened. So that is like the level of GDP that you can think about. And by the way, Starbucks is about $3 to $4 per cup in China, right? So it's not cheap. It's premium in China. So when Starbucks is opening, I think it's a great indicator of this city being on the up and up and being able to consume more. Well, and this explains too, I think, one of the things Lillian really talked about on the LP episode about OCGB, the question of why is this so important and why are all these big platforms

investing billions of dollars into it it's not about selling groceries to people it's about capturing user behavior for all of these new people coming on to tech platforms right and so if if they start transacting for their staple everyday goods on pdd or on Meituan or on JD or on Alibaba. And there's a really good chance that they're going to keep doing more stuff on those platforms, especially as their disposable income goes up, right? Yeah, these are high frequency purchases. And then, you know, even the disposable income, I think you can't just look at the pure income level, right? Because it's the same thing as in the US, where if you live in a quote-unquote tier one urban center, you might

have a high salary, but your real estate costs are super high as well. So your final lifestyle purchases could actually be less in China, if you live in Shanghai or something, versus if you live in a quote-unquote tier two city like Chengdu or a, you know, where Yingying's family's from like a tier four city, people there might actually have more money to spend. It's like, it's unintuitive, but it's true, right? Because the income disparity might be a factor of like two, three times, but the real estate prices might be a factor of 10 times, right? It's very like Shanghai. When I left, I bought an apartment there and I sold it

and it was like already more expensive than most districts in San Francisco. Wow. This was five years ago, yeah. So Ray mentioned my family and I just looked up the population of the fourth tier city that I was born in and it's fourth tier,

but there's 5.77 million people. And what you were saying with disposable income and folks having more to spend discretionary in general, that's true. I feel like my aunt compared to my mom, she will spend hundreds of US dollars on clothing and her salary is probably like, not to out her, but probably like one or 2000 US dollars a month. So we just don't know. Sometimes my mom's like, where is she getting the money for this? But it's because everything else is so cheap. Or if you're working kind of a government job, you get a ton of benefits, including housing. And also I want to just ingrain in listeners minds when we do say rural China, like we've already described, we're not talking rural areas.

We're talking cities like the one I just gave you. We're talking 5 million person cities. We're talking like… Yeah, it's not like some field in the middle of nowhere. The reason this works in community group buying, like it's not just, oh, people traveling 10 miles to deliver one bag of groceries to the final outlier. It's like they're in neighborhoods that are stacked more densely than San Francisco. And so you have the gatekeeper of the neighborhood taking the bulk orders, and it's right downstairs before you go out. So what do we call people farming in China? If rural China means 5 million person cities in dense, dense impact departments. Farmers.

Okay. I think they're still called farmers. Wow. All right. Well, I want to transition us to one other big topic that I think we want to hit in talking through China trends today, and that is electric vehicles. I think this is something that a lot of people have seen in the news, both because of SPACs that are happening, because of new battery technology companies, because of Tesla competitors, because of Tesla building a very large factory in China.

What the heck is going on with electric vehicles in China? So first of all, it's just a big priority right now. I think if you look back 10 years ago, China probably didn't care that much about environmental damage or climate change, at least not at the expense of economic development. But in recent years, you've really seen China take a lead on climate change. Part of it is because they realized that reliance on oil and just all the devastation from climate change is actually bad for national security, right? It's destabilizing. So now electric vehicles has become a huge priority in China, and every brand is jumping

into it. So in the past month alone, we've seen Huawei announce that they're going to put in the software into EVs. We've seen Xiaomi announce that they're going to invest $10 billion over the next 10 years into EVs. We've seen Xiaomi announce that they're going to invest $10 billion over the next 10 years into EVs. We've seen DJI, the drone maker, say they're going to participate in EVs. And, you know, the BAT and, you know, companies like,

so Baidu is now effectively basically a autonomous driving company, actually, if you just look at their- Really? Yeah, basically. Like they're, that's really the main story now for that company. My and our unacquired perspective on the BAT and Baidu specifically is that they've just fallen off the map and it's just Alibaba and Tencent are the big players in China now. But I at least

haven't known anything about what's actually happened with Baidu. Yeah. Basically, investors, like I talked to, are basically like, oh, you're basically investing in Baidu as an autonomous driving company, and you're getting the search business for free. Wow. That's what it is. So it's like investing in Waymo and getting Google for free. Exactly. Exactly. Right. So it's like if you... And again, when Baidu introduces itself now, I know a lot of the PR people there is basically, we're an AI company.

That's accurate. Yeah. bunch of JVs in EV. We don't know exactly what they're doing because they've only announced JVs, but no specifics. Tencent, of course, has invested in, I think they invested in NIO. Alibaba also invested in Xpeng. And then Meituan invested in Li Auto, which are the three publicly listed Chinese EV companies. And then they've all made significant money, I guess, at least on paper on these investments because they're all up significantly in the last year, which is hilarious because when we visited NIO in October, 2019, I remember our meeting got canceled at last minute because this was the period when people weren't sure if they were going to be in business. So their stock price was like hovering around. And are they, are they making cars? Are these companies' cars on the road? Yeah.

Yeah. All of them have delivered vehicles. Of course, they're a fraction of Tesla, but they've all delivered vehicles. In fact, I think NIO now is a, I want to say, yeah, $59 billion company. Wow. Yeah. Literally a year and a half ago, we weren't sure if they would be surviving. Which is what Tesla was two years ago.

Yeah, I know. Invest, invest. Well, it's funny. Is the Tesla sales multiple being applied to all of these companies too? Is that what's happening? Yeah, I think so. The exuberance has lifted the entire sector. Yeah.

And when you consider, of course, that China's largest car market and there's government push towards EVs, that, yeah, there's a lot of excitement. And is it fair to say that the car market in China is probably four to five times as large as the car market in the US just by population? Yeah, I actually don't know. I did an episode on this, but I don't remember the exact numbers. But I do remember it's the largest, yeah. Huh, because I have heard this from other sources sort of talking about the growth of electric vehicles,

people saying, oh, well, the real growth is in China, just from a consumption perspective. Yeah, yeah. And I think that's people betting on the continued development of the economy and the incredible demand and probably government incentives Yeah, yeah. be there. Yeah. And then but there's a lot of there's a lot of competition, as you can see, basically every internet company, we've listed a bunch, I'm just waiting for Pinduoduo now to announce that they're gonna do something like discount car. Yeah. EVs are the new games for Chinese companies. No, for sure. For sure. Yeah. And then the pretty much everyone's announced one. And then

separately in autonomous driving, which I think is also really interesting. But all of these companies are private, so we don't know as much about them. But I've talked to a bunch of people who have invested in this space, and I've talked to a few of the companies. I think that this is a space we should definitely be watching because China is going about it in a different way. So Baidu, for example, is working with the government on autonomous driving solutions that aren't just the software, but also include remaking the infrastructure on the road. Right. So we'll see if that works. And then there are just, yeah, a bunch of players that are really like teams, actually, that came out of Baidu. Also Google, just really, really top notch AI talent. And the word on the ground is that it's anyone's game.

Like, who's going to get to level five first? It's not clear that it would be the US winning. I think China has a really strong chance. And this is like the first, this is what I would say is like the first sort of deep tech, right? Not like consumer internet, lightweight app, but really deep tech that we see this competition play out that will have really, really interesting lasting effects, right? The first country to get to level five is

going to experience tremendous efficiencies. Yeah. Yeah. Well, and the infrastructure point is an interesting one too, because I remember, not that I've spent a ton of time in the autonomous space, but, you know, a few years ago, people were thinking, oh, well, if, you know, there's going to be new roads built or roads upgraded in the U.S. that are going to be integrated with AVs and this is going to be great. The reality is like that's not going to happen in the U.S. anytime soon. But China could actually do this. Right. The US is at a huge disadvantage for this, both because of the sort of like, reliance on the existing system, whereas China will just make a government mandate and say, nope, we're building an all new system and people will snap to but also because of the federal system, the idea that we're a whole bunch of states that are all going to pass laws independently.

I think the ability to require that people stay at home during the coronavirus is a very similar example where if something is declared by fiat, it is much more likely to be followed than, you know, please, please, population, do something. Very different strategies that both have their trade-offs. Yeah, yeah. I mean, it is not that centralized in China either, but I think there are, yeah, the local governments who I've worked with some of them definitely have a lot more power, a lot more budget than here in the States.

I can't imagine some of the cities I've lived in the Bay Area, for example, really being able to remake the entire traffic light system or lane markers or whatever it is that's needed. Yeah. Probably. It's just impossible to even imagine. I know, right? It's like the potholes aren't even filled yet and you're going to make this a smart road?

I don't know. Yeah. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yeah, Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers.

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And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. All right, one more lightning topic here before we close, because I know it's on a lot of people's minds who follow China Tech. What is going on with antitrust in China right now? And is it a good

thing? Is it a bad thing? I will say it's definitely affecting asset prices and stock prices. So what's happening there? So I think the antitrust caught some people off guard. But actually, if you look at the history, this was pretty much inevitable. And it's actually been in play for quite a few years. So I talked to people who've been working on antitrust in China at least three or four years in the making. If you look at the history, Chinese antitrust law, the first version was passed in 2008, which is really late, right? Because in the US, it was like in the 1890s. Yeah.

There was the first version. The Sherman Act, I think, was the origin of it. Yeah, yeah, exactly. Exactly. And then nothing was done for the next 12 years. So specific to tech, we had one case that was Chihu 360 and Tencent. They got into a fight where it was actually very similar to what's happening right now, where they basically told their users that the other software program was malware and that if you wanted to use my program, you had to uninstall the other program, right, forcibly. And then Tencent actually won that case, but it actually had ramifications in that it really changed how they thought about their strategy going forward. This is actually the time after which they stopped making a lot of products

internally and started investing. So this is when they built their empire, so to speak. But after that case, the no cases were heard for like the next 10 years. Wow. So literally zero antitrust cases in China for 10 years. Yeah, yeah. Well, in tech, in tech, there were plenty of antitrust cases, but I mean for internet, for internet. So let's make that clear.

Then in January 2020, in an effort, honestly, to catch up with the rest of the world, right? So if you look at all the state media and the government proclamations, this is all about trying to catch up with the rest of the world. They issued the first draft, and then a lot of the things were very reasonable. And then they issued more, of course, towards the end of last year, specifically around platform companies. But really, you've seen movements towards this direction for a while now. And all of the things are meant to really protect consumers as well as vendors who deal with these platform companies. Because let's face it, some of them, like Alibaba, who recently

received the massive $2.8 billion fine, were really abusing their positions. Yeah, they were telling people that you could only do promotions or sell products on my platform and not JD, right? So this is very egregious if you think about it. Yeah. And then the laws also protect consumers against various other things, which is like discriminatory pricing. So a lot of the platforms were discovered by the public to be discriminating against users. And in fact, they were doing it against their most loyal customers, right? Because... Right. They're going to be happy to pay more.

Yeah, exactly. They're like, we know you're really sticky and you're very loyal. So we're going to actually charge you more for the same thing than for a new user. So this is obviously really not cool. So really, I think the proper takeaway is that China is really trying to catch up to the rest of the world. And this is something that is going to be in play. This is not something that's going away. China is very adamant about this. It's not going to go back to the days of the wild, wild west, which I agree with. And if you talk to investors on the ground and consumers on the ground, they're all cheering these resolutions. In fact, they're like, why didn't this happen earlier? Right? And why is that? Because again,

some of the practices that these big tech companies were doing that were really, really unfair to both consumers and vendors. And there was just no recourse because the antitrust authorities weren't really even hearing any cases, right? So all of the judgments also were, oh, I shouldn't say the antitrust, they were hearing cases, but I would say the judgments were very small. So prior to the draft laws changing this, I think the upper cap for violations was like a million RMB, right? Or 500,000 RMB. It might have been even lower, which is like $70,000. It's like, here you go. That's like a small tax you're going to pay. Yeah, exactly. Like imagine your $200 billion company, this means nothing. So if you're a startup investor or a startup founder or employee, this is great news for you because this is going to force China big tech to play fair. Exactly. And that's exactly what's happened if you talk to VCs on the ground,

if you talk to entrepreneurs on the ground. One VC actually said something, this is more specific to fintech. He was like, oh, yeah, I was previously not interested in consumer fintech at all. But now that all these rules came out, I think I'll start looking at it. Right. So fascinating. All right. Well, as we close here, let's look with an eye toward the future. What should people sort of think about as what's next for China Tech through 2021, 2022? So I think it's really hard to sum up what we should be looking at, because as you've heard throughout our entire discussion, there's so much going on in China tech and so many sectors that are experiencing innovation. And you have people who used to start internet companies

going and making electric cars and raising a bunch of money for that. So that's happening domestically. But I think in my purview, there's a lot of increased internationalization that we kind of thought stopped last year because of COVID. But I actually see signs of it starting up again and accelerating. And this whole trend of Chinese companies not just coming to the US and Europe, but also going to Southeast Asia, to Brazil, to other emerging markets, India. That's, again, been ongoing. And I feel like having honed their chops at home, that's only going to accelerate. And there's certain sectors like e-commerce that are very well positioned for that. And there's companies that have already started to take advantage of

those trends. And I think capital kind of in a cycle recognizes that as well. So definitely internationalization. I think from a talent point of view too, founders who have found either success at home or success in a different sector, or have had global education. And I know you guys have seen this too, with probably all the founders that you're meeting with, they take that knowledge and return home. And, you know, it's like more comfortable to have a great lifestyle and to be well funded and well supported in the China market. And from there kind of take on the rest of the world because you're you know how to hire teams in other places. So I think that that's going to continue. There's definitely continued innovation. I think Ray, you wrote McKenzie's head of China said no China, no country were the main thing.

Yeah. So and I think the this is more of a meta point, because I think we, you wrote, McKenzie's head of China said, no, China, no country were the main thing. Yeah. So, and I think the, this is more of a meta point because I think we covered the sectors that we think are really interesting to look at for this year. The meta point is that I think for Chinese companies don't expect them to impose any boundaries on themselves, right? So for example, we see that ByteDance is now going into local services and trying to move Meituan's cheese, right? We see, of course, like Xiaomi going to EVs, but all these companies are going wherever the opportunity is next because the amount of change that's really happened in the last 30 years in China, GDP went up 30 times in China in the last 30 years, right? That's the highest, like far, far higher than any other country, which makes both the customers in China hyper adaptive, but also makes the entrepreneurs, they're hyper adaptive as well. No one really takes anything for granted. They're looking for the next thing all the time. Right. Well, like the story of Meituan is that it started

as a Groupon clone. And today, it's the largest travel player and a huge community group buying platform and all sorts of stuff. Yeah, exactly. Meituan is a perfect example. Basically, Wang Xing, I think he really embodies this, but so does Zhang Yiming at ByteDance, right? They've just made a $4 billion acquisition of a gaming studio. And then three weeks later, they made another acquisition, which I think is also billions of dollars. It was undisclosed. But just looking at the company, it's definitely up there.

Yeah. I mean, if I had to describe this trend, I think it would be U.S. companies think that their core competency is something like e-commerce or ride sharing or social networking. And Chinese entrepreneurs think, we have lots of competencies. We have a lot of capital. We have a lot of users. Yes.

Let's do whatever. Let's do lots of things with that. Yeah, exactly. We'll do whatever makes money. Our core competency is making money. Either making money or if we're losing money, then raising money. So something like that. Yeah. So I definitely, there's this basically, I think, existential anxiety that people have because they've seen so much change over the last, you know, during their lifetimes that they can't take anything for granted. Right. So people don't hold onto their laurels for too long and they're always investing. Yeah.

Like, did you guys know, for example, ByteDance has invested big into FinTech and even into hospital, right? Wow. No. Whoa. And then of course there are rumors they're making their own EV as well.

Like who knows, right? Everyone, you get an EV, you get an EV, everyone gets one. And it's still a private company. Yeah. Yeah. Wow. Well, that's a great place to leave it. Ray and Ying, this was super fun. Thank you for doing this with us. Yeah. Thank you for having us.

All right. Well, that wraps up our crossover episode with TechBuzzChina. If you liked what you heard and you want to listen to more, there are loads of great episodes from Ray and Ying. Just search TechBuzzChina in any podcast player and you'll be able to find it. If you want to talk about this episode, the goings on of the tech world, or just talk to genuinely smart people about what's going on in tech and business, you should join the Acquired Slack at acquired.fm slash slack. If you love Acquired and you want to be a deeper part of what David and I do here, you should become an Acquired Limited Partner. We have, obviously, the loads of things that we normally talk about, the library of content, the VC Fundamentals episodes, the interviews,

the monthly Zoom calls. But this month, we have a special announcement about our next book club. David, what are we doing? The triumphant return of the book club we are uh so excited to bring it back we are having brad stone back on acquired to hang out with all of our lps and talk about his new book dropping this month amazon unbound i can't wait to read this book. Ben and I both have it pre-ordered. Brad's first book on Amazon was just like a classic. The Everything Store was the first one? The Everything Store. Yep. I learned so much from that book. And Brad is just such a sensational reporter. And so much has happened since he last left Jeff. This is going to be awesome. So Brad is going to join us for live discussion with our LPs. And we can't wait to see everybody there. Yeah. And for you LPs, you'll get this in your email in an announcement with all the

details of how to join. But read the book by May 21st, because that's when we'll be doing the discussion. And many of you may actually remember listening to Brad when he was on our Uber and Didi episode as a guest back when he wrote his other book, The Upstarts from the History of Uber and Airbnb. So join us, become an LP, tune in live and join us on the Zoom and ask Brad some questions too on May 21st. Well, with that, David, I think that's all we've got. So folks, we will see you next time. We'll see you next time. Bye.