Confusion Reigns for Foreign Companies Operating in China

of tech policy research at a Beijing based policy consultancy Triviaan. Kendra, start by explaining a little about you, because you're just your own sort of recent personal history is kind of interesting. You're based in Beijing until very recently. Yeah, absolutely, thanks for having me. So I just left Beijing a couple of months ago. I actually went to college in Beijing in two thousand and two. I kind of intended to just stay there, you know, for a year and then

go back. I was a nerd kid. I started my career as a developed for actually, and then I've just been there for the last twenty years and my my career kind of went from you know, I was there right at the beginning of the Internet boom, and my career went from development to to tech policy research and a bizarre series of twists and turns. So yeah, I've been there for for most of the COVID outbreak and

just just kind of stepped out. And you must have this sort of interesting phenomena recently where those people who have managed the academics and China experts who have been able to be in China recently for one reason or another, they're so rare they get sort of mobbed by people for the kind of more recent take on on on things in China. Has that been your experience this week and in the last few weeks, Yeah, it absolutely has.

I mean that's been you know, exacerbated by US China tentions, but it's also been exacerbated by a kind of axodus of China experts from China during the COVID pandemic um and so nobody has been able to really get back. I mean, US China travel cross border dial has really taken a nose dive in the last couple of years.

So yeah, there's a lot of interest in what it's really like on the ground over there, particularly since you know, China's kind of gone off on on this you know, other timeline with COVID than the rest of the world.

So people are very interested in what's happening, and you are day to day, of course, also observing what's happening in the in the tech policy space and giving kind of daily up to you and your team might imagine are updating your clients and talking to people in a regular, regular basis and how is your how is your business done over the last few years, I guess is one

way of putting it. Well, yeah, so basically what we do is, you know, my tech team spends all day digging around in in Chinese tech policy documents and kind of trying to explain Beijing's motivations for you know, some of the things that have happened, particularly in the last

couple of years. And so business is booming. It's never a dull day, especially considering we've seen you know, the twentieth Party Congress, We've seen the tech crackdown, We've seen you know, all of these companies kind of get hit fire hosed with new regulations coming out of Beijing. We've seen you know, censorship increase. So there's just been a lot of a lot of things to follow, and there's

been significant interest in those things. And you were saying to me that, you know, one of the distinguishing features of the consultancy is everybody there reads at least one big pile of very boring policy documents every morning when it comes out. So we spend you know, I mean, we spend a couple hours a day just digging through

the latest releases from the various government agencies. But not just that, also you know blogs from you know, policy advisors and you know, other kind of micro moves from from Chinese think tanks and that kind of stuff, to really kind of get a sense of these these little steps forward. Whereas the media tends to focus on the big headlines, right, big big new movements, we kind of track what's happened after those issues are not headlines anymore.

But a lot of people listening to this podcast, I imagine they're kind of fairly interested. I hope they're fairly interested in the global economy, um, but then maybe not focused necessarily on what's happening in business or tech policy at any given time. When we hear that headline, you know, the tech crackdown. What do you think has actually been going on over the last couple of years with what we consider to be the tech crackdown in China? Yeah,

I mean that's a fascinating topic. It's pretty much all anybody wanted to hear about last year, right, And because I think it's surprised so many investors. Um. But to be perfectly frank, it probably shouldn't have. Ultimately, what is there was a lot of things going on. Number One, for the last fifteen years really maybe twenty years, since China's big tech companies really started to develop. Um. You know, the state has struggled with figuring out where big tech

fits into the socialist market economy. Right. I mean, when you really think about it, it's fascinating because big tech company, the emergence of big tech companies is the first time that Beijing has ever had to deal with with big, private, domestic firms that are not state owned enterprises, right, And so the state has kind of not really known what to do with big tech in that regard. And for the first fifteen years of tech company development, to be

perfectly frank, tech firms were very dismissive of regulators. And you have a similar issue in the States, right, They kind of brushed off a lot of regulatory authority and pressure. We kind of conceptualized that as the central government came after big tech. It's not really what happened. You know, you basically had a multitude of regulators going after, you know, concerned about a multitude of issues in the tech space.

So that included things like the Central Bank was worried that fintech platforms were being regulated like tech companies and not like banks, but they were basically behaving like banks, or at least by like financial institutions. Um. You know, you you had transport regulators and market regulators concerned about low levels of compliance legal compliance in the right hailing sector.

You had the Ministry of Education concerned that ed tech companies were you know, overcharging parents and kind of making it more expensive to have kids in a time when

the population is declining. And so all of these things have been bubbling under the surface for you know, over a decade um and then you know, as the state's priorities and their vision for the future digital economies started to solidify under Shijin Ping's government, you know, there was this growing concern that the state needed to step in, that all these regulators needed to step in and put these tech companies forced them to get in line with state directed goals, and so there was kind of a

green light signal from the central government that these regulators could now go after you know, tech companies across this whole range of issues, and it just created a tidal wave of kind of pent up regular ship that I'll just crash down on tech companies at the same time. Uh, And that's kind of what investors experienced last year when

we see in the National Party Congress. Obviously the takeaway that I think anyone who paid any attention at all had saw the headline, you know, she jumping consolidating his power. That's raised question marks about whether policy going forward will be driven by kind of considerations of what's best for the economy or much more about what's best for she and what's best for for the for the government, and

it's continued control. If when you look at in technology, it was a key part of China's future growth is going to be innovation in that sector. Does one see the same kind of concern that she's increasingly iron grip could start slowing China's innovation or getting in the way of its growth. Yes, So the critical issue there is really that the state wants to encourage innovation, but innovation

along the lines of state directed goals. Right, The idea is really become that tech companies and particularly I'm talking about platform companies here UM, should be on board with leveraging their capital and directing their resources towards UH solving what the Chinese government tends to call bottleneck or chokehold technologies. Right, so the messages listen, tech platforms, we don't want you guys disrupting pizza delivery or whatever it is you're doing

that's not helping the state. We want you to leverage your capital UH to develop high end chips, which were you know, UM currently struggling to China currently struggling to develop that industry. We want you to leverage your capital towards AI, towards you know, certain elements of blockchain development UM, and those are the goals that the state sees will

help it develop its digital economy. That I should still back a little bit because one of the fascinating pieces of the digital economy, the way that the state has kind of framed it is that the growth of the digital economy in China is you know, many times faster than the growth is the real economy. But their vision for the digital economy doesn't really include or platforms just kind of developing whatever they want, right, So that's really

that's really the issue. They want to put platform companies on a trellis and then have them develop on the trellis that the party has established. Does that make sense? Yeah? I mean I think a lot of governments would look at that and say, yeah, of course, we like to have all the innovation or being super valuable useful things, and not in these things that seem rather frivolous or

distracting from your knowledge of the way innovators work. I mean, is how plausible is it that the government is just going to be able to encourage innovation in some areas and not others. No, I mean, I think that remains to be seen. You know, I think about the answer to question, I'd be a bazillionaire. But you know, what we have seen as a response from platform companies indicating at least nominally that they are trying to get on

the boat. So we've seen platform companies go into chip design. We've seen platform companies go into you know AI. We've seen also seen a lot of moves by platform companies to uh create platforms that help solve other domestic problems. So for example, food security issues or rural revitalization, right kind of bringing jobs to the countryside, to to um you know, increase wealth in the farming population. So those

are all state directed priorities. And just to be clear, sorry when you say platform companies, what kind of companies? And Ali Baba video you know, you know d D So you know we've seen a lot of movements from those companies too to at least nominally follow that path. Whether or not that results in innovation down those passes is a question mark. But I you know, I think it's a little bit silly to say that state direction

has not resulted in innovation in China. UM. You know, it has in many cases, and so there's you know, there's a there's a possibility that they do succeed. The other thing that you have advantage point on it was obviously relevant to this is US China relations and how

that's playing out on the ground. I mean, it feels on the outside as if there's an enormous tension at the moment between sort of the direction that politicians are moving in UM, whether it's what Congress people say about Taiwan or even what the administration says about wanting to prevent China from getting cutting edge chips and what businesses feel is realistic or desirable in the way of decoupling from China. You know, I hear it again and again,

companies saying, well, we hear this. You know, we're thinking about, you know, diversifying some of our supply chains, but when not pulling out of China, and we are, if anything, trying to you know, still continue to build our relationships there. You're on the ground, or you were until recently, but you're still talking to um clients who are asking you

for the latest in China. Have you seen any let up in the number of US or global companies who are investing in China and making long term plans for business in China. Well, I think you're I think you're spot on there. Um. What we're really seeing is that companies are in a holding pattern. Part of the reason is US China relations That's half of it. But I actually think the bigger driver is china zero COVID policies, because the zero COVID situation for tech manufacturing is just

out of control. You know, you have factories that are are trying to produce hardware that are just getting caught up in lockdowns every two weeks. And you know, I don't I don't know if you've been following this, like Fox can issue in Jung Joe, there was a COVID outbreak at the factory. Factory got locked down and most of the workers and we're tracking this right now, most

of the workers fled. They just went home, right and and and just you know, they walked because no transportation would take them because they weren't supposed to be you know, on public transport if they were you know, under lockdown. People just picked up their bags and said, you know, forget this, and they walked back to their hometowns. Right. I mean, it's just been it's been crazy that kind of stuff, you know. And then there was issues at

the you know, Tesla factory and Shanghai. I mean there's just been worker protests and so it's really more that issue that I think is the immediate threat. What we're hearing is that, you know, the same thing you're hearing UM companies are looking to diversify outside of China to

mitigate risk both zero COVID and US China tension risk. Uh, they don't want to leave because there are few options and in some cases they literally have no other choice because the supply chain in China is so much or for certain industries ship building for example, UM, that there's just nowhere else on on planet Earth they can go, you know, continue to do business at the same scale

and continue to produce at the same scale. So they don't want to leave UM and are are concerned about being driven out, but definitely are trying to hedge hedge that risk. But the other thing we're hearing is that in many cases, you know, a duplicate supply chain would require ten years to build in the cases of many of these companies. So you've just got you know, people are just doing their best to hedge their bets, but

are largely still dependent on China. I guess finally people will be interested to know whether you have any plans to go back. I think you'll live it. You're now living in Portland, UM, which must feel pretty different after all those years in Beijing. But you know, if there was a m if you were presented with a sort of compelling reason to to go back to beiging to live, would you would you consider that? Or do you think or is it becoming a bit more difficult to be

an American focused on China Chinese tech policy. Oh, I'd absolutely go back given half a chance. I mean, I've got a big network of friends and obviously our our clients and and uh, you know, work friends over in Beijing, and and I still, you know, deeply love it there. Um, but zero COVID has made it very difficult to remain right when you can't get in and out of the country, especially when you travel as much as I do. It's

a little bit difficult. So, I mean, my plans are just to wait and see what happens with zero COVID. As soon as the restrictions start to let up, I'll I'll reassess. I've spoken to a number of people who do feel more vulnerable as US citizens in China now, just not that that that they personally would be under threat, but that they could potentially be caught up in something larger or a diplomatic spat. But that's not something that

concerns you particularly well. I Mean, the issue essentially for for me is that you know, I like to be right in the middle of the action, regardless of any of that stuff. Um, it's definitely the tensions on the ground have the kind of feeling of being there as American has definitely changed. It's most certainly changed since I got there in two thousand and four, when everyone was very excited to, you know, meet an American. And now you know, they ask you where you're from and you

say the US and they don't. So but I think that's happening on both sides of the ocean, right, I mean, you essentially have a media environment both in the U S And China that is kind of painting the other. You know, in the US, it's like China's this big, evil authoritarian state and the kind of number one adversary of of the U S. And you know, in China you're hearing things like, you know, the US is a hegemonic power that doesn't want to share with you know,

anybody else except people that believe as they believe. And so there's this kind of you know, downward spiral of um communication, misscommunication and you know, negative conversation about the other, which is a very unfortunate situation to be in. And I have definitely felt that over there. But you know that said on a day to day basis, people are people, and you know that's true all over the world, Kendra Scheffer,

thank you so much. Thank you. Well, that's it for this mini episode of Stephonomics from the New Economy Forum in Singapore. We will be back with more but in the meantime. Thanks to Yang Yang for producing this episode.