Keep down internet upstarts, cultivate hard tech – ClearTips

Hello and welcome to ClearTips’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean for the rest of the world.

The tech industry in China has had a very turbulent week. The government is growing its $100 billion private education sector while wiping billions from the market cap of the industry’s most lucrative players. Meanwhile, the attacks on the Chinese Internet giants continued. Tech shares fell after Tencent suspended user registrations, raising fears about who would be the next target of Beijing’s wrath.

Decisive observers point out that a new wave of tougher regulations against China’s Internet and education firms has long been on Beijing’s agenda and is not surprising. In fact, the central government has been adamant about its wishes. promote manufacturing And that includes the uncontrollable powers of its service industry, which can include everything from internet platforms, film studios, to after-school centers.

A few weeks ago I had an informative conversation with a Chinese venture capitalist who has been investing in industrial robots for over a decade, so I’m including this issue because it’s about what’s happening in the consumer tech industry. , provides useful context for this. week.

automate factories

China is aggressively deploying robots in factories. Huang He, a partner at Northern Light Venture Capital, sees three forces driving demand for industrial robots — particularly those made in China.

Over the years, Beijing has advocated for “localization” across a wide range of technology areas, from enterprise software to production line automation. One might begin to see Chinese robots that could rival Schneider and Panasonic down the road. NLVC-backed industrial robot maker CRP is already selling in Southeast Asia, Russia and Eastern Europe.

On top of technological localization, it is also well acknowledged that China is facing a serious demographic crisis. The labor shortage in its manufacturing sector is further exacerbated as young people are reluctant to do petty factory jobs. Factory robots can offer a hand.

“Today’s youth prefer to be a food delivery rider rather than working in a factory. The jobs that are being replaced by robots are of the low-skilled kind, and those that still can’t be taken over by robots pay well and come with great benefits,” Huang said.

Large corporations in China still lean towards imported robots because of the proven stability of the products. The problem is that imported robots are not only expensive but also selective about their users.

“Companies need to have deep technical capabilities to be able to operate these” [Western] Robots, but such companies are rare in China,” Huang said, adding that the overwhelming majority of Chinese enterprises are small and medium-sized.

With the exceptions of the automotive and semiconductor industries, which still rely largely on sophisticated, imported robots, inexpensive, easy-to-use Chinese robots can already meet most of the local demand for industrial automation, Huang said.

China currently uses about one million six-axis robots a year, but manufactures only 20% of them. The gap, along with a national plan for localization, has created an investment frenzy in industrial robotics startups.

A rush isn’t necessarily a good thing, Huang said. “This is a bizarre phenomenon in China, where the most funded and valued industrial robot firms are generating less than 30 million yuan in annual revenue and haven’t really been heard by actual users in the industry.”

“This is not an industry where giants can be created by burning through cash. This is not internet territory.”

Small and medium-sized businesses are happily welcoming robots to the factory floor. Take welding for example. The cost of an average welder is about 150,000 yuan ($23,200) per year. A typical welding robot, which is sold for 120,000 yuan, can replace three workers in a year and “doesn’t complain at work,” the investor said. A quality robot can operate continuously for six to eight years, so the financial incentive to automate is obvious.

Advanced manufacturing isn’t just helping local owners. This would eventually increase the dependence of foreign enterprises on China for their efficiency, making it difficult to cut Chinese supply chains despite efforts to avoid the geopolitical risks of manufacturing in China.

“In electronics, for example, most supply chains are in China, so factories outside China spend more on logistics to move parts. Most 3C manufacturing is already highly automated, relying heavily on electricity. But in most emerging economies, electricity supply is still quite unstable, which constrains production,” Huang said.

war on internet titans

The blow to antitrust rules against Alibaba from last year still reverberates, but another wave of investigations has begun. Soon after Diddy’s blockbuster IPO in New York, the ride-hailing giant was asked to close user registrations and work on protecting user information critical to national security.

On Tuesday, shares of Tencent fell by the most in a decade after it halted user signups on its WeChat Messenger as it “upgrades” its security technology to align with relevant laws and regulations. The gaming and social media giant is the latest in a growing list of companies affected by Beijing’s strong hold on the Internet sector, which had flourished under two decades of laissez-faire policies.

The clampdown is rooted in Beijing’s growing unease with the services industry’s uncontrolled accumulation of wealth and power. China is clearly determined to advance its tech sector, but the kind of technology Beijing wants is not video games that bring myopia to children and algorithms that hook adults to their screens. China makes clear in its Five-Year Plan, a series of social and economic initiatives, that it will move to “hard tech” such as semiconductors, renewable energy, agritech, biotech and industrial automation such as factory robotics.

China has also vowed to fight inequality in education and wealth. In the eyes of the authorities, having expensive, for-profit schools in big cities is hindering the education of children from poor areas, which ultimately widens the wealth gap. New regulatory measures have restricted the hours, materials, benefits and financing of private educational institutions, with the industry’s top companies tanking stocks. Again, there are clear indications from Writings of President Xi Jinping To “get back on the academic track” off-campus tutoring. All China-focused investors and analysts are now heeding Xi’s thoughts and directions.

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