By Clay Chandler
December 16, 2017

Over the past few weeks Fortune colleagues and I have written at length about China’s rise as an “innovation superpower,” particularly in sectors involving the Internet, e-commerce and mobile payment. We’ve marveled at the scale of China’s two largest tech giants, Alibaba Group and Tencent Holdings, and extolled the creativity and convenience of the multitude of the services they offer. Some of you have written to remind us of Beijing’s strict censorship of the Internet. Even so, my view remains that China has emerged as the biggest, liveliest and most sophisticated digital marketplace in the world.

But I’ve also expressed unease in this space about the fact that in China’s tech sector, even more than in America’s, an enormous amount of market power is concentrated in the hands of a few giant firms, with few safeguards for individual privacy. In a thoughtful essay in WIRED, Mara Hvistendahl examines how Zhima Credit, a digital consumer lending service operated by Alibaba affiliate Ant Financial, collaborates with Alipay, the group’s mobile payment platform, to generate a credit scoring system for Chinese citizens that is based on a far wider range of metrics than those available to American credit bureaus. Zhima Credit’s algorithms are a corporate secret. Ant acknowledges, however, that beyond conventional credit data, the score reflect conclusions drawn from users’ consumption patterns and social habits, as well as those of friends to whom they’re digitally connected.

Hvistendahl also reviews the government’s aspirations to create a “social credit score” to reward loyal, well-mannered citizens and punish those engaging in “bad behavior.” Over the past decade, she reports, Beijing has experimented with pilot social credit score programs in “dozens of cities.” So far, those efforts have been clumsy and ineffective. But now, thanks to advances by Ant and other private tech firms, the ability to gather and analyze data about individual behavior is catching up with official ambitions.

Will Beijing allow local governments to demand access to privately collected data? It’s too soon to say. But it must be a powerful temptation. China’s central bank has ordered mobile payment companies connect to a central clearing house so regulators can see their transaction data, and China’s cyber czar has hinted the Beijing might take a 1% stake in the nation’s major tech companies.

I’ve also noted that Chinese startups, among them Alibaba-backed Face++, are on the cutting edge of facial recognition technologies. To demonstrate the potential of that technology when put to the services of China’s 170 million CCTV cameras, BBC reporter John Sudworth this week teamed with the municipal police department of Guiyang in a stunt worthy of Jason Bourne. Sudworth was turned loose in the center of the city and challenged to elude its video surveillance network. He managed to last all of seven minutes before getting nabbed by the authorities.

Enjoy the weekend!

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Trade and Economy

Agenda-setting. Chinese president Xi Jinping and senior Communist Party leaders will meet in Beijing next Monday for China’s annual Central Economic Work Conference. The three-day policy-making meeting to map out the country’s economic agenda for 2018 is an annual event held behind closed — and heavily guarded — doors since 1994. South China Morning Post 

Building tension. China should expect more confrontation on trade issues from the U.S., according to Daniel Rosen, a former White House international economic policy adviser. Rosen expected tensions to escalate as Trump’s administration wraps up investigations into Chinese aluminium imports and allegations of Chinese theft of intellectual property next year. South China Morning Post

A state-owned firm by any other name. The United States has called out seven Chinese companies for flouting World Trade Organisation (WTO) rules by not identifying themselves as state-owned enterprises, according to a WTO filing published this week. The United States has long complained about Beijing’s efforts to conceal its backing of state-owned firms, which gives it an unfair advantage over competitor companies. Wall Street Journal 

Go East. Ford Motor Co will decamp production of its mid-sized Fusion and Mondeo sedans from Mexico and Spain to China in 2020. However, the made-in-China cars will not be shipped to the United States and Europe, said the automaker, who last week signed a highly publicised deal with Chinese tech giant, the Alibaba Group, to cooperate areas such as cloud computing, connectivity and new forms of retail, including the sale of Ford cars on Alibaba’s Tmall e-commerce platform. Reuters 

A bump in the road. Beijing is unfairly using concerns over national security to hinder foreign carmakers from improving their automated driving technology. Only 13 Chinese companies are allowed to carry out high-definition GPS recording and mapping, which foreign firms must partner if they want to develop self-driving cars. Financial Times


Technology and Innovation

Google launches Chinese A.I. research centre. Despite the ban on its search engine, app store, email and cloud services in China, Google will launch an artificial intelligence research center in Beijing to court the country’s local talent. Billed as the “first of its kind in Asia”, the center will be led by a small team operating out of its existing office in the Chinese capital, said parent company Alphabet Inc. Reuters 

Talk this way. Chinese phonemakers Huawei and Xiaomi have their sights set on U.S. expansion next year to challenge Apple on its own turf. The two companies are currently in talks with U.S. wireless operators, and sales of their smartphones may begin as early as next year. Bloomberg

China’s robojournalists. Alibaba will be partnering with China’s state news agency Xinhua to build Xinhua Zhiyun, a news-writing platform powered by artificial intelligence and big data from Alibaba’s cloud computing unit. The platform will collect and generate breaking news from data collected from surveillance cameras, Internet of Things devices, dashboard-mounted car cameras, air pollution monitoring stations and personal wearable devices in China. China Money Network 

‘Beauty is Justice’. China’s most popular photo-editing app, Meitu, is breeding a new generation of perfectionist, self-obsessed young Chinese, says the New Yorker in a lengthy but illuminating piece published this week. The Photoshop equivalent app has sent many of its millions of users across China flocking to plastic surgeons for real-life nips and tucks, and given rise to a cottage industry for Internet influencers and management agencies. New Yorker 

New boost for new media. 36Kr Media, a Chinese technology new media unit spun off from parent group 36Kr has raised $45 million in what is believed to be the largest funding round in the new media industry in China. The series A round is led by Chinese venture capital firm Gobi Partners and private equity fund China Prosperity Capital, with participation from Focus Media Information Technology, Hangzhou Finance Investment Group Co., Ltd. and Baidu Video. China Money Network 

 



The 'New Retail'

Brewing up a store. Starbucks opened its largest and most global store in Shanghai last week in partnership with the Alibaba Group. The two-story, 30,000-square-foot Shanghai store is the first non-U.S. outlet of Starbuck’s new Reserve Roastery chain designed to provide customers with a more immersive experience, such as digital menus and virtual reality tours via a custom Roastery smartphone app powered by Alibaba technology. Tech in Asia 

Tencent, too. Chinese internet giant Tencent Holdings is acquiring a 5% stake in Yonghui Superstores, a Shanghai Stock Exchange-listed retail chain, in what observers say is a move to keep up with rival Alibaba Group in the new retail sector that combines online and offline retail experiences. Tencent’s investment management affiliate Linzhi Tencent will additionally take a 15% stake in Yonghui Yunchuang, which operates retail stores that resemble Alibaba’s Hema Supermarket. China Money Network 

Fight or flight. Chinese online retailer JD.com has plans to enter the aviation sector by building airports and buying planes, its head of logistics Bill Fu said at a forum in Beijing this week. The company spun off a separate logistics unit, JD Logistics, in April this year and operates its own airport for drones. The comments follow the acquisition of two Boeing 747-400 freighters by China’s largest private courier SF Express last month. South China Morning Post 

Summaries by Debbie Yong. @debyong
debbie.yong@timeinc.com

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