Chinese social media app RedNote is full of cute and heartwarming moments after nearly 500,000 American users were evacuated last week in protest of the U.S. government's impending ban on TikTok.
These users, who call themselves “TikTok refugees,” joined RedNote by paying the “cat tax” by posting photos and videos of their cats. They answered many questions from their new Chinese friends. Is it true that in rural America every family has a big farm, a big house, at least three children and several big dogs? Americans have to work two jobs to support themselves? Does that mean it won't happen? Does this mean that many Americans are bad at geography and believe that Africa is one country? Does that mean most Americans have two days off every week?
The Americans also asked questions of their new friends. “I heard that all Chinese people have giant pandas,” wrote an American Red Note user. “Can you tell me how I can get it?” replied a person in eastern Jiangsu province, who said, “Trust me, it's true,” and posted a photo of a panda washing clothes with no expression on its face.
I spent hours scrolling through photos of the so-called cat tax, laughing at the cute and serious reactions. This is the role of the Internet: to connect people. More importantly, RedNote demonstrated how competitive random Chinese social media apps can be from a purely product perspective.
With an online population of 1 billion people and access to an army of hard-working and resourceful engineers, China's internet platforms have become increasingly popular with design, technology, and technology, as demonstrated by TikTok and now RedNote (Xiaohongshu in Chinese). World class in features and user experience. .
But why aren't more people outside of China using Chinese apps?
For a while, the Chinese internet giant seemed poised to conquer the world. When Alibaba held its initial public offering in New York in 2014, when Didi Chuxing acquired Uber in China in 2016, when Facebook was copying WeChat, and when Silicon Valley company Andreessen Horowitz Remember my excitement when my partner expounded on the power of WeChat? At one point, five of the world's 10 largest Internet companies, measured by market capitalization, were Chinese. Currently, only Tencent, the creator of WeChat and gaming company, remains in these ranks.
China's largest internet company still makes products that can compete with any company in the world. Their employees work harder than those in Silicon Valley. (Many work a “996” schedule of 9 a.m. to 9 p.m., six days a week.) In the face of the U.S. semiconductor ban, they have made remarkable advances in artificial intelligence. . But the world seems to have forgotten about China's internet leadership, seeing it as part of a technological and geopolitical threat.
The industry did not deliver on its promises. why? what happened?
In 2017, I wrote a column for another publication with the headline “Behind the Great Firewall, China’s Internet is booming.” I told my English-speaking readers to think beyond China's urge to censor and copy Western companies, as the country is digitizing at a mind-boggling scale and speed.
During the year, Tencent's revenue increased by 56 percent, while e-commerce giant Alibaba's revenue soared by 60 percent. Didi has raised nearly $10 billion in funding, mostly from international investors.
All of this feels like a lifetime ago. Currently, it is much more difficult for Chinese Internet companies to prosper.
The country is in the worst economic downturn since the Mao Zedong era. Few people believe the government's 5% growth rate for 2024. Consumer confidence is low. Uniqlo and Starbucks, two consumer brands that have long thrived in China, are both losing customers to cheaper brands.
When a country's economy deteriorates, it becomes difficult for one of its key industries to succeed. Tech companies' profits reflect that.
As China's population continues to steadily decline (for the third year in a row), major technology platforms are running out of new users. WeChat has about 1.4 billion accounts, which is more than the population of China. Even second-tier social media apps like RedNote, which has more than 300 million users, is popular among young, urban, and affluent female users. For these companies, the next step is international expansion.
TikTok's parent company, ByteDance, has become the envy of the industry due to the success of its overseas operations, which are growing at a much faster pace than its domestic operations.
But the US effort to ban TikTok highlights how difficult it is for Chinese internet companies to expand overseas. As the Chinese Communist Party tightens its grip on the private sector, it is becoming increasingly difficult for the world to entrust its citizens' personal data to Chinese companies that are ultimately at the mercy of the Chinese government.
There are good reasons why the outside world, including the U.S. government, doesn't trust these companies. In a country where the government owns much of everything and wields power haphazardly and often ruthlessly, the private sector is in crisis. Internet companies are heavily censored and must self-censor to survive. In recent years, major companies have all had their apps removed from app stores and faced fines and disciplinary action from regulators.
It is well known that Chinese leader Xi Jinping does not like the digital sector unless it is used to advance his goals of national revitalization.
In 2018, he stated that “the real economy is the foundation of the national economy and the source of wealth,'' and “economic development must never deviate from the real economy and lean toward excessive dependence on the virtual economy.'' said.
In that speech and on other occasions, Mr. Xi made it clear that he prioritizes advanced manufacturing over the internet and favors state-owned enterprises over the private sector.
This set the tone for the crackdown on Alibaba, Ant Group, Didi Chuxing, and Tencent's video game businesses in 2020 and 2021. Strict “zero coronavirus” regulations in 2022 that paralyzed the country's economy have caused some major internet companies to suffer financial losses. How many years has it been?
Also around this time, Beijing's wolf-warrior diplomacy and alliance with Russia forced many countries to reconsider China as an important part of the global economy. Some now see this as a threat to democratic institutions and world peace. Perceptions of China have deteriorated in many Western countries, and fewer people are interested in visiting the country than they were a decade ago.
China's internet companies and investors are caught between an authoritarian government at home and suspicions and even hostility abroad.
Most Western investors currently believe that China's high-tech industry is not worth investing in, due to geopolitical tensions and the country's unpredictable policies.
U.S. university endowments and pension funds have stopped funding venture capital firms to invest in Chinese startups. The generation of Chinese investors who helped create some of the most successful technology companies took up golf, marathons, and hiking.
Investors in global stock markets are similarly indifferent to Chinese internet companies.
An investor who was not authorized to speak publicly told me recently that in 2017, when she joined a hedge fund that manages more than $100 billion, she invested in about 40 of the fund's emerging market stocks. % were Chinese high-tech stocks. Now that percentage is less than 3%.
The ecosystem that had fostered a vibrant technology sector has collapsed. Less investment means fewer startups, far fewer initial public offerings overseas, and stock valuations that are much lower than their U.S. peers. RedNote, a social media app beloved by American TikTok users, was founded in 2013 and has not yet gone public.
Investors said these companies remain competitive. But in the eyes of the world, they no longer matter, she added.
