China Breaks Down Digital Walls: Beijing's New Tech Policy

China Tech Roundup: Breaking Down Walled Gardens & Funding News

Welcome to TechCrunch’s latest overview of the Chinese tech scene, providing a summary of recent developments and their global implications.

Internet Regulation & Industry Shifts

A significant trend this week involves China’s increased efforts to dismantle the closed ecosystems – often referred to as “walled gardens” – cultivated by its dominant internet companies over the past several decades.

These actions signal a move towards greater interoperability and competition within the Chinese tech industry.

Recent Funding Announcements

The week also saw substantial investment in two promising companies.

• Deeproute.ai, a recently emerged unicorn specializing in autonomous driving technology, secured a major funding round.
• XTransfer, a rapidly expanding provider of cross-border financial services, also announced a significant funding injection.

Both funding rounds highlight investor confidence in these companies’ potential for growth and innovation.

Implications for the Global Tech Landscape

China’s regulatory changes and the success of companies like Deeproute.ai and XTransfer are noteworthy for observers worldwide.

These developments could influence the evolution of technology and financial services globally, particularly in areas like autonomous vehicles and international payments.

Breaking Down Digital Silos

The Chinese internet landscape is notably fragmented, characterized by a few dominant “super apps” that maintain protected positions. These platforms aim to retain users within their ecosystems and limit competition.

For example, within Tencent’s WeChat messaging application, accessing links leading to Alibaba’s Taobao marketplace or ByteDance’s Douyin short video platform is restricted; they cannot be viewed directly or redirected. This contrasts with platforms like WhatsApp, Telegram, and Signal, which readily display URL previews within conversations.

Payment System Restrictions

Competition is also hindered through payment system preferences. Taobao, operated by Alibaba, defaults to its affiliate Alipay, excluding its competitor, WeChat Pay.

Similarly, JD.com, backed by Tencent and a rival to Alibaba, incentivizes users to utilize its own payment system or WeChat Pay for transactions.

Government Intervention for Open Access

However, a shift is occurring. A high-ranking official from China’s Ministry of Industry and Information Technology (MIIT) recently stated that ensuring access to legitimate URLs is fundamental for internet development.

The official emphasized that unjustified blocking of web links negatively impacts user experience, infringes upon user rights, and disrupts market order.

Balancing Filtering and Competition

While filtering third-party links to prevent the spread of harmful content like pornography, misinformation, and violent material is justifiable, MIIT’s focus is on dismantling anticompetitive practices and reducing the dominance of large internet companies.

Content distributors in China adhere to strict censorship regulations, suppressing politically sensitive discussions. These censorship principles will remain, but the new directive aims to foster a more competitive environment.

A Broader Campaign to Restore Order

This call for open access is part of MIIT’s larger campaign, initiated in July, to restore “order” to the Chinese internet. While regulatory actions against internet firms are common, the recent surge in new policies – including data security rules and gaming restrictions – demonstrates Beijing’s commitment to curbing the influence of Chinese internet companies.

The deadline for platforms to unblock URLs is September 17th, as announced by MIIT. Major internet companies have promptly released statements affirming their commitment to complying with MIIT’s requirements and supporting the healthy growth of the Chinese internet.

Benefits for Internet Users

The dismantling of these digital walled gardens will undoubtedly benefit internet users. They will experience seamless browsing of third-party content on platforms like WeChat, eliminating the need to constantly switch between applications.

Users will be able to directly share product links from Taobao within WeChat, rather than relying on the current system of sharing cryptic codes automatically generated by Taobao for WeChat compatibility.

The Pursuit of Robotaxis: Deeproute.ai Secures $300 Million

Deeproute.ai, a company focused on autonomous driving technology, has announced the completion of a $300 million Series B funding round. This investment comes from a consortium of investors, including Alibaba, Jeneration Capital, and the automotive manufacturer Geely.

The valuation resulting from this funding round has not been publicly revealed.

A Relatively Quiet Contender

While companies like Pony.ai, WeRide, Momenta, and AutoX have garnered significant attention, Deeproute.ai has maintained a lower public profile. This is largely due to the company’s recent establishment, having been founded in 2019 by Zhou Guang.

Zhou Guang’s founding of Deeproute.ai followed a period of internal conflict at Roadstar.ai, where he was previously employed and ultimately separated from his co-founders.

From Roadstar.ai to a New Venture

The removal of Zhou Guang from Roadstar.ai was viewed negatively by some investors. They believed his departure would hinder the startup’s progress, especially considering the $140 million in funding it had already secured.

Subsequently, efforts were made to dissolve Roadstar.ai. Despite this setback, Zhou Guang has retained the confidence of investors, enabling him to launch his new autonomous driving initiative.

Robotaxi Operations and Commercialization

Similar to Pony.ai and WeRide, Deeproute.ai is actively developing and deploying its own robotaxi fleets. This approach allows the company to gather substantial amounts of real-world driving data.

However, operating robotaxi fleets is a resource-intensive undertaking, requiring significant investment in both research and capital. Consequently, leading Chinese robotaxi companies are exploring opportunities for quicker commercialization.

These opportunities include the deployment of self-driving buses and trucks, which are seen as a means to alleviate financial pressures.

Significant Growth in International Commerce

A notable funding development this week involves XTransfer, a Shanghai-based company facilitating payment collection for Chinese exporters, particularly small and medium-sized enterprises (SMEs). A Series C funding round, spearheaded by D1 Capital Partners, secured $138 million for the firm.

This investment has elevated XTransfer’s valuation to exceed $1 billion. The capital acquired will be allocated to advancements in product development, personnel recruitment, and strategic global expansion initiatives.

XTransfer was established by previous leaders from Ant Group. The company addresses a key challenge for SMEs: the complexities and expenses associated with establishing and managing bank accounts across multiple nations.

Consequently, XTransfer functions as a payment intermediary, connecting its SME clients with those making payments and their respective financial institutions.

By July, XTransfer had amassed a customer base exceeding 150,000, with the majority located within mainland China. The organization, employing over 1,000 individuals, is also actively extending its reach into Southeast Asia.

Alongside the robust growth in business-to-business exports from China, a rising trend sees Chinese brands selling products directly to consumers globally. Companies like Shein and Anker, which have achieved considerable success, utilize alternative payment processing systems for their direct-to-consumer operations.

These direct sales typically involve larger transaction volumes but smaller individual purchase amounts.