Chinese internet companies and their hardworking, resourceful professionals create world-class products despite the censorship and malicious neglect imposed by Beijing.
Last week, the Chinese social media app RedNote was filled with heartwarming moments after nearly 500,000 American users fled to it to protest the U.S. government’s ban on TikTok.
Calling themselves “TikTok refugees,” these users paid for “cat coins” to join RedNote by posting cat pictures and videos. They answered numerous questions from their new Chinese friends: Is it true that every family in rural America has a big farm, a large house, at least three children, and several big dogs? Do Americans have to work two jobs to make a living? Are Americans bad at geography, with many believing Africa is a country? Do most Americans get two days off every week?
Americans also asked questions. One U.S. RedNote user wrote, “I heard every Chinese person has a giant panda. Can you tell me how I can get one?” A person from Jiangsu province responded, “Trust me, it’s true,” while posting a picture of a panda washing clothes.
I spent hours scrolling through those so-called “cat coin” pictures, laughing at the adorable and sincere responses. This is the power of the internet: connecting people. More importantly, RedNote showed just how competitive a random Chinese social media app can be purely from a product perspective.
With an online population of over a billion and an army of hardworking, resourceful engineers, China’s internet platforms are world-class in their design, functionality, and user experience—as demonstrated by TikTok and now RedNote, or Xiaohongshu in Chinese.
But why aren’t more people outside China using Chinese apps?
For a while, Chinese internet giants seemed poised to dominate the world. Remember when Alibaba listed its initial public offering in New York in 2014 when Didi acquired Uber’s operations in China in 2016, when Facebook was copying WeChat, and when a partner from Silicon Valley venture capital firm Andreessen Horowitz was touting WeChat’s power? At one point, five of the world’s top 10 largest internet companies, measured by market capitalization, were Chinese. Now, Tencent, the maker of WeChat and a gaming company, remains the only one left in those rankings.
The biggest Chinese internet companies still make products that can compete with anyone in the world. Their employees work harder than their Silicon Valley counterparts. (Many work on a “996” schedule—six days a week from 9 a.m. to 9 p.m.) Despite U.S. semiconductor restrictions, they’ve managed to achieve impressive advances in artificial intelligence. But the world has largely forgotten about China’s internet leaders, viewing them only as part of a technological and geopolitical threat.
So why haven’t the industry’s promises been fulfilled? What happened?
In 2017, I wrote a column for another publication titled, “Behind the Great Firewall, Chinese Internet is Thriving.” I told English-speaking readers to look beyond China’s desire to censor and copy Western businesses because China was being digitized on a scale and speed that was mind-boggling.
That year, Tencent’s revenue grew by 56%, while e-commerce giant Alibaba’s revenue grew by 60%. Didi raised nearly $10 billion, mostly from international investors.
This all feels like a lifetime ago. Now, it’s much harder for Chinese internet companies to succeed.
The country is stuck in its worst economic downturn since the Mao era. Few people believe the government’s declared 5% growth rate for 2024. Consumer confidence is low—brands like Uniqlo and Starbucks, which thrived in China for years, are losing customers to cheaper alternatives.
When a country’s economy falters, it becomes difficult for one of its key industries to perform well. Tech companies’ earnings reflect this.
China’s population has continued to decline—this is the third consecutive year it has shrunk—leaving major tech platforms losing new users. WeChat has nearly 1.4 billion accounts, more than the entire Chinese population. Even RedNote, a secondary social media app that’s popular among young, urban, affluent women, has amassed over 300 million users. For such companies, international expansion is the natural next step.
ByteDance, the parent company of TikTok, has become the envy of the industry due to the success of its foreign businesses, which are growing much faster than its domestic operations.
But the U.S. attempt to ban TikTok highlights just how difficult it is for Chinese internet companies to expand abroad. As the Chinese Communist Party tightens its grip on the country’s private sector, it becomes increasingly difficult for the world to entrust personal data to Chinese companies, which ultimately answer to Beijing.
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 everything and often uses power randomly and ruthlessly, the private sector stands on shaky ground. Internet companies face heavy censorship, and to survive, they have to censor themselves. Without exception, all the major companies’ apps have been removed from app stores or fined or disciplined by regulators in recent years.
It’s well-known that China’s leader, Xi Jinping, is not a fan of the digital sector unless it serves to advance his agenda for national rejuvenation.
In 2018, he said, “The real economy is the foundation of a country’s economy and its source of wealth. Economic development should never overly rely on the virtual economy at the expense of the real economy.”
In that speech and on other occasions, Xi made it clear that he prioritizes advanced manufacturing over the Internet and state-owned enterprises over the private sector.
This shaped the actions against Alibaba, Ant Group, Didi, and Tencent’s video game business in 2020 and 2021. In 2022, the strict “zero-COVID” measures paralyzed the country’s economy, causing many major internet companies to suffer financial losses for the first time in years.
Around the same time, China’s wolf-warrior diplomacy and its alliance with Russia forced many countries to rethink their views of China as an important part of the global economy. Some now view it as a threat to democratic systems and world peace. Perceptions of China have soured in many Western countries, and fewer people are interested in visiting China than a decade ago.
Chinese internet companies and investors are increasingly caught between an authoritarian government at home and suspicion, even hostility, abroad.
Most Western investors no longer consider China’s tech industry worth investing in due to geopolitical tensions and the country’s unpredictable policies.
American university endowments and pension funds have stopped funding venture capital firms that invest in Chinese startups. A generation of Chinese investors who helped create some of the most successful tech companies have taken up golf, marathon running, and hiking. Global markets show little interest in Chinese internet firms. A recent investor, who asked to remain anonymous, told me that in 2017 when they joined a hedge fund managing over $100 billion, about 40% of the fund’s emerging markets stake was in Chinese tech stocks. Now it’s less than 3%. The ecosystem that once fostered a vibrant tech sector has broken down.
Less investment means fewer startups, far fewer IPOs, and much lower valuations than their American counterparts. RedNote, the social media app adopted by U.S. TikTok users, was established in 2013 and still isn’t public. The investor said these companies remain competitive. But in the world’s eyes, they are no longer relevant.
