The State of China 2023 with Shai Oster

Leong Chung Wei Bernard -

Fresh out of the studio, Shai Oster, independent consultant and former Asia Bureau Chief from The Information is back for the sixth time with the annual review of what is happening to the China tech ecosystem in 2023. The conversation started with Shai's predictions last year on what happened and what did not happen. From there, we discuss the major themes of the year: the decline and restructuring of venture capital in China, how the 2nd generation CEOs from Shein, Pinduoduo and Bytedance have successfully expanded globally as compared to their predecessors, the October surprise of Huawei's 7nm chip. Last but not least Shai offered his predictions in the road ahead for 2024.

"You will continue to see Western investment continuing to decline. The risk-reward calculations won't change in the next 12 months, as far as I can see. The Chinese economy is not about to take off. What you will see is the beginnings of some people who are willing to take the gamble. They are going to try different ways to exit. You're going to see more people experimenting with domestic IPOs, and onshore IPOs because you can get the money off. For example, if you're investing in LiDAR or approved industries, you can do a joint venture or a WOFE or anything. It'd be a joint venture to be able to try and do some kind of onshore listings. I think by chance will stay in this weird suspended state. I don't think we're going to get a resolution from them. The big question is - how much stimulus will the Chinese government throw at the economy and how far are they willing to go to goose the economy?" - Shai Oster

Introduction

State of China in 2023

  • What is the report card for 2023? Which predictions you got right or wrong?
  • Let’s start with the Sequoia split which you initially predicted and it came one year too late, what are your thoughts on the split of Sequoia Capital into 3 parts: Sequoia US and Europe, Sequoia China renamed to HongShan and then Sequoia India & Southeast Asia renamed to Peak XV Ventures?
  • The rising geopolitical tensions between the US and China fueled the split between Sequoia US and China, but why did they drop India & Southeast Asia? In your opinion, what are your thoughts on why they are also separated? 
  • On the longer state of venture capital in China, what are your thoughts as the US funding has declined significantly in fear of the US government sanctions?
  • Let’s go to IPOs, Alibaba has recently given up divesting its Alicloud business as a separate entity and decided to keep it within. What happened and where do you think Alibaba Group will go?
  • Pinduoduo has successfully entered the US market with Temu as compared to Alibaba many years back. Why do the 2nd generation Chinese CEOs from Bytedance, Pinduoduo and Shein figure out this as compared to the older BAT? 
  • We discussed the Bytedance IPO for 2 years, and the status of TikTok being banned in the US is still in flux. Of course, there’s the famous congression hearing on Chew Shou Zi this year on TikTok. From now to the end of 2024, will TikTok be banned in the US? 
  • Huawei in China has successfully fabricated the 7nm chip in their latest phone Huawei Mate 60 Pro with SMIC, with Bloomberg and FT reporting on how they managed to do it. Morris Chang from TSMC wrote an open letter to address that getting yields for semiconductors is a matter of experience and expects China to catch up. I spoke to Chris Miller, author of Chip War last year and he said that it’s impossible to replicate the entire semiconductor supply chain but it looks like China can do this now. Semiconductors have a great impact on the development of AI in China. Of course, we have seen Chinese-based LLMs like Lee Kai Fu’s 01.ai or others starting in China. What are the chances for China to be able to create the entire semiconductor supply chain by themselves?  
  • What are your predictions for 2024? 

Closing

Podcast Information: Bernard Leong (@bernardleong, Linkedin) hosts and produces the show. Proper credits for the intro and end music: "Energetic Sports Drive" and the episode is mixed & edited in both video and audio format by G.Thomas Craig (@gthomascraig, LinkedIn).

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