Xiaomi Box, WeChat Spar With Beijing 小米盒子、微信与中国政府的摩擦

A couple of items in the news today are shining a spotlight on the very real and unique risks of doing business in China from heavy-handed government oversight, with fast-rising smartphone maker Xiaomi and Internet giant Tencent (HKEx: 700) both sparring with Beijing in different own ways. Xiaomi’s situation looks the most serious with the “temporary” suspension of its newly launched Internet TV service, which probably reflects the company’s youth and inexperience at dealing with government bureaucrats. Tencent also appears to be playing a game of brinksmanship with Beijing by bringing its own unusual interpretation to a controversial “real name” registration requirement imposed on all social networking sites early this year.

Let’s start with Xiaomi, whose new Internet TV product, the Xiaomi box, has abruptly suspended service just a week after its launch. (Chinese article) While Xiaomi founder Lei Jun has been a master at high-profile product launches, his company has been much quieter about this sudden setback, simply posting a message on the company’s website informing users of a “temporary” service suspension.

The  message simply says the service has been suspended for “system maintenance,” so it’s quite plausible that the sudden closure is due to technical reasons since the product is quite new. But other Chinese media are reporting the service suspension was due to Xiaomi’s failure to obtain the necessary licenses before its launch. As a longtime follower of the Chinese media industry, I’m more inclined to believe this latter reason, since any venture in the sensitive media space requires numerous licenses and approvals to operate as part of Beijing’s aim to maintain strict government control.

The fact that Xiaomi didn’t get all the necessary approvals isn’t too surprising, since so many are required and it probably missed 1 or 2. In the end it will probably get the approvals it needs to restart the service, if that’s why the service was closed, since the company hasn’t really upset Beijing in the past. But the case does still underscore the very real risks of operating in China, especially in the media space, where this kind of business disruption can occur at any time and with little advance warning.

Meantime, let’s move on to Tencent, which has reportedly interpreted Beijing’s “real name” registration rule in an unusual way for its fast-growing WeChat mobile instant messaging service, known more commonly in China as Weixin. (English article) According to media reports, Tencent has decided the rule, which requires all users of social networking services to register with their real names, only applies to “public” accounts, such as accounts opened by businesses and famous individuals.

This liberal interpretation is clearly Tencent’s way to maintain the rapid growth of WeChat, which already has 260 million registered users despite its relatively recent launch. Tencent probably realizes it’s taking a bit of a risk by applying this kind of liberal interpretation, but feels the risk is worthwhile since many of its users might abandon their accounts if they had to register with their real names. Furthermore, Beijing hasn’t shown any signs of strictly enforcing the real name rule since its roll-out early in the year.

All that said, these 2 cases do show how popular services from even a well-established company like Tencent can be at risk of closure at any time. And for newer companies like Xiaomi, the risks are at even bigger due to their lack of experience at dealing with Beijing’s huge regulatory bureaucracies.

Bottom line: Suspension of Xiaomi’s Internet TV service should be temporary, while WeChat is likely to avoid penalties from Beijing despite its loose enforcement of the “real name” registration policy.

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