Philippa Kaur

IT MIGHT BE confused for one of the world’s savviest tech investors. China Internet Investment Fund’s (CIIF) portfolio is the envy of venture capitalists everywhere. It owns part of ByteDance, the Beijing-based parent of social media group TikTok, and Weibo, the Twitter-like platform. It has a stake in SenseTime, one of China’s most advanced artificial intelligence (AI) groups, and Kuaishou, a popular Chinese short-video service. The firm’s investment list reads like a who’s who of the industry.More stunning are the terms of these investment deals. CIIF’s 1% stake in a ByteDance subsidary gives it the power to appoint one of three board members in a unit that holds key licences for operating its domestic short-video business. A similar bargain has been struck with Weibo, which is listed in New York, with CIIF picking up 1% at a cost of just 10.7m yuan ($1.5m). These companies hardly need more capital. Nor is CIIF , armed with plans for a 100bn yuan fund—enough to rival a major Silicon Valley venture-capital firm—overly concerned with the outsize returns its investments will almost certainly deliver.That is because the outfit, founded a mere five years ago, is no typical investor. CIIF is itself mostly owned by the Cyberspace Administration of China (CAC), a powerful internet watchdog. The arrangement is akin to America’s Federal Communications Commission taking discounted stakes in tech groups such as Facebook and Twitter, appointing board members and then steering them in the direction it sees fit.CIIF’s investment spree is symptomatic of a new form of state capitalism that is taking shape in China. Under the aegis of President Xi Jinping, regulators in recent years have unleashed a sustained attack on the technology sector, deeming it to have gained too much influence and strayed too far from the Communist Party’s core values. Tech magnates such as Jack Ma, the co-founder of e-commerce giant Alibaba, have been subdued. Entire business models have been rewritten from on high—and the tenor of the Chinese economy altered as a result. Bringing the commanding heights of the modern economy to heel might be expected from what is, after all, a communist regime. Nor is state investment in private companies anything new: “guidance funds”, massive state vehicles that direct money towards semiconductors and other favoured areas, have become a fixture of China’s investment landscape. But the extent of such activity over the past two decades has risen sharply. Private companies with state-connected investors increased from 14.1% of all registered capital in China in 2000 to 33.5% in 2019, according to a paper by Chong-En Bai of Tsinghua University in Beijing, Chang-Tai Hsieh of the Booth School of Business in Chicago, and two other academics. While the number of state-controlled investors has not changed much, each has done vastly more business with private firms (see chart 1). As a result, today’s Chinese business landscape might best be described as a sprawling complex of state-private commerce. More than 130,000 private companies and entrepreneurs had formed joint ventures with state-owned companies by 2019, up from 45,000 in 2000. The jump in private companies invested in by the state since 2000 has accounted for nearly all of China’s increase in new registered capital. Public investments in private-sector companies surged from $9.4bn in 2016 to $125bn in 2020, though looks set to fall this year, according to data from Dealogic, a research firm (see chart 2).This means the growth of business in the country is inextricably linked to the state. The tech industry has been a notable focus. Regulation has long hemmed in the sector, as has the occasional bringing down of a tycoon by one or two notches. This is now considered insufficient to ensure entrepreneurs are kept in line.Thus extending the government’s reach directly into more private companies via financial interests is emerging as a mechanism to control them. Government “golden shares”, tiny investments that give a high degree of control over companies, have been rumoured for years; only recently have they been disclosed in the likes of Weibo and ByteDance. It is likely this feature of state investment will expand, says Nana Li of the Asian Corporate Governance Association, an investor interest group.Unwittingly tagging along for the ride have been global investors who had once spent freely to gain a foothold in the booming Chinese market. Americans and others are unlikely to be comfortable with the new arrangements. More might get snared: CAC, the ultimate power behind the state investments in tech, was recently given the authority to vet the overseas share listings of large Chinese tech groups.What might the new regime mean for the firms involved? CIIF’s chairman, Wu Hai, in interviews with local media does not hesitate to explain the fund is firmly part of China’s “national team”, a catchall for the most important state-owned enterprises. The Communist Party has provided generous financial and policy support for CIIF-backed firms, says Sun Xin of King’s College London. But, he adds, these investments also tighten regulatory scrutiny and even imposed greater direct control by the Party over their management.Yet CIIF’s objectives would fit awkwardly in a venture-capital firm’s pitch book. It has committed itself to not pursuing “excessive profitability” in its investments. That echoes recent missives by top officials concerning the “savage growth” and “disorderly expansion of capital” at China’s tech groups. Its area of focus—AI chips, robotics, quantum computing and blockchain—dovetail with the sectors the government prioritised in its 14th five-year plan, one of the state’s most important policy documents. Companies have no doubt taken note.ByteDance has claimed the CIIF investment has little influence over operations. If that is true then Chinese tech giants have decided on their own volition to mirror new state policy. The TikTok owner, for example, has become one of the first large Chinese tech companies to officially limit working hours to 10am-7pm on weekdays. (The change comes after the state berated Mr Ma and Alibaba for vocally supporting a “996” work schedule, or working 9am-9pm six days a week.) The firm is among those whose founders have departed during the crackdown.As Mr Xi’s model for state curbing tech darlings becomes clearer, so too have the potential drawbacks. One of them is the clumsiness built into some of the Party’s increasingly dogmatic practices. For the past two decades links between private companies and local governments have been central to the Chinese economic model. These partnerships have historically been focused on business, not Party ideology.More recently there have been signs that local governments are preoccupied more with ideological exercises, says Mr Hsieh. These include frequent “study sessions”, where Party officials gather to read and discuss the merits of Xi Jinping Thought and other Party literature. Forging some profitable connections between state and private companies has become more difficult and requires informal connections with more senior leaders, he says.Another problem is the level of risk aversion among the new elite state shareholders. China’s model was recently described as a “venture capitalist state” by Arthur Kroeber, an economist. The model is in many ways designed like a massive corporate investor, taking small stakes in various early stage companies; CIIF itself is staffed with executives with real tech and startup investing experience.Yet the state has all the risk appetite of a timid bureaucrat. Private-sector executives working with government-linked firms have described officials’ growing fear of making political mistakes. Losing public money on investment does not appear to be the biggest worry, says Nis Grünberg of the Mercator Institute for China Studies, a think tank in Berlin. Rather, the more dangerous blunder would be failing to control companies that run counter to Party ideologies.Thus an uncomfortable prospect for Mr Xi’s new era of party control of the economy: fear by state-capitalists of falling foul of ideological diktats could lower investment returns and throttle corporate dynamism. CIIF’s board appointee to Bytedance has no clear business experience on his resume, according to Ms Li, but a background in communist propaganda. For doing business in China these days, an insider’s steer on how not to run afoul of the Party may prove invaluable. More

IT MIGHT BE confused for one of the world’s savviest tech investors. The portfolio of China Internet Investment Fund (CIIF) is the envy of venture capitalists everywhere. It owns part of ByteDance, the Beijing-based parent of social media group TikTok, and Weibo, the Twitter-like platform. It has a stake in SenseTime, one of China’s most advanced artificial intelligence (AI) groups, and Kuaishou, a popular Chinese short-video service. The firm’s investment list reads like a who’s who of the industry.More stunning are the terms of these investment deals. CIIF’s 1% stake in a ByteDance subsidary gives it the power to appoint one of three board members in a unit that holds key licences for operating its domestic short-video business. A similar bargain has been struck with Weibo, which is listed in New York, with CIIF picking up 1% at a cost of just 10.7m yuan ($1.5m). These companies hardly need more capital. Nor is CIIF , armed with plans for a 100bn yuan fund—enough to rival a major Silicon Valley venture-capital firm—overly concerned with the outsize returns its investments will almost certainly deliver.That is because the outfit, founded a mere five years ago, is no typical investor. CIIF is itself mostly owned by the Cyberspace Administration of China (CAC), a powerful internet watchdog. The arrangement is akin to America’s Federal Communications Commission taking discounted stakes in tech groups such as Facebook and Twitter, appointing board members and then steering them in the direction it sees fit.CIIF’s investment spree is symptomatic of a new form of state capitalism that is taking shape in China. Under the aegis of President Xi Jinping, regulators in recent years have unleashed a sustained attack on the technology sector, deeming it to have gained too much influence and strayed too far from the Communist Party’s core values. Tech magnates such as Jack Ma, the co-founder of e-commerce giant Alibaba, have been subdued. Entire business models have been rewritten from on high—and the tenor of the Chinese economy altered as a result. Bringing the commanding heights of the modern economy to heel might be expected from what is, after all, a communist regime. Nor is state investment in private companies anything new: “guidance funds”, massive state vehicles that direct money towards semiconductors and other favoured areas, have become a fixture of China’s investment landscape. But the extent of such activity over the past two decades has risen sharply. Private companies with state-connected investors increased from 14.1% of all registered capital in China in 2000 to 33.5% in 2019, according to a paper by Chong-En Bai of Tsinghua University in Beijing, Chang-Tai Hsieh of the Booth School of Business in Chicago, and two other academics. While the number of state-controlled investors has not changed much, each has done vastly more business with private firms (see chart 1). As a result, today’s Chinese business landscape might best be described as a sprawling complex of state-private commerce. More than 130,000 private companies and entrepreneurs had formed joint ventures with state-owned companies by 2019, up from 45,000 in 2000. The jump in private companies invested in by the state since 2000 has accounted for nearly all of China’s increase in new registered capital. Public investments in private-sector companies surged from $9.4bn in 2016 to $125bn in 2020, though looks set to fall this year, according to data from Dealogic, a research firm (see chart 2).This means the growth of business in the country is inextricably linked to the state. The tech industry has been a notable focus. Regulation has long hemmed in the sector, as has the occasional bringing down of a tycoon by one or two notches. This is now considered insufficient to ensure entrepreneurs are kept in line.Thus extending the government’s reach directly into more private companies via financial interests is emerging as a mechanism to control them. Government “golden shares”, tiny investments that give a high degree of control over companies, have been rumoured for years; only recently have they been disclosed in the likes of Weibo and ByteDance. It is likely this feature of state investment will expand, says Nana Li of the Asian Corporate Governance Association, an investor interest group.Unwittingly tagging along for the ride have been global investors who had once spent freely to gain a foothold in the booming Chinese market. Americans and others are unlikely to be comfortable with the new arrangements. More might get snared: CAC, the ultimate power behind the state investments in tech, was recently given the authority to vet the overseas share listings of large Chinese tech groups.What might the new regime mean for the firms involved? CIIF’s chairman, Wu Hai, in interviews with local media does not hesitate to explain the fund is firmly part of China’s “national team”, a catchall for the most important state-owned enterprises. The Communist Party has provided generous financial and policy support for CIIF-backed firms, says Sun Xin of King’s College London. But, he adds, these investments also tighten regulatory scrutiny and even imposed greater direct control by the Party over their management.Yet CIIF’s objectives would fit awkwardly in a venture-capital firm’s pitch book. It has committed itself to not pursuing “excessive profitability” in its investments. That echoes recent missives by top officials concerning the “savage growth” and “disorderly expansion of capital” at China’s tech groups. Its area of focus—AI chips, robotics, quantum computing and blockchain—dovetail with the sectors the government prioritised in its 14th five-year plan, one of the state’s most important policy documents. Companies have no doubt taken note.ByteDance has claimed the CIIF investment has little influence over operations. If that is true then Chinese tech giants have decided on their own volition to mirror new state policy. The TikTok owner, for example, has become one of the first large Chinese tech companies to officially limit working hours to 10am-7pm on weekdays. (The change comes after the state berated Mr Ma and Alibaba for vocally supporting a “996” work schedule, or working 9am-9pm six days a week.) The firm is among those whose founders have departed during the crackdown.As Mr Xi’s model for state curbing tech darlings becomes clearer, so too have the potential drawbacks. One of them is the clumsiness built into some of the Party’s increasingly dogmatic practices. For the past two decades links between private companies and local governments have been central to the Chinese economic model. These partnerships have historically been focused on business, not Party ideology.More recently there have been signs that local governments are preoccupied more with ideological exercises, says Mr Hsieh. These include frequent “study sessions”, where Party officials gather to read and discuss the merits of Xi Jinping Thought and other Party literature. Forging some profitable connections between state and private companies has become more difficult and requires informal connections with more senior leaders, he says.Another problem is the level of risk aversion among the new elite state shareholders. China’s model was recently described as a “venture capitalist state” by Arthur Kroeber, an economist. The model is in many ways designed like a massive corporate investor, taking small stakes in various early stage companies; CIIF itself is staffed with executives with real tech and startup investing experience.Yet the state has all the risk appetite of a timid bureaucrat. Private-sector executives working with government-linked firms have described officials’ growing fear of making political mistakes. Losing public money on investment does not appear to be the biggest worry, says Nis Grünberg of the Mercator Institute for China Studies, a think-tank in Berlin. Rather, the more dangerous blunder would be failing to control companies that run counter to Party ideologies.Thus an uncomfortable prospect for Mr Xi’s new era of party control of the economy: fear by state-capitalists of falling foul of ideological diktats could lower investment returns and throttle corporate dynamism. CIIF’s board appointee to Bytedance has no clear business experience on his resume, according to Ms Li, but a background in communist propaganda. For doing business in China these days, an insider’s steer on how not to run afoul of the Party may prove invaluable. More

OXFORD NANOPORE’S MinION is a tiny but powerful device. When a hotel worker in Sydney tested positive for covid-19 in March last year, the portable DNA sequencer traced the infection to a flight attendant for an American airline, avoiding a general lockdown. The success of biotech firms—another celebrity is BioNTech, of Covid-19 vaccine fame—is sucking capital into life sciences. When such companies expand, they do so not with offices or shops but by means of white-walled, shiny-surfaced scientific laboratories.Commercial-property investors have long banked on offices, retail and industrial buildings. Less conventional assets like mobile-phone towers were the preserve of specialists. Now the big guns of real estate are competing over them too. Thus laboratory space has become commercial real-estate’s hottest property, along with other facilities that power the digital economy. Data centres and infrastructure that connect smartphones are booming.The investors’ motivation is clear. The pandemic convulsed commercial-property prices globally. American retailers closed nearly 15,000 shops in 2020. By mid-October, with people attached to remote work, offices were only a third full. The risk profile of some conventional property assets has deteriorated sharply.In contrast, demand for assets like labs and data centres has never been stronger—a trend visible before the coronavirus began to spread. As rent collections for shops and restaurants plummeted last year, data traffic from virtual meetings and online shopping exploded. Companies that use the underlying data centres and mobile towers are demanding more of them. These digital-economy winners look as safe as houses.The shift is reflected in the changing make-up of America’s ten largest real-estate investment trusts (REITS). A decade ago the most valuable such vehicle was Simon Property Group, the country’s biggest mall owner. Today it is American Tower, a fast-expanding owner of tens of thousands of phone masts around the world. Five of the top ten REITS currently manage either data centres or mobile towers.The loudest buzz currently surrounds life-sciences and lab space. Investors are flooding the health-care sector with capital. Drug makers, medical-equipment manufacturers and other life-sciences firms have raised a record $103bn in venture capital so far this year, up from $63bn in 2019, according to JLL, a property consultancy. A generous slice of capital is going into property. JLL estimates that up to $87bn is now being directed towards life-sciences real estate worldwide. That is equivalent to a third of all global spending on commercial property in the second quarter of this year.Landmark deals are cropping up frequently. In October GIC, Singapore’s sovereign-wealth fund, purchased a 40% stake in Oxford Science Park from Magdalen College, part of Oxford University; the deal valued the park at ten times its worth just five years ago. Blackstone, a private-equity firm, recently doubled its ownership of life-sciences floorspace in Britain, investing over $1bn in two new sites. Shares of life-science REITS are booming.By now, lab space is growing hard to come by. In Boston, where much of it in America is held, less than 5% of labs were available in the third quarter.In the Golden Triangle, as the area between London, Oxford and Cambridge is known, premises have run out. The Harwell life-sciences campus near Oxford will add 1.5m square feet over the next seven years to meet demand—equivalent to three-quarters of all the office space London’s financial district will add this year. Chris Walters, director at JLL, estimates unmet demand for lab space in and around Cambridge at 1m square feet—equivalent to nearly a quarter of retail space on London’s Oxford Street.Where markets are tight, participants will seek to expand supply. In the case of sci-tech property that is harder than it sounds. Constructing new phone towers means navigating strict planning laws and NIMBYS. New data centres need land with access to cheap electricity and high-speed internet. Life-sciences firms like to cluster around top universities and academic medical centres that provide the chemists, microbiologists and other experts that populate their labs. One fix is finding secondary locations. Cities like Los Angeles, which is fairly near the San Francisco Bay Area, and Pittsburgh, home to Carnegie Mellon, a university known for prowess in artificial intelligence, are attracting startups awash with capital. In Britain, life-sciences hubs are springing up in the north, where pharmaceutical giants like AstraZeneca and GSK have manufacturing sites.Another remedy is converting existing offices and industrial space. Boston Properties, one of America’s largest office REITS, says it can convert 5m square feet of conventional sites and buildings into laboratories. It is no easy process, for labs are complex spaces governed by biosafety rules. They need four times the amount of air that offices do. Waiting lists in London for “wet” labs, facilities in which dangerous chemicals and other hazardous substances can be handled, are lengthening.But property investors are game to try. In New York conversions could almost double the city’s lab space for rent, according to Newmark, a real-estate advisory firm.Even empty shops are being repurposed. Savills, a British property firm, reckons London has at least 1.8m square feet of retail property that could be refashioned into laboratories.Shops’ high ceilings mean plenty of room for high-performance ventilation, and service lifts for moving dangerous materials. It will doubtless take years for supply to catch up with demand. But as the locus of work and commerce moves, real-estate investors are shifting with it.■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Lab rats” More

THE TRADE war between America and China paradoxically brought some of the countries’ citizens closer together. Ben Kostrzewa, a trade lawyer for Hogan Lovells, moved from Washington, DC, to Hong Kong to help his corporate clients navigate duties, sanctions and export controls. He used to travel two or three times a month to the mainland. If he timed it right, he could pass through the border checks in 20 minutes. “I got to know those border agents very well”, he says.The pandemic has changed all that. In the first half of 2019, China’s busy agents recorded over 344m border crossings between the mainland and the rest of the world (including Hong Kong). In the first half of this year, that number was down by over 80%, according to official statistics. Mr Kostrzewa has not visited in almost 22 months. “It’s funny to be talking about this in the past tense,” he says.Talks, in a future conditional tense, between Hong Kong and the mainland have so far failed to ease travel between the city and the rest of China. But officials now say a pilot scheme might soon allow small numbers of vaccinated people to travel to the mainland without quarantine. If the scheme works, some of Mr Kostrzewa’s favourite checkpoints in Shenzhen could reopen by June, according to the South China Morning Post, although travel would be subject to quotas.For the rest of the world, visiting China will remain an ordeal. It is like arranging a “state visit”, says one banker who used to make the trip 30 times a year. The documentary requirements can be onerous and inconsistent. One delegation of senior businesspeople, hoping to visit Shanghai, were asked for their primary-school transcripts. After the bureaucratic bother, the boredom of quarantine awaits: a minimum of 14 days, typically in a hotel not of one’s choosing. One well-connected married couple were at least given the option of separate rooms. They took them without any hesitation.The benefits of China’s zero-covid strategy can be measured in lives saved and infections averted. The economic cost of the country’s self-isolation is harder to quantify. The travel restrictions are making life harder for the international “facilitators” that make cross-border business tick, argues one investor in Shanghai. Remote communication can maintain existing relationships, but some things are better done face-to-face. The investor used to get to know his managers over dinners, drinks and cigars. “If you spend three hours a night together, by the end of that week, you know the guy.” No one has the stamina to replicate that on Zoom.Some know-how is also tacit, embodied in people or teams. To transmit this know-how it is necessary to move the minds that carry it. Increasing spending on business travel by 10% raises productivity by 0.2-0.5% in the visited sector, according to a study of American travellers by Mariacristina Piva of the Università Cattolica del Sacro Cuore and her co-authors.Another study by Michele Coscia of the IT university of Copenhagen, as well as Frank Neffke and Ricardo Hausmann of Harvard’s Growth Lab, made use of aggregated, anonymised Mastercard data to map this movement of minds. They estimate that China’s economy would be 13% smaller if it had not benefited from the know-how diffused by international business travel. The biggest contributions were made by visitors from Germany and South Korea (see chart).Foreign direct investment in China has so far remained strong, thanks to the economy’s early recovery from the pandemic. And few multinationals are leaving. Some foreign firms may even localise activities done outside China to keep doing business there. Companies are “battening down the hatches”, according to the European Union Chamber of Commerce in Shanghai, bringing more of their supply chain onshore, because of geopolitical tensions, covid restrictions and new laws that limit data-sharing across borders. “Companies might be forced to have two different systems running: one for China, and one for the rest of the world,” says Bettina Schön, the chamber’s vice-president. “This will be horribly expensive.” It is not that the world is leaving China; more that China is becoming a world unto itself.■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Seal of the realm” More

CELEBRITY BOSSES used to have nicknames that made a virtue of short fuses and brutality. “Chainsaw Al” and “Neutron Jack” sounded more like wrestlers than men in suits. That kind of moniker would jar today. Inclusivity and empathy are what matter: think “Listening Tim” and “Simpatico Satya”. But just because chief executives seem more normal does not mean that they actually are. The demands of the job require an ever-stranger set of characteristics.In some ways the path to the top of the corporate pyramid is unchanged. It requires people to compete with each other over an extended period. It demands evidence of financial and operational success. It uses the prospect of money—lots of it—as a lever to incentivise ambitious people. And it selects for familiar traits: hard work, impatience, self-confidence and extroversion. If you would rather stay in and watch “The Great British Bake Off” than wine and dine clients, the role is not for you.A recent study by Steve Kaplan of the University of Chicago and Morten Sorensen of the Tuck School of Business looks at assessments conducted by ghSMART, a consulting firm, of more than 2,600 candidates for different leadership positions. Candidates for CEO jobs emerge as a recognisable type. Across a range of characteristics they have more extreme ratings on average: they shine in what the academics term “general ability”.They also differ from other executives in the particulars. Where aspiring chief financial officers are more analytical and focus on the detail, would-be CEOs score higher on charisma, on getting things done and on strategic thinking. These traits also seem to be predictive. By tracking the subsequent careers of candidates, the academics find that people who were applying for a different position but had “CEO-like” characteristics were more likely eventually to wind up in the top job.Yet firms today are after more than a type-A personality. Mr Kaplan and Mr Sorensen note that CEO candidates with better interpersonal skills are more likely to be hired. Another new piece of research, from academics at Imperial College London, Cornell University and Harvard University, analyses the lengthy job descriptions that companies draw up when they work with headhunters to recruit a new leader. Cognitive skills, operational nous and financial knowledge are prerequisites for success. But over the past two decades these descriptions have placed more and more emphasis on social skills—the ability of bosses to co-ordinate and communicate with multiple people.Why are these softer skills prized? The answer, according to Stephen Hansen of Imperial College, lies partly in the rise of knowledge workers. Firms increasingly depend on developers, data scientists and IT managers who are used to operating independently. Chief executives are not going to tell these kinds of workers what to do; their job is to make sure that people understand the firm’s goals and toil together effectively. Sure enough, the paper shows that demand for these skills goes up in larger and more information-intensive firms. Social skills matter more when bosses need to persuade as much as instruct.The wider environment also rewards softer skills. Polling by Edelman, a public-relations firm, suggests that majorities of customers and employees make choices on what to buy and where to work based on their beliefs. Chief executives must mollify politicians, respond to activists and dampen social-media firestorms. It helps if the boss comes across as a relatable member of society, not a volcano-dwelling villain.It is not yet time to call time on old-fashioned narcissism. Another study, by a quartet of researchers at Stanford Graduate School of Business, surveyed 182 directors about the personalities of their chief executives. The answers suggest as many as 18% of bosses are considered narcissists by their own board members, a prevalence rate perhaps three times that of the general American population. The researchers also find that firms with narcissistic CEOs tend to have higher scores for their environmental, social and governance policies. What better way for an egomaniac to come across as empathetic than to save the planet?The demands on chief executives make for an increasingly strange mixture. Be more talented than others in the firm, but don’t tell them what to do. Crush the competition while exuding empathy. Listen charismatically. Be likeably aggressive. CEOs have always been abnormal. The trick now is not to show it.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The impossible job” More

CALL IT THE multiplication of the metaverses. Ever since Mark Zuckerberg, the boss of Facebook—sorry, Meta—laid out his vision in late October for immersive virtual worlds he thinks people will want to spend lots of time in, new ones are popping up all over. An entertainment metaverse will delight music fans, influencers will flock to a fashion metaverse to flaunt digital clothes, and there is even a shark metaverse (it has something to do with cryptocurrencies). Mostly these are the brainchildren of marketeers slapping a new label on tech’s latest craze.One new virtual world deserves real attention: the “enterprise metaverse”. Forget rock stars and fancy frocks, this is essentially a digital carbon copy of the physical economy. Building living, interactive blueprints that replicate the physical world might, in time, come to shape it. The vision of what this might mean has become clearer in recent days. Microsoft, the world’s largest software firm, earlier this month put it at the centre of its annual customer shindig, as did Nvidia, a big maker of graphics processors, on November 9th.Corporate virtual worlds are already more of a reality than Meta’s consumer version, where people will get to hang out with their friends at imaginary coastal mansions. Unlike that metaverse, which is populated mostly by human avatars, the corporate version is largely a collection of objects. These are “digital twins”, virtual 3D replicas of all sorts of physical assets, from single screws to entire factories.Crucially, they are connected to their real selves—a change on the shop floor, for instance, will trigger the equivalent change in its digital twin—and collect data about them. This set-up enables productivity-enhancing operations that are hard today, for example optimising how groups of machines work together. Simulating changes virtually can then be replicated in the real world. And, its boosters hope, a path would be laid to automate even more of a firm’s inner workings.Whether the enterprise metaverse becomes a reality is not simply of interest to aficionados of corporate information technology (IT). Innovations unlocked through insights gleaned from digital mirror-worlds can help firms become more adaptable and efficient—helping them reduce carbon emissions, for example. Promoters of the concept even argue that it will put to rest the old adage, coined by Robert Solow, a Nobel-prizewinning economist, that you can “see the computer age everywhere but in the productivity statistics”.The concept of this “twinworld”, as the enterprise metaverse might be called (a spiffy moniker will surely be found), is not new. Some of the necessary technologies have been around for years, including devices with sensors to capture data, known as the “internet of things” (IoT)—another field still waiting for a moniker upgrade. Software to design detailed virtual replicas originated in computer games, the current benchmark for immersive worlds.But other bits have only recently become good enough, including superfast wireless links to connect sensors, cloud computing, and artificial intelligence, which can predict how a system is likely to behave. “Digital twins aggregate all of these things,” explains Sam George, who runs the enterprise-metaverse effort at Microsoft.As is its wont as a maker of corporate software, Microsoft has developed an entire platform on top of which other firms can develop applications. This includes tools to build digital twins and analyse the data they collect. But this “stack”, as such collections of code are known, also provides technology which allows people to collaborate, including Mesh, a service that hosts shared virtual spaces, and HoloLens, a mixed-reality headset, with which users can jointly inspect a digital twin.Nvidia’s roots in computer graphics mean it focuses more on collaboration and creating demand for its chips. Its Omniverse is also a platform for shared virtual spaces, but one that allows groups of users to bring along elements they have built elsewhere and combine these into a digital twin they can then work on as a team. The common technical format needed for such collaboration will come to underpin digital twins in the same way HTML, a standard formatting language, already underpins web pages, predicts Richard Kerris, who is in charge of Omniverse.Both platforms have already attracted a slew of startups and other firms that base some of their business on this technology. Cosmo Tech, for instance, takes Microsoft’s tools to do complex simulations of digital twins to predict how they might evolve. And Bentley Systems, which sells engineering software, uses Omniverse to optimise energy infrastructure. Both Microsoft and Nvidia have also teamed up with big firms to show off their wares. AB InBev, a beer giant, collaborates with Microsoft to create digital twins of some of its more than 200 breweries to better control the fermentation process. In the case of Nvidia, the top partner is BMW, which uses Omniverse to make it easier to reconfigure its 30 factories for new cars.Despite all this activity, it is not a given that the enterprise metaverse will take off as fast as its champions expect, if ever. Similar efforts have failed or disappointed, including many IoT projects. “Smart cities”, essentially attempts to build urban metaverses, turned out to use technology that was just not up to snuff and relied too much on proprietary standards.If the enterprise metaverse does indeed take shape, though, it will be an intriguing process. Will it be based on proprietary technology or on open standards (there is already a Digital Twin Consortium)? And, asks George Gilbert, a veteran observer of the IT industry, how will software-makers such as Microsoft be paid for their wares? Since their code will be more embedded than ever in firms’ products and services, some may ask for a slice of revenue instead of licensing or subscription fees.And then there is the question of how the overall metaverse economy will function. Since most business activity will be digitally replicated, economists may have unprecedented insight into what is going on. Digital twins could exchange services between themselves and perhaps replace firms as the main unit of analysis. If digital twins live on a blockchain, the sort of platform that underpins most cryptocurrencies, they could even become independent and own themselves. Expect at least as many possibilities as metaverses to unfold.■This article appeared in the Business section of the print edition under the headline “Virtual world, Inc” More

PERHAPS THE most remarkable characteristic of General Electric (GE) over its 129-year history has been how thoroughly it reflected the dominant characteristics of big American business. Most of its history was a chronicle of boisterous expansion, then globalisation—followed by painful restructuring away from the now-unloved conglomerate model. On November 9th Lawrence Culp, its chief executive, announced that GE would split its remaining operations into three public companies.Each of these entities will be large, essential and very modern. One will make jet engines, which GE reckons already power two-thirds of all commercial flights. Its power business will provide the systems and turbines generating one-third of the world’s electricity. The health-care division will continue to be the backbone of modern hospitals. Yet it speaks to GE’s remarkable role that this is a modest reach given its past sprawl. From the late-19th to the late-20th century its products lit dark streets; provided the toasters, fans, refrigerators, and televisions (along with the stations beamed to them), which transformed homes; delivered the locomotives that hauled trains; and then built a huge business financing all that and more.The ambition to be everything was enabled by the perception that it could manage anything. The 21st century punctured that perception.Jack Welch, an acquisitive chief executive reputed to be a managerial genius, retired in 2001 after receiving a mind-boggling $417m severance package. Ever-better results during his tenure beguiled investors and sent the share price soaring. But problems soon arose. The structure Welch left behind was in effect bailed out during the financial crisis. Losses at GE Capital, the sprawling financial unit he fostered, were blamed, though the company’s industrial core turned out to have plenty of problems, too.Recent years have been spent spitting out one notable business after another. The timing of the break-up announcement was determined by the sale of a large aircraft-financing unit. The transaction reduced debt by enough to provide the three soon-to-be independent companies with an investment-grade credit rating. Mr Culp, the firm’s boss since 2018, speaks of the “illusory benefits of synergy” to be traded for the certain benefits of focus. “A sharper purpose attracts and motivates people,” he says.Having boasted of its management nous, it now seems that poor management is what did it for a unified GE. The contest to replace Welch was widely seen as pitting the best global executives against one another, with the losers hired to run other big firms. But his successors struggled. Jeffrey Immelt, Welch’s hand-picked replacement, retired under a cloud in 2017. John Flannery, once seen as a wizard behind the rise of the health-care division, took over but was fired after little more than a year. Mr Culp was brought in from outside, a step last taken in the 19th century.During much of Welch’s tenure and its immediate aftermath GE was the most valuable company in the world, reaching a peak market value nearly five times its current $121bn. It is tempting to conclude that GE’s failure illustrates the demise of the conglomerate. That is refuted by the diversification of today’s most valuable companies: tech firms that have branched out into driverless cars, cloud computing and so on. Rather, GE’s story reflects how even the most valuable American companies may be flawed—and if flaws emerge, may be thoroughly transformed.■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Not so general” More

WHEN BERND OSTERLOH, the mighty boss of Volkwagen’s council that represents workers, announced his resignation in April many investors breathed a sigh of relief. Frequent, acrimonious clashes between him and Herbert Diess, the group’s no-less-mighty chief executive, had become a distraction from the big changes required to push VW into the electric age. The culmination was Mr Osterloh’s attempt to topple Mr Diess.Yet only six months after the departure of his near nemesis Mr Diess is again locking horns with labour representatives. This time observers say the brash Bavarian may have gone too far. After all, Volkswagen’s workers have enormous clout. Their representatives occupy half the seats on the group’s 20-member supervisory board. They can count on the loyalty of the two board representatives of Lower Saxony, the western German state that owns a fifth of VW. The Volkswagen law from 1960 that limits voting rights of any shareholder to 20% gives Lower Saxony a de facto veto on any big decision.How did the relationship hit bottom so quickly? The biggest bone of contention is the extent of changes required to enable VW to rival Tesla as a leading maker of electric cars. In an email that was leaked to the works council, Mr Diess suggested cutting 30,000 jobs, which would mostly affect the bloated bureaucracy at VW’s headquarters in Wolfsburg. Yet job losses are likely to be an unavoidable part of the electric-vehicle age, because EVS take less time to assemble than cars with internal combustion engines. Amid the ensuing outcry, Mr Diess toned down his plans for job cuts.But the damage is done. A four-member mediation committee is discussing Mr Diess’s future even though his contract was extended to 2025 only in July. Most agree he is the right man to steer change at VW, but say he lacks diplomacy. Various names of possible successors are circulating. Tesla, of course, faces no such headwinds. Its boss, Elon Musk, has used social media to warn workers against unionisation. The American firm, which is building a gigafactory not far from VW’s headquarters, presumably views Germany’s system of powerful worker representation on boards as a cautionary tale.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Golf’s course” More