Philippa Kaur

FEW BLOCKBUSTER public share sales have been as tortured as Didi Global’s. Within four days of raising $4.4bn in New York in June the Chinese ride-hailing group was hit with an investigation by the authorities in its home market and its mobile application was dropped from app stores in China, preventing new customers from using it. The firm’s share price remained above its initial public offering (IPO) price for just three trading days and has since fallen by more than 40%. Now the company, which was once valued at $70bn and backed by Japanese investment firm SoftBank, says it will delist from American exchanges altogether and relist in Hong Kong.Investors should consider Didi’s exit a death knell for Chinese IPOs in America. Some $1.5trn of Chinese company shares trade in New York. Those listings have already been threatened by American regulations that require all listed companies to provide access to internal auditing documents or face eventual delisting. Chinese officials have refused to allow access, often deeming this material “state secrets”. The dilemma goes back a decade but recent American legislation, which was adopted by the Securities and Exchange Commission on December 2nd, will purge all non-compliant companies from exchanges within two to three years, with potentially devastating consequences for some investors.Many have held out hope for an eventual agreement between American and Chinese regulators that would revive a once-booming cross-border listing business. Not long ago American exchanges were the leading destination for the IPOs of Chinese tech groups such as e-commerce giant Alibaba and online services group NetEase. Didi has not commented on why it plans to leave the New York Stock Exchange for Hong Kong but the group has been under intense regulatory pressure from the Chinese government since its IPO, ostensibly over data-security concerns. Several news agencies have reported that the Cyberspace Administration of China (CAC), an increasingly powerful regulatory body, has pushed the company to delist.Such action—an unprecedented intervention by a foreign government in the American market—would make an agreement between America and China far more difficult to strike, says Jesse Fried of Harvard Law School. “Didi’s exit will thus be a preview of what is to come,” he says. China’s growing regulatory reach should also raise alarms for global investors. Until now no Chinese enforcement body has sought to control Chinese listings in foreign markets. But new rules give the CAC authority to vet most overseas Chinese tech IPOs. These rules may also apply to share sales in Hong Kong. On December 1st the China Securities Regulatory Commission (CSRC) denied reports that it plans to ban the use of variable interest entities (VIEs), an offshore holding-company structure that has allowed Chinese companies to skirt local regulations barring foreign investments in some types of businesses. Yet Chinese media have reported that regulators are planning to revamp rules on VIEs, indicating tighter control over foreign listings.China’s leadership wants more control over who can invest in the country’s tech groups, and who gets access to the data collected by those companies. Didi’s case shows they have few qualms about severing long-standing connections between those companies and Wall Street.■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

THE BATTLE to be top of the charts on Christmas Day has been won in recent years by the likes of Taylor Swift, Ed Sheeran and Ariana Grande. But lately these singers have faced competition from an unexpected source: the 20th century. Despite the best efforts of today’s young stars, the December charts have become dominated by musicians who are well into middle age, or dead.On Christmas Day five years ago, every single in the top ten of the Billboard Hot 100, a chart of America’s most popular songs, was a new release. In 2017 Mariah Carey crept in at number nine with her massive 23-year-old hit, “All I Want for Christmas is You”. Since then the oldies have shuffled relentlessly forward (see chart). Last Christmas half of America’s top ten songs were more than half a century old. Indeed Ms Carey, then aged 51, was one of the younger artists: two of her fellow chart toppers were drawing a pension; three had joined the heavenly chorus.Old hits have been revived by new technology. Billboard’s charts used to be based predominantly on record sales, as well as incorporating the number of radio plays. But since 2015 its evolving formula has tended to give the greatest weight to the number of listens on streaming services like Spotify. The result is that records like “Jingle Bell Rock” (1957) by American country singer Bobby Helms, which no longer generate many physical-format sales but which still get streamed on repeat in December, have been catapulted up the rankings.The Christmas-charts phenomenon illustrates why investors are re-evaluating musicians’ back catalogues. Streamers pay rights-holders a small sum for every play of a song, so old favourites whose physical sales had long ago dwindled have returned to earning a steady income. Artists with year-round appeal have been cashing in on their newly sought-after oeuvres. Last year Bob Dylan sold his collection to Universal Music Group, the world’s biggest record label, for a sum reportedly over $300m. On November 30th BMG, another music company, said it had bought the heavy-metal collection of Mötley Crüe.Streaming may mean a new payday for enduringly popular artists, but it saps some of the excitement from the Christmas charts. Ms Carey, who claimed second place in Billboard’s ranking last year and first place the year before that, has already begun her festive assault on this year’s charts: at the time of writing she had reached number 12, and rising. Christmas may be “The Most Wonderful Time of the Year” (last year’s number-seven hit), but it is also becoming the most musically predictable.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 “Ghosts of Christmas past” More

THE OFFICE used to be a place people went because they had to. Meetings happened in conference rooms and in person. Desks took up the bulk of the space. The kingdom of Dilbert and of David Brent is now under threat. The pandemic has exposed the office to competition from remote working, and brought up a host of questions about how it should be designed in the future.Start with what the office is for. In the past it was a place for employees to get their work done, whatever form that took. Now other conceptions of its role jostle for attention. Some think of the office as the new offsite. Its purpose is to get people together in person so they can do the things that remote working makes harder: forging deeper relationships or collaborating in real time on specific projects. Others talk of the office as a destination, a place that has to make the idea of getting out of bed earlier, in order to mingle with people who may have covid-19, seem attractive.In other words, a layout that is largely devoted to people working at serried desks alongside the same colleagues each day all feels very 2019. With fewer people coming in and more emphasis on collaboration, fewer desks will be assigned to individuals. Instead, there will be more shared areas, or “neighbourhoods”, where people in a team can work together flexibly. (More hot-desking will also necessitate storage space for personal possessions: lockers may soon be back in your life.)To bridge gaps between teams, one tactic is to set aside more of the office to showcase the work of each department, so that people who never encounter each other on Zoom can see examples of what their colleagues do. Another option is to ply everyone with drink. Expect more space to be set aside for socialising and events. Bars in offices are apparently going to be a thing. Robin Klehr Avia of Gensler, an architecture firm, says she is seeing lots of requests for places, like large auditoriums, where a company’s clients can have “experiences”.Designs for the post-covid office must also allow for hybrid work. Meetings have to work for virtual participants as well as for in-person contributors: cameras, screens and microphones will proliferate. Gensler’s New York offices feature mini-meeting rooms that have a monitor and a half-table jutting out from the wall below it, with seating for four or five people arranged to face the screen, not each other.Variety will be another theme. People may plan to work in groups in the morning, but need to concentrate on something in the afternoon. Ryan Anderson of Herman Miller, a furniture firm, likens the difference between the pre- and post-pandemic office to that between a hotel and a home. Hotels are largely given over to rooms for individuals. “Home is thought of as a place for a family over years, hosting lots of different activities.”All of which implies the need for flexibility. Laptop docking stations are simple additions, but other bits of office furniture are harder to overhaul. Desks themselves tend to be tethered to the floor through knotted bundles of cables and plugs. The office of the future may well feature desks with wheels, which ought to go well with all that extra alcohol. Meeting rooms are likely to be more flexible, too, with walls that lift and slide.If socialising and flexibility are two of the themes of the post-pandemic office, a third is data. Property and HR managers alike will want more data in order to understand how facilities are being used, and on which days and times people are bunching in the office. Workers will demand more data on health risks: the quality of ventilation within meeting rooms, say, or proper contact-tracing if a colleague tests positive for the latest covid-19 variant.And data will flow more copiously in response: from sensors in desks and lighting but also from desk-booking tools and visitor-management apps. The question of who owns data on office occupants and what consent mechanisms are needed to gather this information is about to become more pressing.Put this all together and what do you get? If you are an optimist, the office of the future will be a spacious, collaborative environment that makes the commute worth it. If you are a pessimist, it will be a building full of heavily surveilled drunkards. In reality, pragmatic considerations—how much time is left on the lease, the physical constraints of a building’s layout, uncertainty about the path of the pandemic—will determine the pace of change. Whatever happens, the office won’t be what it was.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 office of the future” More

LONG BEFORE the invention of stakeholder capitalism, a core principle—that the interests of customers, employees and society should be as high or higher than those of shareholders—was carved into the plaster at Johnson & Johnson’s head office in New Brunswick, NJ. “Our Credo” as J&J calls its mission statement, dates back to 1943, when it was penned by Robert Wood Johnson II, a former boss of the pharmaceutical firm.J&J says the Credo has helped construct a corporation built to last. Worth $420bn, it is the world’s biggest drugs firm by value. It is one of only two companies in America with a triple- A credit rating (the other is Microsoft). Of its $82.6bn of sales last year, pharmaceuticals accounted for 55%, medical devices 28% and consumer health 17%. It produces everything from blockbuster cancer drugs to band-aids and baby powder.Some argue that for all its pieties, J&J has let down both society and shareholders. In recent years it has faced multiple lawsuits against products ranging from prescription opioids to talcum powder to Risperdal, an antipsychotic medicine. It denies all wrongdoing, but the succession of controversies has tarnished its image and loaded it with legal liabilities.Moreover, since 2012 J&J’s total returns to shareholders have lagged behind the S&P pharmaceutical benchmark by about a third. Investors say the legal maelstrom is partly to blame. Another factor is lopsided performance. Buoyancy at J&J’s pharmaceuticals business, where sales rose by 8% last year, is overlooked because of low single-digit growth and, at times, declines in the medical devices and consumer-health divisions.Now J&J is taking steps—radical by its own standards—to reform on both counts. Alex Gorsky, its outgoing chief executive and soon-to-be executive chairman, is trying to draw a line under the legal troubles. He is also overhauling the firm’s structure. His methods have not yet had the desired effect. But they could restore the firm’s standing with investors and society.The first sign of progress has been in the legal realm. In August 2019 an Oklahoma court ruled that J&J’s promotional campaigns downplayed the risks of opioids and meant the firm bore a wide responsibility for the deadly epidemic. It was ordered to pay $465m. But on November 9th the state’s Supreme Court overturned the ruling, saying it was based on a wrong interpretation of public-nuisance law. The previous week, a California court threw out a similar case against J&J and other defendants.Such wins for J&J coincide with what Carl Tobias of the University of Richmond School of Law, calls a new legal approach. The firm has a history of litigating cases “to the bitter end”, he says. Lately, he points out, it has shown more willingness to settle. This summer it finalised an opioid settlement of up to $5bn with numerous American states, cities and counties which it hopes will lay the claims against it to rest. In October it said it had set aside $800m to settle most of its Risperdal cases.The company is still walking a legal tightrope when it comes to claims related to talcum powder. In October it deployed what is known disparagingly as the “Texas two step”, a manoeuvre in which it set out to ring-fence liabilities on 30,000 or more talc-related litigation claims by creating a Texan subsidiary, LTL Management, that promptly filed for Chapter 11 bankruptcy in North Carolina. It went down poorly. The North Carolina judge shunted the bankruptcy case to New Jersey, where many of the talc claims are filed. Some Congressional Democrats accused the firm of trying to manipulate bankruptcy law to deny claimants their day in court. J&J argues that it has established a $2bn trust attached to LTL to help cover talc-related liabilities under Chapter 11. Investors hope it could mark the beginning of the end of the saga.Mr Gorsky’s second sweeping change is structural. J&J said in November that over the course of 18-24 months it would split into two firms, one focused on consumer health, the other combining pharmaceuticals and medical devices. The consumer-health business badly needs a nip and tuck. It is no longer enough to boast that nine out of ten dermatologists recommend a skin product. Shoppers require Kim Kardashian-style razzmatazz. J&J hopes the consumer-health business will fare better with more focus. The break-up will also crystallise value lost in the conglomerate structure. It is a path trodden by GSK, a British drugs firm, which is spinning off its consumer-health joint venture with Pfizer. But a lot remains unknown about the split. Investors greeted it with a shrug.What shareholders are excited about is the pharma business. They take seriously J&J’s pledge to ramp up annual drugs sales from $45.6bn last year to $50bn by 2023 and $60bn by 2025. It reckons it can outstrip average growth in the drugs market even though one of its best selling medicines will lose patent protection. It promises new treatments, such as cell and gene therapies. Its oncology pipeline is strong. It will not be all smooth sailing, however. The pharma firm will still be tied to the sluggish medical-devices business. And if the talc-related bankruptcy man oeuvre fails, liabilities could fall onto the pharma business.Time for a booster jabThese are exciting times in life sciences. Pfizer is adding a fortune to sales thanks to its covid-19 breakthroughs. Eli Lilly is attracting investors because of an experimental Alzheimer’s drug. Against such competition, J&J urgently needs to move beyond the legal controversies weighing upon it and its share price.The biggest question is whether the company can become more dynamic overall. Partly owing to its mission statement, J&J carries a lot of history on its back. It makes decisions cautiously. Mr Gorsky has taken years to recommend a break-up, though investors have wanted one since he took over in 2012. Listening properly to shareholders would have meant earlier, possibly preventive, ingestion of the correct medicine. ■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 “No more tears” More

IT IS TESTAMENT to human inventiveness that 50m patents are estimated to have been granted globally. But in aggregate much of the collection resembles an intellectual junkyard. Included are plausible ideas that no firm ever wanted to pay for, plausible ideas that fell short, and absurdities. A patent on the crust-less peanut-butter-and-jelly sandwich, for example, failed to be renewed in 2007.Pare the list to those that are both sensible and in force legally, meaning a fee is paid to a patent office to keep them alive, and there are 16m patents that count. Last year, 1.6m were granted.Most are the property of companies, but balance-sheets and conventional accounting are ill-suited to capturing their worth. Using acquisition cost, then depreciating it, does not work. Instead, lawyers provide subjective numbers based on factors such as a patent’s likely validity, royalties and litigation history. Many firms reckon it is not worth paying the tens of thousands of dollars that it costs for a valuation.In 2008 an intellectual-property exchange opened in Chicago to do for patents what other bourses did for stocks, bonds and commodities. Its backers were blue-chip firms like Hewlett Packard and Sony, but it closed in 2015. Patents cannot be treated like commodities, said the Cornell Law Review. A subsequent effort to value them used software to read and evaluate the documents. So far, however, not even machine-learning techniques have allowed code to penetrate the opaque legal language in which patents are couched.Now a startup called PatentVector, founded by a law professor, an information science professor and a software engineer, is trying something new. It uses a variation of a method started in the 1960s which evolved into tallying up how frequently individual patents are cited (a similar process based on citations is used to evaluate academic research).Rather than attempting to understand the patent, PatentVector employs artificial intelligence to comb through 132m patent documents kept by the European Patent Office in Munich (the world’s biggest collection). Then it evaluates, first, how frequently a patent is cited and, second, how frequently it is cited by patents that are themselves cited frequently. That provides an indication of importance which is then multiplied by a mean value of patents based on an estimate by James Bessen, an economist at Boston University, which has become a reference point. A number of companies, legal firms and institutions (including the Canadian Patent Office) are buying PatentVector’s product.The results contain interesting insights into inventing. Frederick Shelton IV (pictured) does not feature among prominent innovators of the 20th century but he probably should. He works at Ethicon, a medical-devices subsidiary of Johnson & Johnson, and PatentVector values his inventions at a cool $14bn, placing him aeons ahead of anyone else. His top three are for a mechanical surgical instrument, surgical staples and the cartridge for the staples; in short, tools to cut tissue and bind it up.Ethicon itself, a medical-device maker, holds 95 of the world’s 200 most valuable patents, PatentVector finds. The firm also employs Jerome Morgan, who is listed in second place with $5bn worth of patents (many overlapping with Mr Shelton’s). Only one other person is in the $5bn club: Shunpei Yamazaki, president of Semiconductor Energy Laboratory, a Japanese research-and-development firm. Mr Yamazaki’s most important patent covers the displays on computers, cameras and other semiconductor devices.PatentVector found 65 other people each responsible for patents worth in excess of $1bn. Only 14 of the top 650 tinkerers are women. The highest ranked is Marta Karczewicz, who works for Qualcomm, an American chip designer, and played a vital role in inventing the video-compression technology that makes Zoom and other video services function.Almost all valuable patents can be found in a few broad industry groups: biopharma, software, computer hardware, medical devices and mechanical equipment. Over the past 40 years the importance of specific categories has marginally expanded and contracted, but biopharma and information technology (IT) have dominated and their significance has grown. The companies with the largest aggregate value of patents are in IT, topped by IBM, Samsung and Microsoft.PatentVector’s figures on the patent holdings of countries are revealing, too. America has the most active patents of any country, at 3.3m, followed closely by China with 3.1m. But there is a world of difference in how frequently they are cited and their imputed value. America’s library is calculated to be worth $2.9trn, compared with China’s collection at $392bn.Of course, PatentVector’s methodology will face scrutiny. Naturally, the startup has patented its own technique. Information about patents, which are critical components of invention, has never been more important. Perhaps it was inevitable that innovation would be applied not only by means of patents, but to them as well. ■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 “Billion-dollar blueprints” More

A BIG CHANGE is under way in Asia’s technology industry. As investors avert their eyes from the government-imposed nightmare engulfing China’s internet champions, a cohort of South-East Asian counterparts is booming. Tot up the value ascribed by the market to just three listed and soon-to-be listed consumer-app giants with headquarters in Singapore and Jakarta, and the figure approaches a quarter of a trillion dollars. Add to that the $70bn or so combined worth of a whole field of new unicorns—privately-held startups worth $1bn or more—and South-East Asia is surely fulfilling hopes, long-held, that a big emerging market consumer-tech sector would rise outside China.On December 2nd Singapore-based Grab, a consumer-technology firm, will list on America’s Nasdaq by means of a merger with a special purpose acquisition company (SPAC). The record-breaking SPAC transaction is expected to value Grab at $40bn. Another giant, GoTo Group, formed from the merger of Indonesia’s Gojek, a ride-hailing firm, with Tokopedia, an e-commerce company, will follow in the first half of 2022. Sea, largest of the three giants, and parent to regional e-commerce pioneer Shopee, was the earliest to list, in 2017. The company’s market capitalisation has risen eight-fold since the end of 2019, to $160bn, making it the largest listed company in South-East Asia.The three companies are each some combination drawn from ride-hailing and food delivery, financial services and mobile gaming. The precise blend varies from firm to firm, but the same idea runs through the core of each. It is to bring hundreds of millions of consumers together into a network of services. These may be low-margin, but the transaction volumes in question are vast. The model is often referred to as a super-app, or app-cluster strategy. In their domestic markets the companies are already behemoths. With a fleet of over 2m drivers, GoTo by itself boasted total transactions of $22bn last year, equivalent to 2% of Indonesia’s GDP.The prospects for South-East Asian consumer tech have been alternately hyped up and talked down over the past decade. Optimists, currently in the ascendant, point to a market of 650m people poised for rapid economic growth. Mark Goodridge, an equity analyst at Morgan Stanley, a bank, notes that online retail made up just 6% of retail sales in the countries of the Association of Southeast Asian Nations (ASEAN) in 2019, compared to around 15% in America and about 30% in China.But sceptics note the region’s fragmentation. South-East Asia’s markets are anything but a contiguous economic bloc. Even in the biggest, like Indonesia, multiple languages are spoken, to say nothing of widely differing income levels and infrastructure capacity. That no doubt contributes to the huge losses that are being racked up. None of the big companies are reliably profitable. In the third quarter of the year, Sea’s losses widened to $571m, a year-on-year increase of a third. The two largest companies, Grab and Sea, have made a combined $17bn of net losses since the beginning of 2018.The sea of red ink does not alarm investors. They demanded consolidation in order to make the market more orderly and investable, and, by and large, have got it. Mergers and acquisition activity in tech in South-East Asia exploded this year. By late November the volume of deals had already reached $61bn, equivalent to all activity for the past decade. Those transactions helped create the super-app strategy embraced so enthusiastically by consumers. “What customers want is deeper, faster digital solutions, which are not done in a fragmented way. They don’t want six wallets, they don’t want five e-commerce options and three food delivery companies,” explains Patrick Cao, president of GoTo Group.The triumph of GoTo Group, Grab and Sea, of course, came at the expense of powerful American and Chinese rivals. Alibaba still has a local presence through e-commerce firm Lazada, but, having led only two years ago, the firm has slipped into the second tier of competitors. With around 137m visits in 2020, according to IPrice, an e-commerce data aggregator, Lazada was slightly less than half as popular as Sea Ltd’s Shopee, the regional leader (although it is losing considerably less money). Since Uber beat a retreat in 2018 (its operations were bought by Grab), no American company has built a significant presence in e-commerce or in ride-hailing.As local firms see it, that is ample proof were it needed that a focus on localisation has borne fruit. In their telling, a lack of wealthy, homogenous home markets has forced them to tailor their products and services for specific places. For the most ambitious among their executives, it is a competitive edge that will work globally, too. The idea later would be to design slightly differing versions of their apps for different European markets and for America.Consolidation and scale should in theory lead to profits. The firms can bundle services together, and different lines of business can complement one another. Ming Maa, president of Grab, notes that in the second quarter of the year, 66% of the two-wheeled drivers in Indonesia, Vietnam and Thailand were working on both delivery and transport, up from 58% in the same period in 2020. That lowers costs.How soon will profits arrive? It is promising that Grab’s take rate—revenue as a proportion of the total value of rides taken or deliveries made—has risen from 9.5% in 2018 for mobility and 5.6% for deliveries in 2018 to 21.7% and 17.1% respectively in the third quarter of this year. The company’s preferred measure of profitability: adjusted earnings before interest, tax and depreciation relative to gross bookings, is chosen to flatter, but at least the 12% margin it yields for mobility is more than twice as high as Uber’s 5.5%. Grab’s argument that a lack of profitability is a choice linked to rapid expansion is not wholly unconvincing.The three firms’ ambitions to loom large in finance, however, means a long diversion from the path to profit. Their aim is understandable. “Financial services is something every super app needs to have. You have a supply chain, you have a customer base, you want to reduce your own dependence on others’ financial services,” says Venugopal Garre, an analyst at Bernstein, a broker. But Grab’s financial-services ambitions will certainly drag on profitability, as Moody’s, a credit-rating agency, noted early this year.South-East Asia’s tech boom is by no means isolated to large companies. There are 35 private firms valued at $1bn or more in ASEAN countries, according to research by Credit Suisse, a bank. Of those, 19 reached unicorn status this year. True, America and China already have hundreds of tech firms valued in the billions of dollars. But that is a relatively recent development, notes Nick Nash of Asia Partners, a private equity firm focused on the sector. The two countries only had ten such unicorns as recently as 2013 and 2014 respectively, before the numbers began to surge.Far from the stereotype of cash-bleeding startups, some South-East Asian firms have been remarkably disciplined in fundraising. Mr. Nash uses the example of SCI E-commerce, which specialises in cross-border retail and helps international brands access South-East and East Asia. The company has become one of the region’s fastest-growing firms having raised less than $70m in funding. Its revenues have surged to over $100m in 2020. Unlike many, it already has positive cashflow.And while the tech firms that have emerged in South-East Asia have done so only from a few sectors—ride-hailing, consumer e-commerce, food delivery and online gaming among them—the mix is broadening by the month. Listings by companies as varied as Singapore’s Doctor Anywhere, which offers video consultations with doctors, and Malaysia’s Carsome, an online marketplace for used-car sales, are in the offing.For now, just as in America and China a few firms led the consumer internet for years, most attention is focused on South-East Asia’s leading trio—Sea, GoTo and Grab. First among equals is Sea, whose recent expansion outside its home region sets it apart. Sea’s highly-profitable gaming arm, Garena, is responsible for “Free Fire”, a wildly popular mobile game which gives the company a footprint globally that the other two companies lack. Its move abroad in e-commerce is no small beer. According to Apptopia, a Boston-based research company, Shopee is now Latin America’s most popular e-commerce app, coming from a standing start at the end of 2019. The company launched in Poland and Spain in September and October respectively, and has quietly launched in India, too.South-East Asia’s tech champions follow a model that is flourishing elsewhere, too. As well as Latin America’s Mercado Libre in Latin America, South Korea has both Kakao and Coupang, with market capitalisations of around $50bn apiece. Given the turmoil in China’s tech sector, such firms are popular and likely to become more so. Take one leading fund, the JPMorgan Pacific Technology Fund, which has $1.5bn of assets under management. At the end of September it counted no Chinese companies at all among its top four holdings. Its largest single exposure, at 7%? The company called Sea, that is coming to epitomise Asian tech’s gathering sea change.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

“THE COMPANY IS ready to move on from its founders,” explained Jack Dorsey, chief executive of Twitter, a distributor of short messages, as he announced on November 29th that he would step down and hand the reins to the firm’s chief technology officer, Parag Agrawal. “About time,” was the grumpy reaction of more than one stockmarket analyst, many of whom had long criticised Mr Dorsey for spreading himself too thinly by running both Twitter and Square, a fast-growing fintech company which he will continue to head. (The chairman of The Economist’s parent company is a director of Square.)Yet the timing makes sense. Over the past several years Mr Dorsey has pushed through changes at the company that only a founder could (he launched the company with several friends in 2006, was ousted as chief executive in 2008 and took over again in 2015). Now Mr Agrawal will build on the foundations Jack built.Mr Dorsey was almost shown the door again in early 2020 when Elliott Management, an activist fund, amassed a stake of 4%, becoming one of Twitter’s largest shareholders. The fund pushed for Mr Dorsey’s ouster. After some drama a deal was struck. Silver Lake, a big investor in technology firms, invested $1bn in the firm to finance share buy backs. In addition, Twitter agreed to a series of financial targets, and gave board seats to Elliott and Silver Lake. Elliott’s activism pushed Mr Dorsey into a more hands-on role (he had previously intended to spend time in Africa).Since then Twitter has undergone a reboot of sorts. It ditched its custom-built technology infrastructure and moved most of its computing to big clouds such as Amazon Web Services. As a result, it can more easily introduce new product features. It also rebuilt its advertisement platform, allowing it to better target ads. And it toughened its corporate culture, which even by Silicon Valley’s standards was considered especially cosy (at meetings to teach employees how to criticise each other, people reportedly cried).The results have been noticeable. The firm, which even Mr Dorsey had called “slow” and “not innovative”, has been churning out far more new features and services in the past two years than previously. These include “topics” that users can subscribe to (instead of just following other people), ways for professional tweeters to make money and, most recently, a subscription service called “Twitter Blue”, which for $2.99 a month offers additional features, such as an undo button and a bookmarks folder.Financial results have been improving, too, although not as fast as some investors would like (there is talk that Mr Dorsey left before activist funds waxed active again). Revenue mostly comes from ads, and in the third quarter it increased by 37% compared with a year before, reaching $1.3bn. Profits would also have continued rising were it not for a settlement in a shareholder lawsuit, which resulted in a posted loss of $537m. And daily users reached 211m, up 13% year-on-year. “Progress is a process, but it’s good enough for now,” noted Mark Shmulik of Bernstein, a broker.If he is to truly win over investors, Mr Agrawal will need to speed up progress. Twitter’s share price is back to where it was before Mr Dorsey announced the firm’s new ambitions at an investor day in February (it promised to grow the number of users to 315m by the end of 2023 and double annual revenue, to more than $7.5bn). Wall Street’s reaction to the news of Mr Dorsey’s departure was mixed. After the news broke, Twitter’s shares rose by 10%, then fell back, ending the day down almost 3%.Mr Agrawal is not a member of the Silicon Valley aristocracy like his old boss, who founded several successful startups and whose habits—eating once a day, immersing himself in cold water and growing his whiskers long—receive close attention. Mr Agrawal appears more straightforward: he is an engineer with a PhD in computer science from Stanford University.The two men worked closely together on Twitter’s recent changes and share two long-term goals for the firm. One is to turn Twitter into a crypto company, perhaps by introducing a TwitterCoin to allow users to tip the authors of good tweets. Another is to fashion the firm into a decentralised undertaking, or in Mr Dorsey’s words, a “standard for the public conversation layer of the internet”. Instead of remaining a unified social-media service, it would become a platform on which other firms could, for example, compete with offerings that filter Twitter’s massive volume of content.An effort called “Project Bluesky” to work this out is already under way. The company recently made it easier for other companies’ software to access its services. A big drawback, however, is that a decentralised Twitter would probably find it even harder to make profits.Which raises the question of what will happen if Twitter’s current plans, and its new boss, underwhelm. When announcing his successor Mr Dorsey also presented a new chairman of the board: Bret Taylor, the president and chief operating officer of Salesforce, a business software company. Mr Taylor is also expected to take over from Marc Benioff, Salesforce’s co-founder and chief executive, in the not-too-far future. Perhaps the two firms, which in 2016 broke off merger talks, could eventually become one.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

FANS OF HUO ZUN were dismayed in August when images of the pop star were blurred out during a performance on “Call Me By Fire”, a popular Chinese reality show. Mr Huo’s hands were visible during some sequences. But when he came into the frame it appeared as if he was standing in a puff of smoke enveloping his body. “Fogging”, as it is known, has become a common on the Chinese internet in recent years. Censorship rules require actors who have committed crimes be blurred out, or completely erased when possible.Mr Huo’s offence was a public breakup with his girlfriend earlier in the year. He had violated no law. But that was enough for the government to deem him an unsavoury character, unfit to appear in public. Internet users are increasingly affected by a spurt of Communist Party cancel culture targeting ever more innocuous behaviour. The broad aim of the campaign, which has been going on for the past six months, is to cleanse Chinese cyberspace of entertainment at odds with socialist values.There appear to be two targets. The first is a business model with 4.9trn ($767bn) of annual revenues, the fan economy, that has sprung up around internet celebrities, fan groups and streaming platforms. In the most recent set of rules, issued in late November, the Cyberspace Administration of China (CAC) said that brand campaigns featuring celebrities will be allowed to show advertisements only in designated ad spaces. And from now on, China’s huge fan groups, often with millions of fans apiece, are to come under close monitoring by the authorities.To aid the crackdown the CAC has been increasing its powers in recent months. It is now an investor in several internet firms, including a subsidiary of ByteDance, and Kuaishou, a short-video app. Further new regulations suggest that its objective is to stop China’s internet groups using highly-stimulating content to ramp up internet traffic, which is the driving force behind internet platforms’ ad revenues and live-streaming e-commerce. The latter was worth 1.2trn yuan last year, an 197% increase from the year before.The second target of the CAC’s campaign is celebrity itself. The new rules create an official blacklist of celebrities that bans all mention of the names included. This will formalise the treatment that Mr Huo and many other stars have received after committing social improprieties or wrongdoing such as tax evasion. Permanent cancellation is becoming part of China’s entertainment landscape. On November 23rd the China Association of Performing Arts published a list of 88 internet celebrities who had committed some form of transgression. A common offence was showing support for Kris Wu, arrested this year on suspicion of rape. Weibo, a Twitter-like service, was forced to ban 145 celebrity accounts in August for infractions such as “insulting and slandering martyrs and inciting illegal gatherings”.The tightening grip is ostensibly part of President Xi Jinping’s “common prosperity” initiative. It is an attempt to make the country more equitable after years of rapid growth that created a vast digital economy dominated by several internet platforms, in particular e-commerce giant Alibaba and gaming and social-media group Tencent. Over the past year Mr Xi has made clear his plan to take control of the internet industry. The entertainment crackdown under way stems from the government’s desire to cap the “absurd financial gains” made by internet celebrities, says Enchi Chang, a digital marketing specialist.Yet there is also a more political motivation. China’s Communist Party has grown increasingly uncomfortable with the ability of huge internet stars and their fans to communicate beyond the scope of its control. Take, for example, the country’s massive fan groups. These have in recent years taken up political causes, such as defending Hong Kong from anti-government protesters. Collective action, more than criticism, is something the party fears and suppresses actively, says Jonathan Sullivan of the University of Nottingham. “The potential for large groups of people acting in concert is a constant concern,” he says.The upending of celebrity culture will have a big impact on China’s internet groups. The country’s fan economy, which combines entertainment and consumption, was expected to be worth about $1trn by 2023. This income is shared across a wide range of companies, advertisers, consumer brands and individual celebrities. If the new advertising rules are strictly enforced, companies such as Kuaishou and Bilibili, a video-streaming service, will be hit. Both groups enjoyed a rapid rise in their ad revenues last year, when total online ad revenues in China hit 767bn yuan.How will the companies respond? The most outrageous internet stunts, attracting millions of viewers and generating strong e-commerce sales, have become an increasingly important business for groups such as ByteDance and Kuaishou. Now they will probably block some of the most problematic content, says an industry executive. One manager at an online platform says companies will move away from hiring big stars for particular performances. Internet traffic will fall.A purge on programming is already under way. For example iQiYi, China’s Netflix, said in August that it will no longer feature talent shows or venues where fans can vote for stars, calling them an unhealthy trend despite their wild popularity. The company’s New York-listed shares have tumbled by almost 60% since mid-year when the campaign against entertainment began to take shape. Douyin, Weibo, Kuaishou and other platforms have already shut down their celebrity-ranking lists, venues where fans often paid to buy products in order to support their favourite stars.One senior executive at an internet group notes that the government’s moves do command significant public support. Many parents in China agree with the party’s view of online entertainment as vacuous, and even dangerous for young people. Regulators around the world are grappling with how to deal with potentially harmful internet content. But Mr Xi’s drive for a more orderly internet is as extreme as it is swift. Mr Huo’s millions of fans will find few opportunities to voice their opposition to watching their favourite star disappear into a censorious mist.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More