Philippa Kaur

ANTITRUST USED to be as American as apple pie. The Boston Tea Party was, in part, a protest against the monopoly of the British East India Company. The word itself stems from the trusts, such as Standard Oil, that lorded it over the American economy in the 19th century. For stretches of the 20th it became America’s charter not just for free enterprise, but for political freedom. Contrast this with China, a Communist dictatorship whose AntiMonopoly Law, introduced in 2008, has more often than not been used only to cudgel foreign firms. In such hands, it is easy to dismiss trustbusting as Orwellian gobbledygook.And yet suddenly antitrust in China has come to life in the way police internal affairs have done thanks to the British cop show “Line of Duty”: as a source of unending fear and fascination, carried out by agencies with impenetrable acronyms and a keenness for Stasi-like dawn raids. In short order, it has transformed the country’s erstwhile tech giants into simpering poodles.The onslaught marks the rise of a new sort of regulatory authoritarianism. Both America and China have similar qualms about the influence of their big technology firms. But since President Xi Jinping gave the nod to his trustbusting warriors last autumn, China has leapfrogged America in the speed, scope and severity of its antitrust efforts, giving new impetus to the word “techlash”. For those frustrated at the power of the tech giants in America, China offers a masterclass in how to cut them down to size. If only, that is, America could emulate it.Start with speed, the Communist Party’s biggest edge over America’s democratic ditherers. When overweening tech barons treat politicians like patsies, don’t invite them to mind-numbing congressional hearings. Force them to keep a low profile for a while, as China did with Jack Ma, co-founder of Alibaba, China’s biggest e-commerce firm, who also founded its fintech stablemate, Ant Group. In no time, the billionaire class got the message. It took just over six months after the humbling of Mr Ma for the founders of two other Chinese tech giants, Pinduoduo and ByteDance, to announce they were retreating from public life. It also took less than four months of antitrust investigation for Alibaba to be clobbered with a $2.8bn fine in April. By contrast, a trial date for Google, sued last October by America’s Department of Justice (DoJ) and 11 states for alleged monopolistic abuse by its search business, will not come before 2023. Yawn.Next, scope. Don’t let pesky courts stand in your way, as they do in America. Throw the book at mischief-makers using whatever tools a one-party system affords you. As Angela Zhang puts it in “Chinese Antitrust Exceptionalism”, a book written before the latest tech crackdown, Chinese regulation of monopolies starts with agencies jostling for power and influence. Their recent rampage has been supercharged by modified laws in an array of subjects. They have slapped fines on firms for crimes ranging from online price discrimination to merchant abuse and irregularities in tech merger deals. The recent crackdown on Didi, a ride-hailing giant, days after its initial public offering in New York, focuses on concerns encompassing data security and spying.Do not expect Didi, or the alleged monopolists, to seek protection from the courts. In China trustbusters are almost never subject to judicial checks and balances. Chinese agencies, writes Ms Zhang, handle “investigation, prosecution and adjudication”. In other words, they are police, judge and jury rolled into one. In America the reverse is true. In June an American judge threw out a six-month-old lawsuit by the Federal Trade Commission (FTC), America’s antitrust regulator, against Facebook, arguing that the government never proved that the social network had monopoly power. Round two to the totalitarians.Third, severity. It isn’t the fines tech titans fear most. It is having their business models torn apart, as Ant’s was, as well as the reputational damage; bureaucrats can use state media and populist outrage to wreak havoc on a miscreant’s sales and share price. This year, amid the crackdowns, the value of China’s five biggest internet firms has plummeted by a combined $153bn. In America, despite lawsuits, probes and hearings, the value of Alphabet, Amazon, Apple, Facebook and Microsoft has soared by $1.5trn. As Chinese firms capitulate, American ones fight back, publicly challenging their antagonists, such as Lina Khan, who heads the FTC. Jonathan Kanter, President Joe Biden’s Google-bashing pick to run the DoJ’s antitrust division, can expect similar treatment.Be careful what you wish forPresumably all this would arouse envy among trustbusters in Washington, DC—were “China” not an even dirtier word than “tech” these days. Not only has China taken up the antitrust mantle from its superpower rival. It has done so strategically. It strengthens Mr Xi’s control over potential rivals for popular adulation: the tech billionaires. It gives the central government more oversight of an ocean of digital data. And it encourages self-reliance; the aim is to have a thriving tech scene producing world-beating innovations under the thumb of the Communist Party.But autarky carries its own risks. Already, Chinese tech darlings are cancelling plans to issue shares in America, derailing a gravy train that allowed Chinese firms listed there to reach a market value of nearly $2trn. The techlash also risks stifling the animal spirits that make China a hotbed of innovation. Ironically, at just the moment China is applying water torture to its tech giants, both it and America are seeing a flurry of digital competition, as incumbents invade each other’s turf and are taken on by new challengers. It is a time for encouragement, not crackdowns. Instead of tearing down the tech giants, American trustbusters should strengthen what has always served the country best: free markets, rule of law and due process. That is the one lesson America can teach China. It is the most important lesson of all. ■This article appeared in the Business section of the print edition under the headline “War war v jaw jaw” More

AS LOCKDOWNS LOOMED last year, people scrambled to stock up on home-survival essentials: food, medicine and a Netflix subscription. In the first half of 2020 the streaming company registered 25m new members worldwide, twice as many as had signed up in the same period a year earlier. With viewers hunkering down to see out the pandemic on the sofa, “Outbreak”, a disaster movie from 1995, made Netflix’s top ten.Now as many of the world’s economies are reopening, Netflix’s growth is sputtering. On July 20th the company announced that 1.5m people had signed up in the second quarter of 2021, 85% fewer than a year ago. In America and Canada, where the market is saturated and competitors are multiplying, the total number of subscribers fell by 430,000. Netflix’s share price, which soared by nearly 50% in the first half of 2020, has barely risen in the past year.The stall is unsurprising. Many new members from 2020 simply pulled forward subscriptions they would have made later. It still raises a difficult long-term question for Netflix. The company began by renting DVDs by mail. Its second, stunning act was to invent and dominate subscription video-streaming. Now, as rich markets mature and rivals snap at its heels, growth must come from elsewhere. Netflix’s third season promises exotic new locations and, perhaps, a big plot twist.Season two has a little way to run. Though new subscriptions in America have slowed to a trickle, Netflix has scope to charge viewers more. It makes an industry-leading $14.88 monthly from each American member, more than double the takings of Disney+, its main rival, according to MoffettNathanson, a firm of analysts. Despite this fewer members quit Netflix each month than ditch other streamers, according to Antenna, a data company. Further price hikes could lift Netflix’s domestic revenues by 7% annually for the next few years, reckons MoffettNathanson.The bulk of the growth, however, will come from overseas. Last year, for the first time, more than half of Netflix’s revenues were earned outside America and Canada. By 2025 the share is expected to reach two-thirds. Already nine out of ten new subscribers live abroad (see chart 1).The international game is hard. Most foreigners are poorer, and even the rich ones don’t spend much on TV. The average American home still shells out upwards of $80 a month for cable, so those who “cut the cord” can afford half a dozen streaming services. Europeans are stingier: the average British household spends less than $40 on pay-TV. Netflix has resisted lowering prices, so even in low-income India a standard subscription costs $8.70 a month. Its biggest concession has been to invent a mobile-only plan, now in more than 70 markets. Indians can sign up to this for $2.70.Like the financial barrier, cultural ones are high in show business. Enders Analysis, a research firm, found that programmes made by British broadcasters were richer in local idiom than those commissioned by foreign streamers. “Sex Education”, a Netflix series set in rural England, had fewer than five British references per hour. “Peep Show”, a home-grown hit, had more than 35, from “johnnies” (condoms) to Findus Crispy Pancakes, a national delicacy. Reed Hastings, Netflix’s boss, said in April that the firm was “still figuring things out” in India, where several senior executives have quit and where rivals like Amazon, an e-commerce giant with a streaming business, and Disney+ have made some headway.The international battle is nevertheless one that Netflix is winning. By the end of the year it will have 31m subscribers in Asia, a little more than half as many as Disney+, estimates Media Partners Asia (MPA), a consultancy in Singapore. But three-quarters of Disney’s are in India, where it has the rights to the national sporting obsession in the form of the cricket Premier League but generates less than a dollar in revenue per subscriber. By contrast, more than 60% of Netflix’s Asian members are in the rich markets of Australia, Japan and South Korea. MPA expects Netflix’s Asian revenues to reach around $3.2bn this year, compared with Disney+’s $800m.And whereas in America Netflix competes with a dozen or more streamers, in international markets it is rarely up against more than two serious rivals. Once WarnerMedia is spun off from AT&T, its corporate owner, and merged with Discovery, as planned, the international footprint of Warner’s HBO Max will increase. Approval for that deal could be a year away, by which time Netflix will have signed up another 30m or so members. A rumoured partnership between Comcast, a cable company that owns NBCUniversal, and ViacomCBS, another media group, to combine their streaming services internationally could take a while to materialise.Of Netflix’s rivals, only Amazon and Apple, a smartphone-maker with entertainment ambitions, are truly global; each claims to be streaming to audiences in more than 100 countries. But neither has yet matched Netflix’s production chops. Last year Netflix became the biggest commissioner of European content, overtaking the BBC, France TV and Germany’s ZDF, according to Ampere Analysis, another research firm. It has more new TV shows in production than three of its largest rivals combined, and is shooting in regions where Hollywood usually fears to tread. Recent projects include its first Russian original, an “Anna Karenina” remake, and a slate of Korean K-pop-themed shows. “It’s not just a battle for subscribers, it’s a battle for content hegemony,” says Vivek Couto of MPA.On the strength of this international onslaught, Netflix’s overall revenues will grow by about 14% a year until 2025, calculates MoffettNathanson. The firm is raking in an extra $5bn or so each year. This compares favourably with show-business rivals, insiders note.Yet some investors benchmark the company not against the entertainment industry but against big tech. That comparison is less flattering. Share prices of America’s tech giants—Facebook, Amazon, Apple, Google and Microsoft—have continued to appreciate even as the pandemic burns out (see chart 2). And their revenue growth to 2025 is expected to be nearer 20% a year. To match them, Netflix needs to think outside the goggle box—not least because, as Matthew Ball, a media venture-capitalist, puts it, consumers are increasing asking not “What should we watch?”, to which Netflix has become the stock response, but “What should we do?”The answer, for many, is video games. The industry already generates nearly $180bn a year in global revenues and is expanding fast. PwC, a consultancy, estimates that gaming’s share of global entertainment-media revenues has risen from 15% in 2019 to 19% this year. In America, under-25s already rank gaming as their favourite pastime (and place watching TV shows and films last).Mr Hastings has long posited that in the attention economy Netflix competes with “Fortnite”, a popular online multiplayer game, as much as it does with HBO. Until now, though, his firm fought for consumers’ attention with its shows (and, more recently, merchandise sales, live events and podcasts aimed at spurring engagement with its content). Now it is taking the fight directly to the game developers. Under a new gaming boss nabbed from Facebook, Mike Verdu, Netflix plans to offer subscribers video-games on its mobile app within a year. One person with knowledge of the project says the initial investment is a single-digit percentage of Netflix’s $17bn annual content budget, with hopes that this will grow.Other media and tech giants have tried and failed to crack gaming, whose interactive nature requires a different technical infrastructure to passive, one-way video-streaming. Disney has closed its games studio. Google and Amazon have struggled to drum up interest in their respective game-streaming services, Stadia and Luna. It is unclear how Netflix plans to get around Apple’s ban on gaming platforms in its app store. And whereas many hits like “Fortnite” make money through in-game microtransactions (paying for power-ups and so on), Netflix plans to include games as part of its subscription, a model with few successful examples.These difficulties mean that many suspect an acquisition is on the cards. “Games are like pharmaceutical companies—you need to spend years building or buying a pipeline,” says one gaming-industry veteran. Though Netflix has hitherto preferred to grow organically, it has the means to splash out. It generated free cashflow last year and will generate more as its content-spending binge flattens out. Its stable subscription business means it can safely take on debt. America’s biggest game publisher, Activision-Blizzard, has a market capitalisation of around $70bn, making it a “doable” target for Netflix, which is worth $237bn, believes one of the streamer’s investors. Others speculate about a deal with Microsoft, which has both cloud-gaming technology and a games studio.The step from video to games is a big one—too big for a company that has grown cosy in its streaming comfort zone, some former Netflixers believe. “It is now much more of a traditional entertainment company,” laments one, adding that its risk-taking culture works less well at a behemoth with 9,000 employees than it did for a startup with a few hundred people. But that still makes it more nimble than the tech giants, with workforces in the hundreds of thousands and more rigid bureaucracies, notes a shareholder. And the move into gaming may not be as big as the transition from the postal service to the internet, which Netflix pulled off with aplomb. Searching for a cinematic analogy to describe the company, the share-owning optimist settles on a classic from 1953: “The Wild One”. More

AILEEN LEE, a venture capitalist who founded an investment firm called Cowboy Ventures, coined the term “unicorn” in 2013 to refer to what was then a rare, almost magical species: privately held startups valued at $1bn or more. Any magical attributes aside, today they are commonplace—and becoming ever more so. Consumers, who stand to benefit from an array of novel, often cheap products and services, can expect to enjoy the ride. Investors betting on the unicorn derby should tread more carefully.The world’s unicorn herd is multiplying at a clip that is more rabbit-like. The number of such firms has grown from a dozen eight years ago to more than 750, worth a combined $2.4trn. In the first six months of 2021 technology startups raised nearly $300bn globally, almost as much as in the whole of 2020. That money helped add 136 new unicorns between April and June alone, a quarterly record, according to CB Insights, a data provider (see chart 1). Compared with the same period last year the number of funding rounds above $100m tripled, to 390. A lot of this helped fatten older members of the herd: all but four of the 34 that now boast valuations of $10bn or more have received new investments since the start of 2020.The latest tech darlings are no longer chiefly Uber-esque marketplaces for matching services with consumers. Instead, they offer, or are developing, sophisticated products, often in more niche markets. Some 25% of the funding in the second quarter went to financial-technology firms, with lots also flowing into artificial intelligence, digital health and cybersecurity (see chart 2).The recipients of investors’ largesse are also getting more global. Although American and Chinese startups continue to dominate the fundraising league tables, the share coming from outside the two biggest markets grew from around 25% in 2016 to 40% in the past quarter. In July Flipkart, an Indian e-commerce firm, raised $3.6bn in a round that valued it at $38bn. Grab, vying to be South-East Asia’s answer to China’s super-apps, hopes to go public in New York this year at a valuation of $40bn.The torrent of cash can be explained by two factors. The first is a divestment spree by the startups’ early venture-capital (VC) backers. These stakes command top dollar from investors desperate for exposure to the pandemic-era digitisation wave. Exits, via public listings and acquisitions, more than doubled globally year on year, to a nearly 3,000. The proceeds are flowing back into new VC funds, which have so far this year raised $74bn in America alone, nearing the record $81bn in 2020 in half the time. The venture capitalists cannot spend the dough fast enough. In the three months to June Tiger Global, a particularly aggressive New York investment firm, made 1.3 deals on average every business day .The second reason for soaring valuations is greater competition among investors. Relative newcomers to the tech-investing business, such as pension funds, sovereign-wealth funds and family offices, are encroaching on the private markets that used to be dominated by VC firms from Sand Hill Road in Palo Alto. In the past quarter “non-traditional” investors in America took part in nearly 1,800 deals that together raised $57bn. Many may have been encouraged by the success of earlier forays by dabblers from outside the VC world. Their annual returns from exited investments in a first round of financing have averaged 30% in the past decade, reckons PitchBook, another data firm. That is more than double the 10-15% for veteran VCs.This winning streak could yet end in tears. That is what happened two years ago, when richly valued firms with shaky business models either fizzled after their initial public offerings (like Uber and Lyft, two ride-hailing rivals) or never got that far (WeWork, an office-rental firm whose flotation was shelved after investors got cold feet). Many recently listed unicorns continue to bleed cash. According to The Economist’s calculations, those that went public in 2021 made a cumulative loss of $25bn in their latest financial year.Assessing whether the remaining ones are worth their lofty valuations may be harder than ever. Like their predecessors, they do not disclose financial results. At the same time, extrapolating from the earlier unicorns, which tended to pursue growth at all costs in winner-takes-all markets, offers little help because today’s lot often aim to capture good margins by selling genuinely unique technology. This could be a more sustainable strategy—if the technology works. But it is harder for non-experts to evaluate, especially based on what is often little more than a prototype. Nikola and Lordstown, two electric-vehicle companies that listed in 2020 via reverse mergers with special-purpose acquisition companies (SPACs), are under investigation by American authorities over allegedly exaggerating the viability of their technology.Another risk comes from politics. Authorities around the world are growing warier of letting tech firms get too big or entering regulated markets such as finance or health care. As part of a broader crackdown against big tech firms China’s government recently sabotaged the operations of Didi, by banning its app from Chinese app stores days after the firm’s $68bn initial public offering in New York, ostensibly over misuse of users’ data. Such moves have chilled investors’ appetite for Chinese startups, funding for which has actually declined in the past two quarters. In America the Securities and Exchange Commission is beginning to scrutinise the use of cryptocurrencies. Many crypto-exchanges set investors’ pulses racing in last year’s bitcoin rush. Now the market capitalisation of Coinbase, one of the biggest, has shrunk by half, or $56bn, since a peak after its listing in April.Investors, then, had better beware. For everyone else, the latest unicorn stampede looks like a boon. Because venture investments involve mostly equity and little debt, even flops such as WeWork or cautionary tales like Didi pose little risk to the financial system. So long as venture capital is bankrolling lossmaking startups while they offer subsided services or develop clever new products, consumers have no reason to look the gift horned horse in the mouth. ■ More

A YEAR AGO employers were furloughing staff. Now many of them are desperately looking for more. The rapid bounce-back in some bits of the labour market—notwithstanding the risk of a new pandemic flare-up—has been good news for workers angling for a pay rise. It is also a boon for staffing agencies, which match firms with potential hires. Beyond short-term dislocations to the workforce, the changing way in which people want to work should keep the recruiters busy.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

DEEPGLINT, A CHINESE facial-recognition firm, was one of 14 companies slapped with American sanctions on July 9th for alleged links to human-rights abuses in China’s far-western region of Xinjiang. It is also a globally recognised leader in its field and has raised money from Sequoia Capital and other big American investment firms. DeepGlint’s founders, who graduated from Stanford and Brown universities in America, must now discuss with their foreign backers the prospect of decoupling from the Western commercial sphere. Many Chinese companies have been forced to hold similar talks.China Inc appears to be on the back foot. In America President Joe Biden has picked up where Donald Trump left off, placing restrictions on Chinese companies. Last year Congress passed a bill that may eventually force Chinese firms to delist from American stock exchanges, which would affect nearly $2trn in market value. Huawei, banned from America, has struggled to sell its 5G telecoms kit elsewhere in the West. ByteDance was nearly forced to divest from its prized short-video app, TikTok, over American fears that the Chinese regime could access global users’ personal data. Tencent, another internet giant, is said to be haggling with American regulators worried about its 40% stake in Epic Games, the developer of Fortnite.Around the world Chinese companies are, fairly or not, viewed as instruments of the Communist Party. Britain’s prime minister, Boris Johnson, said on July 7th that the government would probe the Chinese acquisition of Newport Wafer Fab, the country’s largest chipmaker, on national-security grounds. Australia’s defence department could tear up a 99-year lease with a private Chinese company for a big port. Completed outbound acquisitions by Chinese firms shrivelled from some $200bn in 2016 to $36bn in 2020. Cross-border lending, mostly to poor countries, by some of China’s state banks has stopped growing.It is not the first time that a wave of Chinese corporate expansion has met a frosty reception. When commodity giants such as CNOOC, an oil firm, began buying foreign reserves, and rivals, in the 1990s, it stoked fears of resource colonialism. In the 2010s Chinese industrial groups’ aggressive pursuit of Western rivals from chemicals (ChemChina’s takeover of Syngenta) to cars (Geely’s of Volvo) reminded some anxious rich-world governments of Japan’s corporate conquests in the 1980s. At the same time, Chinese acquisitions of trophy assets such as the Waldorf Astoria hotel (by Anbang, a conglomerate) allowed other Westerners to dismiss China Inc as unserious or dodgy (a suspicion confirmed by the subsequent collapse of Anbang and a few similar groups after charges of fraud).Now, just as innovative Chinese tech firms have captivated Wall Street, China’s increasingly authoritarian regime is itself reining in its global champions. President Xi Jinping appears bent on disconnecting them from Western capital markets and controlling their data. Tencent and Alibaba, an e-commerce behemoth, have between them lost $340bn in market value since the crackdown began late last year. Days after its $67bn New York flotation, Didi found its ride-hailing app banned by Chinese data regulators. ByteDance has scotched plans to go public in New York.Speak softly and carry a small chequeAll this looks like a treacherous climate for Chinese companies. Look closer, though, and a new generation of firms is not just adapting to it but thriving. Many have spent years expanding global operations and now make as much money outside China as they do within. Some are pursuing smaller investments under the radar. And, inverting a decades-old trend of copying Western intellectual property (IP), a few have become tech powerhouses in their own right, selling advanced products to the world.The scale of China Inc is formidable. China was the largest investor in the world in 2020. Foreign direct investment (FDI) from Chinese firms hit $133bn, down only slightly from 2019 despite the headwinds (see chart 1). The country has some 3,400 multinationals, almost as many as America and western Europe combined, reckons Bain, a consultancy. Around 360 big listed Chinese groups report foreign revenues. These amounted to around $700bn in 2020, compared with 250 large firms earning a total of $400bn in 2012, according to data from Bloomberg (see chart 2). In 2020 Chinese venture capitalists ploughed an estimated $3.2bn into American startups in 249 deals, the second-biggest year on record by value, calculates Rhodium Group, a research firm. Analysts at CB Insights say that Chinese investors’ participation in American venture deals last quarter was the highest since at least 2016.The Chinese presence is deep as well as broad. Last year more than 100 of the listed firms earned at least 30% of revenues outside China; 27 earned 70% or more. All told, China’s top ten foreign earners booked $350bn or so in overseas sales. This total has grown by 10% a year on average since 2005, Bain says, twice as fast as the equivalent figure in America, Europe or Japan. Tencent’s foreign sales have risen at an annual rate of 40% for nearly a decade, and now make up 7% of its huge top line.The first plank of China Inc’s new global strategy is astute localisation. In the past most Chinese FDI consisted of asset purchases. Last year, by contrast, a lot was reinvested earnings from operations abroad. Hisense, a maker of consumer electronics, wants to treble its overseas sales, from $7.9bn in 2020 to $23.5bn in 2025, half its projected total, says Candy Pang, its head of marketing. That would leave a lot of money to spend on foreign factories, research and development, and marketing (it is sponsoring the 2022 football World Cup in Qatar, among other sports events).Chinese firms have also retained their subsidiaries’ foreign leadership. Despite recently merging with another state-backed giant, ChemChina has allowed its foreign assets to operate as global companies. Pirelli, which it bought in 2015 for €7.1bn ($7.6bn), still makes tyres in Italy. Syngenta, for which it paid $43bn a year later, maintains a Swiss headquarters, a mostly foreign executive team, and a nine-person board with only two Chinese state officials. Similarly, Geely has allowed foreigners to run Volvo, and Haier, an appliance-maker, kept most of GE Appliances’ top brass after acquiring the American firm. “You can belong to China without having a Chinese-dominated board,” says an executive at one Chinese multinational.The second pillar of China Inc’s new globalisation strategy is to shun mega-deals in favour of smaller ones. The speculative wave of outbound investments between 2015 and 2017 swallowed up $425bn in assets and raised plenty of eyebrows among foreign and Chinese regulators alike. By contrast, of the 235 outbound transactions so far this year only three were valued at more than $1bn.The master of mini-dealmaking is Tencent. It has made at least 85 cross-border investments since the start of 2019, according to Refinitiv, a data provider. Many of these are small stakes taken as part of a larger consortium of investors that includes prominent non-Chinese private-equity groups. This year, for example, Tencent bought a 4% stake in Rakuten, a Japanese internet group, for about $600m—small change for a giant worth nearly $700bn. It has also continued to invest in America, with at least 12 deals over the past two-and-a-half years, including the purchase of a $150m stake in Reddit, an American online platform which hosts popular discussion forums.Chinese companies are making their global presence felt in one last way. Rather than swooping into foreign countries to buy up technology, or copying Western IP, they are going out to sell their own, says Bagrin Angelov of CICC, a Beijing-based investment bank. Because Chinese subsidies to makers of electric cars and batteries require them to own some of the core IP, companies such as BYD, CATL, Gangfeng and SVolt raced to develop it. Having done so, they are now targeting export markets. BYD and SVolt are setting up factories in Europe. So is CATL, which in December also announced plans to build a $5bn one in Indonesia.BeiDou, China’s state-owned answer to America’s GPS satellite-navigation system, was used by more than 100 countries in 2020, according to EY, a consultancy. Chinese telecommunications services cover more than 170 countries with a population of 3bn people. Regardless of American sanctions, Huawei remains a popular choice for 5G networks even in parts of Europe. Horizon Robotics, which develops self-driving systems, counts Germany’s Volkswagen and Bosch among its partners.And new Chinese stars are rising all the time. Few fashionistas probably realise than Shein, a fast-fashion darling beloved of the hip TikTok set, is Chinese. The company boasts the top shopping app in 50 countries—including America, where it was downloaded on more iPhones than Amazon in June. OneConnect, a financial-technology platform owned by Ping An, a big insurer, is selling a number of digital-banking products developed for China to banks and other firms across Asia and beyond. It recently designed an artificial-intelligence fraud-prevention system for a Sri Lankan lender.These subtle corporate conquerors could still be stymied—by the heavy hand of China’s Communist rulers or America and its allies, which are bound to keep an ever beadier eye on Chinese commercial incursions. The go-getting Chinese multinationals would then need to adapt once again. They have shown themselves to be more than capable of doing so. ■This article appeared in the Business section of the print edition under the headline “Inconspicuous expansion” More

IN AMERICA, IF you want to dominate an industry, you channel your inner Elon Musk and shout about it. But CATL, the Chinese company that makes batteries for some of Mr Musk’s Tesla electric vehicles (EVs), is different. When your columnist first contacted it in 2017, the brush-off was swift. “We want to concentrate on our products only and do not accept any interviews at present.” These days it is only marginally less blunt. “Unfortunately, we are sorry that it’s hard for us to arrange [interviews] at the moment.” The temptation is to give it a dose of its own medicine and ignore it.And yet in 2017 the firm, founded only six years earlier as Contemporary Amperex Technology Ltd, vaulted from being the world’s third-largest battery-maker to its biggest. It has since reached a market value of 1.3trn yuan ($200bn), more than the second, third and fourth producers—South Korea’s LG Chem, Japan’s Panasonic, and China’s BYD—combined. In recent days its rising share price has made its 53-year-old founder, Zeng Yuqun, richer than Jack Ma, a much-better-known Chinese tech baron. Given Mr Ma’s blackballing by the Chinese government, for Mr Zeng to have kept his head down now looks shrewd.The world will hear a lot more about CATL in the future. That is because one of the justifications for its high valuation is that it is about to move beyond the Chinese mainland, the world’s biggest EV market where it accounts for about half of lithium-ion-battery sales, to Europe, Indonesia and possibly even America. Its profitability far exceeds that of its global peers. Its technology has become at least as good as theirs, giving it the clout to outcompete them and contribute meaningfully to a worldwide clean-energy revolution. And yet it is also what Sam Jaffe of Cairn ERA, a battery consultancy, calls the “dreamchild” of China’s government-industrial complex. That makes it a potential flashpoint in the torrid world of technology geopolitics.CATL’s low profile starts with its provenance. Mr Zeng created it in the backwater of Ningde, a subtropical city better known for tea than tech, in Fujian province where he grew up in a hillside village. But he has long had high ambitions. In 1999 he founded Amperex Technology Ltd (ATL), a maker of lithium-ion batteries for portable devices, which he sold to TDK, a Japanese firm, in 2005. One of his big clients was Apple, maker of the iPhone.Seeing the potential for EV batteries, which China was keen to turn into a strategic industry, Mr Zeng led a spin off from ATL in 2011, severing links with its Japanese parent company—possibly to please the Chinese authorities, says Mark Newman, a battery executive who formerly covered the company as an investment analyst. When it listed in 2018, CATL had a small percentage of direct and indirect state ownership. More important, the government had its back. For years China used subsidies to favour domestically produced batteries for electric cars and buses, kneecapping South Korean competitors such as LG Chem and Samsung SDI. CATL, one of two top-tier Chinese producers, benefited most. The other, BYD, made cars as well as batteries. For that reason, many rival carmakers in China—including foreigners such as Tesla and BMW—gave it a wide berth and turned to Mr Zeng instead.It is unfair, however, to ascribe CATL’s success purely to economic nationalism. According to James Frith of BloombergNEF, a consultancy, when CATL was faced with the winding down of subsidies in 2019, it quickly leapfrogged its South Korean rivals to produce the latest high-nickel batteries, which run for longer than the cheaper lithium-iron-phosphate ones that had been China’s staple. Chinese carmakers are bolder than their Western counterparts (apart from Tesla) in adopting innovative chemistry, he adds, which gives CATL more freedom to experiment. It also gets more for its investment in China than rivals do elsewhere and has a cheaper workforce, which makes its operating margins, just shy of 15%, the best in the business. Strong profits provide more cash to invest in expansion. Neil Beveridge of Bernstein, an investment firm, expects its capacity roughly to quadruple to 500 gigawatt-hours (GWh) of battery cells a year by 2025. That is an amount similar to what is promised from all of the world’s gigafactories today. Only Mr Musk sets more outlandish targets.Zeng and the art of market-share maintenanceMost of CATL’s expansion will come in China, where it has a growing export business. But by the end of this year it is also expected to start production at its first offshore factory, with capacity of 14GWh in Erfurt, Germany, from where it will supply carmakers like BMW, Volkswagen and Daimler. Its move overseas appears to be motivated by a desire to retain its market leadership as EV sales outside China accelerate. Its South Korean and Japanese rivals have a bigger global presence. Simon Moores, a battery consultant, thinks a subsequent step will be into America.Yet energy—even the clean stuff—is dirty business, muddied by geopolitical rivalries and economic jingoism. There are already fears in the West that CATL’s profitability in China will enable it to offer cut-price products abroad, reopening wounds caused when China’s subsidised solar panels swept the world in the 2010s. Moreover, advanced batteries, like semiconductors, are increasingly discussed in terms of an arms race. Europe and America are offering big inducements for locally made batteries and adjacent supply chains in order to catch up with China. They see a strategic vulnerability in being too reliant on a Chinese supplier.As a result, CATL will have to be clever. Already it has more alliances with global carmakers than any other battery firm; jointly building factories close to their operations around the world would buy it political support. It will need to counter geopolitical paranoia by stressing the importance of cheap batteries, both for EVs and clean-electricity grids, in the fight against climate change. More transparency wouldn’t go amiss, either. It is a fine line between being coy and acting as if it has something to hide. ■This article appeared in the Business section of the print edition under the headline “Superpower surge” More

SQUINT DURING the final of the European football championships and it was possible to imagine that two corporate executives were at work on the touchline. One was the sharply dressed Roberto Mancini, manager of Italy, who was often shown angrily gesticulating at his team. His rival Gareth Southgate, the England manager, was also dressed in a suit but had a much calmer demeanour, often pausing to consult his colleagues.The two represent different styles of football management. Mr Mancini has a domineering approach, akin to that of Sir Alex Ferguson, the former manager of Manchester United, who was famous for getting so close to his players that a tirade became known as the “hairdryer treatment”. Gareth Southgate is a more emollient and inclusive character. During the tournament he took the time to praise the efforts of some of the reserve members of the squad who never made it on to the pitch. Like many a modern executive, Mr Southgate was promoted from within, managing the England under-21 squad before becoming coach of the senior team. The result was that he had a strong and lasting connection with many of the players.In corporate terms, one could see Mr Mancini as akin to Jack Welch, the legendarily hard-boiled former head of General Electric, or the hard-charging boss of a private equity group. In contrast, the style of Mr Southgate resembles that of the new, socially conscious breed of corporate manager. He supported his players when they “took the knee” to protest against racism and wrote a letter to England fans, stating that it was the duty of players “to continue to interact with the public on matters such as equality, inclusivity and racial injustice, while using the power of their voices to help put debates on the table, raise awareness and educate”. It is easy to imagine those sentiments coming from the mouth of Paul Polman, who as boss of Unilever championed a sustainable business model for the consumer-goods giant. This does not mean that Mr Southgate lacks a ruthless streak. One of his first acts as manager was to drop Wayne Rooney, England’s ageing talisman, and he has suspended some of his stars for past misbehaviour. Italy’s eventual victory makes it tempting to argue that this proves the greater virtues of a more aggressive style of management pursued by Mr Mancini. After all, the final represented the 34th consecutive game under his leadership in which Italy had avoided defeat. This was a complete turnaround after the squad failed to qualify for the 2018 World Cup under Mr Mancini’s predecessor. Italy started the tournament with a lower world ranking than England, which also enjoyed home advantage for the match. But the final was exceptionally close. The teams were level after normal time and extra time; had one of England’s penalties hit the inside of the post instead of the outside, the outcome might have been different. Mr Southgate also deserves credit for getting England into a big final for the first time in 55 years, having also guided them to a World Cup semi-final in 2018. Under his predecessor, the team was knocked out of the 2016 European championships by Iceland, a footballing minnow. In a time of polarisation, Mr Southgate is widely admired for his politeness and modesty.And Mr Mancini’s aggressiveness has led to problems in the past. A year after guiding Manchester City to an English Premier League title in 2012, he was sacked over concerns about his habit of harshly criticising his players in public and being “aloof and icy” with backroom staff. One player texted a journalist “Can we put the champagne on ice yet?” on rumours of his departure. After leaving City, he had three unsuccessful stints in club management before taking the Italian job in 2018.In the corporate world, the fashion has moved more towards the Southgate style of management. In football as in business, aggressive management can work for a while. But it only succeeds if it is accompanied by other qualities. What unites Messrs Mancini and Southgate is their meticulous attention to detail. And any manager, in football or business, is only as good as the team at their disposal. If either Mr Mancini or Mr Southgate had been in charge of a team from a smaller nation with fewer resources, they would not have made it to the final. As Warren Buffett wisely remarked, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” More

A LAWYER in his early 30s pauses outside an elegant clothing shop in New York’s Tribeca district. It is the first time he has been out in 30 days, he says, turning away from the shuttered establishment. Covid-19 is only part of the reason for his isolation. Unlike many main-street businesses that have not survived the lockdowns, his employer has been swamping him with work of late. And it is not alone. America’s elite law firms are having a banner year. Associates, often toiling from home, have melded with their laptops. Senior partners, holed up in their second homes in the Hamptons, barely have time to enjoy the beach. The pandemic has pushed huge numbers of companies to raise capital, merge, buy rivals or be acquired by them. Nearly 16,000 deals involving at least one American party have been announced in the first six months of this year, roughly half as many again as in the same periods in 2016-20 (see chart). Many involved novel legal structures such as special-purpose acquisition companies (SPACs), which list on a stock exchange in order to reverse-merge with a promising start-up. On top of that, lockdowns have introduced fresh legal wrinkles (does an infectious disease count as force majeure? how to conduct due diligence on a deal by Zoom?). One veteran reports that some law firms are so busy as to decline assignments, in violation of an unwritten rule never to do so that is in the industry as revered as The Constitution. According to the American Lawyer, an industry journal, total revenues at the 100 biggest firms rose by 7% last year, to $111bn. At the same time, expenses such as travel and entertaining clients all but vanished. As a result, average profit margins increased, from 40% to 43%. Profits per equity partner rose by over 13%, to an all-time high of nearly $2.2m. These went up at all but six of the top 100 firms. At the most lucrative ones, such as Davis Polk, Kirkland & Ellis or Sullivan & Cromwell, they surpassed $5m. Each equity partner at Wachtell, Lipton, Rosen & Katz, the richest of the lot, raked in $7.5m, up from $6.3m in 2019 (and, housebound, had to spend less of it to maintain a certain sartorial standard, captured in the term “white shoe” that still refers to New York’s elite firms).The billable-hour bonanza has left firms with more money to lure new recruits. That is just as well. With the supply of legal professionals limited by elite law schools’ refusal to admit many more students, firms are engaged in a fierce battle for talent. Last month Milbank, another big firm, raised its starting salaries for new associates from the industry standard of $190,000 to $200,000. A day later Davis Polk offered freshman lawyers $202,500. Partners at other firms say they matched Davis Polk within 24 hours, lest they be considered second-tier. Most big firms are awarding special spring bonuses to associates who billed enough hours (typically 60 a week or more)—which plenty have done in these febrile times. The money, says the head of one big firm, is a reward for hard work. It is also, he acknowledges, an effort to stop desertions. Poaching is rampant at all levels of these organisations. McDermott Will & Emery, a fast-growing firm from Chicago, hired six new outside partners in May alone. Even firms famous for staff loyalty, such as Cravath, Swaine & Moore or Wachtell, have lost lawyers to rivals. A senior partner at a large firm says he begins his day by opening emails from recruiters inquiring about his availability. He then peruses career announcements in legal periodicals. For the first time in 20 years Major, Lindsey & Africa, a large legal recruitment firm, is looking to Australia and Canada for associates with dealmaking experience to place at New York firms. Not all elite American firms have prospered in the pandemic. The current conditions have favoured partnerships with expertise in complex transactions, such as Wachtell or Davis Polk. Some generalists have done less well. Profits per partner at Baker McKenzie, a Chicago-based giant, declined by nearly 10% in 2020. The dealmaking specialists could suffer if the merger-and-acquisition boom peters out, as is already happening to the SPAC craze, which provided lawyers with oodles of work in late 2020 and early 2021. And as America reopens those covid-crimped expense accounts could begin to swell again, squeezing margins.Managing partners are therefore thinking about what comes next. Mayer Brown is expanding its restructuring and bankruptcy practice, perhaps in anticipation of an end to government stimulus programmes that have kept many businesses afloat. Many others are beefing up their antitrust and regulatory practices as President Joe Biden and his Democratic Party in Congress threaten to regulate big business and go after dominant companies, from Silicon Valley to Wall Street. The white shoes will not suffer a shortage of well-heeled clients soon. More