The Economist (2022-02-26) Riva

The Economist February 26th 2022 Business 61

can firms from workingwithHuaweiin
2019, a generationoftheChinesefirm’s
phones were deprivednotjustofchipsbut
also of Google’s Androidoperatingsystem.
Together, these restrictionscontributedto
the decline of about30%inHuawei’srev-
enues last year.
Chinese companiesareestimatedto
have invested $4bnorsobetween 2019 and
September of 2021inthedevelopmentof
operating systems.Someanalystsexpect
Huawei’s Androidalternative,calledHar-
monyosand partiallybasedonGoogle’s
open-source system,togainmarketshare.
But virtually all Chinesesmartphonescon-
tinue to run on AndroidandApple’sios,
and nearly all Chinesedesktopsarepo-
wered by Apple’smacosorMicrosoftWin-
dows. AlternativeChineseoperatingsys-
tems struggle to attractdevelopersbecause
they are not widelyused—andtheyarenot
widely used becausethey donothave
many apps or programstodownload.
A similar chicken-and-eggproblemaf-
flicts China’s efforttocreateaworldwide
payments network. Thebulkofglobal
money transfersareprocessedthrough
swift, a Belgium-basedinterbankmessag-
ing system, and chips,America’sdomestic
clearing system.These, plusthewide-
spread use of thedollarininternationalfi-
nance and trade,giveAmericapowerover
the global financialsystem.Toinsulateit-
self against the threatofevictionfromthe
world’s financialplumbing,whichAmeri-
ca has contemplatedoverMrXi’scrack-
down on freedominHongKonganditshu-
man-rights abusesinXinjiang,Chinahas
since 2015 been expandingaparallelsys-
tem for yuan paymentsknownascips.In
September the service was processing
317bn yuan in transactionseachdayin
more than 100 jurisdictions.
The costs of cips’sexpansionareun-
known but probably large. Yet gauged
against the size oftheChineseeconomy,
the system’s footprintispuny.cips’s 80 or
so connected institutionsaredwarfedby
swift’s 11,000-plus.Muchofthegrowthin
the yuan’s cross-borderuse—to2.7%inDe-
cember from 1.9%twoyearsearlier—was
the result not offoreigndemandforthe
Chinese currencybut ofChinesestate
firms’ overseas expansion.Arecentreport
from the CarnegieEndowmentforInterna-
tional Peace, onemorethink-tank,notes
that distrust of Chinahasincreasedsince
the start of the pandemic.Thisdoesnot
bode well for the yuanintheshortterm.
Such stumblesmayonlystrengthenthe
Communist Party’sresolvetoweanitself
off the West in areasitseesasofstrategic
importance. Likeallautarky,thetechno-
logical sort will comeatacost:inbillions
spent, often wastefully,aswellasinapps
undeveloped, fieldsunplanted,armsun-
jabbed. In Mr Xi’seyes,thatappearstobea
price worth paying.

SeaGroup

Perfect storm

T

hroughout mostof the pandemic Sea

Group, a Singaporean super-app, had

wind in its sails. Both its e-commerce busi-

ness, Shopee, and its gaming unit, Garena,

were thriving thanks to growing appetite

for all things digital. In October Sea’s stock-

market value surpassed $200bn, making it

the first South-East Asian stock in history

to break into the exclusive ranks of the

world’s mega-cap companies.

Since then the weather has turned, wip-

ing more than $130bn from Sea’s market

capitalisation. The global tech sell-off is

only part of the story. Investors also har-

bour fears that are specific to the company.

In January Tencent, a Chinese internet

giant, trimmed its stake in Sea from 21.3%

to 18.7%. Tencent had earlier reduced its

holding from nearly 40% at the time of

Sea’s listing in 2017 and gave no explana-

tion for the latest divestment. Whatever

the reason, the market didn’t like it, per-

haps fearing that Tencent’s retreat implies

doubts over Sea’s prospects.

This month those prospects took an-

other knock. On February 14th Sea’s stock

price tumbled again, after Garena’s flag-

ship mobile game, “Free Fire”, was abruptly

made unavailable on app stores in India.

Indian media reported that the govern-

ment had banned “Free Fire”, along with 53

Chinese apps. Sea’s association with Ten-

cent may again have played a role.

Sea is Singaporean, and India has no ob-

vious beef with the city state. But it does

have one with China. Tensions between

the two nuclear-armed giants have been

rising. In the past year the two countries’

soldiers have clashed, sometimes violent-

ly, at their Himalayan border. This has led

India’s government to impose restrictions

against hundreds of Chinese apps—or, it

now appears, ones with perceived links to

China. Sea says it complies with Indian

laws and does not transfer any Indian user

data to China or store them there.

Many existing users in India appear

able to keep playing the game. But the loss

of new Indian players is a huge blow to Sea.

Indians are avid mobile gamers, and there

are lots of them. India downloads more

gaming apps than any other country, ac-

cording to App Annie, an analytics firm. In

the latest earnings call, Sea’s founder and

chief executive, Forrest Li, trumpeted the

fact that “Free Fire” was the highest-gross-

ing mobile game in India (as well as in

South-East Asia and Latin America, where

his firm has been expanding its opera-

tions). Sea does not publish a breakdown

of Garena’s earnings by country, but some

analysts believe that Indian sales may ac-

count for around a tenth of the Sea’s digi-

tal-entertainment revenue.

Lost in the Indian ocean

It would thus be bad enough for Sea if its

Indian troubles remained confined to the

“Free Fire” saga. Worse, Shopee could be in

trouble, too. The e-commerce platform’s

rapid ascent up the rankings of Indian apps

since a quiet launch last year has apparent-

ly irritated the Confederation of All India

Traders (cait), a lobby group representing

small businesses. caithas called for Sho-

pee to be banned along with “Free Fire”,

claiming in a letter sent on February 15th to

India’s minister of commerce and industry

that Sea is controlled by Tencent. The fact

that cait’s claim is patently false may not

matter to the Indian government, if the

prohibition on “Free Fire” is a guide.

HONG KONG

South-East Asia’s super-app faces

choppy waters

Rough Sea