The Economist February 26th 2022 Business 61can 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 companies are estimated to
have invested $4bnorsobetween 2019 and
September of 2021inthedevelopmentof
operating systems.Someanalystsexpect
Huawei’s Androidalternative,calledHar
monyosand partially basedonGoogle’s
opensource system,togainmarketshare.
But virtually all Chinesesmartphonescon
tinue to run on AndroidandApple’sios,
and nearly all Chinesedesktopsare po
wered by Apple’smacosorMicrosoftWin
dows. AlternativeChineseoperatingsys
tems struggle to attractdevelopersbecause
they are not widelyused—andtheyarenot
widely used because they do not have
many apps or programstodownload.
A similar chickenandeggproblemaf
flicts China’s efforttocreatea worldwide
payments network. The bulk of global
money transfers are processed through
swift, a Belgiumbasedinterbankmessag
ing system, and chips, America’sdomestic
clearing system. These, plus the wide
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
manrights abusesinXinjiang,Chinahas
since 2015 been expandinga parallelsys
tem for yuan paymentsknownascips. In
September the service was processing
317bn yuan in transactions each day in
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 80or
so connected institutionsaredwarfedby
swift’s 11,000plus.Muchofthegrowthin
the yuan’s crossborderuse—to2.7%inDe
cember from 1.9%twoyearsearlier—was
the result not offoreigndemandforthe
Chinese currency but of Chinese state
firms’ overseas expansion.Arecentreport
from the CarnegieEndowmentforInterna
tional Peace, onemorethinktank,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 comeata cost:inbillions
spent, often wastefully,aswellasinapps
undeveloped, fieldsunplanted,armsun
jabbed. In Mr Xi’seyes,thatappearstobea
price worth paying.n
SeaGroupPerfect storm
T
hroughout mostof the pandemic Sea
Group, a Singaporean superapp, had
wind in its sails. Both its ecommerce 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 SouthEast Asian stock in history
to break into the exclusive ranks of the
world’s megacap companies.
Since then the weather has turned, wip
ing more than $130bn from Sea’s market
capitalisation. The global tech selloff 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 betweenthe two nucleararmed 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 highestgross
ing mobile game in India (as well as in
SouthEast 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
talentertainment 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 ecommerce 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. H ONG KONG
South-East Asia’s super-app faces
choppy watersRough Sea