Annual ReviewIn 2013, the Internet industry had generally a hard time in China. The PRISM at the beginning of the year enlightened the whole world on network security and raised China’s strategic awareness of cyberspace issues. Though Cisco made the announcement that it was not involved in the program to monitor China the dispute never died. The "Internet Governance" campaign was launched in August and control over online public opinion spaces represented Weibo was tightened. The bottom line and liability of online comments became a hot topic. By announcing the National Security Commission at the Third Plenary Session of the 18th Central Committee of the Communist Party of China (CPC), China showed its enhanced attention to national security.
In the industrial sector, mobile Internet was still the highlight. Different from last year, people now became more aware of the uniqueness of mobile Internet. When a turning point appeared in user statistics, the mobile ends were no longer only a supplement and extension of the PC end. Instead, mobile Internet stood out with unique product forms and user habits. WeChat reigned the market of mobile Instant Messaging (IM) and aimed at becoming a platform entrance, which would offer more opportunities for Internet start-ups. The issuance of 4G licenses and the following promotional efforts would provide better network basis for the development of mobile Internet.
From “Links” to "Connections", the Internet had become a ubiquitous supporting force in economy and society, and it started to reshape traditional industries. E-commerce reached out to new fields rapidly, and accelerated its shift from light-goods e-commerce to heavy-goods e-commerce and even O2O e-commerce. Online consumers took up large market shares and the Internet pushed specific industries for changes from the bottom up.
At the end of 2013, online financial products represented of online financial sales were launched largely. On June 13, Alibaba launched Yu'E Bao. By December 31, 2013, Yu'E Bao had up to 43.03 million users and gathered a total of RMB185.3 billion. On October 28, Baidu Financial Center—Wealth Management was launched, and its first products were sold out within half an hour; on December 23, "Baifa", the wealth management service of Baidu Financial Center was launched. On January 15, 2014, WeChat launched its wealth management service, and the accompanying red envelopes that worth RMB10 million together with a seven-day annualized yield of more than 7% attracted over RMB800 million within a single day. Currently, Internet companies launched wealth management products mainly based on online distribution of the traditional fund products. Due to lack of relevant laws and regulations, there was news about non-compliant products launched. For example, on October 21, 2012, Baifa of Baidu launched a product with a target annualized return of 8%, but the target was attained by distributing "Treasure Box" rewards in addition to the normal returns of the monetary fund sold. On the afternoon of October 21, China Securities Regulatory Commission (CSRC) announced on its official Weibo that the 8% annualized return of "Baifa" violated relevant laws and regulations, and they would soon examine the compliance of the product.
In early June, Snowden, a former National Security Agency (NSA) contractor released series of confidential documents to the media, exposing the secret PRISM program and many other secret intelligence surveillance projects of the US government. On June 5 and 6, 2013, the Guardian and Washington Post published disclosures with subsequent documents that the NSA had a secret project coded PRISM, in which the US government monitored citizens' emails, chat records and other Internet behaviors through telecommunications carriers and Internet giants. On June 7, President Obama who was on an inspection trip in San Jose, California, responded to the incident and admitted the project, but he claimed that the plan was authorized by the Congress. On June 9, the Guardian published exclusive interviews and released the identity of the "Whistleblower" at his own request. Edward Snowden, aged 29, an employee of Booz Allen Hamilton which was a contractor to the American defense, worked for the NSA in the past four years. According to the Guardian and Washington Post on June 13, Robert Miller, the head of the Federal Investigation Bureau (FBI) said FBI had started a criminal investigation on Snowden who exposed the PRISM of NSA. This was the first official confirmation from the US to have taken action on Snowden.
It was reported that Snowden arrived in Hong Kong, China, before news of PRISM was released in media. On June 10, Snowden disappeared after he checked out of a luxury hotel in Kowloon, Hong Kong, China. On June 23, the Government of Hong Kong Special Administrative Region issued a statement saying that Snowden had left Hong Kong to a third country in its own legitimate and normal way. Later, it was said that Snowden flew from Hong Kong to Moscow that day and then stayed in the transit area at Sheremetyevo Airport. On July 1, the consular agency of the Russian Foreign Ministry located at Sheremetyevo Airport, Moscow, confirmed that Snowden, the whistleblower of the US PRISM project had applied to Russia for political asylum through the agency. In August 2013, Russia officially granted Snowden the temporary asylum status.
The PRISM scandal made it clear for the first time that the U.S is monitoring the Internet. With further release of information on PRISM, the surveillance program was increasingly questioned inside the U.S, and on July 31, 2013, the US government was forced to declassify three documents relevant to the PRISM network surveillance program exposed by Snowden and the telephone surveillance program, the two projects of secret intelligence surveillance.
On April 7, MIIT issued the Pilot Administrative Measures on New Telecommunications Businesses (draft version). The document proposed to adopt registration-based administration for new telecommunications businesses not included in the Classified Directory of Telecommunications Businesses. At the beginning of 2013, the rapid development of WeChat led to discussions on the reform of the telecommunications industry, and there were rumors about WeChat collecting additional fees. In March 2013, Miao Wei, Minister of MIIT stepped up to coordinate the dispute between WeChat and carriers concerning fee collection. On April 7, MIIT issued the Administrative Measures and solicited opinions. In a regular briefing on April 23, it was announced that whether WeChat will collect additional fees would be determined by the market and MIIT would not intervene. It was also said at the briefing that regulation over the telecommunications market would be strengthened to prevent abuse of monopoly power.
The dispute was resolved finally by reaching a consensus of coexistence and mutual benefit, and a new cooperation model was created. On August 8, 2013, WeChat joined hands with China Unicom to launch the customized "WeChat- Wo" SIM card. More similar cases of cooperation followed soon. In October 2013, Laiwang and Yixin cooperated with carriers respectively to offer "free data".
In 2013, the domestic Internet giants all started to expand themselves through acquisitions and continued to break the record of the acquisition prices. On August 14, Baidu acquired 91 Wireless Network with USD1.85 billion, making it the first M&A case in Internet industry that year.Major Acquisitions in the Internet Industry in 2013
Alibaba acquired xiami
Zhejiang Daily Media acquired SNDA’s Bianfeng and CGA with RMB3.49 billion.
Alibaba acquired 18% of the shares of Weibo with USD586 million.
Baidu announced its acquisition of PPS with USD370 million.
Alibaba purchased 28% of shares of autonavi with USD294 million.
ZHEFU Holding Group purchased 38% of shares of 2345 e with RMB760 million.
Baidu announced its acquisition of 91 Wireless Network with USD1.85 billion.
Baidu paid USD160 million for a controlling stake in Nuomi .
Tencent paid USD448 million for a strategic stake in Sogou
Shunrong Auto Parts invested RMB1.9 billion in purchasing 370000 of 60% total shares.
Suning and Hony Capital jointly invested USD420 million in PPTV.
TAL Education Group acquired Kaoyan under Beijing EMTX Information Technology with USD8.5 million.
Internet giants fought for mobile portals and distributed via M&A resources which were concentrated in the mobile Internet and vertical fields. In addition to domestic actions, Baidu and Alibaba also carried out M&A overseas.
On August 17, 2013, the State Council issued the implementation plan for "Broadband China" strategy, setting the goals and paths of broadband development in the coming eight years. It meant that the broadband strategy had risen from a departmental action to the national strategy, and broadband had become the national strategic public infrastructure for the first time. At present, the backwardness of China's broadband network infrastructure had become a bottleneck for information consumption. The implementation of "Broadband China" strategy was to enhance the foundation of the national information appliance, and further pushed forward the whole economic and social transformation and upgrading through promotion of information consumption.
At the executive meeting of the State Council on July 12, arrangements were made for the promotion of information consumption. On August 14, the State Council issued Some Comments on Facilitating Information Consumption and Expanding Domestic Demand, putting forward the goal of information consumption to exceed RMB3.2 trillion in 2015.
As for the specific measures to facilitate information consumption, pilot projects such as "Smart City" were also proposed. On August 5, the Ministry of Housing and Urban-Rural Development announced the list of 103 cities as the pilot Smart Cities in 2013.
On August 27, Alipay announced that it would end its offline POS business. Alipay vaguely attributed this decision to "some well-known reasons". UnionPay's requirement that all third-party payment activities shall follow the standard measures of the UnionPay system was thus challenged by the enterprises.
On December 19, 2012, UnionPay issued Letter on Standardizing Cooperation with Non-financial Payment Institutions on UnionPay Cards, proposing a unified regularization action for open interfaces to third-party payment institutions with the main contents to promote unified access of non-financial institutions to the UnionPay network. Analysts believe that unified access to the UnionPay system would result in the rise of clearing fees and possible transfer of the cost to consumers.
In autumn 2013, the Cyberspace Administration of China, the Ministry of Public Security and other departments carried out a joint special rectification on network rumors. On August 20, the Ministry of Public Security announced that Beijing police destroyed Beijing Erma interactive Marketing Planning Co., Ltd., an Internet marketer company, and arrested Qin Zhihui (screen name "Qin Huohuo") and other suspects. They confessed the gray network economy of "network rumors".
The Supreme People's Court and the Supreme People's Procuratorate later gave the judicial interpretation on the "network rumors". On September 9, 2013, The Supreme People's Court and the Supreme People's Procuratorate issued Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues of Applicable Laws in Handling Slanders by Use of Information Network and Other Criminal Cases. According to the Interpretation, slanders, personal attacks or other behaviors spreading rumors by use of network and resulting in bad effects shall be given criminal punishment.
On September 30, the ninth group learning of the Political Bureau of the CPC Central Committee was held in Zhongguancun with the theme of "Driving development strategy by innovation". Members of the Political Bureau visited Zhongguancun National Independent Innovation Demonstration Zone and listened to reports given by the head of Zhongguancun Administrative Committee on innovation and the development of Zhongguancun. Later, they visited an exhibition hall and acquired knowledge on 3D printing, integrated circuit equipment, new-generation information technology, energy conservation and environmental protection, new materials, biology and health, aerospace and other research and development achievements of new technologies. During the visit, Li Yanhong, the founder and CEO of Baidu, explained the development of big data.
Xi Jinping hosted the learning session. He stressed, "A nation is prosperous if science and technology is prosperous. A country is strong if science and technology is strong. The 18th CPC National Congress made the major deployment of development strategy by implementation of innovation, emphasizing that scientific and technological innovation, as the strategic support to improve social productivity and overall national strength, must be placed at the key position of the overall national development. This is of very important significance because it is the major strategic choice made by the Central Committee of the Party after comprehensively analyzing the domestic and overseas situation and taking the foothold on the overall national development."
On October 24, Muddy Waters, a US short seller released a report on going short on NQ. The report questioned NQ in nine major aspects, including false revenues, faked market share, and false number of users, among others. As a result, NQ's stock price decreased 47.16% at the closing of the second day. NQ soon issued a statement refuting the accusations. On October 29, Muddy Waters released another report to accuse NQ of 10 lies in its response.
In recent years, listed Chinese Internet companies had been frequently sniped by short sellers. Citron, another short seller issued seven reports to go short on Qihoo 360 in 2011 and 2012.Since there is no Short-mechanism in China, Chinese companies were unfamiliar with such operations in the capital market. As an increasing number of Chinese enterprises went public overseas, the Chinese shares would face more challenges manipulated by the capital.
On December 4, 2013, MIIT officially issued the fourth-generation license of mobile communications business to China Unicom, China Telecom and China Mobile. The standard of the licenses was TD-LTE, and the issuance of the licenses started the 4G standard commercial process. Early in August 2013, China Mobile launched the experience activity of 4G users in Guangzhou, Beijing, Shenyang and several other cities. Hongkong had put the TD-LTE standard of 4G in commercial use as early as in December 2012.
The TD-LTE standard of the issued license was LTE-TDD, the 4G standard under the lead of China. This standard was jointly formulated by the Research Institute of Telecommunications Transmission (RITT) of the Ministry of Information Industry, Datang Telecom as well as China Mobile, ZTE, Huawei, TD Tech, among others. In October 2006, China formally submitted its independent 4G proposal to International Telecommunication Union (ITU). On January 18, 2012, TD-LTE was set by ITU as one of the fourth-generation international standards of mobile communication. As of the third quarter of 2013, 24 operators in the global range adopted the LTE-TDD standard and the number of users topped 4.64 million.
In 2013, Internet companies waged a fierce battle against television in the living room—a new place where Internet can make a difference, and produced two types of products: smart TV and “Box”. Traditional home electrical appliance enterprises remained the mainstream on the smart TV market; Hisense, Konka and Haier had all launched their own smart TV products; in May 2012, LETV launched its super TV, aiming to establish its own ecological application system while emphasizing that its hardware configuration met the needs of the Internet. The “TV Box” market was a focus of competition among Internet enterprises. In 2013, many Chinese Internet enterprises launched their own Box products: MI launched the MI Box in mid-December 2012; LETV the LETV Box(CIS) on April 1, 2013; PPTV the PPBOX on May 18, 2013; Huawei the MediaQ on August 29, 2013; and Alibaba and Wasu the Wasu Rainbow Box in September 2013.
The transformation of television to portal of the Internet also brought high pressure to the State Administration of Press, Publication, Radio, Film and Television (SARFT), the original television management administration. With the help of the Internet, either Box or smart TV users could be easily accessed to more abundant contents and products, and thus weakened the influence of the Administration on management of TV contents. The concept of integrating the three networks, i.e., Telecommunication Network, Radio and Television Network and Computer Network, was firstly proposed by Chen Xiaoning, president of Academy of Broadcasting Science of SARFT at that time. Then in 2010,MIIT, associated with SARFT , proposed the pilot project of “two-way access”. The radio and television industry was on the whole at a disadvantage in the integration of the three networks. SARFT laid a series of licensing restrictions on the Internet companies in providing television contents and services by adopting the Administrative Measures on Internet and Other Network Dissemination of Audio-visual Programs (No. 39 Decree of SARFT) (June 15, 2004), the Administrative regulations on Internet Audio-visual Services (December 29, 2007) and the Notice on Related Issues concerning Strengthening Management of Internet Audio-visual Program Services with Television as the Receiving Terminal (August 14, 2009). As of 2013, SARFT issued licenses to seven companies, and the Boxes on the current market had to cooperate with licensed institutions. The licensing system became an important threshold for Internet companies to enter the TV industry. It was once reported that the MI Box, only 10 days after it was launched, was emergently suspended for the reason of the license at the end of 2012. Besides cooperating with the licensed institutions, the Internet enterprises, after entering the Internet TV, could only integrate resources from contents of video websites out of the radio and television limits. The license limit produced TV Dongle, a product with which the contents of a computer or a mobile phone could be projected on television so as to bypass the license. For instance, “Baidu shadow bar” launched by Baidu in September 2013 was such a product.