Ep. 3: The US Sanctions ZTE, and Sexism in China’s Tech Sector

TechBuzz China by Pandaily is airing on the Sinica Podcast by Supchina this week!

TechBuzz China by Pandaily is a weekly technology podcast that is all about China’s innovations. It is co-hosted by Ying-Ying Lu and Rui Ma who are both seasoned China watchers with years of experience working in the technology space in China. They share and discuss the most important tech news from China every week with commentaries from investors, industry experts and entrepreneurs.

This week’s TechBuzz China by Pandaily episode will air as part of the newest episode of the Sinica podcast. Sinica is a weekly discussion of current affairs on China with journalists, writers, academics, policy makers, business people and anyone with something compelling to say about the country that’s reshaping the world. It is powered by SupChina and hosted by Kaiser Kuo and Jeremy Goldkorn.

On this week’s episode, our hosts tackle two ambitious stories. First, Rui talks about the seven-year ban the U.S. government announced on sales of American components to Chinese telecom equipment and systems company ZTE, and the overwhelming response from Chinese tech media, which has called the ban a “very rude awakening.” China has earmarked billions of dollars for semiconductor R&D and investment, but what impact do these funds have? What is going wrong, and what does this all mean for China’s place on the global tech stage?

Ying-Ying covers responses to the report released by Human Rights Watch about sexist hiring practices in China’s tech sector. The Western media response lies in stark contrast to domestic reactions from within China, and our hosts speculate as to why that is. Given that hiring is only one aspect of gender equality, what does this story say about the current state of gender norms in China’s tech industry and how easily things will change? Why is this significant for the future of China tech, and important for our listeners outside of China?

Listen to the latest episode of Sinica here, and don’t forget to subscribe us on iTunes or wherever you podcast from! Like our Facebook page, and as always, you can find these and other stories at http://pandaily.com/.

Full Transcript

Please be advised that parts of the transcript has been edited for enhanced readability.

(R: Rui Ma; Y: Ying-Ying Lu)

We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of pandaily.com, a new English language site that tells you “everything about China’s innovation.”

[1:27] R: We are getting lots of helpful feedback and even some fanmail. Shoutouts to Jason Lin, Michail Kosak for taking the time to drop us a line. We really appreciate it!

[1:43] Y: This week, we decided to go big. We are tackling two really ambitious stories. The first is on the ban of US chip companies to sell to Chinese telecom equipment and systems company ZTE. The second is on a topic near and dear to our hearts, which is this report that’s come out about sexist hiring practices in China.

[2:01] R: Many of you might have already heard about the recent seven-year ban the US government announced on sales of American components to ZTE. The reason that was cited is to punish the company for not living up to the commitments it made last year when it violated US sanctions and sold products to Iran and North Korea. So for reference, it was already fined over a $1 billion back last year. But there’s evidence they didn’t really take that fine too seriously. Instead of fixing their practices, they actually rewarded the employees who made those deals, and even published a handbook on how to get around the rules. Yeah, let that sink in. Now, there’s plenty of English-language articles you can read on this whole ordeal, and especially on how it fits into the greater story of this brewing U.S.-China tariff war, but we aren’t going to cover that today.

[2:58] Y: Nope, we wanted to focus on some different perspectives. Things that haven’t been covered as much. But if you’re interested in, for example, expert commentary with an emphasis on politics and macroeconomics, you should check out our producer Kaiser Kuo’s show over at the Sinica podcast, that’s spelled SINICA, or Macropolo, which is a think tank, or Bill Bishop’s excellent Sinocism newsletter, also spelled with an S, which is also published weekly on Axios.

[3:26] R: Yup, we know all of those folks, and they are seriously really awesome. But back to the story. We want to tell you about the Chinese tech community’s reaction to the ZTE ban. It’s not been pretty.
Y: You mean beyond the fact that the stock had to be halted from trading, and it only has two months worth of inventory left, and the fact that its 80,000 employees are at risk of losing their jobs?

[3:49] R: Yeah, those things. So the consequences for ZTE have been dire, but it’s not really just about this one company. There’s been like this palpable shift that’s taken place over the past week or so in Chinese tech media. I mean, the Chinese interwebs are flooded with a huge number of op-eds on how this is a wake-up moment for China tech. Not just any awakening. A very, very, very rude one. It seems that most people, myself included, had not realized how extensively China relied on core U.S. semiconductor technologies. Sure, China has been the manufacturing center of the world, but what it’s really good at, it seems, is putting everything together. The brains — the advanced integrated circuits, or chips that go into everything, that’s still dominated by other countries, including the US, Japan, Korea and even Taiwan. Almost anywhere but China, it seems like.

[4:45] Y: I didn’t know that either! I guess it is obvious in retrospect, but you’re basically saying that many of the advanced electronics we buy, and I don’t mean very simple items like my hairdryer, but inlcuding smartphones and enterprise grade telecom equipment, actually have American chips that are sold to Chinese companies, who then put it together and sell it back to us? And you’re saying that Chinese people are uncomfortable with this, because they’ve been used to thinking of themselves as tech leaders. They thought everything was made in China these days.

[5:17] R: Exactly. I remember a time when China really looked to the U.S. for tech leadership, but in the past few years, that attitude had really shifted. In terms of software, especially consumer internet, I’d say that since 2016, many Chinese entrepreneurs and investors think it’s Silicon Valley that’s actually behind, and that China is the world leader. Even in newer sectors like fintech, blockchain and autonomous vehicles, the overwhelming sentiment is that China is world class, if not number one. The thing is, with both Alibaba and Tencent hovering around $500 billion market caps, not that far behind Amazon and Facebook, maybe they’re right. Either way, it’s the first time in several years that I’ve seen any commentary to the effect of — wow, we are definitely NOT first. We are not even close.

[6:10] Y: That can’t feel good. I do agree with you though that China has built up such a strong narrative of tech-enabled growth that it’s hard to see beyond the story sometimes. And if you just listen to stories like the one we did last week on Pinduoduo, it’s really pretty difficult to see it otherwise. But this ZTE fiasco is having a negative impact on the confidence of the Chinese tech industry eh? How bad is it?

[6:33] R: While state-owned media has, of course, been doing damage control, other media have gone more in the direction of – hey! we are just like that story of the emperor’s new clothes, we are actually wearing nothing at all. Meaning, we ain’t got squat when it comes to the really important stuff, like microchips! And there is a genuine sense of panic and anger. A few themes emerge here I think. A dominant complaint is that not enough money has been invested in “true innovation”, and has been poured into frivolous pursuits like bike sharing and food delivery.

[7:10] Y: Yikes. It’s true that I’ve also seen some negative public sentiments against the extremely unprofitable and capital intensive on-demand or sharing economy startups. I mean, if you haven’t seen the photos of the thousands of damaged and discarded ofo and mobike bikes, look them up. It’s really hard not to feel disturbed.

[7:32] R: And while I see where these complaints are coming from, they’re not objectively true. China has spent, and will be spending, billions of dollars on semiconductor investment. For example, there is a $31.5 billion government fund established just for investing in integrated circuits. There are also 22 fabs being built in China right now, all costing several billion dollars. And personally, I see aggressive Chinese investment in chips, and not just recently. For example, on the private capital side, Alibaba has invested in or purchased five chip companies in the past few years. I am personally advising an American chip startup — actually introduced to me by you, Yingying — and there was generally more interest from Chinese investors than U.S. ones. That was all way before this ZTE story broke. It definitely feels like there’s more money allocated to this space in China than here in Silicon Valley.

[8:21] Y: If it’s not a question of money then, why is China so behind? I’m reading these reports where many Chinese experts throw out the phrase – thirty years behind. Is that true?

[8:35] R: I think that time frame sounds overly simplistic. So there’s a few things to consider here: the industry is really large and really complex. But yeah, China is very behind. There are a few commonly cited reasons. Misused funds, for one. There’s one analysis that claim 60% of government semiconductor funds went to travel and conferences instead of research. Another reason is buying equipment that’s just sat there and not been used. So yeah, capital is not always efficiently utilized. But is it really a three decade gap? I don’t know. I find that hard to believe actually.

[9:13] Y: Yeah, it’s way too hard to say. But I think what’s unique about this story is that generally, most of the tech headlines we talk about are internet focused, and so with the Chinese ecosystem being pretty closed off to foreign companies, we are really talking about companies that don’t have much to do with each other. They barely interact, except for sometimes competing in some developing countries, and definitely don’t have the interdependent relationship that say a Qualcomm and a ZTE have. For context, U.S. company Qualcomm is estimated to supply the chips in up to of ZTE’s smartphones.

[9:47] R: As boring as it might seem, we just could not avoid addressing this huge story. It’s like a seriously big deal. And it’s going beyond semiconductors now. It’s about the massive insecurity that’s been triggered in China’s tech community. Today for example, I read some warnings about over-reliance on Windows. People are really scared that could be taken away as well. Will this be the incident that spurs and really kickstarts Chinese innovation in areas that have been lacking, such as semiconductors? Will the Chinese government step in in a big way, kind of like the Korean government did when it fought to wean itself off of Japanese chips? I’m actually going to guess yes. But maybe it’s too painful and too late for China to catch up? Too little talent and infrastructure? What do you think? Let us know!

[10:42] Y: So the other big story this week was about gender discrimination in Chinese tech, specifically sexist job ads. Basically this all started with Human Rights Watch publishing a report, which talked about how they had analyzed more than 36,000 job ads, most of them posted in the last five years. These are job listings from both corporate and government civic sector websites, and their social media accounts – including postings by leading tech companies Baidu, Alibaba, and Tencent. The researchers looked for terms that are related to gender preferences, such as “men only” and “suitable for women.” Now, not all of these were in tech; a lot of them are in the civic sector. But let me read of some of the sample postings:

[11:26] Y: “These are the goddesses in the hearts of Alibaba employees. They want you to be your coworkers.” Goddesses, or 女神 nǚshén, in this situation, means beautiful women. Here’s another one! A social media post from Alibaba, calling the attractive women “late night benefits.” I hate to bash on Alibaba here, but another disturbing recruitment video released in 2012 featured a female pole dancer and a montage of female employees just exclaiming, “I love tech boys!”

[11:52] R: And Alibaba prides itself on having a lot of female execs and customers, even having an annual female entrepreneur conference. I was almost going to attend it!
Y: Well, let me clarity that this is definitely not just Alibaba – it’s industry wide. There was a scandalous video of Tencent’s annual holiday party where female employees open a water bottle with their teeth while the bottle was, you got it, between their male colleagues’ legs. I got so upset watching that video that I cried and it’s only a 6-second clip!

[12:28] R: I only saw a photo and could not bring myself to watch the video. But let’s still give credit where credit is due right? Tencent did issue a formal apology and Alibaba promised to take action: saying it will have a stricter reviews on recruiting ads. Others also said they were sorry.

[12:48] Y: Right, they’re sorry they bowed down to the outrage in the West. So this story made it onto a ton of media outlets here, and even our very own SupChina covered it. Rui, you were quoted in that Bloomberg piece commenting that gender norms are deeply ingrained and will be hard to change. But, I noticed that most Chinese media didn’t cover this. Completely opposite of our earlier story on ZTE, this was just buried in Chinese news. Why do you think that is? Is it just so normalized that it doesn’t seem like news at all?

[13:19] R: Yeah, actually we tried to get a quote from an acclaimed female tech entrepreneur in China to address this, but she really downplayed the story and its impact, stating that, actually, tech is a great place for Chinese women.

[13:29] Y: I mean, there is a lot of coverage on for example, Chinese female entrepreneurs, but many of the stories center really focus on the women’s attractiveness in the headline. Didn’t you complain to Lulu Chen at Bloomberg about yanzhi (颜值), how it’s become totally normal to refer to a person’s attractiveness. I mean, it literally means “face value”. I’ve definitely seen lists of high-face-value female founders floating around! Face first, business second. Even with the entrepreneur you mentioned, yeah, we asked her reaction to the story and were hoping for something genuine. But, Rui, she really didn’t think it was a problem. Or maybe, she just didn’t want to offend any potential acquirers. We’ll never really know.

[14:16] R: Wait, I can’t believe I’m saying this, and everything we’re talking about is definitely bad, but China isn’t failing on all fronts here. So it got a lot better in the years that I lived there. Independent women are celebrated much more than they have been. A few years ago, if you called a female nv han zi女汉子 which means tough woman, it was totally derogatory. Now it’s often a compliment!

[14:43] Y: But it’s still bad. Back in 2013, I used to run a recruitment website for blue collar workers to be matched with employers in China. Most of the ads listed listed sex, height, age, accent requirements – this seem pretty routine. Our team came up with the concept of using video interviews which gave employers the opportunity to evaluate workers’ presentation skills, and at the time, it seemed totally normal and even helpful to both sides! So I wonder now if I was complicit in perpetuating discrimination based on gender and appearance. I mean, even for tech jobs, photos are typically required.

[15:24] R: But it’s not just China where looks matter and females can be used for their looks. I know of situations where friends have worked at U.S. tech startups and were asked to stop doing their regular job and go assist with recruiting programmers because well, they were attractive and female, and it would “help attract talent”. And also isn’t it always touted that Chinese startups have more female execs than their US counterparts?

[15:46] Y: Well, you know what I’m going to say to that. Many of those women are in admin positions which don’t have as much influence over the company as their male counterparts. And I’m not saying those positions are not important, but there is this narrative that women can’t succeed at other positions because their natural instincts don’t allow them to.
R: Yeah I’ve heard those sentiments. Many investors insist their portfolio companies be structured that way.

[16:09] Y: So how’s that gonna work in the long run? I really believe this is important because if we think of technology as a major driver of progress, and in many ways China is leading the world in innovation, then China has to change. And here I will quote Sophie Richardson, Human Right Watch’s China director: “These companies pride themselves on being forces of modernity and progress, yet they fall back on such old fashioned recruitment strategies.” And we’re just scratching the surface with recruitment too. I feel sad that I have to quote a foreigner and not a native Chinese person on this. When will there be some awareness from within the system? I don’t know. And that’s disappointing.

[17:00] R: A part of our mission is to also connect you, our listeners, with other resources in the US-China tech ecosystem. That’s why we want to tell you about the Global Capital Summit, F50’s bi-annual flagship conference, on May 3, in Silicon Valley. F50 connects tech companies with a community of global investors. To attend, please visit: http://f50.io/gcs18/ and use the code PANDAILY at checkout for an extra 20% off! That’s spelled PANDAILY. We’ll l see you there!

[17:43] Y: To recap, we talked about the reaction in the Chinese tech community to the U.S. ban on China telecom equipment company ZTE and how it’s stirring up dialogue around the reality of Chinese R&D. Hint: not so great. We also talked about sexist job ads and the current and future state of gender equality in Chinese tech. As always, you can find the stories we didn’t get to cover on pandaily.com.

TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is a new English language site that tells you “everything about China’s innovation.” Our producers are Carol Yin and Kaiser Kuo.