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Microsoft is shedding its empathetic chatbot Xiaoice into an independent entity, the U.S. software behemoth said (in Chinese) Monday, confirming an earlier report by the Chinese news site Chuhaipost in June.

The announcement came several months after Microsoft announced it would close down its voice assistant app Cortana in China among other countries late last year.

Xiaoice has over the years enlisted some of the best minds in artificial intelligence and ventured beyond China into countries like Japan and Indonesia. Microsoft said it called the shots to accelerate Xiaoice’s “localized innovation” and buildout of the chatbot’s “commercial ecosystem.”

The spinoff will see the new entity license technologies from Microsoft for subsequent research and development in Xiaoice and continue to use the Xiaoice brand (and Rinna in Japanese), while Microsoft will retain its stakes in the new company.

In 2014, a small team of Microsoft’s Bing researchers unveiled Xiaoice, which means “Little Bing” in Chinese. The bot immediately created a sensation in China and was regarded by many as their virtual girlfriend. The chatbot came just a few weeks after Microsoft rolled out Cortana in the country. Modeled on the personality of a teenage girl, Xiaoice aims to add a more human and social element to chatbots. In Microsoft’s own words, she wants to be a user’s friend.

Like all foreign companies, Microsoft has to grapple with China’s censorship. In 2017, Xiaoice was removed by Tencent’s instant messenger QQ over suspicions of politically sensitive speech.

The project has involved some of the most prestigious scientists in the AI land, ranging from Lu Qi, who went on to join Baidu as its chief operating officer and brought Y Combinator to China; Jing Kun, who took up a post at Baidu to head the search giant’s smart devices; and Harry Shum, a former executive at Microsoft’s storied Artificial Intelligence and Research unit and now sits on the board of fledgling news app News Break.

Shum will serve as chairman at Xiaoice’s new standalone entity. Li Di, general manager of Xiaoice, will serve as chief executive officer. Chen Zhan, a developer of the Japanese chatbot Rinna, is appointed general manager of the Japanese office.

The new company will retain the right to use the “Xiaoice” and “Rinna” brands, with a mission to further develop its client base across the Greater China region, Japan and Indonesia.

Microsoft claimed that Xiaoice has a reach of 660 million users and 450 million third-party smart devices globally at the last count. The chatbot has found applications in such areas as finance, retail, auto, real estate and fashion, in which it claimed it can “mine context, tonality and emotions from text to create unique patterns within seconds.”

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Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.

This week, the unprecedented national security law descended on Hong Kong, changing the day-to-day life of the people there, as well as businesses across the board. The law has important implications for the tech sector, providing a litmus test of business sentiment towards China’s regulation over information. Google, Facebook, Twitter, Telegram, Zoom, Reddit among a roster of companies have come to voice their stance.

Resist, comply, avoid

The Hong Kong national security law that went into effect on July 1 is set to tighten Beijing’s grip over the city. A few provisions of the law directly request service providers to remove information or provide assistance to the police, as I wrote earlier. Here are what the tech giants are saying in response:

Facebook confirmed it has paused the processing of data demands from Hong Kong authorities until it can better understand the law, “including formal human rights due diligence and consultations with human rights experts.” Its spokesperson said: “We believe freedom of expression is a fundamental human right and support the right of people to express themselves without fear for their safety or other repercussions.”

Its suspension will also apply to WhatsApp, which it owns.

Twitter said it suspended transfers of user data subject to Hong Kong demands immediately after the law went into effect, and its teams are “reviewing the law to assess its implications, particularly as some of the terms of the law are vague and without clear definition.” It also said it has “grave concerns regarding both the developing process and the full intention of this law.”

Google said it suspended its reviews of data requests from the authorities. It added that it would continue reviewing government requests for removals of user-generated content from its services.

Zoom said it suspended its compliance with data requests from the Hong Kong authorities. “Zoom supports the free and open exchange of thoughts and ideas… We’re actively monitoring the developments in Hong Kong SAR, including any potential guidance from the U.S. government. We have paused processing any data requests from, and related to, Hong Kong SAR.”

LinkedIn, which is owned by Microsoft and runs a separate mainland beholden to Chinese regulations, said it is pausing responses to local law enforcement requests as it conducts its review of the law.

Telegram said it does not intend to process any data requests related to its Hong Kong users until an international consensus is reached in relation to the ongoing political changes in the city. Its spokesperson claimed it has not disclosed any data to the Hong Kong authorities in the past.

Signal, a competitor to Telegram in the realm of data encryption, tweeted a snarky comment: “We’d announce that we’re stopping too, but we never started turning over user data to HK police. Also, we don’t have user data to turn over.”

TikTok is in a dilemma. As a Chinese-owned company, it can’t choose to defy the Chinese government. On the other hand, it can’t afford more narrative about it being a tool of Chinese censorship. Instead of temporarily refusing data requests from the police like many foreign firms, which is regarded as a gesture of opposition to Beijing’s grip, the short video app decided to quit Hong Kong. It’s an easy business decision, as the city constituted only a tiny share of TikTok’s user base. Time will tell whether ByteDance will roll out a censored version of TikTok — Douyin — or leave the city of seven million people out.

Apple has long been criticized for its closeness to the government of China, where it has significant business. Last year, it pulled a map that pinpointed pro-democracy demonstrations in Hong Kong.

Following the enactment of the security law, Apple announced it is assessing the rules, adding that it does not receive requests for user content directly from the Hong Kong government and requires authorities to submit requests under a U.S.-Hong Kong legal assistance treaty.

Reddit, which counts Tencent as an investor, provided a more evasive response: “All legal requests from Hong Kong are bound by careful review for validity and with a special attention to human rights implications.”

The list is not exhaustive and many aspects of the national security law await further explanation. We will keep tracking how other tech companies cope with the city’s new rules.

In response to tech firms pausing data compliance to the police, China’s Foreign Ministry Spokesperson Zhao Lijian tried to allay concerns in a statement:

“I recall what Deng Xiaoping noted in 1982 when he met with Margaret Thatcher, after Hong Kong’s return to the motherland, ‘Horses will still run, stocks will still sizzle, and dancers will still dance’ in Hong Kong. We have every reason to believe that as the Law is implemented, the foundation of ‘one country, two systems’ will be further strengthened, the Hong Kong residents’ fundamental interests and wellbeing will be better protected, there will be greater social stability and harmony, and ‘horses will run faster, stocks will be more sizzling, and dancers will dance more happily.’ We have full confidence in Hong Kong’s future.”

Elsewhere…

• The U.S. threatens to ban TikTok over concerns that it could be used by the Beijing government as a surveillance and propaganda tool.
• In a race to lead the global semiconductor industry, Chinese chip companies have fundraised more than twice as much in 2020 than in all of 2019.
• The U.K. is poised to begin phasing out Huawei technologies in the country’s 5G network as soon as this year due to security fears. The decision reversed a previous plan to keep Huawei in the nation’s telecom infrastructure on condition of tight restrictions.
• Weibo is becoming a closed ecosystem. The biggest microblogging platform in China announced it will only accept shortened links that it authenticates. Keeping a whitelist, it said, will help clamp down unsafe sites such as illegal gambling and porn services. Meanwhile, users worry this is a slippery slope that leads to another walled garden on the internet. The platform allows four types of short links, including a pre-select list of official websites operated by government branches, media, news portals, as well as business websites vetted and approved by Weibo.

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Qualcomm has become the newest high-profile backer of four-year-old Reliance Jio Platforms, which has raised more than $15.7 billion in the past 12 weeks from as many investors.

On Sunday evening, Qualcomm Ventures said it will invest $97 million in Reliance Jio Platforms to acquire a 0.15% equity stake in the top Indian telecom operator.

Steve Mollenkopf, chief executive of Qualcomm, said the firm believes that Reliance Jio Platforms, which has disrupted the Indian telecommunications market by offering cut-rate voice and data plans, “will deliver a new set of services and experiences to Indian consumers” in the future.

Reliance Jio Platforms, which competes with Bharti Airtel and Vodafone Idea in India, has amassed nearly 400 million subscribers and has become the top carrier in the world’s second largest internet market in less than four years of its existence.

Its dominance in the Indian telecom operator while maintaining an ARPU (average revenue per user) that match those of its rivals has made Reliance Jio Platforms — a subsidiary of India’s top firm Reliance Industries — an attractive firm for a roster of high-profile investors. Facebook, Silver Lake, General Atlantic, Intel are some of the firms that have backed Jio Platforms at the height of a global pandemic. Jio Platforms has sold 25.24% stake in the firm during the period.

“With unmatched speeds and emerging use cases, 5G is expected to transform every industry in the coming years. Jio Platforms has led the digital revolution in India through its extensive digital and technological capabilities. As an enabler and investor with a longstanding presence in India, we look forward to playing a role in Jio’s vision to further revolutionize India’s digital economy,” said Mollenkopf in a statement.

Some investors have told TechCrunch in recent months that Reliance Jio Platforms’ owner — India’s richest man, Mukesh Ambani — and his closeness to the ruling political party in India are also crucial to why the digital unit of Reliance Industries is so attractive to many.

They believe that buying a stake in Jio Platforms would lower the regulatory burden they currently face in India. The investors requested anonymity as they did not wish to talk about the political tie ups publicly.

A person familiar with the matter at one of the 12 firms that has backed Reliance Jio Platforms said that the Indian firm is also enticing as globally companies are trying to cut down their reliance and exposure on China.

India, and the U.S., in recent months have taken actions to limit their reliance on Chinese firms. New Delhi last month banned 59 apps and services including TikTok that are developed by Chinese firms. Reliance Jio Platforms has interestingly yet to raise capital from any Chinese investor.

“Qualcomm has been a valued partner for several years and we have a shared vision of connecting everything by building a robust and secure wireless and digital network and extending the benefits of digital connectivity to everyone in India,” said Ambani in a statement Sunday.

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Spring 2020 was gloomy for Klook. As countries closed their borders and went into complete or partial lockdown, the SoftBank-backed travel platform saw its revenue plummet by as much as 90% through March and April. The World Travel and Tourism Council said in April that the coronavirus could put up to 100 million jobs in the global travel and tourism at risk.

But in the dark times, opportunities were also bubbling up.

Six-year-old Klook enables travelers, primarily from Asia, to discover and book overseas experiences ranging from Napa Valley wine tastings to staying with a farming family in Cambodia — a bit like Airbnb Experiences. It then takes a cut from each transaction that happens between the customer and activity vendor.

Before COVID-19, the startup, which crossed the $1 billion valuation mark back in 2018, was seeing 30 million monthly user sessions a month; by April, the figure shrank to 5 million. The constraints on people’s movement across the world, which is the foundation of its business, forced Klook to quickly rethink product offerings.

“At the end of the day, we are in the business of fun things to do. There are things to do at home, as well as local things to do when people could travel,” co-founder and chief operating officer Eric Gnock Fah told TechCrunch over a phone interview. “Now [the pandemic] is giving us an opportunity to add a new aspect to it.”

Staycation

Cooped up at home, people around the world turned to cooking, handcraft and other domestic projects as an outlet for entertainment and creativity. Klook responded to the demand by offering do-it-yourself kits for making bubble tea, macarons, candles and more — and delivering the material to people’s doorsteps. For people who were still eager to see the world, Klook partnered with landmark sites worldwide on online virtual tours, amassing close to 660,000 views in its first two livestreamed experiences.

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Food delivery startups in India have been struggling to make financial sense for years. They have each lost as much as $50 million a month to win and sustain customers by offering discounts. And unlike some other markets, food delivery startups have been severely hit by the coronavirus pandemic.

But Zomato, one of the two market leading startups operating in the space, today offered a rare sign of hope for the market after it said it had severely cut its cash-burn as it looks to become profitable.

The Gurgaon-headquartered firm said it estimates it would lose less than $1 million in July, the lowest in years for the 12-year-old firm that acquired Uber Eats’ India business earlier this year.

Zomato also shared its performance for the financial year that ended on March 31, 2020, and the quarter that ended on June 30.

In FY 20, the startup said its revenue surged 105% to $394 million compared to the year before while its losses at EBIDTA-level — a popular metric used by businesses that does not account for interest, taxes, depreciation, and amortization — ballooned to $293 million, up from $277 million the year before.

But the startup said the coronavirus pandemic, which has significantly reduced the number of orders customers place on the platform, has also helped it to improve its unit economics.

In the quarter that ended last month, Zomato clocked $41 million in revenue at an EBIDTA-level loss of $12 million. In the month of June alone, the startup’s revenue stood at $17 million at an EBIDTA-loss of $1.5 million.

As India eases its nationwide lockdown, which it enforced in late March, more workers are moving back to the larger cities. Zomato said this has helped the firm increase the number of orders on its platform. The startup said it expects its revenue generation this month to be at 60% of the levels before coronavirus wrought havoc to the industry.

In the quarter that ended in June this year, each order on Zomato earned it — made a contribution margin of — Rs 27 (36 cents), compared to loss of Rs 47 (62 cents) a order during the same period last year, claimed Deepinder Goyal, co-founder and chief executive of Zomato.

Goyal cautioned, however, that the current contribution margin is not sustainable and he expects it to go down to Rs 15 to 20 per order over time.

More to follow…

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The global COVID-19 health pandemic has raised the stakes for businesses when it comes to using digital channels to connect with customers, and today WhatsApp unveiled its latest tools to help businesses use its platform to do just that.

The Facebook-owned messaging behemoth is expanding the reach and use of QR codes to let customers easily connect with businesses on the platform, providing them also with a series of stickers (pictured below) to kick off “we’re open for business” campaigns; and it’s made it possible for businesses to start sharing WhatsApp-based catalogs — dynamic lists of items that can in turn be ordered by users — as links outside of the WhatsApp platform itself.

The new launches come at WhatsApp’s business efforts pass some significant milestones.

WhatsApps’ profile as a formal platform for doing business is growing, albeit slowly. The WhatsApp Business app — used by merchants to interface with customers over WhatsApp and use the platform to market themselves — now has 50 million monthly active users, with its two biggest markets for the service India at over 15 million MAUs and Brazil at over 5 million MAUs. Catalogs specifically has 40 million users.

On the other hand, WhatsApp has hit some stumbling blocks with features it’s tried to put into place to grow those numbers faster and boost usage among businesses.

Specifically, last month WhatsApp launched payments in Brazil, its first market, aimed not just at users sending each other money but merchants selling goods and services over the platform. But just nine days later, Brazilian regulators blocked the service over competition concerns, and it has yet to be restored pending further review. (India, which many had thought would be the first market for payments, is now part of a bigger global roadmap for rolling out payments.)

To put WhatsApp Business app’s usage numbers into some context, WhatsApp itself passed 2 billion users in February of this year. In that regard, hitting 50 million MAUs of the WhatsApp business app in the two years since it’s launched doesn’t sound like a whole lot (and in particular considering that it has competitors like Google offering payment services to merchants). Still, there has always been a lot of informal usage of the app, especially by smaller merchants, and that speaks to monetising potential if they can be lured into more of WhatsApps’ — and Facebook’s — products.

All the more reason that Facebook is expanding other features to make WhatsApp more useful for businesses, and especially smaller businesses — capitalising on a moment when many of them are turning to numerous digital channels (some for the first time ever) like social media, messaging services, websites and third-party delivery platforms to get their products and services out to the masses, in a period when visiting physical storefronts has been severely curtailed because of the health pandemic.

QR codes got a little boost last week from WhatsApp on the consumer side, with the company introducing a way for contacts to swap details for the first time by sharing codes rather than manually entering phone numbers — not unlike Snap Codes and shortcuts for adding contacts created on other social apps. That is now getting the business treatment.

Now, if you need to reach a business for customer support, to ask a question or order something, instead of manually entering a business phone number, you can scan a QR code from a receipt, a business display at the storefront, a product, or even posted on the web, in order to connect with the company. Businesses that are using these can also set up welcome messages to start conversations once they’ve been added by a user. (They will have to use the WhatsApp Business app or the WhatsApp Business API to do this, of course.)

The catalog sharing feature, meanwhile, is an expansion on a feature that the company first launched in November 2019, which will now allow businesses to create and share links to their catalogs to post elsewhere. To be frank, the lack of ability to share catalogs at launch felt like a feature omission, considering that businesses often use multiple channels to market themselves, although it might have been an intentional move: there has long been questions about how tight links are between Facebook and WhatsApp, so slowly introducing features that share and cross-market from the start might be the preferred route for the company.

The idea now will be the those links can now be shared on Facebook, Instagram and other places.

Although all of these services, and WhatsApp Business remain free to use, they continue to lay the groundwork for how Facebook might monetise the features in the future, not least through payments but also through stronger pushes to advertise on Facebook, now with more ways of linking a company’s WhatsApp profile to those ads.

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Flipkart on Thursday announced it has invested $35 million in Arvind Fashions for a significant minority stake in one the decades-old Indian firm’s subsidiaries as the Walmart-owned firm looks to widen its hold on fashion e-commerce in the world’s second largest internet market.

The e-commerce firm, which operates market-leading fashion e-commerce firm Myntra, said it was acquiring a stake in Arvind Fashions’ Arvind Youth Brands, which operates Flying Machine brand in India. The two companies said today the new investment strengthens their partnership as they look to serve demands and needs of the “fashion-conscious youth” in India.

91-year-old Arvind Fashions runs of the nation’s largest fashion brands, carrying apparels from Polo Assn, Arrow, GAP, Tommy Hilfiger, Calvin Klein, Aeropostale, the Children’s Place and Ed Hardy among other local and international firms.

“Flying Machine is a brand that is known in households across India, popular with the youth and synonymous with value and style. Through this investment, we look forward to partnering with the team at Arvind Youth Brands to continue to grow the market for its portfolio of products and enhance the strong brand equity that has been built over the last few decades,” said Kalyan Krishnamurthy, chief executive officer of Flipkart Group, in a statement.

The partnership with the Flipkart Group is aimed at helping Arvind Fashions accelerate its online growth strategy, said J. Suresh, managing director and chief executive of Arvind Fashions. “Given the strong existing relationship with the Flipkart Group, and their presence in online fashion, it was an obvious choice for us to enter into this engagement through which Flipkart and Myntra will be our preferred online partner for the Flying Machine brand, while we continue to grow our offline sales through channels like exclusive brand stores, department stores and multi-brand stores,” he said in a statement.

More to follow…

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For more than a decade, China has limited how foreign tech firms that operate inside its borders do business. The world’s largest internet market has used its Great Firewall to block Facebook, Twitter, Google and other services in the name of preserving its cyber sovereignty.

The walled-garden approach has helped homegrown giants like Tencent and Alibaba Group win the local market, while giving the Chinese government a better hold on what gets communicated on these platforms. China has even suggested that other nations deploy similar measures.

Be careful what you ask for: Last week, dozens of Chinese firms got a front-seat view to the challenges their global counterparts face in their territory. With a press release, India declared that the world’s second-largest internet market was shutting the door to dozens of Chinese firms for an indefinite period.

India said it would ban 59 apps and services, including ByteDance’s TikTok, Alibaba Group’s UC Browser and UC News, and Tencent’s WeChat over cybersecurity concerns.

New Delhi is open to meeting these firms and hear their defenses, but for now, local telecom operators and other internet service providers have been ordered to block access to these services. Google and Apple have already complied with India’s order and delisted the apps from their app stores.

India’s order is already shifting the market in favor of local firms, several of which have rushed to cash in on the app ban. A crop of recently launched short-form video sharing services have amassed tens of millions of users just this week.

But depending on how long the ban remains in place, the move could also derail a big funding source for thousands of Indian startups. The vast majority of India’s unicorns count Chinese VCs as some of their biggest and longest-term backers. New Delhi’s order could also change how American giants, many of which are already bullish on India, review the market moving forward.

Today, we will explore various ways India and China’s situation could play out and impact various stakeholders. But first, some background on how tension escalated between the two nuclear-armed nations.

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Scott Salandy-Defour used to make frequent stops at a battery manufacturer in southern China for his energy startup based in Hong Kong. The appeal of Hong Kong, he said, is its adjacency to the plentiful electronics suppliers in the Pearl River Delta, as well as the city’s amenities for foreign entrepreneurs, be it its well-established financial and legal system or a culture blending the East and West.

“It’s got the best of both worlds,” Salandy-Defour told TechCrunch. “But it’s not going to be the same.”

On July 1, Hong Kong’s sweeping new national security law came into effect, spelling the most profound change to the city’s way of life since the former British colony returned to Chinese rule in 1997.

The legislation will see Beijing set up an official security apparatus in the city to suppress what the authority defines as subversion, terrorism, separatism and collusion with foreign forces. Non-permanent residents can be expelled and companies can face fines if suspected of contravening the law.

Though the law doesn’t target the technology sector per se, speculation is rife about how it may affect entrepreneurs and larger companies as they go about their day-to-day operations and long-term plans. We talked to a handful of individuals in an attempt to parse out the ramifications of the law on internet freedom, data control, entrepreneurship, venture capital and other aspects pertaining to the tech industry. Several of our sources requested to have their names withheld in order to speak freely, an example of the law’s effect in action.

Part of the concern arises from the vagueness of the legislation. “We do not know anything concrete,” a China-based lawyer specializing in cross-border corporate cases told TechCrunch. “The national security law passed in Macau 11 years ago, but I heard there have been no enforcement cases. Hong Kong might be different. Police already prepared and carried banners warning against speech or gathering in violation of the new law.”

The bottom line is that the law impacts everyone in Hong Kong. “[It] will have a chilling effect as people try to understand its implementation,” reckoned Jeremy Daum, a senior research fellow at the Yale Law School Paul Tsai China Center.

Internet freedom

An outstanding concern is that the new rules could curtail internet freedom in the freewheeling city. Specifically, Article 9 stipulates that the Hong Kong government “shall employ necessary measures to strengthen publicity, guidance, oversight and management in schools, social organizations, media, networks and other matters related to national security,” with ‘networks’ here referring to the internet.

There are already signs of self-censorship. Some residents have started to delete their Twitter accounts and messages “out of fear of the national security law,” a Hong Kong-based media professor pointed out to TechCrunch.

While the law doesn’t give rise to “a Great Firewall situation overnight, it will be insidious nonetheless,” said a Hong Kong-based digital rights expert. “Platforms, publishers, and content hosts are likely to self-censor broadly given the vagueness of the law, and even then we’ll likely see more takedown requests and the like from the government.”

Shortly after the law took effect, an app called Eat With You, which labels local eateries supportive of the Hong Kong protesters, terminated its service. A source close to the app told us that the takedown was voluntary. Though the developer didn’t say whether it made the decision to preempt internet crackdown, it has “put other plans on hold.”

AppleCensorship.com told TechCrunch it’s monitoring potential removal of apps by Apple in Hong Kong, where the giant commands a 44% market share in the mobile handset market. The site is a project created by researchers at GreatFire.org, an organization that monitors internet censorship in China, to track what apps are unavailable in various App Stores.

“Apple has shown over and over again that they are willing to censor apps on their platform at the behest of government authorities,” said GreatFire.org’s Charlie Smith of Apple’s recent removal of TikTok in India.

A week after the law’s enactment, tech giants have come to reckon with the city’s new circumstances. Facebook and Twitter said they have suspended data requests from the Hong Kong authority. TikTok, on the other hand, announced it would exit Hong Kong. Reddit, which received an outsize investment from Tencent, provided a more evasive response: “All legal requests from Hong Kong are bound by careful review for validity and with a special attention to human rights implications.”

Residents in the city of seven million people have been bracing for censorship in recent weeks. Demand for virtual private networks (VPNs), which let users access otherwise banned apps, surged in Hong Kong after Beijing passed the national security law in late May.

“But a VPN is not a magic bullet,” the media professor argued. The tool has proven to be a short-lived solution. Back in 2017, Apple removed hundreds of VPNs from its Chinese App Store, stating it did so to comply with Chinese regulations.

Others who are more attuned to the Chinese internet are less wary. Hugo Cheuk, co-founder and chief operating officer of viAct.ai, a Hong Kong-based startup using computer vision to manage construction safety, said he already uses a wide range of apps, both Chinese and overseas ones, and can easily switch to alternatives.

“Let’s say if for whatever reasons WhatsApp cannot be used in Hong Kong one day, you still have other options like Messenger, Line, Dingtalk, WeChat,” he said. “Even apps like Slack or Snapchat weren’t popular just a few years ago, but we still communicate well back then.”

Data control

Some worry that the enforcement of the security law could lead to requests of user data by Beijing, making Hong Kong a less attractive place for tech companies resistant to China’s data review policies. As Daum noted, several provisions directly allow for the search of electronic devices and request service providers to delete information.

According to Article 43:

“When handling cases of crimes endangering national security, the Hong Kong Special Administrative Region government police department for the preservation of national security may employ the various measures that the extant laws of the Hong Kong Special Administrative Region allow the police and other law enforcement departments to take when investigating serious crimes, and may employ the following measures:

(1) search premises, vehicles, boats, aircraft and other relevant places and electronic devices that may contain evidence of an offence.

…

(4) Requiring persons who published information or the related service providers to remove information or provide assistance.”

“When setting up their APAC headquarters, foreign headquarters may no longer choose Hong Kong because the law overrides the original legal system,” partner of a Hong Kong venture capital firm told TechCrunch.

While Hong Kong is primarily known as a free trade and financial center, many international tech firms have set up offices there as a conduit into the APAC market.

Facebook and Twitter, whose main services are unavailable to mainland users, employ marketing staff in Hong Kong to court Chinese exporters with overseas advertising needs. Unicorns like delivery service Lalamove, logistics firm Gogovan and travel platform Klook, put their headquarters in Hong Kong for its strategic geographical location to attract customers across Asia.

“As a historic trading center, with ease of currency exchange, data and logistic flows, Hong Kong has played a key role in cross-border e-commerce. Many start-up tech companies service clients across Southeast Asia from a base in Hong Kong,” said Napoleon Biggs, a digital marketing consultant with over two decade’s experience in the region.

Though the new regulation may hit these sectors in terms of requests for government access to data, it will not affect their businesses otherwise, he reasoned.

Being in a key geographic location, as an internet hub for submarine cables and satellite dishes, Hong Kong also acts a top data center destination for multinationals, Biggs observed. The question now, he said, is how multinationals will perceive this new law and how it will affect their daily operations, if at all.

Startup hopes

Many entrepreneurs see Hong Kong as a springboard to its nearby resources rather than their main market. “Hong Kong investors are super risk-averse. The risk of being an entrepreneur doesn’t have the same level of respect here as in the U.S.,” reckoned Salandy-Defour, whose company Liquidstar deploys smart batteries primarily in Africa.

“But there are opportunities to network quickly,” he added. “We are also so close to Shenzhen and can speak to people [in tech] there who know what they are doing.”

Some Hong Kong entrepreneurs are hopeful that the law could accelerate the Greater Bay Area (GBA) initiative, which aims to stitch together Hong Kong, Macau and other cities around the Pearl River Delta, including economic powerhouses like Shenzhen and Guangzhou.

With its own set of laws and economic system in line with Western practices, Hong Kong has long been a top destination for multinational financial services. The special status was, however, not beneficial for technology companies targeting the Chinese market.

“If we want to do business in China, the first concern is the adaptation of different laws of China. Now, with the newly established national security law plus the GBA initiatives, more resources will be allocated to the 9+2 cities in the market and business perspectives, so we can more easily access the China market,” suggested Cheuk.

The integration can extend the potential reach of Hong Kong companies from seven million customers to 70 million in the GBA region, the entrepreneur said. “It’s good for startups trying to attract investment.”

His optimism is echoed by a Hong Kong-based investor for a Chinese venture capital firm. “After the law came into effect, there may be fewer technological exchanges between Hong Kong and the U.S. or Europe, but the GBA is more important to Hong Kong’s future development.”

For Hong Kong-based entrepreneurs who uphold freedom of information, the law may not bode well. Salandy-Defour, an American citizen, said he’s mulling a move to Singapore or Australia. In the long term, he plans to diversify his supply chain in other countries like Japan or Germany for sustainable batteries.

Relocation is less realistic for entrepreneurs who generate most of their revenues from the mainland. Several of them voiced concerns about the law’s adverse effect on freedom of speech, but have declined our interview requests due to concerns that their comment may violate the new law.

Decoupling spillover

The divide between Washington and Beijing is spilling into Hong Kong as the security law is seen as undermining the territory’s autonomy. In response, the U.S. declared Hong Kong is no longer autonomous from China and suspended the export of sensitive technologies to the city.

The impact of the split was evident. Shortly after China passed the national security for Hong Kong in late May, Hong Kong-based staff of China Mobile lost access to a piece of IBM data software, an employee at the Chinese telecom giant told TechCrunch. The staff has since switched to a Huawei substitute called TaiShan, which the source said comes with a user interface “very similar” to the IBM product.

China Mobile and IBM have not responded to our request for comment.

When it comes to picking promising local startups, the Hong Kong venture partner said he will avoid industries deemed ‘sensitive’ or susceptible to sanctions by the U.S. He’s also advised portfolio companies with an international plan to diversify their supply chain from China to nearby regions like Southeast Asia. Limited partners from the U.S. may start to shy away from Hong Kong VC funds, he speculated, as the city gets caught in the crossfire of trade tensions.

It’s notable that one of the most prominent VCs in Hong Kong, Horizons Ventures, which backs a lot of startups globally and is led by one of Asia’s richest men Li Ka-shing, has long kept a low profile. It continues to do now, perhaps very wisely. Some of the big names in its expansive portfolio include Spotify, Slack, Zoom, Impossible Foods and Skype. The firm did not respond to requests for comment for this article.

An unintended implication of Hong Kong’s loss of its special status is the potential inconvenience to mainland companies. It’s a common practice for Chinese companies to maintain a Hong Kong entity as a gateway to purchase U.S. technologies, tapping the region’s favorable trading terms, the venture partner said. Many Chinese exporters also take advantage of Hong Kong’s well-developed financial system and currency stability to handle international fund transfers.

“If that expediency is gone, Hong Kong is just another Chinese city,” said the investor.

#HTE

As scores of startups look to cash in on the content void that ban on TikTok and other Chinese apps has created in India, a big challenger is ready to try its own hand.

Instagram said on Wednesday it is rolling out Reels — a feature that allows users to create short-form videos (up to 15 seconds long) set to music or other audio — to a “broad” user base in India.

Video is already a popular way how many Indians engage on Instagram. “Videos make up over a third of all posts in India,” said Ajit Mohan, the head of Facebook India, in a call with reporters Wednesday. And in general, about 45% of all videos posted on Instagram are of 15 seconds or shorted, said Vishal Shah, VP of Product at Facebook.

So a broad test of Reels, which is also currently being tested in Brazil, France, and Germany, in India was only natural, he said, dismissing the characterization that the new feature’s ability had anything to do with a recent New Delhi order.

India banned 59 apps and services developed by Chinese firms citing privacy and security concerns last week. Among the apps that have been blocked in the country includes TikTok, ByteDance’s app that has offered a similar functionality as Reels for years.

TikTok identified India as its biggest market outside of China. Late last year, TikTok said it had amassed over 200 million users in the country, and the firm was looking to expand that figure to at least 300 million this year.

In the event of TikTok’s absence, a number of startups including Twitter-backed Sharechat, Chingari, and Mitro have ramped up their efforts and have claimed to court tens of millions of users. Sharechat said it had doubled its daily active users in a matter of days to more than 25 million.

Gaana, a music streaming service owned by Indian conglomerate Times Internet, rolled out HotShots to showcase user generated videos. Gaana had more than 150 million monthly active users as of earlier this year.

But Instagram, which has already attracted tens of thousands of influencers in India, is perhaps best positioned to take on TikTok in the world’s second largest internet market. Instagram had about 165 million monthly active users last month, up from 110 million in June last year, according to mobile insights firm App Annie, data of which an industry executive shared with TechCrunch. Mohan declined to comment on Instagram’s user base in India.

Mohan said he is hopeful that Instagram Reels would enable several content creators in India to gain followers globally. The platform has already courted several popular names including Ammy Virk, Gippy Grewal, Komal Pandey, Jahnavi Dasetty aka Mahathalli, Indrani Biswas aka Wondermunna, Radhika Bangia, RJ Abhinav and Ankush Bhaguna.

Reels videos will appear on Instagram’s Explore tab, enabling users to reach a broader audience than their own following base.

In recent years, platforms such as TikTok, YouTube, and Instagram have attracted more than a million content creators, several of whom have made it their livelihood. Just as equally impressive is who these creators are: Beauticians, dieticians, high school students from small towns in India, elderly who speak languages that very few people understand.

People who have been massively underrepresented in mainstream Bollywood movies and speeches of politicians have found a platform and gained a following that challenged the mainstream media’s reach. Many of these creators were making thousands of dollars through advertisers and deals with brands. Not everyone will, however, be able to find a replacement of TikTok.

Sajith Pai, Director at venture firm Blume, told TechCrunch that YouTube and Instagram would be able to court the top influencers from TikTok and other platforms. “But beyond a point, they won’t be bandying out much incentive to other creators.”

In the run up to the launch of Reels, Facebook has secured deals with several Indian music labels including Saregama in India.

More to follow…