A truce between Chinese tech superpowers

Hi, this is Jane in Hong Kong. As grand old Lord Palmerston of Britain once said, there are no everlasting friends or rivals, only interests [View in browser]( [Bloomberg]( Hi, this is Jane in Hong Kong. As grand old Lord Palmerston of Britain once said, there are no everlasting friends or rivals, only interests. But first... Three things you need to know today: • Samsung said the memory market [bottomed out in May]( • Apple has new, faster [Mac computers to sell]( • Russian hackers accessed over [632,000 US government emails]( Imagine Google and Meta buddying up For the better part of a decade, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. were the kingmakers of the Chinese tech world. They backed hundreds of startups between them, often deciding which lived or died, and demanded their investees feed their rival ecosystems almost exclusively. Then came the tech crackdown starting from late 2020, when Beijing made it clear fealty was owed only to the Party. The old rivalrous system began to unravel. In baby steps since, Alibaba and Tencent have been exploring the unthinkable — working together. Imagine if Meta Platforms Inc. and Google started funneling traffic and payments through each other. In some ways, that’s how stark the reversal has been. Recently, the two long-standing rivals joined hands in pouring millions into a pair of China’s up-and-coming artificial intelligence startups, Zhipu and Baichuan. Founders no longer need to pick sides, as Alibaba and Tencent appear comfortable betting on the same companies in the pursuit of accelerating and capitalizing on the huge potential of ChatGPT-like AI services. This followed an [announcement]( in September that the two giants would team up in the upcoming Singles’ Day shopping festival, Alibaba’s signature annual event that dwarfs Black Friday in size and growth. Forming an advertising alliance, Tencent’s WeChat users can now be steered to Alibaba’s Taobao shops directly — a win-win game with more ad money for Tencent and more sales volume for Alibaba. It’s an overdue collapse of artificial barriers that cost both companies money. Alibaba and Tencent used to be walled gardens — not dissimilar to Apple Inc.’s jealously guarded App Store — that tried to encroach on each other’s turf. Consumers felt it all too directly. I used to get a “warning” page on WeChat every time I clicked a Taobao link, while Alibaba for a long time excluded WeChat Pay — one of the two ubiquitous online payment methods in China — from its bevy of marketplaces and apps at the preference of Alibaba’s affiliated platform Alipay. Sellers had to deal with the same forced exclusivity, with Alibaba’s “pick one of two” terms dictating they couldn’t list on other e-commerce platforms if they used Taobao or Tmall. That triggered an antitrust probe into the company and ended with a [record fine]( of $2.8 billion in April 2021. The dismantling of this moat-building mindset has been led by the Chinese government, as it pushes for “interconnectivity” in the tech sector. Changes have trickled in over time. In 2021, WeChat first allowed users to share external links in one-on-one conversations, and later WeChat groups were allowed to [display]( links to shopping sites such as Alibaba’s Tmall and Taobao. The process is accelerating now, in part because Alibaba and Tencent appear to no longer be each other’s biggest headache. ByteDance Ltd., a true unicorn of China’s startup scene that was beholden to neither Alibaba nor Tencent, has emerged as the big growing threat to incumbents in the sector. Its Douyin short-video service, the local version of TikTok, has attracted a vast audience and, with it, huge advertising revenue. ByteDance is expanding into direct e-commerce and thus stepping on both behemoths’ toes. Alibaba’s historic six-way corporate split is helping. Each so-called Baby Baba is responsible for its own profit and loss and is less concerned with ecosystem-wide competitive plays. If it makes economic sense to work with some supplier outside the Alibaba sphere, that’s the path they’ll pursue, and it’s already happening. The clashes of yesteryear are neither favored by the government nor economically viable anymore. In difficult times, the two titans are huddling to navigate a weak economic recovery and increasingly fierce competition. Tencent would rather focus on fighting off ByteDance in arenas like video games, while Alibaba focuses on a low-price strategy in an attempt to reclaim the ground lost to PDD Holdings Ltd. and platforms like Douyin. For China’s biggest internet companies, embracing a new era of slower growth has meant also embracing one another. —[Jane Zhang](mailto:hzhang901@bloomberg.net) The big story Regulating AI raises legal, national security and civil rights concerns. So, [what would regulation look like in the US](? Get fully charged The iPhone 15 models had a [6% sales decline in China](, a sign that Apple is losing customers to Huawei. Google’s CEO was grilled in the company’s antitrust trial over a [company policy to copy lawyers]( in on unnecessary emails and have sensitive conversations with the chat history function turned off. Broadcom is confident the VMware deal will move forward despite [not having an update from Chinese regulators](. 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