China’s great cryptocurrency exodus

Hi all. Cryptocurrencies have fans and detractors, seemingly of equal intensity. China’s crackdown — and tightening regulations in other G20 countries — is revolutionising the crypto world, sending miners searching for safe havens (The Big Story). Are Chinese investors missing the boat in India’s tech boom (Smart data)? Don’t miss Ken’s perceptive take on why Google is making Japan’s big banks tremble (Our take). And last but not least, find out why Eric Schmidt is a worried man (Spotlight). Take care wherever you are. — James

The Big Story

Call it the great crypto exodus from China. A crackdown by Beijing on cryptocurrency mining is prompting miners to build hubs around the world, with Kazakhstan, the US, Ukraine and El Salvador getting attention.

China, which has accounted for at least 60 per cent of global bitcoin mining, issued tougher regulations in May targeting energy-intensive cryptocurrency mining and transactions. The country, which is testing a digital renminbi, does not want other virtual currencies to create confusion.

Key implications: Some miners are relocating to Kazakhstan, which borders China to the north-west. BIT Mining has been shipping thousands of mining machines from Sichuan province into Kazakhstan. Canada-based IBC Group, which mines bitcoin and ethereum in China, also said it would move staff to Kazakhstan and elsewhere.

Meanwhile, a Chinese logistics group is airlifting three-tonne bitcoin mining machines to Maryland in the US. Texas, with its promise of cheap energy, is also emerging as a destination of choice.

Singapore is attracting interest as a cryptocurrency trading centre, writes Mercedes. Among the executives to move to the Asian financial hub is Changpeng Zhao, founder of Binance, a crypto exchange that processes trillions of dollars in trades per year. Gemini, a US exchange founded by the Winklevoss twins, is also boosting its headcount in Singapore.

Upshot: When China cracks down, it means business. The great crypto mining exodus will have a profound effect on the industry worldwide. Permissive regulation and abundant electricity are big determinants of where mining hubs emerge.

Mercedes’ top 10

1. Flying cars? Yes, Japan Airlines will start a passenger flying car service with a two-seater drone that can reach up to 110km/h. (Nikkei Asia)

2. After a slow start to the year, SoftBank’s second Vision Fund is pumping money into global start-ups — more than $13bn in the second quarter alone. (FT)

3. Vietnam does not want its citizens gambling on digital money. But it still wants to create its own digital currency. Sound familiar to another Asian communist country? (Nikkei Asia)

4. Vietnam’s government is also set to impose regulations on livestreaming platforms including Facebook and TikTok. (Nikkei Asia)

5. Tencent seemed to have avoided Beijing’s clampdown on Big Tech. But its long-planned gaming merger has been vetoed. (Nikkei Asia)

6. Didi Chuxing complied with warnings to change to its mapping function over security concerns prior to its IPO. It was still removed from Chinese app stores. (FT)

7. Chinese companies including Tencent-backed fitness app Keep and Alibaba-backed LinkDoc have pulled US IPO plans after the Didi debacle. (FT, Nikkei Asia)

8. Too many stories on China’s Big Tech crackdown? The FT’s Beijing bureau chief spells out the crucial implications of the Didi saga here. (FT)

9. Meanwhile, other regions in Asia are filling the gap. Ecommerce group Bukalapak is set to be Indonesia’s biggest IPO since 2008. (FT)

10. Elsewhere, Zomato, one of India’s most high-profile unicorns, is set to lead a wave of tech IPOs in the country this year. (FT)

Our take

Google’s acquisition of a tiny mobile payment start-up, announced this week by its big shareholders, has sent shockwaves through banks and other incumbent payment service providers in Japan. The four-year-old Tokyo start-up Pring employs just 12 people and its mobile app has only several hundred thousand registered users. But banks are alarmed because the deal could be an indication of Google’s intent to develop direct-to-consumer financial services in Japan.

Sources close to Google told Nikkei that it was working on the development of a Japanese version of its Google Pay financial platform, targeting a commercial launch in 2022. The Pring acquisition will help enable a rapid start for Google Pay.

Pring has direct fund transfer agreements with more than 50 banks, including the country’s three so-called mega banks, allowing its users to transfer money from their existing bank accounts to their Pring mobile app balance. The start-up is also registered with the government as an authorised fund transfer service provider, which is a de facto licence for providing mobile payment services in the country.

This will enable Google to cut down on a lot of bureaucracy, which explains why the US tech group has agreed to pay about $180m for the acquisition, industry sources said. Google’s established position in Japan looks set to make it a tough competitor, but very few companies in the world have developed meaningful direct-to-consumer payment business models. This is one to watch.

— Ken

Smart data

Chinese investment in India’s booming tech industry has fallen off a cliff, opening the field for US investors.

Indian start-ups raised a record $7.2bn across 336 funding rounds in the quarter ending in June, according to data provider Tracxn. Of those, Chinese investors participated in only 10 rounds, worth a total of $745m. US investors, by contrast, participated in more than 100 rounds worth $5.7bn.

While tech giants such as Alibaba and Tencent were previously among the most influential investors in India’s fast-growing start-up scene, they have been largely sidelined by regulation introduced last year amid rising tensions between India and China.

Spotlight

Eric Schmidt is sounding like a worried man. The former Google chief executive, who is now chair of the US national security commission on artificial intelligence, says China is closing the gap on the US lead in aspects of AI and quantum computing.

Schmidt said the gap was less than “a couple of years”.

“That’s a really, really big deal.”

Schmidt stressed that the US would not be able to fend off China’s challenge without a “very strong partnership with our Asian friends”. To maintain leadership in the tech race with China, the US must maintain its lead in “strategic” areas such as AI, semiconductors, energy, quantum computing and synthetic biology, he added.

Schmidt called for closer relationships with Japanese, South Korean and European researchers, universities and governments.

Art of the deal

“That number is insane.” So remarked one regional venture capitalist to #techAsia when news broke of FlipKart’s mammoth $3.6bn fundraising this week.

The deal valued the Indian ecommerce company at $37.6bn and was led by existing shareholder Walmart, Japan’s SoftBank, Singapore sovereign wealth fund GIC, the Canada Pension Plan Investment Board, sovereign fund Qatar Investment Authority and China’s Tencent.

The first reason the deal is interesting is its size: it is the biggest fundraising in India in what is already a record year for private capital raisings, cementing FlipKart’s status as one of the world’s most valuable private tech companies. Second, if you read Smart Data above, you will know that Chinese investors have missed out on this boom year for Indian tech due to foreign investment rules introduced last year. So it is surprising to see Tencent’s involvement in this funding round. Could it have done another complex debt deal, as in April with ShareChat?

More crucially, as FT correspondent Stephanie Findlay points out, the fundraising comes just as New Delhi seeks to tighten ecommerce regulations. The new rules propose limiting “flash sales” and could force Flipkart — and rival Amazon — to change their business structure again. That is not ideal as Flipkart sets the stage to go public, potentially next year. For now at least, investors seem unconcerned.