China’s military companies seek new backers and the metaverse gets bigger

Hello, this is Kenji from Hong Kong. The city is gradually shifting away from some of the strictest Covid control measures in the world, as local authorities scrapped the compulsory hotel quarantine for inbound travellers starting this week. It is certainly a positive step, but we are not quite back to normal. Other social distancing rules remain in place and several major events will be cancelled again, including the October 1 National Day fireworks, taking its suspension to four years since “social unrest” was cited as a reason in 2019.

Another type of restriction shows no sign of easing. China’s military tech companies are trying to recover from US sanctions inhibiting American investors from buying their stocks. Even though the rules were softened just before going into effect, a number of companies are scrambling to rebuild their shareholder bases.

And in lighter news, progress in food tech is bringing more insects to our dining tables in the form of alternative meat. The amount of carbon emissions involved in raising crickets is trivial compared to farming cows and pigs, meaning “burgers” could soon be as sustainable as they are delicious.

Looking for new investors

China’s military-industrial complex has been hit hard in multiple ways by US-China tensions. One example of how is Washington’s decision to virtually ban American individuals and institutions from investing in 68 Chinese entities.

Nikkei Asia’s Kenji Kawase looked into 40 of the listed companies placed off-limits to US investors. Many of them showed substantial changes in shareholder structures and drops in external investment through Hong Kong.

Beijing has been utilising various resources to mitigate the damage to these strategic companies, including raising money through state funds, allowing “homecoming listings” in Shanghai and encouraging mergers.

Chinese companies caught in the US-China crossfire rarely speak about their troubles publicly. But Tai Ming Cheung, professor at the University of California San Diego and an expert on Chinese and regional defence issues, believes the sanctions “really have had a major impact on Chinese firms,” given their reliance on American capital.

With US allies and partners taking similar steps, the sanction has “forced China to double-down” on its push for self-reliance, but bouncing back from this setback, he reckons, will take time. “They are hoping, in a few years, that these Chinese firms can resume their technological developments, despite these hits.”

Expanding the metaverse

Asia’s largest metaverse platform, Zepeto, is stepping up its global expansion as it looks to compete against the Big Tech groups that are betting billions on creating avatar-filled virtual worlds, writes the Financial Times’ Christian Davies.

Owned by South Korean tech group Naver, Zepeto has quickly become the largest metaverse platform in Asia. It has about 15mn to 20mn active monthly users, predominantly in East Asia. Of those, 70 per cent are female and mostly aged between 13 and 21.

Ricky Kang, head of business at Naver Z, the Naver subsidiary that operates Zepeto, now wants to grow its popularity globally.

“We have established a very strong presence in Asia-Pacific, so we want to grow further in the region, but we also place a very strong emphasis on growing in the US and western Europe,” Kang said.

He added that Zepeto was popular in Brazil, and that it was working on Turkish and Arab language versions of the platform as part of a push into the Middle East.

Zepeto offers users the chance to customise their avatars and to design and trade millions of items — mainly clothing, accessories and hairstyles — as well as to create their own virtual worlds. It operates a licensing model, forming partnerships with luxury fashion brands and leading K-pop agencies.

But it has a long way to go to catch up with US rival Roblox, the $50bn online gaming company that also has a devoted pre-teen following among its 200mn monthly active users.

Some analysts have also questioned the sustainability of Zepeto’s popularity, citing its limited user base. “It needs to expand its user base beyond teenagers, as Facebook and Instagram did,” said Choi Joon-chul, head of VIP Research and Management.

The Apple conundrum

South Korean camera module maker LG Innotek earned more than Won11tn ($7.9bn) from sales of iPhone parts last year. Its flagship factory in Southeastern city of Gumi is running at full throttle to fill orders for the latest iPhone14, and the company has earmarked Won1.4tn to expand production capacity to meet potentially increased demand from Apple.

Business is good, but Nikkei’s Seoul correspondent Kotaro Hosokawa points out that the LG unit now gets about 75 per cent of its sales from Apple. A veteran tech reporter, he draws parallels with Japan Display, a liquid crystal display maker that also relied heavily on Apple and spent big preparing for a potential increase in orders. Considering the downfall of the Japanese company, the comparison is not likely to be a comforting one for LG Innotek.

The right size for a good bite

Insect-based alternative meat is catching on as concerns about the climate, food security and animal welfare convince diners to overcome their squeamishness. Improvements in taste are also helping, reports Nikkei’s Uina Otake.

BugMo, a start-up from the ancient Japanese capital of Kyoto, is focusing on crickets, making them into soup and “hamburger” patties. One of the biggest challenges, says the start-up’s product development director, involves grinding the insects into a powder with just the right consistency. Too fine, and the resultant paste is runny and bland. Too coarse, and bits of exoskeleton can show up in the final product.

There is a lot riding on BugMo’s grinding technique. Farming crickets emits only a hundredth of the greenhouse gasses that cows and pigs do, according to the UN Food and Agriculture Organization. They also have less of an environmental impact than soyabeans, its founding CEO Yusuke Matsui says, pointing out crickets can be raised on rice bran and soyabean curd refuse.

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