Why China’s Trucking Trade Is Skidding Toward a Scandal

2017-10-24 04:32:36

This article is the second in a series on Truck Alliance, one of China’s most innovative shipping companies. You can find parts one and three here.

Truck Alliance, a wildly successful Chinese overland logistics app that connects freight drivers with cargo, recently came under fire over suspicions that it had hacked into the systems of some of its main competitors. In total, 19 Truck Alliance employees got under police investigation, including CEO Tang Tianguang. Seven of these — including the company’s chief technology officer, Feng Liang — were released on bail after being detained for more than a month.

It’s often difficult to get a clear picture of competition within the tech industry, but this does not seem like a minor infraction: The plaintiff, Ymm56, is Truck Alliance’s main competitor and has claimed tens of millions of dollars in damages. Ymm56’s home-turf court in the eastern coastal province of Jiangsu, which has jurisdiction over the dispute, has reportedly given high priority to the case.

The tech industry is known to be a hotbed of fierce competition. Past cases have involved hackers illicitly siphoning off traders’ funds, physical confrontations between employees of different companies, and secret battles waged by technical personnel over sensitive data. According to media reports, authorities in Jiangsu’s provincial capital, Nanjing, have already finished their investigation into Truck Alliance and handed over their findings to the court. While it will take time for all the details to come to light, the earlier we start to reflect on and reconsider these malignant industry practices, the better.

A spokesperson for Truck Alliance has declared the case to be nothing more than an instance of competition run amok. On Aug. 10, the industry site 360che.com reported that high-ranking personnel at Truck Alliance had been detained for the theft of information from competitor Ymm56. But the following day, the same website issued a retraction “due to factual discrepancies in the report.” Also on Aug. 11, Truck Alliance President Luo Peng posted on social media, saying that he was not personally under investigation.

360che.com quoted a screenshot of a report by Ymm56 saying that in July 2016, Truck Alliance founded an initiative known as “Project Group K.” The goal of this project was to develop software capable of hacking into the systems of Truck Alliance’s competitors. According to Ymm56, Project Group K constituted a criminal organization, one that involved research, front-end development, and, in its later stages, production and marketing operations. Its aim was to steal millions of lines of information related to competitors’ pickup points from Ymm56’s and more than 10 other companies’ data distribution centers.

The law is a powerful tool for cleaning up an industry, but individual companies must still actively maintain their own data security.

After a month of silence, on Sept. 15, Luo spoke to media at the company’s headquarters in Guiyang, southwestern China’s Guizhou province, saying that over the past year — working in a market where competitors will “employ the meanest of tricks” — his company had used certain technology that led to a probe by Nanjing police. He added that the issue involves a subsidiary of Truck Alliance, not its head office.

“Of course, we have some thinking to do about this incident,” Luo said. “As the industry’s No. 1 player and for our common good, we need to steer the sector away from cheap and crude forms of competition and trust our fair interests to the rule of law.”

While different sources give divergent data on the size of Truck Alliance’s and Ymm56’s operations, it is clear that they are vying with each other to become the industry’s top dog. According to statistics published by market research group QuestMobile, as of June 2017, Ymm56 and Truck Alliance had 2.57 million and 1.75 million users, respectively. Meanwhile, their next largest competitor, Chewang, had just 50,000 users. QuestMobile’s data also reveals that since June of last year, Truck Alliance’s user base underwent a period of rapid growth. This time frame broadly coincides with Ymm56’s allegations regarding how long Truck Alliance has been attacking its information servers.

Formed in 2011, Truck Alliance is a unicorn startup that, to date, has received 2.59 billion yuan ($390 million) in total funding. Meanwhile, Ymm56 has raised 1.57 billion yuan since its founding in 2013. Both companies’ apps are domestic freight-dispatch platforms reliant on cloud computing, big data, mobile internet, and artificial intelligence.

Intense competition in the Chinese logistics industry has already driven several startups to bankruptcy. Those that remain are fighting tooth and nail to get ahead of the pack. In such a cutthroat environment, one of the most capital-intensive tasks for a company is increasing its number of subscriptions among cargo owners. In the past, many freight platforms used web crawlers — a type of software that systematically searches the internet for web page updates — as a low-cost means of gleaning information on other companies’ client list.

In recent years, internet-based technology has continued to expand into traditionally analog sectors. The web is now an important tool for firms to upgrade their services, and data security has become a vital line of defense in industries that revolve around cloud computing and big data. In light of this transition, China’s judiciary has started a campaign to clean up data leaks, and the crime of breaking into a computer in search of data was added to the penal code.

If Ymm56’s allegations prove to be true, Truck Alliance will likely pay a high price for its illegal behavior. Those involved in such illicit activities could face up to three years in prison, while any whiff of a scandal would surely send investors elsewhere. In China, the law is a powerful tool for cleaning up an industry, but individual companies must still take an active approach to maintaining their own data security.

In Peter Thiel’s book “Zero to One,” the PayPal co-founder describes how the company’s fierce competition with Elon Musk’s X.com caused employees to lose sight of everything but total victory. At one point, Thiel writes, PayPal engineers even designed a bomb that they planned to place in their rivals’ offices. Fortunately, cooler heads prevailed and put a stop to the idea before it went any further. Yet the anecdote sheds light on the visceral desire to eliminate competitors that remains the most brutal facet of the tech industry. And now, China’s own tech wunderkinds are falling prey to the same culture of excess.

Editor: Matthew Walsh.

(Header image: A line of trucks stand in a traffic jam on a road in Xiangyang, Hubei province, Oct. 20, 2017. VCG)