Xiaohongshu: Social Media App Defying China’s Tech Slump
It’s been a rocky few years for China’s tech sector. The fallout from a government crackdown kneecapped a generation of industry giants and startups alike, and broader macroeconomic headwinds have dampened consumer spending.
But against this gloomy backdrop, Xiaohongshu has defied the odds. The fastest-growing social media platform in China saw quarterly sales top $1 billion earlier this year, according to private figures reported by the Financial Times, and net profits surge by 400%.
This is an especially notable feat in the saturated domestic market, where companies from Temu-parent PDD Holdings Inc. and the more-recent AI startups have been looking overseas to unlock revenue growth. But the vast majority — 89% — of Xiaohongshu’s monthly active users are based in China, according to market intelligence firm Sensor Tower. And while many outside of China have never heard of the app, they have likely seen its impact firsthand: It has become the driving force in Chinese tourists’ destinations abroad.
With upwards of 300 million active users, and roughly half of those born after 1995, Xiaohongshu has its finger on the pulse of young Chinese. The app’s influence on cultural trends for Gen Z has become so cemented that it has given rise to the expression: “Whenever you can’t make a decision, turn to Xiaohongshu.”
Perhaps Chinese policymakers, who are pulling out all the stops to buoy the economy with stimulus measures, would be wise to follow this colloquial saying. They would find that the next generation isn’t so interested in spending money, which explains why efforts to boost consumption so far are falling flat. Some of the app’s most popular beauty-related searches don’t revolve around lavish spending, but rather finding affordable alternatives and at-home treatments. The hottest workout activities? Taking a walk or unrolling a yoga mat at home.
The app has also become central to the rise of so-called “living alone vlogs,” where single women share videos of themselves enjoying fulfilling domestic lives solo — turning the nefarious “leftover women” stereotype on its head. (Men use the platform, too: The company disclosed earlier this year that nearly a million male users were searching for ways to reconcile with partners after a breakup.)
Often described as the equivalent of Instagram behind the Great Firewall, Xiaohongshu’s interface also resembles the grid layout of Pinterest and is flush with short-form videos like TikTok. But it has a powerful internal search engine that the company said 70% of users actively engage with, making its usefulness for finding information closer to a platform like Google. Its name translates to “Little Red Book,” widely thought to be a cheeky reference to the book of Mao Zedong’s quotes, though its founders have previously denied this link.
In addition to its powerful search engine, part of what has driven Xiaohongshu’s recent growth is its fierce approach toward maintaining a sense of authenticity. Some 90% of content on the platform is user-generated, market research estimates. The company has cracked down on fake reviews and content from marketers pretending to be users and pledged to limit people from posting misleading and overly filtered content. The management team has also taken steps to build up the quality and reliability of the user community. From there, the powerful algorithm closely tracks what type of posts users spend time on and then feeds them similar content.
Its recent surge in user growth since taking these actions suggests they have been paying off. If there is a lesson for other platforms, it’s that investing in authenticity pays dividends in an increasingly artificial digital world.
While China remains its key market, there has been promising growth in the number of monthly active users coming from abroad. In the third quarter, those based in Vietnam grew by 27%, the US by 23%, and Hong Kong by 21%, according to Sensor Tower. In another sign of its influence, TikTok-parent ByteDance quietly launched its Lemon8 app to the US market last year, which many saw as an international copycat version of Xiaohongshu.
Perhaps the biggest question mark now is whether Xiaohongshu can finesse an initial public offering in Hong Kong, a move company leaders have been hinting at for years after hopes for a US listing were dashed by the government crackdown. The Shanghai-based startup behind the app is backed by heavyweights Alibaba Group Holding Ltd., Tencent Holdings Ltd., and Singapore’s Temasek Holdings Pte. Potential regulatory scrutiny over its data-hungry algorithm has sowed further uncertainty on its path to an IPO.
Chinese authorities have been trying to signal to global investors that the crackdown on its private sector is over, though a rebound has yet to materialize. The government perhaps has its the best chance yet at restoring confidence by greenlighting a Xiaohongshu IPO. (The company did not respond to my emailed request for comment.)
Ultimately, Xiaohongshu was able to defy a tech sector downturn in China by turning bargain-hunting into a trend and giving the “lie-flat” generation a more authentic sense of community. Its recent success can tell policymakers a lot about the current state of the world’s second-largest economy — perhaps even more so than the recent stimulus-induced stock rally. For global investors, whether regulators permit Xiaohongshu to go public will signal a lot about its future.
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