China’s Dig­i­tal Econ­omy: A Lead­ing Global Force

China's Foreign Trade (English) - - Economy - By Nikki Liu

“China is al­ready stand­ing at the global cen­ter of the dig­i­tal econ­omy”, said Jonathan Woet­zel, the Direc­tor of the Mckin­sey Global In­sti­tute and a se­nior man­ag­ing part­ner world­wide. Ac­cord­ing to a re­port by MGI en­ti­tles “China’s dig­i­tal econ­omy: A lead­ing global force”, China has the most dig­i­tal tech­nol­ogy in­vestors, adopters and uni­corns in the world. The re­port also points out the three main rea­sons for the rapid de­vel­op­ment of China’s dig­i­tal econ­omy: a large po­ten­tial mar­ket, gi­ant com­pa­nies with af­flu­ent cap­i­tal and plenty of space for in­vestors to play.

China has one third of the world’s uni­corns

“The dig­i­tal trans­for­ma­tion in China has aex­erted pro­found ef­fect on its econ­omy and will fur­ther in­flu­ence the dig­i­ti­za­tion process of the world”, said Woet­zel. Dur­ing 2005, China’s e- com­merce re­tail sales vol­ume ac­counted for less than 1% of the global trans­ac­tion vol­ume; how­ever, that num­ber ex­ceeded 40% in 2016, and was two times that of the trans­ac­tion vol­ume in the United States and far more than that of France, Ger­many, Ja­pan and Bri­tain com­bined. Early in­vestors in e- com­merce have been re­warded with re­turns thou­sands of times higher than their in­vest­ment.

It was re­vealed in the re­port that the pen­e­tra­tion rate of mo­bile pay­ments among Chi­nese in­ter­net users has jumped from 25% in 2013 to 68% within three years. Per­sonal con­sump­tion through mo­bile pay­ments amounted to USD 790 bil­lion in 2016, which is 10 times more than the trans­ac­tion value of same in the United States. One in three of the world’s 262 uni­corns is Chi­nese, com­mand­ing 43 per­cent of the global value of all uni­corns, among which in­ter­net gi­ants like Baidu, Alibaba, and Ten­cent are ex­ert­ing sig­nif­i­cant in­flu­ence across the globe.

Be­sides this, China’s ven­ture cap­i­tal in­dus­try has been un­der­go­ing fast growth. In the pe­riod of 2011 to 2013, the ven­ture cap­i­tal vol­ume in China was only USD 12 bil­lion, but that in­creased by 5.42 times and reached USD 77 bil­lion dur­ing the pe­riod of 2014 to 2016, show­ing a rise from 6% of the to­tal ven­ture cap­i­tal in­vest­ment to 19%. The Chi­nese ven­ture cap­i­tal in­dus­try mainly con­cen­trates on dig­i­tal tech­nol­ogy like big data, ar­ti­fi­cial in­tel­li­gence, fin­tech, etc.

Over the past two years, China’s top 3 In­ter­net com­pa­nies (the BAT com­pa­nies) made 35 over­seas deals, among which Ten­cent, with USD 8.6 bil­lion, took over 84.3% shares of Su­per­cell, a well-known mo­bile game man­u­fac­turer, which com­mands more than 10% of the global game rev­enue. Alibaba in­vested USD 1 bil­lion and pur­chased a lead­ing e- com­merce plat­form Lazada in South­east Asia which, with 650 mil­lion clients, holds the first place in e-com­merce mar­kets among the six ma­jor South­east Asian na­tions. Bike shar­ing com­pa­nies like ofo and Mo­bike use GPS in their apps to lo­cate and un­lock sta­tion­ary bi­cy­cles and have al­ready ex­panded their busi­ness to Ja­pan, Sin­ga­pore, Bri­tain and the United States.

Jonathan Woet­zel ex­pressed that China had one of the most ac­tive dig­i­tal-in­vest­ment and start-up ecosys­tems in the world. China has al­ready be­come a global leader in the cus­tomer-driven dig­i­tal econ­omy af­ter stop­ping im­i­tat­ing the West and fo­cus­ing on in­no­va­tion by mak­ing the best use of their largest home­land mar­ket and abun­dant risk in­vest­ment funds.

A warn­ing for mo­nop­oly dis­putes

From 2015 to 2017, govern­ment work re­ports havein­cluded key con­cepts like “in­ter­net plus”, “shar­ing econ­omy” and “dig­i­tal econ­omy” in suc­ces­sion, whic h demonst rates the rapid de­vel­op­ment mo­men­tum of China’s dig­i­tal econ­omy. How­ever, mo­nop­oly dis­putes in this field still oc­curred at

home and abroad, for ex­am­ple, the con­flict over data be­tween SF Ex­press and Cainiao, as well as the com­pe­ti­tion be­tween JD. com and A l ibaba. Fur­ther­more, across the world, the Eu­ro­pean Union has im­posed an an­titrust penalty of USD 2.42 bil­lion on Google, the largest ever fine levied against a sin­gle com­pany.

Ac­cord­ing to a Se­nior Part­ner of Den­tons, Deng Zhisong, there are four main char­ac­ter­is­tics of the dig­i­tal econ­omy. Firstly, data is the core of com­pe­ti­tion and could usher in a new era. Sec­ondly, the plat­form is an es­sen­tial part of the me­dia for com­pe­ti­tion. The three in­ter­net gi­ants — ( Face­book, Ama­zon, and Google) in the United States are re­spec­tively used for so­cial con­tact, e-com­merce and search­ing, just like the BAT com­pa­nies in China.

“This is by no means a co­in­ci­dence. The pur­pose of es­tab­lish­ing plat­forms is to col­lect users’ data and al­low for di­rect mar­ket com­pe­ti­tion,” claimed Deng Zhisong.

Thirdly, cross-bor­der trans­mis­sion is the com­pe­ti­tion model. Trans­mis­sion was first brought up in the case of Coca- Cola’s pur­chase of Huiyuan. The Chi­nese Min­istry of Com­merce be­lieves that the dom­i­nat­ing cross­mar­ket trans­mis­sion is a form of an­ti­com­pet­i­tive con­duct.

“There is plenty of ev­i­dence,” said Deng Zhisong. A “war” was trig­gered be­tween Qi­hoo 360 and Ten­cent (known as the 3Q bat­tle) when Ten­cent launched its QQ con­sult­ing app, a con­flict be­tween Cainiao and SF Ex­press over data also arose when Alibaba in­ter­vened in the lo­gis­tics in­dus­try, and the Eu­ro­pean Union has been con­ducted an in­ves­ti­ga­tion since 2010 into Google, which abused its search ser­vice to pro­mote other ser­vices.

Lastly, oli­garchs pos­sess a larger share of the mar­ket, with win­ners of­ten tak­ing all the ben­e­fits. The In­ter­net is con­sid­ered to re­in­force this sit­u­a­tion.

Work­ing against mo­nop­o­lies is un­doubt­edly es­sen­tial in reg­u­lat­ing mar­ket com­pe­ti­tion, and would not be in­flu­enced by dy­namic com­pe­ti­tion, elu­sive­ness, ar­ti­fi­cial in­tel­li­gence and big data, but may in­stead in­ten­sify com­pet­i­tive dam­age in­stead. Deng Zhisong pointed out that there is leg­is­la­tion re­gard­ing the pro­tec­tion of big data which in­cludes the Con­sumer Pro­tec­tion Law amended in 2014, the Cy­ber-safety Act, The Crim­i­nal Code and ju­di­cial in­ter­pre­ta­tions given by su­pe­rior court and su­pe­rior procu­ra­torate. How­ever, these doc­u­ments are not al­ways ef­fi­cient, es­pe­cially when ap­plied to spe­cial cases. In the mar­ket, am­bi­gu­i­ties still ex­ist in the def­i­ni­tion of some key con­cepts,such as plat­form, bi­lat­eral, mul­ti­lat­eral and cross-bor­der com­pe­ti­tion, and cross­bor­der trans­mis­sion.

Deng agreed that iden­ti­fy­ing abuse re­gard­ing dom­i­nance in mar­ket can be quite tech­ni­cal, ex­clu­sive and highly dy­namic, thus re­quir­ing more ev­i­dence. This poses great chal­lenges to law en­force­ment agen­cies re­gard­ing their abil­i­ties to process data and ev­i­dence.

“The dig­i­tal econ­omy also makes things more dif­fi­cult in terms of dis­cern­ing anti- trust agree­ments,” said Deng Zhisong. He pointed out that in 2015, the De­part­ment of Jus­tice of the United States in­ves­ti­gated and pun­ished Ama­zon for its sales of posters, which was the first case of an anti-mo­nop­oly agree­ment based on an al­go­rithm. This hap­pened when Ama­zon used an al­go­rithm to main­tain a high price in its sales of posters without any con­sul­ta­tion and con­tact with la­bor forces, re­veal­ing a fu­ture trend.

Be­ing proac­tive when faced with the chal­lenges ahead

Ac­com­pa­nied by the growth and ap­pli­ca­tion of global In­ter­net tech­nol­ogy, a closer tie has been forged be­tween the In­ter­net and the eco­nomic in­dus­try. The in­dus­try has un­der­gone a trans­for­ma­tion and up­grad­ing, busi­ness mod­el­sare con­tin­u­ally be­ing re­formed and in­no­vated, and a new dig­i­tal econ­omy based on the In­ter­net has sprung up. How­ever, there is an in­creas­ing num­ber of eco­nomic conf licts and il­le­gal com­pe­ti­tion be­tween en­ter­prises.

“Ob­sta­cles in the way to de­vel­op­ing the dig­i­tal econ­omy re­main to be solved and re­quire ef­forts from dif­fer­ent par­ties.” Si Xiao, the Dean of the Ten­cent Re­search In­sti­tute, claims that the sit­u­a­tion re­gard­ing the dig­i­tal gap is quite aus­tere, and not only in­cludes the gap be­tween in­fra­struc­ture ac­ces­si­bil­ity, but also that in dig­i­tal lit­er­acy.

In terms of ac­ces­si­bil­ity, four bil­lion peo­ple in the world still don’t have ac­cess to the In­ter­net. The World Eco­nomic Fo­rum has pro­posed an ini­tia­tive to es­tab­lish a net­work for all, and ac­cord­ingly many coun­tries have made plans to re­al­ize this goal. How­ever, this could take a long time.

As far as dig­i­tal lit­er­acy is con­cerned, this is a prob­lem which par­a­lyzes all coun­tries. Sta­tis­tics from the Eu­ro­pean Union showed that more than 47% of peo­ple from EU coun­tries are not qual­i­fied in terms of dig­i­tal lit­er­acy, which im­pedes the dig­i­ti­za­tion process in Europe. This prob­lem is even graver in de­vel­op­ing coun­tries.

Si Xiao points out: “At the same time, along with the de­vel­op­ment of the dig­i­tal econ­omy, se­cu­rity threats arise, high risk vul­ner­a­bil­i­ties mul­ti­ply and net­work at­tacks in­ten­sify. In­fra­struc­ture is un­der threat and can be se­verely dam­aged, es­pe­cially in the ar­eas of fi­nance and en­ergy.” The In­ter­net is also con­fronted with un­prece­dented se­cu­rity chal­lenges along with the de­vel­op­ment of the In­ter­net of Things.

He also ex­pressed his con­cerns that “data on the one hand is an es­sen­tial pro­duc­tive fac­tor; but on the other hand, too much data leads to a del­uge to some de­gree”.

In ad­di­tion, le­gal con­struc­tion lags be­hind the healthy growth of the dig­i­tal econ­omy. Si Xiao said that a con­sen­sus hasn’t been achieved be­tween coun­tries on is­sues like pro­tect­ing users’ pri­vacy, as well as­their “right to be for­got­ten”. In this way, coun­tries dif­fer greatly in their reg­u­la­tory poli­cies re­gard­ing the dig­i­tal econ­omy and as such, con­flicts be­tween tra­di­tional in­dus­tries and the new ones emerge from time to time.

A se­nior en­gi­neer from the Na­tional Re­search Cen­ter for the De­vel­op­ment of In­dus­trial In­for­ma­tion Se­cu­rity, Wang Hualei ex­plained: “The govern­ment, en­ter­prises and all cir­cles of the so­ci­ety should take an ac­tive at­ti­tude to­wards the dig­i­ti­za­tion trans­for­ma­tion and pro­mot­ingthe healthy growth of our dig­i­tal econ­omy. They should not only cre­ate a fa­vor­able en­vi­ron­ment for its de­vel­op­ment, but should also be proac­tive when faced with all prob­lems that may oc­cur dur­ing the de­vel­op­ment of the dig­i­tal econ­omy.”

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