China’s dig­i­tal econ­omy is a global trail­blazer

Financial Times Middle East - - Comment - John Thorn­hill john.thorn­

Any­one who reck­ons that China is only ever go­ing to play tech­nol­ogy catch-up with the west should look around a Shang­hai metro car­riage and think again. Al­most ev­ery pas­sen­ger, young or old, sharp or scruffy, is likely to have their eyes fixed on a smart­phone screen. And it is not just the wide­spread use of smart­phones that is strik­ing; it is their mul­ti­ple uses too.

As they hur­tle along un­der­ground, pas­sen­gers can or­der gro­ceries, mes­sage friends, trans­fer money, book hol­i­days and take out in­sur­ance — with­out leav­ing one of China’s in­te­grated su­per­apps. Even some beg­gars on the streets above ground ac­cept dig­i­tal hand­outs via Ali­pay.

As in so many other ar­eas of its econ­omy, the scale and speed of change of China’s dig­i­tal sec­tor is head-spin­ning. Ac­cord­ing to of­fi­cial sta­tis­tics, about 731m Chi­nese had moved on­line by 2016 with 95 per cent of them ac­cess­ing the in­ter­net via their phones. This has spurred the devel­op­ment of ar­guably the most dy­namic mo­bile ecosys­tem in the world.

China’s dig­i­tal pay­ments mar­ket has ex­ploded to about 50 times the size of that in the US. Al­most as an af­ter­thought, an off­shoot of Alibaba has har­nessed some of these on­line flows to build Yu’e Bao into one of the world’s biggest money mar­ket funds.

“The fu­ture of money is be­ing made in China,” says Dun­can Clark, a Bei­jing­based tech con­sul­tant. “You get the sense when you leave China these days that you are go­ing back­wards.”

China’s lead­er­ship has iden­ti­fied the devel­op­ment of its tech in­dus­try as a strate­gic pri­or­ity. At the re­cent Na­tional People’s Congress, fur­ther plans were an­nounced to in­vest heav­ily in cut­ting-edge tech­nolo­gies, such as ar­ti­fi­cial in­tel­li­gence.

But China’s con­sumer tech com­pa­nies do not need much en­cour­age­ment from Bei­jing. Led by Ten­cent and Alibaba, with a com­bined mar­ket value of more than $500bn, the coun­try’s tech com­pa­nies are forg­ing ahead with in­no­va­tion and in­vest­ment on their own.

Ten cent, a gam­ing-to-mes­sag­ing power house, is us­ing its pop­u­lar We Chat app as a plat­form for an ar­ray of other ser­vices, in­clud­ing dig­i­tal pay­ments. Sim­i­larly, Alibaba, whose core e-com­merce plat­form serves mil­lions of busi­nesses across the world, has di­ver­si­fied into other on­line mar­kets and fi­nan­cial ser­vices. With 120m Chi­nese tourists trav­el­ling abroad ev­ery year, Ali­pay is fast be­com­ing one of the most global dig­i­tal pay­ments ser­vices.

Part of the rea­son for the fran­tic growth of China’s dig­i­tal com­pa­nies has been the lack of legacy in­fras­truc­ture, par­tic­u­larly in re­tail and fi­nance. That has made it all the more tempt­ing for con­sumers to em­brace the app econ­omy.

Richard Liu, the founder of on­line re­tailer, says China’s tra­di­tional chains are weak com­pared with the likes of Car­refour or Wal­mart. “We can gen­er­ate mar­ket share even faster than Ama­zon in the US be­cause the of­fline play­ers are so small .”

Money has also been pour­ing into new tech com­pa­nies in China as lo­cal in­vestors and for­eign ven­ture cap­i­tal­ists try to grab a slice of the mar­ket. One Shang­hai en­tre­pre­neur boasts any­one can raise money these days from “friends, fam­ily, or fools”. Although much of this money will be wasted, some of it will stick, ac­cel­er­at­ing the rise of a new gen­er­a­tion of mo­bile-en­abled busi­nesses.

The ul­ti­mate prize for China’s fast­grow­ing tech com­pa­nies, though, is the fuller ex­ploita­tion of their huge data flows, en­abling them to con­jure up fresh busi­ness op­por­tu­ni­ties. “Data is not just some­thing that will help you op­ti­mise your busi­ness. It will be your busi­ness,” says one in­dus­try ex­ec­u­tive.

In this re­spect, China’s tech compa- nies will thrive on the vast size of the lo­cal mar­ket and the al­most com­plete ab­sence of data reg­u­la­tions. Alibaba’s fi­nan­cial arm has launched Zhima, an on­line credit scor­ing ser­vice based on its users’ dig­i­tal ac­tiv­i­ties, trans­ac­tion records, and so­cial me­dia net­works. This has en­abled the com­pany to ex­pand re­lated ser­vices, such as on­line lend­ing. Far more is to come.

Yet such in­ti­mate in­for­ma­tion counts as power in mod­ern China and power re­mains the pre­serve of the Com­mu­nist party. Commercial dig­i­tal data have been fed into a na­tion­wide “so­cial credit” sys­tem, used to pe­nalise debt delin­quents. Hu­man rights groups fear the au­thor­i­ties can use those scores as a means of so­cial con­trol.

It will be fas­ci­nat­ing to watch how the del­i­cate dance de­vel­ops be­tween China’s Com­mu­nist ap­pa­ratchiks and its newly em­pow­ered class of dig­i­tal app-aratchiks.

There is a del­i­cate dance be­tween the dig­i­tal app-aratchiks and the Com­mu­nist party

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