China’s digital economy is a global trailblazer

Integrated super-apps share cash, and valuable personal data, in an instant
Image of John Thornhill

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 super-apps. 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 Beijing-based 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.

Tencent, a gaming-to-messaging powerhouse, is using its popular WeChat 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 JD.com, 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 fast-growing tech companies, though, is the fuller exploitation of their massive 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 companies will thrive on the vast size of the local market and the almost complete absence of data regulations. Alibaba’s financial arm has already 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 already 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.

john.thornhill@ft.com

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