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China Daily丨Internet will continue its disruptive course

Updated: 2016-01-01 08:16
By Edward Tse (China Daily Europe)

Online shopping remains biggest e-commerce story in China but other sectors are growing, too

E-business will remain the most exciting and disruptive part ofthe Chinese economy in 2016 – unpredictable in detail, but unstoppable in the bigger picture of things.

The big three “BAT” companies, Baidu, Alibaba and Tencent, will maintain their dominance over the digital high ground, but even they – despite their technological strengths and huge war chests – will find it impossible to squeeze out the companies battling immediately below them, let alone the countless startups being formed each month by entrepreneurs eager to become the next Robin Li, Jack Ma or Pony Ma.

Through 2016, online shopping will remain China’s biggest e-commerce story, with many of the records set in 2015 – such as the 91 billion yuan ($14 billion; 12.8 billion euros) worth of goods sold through Alibaba’s platforms on Singles Day in November – all but certain to tumble again.

But we will also see Internet businesses penetrate deeper into other industries: from healthcare to insurance, further large-scale mergers andacquisitions, and more foreign companies going to China in search of their slice of the digital pie.

E-commerce retail sales will continue their blistering pace of growth. After increasing 42 percent to $672 billion last year – far outpacing overall retail sales growth of 11 percent – they are predicted to grow 35 percent to $911 billion in 2016, according to New York-based research firm eMarketer.

By 2018, e-commerce is expected to account for nearly 30 percent of all retail sales, up from 11 percent last year – a rate of growth that would make it a key force in realizing the government’s goal of making consumption the economy’s main growth driver.

But even more exciting, with its consumers accounting for just over 40 percent of the year’s worldwide retail e-commerce sales, China is reinforcing its position as one of the key global sources of online business innovation everywhere, from sales and marketing to logistics and distribution.

Already, purchases made with mobile phones account for around half of all Chinese e-commerce retail sales – way more than the one-fifth level of the United States and most other developed economies.

This growth can only continue. Still only half of all Chinese have access to the Internet, but falling smartphone prices and negligible charges to get online via the mobile Internet mean that China’s poorest regions will be a major new source of online shoppers.

In 2016, for example, online retail sales in China’s rural markets are set to reach 460 billion yuan – nearly three times greater than in 2014, according to Ali Research, Alibaba’s research arm.

Elsewhere, China’s Internet giants will continue pressing for change in the financial services industry. Having established the country’s dominant online payment network with Alipay and given savers higher returns viaits online money-market fund, Yu’E Bao, Alibaba extended its financial reach in 2015 with MYbank, an online-only provider of loans and other financial services to farmers and small and medium-sized enterprises.

Another new force in 2015 was WeBank – China’s first online private bank – backed by Tencent, which already has 500,000 clients for its wealth management products. And in November, Baidu linked up with China CITIC Bank to launch its own- as yet unnamed – online-only bank.

Away from finance and e-commerce, Alibaba will continue to expand its media footprint following its $4.2 billion acquisition of video-hosting website Youku-Tudou in October and its purchase of Hong Kong’s South China Morning Post newspaper for $266 million two months later.

Other recent big Internet acquisitions and mergers include the tie-up between Tencent’s Didi and Alibaba’s Kuaidi to create Didi Chuxing, China’s leading player in mobile transport. It faces plenty of rivals, among them Yidao Yongche, in which Beijing-based technology firm LeTV invested $700 million, and US-based Uber.

China’s two biggest classified advertising websites, 58.com and Ganji.com, also joined hands. So did group-buying website Meituan and local review platform Dianping.com, creating a $15 billion provider of online-to-offline services. Ctrip and Qunar combined to establish the country’s biggest online travel service provider with a market share of 70-80 percent. Last year saw leading Chinese Internet companies take further steps to “goout” to the rest of the world. Alibaba hired former Goldman Sachs executive J. Michael Evans to help make it a major power in the US. At the end of the year it opened offices in Munich and Paris to expand its European operations.

Other companies are following in Alibaba’s footsteps. To take on Uber in markets outside China, Didi Chuxing has invested in Lyft, Uber’s mainrival in the US, as well as in Ola, India’s top car-hailing app, and Singapore-based GrabTaxi.

Guided by former Google executive Hugo Barra, smartphone companyXiaomi is expanding in India, Brazil and Indonesia. And LeTV is funding a $1billion investment near Las Vegas in Nevada to build an electric vehicle manufacturing plant, saying it wants to take on Tesla.

The energy of China’s Internet economy is once again attracting attention from companies around the world. Despite widespread Western media reports about government obstacles to overseas investment, foreign tech companies are more and more looking to China as an essential part of their global plans.

December saw Apple and Samsung each reach agreement with UnionPay to bring their respective payment systems – Apple Pay and Samsung Pay- to China. Google may follow with Android Pay.

That news followed Uber announcing a $1 billion China push, LinkedIn taking its total number of China users past the 10 million mark and Airbnb securing $1.5 billion for its China expansion plans from China Broadband Capital, Sequoia Capital and other investment firms with deep experience in the country.

Given the combination of official support, market growth and the intense hunger for success that drives so many business people, it is hard to see anything derailing China’s digital future. As the country’s leading vehicle for innovation and entrepreneurship, the Internet will continue to disrupt industry after industry through 2016.

For those able to harness its extraordinary forces, however, it will also remain by far China’s most exciting source of business opportunities.

The author is founder and CEO of Gao Feng Advisory Co., a global strategy and management consulting firm with roots in China. The views do not necessarily reflect those of China Daily.

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SCMP | Well connected: The growing reach of China’s internet sector

Author: Edward Tse and Matthias Hendrichs
South China Morning Post
update 2016-01-03
Wuzhen, a small town in Zhejiang (浙江) province, became the centre of global attention when it hosted the second World Internet Conference last month. The theme was “An interconnected world shared and governed by all: building a cyberspace community of shared destiny”. More than 2,000 participants joined the event. Among them were President Xi Jinping (习近平) and other heads of state, prominent local internet business leaders and leaders of major foreign internet companies such as Brian Chesky (Airbnb), Jimmy Wales (Wikipedia) and Reed Hastings (Netflix). The conference included discussions on a range of topics, from global internet governance, cyber security and the internet industry as the engine of economic growth, to social development, technological innovation and philosophy of the internet.

President Xi Jinping delivers a keynote speech at the opening ceremony of the second World Internet Conference in Wuzhen. He called for governments to cooperate in regulating internet use. Photo: Xinhua

Xi gave the keynote speech, underlining the growing importance of the internet industry for China. He set out his vision of “cyber sovereignty”, urging the international community to support a “multilateral” approach to the governance of a shared future cyberspace, while also emphasising the need for all nations to join hands in fighting internet surveillance and cyberattacks.

Alibaba’s Jack Ma pointed out that the internet has drastically changed almost every aspect of people’s lives in China and that the potential for internet entrepreneurs to incubate more innovative business models and breakthrough technologies is limitless.

Other Chinese internet leaders expressed their optimism about artificial intelligence, virtual reality and the Internet of Things. Baidu exhibited its prototype of a self-driving car. Its CEO, Robin Li, believes such cars will be commonplace in three to five years. Tencent aspires to build platforms that connect people with other people, products and services. CEO Pony Ma believes the internet can “help unlock the full potential of public services” such as health care and education by eliminating inefficiencies and lowering costs. Jia Yueting, CEO of LeTV, a fast-growing company which started as a content provider over the internet, talked about his vision of creating “lifestyle ecosystems” for consumers.

China’s internet industry saw strong growth in 2015. The number of users reached 670 million, with mobile users accounting for close to 90 per cent. Purchases from mobile phones account for around half of all Chinese e-commerce retail sales. Last year also marked a series of market consolidations, including mergers between mobility service providers Tencent’s Didi and Alibaba’s Kuaidi; classified advertising websites 58.com and Ganji.com; group-buying website Meituan and local review platform Dianping.com; as well as online travel agency platforms Ctrip and Qunar.

Leading Chinese internet companies took further steps to “go out” to the rest of the world. Alibaba hired former Goldman Sachs executive J. Michael Evans to help make it a major player in the US. Recently, it opened offices in Munich and Paris to expand its European operations.

The World Internet Conference showed that Beijing sees the internet as a national priority; China can play a leading global role. Photo: Xinhua

To take on Uber in markets outside China, Didi Chuxing has invested in Lyft, Uber’s main rival in the US, India’s top car-hailing app Ola, and Singapore-based GrabTaxi. Guided by former Google executive Hugo Barra, smartphone company Xiaomi is expanding in India, Brazil and Indonesia. And LeTV is funding a US$1 billion investment in Nevada to build an electric vehicle manufacturing plant, saying it wants to take on Tesla.

On the other hand, more foreign tech companies are looking to China as an essential part of their global plans. December saw Apple and Samsung each reaching agreements with UnionPay to bring their payment systems to China. Google may follow with AndroidPay. That news came after Uber announced a US$1 billion China push, LinkedIn took its total number of China users past the 10 million mark and Airbnb secured US$1.5 billion for its China expansion plans.

This year should see the growth of China’s internet industry accelerate further. Lower-tier cities and rural markets will become the next frontier. Online retail sales in China’s rural markets are expected to reach 460 billion yuan (HK$ 549 billion) this year, nearly three times higher than in 2014, according to Ali Research. Beijing is also investing heavily in internet infrastructure, spending US$182 billion over three years to extend the country’s broadband and 4G network reach to almost every part of the country.

Issues such as the “Great Firewall”, media censorship, inadequate intellectual property and data privacy protection continue to present challenges for both foreign and domestic firms to grow their internet businesses in China. These issues will continue to be tension points between China and other countries, especially the US. Successful Chinese entrepreneurs will continue to take advantage of imperfections in Chinese society to identify new opportunities and build innovative solutions that address rapidly evolving consumer preferences and needs.

Baidu chief executive Robin Li speaks during a session of the World Internet Conference, where his company exhibited its prototype of a self-driving car. Li believes such cars will be commonplace in three to five years. Photo: Reuters

The World Internet Conference showed that Beijing sees the internet as a national priority; China can play a leading global role. Some observers have ridiculed, rightly or wrongly, China’s proclamation of a “world conference” given its censorship practises. Regardless, the government seems determined to move forward and it is trying to align with the private sector to continue building a thriving internet sector and use it to drive innovation and entrepreneurship in China.

In this context, Chinese entrepreneurs are developing a wide range of innovative ideas, and seem in general much more confident and outward-looking. In their attempts to build ecosystems, some Chinese tech companies will end up collaborating with others, while others may compete head-on. More foreign tech companies would like to enter – or re-enter – the Chinese market, given its huge size. Some will seek to collaborate with Chinese firms. At the same time, more Chinese tech companies and investors will seek partnerships or investment opportunities outside China, especially in Silicon Valley or Israel, creating a web of relationships unseen before. There will probably be more consolidation, through mergers and acquisitions, as well as the emergence of new entrepreneurial companies. This year, expect more excitement from China’s internet sector, which will increase its relevance on the world stage.

Edward Tse is founder and CEO, and Matthias Hendrichs is managing director, of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Dr Tse is author of China’s Disruptors (www.chinasdisruptors.com)