Internet and Digital Technological Advancement in China: what you really need to know to catch up.

Development and implementation of internet and digital technology has been growing rapidly in China. Within a relatively short period of 20 years, the number of Chinese internet users has grown tremendously from less than 1 million in 1997 to 710 million in 2016, and from the simple use of the web browser, Chinese users now lead the world in e-commerce activities. Such is the pace of development that it may not be so absurd to postulate that China has outpaced and leapfrogged the West in terms of technological advancement. Sure, Silicon Valley would likely remain the cradle of technological innovations of concepts and prototypes. It is however the bold implementation and eventual assimilation of technology in everyday life in China that offers a true measure of advancement, a meaningful insight into technology at work and a glimpse into the future for those left behind. Backed by a big population, China has developed her own sustainable ecosystem.

Many in the West may not be aware of such development in China, perhaps for lack of media coverage as most of these platforms are geared towards the Chinese market, oftentimes for mandarin speakers only. People outside China may only be familiar with Alibaba.com, as it is listed on the New York Stock Exchange (NYSE:BABA). However, there are many other popular Chinese platforms beginning to enter into the international market. QQ chat for example now has an International version. WeChat e-wallet now can be linked to Standard Bank in South Africa.

So, what are these internet and digital platforms in China that has been at the forefront of technological advancement in China? What are their value propositions and features? Why and how are the Chinese able to attain these technological achievements?

E-Commerce: Alibaba!

E-commerce technology in China has evolved from B2B (Business-to-Business) to O2O (Online-to-Offline) with The Alibaba Group taking the lead in the e-commerce revolution.

Alibaba Group started as a website that connects international investors with Chinese manufacturers in 1999. It has since evolved to become synonymous with online shopping in China. The Group consists of several business units offering different products and services to different targeted market through the development of Taobao, TMALL and 1688. Launched in 2003, Taobao is a C2C (Consumer-to-Consumer) e-commerce site, akin to Ebay.com. Literally, “tao-bao” means to find precious goods in Mandarin. It has been the synonym for shopping online in China. Previously called Taobao Mall, in 2009 for three years, Tmall is a B2C (Business-to-Consumer) platform, akin to Amazon.com, but mostly for high-end branded products targeted at the upper middle class Chinese consumers. 1688 is a B2B wholesale platform, without a competitive Western equivalent.

Taobao is the clear leader in Chinese e-commerce. It is most famous for the tremendous sales the site generates every ‘Singles day’ on the 11th November (whereas the name suggests is a day of consolation for singlehood, a clever marketing campaign initiated by Taobao mall in response to Valentine’s Day). That sales figure has been growing by the year. In 2009, in the first year that ‘Singles day’ was celebrated, the sales revenue was 52 million CNY. In 2014, the sales revenue was 57.1 billion CNY. And in 2015, the sales revenue grew to 91.2 billion CNY. That is over 1800 times of growth between 2009 and 2016. This popularity is driven by highly competitive prices and a wide offering of product and services. The diversity of goods and services offered just on Taobao and Tmall is impressive: from Burberry coats to handmade shoes, from fresh fruits to cut flower, and even from land plots to factories up for auction in court.

Taobao is also leading the O2O development. Consumers can compare options and purchase everyday products and services relating to food, health, transportation, travelling, shopping and entertainment and then consume or pick them up at physical stores. For example, consumers can buy flight/train/couch tickets, travel packages and tickets for tourist attractions, and book hotels through AliTrip. Consumers can also source all kinds of household services from home cleaning to body massages and manicure, while ordering food to your doorstep – all through Taobao. Furthermore, consumers can pay restaurant bills by Alipay after their meals.

Taobao app has also begun to offer interactive features to improve shopping experience for shoppers by introducing “Wei-tao” (shops updates) and “Wen-da-jia” (opinions from previous customers). The features feed updates directly from the brands and recommend shops and products based on the clients’ previous search history respectively.

Besides the Alibaba platforms, there are other two other popular general ecommerce sites are JD and Suning. Both are B2C e-commerce sites. There are also apps that specialize on specific products and services. Eleme focuses on food deliveries and takeaways (where one can order meals in advance and deliver them to home). Dianping and Baidu Nuomi focuses on ‘Groupon’ type of coupon discounted sales. Ctrip, Tuniu and Lvmama focuses on travel arrangements. Didi, Yidao and Shenzhou focuses on on-demand taxiing service, akin to Uber.

Online payment: making payments even easier

One of the most important aspects of e-commerce is the method of payment. In China, online payment has developed from online banking, to third-party payment, to making payment with a comprehensive e-wallet. It is common practice to use third-party payment platforms such as Alipay, Tenpay, etc. (the Chinese equivalents of PayPal) to make purchases. Most Chinese apps support third-party payment and increasingly built an e-wallet into their app. With these e-wallets, besides making online payments or paying in person via QR code, consumers can also use it to pay bills, order taxi, send payments to friends etc. In 2013, these wallets started to offer financial products with returns of at least 4-5% via several simple clicks.

QR Codes: the O2O ‘Sao-yi-sao’ magic

QR code was initially designed for the automotive industry in Japan, but has instead flourished into daily life in China and has become the key to O2O e-commerce. It is a machine-readable two-dimensional barcode that contains information. QR codes are very widely used in China. The codes are on ads, name cards, coupons, restaurant menus, receipts, tickets, packaging, websites and even TV shows.

Many apps have built in QR reader feature. With a tap of “sao-yi-sao” on each app, phone camera scans the QR code to realize three main functions. Firstly, it can be a medium to spread information. Users can obtain information such as receipts, tickets, coupons, library account information from it. Secondly, as a portal of interaction, users can use it to add friends, connect and authenticate to Wi-Fi, enter another website, install third-party apps, login account, etc. Thirdly, users can use it to make payments online or in person or via third party payment. To make payments in person in a physical store, users either let the store’s Image Reader read the QR code on the phone or users scan the store’s code at the cashier. This is a simple cashless process that makes payments easy and efficient, cutting down cashier waiting time and making customers happy. The QR technology is widely used from big shopping malls to small street food vendors, and users just need to bring along their smartphones.

More than just Social Networking, it’s a one-stop-solution

If Alibaba is synonymous with e-commerce in China, WeChat is synonymous with instant messaging (IM) and all things related to the social sphere. Launched in Jan 21, 2011 by Tencent, WeChat is a free app that connects not only friends but also provides all kinds of social services – and recently e-commerce. It is by far the most popular IM app in China with 549 million (March, 2016) active users (927 million registered users). Other popular multi-function IM apps in China include Momo, Wangwang and YY targeting the younger generation, focusing on social, online shopping and online gaming respectively.

Relative to Whatsapp and Line, WeChat offers more functions and features. Not only can it be used for sending text, voice, images, and connecting voice and video call, it can also shares location, video, documents (such as MS and pdf files) with friends. It can auto-transcribe the voice to text. WeChat has also developed “peng-you-quan” which is similar to Instagram for sharing images and links with friends. WeChat also enables users to discover other users in the vicinity via “yao-yi-yao” (shake) and “people nearby”. In additional, WeChat also has a news-feed, a Shazaam-like song-matching service, a mail box service and a game center. With such multi-function one stop solution platform, it is easy to understand why it dominates the market.

Individuals, service vendors and companies in general can establish a formal presence on WeChat of via setting up a “WeChat Official Account”. There are three accounts: the Subscribers Account, the Services Account and the Company Account. These accounts enable WeChat to facilitate formal communication and interaction directly between the users and the vendors, bypassing the need for the users to install any vendors’ apps. These official accounts are operated by artificial intelligence ‘chat-bots’, akin to SmarterChild. The Official Account applies to individuals, hospitals, banks, hotels, malls, restaurants, ticket agencies, logistics, universities, e-commerce shops, public institutions and companies. It can also push news updates to their subscribers. People can find information simply by tabbing shortcut buttons, communicating with chat-bots or asking live personnel via messages (text, image, voice, etc.). WeChat ultimately seeks to build an ‘Intelligent Lifestyle’ platform by merging e-commerce at the back of Official Accounts and WeChat payment.

Like Alibaba, WeChat continues its expansion in product and services offering, diversifying into payment services, e-commerce, social-networking and O2O services. In the payment service, WeChat introduced the “hong-bao” (red packets) feature in the Spring Festival of 2014. The feature has become an instant hit with Chinese consumers especially during traditional Chinese festivals, the Chinese New Year in particular. The amount of red packets sent on the last day of the Horse year in 2014 was 16 million. This figure grew to 1 billion in 2015 and 8 billion in 2016.

Social networking platforms are also beginning to integrate mass information with mass communication. WeChat “Peng-you-quan” and QQ Space are private platforms for friends while Weibo, the Chinese version of Twitter, mainly focuses on public networking and sharing of information based on followings and followers. Its “post” allows one to post up to 10 distinct types of content, such as long text, video, live stream, blog entry to restaurant review, etc.

Media-centered apps include QQ Music and Baidu Music, which offers a powerful library of music genres for music lovers. Youku focuses on original video contents. Letv, iQIYI, Tencent Video offers movies, TV series and shows, while Bilibili focuses on cartoon. Most media-centered apps allow users to download contents for offline consumption. This is an especially popular feature because oftentimes there is weak or no Wi-Fi connection during daily commute in underground subway rides and during flights.

Customizable features and the constant addition of new features: the secret weapons

Chinese apps tend understand their users better than those in the West. In a market of a billion people, Chinese individuals particularly see value in customization, to feel special and to stand out in the crowd. Chinese app developers understand this and reflect this by creating a more people-oriented platform, offering many customization options to consumers.

Customization on social platform is particularly popular with the younger generations who value every chance at differentiating themselves from others. Some profile themes are designed with Chinese cultures in mind meant to target people with strong cultural bond.

Users can even navigate on Amap with choices of different famous celebrities to voice the navigation. For example, users can choose Lin Chiling, a famous female actress from Taiwan or Guo Degang, a popular crosstalk performer.

Customization is also popular with Chinese users because it allows them to manage as they consume large data of contents. When users want to download or consume media contents on iQIYI, Letv or QQ Music, etc., there are options for quality settings. The app shows exactly how much data and storage is used.

Chinese app developers are also flexible and open to the use of new technology. After the success of AI bots such as “Siri”, “Xiaobing” was launched by MS China. Some apps have adopted these AI bots ambitiously. Baidu’s “Dumi” can already perform general search, finding places nearby, etc., Taobao’s “Ali Xiaomi”, can answer questions relating to payment, logistics information, weather, book tickets, etc.

How and why technology in China advances beyond western foreign apps

The advancement of technology and its adoption in China, beyond the development achieved in the West, is arguably attributable to having an enviable combination of several compounding factors happening at the right place, at the right time and executed by the right actors. These factors include the political will of the Chinese government to protect and support the industry, having market leaders that understand the Chinese market, having the technology to cheaply manufacture smartphones and computer hardware, and having a sizable market that ensures the benefits of economies of scale.

1. Political will to protect and support the industry
   

   The Chinese government has been fostering and directly protecting the internet industry, perhaps driven by Chinese nationalism and perhaps by its own necessity to control digital information. Foreign internet platforms that do not abide by Chinese censorship requirements are barred from entering the Chinese market. Evidently, some of the biggest names in the West are affected, namely: Google, Facebook, Twitter, Instagram and YouTube to name a few. Such policy necessitates that similar internet platforms be developed and be provided by trusted homegrown companies. This paves the way for a high growth technology sector without any real foreign competition. Chinese internet companies are able to quickly appropriate, leapfrog processes and cheaply adopt the more advanced Western technologies with little risk taking and costs for technological research and development. Here, Chinese companies are able to replicate their own versions of Western internet platforms in the likes of Baidu, Renren, Weibo and Youku.

   The government is so adamant about the prospect of internet technology that their commitment to develop and invest in internet infrastructure has now become a national policy. In 2013, the National Development and Reform Commission pledged to develop 5 key fields of e-commerce: trustful trade, mobile payment, internet e-receipt, business circulation and logistics to support the development of e-commerce. In 2015, the State Council reiterates this commitment by launching the “Internet+” strategy, acknowledging that access to internet is a fundamental infrastructure in information society that could play a part in lowering economic inequalities among first and third tier cities, where commercial infrastructure in a first tier city like Shanghai can be four times as developed as many cities inland in the Western part of the mainland.

   As a result, with great protection and infrastructural development and support, Chinese companies are able to quickly capture the market and integrate internet services (mobile internet, cloud computing, big data, internet of things) with traditional services and manufacturing, all at lower risks and costs. This promotes the development of e-commerce quickly, effectively and at a large scale.

2. The ability to cheaply manufacture smartphones and computer hardware
   

   Smartphones and computers are critical ingredients in the creation of the user market. China being the “world’s factory”, inevitably benefits from international technology transfer that now allows it to develop its own products at the highest standards. State companies like Huawei, has unlimited resources to develop and market products. Other brands like Oppo and Xiaomi also managed to leapfrog smartphone technology and can immediately apply the best features in their phones to compete with international brands like Apple, Samsung and Motorola. More importantly, many Chinese now have access to smartphones that can be produced and distributed more cheaply in China. In addition, readily available internet infrastructure allows for cheaper access to data. Good affordable smartphones bundled with affordable data plans is a formidable combination indeed.

3. Having market leaders that understand the Chinese market
   

   Chinese companies are also more focused on their target market and understand the Chinese market better than foreign companies. Many international companies try to capture international market with a more-broad based approach while not necessarily in touch with the culture of individual markets. Whatsapp for example is widely used internationally, but it does not specifically target any market, and so may not have local understandings. Whatsapp does not have popular features like WeChat’s “hong-bao” and video chat that are favorite features for the millions of out of town Chinese getting in touch with their family.

   Chinese developers also come up with attractive products that offer more features, more functions, more people-oriented designs and with more convenience. For example, though Taobao and eBay started e-commerce in China at around same time, Taobao is by far more popular because it has arguably has better design features that the Chinese like. Listed items on Taobao provide more information of the products with product and service descriptions, images, previous consumers’ comments and a refund guarantee – all of which are features reflecting Chinese culture. Some deals also include free delivery.

4. A sizable market with economies of scale to benefit from
   

   It goes without saying that China offers a big consumer market. In June, 2016, China has 710 million netizen and 656 million mobile phone netizen, this remarkably at the back of 1.38 billion people, with plenty more room to grow. Even with just 10% of the population as middle class, at 130 million potential consumers, the Chinese market is already bigger than many countries - Japan (126.3 million), UK (65.1 million) and France (64.7 million), and is such certainly the holy grail of the internet business. With such scale come plenty economic benefits. For example, it can invest in better transportation infrastructure to support e-commerce logistics and justify its investment easily with benefits of economies of scale. Arguably, the success of Chinese e-commerce partly owes much of it to cheap, fast and efficient logistics. A sizeable market also enable companies to sell on volume, which lowers unit prices and making things more price competitive. Lower prices in turn attract more buyers.

Some final thoughts

While it is a fact that adoption of technology in China outpaces that in the West and in terms of scale, most creative digital inventions and innovations are still led by the West. Chinese companies are still at the ‘follower’ level comfortably appropriating technology only on what they asses to be economically valuable. There is also a tendency to over commercialize and monetize digital technology. As a result, unlike in the West, where interesting concepts are experimented and economic returns are not necessarily the end goal at least initially, Chinese companies are not too keen on experimenting and hence lose out on creativity and innovation. There is a tendency for Chinese apps to eventually enter e-commerce business as it is the easiest option to monetize. As a result, there are too many ecommerce fighting for market share selling the same things and products without much differentiation or added value.