China is quickly taking a global lead in strategic digital economy sectors, from mobile payments to e-comers. But the country is facing several vulnerabilities, such as dependence on foreign semiconductor makers and lack of free internet.
China today is already home to more unicorns and startups with a valuation of at least US$1 billion, more than any other country in the world, while some of its leading tech giants are about to join the US$1 trillion valuation club. The country is quickly going cashless as mobile payments and e-comers are the new norm.
Jing Ulrich, Asia Pacific vice chairman for JPMorgan Chase & Co, explains that the rise of China as a digital global trailblazer is a combination of the support of the central government – with strategies and policies giving a push to strategic sectors such as artificial intelligence and robotics – and a peppy entrepreneurial business culture.
“China is the largest digital economy in the world. But it didn’t come from nowhere,” she said during a panel debate at the conference U.S. & China – Shaping the Future of Innovation & Technology, organized by American Chamber of Commerce in Hong Kong.
AmCham 2018 China Conference's Digital Economy Panel: (from left) Rob Koepp, The Economist Group; Jing Ulrich, JPMorgan Chase; Larry Wong, HKT; Kristie Lu Stout, CNN International
“China’s government has been supporting the development of the new economy, a culture that fosters technology startups as well as availability to venture capital on the market. We have entrepreneurs popping up all over the place.”
In many areas, China has gone from copycat to leader. Jing Ulrich highlights how China today is the world’s largest e-comers market and has become a benchmark for global retailers. Of China’s total retail market, 17 percent is e-comers; this is expected to increase to 25 percent by 2020. Globally China accounts for 42 percent of the total e-comers market, compared to the U.S.' 24 percent.
She also points out AI and electrical vehicles as key areas where China is a torchbearer. The country is also leapfrogging in financial technology. She predicts that we will see a greater presence of Chinese companies in the global market going forward.
"There has been a role reversal in how U.S. players and Chinese players learn from each other,” says Jenny Lee, head of growth at WeLab, a Hong Kong-based lending technology provider. “Initially Chinese companies were imitating U.S. leaders. Now they are in the lead of innovating new technologies, especially in the payments arena.”
But the country and its companies are facing several hurdles. The lack of local semiconductor makers is one of China’s most aching Achilles' heels as they are dependent on global suppliers, something that America’s punishing of telecom company ZTE underlined.
Rob Koepp, chief economist at The Economist Corporate Network, highlights another vulnerability: China’s fixation on controlling data – on businesses and citizens – and that the country’s new cybersecurity law might backfire.
“For those of you in banking and financing [the cybersecurity law] is not a minor thing. China is basically saying ‘Your data is our data.’ This is unlike any other economy in the world,” he said.
Beijing’s data hoarding has created uncertainty about Chinese tech firms in general. Rob Koepp exemplifies that fact that American tech firms, like Twitter, are a truly global phenomenon, while Chinese firms and services like Alibaba and WeChat still are mainly thriving inside their walled gardens.
He also warned that lack of access to free internet and open information might be damaging to the country’s future development. Several international media and tech services are blocked in China while its own internet is heavily censored and media directed by propaganda.
“Chinese citizens are denied information and don’t really know what is going on in the rest of the world as other people do. China’s number one challenge is how to integrate the free flow of information and profit from it. Until China’s government makes such policies the country is going to be more insular and maybe revert away from leadership.”
AmCham 2018 China Conference's FinTech Panel: (from left) Tama Churchouse, Crypto Capital; Carrie Suen, Ant Financial; Jenny Lee, WeLab Holdings; James Lloyd, EY