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- Herausgeber: John Wiley & Sons
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- Sprache: Englisch
Explore the world-changing digital transformation in China
China's Mobile Economy: Opportunities in the Largest and Fastest Information Consumption Boom is a cutting-edge text that spotlights the digital transformation in China. Organised into three major areas of the digital economy within China, this ground-breaking book explores the surge in e-commerce of consumer goods, the way in which multi-screen and mobile Internet use has increased in popularity, and the cultural emphasis on the mobile Internet as a source of lifestyle- and entertainment-based content. Targeted at the global business community, this lucid and engaging text guides business leaders, investors, investment banking professionals, corporate advisors, and consultants in grasping the challenges and opportunities created by China's emerging mobile economy, and its debut onto the global stage.
Year 2014-15 marks the most important inflection point in the history of the internet in China. Almost overnight, the world’s largest digitally-connected middle class went both mobile and multi-screen (smart phone, tablets, laptops and more), with huge implications for how consumers behave and what companies need to do to successfully compete. As next-generation mobile devices and services take off, China’s strength in this arena will transform it from a global “trend follower” to a “trend setter.”
- Understand what the digital transformation in China is, and impact on global capital markets, foreign investors, consumer companies, and the global economy as a whole
- Explore the e-commerce consumption boom in the context of the Chinese market
- Understand the implications of the multi-screen age and mobile Internet for China's consumers
- See how mobile Internet use, its focus on lifestyle and entertainment is aligned with today's Chinese culture
- Learn about the mobile entertainment habits of China’s millennial generation and the corresponding new advertisement approaches
The development of China’s mobile economy is one of the most important trends that will reshape the future of business, technology and society both in China and the world. China's Mobile Economy: Opportunities in the Largest and Fastest Information Consumption Boom introduces you to the digital transformation in China, and explains how this transformation has the potential to transform both China and the global consumer landscape.
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Veröffentlichungsjahr: 2016
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“Every company – and every country – must succeed at digitization to compete successfully in the 21st century. Winston Ma delivers a rare book that is both an outstanding survey of a fast-changing and vitally important economic landscape and a delightful ‘field guide’ that will enrich your understanding of what's really happening on the ground.”
—Dominic Barton, Global Managing Partner, McKinsey and Company
“Winston has written a first of its kind – a timely, insightful and eminently readable analysis of the world's fastest growing mobile economy. A must-read for anyone interested in China, the mobile economy, or technology, more broadly. Eye-opening and thoroughly enjoyable.”
—Reuben Jeffery III, President and CEO, Rockefeller & Co., Inc.
“China is determined to make innovation an engine for the next stage of the country's development, and no sector has been more creative or dynamic than the mobile economy, which in some areas has surpassed even the United States. Winston Ma's deep dive into this fiercely competitive, constantly evolving industry dissects the companies, personalities and forces that are transforming China and that will inevitably influence commerce far beyond its shores.”
—John L. Thornton, Co-Chairman, Brookings Institution
“As the world moves to mobile technologies, and with China now the world's largest market of Internet users, all stakeholders have to think about China's economy, market, and society from a completely new perspective. This is an indispensable book for understanding the emerging shape and scale of opportunities in the Middle Kingdom and beyond.”
—Rod Beckstrom, Co-Author of The Starfish and the Spider; Former President and CEO, ICANN
“Chinese society is experiencing a rapid transformation, becoming increasingly industrialized and digital-based. The Chinese internet population has officially entered into the age of mobile internet. This extraordinary book explains how the internet has been the engine that catapults commercial activities from offline to online and towards ubiquity.”
—Xiaodong Lee, President & CEO, China Internet Network Information Center (CNNIC)
China's Mobile Economy
OPPORTUNITIES IN THE LARGEST AND FASTEST INFORMATION CONSUMPTION BOOM
Winston Ma
This edition first published 2017 © 2017 John Wiley & Sons
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To Angela – I love you dearly
CONTENTS
Foreword
Preface
Acknowledgments
About the Author
Introduction
Chapter 1: The World's Biggest Mobile Economy
Urbanization, Mobile Users and Information Consumption
Baidu, Alibaba and Tencent (BAT)
Internet Plus in Business Sectors
Innovated in China
Chapter 2: Users, Partners, Investors and Competitors: Global Stakeholders
The New Digital Middle Class
WeChat: A New Platform for Foreign Brands
Alibaba: Access for Foreign Products
Investors: Among the Biggest Winners
Disruption: All Are Not Winners
Chapter 3: Xiaomi: The Most Valuable Start-up in China
The Black Horse in a Crowded Market
Changing Landscape, Fierce Competition
Beyond Smartphones: The Future of Xiaomi
Chapter 4: The Omni-Channel Age of e-Retailing
Alibaba's Dominant Position
JD.com vs. Alibaba
Convergence: The Omni-Channel Model
Chapter 5: Mobile e-Commerce and Online-to-Offline (O2O)
Online-to-Offline (O2O) Market Potential
O2O Market: Still an Open Battlefield
The Case of O2O Meal Services
The Biggest Cake: O2O + Omni-Channel
Chapter 6: Mobile Entertainment
Online Literature
Video Streaming: From UGC to PGC
PGC: In Search of Revenue (and Profit)
Multiple Screens, Multiple Revenue Models
Chapter 7: “Internet+” Movies
The Big Screen Boom
So-Lo-Mo (Social-Local-Mobile)
Hollywood's Changing DNA
Two-Way Co-Production
Chapter 8: Internet Finance
Crowdfunding
P2P and Internet Bank Lending
Internet-based Wealth Management
The Future of Internet Finance
Chapter 9: Going Overseas: A Bumpy Road
“Tomorrow Never Waits”: ZTE in the US
Xiaomi: Into the Emerging Markets
Lessons from Overseas Expansion and Acquisition
Chapter 10: Launched in China
Uber: Localization in the Chinese Market
A New Innovation Ecosystem
Cross-Pollinating Innovation
Bibliography
Index
EULA
List of Tables
Chapter 1
Table 1.1
Table 1.2
Table 1.3
Chapter 4
Table 4.1
Table 4.2
Table 4.3
Chapter 5
Table 5.1
Table 5.2
Chapter 6
Table 6.1
Table 6.2
Chapter 7
Table 7.1
Table 7.2
Table 7.3
Table 7.4
Chapter 8
Table 8.1
Table 8.3
Chapter 9
Table 9.1
Chapter 10
Table 10.1
Table 10.2
Table 10.3
List of Illustrations
Chapter 1
Figure 1.1
The Steady Increase of Mobile Internet User Percentage (2007–2015)
Figure 1.2
Demographic of Chinese Internet Users
Figure 1.3
Location/Map Searches Are the Key to the O2O Business Model
Figure 1.4
Market Share of China's Mobile Shopping Market in 2014
Figure 1.5
Different Terminal Usages for Watching Online Videos
Figure 1.6
China's Innovation Ecosystem
Chapter 2
Figure 2.1
Which Country's Goods Do You Mostly Buy on Cross-Border e-commerce Sites?
Figure 2.2
Alibaba ($200 billion)
Figure 2.3
Tencent ($184.5 billion)
Figure 2.4
Baidu ($65 billion)
Figure 2.5
JD.com ($45 billion)
Chapter 3
Figure 3.1
Xiaomi Yellow Page
Figure 3.2
The Future – Three Layers of Xiaomi
Figure 3.3
YunOS Smart Home
Figure 3.4
TOS Smart Home
Figure 3.5
Xiaomi's Content Alliance
Chapter 4
Figure 4.1
e-Commerce Market Share by GMV in 2014
Figure 4.2
Internet Penetration Rate in Rural Population (%)
Figure 4.3
Market Share of China's Mobile Shopping Market in 2014
Figure 4.4
Key Factors for Online Shopping Decisions
Figure 4.5
The Future Directions of e-Commerce
Chapter 5
Figure 5.1
The Parties in a Red Envelope – Fun and Value
Figure 5.2
O2O – The “In-Between” World
Figure 5.3
Main Players and Their Market Shares in 020 Meal Services
Figure 5.4
The Competitive Landscape Post-Meituan/Dianping Merger
Figure 5.5
Quixey/Alibaba Partnership: Deep Mobile Search
Figure 5.6
Smart Plaza – Combining O2O with Omni-Channel
Figure 5.7
The Future Directions of e-Commerce
Chapter 6
Figure 6.1
Demographic of Chinese Internet Users
Figure 6.2
Usage Percentage of Different Reading Mediums
Figure 6.3
The Important Value of Internet Literature IP
Figure 6.4
Terminal Usages for Internet Videos
Figure 6.5
Popularity Ranking for Video Content Watched on Smartphone
Figure 6.6
TV Drama Viewer's Migration to the Internet
Figure 6.7
BAT and Their Respective Video Streaming Sites
Figure 6.8
Multi-Screen, Multi-Revenue Model
Chapter 7
Figure 7.1
The Rapid Increase of Cinema Screens in China
Figure 7.2
Mobile Internet Through the Life Cycle of a Movie
Figure 7.3
Tier 1–5 Cities’ Share of Movie-Goers (2011–2015 Q3)
Chapter 8
Figure 8.1
Crowdfunding of Consumer Products
Figure 8.2
Two Versions of Crowdfunding: Public Offering vs. Private Placement
Figure 8.3
Growth in Chinese P2P Online Lending (2011–2015)
Figure 8.4
Ant Financial's e-Money Empire
Figure 8.5
Banks’ “Heavy Infrastructure” Likely a Competitive Advantage
Figure 8.6
Two-way Data Flow between Sesame Credit and Digital Businesses
Chapter 9
Figure 9.1
Smartphone Operating System's Global Market Share, 2014
Chapter 10
Figure 10.1
Critical Baidu Support for Uber's China Expansion
Figure 10.2
Interconnected China and US Internet Firms in Ride-Hailing
Figure 10.3
China's Innovation Ecosystem
Figure 10.4
Total VC Investments in China (2013–2015)
Preface
Figure P.1
The Four “Cs” in the Mobile Economy
Guide
Cover
Table of Contents
Preface
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Foreword
Some authors are good at spotting and analyzing trends. Others go in deep and provide detailed explanations of how an industry ecosystem or specialized sector is evolving. But in China's Mobile Economy, Winston Ma delivers the rare book that is both an outstanding survey of a fast-changing and vitally important economic landscape and a delightful “field guide” that will enrich your understanding of what's really happening on the ground.
Start with the headline: even those generally aware of the scale of the country's ongoing digital transformation may have missed this news – 2014--15, Ma insists, marks “the most important inflection point in the history of the internet” in China. Almost overnight, the world's largest digitally-connected middle class went both mobile and multi-screen (smartphone, tablets, laptops and more), with huge implications for how consumers behave and what companies need to do to successfully compete.
How have China's Big Three, the group known as “BAT” (Baidu, Alibaba, and Tencent) responded so effectively to the shift to a mobile platform and how are their business models converging as the lines between e-commerce, social media, and entertainment blur? What does the swift rise of more than 600 million mobile consumers and the rapid merging of online-to-offline shopping (O2O) mean for Western multinationals in traditional industries such as autos and beverages, as well as for digital stalwarts like Apple and aspiring newcomers such as Uber? (Quick quiz: guess which three cities are now Uber's most popular in the world, measured by rides per day? Answer: Guangzhou, Hangzhou and Chengdu.) What role has government policy played in helping drive China's digitization and how will future regulation shape the fates of fast-growing sectors such as online banking?
Ma offers rich insight into all these macroeconomic and industry questions, making a convincing case that, as next-generation mobile devices and services take off, China's strength in this arena will transform it from a global “trend follower” to a “trend setter.” At the same time, in a delightful array of boxes and sidebars, he supplements his analysis with a depth of cultural reporting and definitions of popular terms that would make a social anthropologist proud. Are Chinese consumers “shai”-ing your products in social media, as they have express-delivered fresh Canadian blackberries purchased online? Well, good for you. But be careful that they truly view your goods and services as “gao-da-shang” versus dismissing them as “tu-hao-jin.” Understanding these phrases and the behaviors behind them, Ma rightly suggests, is no less critical than understanding what your next round of Big Data market research may be telling you.
As befits a successful investor, deeply grounded in both Western capital markets and in local equities, through his distinguished career at the China Investment Corporation (CIC), Ma strikes the right balance between enthusiasm for the opportunities that China's mobile marketplace offers and a clear-eyed assessment of potential challenges ahead. At McKinsey and Company, we too believe every company – and every country – must succeed at digitization to compete successfully in the 21st century. In many of our recent reports we have cast a bright light on some of the themes explored here, from China's growing capacity to innovate to the role the internet can play in its next wave of productivity-driven growth.
As Ma concludes, “The development of China's mobile economy is one of the most important trends that will reshape the future of business, technology and society both in China and the world.” We couldn't agree more. From our work with leading global private and public sector clients across many industries and regions, we know just how keenly they are following the next phase of China's economic evolution. This independent, richly reported and highly readable book is a welcome addition to our understanding of this exciting, continuously unfolding story.
Dominic Barton Global Managing Partner, McKinsey and Company
Preface
For China, the years 2014 to 2015 were the most important inflection point in the history of the internet, as the Chinese internet population officially entered the mobile internet and multi-screen age (with smartphones, tablets, personal computers and more). During this incredible period of change, the mobile internet in China gave rise to a dynamic tech sector, thriving social networks and the world's largest digitally connected middle income class. The development of China's mobile economy is one of the most important trends that will reshape the future of business, technology and society, both in China and the world.
Of course, the mobile transformation of China's economy has also had profound implications for global stakeholders dealing with the Chinese market. During China's digital boom, foreign investors are richly rewarded, and consumer goods companies see an emerging market filled with opportunities from an expanding middle class. Overseas users are cautiously adopting smartphones and mobile apps created in China, but Silicon Valley tech giants are taking notice of new competition arising from Asia. This book intends to provide a cutting-edge overview of this digital transformation in China as well as its global impact.
Chapter 1 will provide an overview of China's macro economy and the important government policy drivers behind the digital economy growth, such as urbanization, information consumption, smart cities, as well as internet plus, which is essentially the sum of it all.
This opening chapter will also introduce the big three “BAT” companies, Baidu, Alibaba and Tencent. These companies have respectively dominated the three strategic areas of the mobile market, namely the online search, e-commerce, and social network and messaging service in China. At this time of market inflection, these three key players are becoming more open-minded and proactive in moving into new areas through expansion, acquisition and strategic cooperation. Their impact can also be felt overseas by foreign investors, consumers, products users, start-ups and industry companies across the globe.
While the BAT companies strive to maintain their dominance over the digital high ground, many other Chinese firms are becoming strong players in the mobile market as well. Some of them have reached a significant size, and they come to the battlefield with unique strengths from different origins, such as Xiaomi (smartphone/hardware), LeTV (media content), Lenovo (PC/smartphone), Huawei (network/smartphone) and ZTE (telecom/smartphone). In addition, there are countless start-ups being formed every day by entrepreneurs eager to become the next Robin Li, Jack Ma or Pony Ma (the three founders of BAT, respectively).
The partnership, competition and cross-investments among these players of different traditional strengths, corporate scales and market focuses have made the mobile market extremely active and dynamic. As illustrated by the online shopping extravaganza and digital retailing revolution, the successful business models in the mobile era aim to integrate the four “Cs” seamlessly: Context, Community, Content, and Connection (see Figure P.1). As a result, the mobile internet and social networks are making a profound impact on productivity and growth in many parts of the economy. This chapter will briefly list some examples in the entertainment and media, retail and finance sectors, which will be discussed in detail in later chapters relating to corresponding business areas.
Figure P.1 The Four “Cs” in the Mobile Economy
Chapter 2 will cover the various global stakeholders and the new opportunities and challenges they are experiencing. In particular, the “going mobile” and “internet plus” trends are critical for the foreign companies heading to China in search of their slice of the digital economy pie. In this fast-changing market, even for multinational corporations that have done business in China for many decades, a comprehensive rethink of their strategies in China may be necessary. Meanwhile, the mobile infrastructure opens up new opportunities to foreign merchants who do not have or need to have, a physical presence in China. To a large extent, mastering mobile internet strategy will separate the winners from the rest of the pack in their competition for Chinese customers.
Chapter 3 is centered on Xiaomi, the highest valued start-up in China. Focusing on a niche passed up on by premium brands like Apple and Samsung, the Chinese brands like Xiaomi, Huawei and Lenovo have mainly offered low price, high performance devices, which have played well into the general Chinese population's desire to own a smartphone and to access the internet for the first time. As China's smartphone market started showing early signs of saturation in 2015, Xiaomi (and its competitors) is striving to innovate its business model and product offerings to become a true “internet company” instead of a pure “smartphone company”.
Chapter 4 starts the “internet plus” discussion with digital retailing. The online retailers have expanded so rapidly that the shopping malls, also a recent development in China, have already had their business disrupted by the new technology. The traditional retailers need to move away from the perception that e-commerce is merely another sales channel for their products, as it is critical for customers to get the same products, services and shopping experience in every channel where they choose to make purchases. As illustrated by the Alibaba/Suning alliance and the JD/Yonghui investment, the mobile era retailers have to integrate their online and offline channels, instead of having separate systems to sell products online and offline.
Chapter 5 carries the digital retailing discussion into mobile e-commerce territory and the broader online-to-offline (O2O) service consumption. The growth in “experience” consumption, such as movie-going, dining out, taxi-hailing and so on, is at the core of the O2O trends in China. The future e-commerce model – if the term e-commerce still applies here – is likely to be a seamless platform that links customers across multiple screens of mobile devices, providing standardized products as well as specialized goods and experience offerings, and connecting online content with offline activities.
Chapter 6 explores the mobile entertainment sector, which is of strategic importance for the internet giants’ digital empires. This is because entertainment content and services are not only an important revenue source by themselves, but also a distinguishing factor that draws users to any specific e-commerce ecosystem and keeps them hooked. For a large part of their time online, young netizens play online games, watch videos of TV programs and movies, assume online personas in the virtual world and form online communities to have fun together. As smartphones are becoming the top channel for internet access in China, they enjoy themselves whenever and wherever they are during their “fragmented time” throughout the day (i.e. the time they spend online while outside of their homes).
It is important to note that “fragmented time” creates a different and additional demand for entertainment content. For example, online novels can be read on mobile devices anywhere and anytime, which not only leads to a disruption of the physical book market, but also creates a different experience from traditional book reading (hence new readers). As such, the mobile internet provides a new avenue for marketing, advertising and brand building, with the biggest growth potential from people in smaller cities, who may not have PCs but are now engaging with online entertainment content using their smart devices.
Chapter 7 discusses the application of the O2O model in the movie business, which has added an online DNA to the traditional film industry. To meet the quest for high quality content, the tech giants are not only betting on set-top boxes (devices that provide contents over the internet and bypass traditional distribution) to convert TV and theater viewers to online viewing, but also creating their own blockbuster movies for the big screen at offline cinemas. The mobile internet has empowered young movie fans to get intimately involved with a movie, from the beginning to the end of a movie's life cycle. While traditional production companies face new competition, the industry has experienced soaring movie box office receipts thanks to the new social network, crowdfunding and big data. The so-called So-Lo-Mo trends (“Social-Local-Mobile”) are bringing new challenges and opportunities for both Hollywood and Chinese movie studios in the digital age.
As one would expect, the internet giants have quickly evolved into media companies. The same has also happened in dining services, car-hailing and other sectors. Because every major firm's goal is to create a “closed loop” of its own, the companies are increasingly in competition with one another. As many players race to offer services at below cost to compete for users, the market is starting to have doubts about the sustainability of such businesses. In fact, internet firms are taking huge bets by spending heavily on subsidies because the repeat customers may not stay when the subsidies end. The cases addressed in this book will examine whether a profitable model will eventually arise in those markets.
Chapter 8 will examine the huge impact “internet plus” has on the traditional finance sector, most notably in commercial banking and asset management. The rising integration of internet and finance is closely linked to the two imperfections of the existing financial system and the potential solutions from the internet. One is the difficult access to credit by small and new businesses, because banks focus their attention on bigger and more established companies for their perceived lower credit risk. The other is the lack of investment channels for individuals, as the public stock market and real estate require large sums of investment capital and high levels of risk tolerance.
For instance, internet firms have offered short-term deposit products online that provide more convenience and liquidity, essentially making the financial system more efficient. Similar innovative products include crowdfunding for movie productions, where young people with limited disposable income can nevertheless make an investment and enjoy the experience of being a mini financier for film productions. In the P2P (peer-to-peer) lending area, China has surpassed the level in the US (where the model was first developed) to become the world's largest market. The internet giants Alibaba and Tencent have set up internet-only banks, which can potentially provide microloans to individuals and small businesses more effectively than traditional banks due to their big data capabilities.
Chapter 9 will discuss the broad trend of major internet and tech companies in China moving beyond the saturated domestic market to compete on the global stage. Their presence has been felt abroad as they send their products and services overseas. For example, China's smartphone brand ZTE has obtained a sizable market share and has a top three Android phone-maker ranking in the US market, only behind Samsung and LG. They also actively partner with or directly invest in foreign companies to accelerate their expanding reach. However, as will be seen in the examples in this chapter, it is not an easy task for a Chinese company to break into the US and other markets that are external to China.
Chapter 10 examines the opportunities and challenges that foreign firms are facing in the Chinese market, which they have to tackle in order to win the battle for global domination. For example, the San Francisco-based car-sharing app company Uber has been an undeniable hit in China, and its rapid growth in China so far may be the best performance by a US tech company in years. Going forward, the Chinese market is poised to be a trendsetter, rather than a trend-follower, in next-generation mobile devices and services. The story of China is rapidly transforming from the old “Made in China” to the new “Innovated in China”.
Acknowledgments
Compared to my previous book Investing in China, published in 2006, this book on China's internet-based “mobile economy” was a much more challenging project. For one thing, China's economic model had transformed from decades-long double-digit growth into a more sustainable growth model based on innovation and consumption. For another, the explosive growth of smartphone users, e-commerce and online content consumption and creation led to a digital revolution in almost all industries and business sectors.
A book on such a complex and fast-moving topic would not have been possible if I had not been blessed to be able to work with and learn from an amazing group of mentors in business, law and investments.
My deepest thanks go to Dr. Rita Hauser and Dr. Gus Hauser and the New York University (NYU) School of Law. My private equity investing, investment banking and practicing attorney experiences all started with the generous Hauser Scholarship in 1997. At the Hauser Global Law School program, I encountered a broad range of perspectives and viewpoints, which was the basis for my future career as a global professional working in the cross-border business world.
Sincere thanks to John Sexton, the legendary Dean of NYU Law School as I was pursuing my LL.M degree in Comparative Law. During his decade-long tenure as the President of NYU, he kindly engaged me at his inaugural President's Global Council as he developed the world's first and only GNU – the “global network university”. John's dream for the NYU Law School as well as NYU is as audacious as his personality. From him, I picked up the spirit of entrepreneurship and risk taking, including launching an ambitious project like this book.
Special thanks to Frank Guarini (’50, LL.M. ’55), the seven-term New Jersey congressman and a long-term friend from the NYU Law School community. With incredible vision and generosity, he continues to give me invaluable guidance, even while he is in his 90s. The time spent with this admirable leader has reshaped my way of thinking as well as shaping me as a person. He has been a tremendous mentor, and I thank him for continuously being a great cheerleader.
My sincere appreciation to Mr. Lou Jiwei and Dr. Gao Xi-qing, the inaugural Chairman and President of China Investment Corporation (CIC), for recruiting me at the inception of CIC. One of the most gratifying aspects of being part of CIC is the opportunity to be exposed to a wide range of global financial markets’ new developments. This unique platform has brought me to the movers and shakers everywhere in the world, including Silicon Valley projects that linked global tech innovation with the Chinese market.
Special thanks also go to Chairman Ding Xue-dong and President Li Ke-ping, whom I have been reporting to at CIC in recent years. Similarly, thanks go to Linda Simpson, senior partner at the New York headquarters of Davis Polk & Wardwell, and Santosh Nabar, Managing Director at the New York headquarters of JP Morgan. My two former bosses on Wall Street gave me a firm foundation on which to develop a career in the global capital markets.
Many thanks to Mr. Jing Liqun, President of Asian Infra- structure Investment Bank (AIIB) and the former Supervisory Chairman of CIC, for educating me about the works of Shakespeare, as well as guiding me professionally. The readings of Hamlet, Macbeth and King Lear improved my English writing skills, and hopefully, the writing style of this book is more interesting and engaging than my previous finance textbook Investing in China.
For such a dynamic book topic, I benefited from the best market intelligence from a distinctive group of entrepreneurs and investors at the World Economic Forum, in particular, the Young Global Leaders (YGL) community and the Global Agenda Council (GAC) on long-term investing. I would especially like to thank my fellow YGLs in the TMT areas, including Xiaodong Lee (CEO of China Internet Network Information Center), Calvin Chin (co-founder and CEO of Transist Impact Labs), James Lee (Chairman of Stoic A/S) and Haidong Pan (founder and CEO of Chinese online encyclopedia Hudong).
My gratitude goes to many other outstanding friends, colleagues, practitioners and academics, who provided expert opinions, feedback, insights and suggestions for improvement. For anecdotes, pointers and constant reality checks, I turned to them because they were at the front line of industry and business practices. I would particularly like to thank Ishan Saksena (CEO of B4U Network), Sean Yang (Canada CEO of Huawei), Denson Xu (North America terminal device CEO of ZTE) and Alan Cole-Ford (President of eChinaCash).
Many chapters of the book began, in some sense, with my blog series at the World Economic Forum (WEF). I am enormously grateful to my friend Karen Seitz for giving my complete manuscript the first read. As the founder of Fusion Capital and a former partner of Goldman Sachs, she was extremely busy in the global financial markets, yet she generously took the time to expertly edit my initial draft.
On its journey from a collection of ideas and themes to a coherent book, the manuscript went through multiple iterations and a meticulous editorial and review process by the John Wiley team led by book editor Thomas Hyrkiel. As the content development specialist, Jeremy Chia's careful editing contributed substantially to the final shape of the book. Special thanks to Gladys Ganaden for her help in getting the components of the book cover together.
And last in the lineup but first in my heart, I thank my wife, Angela Ju-hsin Pan, who gave me love and support. You are a true partner in helping me frame and create this work. Thank you for your patience while I wrecked our weekends and evenings working on this book.
About the Author
Winston Wenyan Ma
Winston Wenyan Ma is a managing director of China Investment Corporation (CIC), the sovereign wealth fund of China, with a focus on long-term investments in large-scale concentrated positions. Since joining CIC in 2008, he has held leadership roles in major direct transactions involving natural resources, financial services and high tech sectors. During 2011–2015, he was the Managing Director of CIC's North America office in Toronto, the only CIC office outside of China.
Mr. Ma is one of a small number of native Chinese who have worked as investment professionals and practicing capital markets attorneys in both the United States and China. Prior to joining CIC, he served as the deputy head of equity capital markets at Barclays Capital. Previously, he was a vice president at J.P. Morgan investment banking, and a corporate lawyer at Davis Polk & Wardwell LLP and Freshfields. He is the author of the best-selling book Investing in China: New Opportunities in a Transforming Stock Market (Risk Books, 2006) and has been widely quoted in global financial media. Mr. Ma was selected as a 2013 Young Global Leader at the World Economic Forum (WEF) and in 2014 he received the Distinguished Alumni Award from NYU.
Mr. Ma can be reached at [email protected] for comments and feedback on China's Mobile Economy.
Introduction
I was very pleased when Winston asked me to write this introduction for his new book on China's development in mobile internet and the new economy related to it. In my capacity as the President and CEO of the China Internet Network Information Center (CNNIC), I have been watching the development of the internet market closely. The China Internet Development Statistical Report published by the CNNIC over the past several years is one of the most authoritative data sources for studies on the development of the internet in China today. I am glad to see that this book has made references to many of the CNNIC's statistics and observations.
According to CNNIC data, at the end of 2015, China had 688 million internet users, and the number of mobile internet users reached 620 million, accounting for 90.1% of total internet users. This mobile internet population is incredibly large and continues to increase at a remarkable pace. As this book explains, the Chinese internet population has officially entered into the age of mobile internet. As more and more people use their mobile devices to chat with their social network, to find and share information, and to have fun anywhere and anytime, a new context of creating, delivering, and marketing content – and profiting from it – is emerging. Consumers want it, businesses demand it, and entrepreneurs are creating it. The migration of internet services to the new mobile environment is therefore inevitable.
The excellent analysis in this book should help the reader understand the latest revolution of the internet in China, and, in particular, the emergence of mobile internet and its architectural impact on the broader economy. This extraordinary book explains how the internet has been the engine that catapults commercial activities from offline to online and towards ubiquity.
With an outstanding background in finance and investing, Winston has based his analysis on a very solid foundation by drawing on examples from a wide range of contemporary situations in China and beyond, and conveying his ideas using simple but powerful statements. Important questions asked in this book include: In what ways is the internet empowering the economy? By fostering new types of business models and redefining existing business relationships, how, in turn, is the ever-growing mobile economy reshaping the future of business, technology and society in China? If you are looking for answers to these questions, you will find this book very informative and inspiring.
The author's reflections on China's public policy and internet strategy are also presented here. The rapid growth of the internet has been enthusiastically embraced by the Chinese government. However, with increased efficiency and productivity, as well as tremendous business opportunities being brought about by the internet revolution, many challenges in the public and private sectors still remain. As China's global online presence increases, some of these challenges include the management of cyber security risks and keeping balanced relations with the rest of the world. Winston and I have been fortunate to be involved in several forums, like the World Economic Forum, where related policy issues have been discussed, and I am excited to see that this part of our work is also reflected in his book.
Chinese society is experiencing a rapid transformation, becoming increasingly industrialized and digital-based. The uniqueness of China's experience deserves a close investigation from policy-makers, technology start-ups, internet companies, corporations and organizations facing an upgrading challenge due to the ongoing internet revolution, as well as other global stakeholders who are interested in entering the Chinese market. It is especially noteworthy that discussing the internet and the mobile economy in this case is not an easy job. This field of study is usually fraught with both theoretical and practical errors, and it is thus extremely valuable that many of them have been addressed in this book.
I expect quite confidently that the author's effort will contribute to a universal understanding of the Internet-based digital revolution in China. Therefore, I believe that for many of you reading this book should prove to be a worthwhile investment of your time.
Dr. Xiaodong Lee President and CEO, China Internet Network Information Center (CNNIC) Research Professor, Chinese Academy of Sciences
Chapter 1The World's Biggest Mobile Economy
What is the most celebrated Chinese holiday globally, by the Chinese and by everyone else? Here's a hint: It's not the Spring Festival, also known as the Chinese New Year. It is November 11, known as Singles’ Day. Not only is it the largest online shopping day each year in China, but it is also the largest in the world in terms of the total value of transactions.
Started by China's e-commerce giant Alibaba in 2009, the November 11 holiday has become an annual 24-hour online shopping extravaganza. (See the “Singles’ Day” box.) It is the single most important day each year for online vendors to target young, tech-savvy consumers who are accustomed to buying online and using their mobile phone wallets to pay for almost all goods, services and entertainment.
In 2015, during the run up to the shopping holiday, Alibaba hosted a gala celebration titled Double-11 Night Carnival. The four-hour TV variety show was directed by a top Chinese film director, Feng Xiao-Gang, and held at the Water Cube, a landmark structure built for the 2008 Beijing Olympics. Aired on the satellite channel Hunan TV, the variety program was also streamed on China's major video streaming site Youku Tudou, which was acquired by Alibaba only days before the Carnival.
Just like China's annual Spring Festival variety show carried by the state television network CCTV, the 2015 celebration included an 11.11 countdown, “to celebrate the potential for limitless innovation that technology has provided for all of us”, according to Alibaba's promotional statement. To ensure the 2015 holiday was a “Global Shopping Festival”, during the televised extravaganza Alibaba's founder, Jack Ma, rang the opening bell for the New York Stock Exchange remotely from the Water Cube, while the program featured western celebrities including the actor Daniel Craig, who played James Bond in the latest 007 film Spectre, as well as the singer Adam Lambert.
Employing China's social networks, Jack Ma had announced prior to the event that even the US President would appear at the Carnival. And as the celebration reached its climax, actor Kevin Spacey appeared as his character in the web TV series House of Cards, US President Frank Underwood. Thanks to the explosive growth of video streaming sites in China, House of Cards and Kevin Spacey are both famous in China. From an Oval Office set, Kevin Spacey addressed Chinese shoppers in a two-minute video. In his trademark Southern drawl, President Underwood expressed his disappointment that the White House firewalls blocked him from shopping online to take advantage of the “amazing deals” on that day.
This November 11 online shopping event in 2015 illustrates several important trends of China's e-commerce in the mobile internet age.
First of all, while e-commerce has disrupted retailers world-wide, its boom in China is unprecedented both in terms of pace and scale. In 2013, China overtook the US as the world's biggest e-commerce market. Today, this annual shopping festival generates more sales than “Black Friday” and “Cyber Monday” in the US combined. On the basis of gross merchandise volume (GMV), Alibaba is now the largest online and mobile commerce company in the world.
For the 2015 Singles’ Day, Alibaba Group announced that $14.3 billion GMV was transacted on its online marketplaces, an increase of 60% from 2014, making the 2015 GlobalShopping Festival the largest shopping day in history. It is worth noting that the GMV numbers in recent years have enjoyed steadily increasing growth (see Table 1.1). Also, the actual number of shoppers is increasing as additional buyers from smaller Chinese cities are using e-commerce, primarily through Alibaba's marketplaces every year. Although their purchases are smaller than those placed by buyers from first-tier cities, such as Shanghai and Beijing, they are an important driver for growth in the future.
Table 1.1 Singles’ Day gross merchandise volume (GMV) growth 2012–2015
Year
GMV ($)
Year-on-year growth
2012
3.3 billion
–
2013
5.9 billion
80%
2014
9.3 billion
58%
2015
14.3 billion
60%
(Data Source: Alibaba)
Second, Chinese customers are migrating to the mobile internet rapidly. Because China has the largest smartphone user population in the world, the trend of “going mobile” has taken off with greater speed than anywhere else in the world. As the wired infrastructure has not yet fully covered the country, for many people in China, especially in rural areas, their first internet experience is often mobile instead of PC-based – from the moment they start using a smartphone. Since 2014, the number of people in China who surf the internet via mobile devices has exceeded the number of people doing so via their computer, with smartphones becoming the primary device of access for Chinese internet users.
On Singles’ Day 2014, 43% of all transactions through Alibaba were made through mobile devices, up sharply from 2013 (21%). Even more remarkable, in 2015 Alibaba's consumers made the majority of orders (68.7% of total GMV) through mobile channels. The total mobile GMV was approximately $9.8 billion, an increase of 158% from 2014. In fact, 2015’s mobile GMV alone exceeded the total GMV in 2014.
Third, this latest shopping festival has also highlighted Chinese consumers’ strong demand for international products. In 2015, Alibaba specifically made “globalization” a critical priority for the group's strategy, and it was committed to making the 2015 shopping festival “a truly and unprecedentedly global shopping experience for consumers”.
According to Alibaba, more than 16,000 international brands, including Burberry, Apple, and Uniqlo, took part in the 2015 sale. During the Carnival TV show, western brands such as Columbia, Levi's, Budweiser and Corona bought time slots for advertisements. Buyers and sellers from 232 countries and regions participated. 33% of the total buyers made purchases from international brands or merchants, with the United States, Japan, South Korea, Germany and Australia as the top countries selling to Chinese consumers.
Finally, the inaugural Carnival show in 2015 illustrates the seamless fusion of online shopping and mobile entertainment. The main use of mobile internet in China is skewed towards fun and entertainment. Moving to align with this trend, Alibaba has recently been establishing its own movie and television production subsidiaries, launching a film crowdfunding financial product, and fully acquiring the online streaming video site Youku Tudou. The movie unit of Alibaba made its first direct Hollywood film investment in Paramount Pictures and actor Tom Cruise's blockbuster Mission: Impossible — Rogue Nation.
By integrating the shopping event with a televised show, Alibaba successfully created a continuous feedback loop of online consumption of both merchandise and entertainment. The Carnival show kept people up until midnight, when the sales began. During the program, online viewers were prompted to check their smartphones periodically, as discount coupons were distributed through their mobile shopping apps. Viewers could also play along with the game show portion of the event. When the hosts of the show greeted “Mr. Bond” and asked viewers to “support 007”, consumers were guided to online ticketing services for the latest James Bond film Spectre.
Singles’ Day (November 11)
November 11 was first known as the “Guangun Jie” (Bare Sticks Festival or “Bachelors’ Day”) in the 1990s. It was celebrated by students at Chinese universities because the numerals that form the date, 11/11, looked like four solitary stick figures. Over the years, this loosely defined holiday has become a celebration for all singles. The day has also become much more gender inclusive by becoming known as “Singles’ Day” which is the name used today.
Gradually, as the Chinese economy continued to flourish, the event started to feature shopping as an intrinsic part of the celebration. When Chinese internet giant Alibaba provided access to e-commerce through their website, Singles’ Day became a virtual festival for everyone, single or married, local or a part of the diverse Chinese diaspora overseas.
Alibaba launched the Singles’ Day shopping festival in 2009 as a promotional event to raise awareness of the value of online shopping. Initially, having just 27 merchant participants, in just a few short years Singles’ Day has exploded into the largest shopping day in the world. Each successive year's event breaks the previous year's record. And because of the vast size of the participating population, its transaction volume has exceeded Cyber Monday sales in the US by multiple times.
Whereas Singles’ Day is a day of celebration for Chinese consumers, it is a day of fierce competition for e-commerce players. In 2015, Alibaba's main rival JD.com, in partnership with the social network and messaging service giant Tencent, hosted a singing contest show filled with famous singers and movie stars, which aired at the same time as Alibaba's Double-11 Night Carnival. The rivalry may further escalate as Alibaba has even tried to trademark the festival and prevent other companies from using the signature “11.11” slogan.
However, it would be premature to conclude from this event that e-commerce is taking over entirely from traditional retailers in China. In mid-2015, just a few months before the online shopping festival, Alibaba spent $4.6 billion to acquire a stake in Suning Commerce Group, one of the largest retailers in China. At the time of the transaction, Suning had a network of more than 1,600 outlets spread across 289 cities in China, selling electronics, appliances, and other products. The two companies announced a partnership in online sales and offline logistics by breaking the information wall for products, services and memberships between the online and offline channels.
Not to be outdone, in August 2015 JD.com, Alibaba's primary e-commerce rival in China, also bought a 10% stake in Yonghui Superstores – another major domestic supermarket – for $700 million. Founded in 1998, Yonghui Superstores ran 364 supermarkets on the Chinese mainland, with ambitious expansion plans for hundreds more in the coming years. Similar to Alibaba, JD.com also aimed to leverage Yonghui's existing networks of bricks-and-mortar stores to boost its supply chain and diversify its offline offerings.
The marriage between the e-commerce giants (Alibaba and JD.com) and traditional retailers (Suning and Yonghui) illustrates a new retailing model that fully integrates online and offline channels, which is frequently referred to as “omni-channel”. To enhance the digital consumers’ experience, the internet firms strive to use both online and offline touch-points to cover the full search, decision and purchase journey, including researching and comparing prices online, trying products at offline shops, paying online or at an offline outlet, and arranging delivery online for pick-ups at physical shops.
In fact, one of the two key themes of the Alibaba 2015 shopping festival is offline-to-online (O2O) (the other being globalization as mentioned previously). Approximately 100,000 brick-and-mortar stores in China, such as Suning and Intime (another Alibaba-invested retailer), will establish strategic O2O collaboration agreements with Alibaba Group, which in turn will cover marketing, customer management, post-sales management, logistics, and more, for the physical stores.
Interestingly, this new “omni-channel” trend provides some answers to the debate on the future of the e-commerce model as represented by the competition between JD.com and Alibaba. Alibaba operates the largest marketplaces for e-commerce, while JD.com is the largest online retailer in China. Alibaba is more akin to a combination of eBay and PayPal, and its marketplace serves as a platform to connect buyers and sellers and provides services like online payments. JD.com is more like Amazon which deals with inventory, sales and distribution directly. Their growing integration with traditional offline retailers, however, makes their business models increasingly similar to one other.
Of course, the online shopping extravaganza is but one example of the explosive growth of China's digital economy. For China, the years 2014 to 2015 were the most important inflection point in the history of the internet, as the Chinese internet population officially entered into the age of mobile internet and multi-screens (smartphones, tablets, personal computers and more). During this incredible period of change, the mobile internet in China has given rise to a dynamic tech sector, thriving social networks and the world's largest digitally-connected middle income class.
At the same time, the integration of e-commerce with offline retailing is a case in point for the “Internet Plus” strategy promoted by China's central government. In his public speeches, President Xi Jinping emphasized that innovation, economic restructuring and consumption should be among the top priorities of China's next stage of growth (the 13th Five-Year Plan for 2016–2020). The “Internet Plus” action plan seeks to drive economic growth by integration of internet technologies with manufacturing and business. The term “Plus” is a reference to the internet as an enabler of new developments and higher efficiency, as in the case of the new “omni-channel” retailing model above.
Urbanization, Mobile Users and Information Consumption
Delivering the government work report in March 2016, Premier Li Keqiang noted that China's development is at a critical stage and new growth poles should be created through incessant innovation to transition to a “new economy”. This was the first time the term “new economy” has ever been mentioned in the government work report. Meanwhile, the government's 13th Five-Year Plan (2016–2020) placed strong emphasis on household consumption and industrial innovation as the economy's new growth engines.
As background, after decades of staggering growth, China has entered into a stage of moderate growth and has put more emphasis on the sustainable quality of growth in the future. In the 35 years between 1978 and 2013, annual growth of the economy averaged close to 10%, and over 11.5% between 2003 and 2007. That growth rate slowed to 7.4% in 2014, and it dropped further to 6.9% in 2015 as the government focused more on the transformation of the economic model than on a high GDP growth rate per se. For the upcoming five years (2016–2020), the 13th Five-Year Plan set an “above 6.5 percent” average growth target.
The new administration has referred to the moderate growth in the new era as “the new normal”. The new economic model is a consumer-driven growth model, where China shifts the balance of its economy away from government-led investment and import-export business and towards domestic household consumption. To achieve this goal, Premier Li Keqiang has written that “urbanization has the greatest potential for boosting domestic demand”. In China's urbanization plan, the central government aims to boost domestic consumption by increasing the proportion of urban residents to 60% by 2020 (approximately 800 million people).
What makes this ambitious program unique is the government's parallel effort to promote information-related consumption as a related new growth engine. In late 2013, China's State Council issued a blueprint to officially promote “information consumption” – a term that includes both “consumption based on information technology” (such as e-retailing and online banking services) and “quality information products for consumption” (such as movies and online videos). For example, as shown by the shopping sprees on Singles’ Days in recent years, the rapid expansion of the middle class and the exponential growth of the e-retailing industry have created an important catalyst for consumption growth in China.
To help implement this, the central government launched a “Broadband China” strategy in 2013 to significantly improve the country's information infrastructure, which equates internet networks with traditional forms of public infrastructure, such as highways and high-speed rail services. Also in 2013, the Ministry of Industry and Information Technology (MIIT) officially granted fourth-generation (4G) mobile technology licenses to three domestic telecommunication operators, marking the beginning of China's 4G era. The 4G network coverage is expected to include all the cities in the country within a short period of time. With such an infrastructure in place, China will see the development of “smart cities”, with much improved Wi-Fi coverage in public places, FTTH (fiber-to-the-home) capability, HD cable subscription and so on, each of which will drive development and consumption.
According to the official data from the China Internet Network Information Center (CNNIC), by the end of 2015 China had 688 million internet users (just above 50% of the total population), which was by far the world's biggest internet population. While the internet-enabled business and innovation are set to play a major role in fueling China's economic growth, it also has profound implications for society, such as how people relate to and communicate with each other. One dramatic example of the internet gaining familiarity and popularity in China is a recent phenomenon known as “human flesh search”. (See the “Renrou Sousuo” box.) Many similar new terms created by the internet culture in China will be examined in the following chapters in the context of their related business areas.
“Renrou-Sousuo” (“Human flesh search”)
Although one might suspect a link to internet pornography, the term “human flesh search” actually refers to Chinese internet users mobilizing themselves voluntarily to collectively search and post information online publicly about specific people or events.
The searches usually involve individuals suspected of crime (such as corruption), of foolish acts, or simply of socially questionable conduct to the millions of netizens. This usually takes the form of posting photos of people and accusations of misbehavior, but a massive number of internet users can often collaborate to reveal a lot of information about an offending person very quickly.
The “bodily” aspect of this search term probably originated with a 2011 event involving a model's identity. In 2001, someone posted a photo of a pretty girl on Mop.com – a discussion website popular with teens and those in their early twenties, claiming that the photo was of his girlfriend. Suspicious visitors at Mop.com soon discovered that the beauty was a model and collectively posted her information as proof that the original poster was lying.
In the case outlined above, internet users penetrated beyond a person's facade to reveal that person's “flesh” so to speak. “Human flesh search” thus stands for performing a deep search on the internet. Another theory is that the name refers to the broad knowledge scattered across social networks and the collaboration involved in searching. In this context, “human flesh” stands for “people in general”. With the amount of information that can be exposed on the internet, human flesh searches are very powerful, sometimes disruptive and very often controversial.
In some sense, the best example of a “human flesh search” was a fitting room sex video in July 2015. A young couple filmed themselves with a smartphone while they had sex inside the fitting room of a Uniqlo clothing store in Beijing's entertainment district Sanlitun. The video went viral on Chinese social media after it was posted online. It did not take long for the “Renrou-Sousuo” web users to dig up the porn enthusiasts’ social network accounts and other details about them (although they denied that it was them featured in the video), which probably helped Beijing police arrest at least four people for their involvement in the sex tape.
Since the beginning of the 21st century, a large proportion of the Chinese population has stopped using landline phones entirely and moved to using mobile phones. The fact that usage of landlines was not as pervasive as in Western economies meant that for many the transition did not involve a migration from fixed-line phones at all, but was a transition to mobile phones directly. With their advanced and ever increasing technological capabilities, smartphones are also replacing personal computers (PCs). For many people in China, especially in rural areas, their first internet experience is often mobile instead of one connected with a PC – indeed, their first online experience is the moment they start using a smartphone.
In other words, the Chinese population has transitioned directly into a mobile-first mobile-only era. Focusing on a niche passed up on by premium brands like Apple and Samsung, the Chinese brands like Xiaomi, Huawi and Lenovo have mainly offered low price, high performance devices, which have played well into the general Chinese population's desire to own a smartphone and to access the internet, but at an accessible point of entry. It is worth noting the three domestic brands are neck-and-neck in terms of their sales volume in China, and they are now competing directly for the No. 3 position in the global market (just behind Apple and Samsung, the two undisputed market leaders).
