Unique historical, socioeconomic, and political conditions have created a distinctive path for China’s rapid integration of computing and technology into its economy and society.
Over the last 20 years, major Chinese technology companies such as Baidu, Alibaba, Tencent, and Didi Chuxing have gained prominence through their ability to shape and deliver democratized computing power and services into the daily lives of China’s consumers.
The rise of China’s computing industry has transformed the way its citizens live and consume. Computing is a broad term that today encompasses a wide variety of industries and companies that utilize computing power through the Internet and personal computing devices. The critical mass of distributed computing power has reached new levels through smartphones, distributed computing, the Internet, and instant communication platforms like social media, which have spawned both large-scale innovations and challenges unique to China.
In the context of technology innovation and disintermediation, the number of Internet users in China grew 12% from 2015 levels to 717 million in 2016, while average hourly Internet usage grew 30% over the same period, providing both foundation and momentum to drive acceptance of a variety of online services, ranging from e-commerce to ride-hailing apps.
One development unique to China is the country’s unprecedented rapid conversion to a nearly cashless consumer economy. While the technologies underlying this have been available for nearly a decade, the factors driving Chinese consumers to largely stop using cash include the country’s relatively high smartphone usage, its weak traditional financial infrastructure (see the article by Y. Qi and J. Xiao on p. 65 of this section), and its large population.
In 2017, while China ranked 25th in the world in terms of smartphone penetration of its population (51.7%), due to its enormous population (roughly 1.38 billion in 2017, according to the CIA World Factbook), China had more smartphone users than any other country in the world in 2017 (717.31 million, followed by India with 300.1 million, and the U.S. with 226.2 million).
Today, payment apps such as AliPay and WeChat provide cashless payment services covering the full spectrum of daily life, including buying goods from street markets. As a result, even food trucks and street vendors often do not accept cash, and beggars are equipped to accept digital donations.
Another area distinctive to China is ride-hailing, a sector in which Uber, Didi Chuxing, and several other companies have engaged in a multiyear competition. Beijing-based Didi’s rapid innovation of new services tied to local patterns and societal structure, as well as its hometown advantage, ultimately led to its August 2016 acquisition of Uber’s China operation, a deal that propelled the global expansion and influence of the resulting $35-billion Didi.
Online innovation has propelled a cycle of growth in online users, and robust online usage is creating monetization for growth, which has encouraged substantial and growing investment at all stages of technological development. In 2017, China experienced record venture capital deal activity, with half of the top 10 largest deals globally involving Chinese telecoms and Internet companies according to Preqin, a source of data and intelligence for the alternative assets industry. Didi Chuxing’s $5.5-billion financing in April 2017 emerged as the biggest venture capital-backed deal of the past 10 years.
The Chinese are often portrayed as naïve, and even gullible, for allowing their government and technology businesses to collect so much data on them without their consent or knowledge. This has become an accepted observation of the unquestioned status quo in China.
However, since it was learned that Cambridge Analytica had mined the personal data of 87 million U.S. Facebook users (up from the initial estimate of 50 million) and used that data to affect the results of the 2016 U.S. presidential election, it appears private companies exploiting personal data for advertising and more proved to be less than ideal for protecting individual privacy.
Companies in China
Whether authoritarian state control or improved government regulation in the West will prove more effective in combating data-mining malpractice and protecting privacy remains to be seen. It is especially important as China’s advanced computing ambitions continue to incorporate tight government control of content and a closed Internet firewall, a distinctly different model from that of the West’s open Internet.
In 2016, Chinese technology company and search engine provider Baidu was investigated after a student researching a medical condition was directed to ineffectual, experimental medical treatment ads, which caused him to miss seeing genuine medical solutions.
Online entertainment in China is becoming the key driver of mobile time spent online, while e-commerce and games remain the best models for monetizing time spent online, according to data from venture capital firm Kleiner Perkins that showed the Internet accounted for 55% of total Chinese media usage in 2016 (up from 50% in 2015). Desktop Internet usage made up 37%, and mobile Internet usage 28%, of average daily media consumption in China in 2016. The growing amount of computing power in the hands of consumers supported the growth of online entertainment end-user revenue from $8 billion in 2011 to $31 billion to 2016.
The cashless digital economy arrived in China empowered by government regulations and cheap mobile devices, but citizens may not be aware of the profound implications on their daily lives and economic freedom. The dwindling importance of cash implies the wholesale elimination of bank runs. Banks can arbitrarily impose and charge fees and control funding transfers. The central bank can directly influence consumer behavior such as spending and saving, and the government can directly control the infrastructure required for basic actions (food, transport, work) essential for daily life.
President Xi’s anti-corruption campaign has been made more efficient through the increasingly digitized economy and financial system, but it has also driven the shadow banking economy even deeper underground. According to Bloomberg, China’s $15-trillion shadow banking industry (non-bank financial intermediaries that provide services similar to those of commercial banks, but outside normal banking regulations) threatens the stability of China’s financial system, as $3.8 trillion of interest-bearing trust products, many sold online, threaten to default this year.
China’s advanced computing ambitions continue to incorporate tight government control of content and a closed Internet firewall, a distinctly different model from that of the West’s open Internet.
Do the Chinese understand the freedoms they are giving up in exchange for convenience and entertainment? Government power increasingly extends beyond privacy to direct tracking and control of the actions of daily life. This has not been fully debated in the Chinese media, which tends to celebrate the dominance of homegrown tech firms; nor has it been widely discussed in Western media.
Indeed, the development of computing in China is distinctive in many ways, and these differences present an opportunity to learn about the benefits and shortcomings of contrasting approaches.
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