Saturday, 14 January 2017 05:36

Mapping out China's fast-changing internet


HONGKONG: Outsiders are often told that doing business in China is unique. Winston Ma brings a fresh and eye-opening perspective to that platitude in "China's Mobile Economy". But his timely guide to the fascinating forces powering the country's tech sector plays down the difficulties faced by foreign groups.

The author, a managing director at sovereign wealth fund China Investment Corporation, is a corporate lawyer turned investment banker who has worked in both the United States and China. A Chinese native, Ma provides valuable insights into what makes the country's 620 million mobile web consumers tick - and the array of corporate titans, startups, and investors vying for their attention. Collectively, they make up China's booming "mobile economy".

For those familiar with Western tech trends, this is alien territory. One of the first peculiarities Ma highlights is Singles' Day, a distinctly Chinese phenomenon. Every Nov. 11, e-commerce behemoth Alibaba hosts a 24-hour online shopping extravaganza of unprecedented proportions, accompanied by a glitzy gala which has in the past featured stars from Daniel Craig to Adam Lambert. It is the "single most important day each year for online vendors to target young, tech-savvy consumers who are accustomed to buying online", Ma states. On the most recent Singles' Day, transactions on the group's platforms topped a whopping $18 billion, with $5 billion changing hands in the first hour alone.

Ma's analysis of Chinese consumers, makes for the book's most interesting parts. "Social engagement and purchasing behaviour are so intertwined in China that Chinese customers tend to seek friends' input before they make shopping decisions", he points out. That helps explain the rise of WeChat, the popular Chinese chat app and social network owned by gaming giant Tencent. Though it's often compared to Facebook's WhatsApp, this ignores the fact that WeChat enables users to shop online, pay bills and play games, among other things. It has become an indispensable part of and powerful force in China's mobile internet.

The ultimate prize for Tencent and its rivals, however, is creating a seamless platform that links customers to goods, services, experiences and entertainment in the physical world. Alibaba, Tencent and search engine Baidu - collectively known as the BAT trio - are expanding their digital empires to include so-called "online to offline" services like taxi bookings and restaurant deals, movies and TV shows, as well as financial services and payments. It is here where Chinese companies are exploring innovations that diverge significantly from Western counterparts Google, Amazon and Facebook.

Ma's analysis of the resulting investment frenzy is less compelling. He points out that investors are concerned with companies touting cash-burning subsidies, unsustainable business models, and frothy valuations. But he stops short of addressing the risks and follies of over-expansion.

The book touts LeEco, known for its video-streaming platform and TV sets, as an example of a company combining hardware and content. It doesn't mention, however, that the group is facing a cash shortage after charging into electric cars, sports media, movie production, cloud computing, and smartphones. Shares of LeEco's listed arm have slumped some 40 percent in the past year. Similarly, rival Xiaomi, the $45 billion smartphone maker, has pushed ahead into content, software, as well as smart home devices ranging from rice cookers to air purifiers. The company recently admitted it expanded too fast. In a letter to employees, the group's chief executive acknowledged the need to slow down.

Ma's discussion of foreign tech groups in China also has some shortcomings. It's true that Amazon, eBay, and more recently Uber China lost out to local rivals in the grab for market share. But the book leaves out the difficulties that other companies have faced even getting a foot in the door: Facebook, Youtube, Snapchat and Twitter are just a few examples of apps that are blocked in China.

For many outsiders, China's mobile economy will be too big to ignore. Despite regulatory hurdles, foreign investment restrictions, censorship, intellectual property concerns and anti-trust scrutiny, groups like Facebook are still pushing ahead. The social network led by Mark Zuckerberg has even developed a censorship tool to appease China's regulators, the New York Times reported in November. And home-rental startup Airbnb, last valued at $30 billion, has been striking local partnerships and working closely with regulators, its chief financial officer told Bloomberg in December.

It's clear that the stakes and opportunities in China's mobile internet are immense. So are the challenges and risks - particularly for outsiders.

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