Just like in the rest of the world, the internet in China is moving into every aspect of daily life. However unlike in the rest of the world, the internet is not dominated by Facebook, Amazon, Netflix and Google. The internet is dominated by a group of Chinese home grown internet giants. Some International companies have been trying to gain access to the lucrative China market however it is proving very difficult. Google recently gave up on Project Dragonfly, their attempt to develop a search engine for China.
Last week The South China Morning Post in collaboration with Abacus released their 2019 China Internet report. In this newsletter, I will look at some of the highlights of the report. The full report is available for download here (it is free).
The China v the US internet
China’s internet penetration is currently at 60% of the population. However due to its’ sheer size the number of internet users in China dwarfs those in the US.
Many consumers in China are mobile first consumers. They did not use the internet on a PC or laptop before using it on their phone. This has had great implications for apps and other features used by Chinese consumers. The key players in the many internet verticals are completely different in each country.
The most striking difference is that the US companies are banned in China however the Chinese companies are slowly making their way to the rest of the world. I took this photo of a storefront in Balmain in Sydney last week. Afterpay is an Australian payment company, Alipay and WeChat pay are Chinese.
The Biggest Chinese Internet Companies
The two largest (by market valuation) Chinese Internet companies are Tencent and AliBaba (the owners of WeChat pay and Alipay respectively). Tencent has a market valuation of US$442 Billion and AliBaba US$463 Billion. This compares to Facebook US$577 Billion and Google US$796 Billion.
What are the top trends in 2019?
China’s copycat tech industry is being copied. The Super App (one app for access to everything), the combination of social and e-commerce and a renewed focus on short video are being pursued by international tech companies after the runaway success in China. WeChat and Alipay offer everything from e-commerce to social media through the one app. Line (a Korean owned but Japan based internet company) and Facebook are following similar strategies. Line started as a messaging app but it now offers a digital wallet, news streaming, video on demand and digital comic books. Facebook has recently added the WhatsApp messaging app, announced Libra a cryptocurrency and is integrating Instagram more with e-commerce. Short video, TikTok (owned by Bytedance in China) has made short video extremely popular again. Snap and Facebook (via Lasso) are focusing heavily on the short video space.
China is racing ahead with 5G. China is leading the world in the extended roll out of 5G. China’s major operators are targeting a dozen cities with over 167 million total population for their initial roll out. 5G allows significantly faster download speeds than the current 4G networks. Chinese companies have 3,400 5G patents compared to 1,368 in the US. South Korea is the other major player with 2,051.
I will look at 5G deployment in Australia in a few weeks.
China is using Artificial Intelligence on a massive scale. Current uses include:
Access control, e.g. paying subway fares, checking into hotels
Customized recommendations, e.g. Shopping and browsing content
Surveillance, e.g. catching criminals, enforcing traffic laws, identifying citizens and controlling crowds
Smart Cities, e.g. AI enabled traffic cameras controlling lights
Other uses include University class attendance, student attention spans in schools and seeing virtual doctors.
Social Credit is a reality in China. By 2020, all citizens will be given and ranked by, a social credit score. The system uses rewards and punishments to encourage people to abide by rules and promote integrity and trustworthiness. To date:
13.5 million individuals have been deemed untrustworthy. There is a mobile warning system to alert trustworthy individuals that one of the 13.5 million deadbeats is in their vicinity and to take care (some will remember the robot from Lost in Space and his most famous saying when a stranger approached “Danger, Will Robinson”, it looks like life is now imitating art).
20.5 million people have been banned from travel by air as a punishment for failing to repay debts or conducting “untrustful”behavior.
5.7 million have been banned from using high speed trains for similar offenses.
The AI system in not infallible however. Recently there was a woman who lived in Hangzhou (near Shanghai) that was a part time actress. Her photo was in an advertisement on the side of a bus in Guangzhou (in the south nearer to Hong Kong). As the bus drove down the street, the system saw her photo, recognized her and charged her with jaywalking. Given the social credit consequences she had to take action to maintain her credibility and have the fine reversed. Fortunately for her, she was able to prove that she was in Hangzhou on the day of the fine and it was revoked.
There is no doubt that the speed of innovation on the internet will continue to accelerate. This will be true for China and for the rest of the world. How the internet is used and controlled is likely to become more and more different. The Government in China requires strict monitoring of all text and voice conversations by the major tech companies. Every message and conversation is monitored in real time by AI for dissent and discussion of controversial topics. As the saying goes in China “What is the best way to delete your WeChat account? Just speak your mind.”
Paying it Forward
If you have a start-up or know of a start-up that has a product, ready for market please let me know. I would be happy to have a look and give the start-up a shout out to my readers if it is something that I think they could use. If you have any questions or comments please email me via my website craigcarlyon.com
Till next week.