How China proved to be a winner in innovation – Shaun Rein

 

Shaun Rein

Only half a decade ago Silicon Valley thought China becoming a force of innovation was preposterous. Now, under Trump, China has proved them wrong, says business analyst Shaun Rein in a wide-ranging interview with state paper Global Times. Also: China’s successful fight against Covid-19 and decoupling economies.

Global Times:

GT: You have written three books: The End of Copycat China: The Rise of Creativity, Innovation, and Individualism in Asia, The End of Cheap China: Economic and Cultural Trends that Will Disrupt the World, and The War for China’s Wallet: Profiting from the New World Order. Does the end of “copycat China” and “cheap China” mean that innovation has become major trend happening within Chinese companies? How might this affect other major technological powers, especially the US?

Rein: In 2014, I published The End of Copycat China, where I predicted that China was going to become an innovation powerhouse. At that time, Silicon Valley criticized me heavily. They said I was crazy. They said that the Chinese were not creative, were culturally unable to innovate, and that the Chinese government stifled innovation.

But six years after I published the book, it’s quite clear that China is an innovation powerhouse. When it comes to mobile services, it’s three-plus-years ahead of the US, and maybe five years ahead of Western Europe. Because of China’s lead in mobile services innovation, we were able to better contain COVID-19. For example, in China, almost everybody uses WeChat Pay or Alipay. It’s a cashless, contactless society. In the US, people are still using cash and credit cards, which may also spread COVID-19. The US still has a lead in semiconductors, with platforms like Android and IOS.

But that’s not because China can’t do it. It’s because there are so many low-hanging fruits. Why would China invest in semiconductors when it could just buy American semiconductors and focus on making money with mobile services innovations? China clearly was looking for a win-win trade policy with the US. Chinese companies were not stealing IP. They are willing to pay for American technology. It was easier and a win-win situation for everyone.

But because of the Trump administration’s trade war and containment policy, China has now begun to focus on innovation with semiconductors and operating systems. It’s not easy. It will take five to 10 years. But we see China has set up a semiconductor fund of about $30 billion. We also see that Huawei is focused on its HarmonyOS. Chinese companies now have to focus on self-reliance. And it would be stupid for the US to think that Chinese cannot innovate with semiconductors or operating systems.

I think the Trump administration is shooting the US in the foot. American tech companies are now not able to sell to their biggest customers in China. My firm works with many American tech companies, and we develop their strategies. They are furious about Trump’s policies because they are now losing their biggest market. And they are scared to openly criticize, because they worry that Trump will attack them on Twitter and get his hawkish American politicians to boycott their products.

More at Global Times.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers’ request form.

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China’s fintech explosion – Sara Hsu

 

Financial analyst Sara Hsu, co-author of the 2020 publication “China’s fintech explosion“, discusses how tech companies became the leaders in fintech, leaving the country’s giant banks behind. She addresses an online panel of USC’s US-China Institute and explains how an underserved community offers a fertile basis for the fintech explosion.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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Why China’s digital yuan does not create a reserve currency – Victor Shih

 

Victor Shih

The creation of a digital currency does not mean China can create a reserve currency for the international markets, says financial expert Victor Shih in Quartz. Domestically, it could mean the digital currency could try to catch back the financial room now occupied by commercial players like Alibaba’s Alipay and Tencent’s WeChat, he adds.

Quartz:

What investors are looking for in a reserve currency isn’t the technology—it’s a currency that’s stable, underpinned by a strong economy, freely convertible, and able to be used widely.

Victor Shih, an expert on China’s political economy and a professor at University of California San Diego, explained that merely introducing a digital currency “doesn’t solve the problem that some people holding renminbi offshore will want to sell that renminbi and exchange it for the dollar,” which is widely considered to be a safer asset. Here the gap is even larger: Nearly two-thirds of the world’s currency reserves are held in US dollars, compared with 2% in renminbi, the currency’s official name.

Suppose Iran sold China a large amount of oil, and accepted the digital yuan as payment. That would help with Beijing’s goal of pursuing more widespread use of the yuan in international transactions. But Tehran would probably want to use at least a quarter of those earnings to buy goods from Europe, said Shih, so they would need to convert a portion of the digital yuan into dollars and euros, the second-most used currency for global payments.

“If that happened on a very large scale, you’d have hundreds of billions of renminbi accumulating in Hong Kong,” a major clearing center for yuan-denominated transactions. And if those yuan were converted to another currency in large amounts, “the renminbi will be under downward pressure and the PBOC will have to step in” to prop up its value.

Still, the digital yuan could be one way for the state to try and wrest back control of digital payments from commercial companies, but it’s unclear what that would mean for the two dominant digital wallets, Alipay and WeChat Pay, who handle 94% of electronic payment transactions (link in Chinese). The central bank could theoretically ban commercial wallets like Alipay outright to eliminate competition, Shih said, but “that would be pretty terrible.”

One key advantage of people using digital yuan, Shih said, is enabling China’s central bankers to track exactly where every yuan is going in greater detail than possible at present. If Iran made purchases with its digital yuan earnings, for example, the PBOC would be able to see what it’s bought, and from whom, down to the cent. Yet the same thing that makes a virtual currency attractive to China’s government could work against it elsewhere—there are lots of situations when even perfectly law-abiding people don’t want governments to know what they’re doing, particularly when that government is the Communist Party of China.

Shih does see one potential opportunity: weaving the digital yuan into a payment systems on platforms like TikTok, the viral video app owned by Chinese tech giant ByteDance and boasting hundreds of millions of users, or in popular video games like Fortnite, developed by Epic Games, which is 40%-owned by Chinese tech firm Tencent.

“That’s the thing about the digital world,” said Shih. “Everything is potentially linkable so you can leverage popularity on one platform to get popularity on another platform.”

More in Quartz.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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How WeChat Pay took off with digital red envelopes - Matthew Brennan

Matthew Brennan

When Tencent started during the 2014 CCTV New Year show to promote giving red envelopes online, few realized it was the successful kick-off what is now known as WeChat Pay, says WeChat expert Matthew Brennan to the JingDaily. Some luxury brands did not like the concept though: "The idea of a discount communicates value and is generally not an incentive that luxury brands want to be associated with."

The JingDaily:

“It was a very important moment when red envelopes became popular because it is not an exaggeration to say that WeChat Pay itself was built upon the success of ‘lucky money’ or ‘red envelopes’ on WeChat,” said Matthew Brennan, a known WeChat expert and co-founder of China Channel. “Without lucky money, WeChat Pay wouldn’t have the adoption that it has today.”... 

There have been a number of other ways brands have adopted the concept of the red envelope in their daily marketing schemes through cooperation with WeChat Pay. After buying something in-store using WeChat Pay, consumers may, for instance, receive a red envelope with a surprise discount. Sometimes, payees are also prompted by the brand to send ‘lucky money’ to a friend, helping the brand expand its customer base. In most cases, Brennan says, the participating companies are consumer brands because the idea of a discount communicates value and is generally not an incentive that luxury brands want to be associated with. 

However, as WeChat and Alipay race to find ways to retain users for their mobile payment ecosystem, they continue to explore ways to incentivize shoppers and even promote various new technologies. Last year, on the tail of the global Pokemon Go phenomenon, Alipay included red envelopes in an augmented reality (AR) game where users could give the app access to their cameras and locations in order to see digital hongbao floating in front of them. Brands have gotten involved by teaming up with Alipay and “hiding” AR red envelopes in their stores or among their products, promoting online to offline (O2O) engagement among followers. WeChat has also empowered retailers to tap into O2O gamification using red envelopes, working with a mall to incentivize shoppers with a hongbao scavenger hunt. 

Luxury brands such as Hermès are already using mobile games as a marketing channel. In place of offering discounts, they can instead reward engagement with exclusive products or access to events. 

Alipay and WeChat Pay present significant new opportunities for brands operating in China. 

“There’s an intense war to protect those payment platforms and also to integrate increasingly more with offline payments, merging online and offline retail experiences,” Brennan said. ”From the backend, this also means utilizing data better and improving logistics as the expectations of the consumers in China are increasing.”

More in the JingDaily.

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Both Alipay and WeChat Pay can survive in China - Matthew Brennan

Matthew Brennan

Much attention goes to the epic battle between China's internet giants Alibaba and Tencent. But WeChat expert Matthew Brennan does not see why one of their payment systems, Alipay and WeChat Pay, should defeat the other. He sees room enough for both, he tells That's Magazine.

That's Magazine:

At present, China’s two major players in the mobile payment space, Alipay and WeChat Pay, hold about 54 and 40 percent of the market share respectively, according to a 2017 iResearch report. China Channel cofounder Matthew Brennan attributes their dominance to the strengths of their parent companies, ecommerce giant Alibaba, and Tencent, the world’s most valuable social network conglomerate... 

Brennan adds, “Both platforms, however, have successfully adapted themselves into the virtual world and into the offline economy… at the end of the day, I don’t think it’s about one winning or losing, as both are well-equipped to thrive in the market.” 

The US might be the world’s largest economy, but when it comes to mobile payment, the Chinese are way ahead. China’s total mobile payment transaction revenue was 50 times more than their American counterparts in 2016. Meanwhile, 52 percent of Chinese say less than 20 percent of their monthly transactions are conducted with bills and coins, according to the ‘2017 Mobile Payment Usage in China’ study published by China Tech Insights. 

Credit card companies and many Westerners’ ingrained habit of using cards as their primary payment option have prevented mobile payments from taking off, according to Brennan...  In a country where Visa, Mastercard and American Express still have yet to fully penetrate through the masses, Chinese consumers were able to easily move on from cash and plug themselves directly into the ecosystem that Alipay and WeChat Pay have created.

More at That's Magazine.

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Are Alibaba and Tencent becoming too powerful? - Matthew Brennan

Matthew Brennan

Both Tencent and Alibaba have become power players, even eclipsing the formerly leading economic state-owned companies, says innovation-specialist Matthew Brennan in ATimes. So maybe they [think they] need to clip their wings a little,” adds Mr Brennan.

ATimes:

In many ways what they are doing dovetails with the central government’s goals of restructuring China into a service oriented economy, and making the country a leader in technological innovation. Because of this, industry leaders have clearly been given the green light thus far to forge ahead with their disruptions. 

But Matthew Brennan of China Channel, a consultancy that has followed Tencent since it was listed in 2014, tells the Financial Times that he agrees with those who believe it and Alibaba have become too powerful. 

Alipay and WeChat pay says Mr Brennan, for example, are good for the economy and put China at the cutting edge of mobile payments. But at the same time “they are undercutting the SOE banking sector and have done so very rapidly, and that could lead to instability . . . too much disruption going on could spill over into unrest. So maybe they [think they] need to clip their wings a little,” adds Mr Brennan. 

Warning signs, as the FT writes, seem to be largely concentrated in the payments, financial services and gaming industries.

More in ATimes.

Matthew Brennan is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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• Beijing's public transport system gets an app for paying fares - but Apple isn't invited
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China: bound to be the first cashless society - Ben Cavender

Ben Cavender

A decade ago, in China cash was king. But in less than another decade, the same country could be the first fully cashless society, says business analyst Ben Cavender to AFP. Cavender estimates China's mobile payment market is already 40-50 times larger than the United States.

AFP:

China was the first country in the world to use paper money but centuries later the soaring popularity of mobile payment has some analysts forecasting it could be the first to stop. 

The gross merchandise value of third party mobile payment rose more than 200 percent to 38 trillion yuan (about $5.6 trillion) in 2016 from a year earlier, according to China-based iResearch. 

The growth of the cash-free system has been supported by China's rapidly expanding e-commerce market as Chinese shoppers increasingly shun bricks and mortar stores. "I think it's really very possible that China becomes the first or one of the first cashless societies in the next decade," said Ben Cavender, a director at China Market Research Group. 

Cavender estimates China's mobile payment market is already 40-50 times larger than the United States. 

Alipay, started by e-commerce giant Alibaba and now owned by its affiliate Ant Financial, and WeChat Pay, which is built into Tencent's popular messaging service, have hundreds of millions of users between them and are China's dominant payment platforms. In Beijing it is hard to find a product or a service that cannot be purchased with a mobile.

More in AFP.

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