The Future of E-Commerce and Technology in China – Entering the Chinese e-Merging Market

The Future of E-Commerce and Technology in China

China has done quite a journey to get where it is today. When the economic reforms of the late 1970s began, the world saw China as a developing nation trying hard to catch up with the pace of the West. Then, manufacturing centers began to pop up in Southern China, and people saw it as a toy factory. After that, it was seen as the copying and pirating capital of the world. Many did not believe that a—so-called—Communist country could transition to a wider market economy integrated with the rest of the world or move beyond the manufacturing chain by producing high-quality, cutting-edge technology products. Although changes are taking place, such as rising labor costs and other countries expanding their manufacturing sectors, China will not lose its place as the world’s factory. With the growth in manufacturing came a wealth of technology transfer and a great deal of tech-related products. Now China is accomplishing what many thought was impossible. It is moving swiftly into the age of innovation and well ahead of the rest of the world in some areas.

Most of the world’s smartphones and computers are made in Chinese factories. Most of those factories are located in and around the Pearl River Delta. Device components are largely made in China and assembled there as well. A combination of key resources, manufacturing infrastructure, powerful tech companies, incubators, supply chains, and international transport. The region is also known as Silicon Delta. This region is emerging from a phase that experienced ideas, visions, and designs developed abroad with product and hardware execution done locally. Now, both are happening in the same place and at record speeds, thus attracting international and local talent. Many established Chinese brands are also making their mark on a global level. Lenovo is a case in point. The company is second globally when it comes to PC sales, right behind Hewlett Packard, while Huawei’s 2017 global smartphone sales exceeded Apple’s, placing it in second place, behind Korean Samsung. And, this goes far beyond manufacturing and sales.

Homegrown tech companies now compete on a global scale in terms of innovation, service quality, brand recognition, and partnerships. Alibaba is a good example. It entered the scene as a long-term Olympic Sponsor in 2018, just as McDonalds exited. It provided cloud services, digital media, and e-commerce platforms for the winter Olympics that took place in Pyeongchang and assisted the International Olympic Committee (IOC) to find ways to save money on future games. Also, Alibaba’s first global ad campaign focuses on values such as sportsmanship, underdogs, and generosity. These developments are no accident. Local and national authorities are involved. Beijing is the leading tech hub in the world, followed by Berlin and San Francisco. The central government is supporting cities like Chengdu and Guiyang, as they develop their own tech hubs. While China still remains behind in some areas, 2018 was a benchmark year for many of the country’s national brands. China’s evolution is evident and unstoppable.

How does this evolution translate in terms of facts and figures and real-world examples in 2018?

Supercomputing

China currently owns 202 of the world’s 500 most powerful and fast supercomputers—including the top two—compared with the United States’ 143. The top American computer ranked fifth behind China, Switzerland, and Japan. In 2018, China had the fastest supercomputers in the world for the 9th year in a row. Since 2016, Chinese high-tech companies have been using only Chinese designed processors. China now intends to launch a new generation of exascale supercomputers. These are often described as super supercomputers and are capable of billion billion calculations per second.

Robotics

In 2015, the Chinese government devised the Robotics Industry Development Plan as part of an industry initiative called Made in China 2015. This five-year plan aims to expand the robotics sector. China aims to manufacture at least 100,000 industrial robots per year by 2010. This is already being done with research and development, as well as through acquisition and investment. Midea Group, China’s leading home appliance manufacturer, is an example in point. The company has recently acquired a majority stake in the German robot manufacturer Kuka GA, as well as Israeli motion solutions provider Servotronix Motion Control, so that it can integrate their technologies into its robotics.

China is also the world’s largest and fastest-growing robotics market. It currently ranks number one in sales in terms of industrial robots, while South Korea and Japan are ranked second and third, respectively, with the United States ranking fourth. The global robotics market is currently worth about 30 billion U.S. dollars, and by 2019, China is expected to account for 40 percent of the global robotic sales, as opposed to 27 percent, back in 2015.

Virtual Reality

Virtual reality (VR) technology is currently very popular in China. Sales of VR headsets accounted for almost 60 percent of total VR product sales in China, while consumer content made up less than 8 percent. Consumer VR content sales are set to explode and are expected to account for 25.5 percent of VR revenues by 2021, with games leading this product category and generating 9.7 billion RMB, followed by movies at 8.8 billion RMB. China’s state-owned broadcaster, CCTV, has bought VR technology from 7D Vision Tech—a Beijing-based production startup—to telecast events like basketball matches and the Spring Festival Gala. 7D Vision Tech has made half of their annual revenue from selling VR filming services to TCV stations.

Blockchain Technology

Blockchain technology was first officially mentioned in China in 2016 as part of the government’s 13th Five-Year Plan. The government wants China to be a pioneer in this blockchain technology and wants to apply it to industry and commerce. Blockchain technology works like a set of digital fingerprints. This has made it ideal for online banking, digital contracts, secure tracking procedures, as well as peer-to-peer transactions. This explains why many companies and governments globally are investing in this type of technology with a particular stress to applications that can increase security, speed, and services offered digitally. In China, however, it is widely accepted that blockchain technology will be applied in a highly controlled way, thus maintaining the current ban on bitcoin, ICOs, and other cryptocurrencies. The focus will be on improving the technology’s security for potential use in finance. As of 2017, 550 blockchain technology-related patents were filed by Chinese companies, against 192 from South Korea and 284 from the United States. Many provincial governments are already proposing guidelines to attract companies that develop, design, and implement blockchain applications. Chengdu, Guangxi, and Hangzhou have proposed policies to encourage research and development in this field.

Drone Technology

DaJiang Innovations Ltd., a Shenzhen-based company, is currently the world leader in civilian drones. DaJiang have captured 70 percent of the market already. They enjoy an avid, large fan base. Their unmanned aerial vehicles (UAV) are used in aerial filming and photography. This technology has been used in productions like Game of Thrones and American Ninja Warrior. The company has even won an Emmy prize for its engineering creativity. Many major e-commerce players such as Alibaba, Jing Dong, and Tencent use drone delivery programs at advanced stages of development. The first official government license for drone deliveries was granted to SF Express, China’s largest logistics firm in early 2018. This is going to impact remote areas of the country as it will allow rapid response in case of natural disasters and emergencies.

Financial Technology

Chinese financial technology (fintech) companies took the top three spots and five of the top 10 spots in the 2017 KPMG and H2 Ventures FinTech 100 list. The list ranks companies from around the world based on innovation, size, brand recognition, and capital-raising activity. This was the second year in a row for Ant Financial, an Alibaba affiliate, to top the list.

Artificial Intelligence

China is investing heavily in artificial intelligence (AI) technology, from algorithms to chips. The State Council has issued an ambitious policy for China to become the primary artificial intelligence innovation center in the world by 2030. Chinese startup Cambricon has designed a new chip that enables portable consumer devices to engage in the same level of AI that took 16,000 microprocessors to accomplish back in 2012. This would make them capable of navigating roads, recognizing faces, and translating languages. In the worldwide search for AI-enabled chips, Cambricon founders are leading the way, and their chip has already been recently used in a Huawei smartphone that they proudly call the world’s first real AI phone. Cambricon was valued at one billion U.S. dollars in 2018.

Electric Cars

China is the largest car market in the world and the largest car producer. It is also the largest market for electric vehicles globally and the global leader in terms of electric vehicle production and investment. Chinese manufacturers do not sell the majority of the traditional vehicles they produce within China yet, but domestic companies have, nonetheless, a 90 percent market share in the electric vehicle arena.

Space Exploration

China is one of three nations—along with the United States and Russia—that can send both people and satellites into space. The China National Space Administration has sent numerous satellites into space and has partnered with European and Russian space agencies in various projects, including preparations for a manned mission to Mars. It has also set its sights on a moon landing by 2025 and is developing plans and capabilities for supersonic aircraft.

Green Energy Technology

China has been the world’s largest manufacturer of solar panels since 2008. The country is also the leader in wind power generation. It currently enjoys the largest wind power capacity in the world. China’s 13th Five-Year Plan for Building Energy Efficiency and Green Building Development includes aggressive goals for renovation, green building construction, including a requirement for 50 percent of all new urban buildings to be certified green buildings.

Medical Big Data

Due to its large population and its efforts to improve its health-care system and its medical technology, China is the global center for medical data. It is the only place in the world where researchers can quickly pool information on 100,000 patients. In fact, the country is the world’s largest genome database, which makes it a hub for genomic research and data. A growing number of startups specializing in health tech are engaged in partnerships in China to perfect algorithms, find new cures for diseases to be used in medical AI. China has also engaged in certain highly controversial research experiments. In 2015, Chinese researchers edited genes for the first time in an experiment during which they successfully removed puppy embryos from their mother, edited their genes to make them build muscle faster before reinserting them in their mother. In 2017, they successfully cloned dogs after having edited their genes.

Alibaba Group

Alibaba is the largest online retailer in the world. The company’s gross merchandise volume reached 547 million U.S. dollars in 2017. Alibaba first started as an e-commerce business connecting sellers and buyers, taking advantage of China’s growing Internet population and underdeveloped brick-and-mortar businesses. Founded in 1999 by Jack Ma, the company operates the largest online marketplaces in the world. Its ecosystem comprises digital media, e-commerce, logistics, cloud computing, digital marketing, and local services. Alibaba’s mission is to make it easy to do business anywhere.