Will China gain technological leadership via the mobile Internet wave? In his book “China’s Mobile Economy”, Winston Ma explains the phenomenal take-off of mobile Internet in China as of 2014, and what implications and opportunities it provides.
With a 2017 population of 1.4 billion people, and an estimated 620 million smartphone owners (end 2015, source: CNNIC), the People’s Republic of China dominates the mobile telephony and mobile Internet segments by a clear margin, leaving the US smartphone user tally in the dust. No wonder Winston Ma (bio below) took interest in providing a lively and up-to-date account of the ups and downs of the sector(s).
Although a latecomer to the developed world of free markets, there was one tremendous advantage for China: it skipped the lengthy and costly stage of fixed line telecoms, rushing head-on into mobile communications, and especially into mobile Internet access via smartphones. Industry actors found fertile ground into which saplings could be planted: a growing middle class (now estimated at over 300 million people); increasing levels of disposable income; available “dead time” for online browsing and shopping (namely thanks to long commute times on public transport); a ravenous appetite for entertainment and games; and an increasing interest in foreign offerings.
Chinese traits of character also assisted the mobile explosion. Longstanding personality traits such as the need to communicate and socialize, an appreciation for friends’ opinions, a fondness for shopping, and a penchant for gaming or betting were all drivers in the Chinese rush for Internet access via smartphones. Even if the devices ended up costing a full month of pay for the less affluent classes of society.
The 2014 surprise
For Winston Ma, 2014-2015 marked an inflection point, when the number of Chinese accessing the Net from their phones overtook the number using good old computers. That marked the tectonic shifting of Internet plates, with the mobile plate overtaking the PC plate, followed by a mad rush of freshly minted phone surfers gaining precious access to the bounty of the Net. And of course this shift in behavior had consequences for businesses and consumers.
Cause or effect?
With China becoming a service economy – in 2015 a threshold was broken, with over 50% of China’s GDP derived from the tertiary services sector according to the China National Bureau of Statistics – the smartphone became a sesame to a bright new universe of offers. The growing middle class and the conspicuous consumption of the mostly young Internet demographic provided the fuel for the explosive growth.
Research presented at the 2016 Mobile World Conference, the Mecca for mobile telecoms held in Barcelona, showed that China was already more sophisticated in terms of mobile data services than developed markets. For example, 73% of Chinese mobile users already accessed social networks via smartphones, as opposed to only 43% of their British counterparts.
The author predicts this trend will go unabated, with a young population that is very sensitive to status, yet unsure in its proper choices, therefore keen to call upon social networks for advice and approval. The smartphone is both the periscope that provides youngsters with glimpses of luxury lifestyles that they aspire to, and the village tam-tam that enables chatting with peers.
BAT: trio of big boys
As economists would predict, explosive demand has implied innovative supply. From their early days as copycat clones, Chinese internet companies have changed and adapted their business models. For example, massive e-commerce giant Alibaba started out as a sort of Chinese eBay. Now, Alibaba is closer to a mixture of eBay, Amazon, Netflix and Paypal.
Although the Internet scene in China as elsewhere is in flux, the book regularly makes reference to the BAT trio of top players in China: Baidu (the dominant search engine), Alibaba (the dominant e-commerce platform), and Tencent (the dominant social network). These three players provide much grist for the mill of anecdotes and sidebars with which the book is peppered, making it an easier read for the non-technically minded reader.
Yet the Chinese market is nowhere close to saturation. Although growth in sheer numbers of handsets will obviously decelerate, the vast bamboo grove of applications and other revenue-generating services will continue its hectic pace, offering opportunities and pitfalls.
Stay tuned for more
We will be covering Winston Ma’s book in three parts. This first part provided some background information on how the mobile explosion occurred in China, and some hints on the reasons why.
In our second part (Casium issue 52, to be published on August 3), we’ll look at the background on the hardware aspects, namely the runaway success of Xiaomi, the Chinese maker of mobile handsets, but also more.
In the third part (Casium issue 53, to be published on August 17), we’ll examine the extensive software implications of the mobile boom across various sectors: gaming, social media, finance, e-commerce, and more.
Title: China’s Mobile Economy; Opportunities in the Largest and Fastest Information Consumption Boom
Author: Winston Ma
Winston Wenyan Ma is a managing director of China Investment Corporation (CIC), the sovereign wealth fund of China, with a focus on long-term investments in large-scale concentrated positions. Since joining CIC in 2008, he has held leadership roles in major direct transactions involving natural resources, financial services and high-tech sectors.
Prior to joining CIC, Winston Ma served as the deputy head of Equity Capital Markets at Barclays Capital. Previously, he was a vice-president at J.P. Morgan investment banking, and a corporate lawyer at Davis Polk & Wardwell LLP and Freshfields.
He is the author of the bestselling book Investing in China: New Opportunities in a Transforming Stock Market (Risk Books, 2006) and has been widely quoted in global financial media.
Winston was selected as a 2013 Young Global Leader at the World Economic Forum (WEF) and in 2014 he received the Distinguished Alumni Award from NYU.