Life's Learning - 07/20/18

A Breakdown of China’s Internet Landscape

Written by Tiffany T

Last week at RISE, we listened to Ravi Hiranand, Edith Yeung and Chua Kong Ho discuss this year’s China Internet Report. Here’s what was said.

The 2018 China Internet Report is a unique collaboration between Abacus, a news site focusing on China’s tech scene, 500 Startups, an early-stage venture fund and seed accelerator, and the South China Morning Post, which breaks down everything regarding China’s tech industry from its trends to its big players. Ravi Hiranand, executive producer of Abacus, Edith Yeung, partner of 500 Startups, and Chua Kong Ho, Technology Editor of the SCMP took us through some of its main points.

Ravi begins by emphasising the sheer size of China, stating that it is home to 772 million internet users. That’s 3x the number of smartphone users and 11x the number of mobile payment users than there are in the U.S. “It’s the same across other sectors, smartphone, mobile Internet, mobile payment,” begins Ravi. “But the important thing isn’t the sheer number, it’s the penetration. Because that 772 million, that’s just 55%. China has a lot of room to grow.”

And, where are the startup hubs catering to this vast audience? “Number one by valuation and number is Beijing,” says Ravi. “Shanghai actually has the second most number of unicorns, but it’s beaten out in valuation by Hangzhou, mostly because of the massive value in financial. We’ve also circled the Greater Bay Area that is known as China’s tech capital, which includes all the cities clustered around the Pearl River Delta, like Guangzhou, Dongguan, Zhuhai, Shenzhen, and of course, Hong Kong.”

Taking a look at the top Chinese Internet players, Chua states that Tencent became the first Chinese company to surpass US$500 billion in market capital. “They’re neck and neck with Alibaba in first place. Ant Financial is in third place with a private evaluation of about 150 billion dollars. Interestingly, Xiaomi had their trading debut yesterday in Hong Kong and is valued at about 50 billion dollars,” Ravi explains, adding, “that has come to be the largest Chinese IPO since 2017.”

In the course of putting this report together, the team identified four overarching themes illustrating the development of China’s Internet. The first was the fact that China’s Internet Giants are doing everything. “Think about companies that are in all of these sectors. E-commerce, media, AI, the sharing economy, autonomous cars, fintech, education and gaming. There aren’t many companies in the world that can claim to be a part of all of these,” Ravi states. “But in China, the big three, Baidu, Alibaba, and Tencent, are all in all of these sectors.”

The second was the impact that the Internet has had on the rural population. “Increasingly, people in rural areas in China have access to e-commerce, and all the services that come with it. This has actually created jobs,” Chua explains. “We interviewed startups who have gone back to their hometowns to start businesses because they can now export some of their produce from their villages to markets that were not possible before e-commerce.”

He further elaborates “In terms of education, some of the schools in the most remote parts of China are now connected by live-streaming to bigger, more well-resourced schools in the biggest cities. And in news and entertainment, the explosion in popularity of short video apps in China has been driven largely by people in rural areas, who, for the first time, have been able to create and consume content and entertainment for themselves.”

The third theme highlighted was ‘social plus’, where Internet companies are emphasising social networking to drive more user engagement. When talking about Pinduoduo, the fastest growing app in China, Ravi says, “There are two prices, there’s the regular price and the social price, that’s the price you get if you buy in a group. The social price is a third of the regular price. Given how easy it is, why wouldn’t you try for it?”

Lastly, the report makes the point that working in China requires companies to figure out what the government thinks, and how to stay in line. Chua reveals “In September, China closed down cryptocurrency exchanges and banned ICO (initial coin offerings). Three months later, they tightened rules around internet financing and peer-to-peer online lending. This year, in the first quarter, there was a big campaign to clean up the internet of lowbrow content and illicit information.”

To finish, Edith Yeung of 500 Startups gave her overview of China’s AI industry. Whilst it still lags behind the US, the Chinese government has declared that by 2030, they will be number one in regards to AI. By partnering with the likes of Baidu, Alibaba, Tencent and Flytech and with a USD 2.1 billion AI park being built outside of Beijing, they hope to inspire development. Already, there is progress. “In the city Wuhan, they actually use cameras for facial recognition for collecting tickets,” says Edith, and they’re working on using facial recognition in law enforcement. “If the security camera caught you jaywalking, you may get a ticket on WeChat, that is crazy. There are cases where the police actually catch fugitives within a crowd of 5000 people using security camera and facial recognition.” She also identifies AI progress in food. “They have a chicken AI program to keep track of your chicken, making sure that it is eating, sleeping and staying healthy.” Alibaba is doing something similar for pig farmers. Other uses of AI mentioned include robotics, voice and language applications.

Finally, Edith touches on the hot and complicated topic of cryptocurrency. “Many of these Chinese projects have done amazingly well. Qtum, Tron and Neo have all traded a billion dollars in market capital and Binance, Okex and Huobi are definitely top three. But, having said that, crypto and blockchain have a love-hate relationship with the Chinese government. On September 4th, the Chinese government blocked all initial coin offerings ICO, and on September 11th, they asked all the crypto exchanges to shut down, that’s why all these companies have to leave China. So, they are definitely not very friendly to cryptocurrency.”

Looking at a chart, Edith concludes, “After the shutdown, there was almost no RMB to crypto transactions in China.” Surprisingly though, the exception appears to be Blockchain. “If you go to a city like Shenzhen, there’s a USD 500 million allocated fund to invest in blockchain. And if you go to Hangzhou, there’s a RMB 10 billion fund waiting to be invested.”

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