China Accelerates Digital Efforts to Become the World's Leading Economy
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In October last year, General Secretary of the Communist Party of China, Xi Jinping, gave a speech urging the development of blockchain technology in the country. He claimed that China would “seize the opportunity” and “occupy the commanding heights of innovation” by backing research and the standardization of blockchain technology.
Notably, this isn’t the first time the Chinese government has backed a digital endeavor. The global superpower equally promoted 5G and Artificial Intelligence, and the technology’s swift spread across the globe was startling. These efforts go alongside the nation’s endeavors in e-commerce.
According to eMarketer, China’s online retail sales are expected to have grown much faster than total retail, having risen 27.3 per cent year over year to $1.935 trillion. By 2023, e-commerce sales are forecast to represent 63.9 per cent of total retail sales.
While there are many ‘horses of innovation’ to bet on at this particular moment of history, China is hitching its wagon to digital innovation. And it would be wise not to underestimate the nation’s influence in the tech sector.
Growth of E-commerce in China
China is one of the largest e-commerce markets and adopters of digital technologies in the world. In 2013, it overtook the U.S. to emerge as the world’s largest e-commerce market, and in 2017 it had over 750 million Internet users, according to official statistics. Very few markets are getting near China’s growth trajectory.
More than 40 per cent of the world’s e-commerce transactions currently take place in China, up from only 1 per cent about a decade ago. The country’s e-commerce market is characterized by trends such as mobile-first consumer behavior, digital payments, and social commerce adoption. These trends can be broadly classified across four main themes or growth waves.
Domestic Chinese tech champions such as Alibaba Group, Tencent, and J.D. dominate a rapidly growing market, mostly within the country. Chinese consumers are mobile-savvy, so much so that even older generations are comfortable with mobile commerce and purchasing online to offline (O2O) services.
The rapid development of this industry, combined with a large and growing digital consumer base, has fulled tremendous growth both domestically and abroad via cross-border trade. This unique environment is propelling innovations in commerce and digital business, with China serving as a testbed for new ideas that will power the future of the global e-commerce marketplace.
China’s National Digital Currency
The biggest project to be announced, coming from the country, has been from the People’s Bank of China, which is preparing the country for a national digital currency.
The Digital Currency Electronic Payment System (DCEP) will be a blockchain-based payment solution to replace cash. It will be pegged 1:1 to China’s national currency, the Renminbi, in the hope of wider, international circulation. No official launch date has been announced yet, but there are predictions that the currency will be distributed in a two-tier system – with the People’s Bank of China on top, and other commercial banks underneath. Why? This model enables China to trace spending and prevent the movement of illicit funds while concentrating the government’s economic control.
The DCEP is a far cry from 2017 when Beijing banned cryptocurrencies and deemed all forms of initial coin offerings, or ICOs, a criminal offense. Money laundering, fraud, and speculation risks were said to be the reasons China initially shied away from bitcoin. Ironically, China was – and still is – one of the biggest miners of digital currency. China's green signal to blockchain is also expected also give a boost to bitcoin, according to Pankaj Balani of Delta Exchange, as it's a testament to the underlying technology on which it operates. This may put bitcoin in a positive light with the general public and could help in mass adoption.
New Trade Partners
Beyond technology, the ongoing trade war with the U.S. has forced China to look elsewhere to export its goods. Naturally, China has turned to Europe to pursue its Belt and Road Initiative – an ambitious initiative aiming to stimulate connectivity and economic integration in Eurasia. If China can lead the way with blockchain technology, it will be in a superior position to trade within markets spanning two continents.
Having lost its biggest trade partner, China has already laid the foundations for the Belt and Road Initiative. Back in August, the China-CEEC Blockchain Centre of Excellence was formed with Slovakia; a partnership China claims is due to Slovakia’s experience and success with blockchain companies which could be “of immense value to China.” The center plans on spearheading research for blockchain and distributed ledger technologies to be applied in industries such as energy, finance, aerospace, logistics, media, and government.
As China begins to prepare the economy and population for innovation and digital tools, questions around the real extent of the integration are being raised. Going far beyond the purpose of efficient payment and strengthening the Renminbi, blockchain is said to target party loyalty and internal stability in China.
At the moment, the repercussions certain technologies, including blockchain, may have on human rights and privacy in China can only be speculated on. Unsurprisingly, there is skepticism around China’s ability to separate the economic benefits without encroaching on freedom of expression.
In terms of e-commerce in China, serious concerns have been raised about fraud, privacy intrusions, information security, spamming, copyright infringement, trademark violations, the sale of goods and services banned in some jurisdictions, and inadequate or vaguely defined consumer protection laws.
In many ways, the future of e-commerce has already arrived in China, and yet there is still much more scope for its development as a result of large-scale, diversified investments from China’s tech titans. Advancements in e-commerce do not only yield benefits for Chinese consumers, but they also help address essential areas such as infrastructure development, product safety, and global cross-border trade. Ultimately, China’s e-commerce is much more than a means for consumers to secure bargains on everyday purchases. It is a notable driver of economic and social development that is powering transformational change across the country.
What is certain, though, is that China is expanding its digital efforts in an exceptionally dedicated manner – one that could propel its economy to number one in the world, outpacing the U.S.
The world watches then, for China’s pending digital initiatives.