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China’s Big Three Are All In On Tech

How the Chinese big three are getting ahead through tech

19May

As a collective, China’s key digital players are piling into tech. All digital-first companies, the three have rapidly grown their respective ecosystems so that they’re best placed to exploit any emerging trends and new technologies. As of December 2016, China had 731 million internet users, head and shoulders above any other country in the world, with a penetration level of around half the population. In the jostling for supremacy, the big three are making inroads into two key areas - artificial intelligence and fintech.

AI

According to Microsoft’s Harry Shum Heung-yeung, mainland China - driven by its three tech giants - is closing in on the United States in the race to develop artificial intelligence. In recent years, all three have intensified their interest in AI, and are benefitting from the fact that ‘the latest and greatest technologies, including source code, are being shared online.’

‘This is probably the greatest business opportunity of our time, so all of the world’s major technology companies are now in the AI race,’ Shum, the executive vice-president for the artificial intelligence and research group at Microsoft, told the South China Morning Post. Each of the BAT companies have a lot of data, whether these come from search, e-commerce, social networks or games. Each one has significant cloud resources that provide them with a lot of computing power, and they are also investing heavily in breakthrough algorithms.’

Mainland China’s AI investment hit $2.6 billion in 2016, compared to investment from US companies of $17.9 billion. The gap between the two is smaller than these figures might suggest, though; many analysts believe AI is one area in which China can truly excel. The sheer scale of the Chinese market means it creates an unparalleled amount of data that can be fed into machine learning algorithms. According to Forbes, China also surpassed the US in 2015 in terms of the number of published journals related to deep learning - the US may be heavily financially invested in AI, but China is set to give it a run for its money.

Fintech

The digital finance industry in China is arguably the world’s most developed. The world’s most populated country leads the way in terms of total users and market size, and young companies in the fintech space are ballooning in valuation. The dominant sector, making up 89.2% of the market (according to McKinsey) is third-party payments, with online-to-offline payments becoming the next major area of competition. According to Statista, the annual growth rate in the transaction value of Chinese fintech is expected to be 27.4%, leading to a total amount of $2.86 trillion in 2021.

Because of its promise, the big names in Chinese tech have been piling in, dedicating resources and making strategic investments. Alibaba-affiliate Ant Financial, for example, is ‘aggressively expanding its global footprint through acquisitions and investments into fintech companies,’ according to CNBC. Ant Financial is a company that has some 450 million users worldwide, thanks to its ownership of Alipay’s mobile wallet, and is one of the key brands to watch going forward.

‘Most likely a lot of the opportunities will be grabbed by the larger incumbents — Baidu, Tencent and Alibaba — but there are vertical opportunities for a lot of start-ups as well,’ Alex Yao, JPMorgan’s head of internet and new media equity research in Asia Pacific told CNBC. The fintech strategies of the big three will likely be to dominate through investment and acquisition, with each taking full advantage of promising new technologies as they hit the market. In a global digital economy, China sits as something of an outlier thanks to its protectionist policies towards foreign tech. If it can cement its position as one of the forerunners in both AI and fintech, though, its influence will spread far beyond its sizeable borders. 

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