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China's Digital Revolution

Is China currently experiencing a digital upheaval?

2Feb

In many ways the West has seen the China as a provider economy rather than a consumer.

This has changed significantly in the last few years, with some of the world’s richest people now coming from China and the private wealth being held by individuals increasing on a daily basis.

One of the results of this has been a significant increase in the use of both the internet and mobile use. China has roughly 632m internet users and 527m of these access the internet through mobile devices.

Companies like Apple have seen this change in social demographics transfer directly to sales within the country. Apple has been named as the number one Smartphone vendor in China and January 2015 marked the first time that more iPhones were sold in China than the US.

This tells us that not only are the Chinese public investing in mobile, but that it is not something that is used exclusively by the very rich in the country.

It is not simply a growth market for mobile either.

China has been thought of a manufacturing power, rather than one of technological power. This is changing though and the IPO of Alibaba was testament to this.

With a $230bn value, they are in fact one of the biggest tech companies in the world. Alongside Baidu and and Tencent, they make up what many refer to as BAT, the three largest tech companies in China, all based around an online model. In fact this high tech trend has seen significant results for the wealthy in China, with 5 of the top 10 richest people in the country now coming from tech companies.

This was 0 only 3 years ago.

These companies have become so big as they have been allowed to flourish behind what is known as the ‘great firewall of China’. This is the communications barrier that stops companies like Facebook, Twitter and Google from having the same kind of domination in these markets that they have had in other parts of the world.

The difference now, is that having grown to huge sizes within China, these companies are looking at investments from foreign investors. These are risky however and have been described as theoretical investments, rather than true investments. They are managed through VIEs, which are technically illegal, but the court system in China largely doesn’t bother them.

In fact, the mobile and digital revolution that has taken hold in China has seen these young and agile companies often redefine industries.

As the internet in the country is still controlled by the government and the government still runs some of the largest companies in the industry. This means that companies like Alibaba, who have significant financial clout, can out manoeuvre state run competitors.

As each company has looked to outmanoeuvre the state, they have also looked to outmanoeuvre one another, which has led to increased competition to create killer apps.

This need has seen significant investment in companies to help them achieve this. Alibaba alone spent between $8-9 billion on investments in 2014 to try and disrupt the domination from Tencent in the online messaging space. They have even attempted to create new mobile specific search engines to try and tap this market.

It is clear that China is not only in the midst of a digital revolution, but that there is also a struggle between the major players in the area to make themselves the dominant force in the arena. 

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