China Economy

Beneath China's headline ascent lies a headier online upsurge

As the mainland stands onverge of becomingworld's biggest economy, itsstunning developments in telecoms and the internet should be scrutinised

PUBLISHED : Wednesday, 07 May, 2014, 10:13am
UPDATED : Monday, 30 May, 2016, 5:01pm

Some new words are too delicious to ignore. So it is with "Il Sorpasso", restored to mark the imminent statistical ascent of China to become the world's biggest economy.

Of course "Il Sorpasso" is not new. It was created by the Italian media in 1987 to celebrate Italy overtaking Britain as the world's fifth-largest economy.

But last week's "sorpasso" was in a league of its own. For China to be statistically on the brink of overtaking the United States as the world's largest economy is clearly a much bigger deal.

The US economy has led the world since its own "sorpasso" of Britain in 1872.

Of course, the World Bank statisticians who revealed China's imminent ascent have gone to great lengths to emphasise the modesty of the development.

Beijing's statisticians hotly contest the data too, emphasising how misleading it was to talk of China being the world's top economy.

The Chinese have adopted social media on a scale that few outside the country seem to recognise

Mao Yushi, one of China's most free-thinking economists, was dismissive: "It is not a surprise that China's economy is big, but this is just because the population is big."

This coyness is in part justified. China still has a long way to go to truly surpass the US: gross domestic product per capita is still barely one-tenth of that in the US, and productivity barely a fifth of America's productivity.

China is still below Peru in terms of per capita income, and the purchasing power of GDP per capita places China 99th in the world rankings.

And of course, the coyness is also deeply embedded in Deng Xiaoping's appeal to "hide your brightness, cherish obscurity".

But for all the caveats and cautionary words, this "sorpasso" is genuinely a big deal.

Already China is the world's leading trading power. Less comfortably, it is the biggest emitter of carbon dioxide and the top consumer of a host of raw materials.

And it is emerging from a century of ignominy and poverty at warp speed.

Nowhere is this clearer than in the internet and telecommunications areas, where stunning developments must be sending shudders through Silicon Valley.

Unfettered by legacy telecommunications technologies dependent on copper wire, the Chinese have adopted social media on a scale that very few outside the country appear to recognise.

Today more than 700 million Chinese own a mobile phone - and according to fascinating KPMG research, 78 per cent of these are smartphones (compared with 47 per cent in Germany and 40 per cent in the US).

Most stunning of all, a survey of 10,000 Chinese consumers revealed that in comparison with New York, where the average person owns one to two mobile devices, and in Hong Kong, where users own two to three devices each, the average Shanghai consumer has seven or eight devices. In Beijing, it is six or seven.

Don't ask me why someone in Shanghai needs eight devices, but the message is clear: something very significant is happening on the mainland as far as internet and social media are concerned.

I sense an "e-sorpasso" coming up fast in the rear-view mirror.

Compare WhatsApp's 450 million regular users with China's 240 million users of WeChat, or 1.2 billion Facebook users with 820 million users of QQ.

If Facebook puts a value of US$19 billion on WhatsApp, what price WeChat?

According to KPMG, 55 per cent of mobile users in China use their phone for settling bills - compared with just 19 per cent in the US.

I, for one, was stunned to learn that on November 11 - "Singles' Day" in China - internet purchases reached US$35 billion.

The head of Tsinghua Science Park predicts that by 2030, more than 35 per cent of all retail sales in China will be over the internet. Shopping malls will by then largely be showrooms. Think on that, you mainland commercial property developers.

Evidence of a similar story emerges from Diane Wang, the head of the Chinese e-commerce platform DHgate, who says there were nine million online merchants in China in 2012, with about 60 million small and medium-sized enterprises using e-commerce platforms to buy and sell.

From US$210 billion in online transactions in 2012, she predicts there will be US$650 billion by the end of the decade.

E-commerce platforms such as DHgate are driving an internet finance revolution that is setting off alarm bells among conventional banks.

On the back of huge volumes of "big data" gathered as SMEs trade across its platform - such as transaction histories, buyer feedback records and dispute or refund records - DHgate is providing trade finance without collateral, without guarantees and within 30 minutes of an application for funding being made.

So as we watch "Il Sorpasso" in progress, we should perhaps be paying attention to "e-Sorpasso". It will not be long before Chinese companies are doing stuff on the internet that leaves the outside world in the dust.

Whatever Beijing's protests, this World Bank announcement was no mere accounting exercise.

David Dodwell is the executive director of the Hong Kong-Apec Trade Policy Group