China’s digitalisation needs clear vision to succeed

Many people consider digitalisation to be the next big thing for the world’s economies, with China and the US leading the charge.

China’s digital activities have boomed over the past decade, particularly in the e-commerce space. A good example of how far China has come is Pinduoduo’s recent Nasdaq IPO, which took place only three years after the company was founded.

The rapid rise of China unicorns (start-ups with valuations in excess of US$1 billion) and rags-to-riches tales about Chinese entrepreneurs have become an overnight sensation and inspiration.

This excitement has attracted increasing global attention – and it’s not just for e-commerce. New technology innovations and the rise of artificial intelligence (AI) in particular, have proven that China is rapidly catching up with the US.

Several years ago, the consensus seemed to be that it was only within the realm of e-commerce and digital payments that China had an edge.

But now, with rising living standards, a more global outlook and awareness of the huge market potential within China, the country’s digital advance seems to have expanded to cover many cutting-edge technologies such as big data, AI, blockchain and the cloud.

But is China really close to achieving leadership in these technologies?

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While China had made tremendous progress with its digital development, to say it’s achieved leadership would be far-fetched.

China has created a vast array of technology start-ups and established huge platforms for e-commerce, delivery of services, ride-hailing, bike rentals and co-working spaces. It has also more than dipped its toe into areas like quantum computing, autonomous vehicles and AI applications.

However, the real driving force towards creating a digital economy is still the US, and specifically Silicon Valley. China still needs to make a lot of progress if it’s to become a benchmark for what has been called the Fourth Industrial Revolution.

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China’s digitalisation dream needs a reality check and the sooner it can be developed on the basis of China’s have-nots as well as the haves – then all the better.

Despite the scale and scope of China’s current technological achievements, the most salient shortcoming remains the lack of a digital vision. This vision needs to go beyond incubating as many unicorns as possible, occupying league table top spots, generating fantastic financial returns and even AI technologies for detecting chronic illnesses.

We must set our sights on the following critical issues.

Firstly, we need a more precise direction of travel. Big data and AI seem to be the major areas where new breakthroughs may occur, yet the overall concepts are broad and lack definition.

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Subsets must be clearly identified and better-resourced to cultivate core competencies. Only this way can future-proof technologies be developed on the back of China’s rapid industrialisation and opening-up.

Transforming from a manufacturing powerhouse into an innovation-oriented digital economy will take a deep understanding of technology trends and thorough preparation in terms of capital, human talent and infrastructure.

Secondly, the role of digital technology has been skewed far too much towards ambitious targets for financial returns, and this needs correcting.

Such a development model usually involves concept-building, rounds of financing, market share grabs, quick money-burning and usually ends with an IPO or other form of financial exit for private investors. A sophisticated dual-class shareholding structure is normally employed to sustain the control of founders. Then it’s repeat and rewind endlessly.

But recently we’ve seen some sharp reversals for these models – peer-to-peer lending platforms were initially hailed as a fintech miracle but now many of them are mired in disaster and fraud.

There has not been a stunning breakthrough in general purpose technologies (GPT) and China’s relative weakness in microchip technology has been exposed by rising Sino-US trade tensions.

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Thirdly, a true digital vision needs to be anchored to value generation as opposed to user and market share acquisition. The values that should be pursued include, but are not limited to, better living standards, better security and an improved natural environment.

Digitalisation should further broaden our vision and turn our imagination towards tomorrow, not merely rest on today’s well-calculated economics.

Moreover, digitalisation should be multi-dimensional. No single disruption can make a real difference without addressing the issue of how technology adds value to society – from ground zero to the building of the tallest skyscraper.

We need to keep this in mind.

Liu Jun is executive vice-president and a member of China Investment Corp.'s executive committee. He is also a member of the China Finance 40 Forum. The opinions expressed here are his own