Creation from Imitation
It is hard to find anyone who reads newspapers or books at subway stations, airport terminals, and train stations in Beijing, China. Even employees over the age of 50 play games, read online novels, and watch TV shows with their mobile phones. Internet usage is more generalized in China than in the strong Internet country of Korea.
The Internet is changing the lives of 1.3 billion Chinese people. The Internet implanted the confidence in Chinese people that China can lead the world, giving them another vision of China other than chasing advanced countries in manufacturing businesses by being the world’s factory. Internet services in China are growing rapidly by providing customized platforms to the Chinese people. Premier Li Keqiang told the Internet companies at a businessman symposium, “You have created consumption out of time. A new economic model will be a growth driver for China to get out of the old system.”
The heroes of information technology (IT) innovation in China are Tencent, Alibaba, and Baidu, collectively referred to as TAB. TAB has achieved rapid growth thanks to the massive market of China and invisible support from the Chinese government, and is now coveting the global market.
TAB started out by imitating global Internet companies. However, TAB is the world’s largest network in terms of size. The number of monthly users of WeChat, a mobile messenger service of TenCent, is 438 million. It is just a matter of time before it catches up with Whatspp, which has been acquired by Facebook. Taobao of Alibaba, called the Chinese eBay, pushed the Chinese Internet shopping mall market to number two globally in only ten years, and is now preparing to enter the U.S. market. Yu E Bao Alibaba scored 12.031 billion yuan (1.961 billion won, US$1.953 million) in sales revenues during the first quarter of this year, a 39 percent increase from the same period last year. Net profits also increased by 32 percent to 5.543 billion yuan (903.5 billion won, US$899.8 million). Almost half of the revenues remained as profits.
On August 15, the rate of return of Yu E Bao, a money market fund (MMF) product of Alibaba, was 4.185 percent. This is a 2 percentage point drop from 6.3295 percent in early February, but over 1 percentage points higher than high yield wealth management products of Chinese banks. No wonder money is moving to Yu E Bao.
The new platform of Chinese Internet companies is financial services. Alibaba’s Alipay, which opened a door, is a third party payment platform, which connects buyers and sellers of Internet shopping, and has 300 million members. The total transaction amount of Alipay was 3.872 trillion yuan (639 trillion won, US$628.5 billion) last year, which is equivalent to a daily average of 10.6 billion yuan (US$1.72 billion). One out of six Chinese people are shopping through Alipay once a day. Yu E Bao, launched in August last year, is the next level model of Alipay. Yu E Bao generates profits through the Tianhong Fund, which manages the balance remaining in an Alipay account. The total balance of Yu E Bao reached 800 million last year within six months, and broke 100 billion this year. Major Chinese banks, surprised by the rapid growth of Yu E Bao, lowered the withdrawal limit to 5,000 yuan (US$811) from the previous 50,000 yuan (US$8,116).
Alibaba secured all four retail banking businesses – payment, small loans, remittance, and mortages and insurance – by acquiring ownership of the Zhong An Online Property Insurance and Tianhong Fund. The Internet banking system, which includes savings, loans, and remittance, has also been completed through Alibaba Small and Micro Financial Services Group. Alibaba is changing from just an Internet shopping mall into a financial group.
But not all is positive with Chinese Internet companies. Global Internet companies sometimes view them as flowers in a greenhouse, the greenhouse being the so-called “Great Chinese Firewall,” the Chinese Internet censorship system, that blocks global Internet services such as Twitter, Google, and Facebook. Global competition against the Chinese Internet companies, which are backed by the strong support of the government and have a huge market of 1.3 billion people, is meaningless. Google had been standing up to the censorship policies of the Chinese authorities since 2010, but exited from China in the end. Chinese people as well as foreigners living in China find it very hard to use Google's search engine and Google Play on the Internet or mobile phones.
On the contrary, TAB complies with the Chinese government’s censorship policies. Regarding this, Robin Li, chairman of Baidu, pointed out at the Fortune Global Forum in February, “Foreign companies do not try to understand the particular circumstances of the Chinese market.” For instance, it is impossible to for search video clips or data related to the Tiananmen Square protests or Tibet. This situation is the same with Tencent. After the central Internet security and informatization leading group of the Chinese government led by General Secretary Xi Jinping conducted a special investigation on mobile messengers, Tencent performed its own investigation on rumors of WeChat and froze the relevant accounts.
The question is whether or not the Chinese Internet companies could maintain their current competitiveness when these barriers are gone. And the fact that China blocked Korean Internet services such as Kakaotalk and Line shows that China is keeping stricter watch over foreign Internet companies’ expansion into China.