Technology

See how China has created the most modern digital economy in the world


Thanks to strong digital transformation, China has created the most modern digital economy in the world.

Before the impact of Covid at the end of January 2020, the Chinese government took many positive measures such as social distancing, blockade to prevent the spread of the Virus. This causes economic services such as restaurants, hotels, cinemas, etc. to suffer serious damage. In contrast, online economic activities such as e-commerce and online education programs increased sharply, and restaurants began to deploy door-to-door delivery services.

This is a prime example of how digital technologies such as “Big Tech”, big data, artificial intelligence (AI) and cloud computing have changed the Chinese economy.

QR code payments are extremely popular in China. (Photo: Eastasiaforum)

China’s first e-commerce platform, Alibaba Taobao, was launched in June 2003 before the World Health Organization declared it had stopped the SARS epidemic. However, at this time, all online transactions are still limited because the number of desktop users and 2G connections is not much, not to mention the technology was somewhat outdated at that time.

As Internet-connected smartphones became ubiquitous, e-commerce really exploded as the number of online shoppers skyrocketed. However, Alibaba encountered one big obstacle – online payments. The lack of trust between buyers and sellers makes it difficult to complete an online transaction.

In late 2004, Alibaba launched Alipay, the world’s largest mobile payment service provider. By mid-2019, Alipay had 1.2 billion users. According to the China Internet Network Information Center, as of June 2021, there are more than 872 million digital payment users in China.

Alipay’s biggest competitor is WeChat Pay which was launched in 2013. WeChat Pay has attracted a large number of users by introducing electronic lucky money during the 2014 Lunar New Year. By mid-2019, WeChat Pay has about 900 million users.

Mobile payments are the most successful fintech product in China, playing a huge role in digital operations during the Covid pandemic. With smartphones and 4G/5G networks, people can enjoy payment and other financial services anywhere. Some studies show that, when farmers start using mobile payment services, their employment opportunities will expand and incomes increase.

Mobile payments open the door to helping those left behind by traditional financial institutions.

Today, online payment platforms such as AliPay and WeChat are not only payment methods anymore, but also a comprehensive “ecosystem”. Users can organize their daily lives on these ecosystems: book a hotel, call a taxi, buy a plane ticket, order food delivery…

Several big tech companies like Ant (the fintech arm of Alibaba) and Tencent (the company that created WeChat), started offering credit by developing a new Big Tech credit risk management system. The system consists of two pillars: Big Tech platform and big data credit risk assessment.

China’s Big Tech platforms such as Taobao, Alipay, and WeChat attract a large number of customers at a low cost, taking advantage of a “long tail” strategy (selling small quantities to many instead of selling numbers). large amount for few people) of the platform. Simultaneously, it records customers’ digital activity and accumulates big data for real-time monitoring of potential borrowers’ activities, providing input for credit risk analysis. Finally, they can also help users manage repayments.

The combination of Big Tech platform and big data credit risk assessment enables Big Tech companies to extend credit to large numbers of individuals and small and medium enterprises (SMEs), most of whom have not never get a bank loan. Lending company MYbank offers a “3-1-0” model, it takes less than 3 minutes for users to apply online, if approved, the amount is automatically transferred to the applicant’s account within a few minutes. seconds, without human intervention. In this way, each of China’s major lenders can grant more than 10 million loans per year.

Big tech credit has also been behind China’s relatively more stable economic performance during the Covid-19 crisis. An important contribution to macroeconomic and financial stability is the removal of what former US Federal Reserve Chairman Ben Bernanke called a ‘financial accelerator’. Since most SME loans from commercial banks are collateralized, there is a relationship between asset prices and credit policy.

That is, a slight decline in real estate prices could lead to a financial crisis. The elasticity of collateralized credit of commercial banks to domestic real estate prices is about 0.6, which means a 10% decrease in asset value leading to a credit squeeze of 6%. Fintech companies are not affected by data-driven lending rather than collateral. The elasticity of MYbank credit to domestic property prices is statistically insignificant.

Digital technology is changing the Chinese economy, becoming more convenient, increasing efficiency, reducing costs, replacing labor and improving user experience. This is especially important as China has a rapidly aging population. In many fields, robots and AI can replace labor, helping to alleviate the problem of labor shortage.

But the digital transformation has only just begun, and it will take time to fully understand its economic consequences. While some of the benefits are obvious, digital technology also creates problems for disadvantaged groups.

Thai Hoang (According to Eastasiaforum)

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