Tencent, Alibaba and Baidu Play Leading Roles in China’s New Economy

  • China’s leading mobile apps do much more and control larger market share
  • Mobile commerce is playing a leading role in China’s shift to a consumption-led economy
  • Chinese consumers spend more time on fewer mobile apps

Imagine using just a single app on your phone to pay bills, hail a cab, text your friends and order food. Possible on Facebook? No. But it is on WeChat, China’s largest social media platform.

Chalk one up for China’s new economy. The country’s internet companies are developing cutting-edge mobile applications and leapfrogging the titans of U.S. technology in certain respects. China is no longer simply a tech copycat, and I expect increasing amounts of mobile innovation to start in the country.

For instance, WeChat Pay (owned by Tencent) and Alipay (owned by Alibaba) are far more dynamic than U.S.-based PayPal. In fact, these services are acting as cash and credit card replacements in China. Chinese consumers can use these payment services not only to shop online but also to buy a meal at McDonald’s, pay for a cab or buy fruit from street vendors. It should be no surprise then that last year the total value of mobile payments in China surpassed those in the U.S.

 

In China’s ongoing shift to a consumption-led economy, the nation’s leading internet companies are emerging from the long shadow of heavy industry and gaining massive stature in financial markets. Recently, Tencent (WeChat’s parent) and online retailer Alibaba became China’s most valuable companies in terms of market value, a distinction historically held by the country’s state-owned enterprises.

The technology sector now makes up 30% of the MSCI China Investable Market Index. It was 7% of the index three years ago. This shift underscores the impact mobile commerce is having on the world’s second-largest economy, where retail is more commonly measured in clicks rather than foot traffic.

Tencent, Alibaba and search engine Baidu are at the forefront of this change. They dominate China’s internet ecosystem and represent a key growth engine in the Chinese economy. Combined, Baidu, Alibaba and Tencent generated $39 billion of revenue for the12 months ended June 30.

Mobile Internet Users Spur Growth

Internet use is different in China.

In China, mobile is synonymous with the internet, and a skyrocketing number of mobile internet users have been the key growth ingredient for Chinese internet companies. Smartphones are shaping the country’s internet economy and consumption patterns, offering huge potential for those who dominate the mobile infrastructure.

One key reason: the Chinese typically spend more time on fewer apps.

 

The Chinese didn’t inherit the web browsing habits of most Americans, which is why I think we are seeing more mobile innovation in China. Many Chinese leapfrogged the computer, with the mobile phone providing their first experience with the internet. Based on recent data, there are approximately 750 million mobile internet users in China, or close to 55% of the total population. By 2020, research suggests 72% of Chinese will have mobile internet access.

More Runway for E-Commerce

China lacks shopping malls, and retail is highly fragmented. You won’t find big chains, either. Just imagine if the U.S. had no Home Depot, Macy’s or Costco. China feels like that today.

China is already the largest e-commerce market in the world, and I believe e-commerce will continue to boom. By 2018, McKinsey & Co. projects yearly online sales in China will more than double to $610 billion from 2015.

When shopping at brick-and-mortar stores, Chinese consumers wrestle with pollution and bad customer service. E-commerce solves many of these problems, bringing transparency, convenience and more value to the shopping experience.


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