China: from factory of the world to world leader in digital

A summary of discussions between CEO, Frédéric Guiral de Haas, an expert on Asian markets, and Philippe Canonne, Associate Director Valtus
photo of a. city in China shot from the waterline

The health crisis has considerably accelerated the digital transformation and China is no exception to the rule. In the midst of an economic rebound, it is no longer just the world’s factory; it also represents an open window on the latest trends in innovation in retail and digital payment in particular. Philippe Canonne, Associate Director of Valtus, invited Frédéric Guiral de Haas, entrepreneur and experienced transition manager, to deliver his analysis of the Chinese market.

China is known and recognised as the world’s factory. Despite the health crisis and attempts to relocate, China will remain the world’s factory for a few more years.

In a few figures that speak for themselves, China has:

  • 30% of world industrial production
  • 75% of rare earth metal production
  • exported 220 billion masks in 2020
  • produced 100 billion meters of textile in a year

There is another area, a little less obvious, where China excels and also shines: digital.

China has:

  • 850 million Internet users
  • 50% of global e-commerce
  • 40 trillion dollars of mobile payment (vs. 794 million dollars in Europe),
  • $10 billion invested in quantum computing

“In China, the speed at which trends, tools and market releases are spread is quite frightening,” says Frédéric Guiral de Haas. “So much so that what was true six months ago is no longer true today. Drawing plans for the next three years is even science fiction!”

The move towards a cashless economy

China has already established itself, in a very short time, as the leader in QR code payments. It all started in 2014; in China it is customary to give and receive red envelopes (hongbao) at New Year. Tencent had the idea of ​​launching a free hongbao service through its mobile application WeChat. From this simple payment between individuals, the use extended to services and to e-commerce.

The health crisis increased the pace of change; payment by mobile became the norm to reduce contact with cash and cash machines, to help in the fight against the epidemic. “Whether in B to C, B to B or C to C, digital payment by mobile has now become the norm in China, at least in the cities of Tier 1 and 2, aka the big cities,” says Frédéric. “Cash and bank cards have almost disappeared.”

This enthusiasm for mobile payment can also be explained by its immediacy, its ease of implementation and use, and its security. All transactions are secured by sending a code by SMS which must then be entered in the payment application.

The other side of the coin? No more privacy. “Digital payment facilitates CRM and customer monitoring becomes permanent, nevertheless, the rise of instant digital payment allows the development of new services and shared goods (bike rental type, phone charger in restaurants etc.”

A move towards unrestricted use of live streaming?

Another trend accelerated by the crisis is live-streaming shopping. Before, the promotion of products on the web was done by means of beautiful photos and an explanatory text that praises the benefits to the customer. Now, a presenter does the show in a short video to present the product. “Live streaming is teleshopping brought up to date, in an interactive version,” sums up Frédéric. “Now is the time for customer fun! In just a few months, live streaming has become the cornerstone of any digital sales strategy.”

It must be said that video was, during the crisis, one of the rare ways to stay in contact with consumers. “The other explanatory factor for the rise of this instant visual communication is the opposition from Chinese giants,” says our expert. “On the one hand, TikTok has announced that it is embarking on e-commerce. On the other, Alibaba relies on Taobao Live, the live broadcasting platform associated with its Taobao e-commerce. Diversification strategies are relatively aggressive. Faced with mastodons like Alibaba, the players are launching into niche activities but they are quickly bought!”

All-powerful platforms?

However, the development of these digital platforms will be limited, if only by costs. “At the beginning, doing e-commerce in China was relatively economical.  Now, it’s almost as expensive as retailing!”

To launch and make itself known to its consumer, a new brand needs to incur more and more marketing costs. In addition, to trade on Chinese marketplaces, Chinese law requires companies to use the services of a TP (trading partner) agency in relation to the platforms. “Public works services are more and more expensive,” deplores Frédéric. “The accumulation of these costs will, at some point, be a problem for brands; for some, it is already. Then, the average tickets on Chinese platforms are extremely low, from a few euros to a few tens of euros, with free delivery and returns. What about these business models, if regulations are tightened, if delivery becomes chargeable?”

The time will also come when the environmental cost will be a problem… “Environmental concerns are still embryonic, but they can very quickly impose themselves on companies,” says Frédéric. “The changes in China can be dramatic! On the other hand, to hope to break into this market, you have to be patient. China is a great breeding ground for opportunities, but the size and specificities of the market make the situation more complex. The regulator occupies an important place; it can, quite unpredictably, open or close markets! In general, you have to allow time and give yourself two to three years before knowing whether the strategy implemented is bearing fruit.”

One last tip? “Do not hesitate to solicit the various players who can facilitate and secure your export journey,” concludes the entrepreneur. From foreign trade advisers to Business France… In France, we have the luxury of choosing guides!”