Clouds Over China

Author

Jeff Sampler, Contributor

February 4, 2015

“Lowest Economic Growth in over Twenty Years”, “Corruption Scandals Widen in Government”, “Empty Cities and China Overdevelopment”. These are just a few recent examples of the steady barrage of news headlines highlighting the increasingly gloomy economic clouds gathering over China. Against such an economic and political backdrop, it’s easy to doubt the country’s continuing success. Bashing the future of China, and highlighting reasons for its dramatic downfall after its recent meteoric rise are growing popular media trends. However, as with most things in life, the future is seldom so simple or clear.

Counterbalancing these news items, there’s another set of clouds brewing over China that get much less media attention, but may well be one of the major drivers in the country’s continued economic evolution. Three clouds forming over China are worthy of consideration – the technology cloud, customer cloud, and the entrepreneurship cloud.

Technology Cloud. Cloud computing is one of biggest recent IT trends, and has now reached critical mass. In 2014, for the first time, the majority of IT workloads were processed on the cloud versus the traditional dedicated IT workspace (51% versus 49%). The market for both cloud computing hardware and services is growing in excess of 40% each year, and is now over a $250 billion market globally. China initially lagged in the adoption of cloud computing, but it’s now growing rapidly thanks to initiatives from both the public and private sectors. The Chinese government is moving more IT applications and services to the cloud in order to lower costs and improve efficiency. At the same time, the Chinese Internet giants, Baidu, Alibaba, and Tencent are becoming major players in cloud computing.  Already, Alibaba has the third largest IT cloud capacity in the world!  The growth of cloud computing in China is only going to increase  as the current economic slowdown causes more companies to look for ways to lower costs.


Customer Cloud
. The number of technology users – both companies and individuals – in China has grown dramatically in recent years. Compared to other countries, the number of individual technology users in China is mind boggling. In 2014, China had almost 642 million Internet users – more than the next three countries (USA, India, and Japan) combined. In 2013, the number of smartphones in China exceeded 700 million, and almost 530 million of these Chinese smartphones users accessed the Internet over their mobile device. The explosion in Internet users, particularly mobile users, is a critical springboard for a new wave of economic activity and growth in China.  Mobile payment systems, such as Alipay, are catalysts for the digital economy to flourish.  In 2013, Alipay processed $519 billion of payments, making it the world’s largest online payment service. More significantly, payments for Alibaba’s ecommerce sites only represented 37.6% of Alipay’s transactions, meaning almost two-thirds of its transactions were outside of Alibaba. However, Alibaba isn’t stopping there. It continues to innovate in financial services and has recently offered Alipay Wallet in an effort to becoming the savings bank and wallet for Chinese consumers. Clearly Alibaba tapped into a huge opportunity, as Alipay Wallet was downloaded over 100 million times in the first few months. Such platform applications form the foundation for a large number of start-ups to offer products and services once the building blocks for ecommerce, such as secure and cost effective payment mechanisms, are in place.

Entrepreneur Cloud. Jack Ma, the CEO of Alibaba, and Lei Jun, the CEO of Xiaomi, are not only successful businessmen in China, they are increasingly becoming celebrities and the faces of a new generation of pop-icon-like entrepreneurs in China. Lei Jun is often referred to as the Steve Jobs of China, not only because of his fashion sense, but more importantly because of his flair for speaking and enthralling crowds and creating loyal customers that results in any new Xiaomi phone being sold out within seconds of being available for sale. Similarly, Jack Ma is the poster child of the new entrepreneur China is creating. A rags-to-riches story of a school teacher (he was previously rejected from many jobs including KFC!), who became the richest person in China. These stories of success are inspiring a new generation of people to start their own businesses.

The numbers already bear evidence to this. For example, in the last decade, China had the highest rate of high-expectation entrepreneurship (defined as companies intending to create more than 19 jobs) of any country studied. China’s growth rate of these types of companies was over 2.5 times that of the USA. But this is only the beginning of a broader wave of entrepreneurship in China.  A recent study revealed that in China, among people between the ages of 18-64, who are not currently starting a business, 23% intend to launch a company in the future. In the USA, this number is only 7%. But beyond the numbers, you also see entrepreneurship being instilled into the culture and infrastructure of China.  In the technology district of Beijing, you go into buildings and you see people at tables with signs describing the business they want to create. Potential entrepreneurs go to the tables in which they’re most interested, and the conversations begin to create game-changing businesses. undefinedYou would expect to see this in the hallways of Stanford or the legendary Buck’s restaurant in Silicon Valley, but it’s now happening in China too.

Finally, China also increasingly has the necessary funding to invest in these new business opportunities. The United States has a much deeper venture capital industry than China, yet many of these VCs have recently launched offices in China. But there’s no shortage of local money. Successful entrepreneurs are becoming angel investors and advisors. Chinese investors who have made a fortune in real estate in the last few years are increasingly investing in new business opportunities.[/tweet_quote]  Again, the evidence is no longer merely anecdotal. A recent study revealed that informal investment in businesses equaled 11.3% of China’s GDP, while informal investment in the USA equaled only 1.3% of USA GDP.

As one views the economic landscape of China, there are many clouds, but the clouds differ dramatically. Some are the remnants of previous waves, and are beginning to fade. Some are growing in strength and getting larger every year. The economic benefits from these new clouds are just beginning to rain across China, which in the coming years will quite possibly result in another wave of Chinese economic growth and prosperity.

This article was written by Jeff Sampler from Forbes and was legally licensed through the NewsCred publisher network.

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