MICROFINANCE PAPER WRAP UP: “A New Kind of Conglomerate: Bigtech in China,” published by Institute of International Finance

This is a summary of a paper published by the Institute of International Finance, November 2018, 33 pages, available at https://www.iif.com/portals/0/Files/private/chinese_digital_nov_1.pdf

This paper focuses on the five largest technology firms in China – Alibaba, Tencent, Baidu, Ping An and JD.com – and their reach into both the daily life and broader economy of China. The number of internet users in China increased from 2 million in 1999 to approximately 750 million in 2017. Mobile phones are widely used for tasks such as ordering meals, obtaining loans, and paying for bus and train travel. The government has encouraged technology firms to use artificial intelligence and other methods to automate systems including healthcare, vehicles and the national identification system.

Chinese “bigtechs,” particularly Alibaba and Tencent, play a major role in mobile payments and other financial services. During 2017, mobile payments in the country exceeded USD 15 trillion “dwarfing the US amount of USD 377 billion and even besting the combined total global transactions processed by Visa and Mastercard by USD 2.9 trillion.” The authors report that two thirds of Chinese citizens lack traditional credit histories. However, bigtechs have stepped in, lending via apps such as Alipay and WeChat Pay, which give approved borrowers access to funds within minutes.

The bigtechs have also expanded internationally, such as in Southeast Asia, where government regulations are similar to those in China and a new middle class is rising. For example, Alibaba invested USD 4 billion to buy an 83-percent stake in Singaporean e-commerce firm Lazada, connecting six countries. One prediction is that the annual usage of mobile money in Southeast Asia will increase to USD 32 billion by 2021.

Despite bigtechs’ advances, there remain many challenges to further expansion. The involvement of the Chinese government is a “considerable barrier” as bigtechs look to expand into markets such as the US and Europe, where governments have been concerned about the national security implications of allowing Chinese firms into key sectors.

By Michelle Fleming, Research Associate

Sources and Additional Resources

“A New Kind of Conglomerate: Bigtech in China”
https://www.iif.com/portals/0/Files/private/chinese_digital_nov_1.pdf

Alibaba homepage
https://www.alibaba.com

Tencent homepage
https://www.tencent.com

Baidu homepage
https://www.baidu.com

Ping An homepage
http://www.pingan.cn

JD.com homepage
https://corporate.jd.com/

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