‘China has transitioned from a technological backwater to become one of the world’s largest digital economies.’
A recent insight piece from McKinsey highlighted 6 trends dominating the path of China’s digital innovation for 2021 and beyond.
The report noted that with a billion internet users in the country, ecommerce sales grew to $1.7 trillion in 2020, a number that accounts for 30% of all retail sales in China. The US was expected to hit 15% of retail sales through e-commerce in 2021.
This figure highlights how Chinese shoppers have embraced the internet for goods and services, which has allowed companies to continue developing new products and tools with a first mover advantage.
In this article we will look at some of the trends that are shaping China’s digital outlook as we near the end of 2021.
Healthcare and Education Have Growth Opportunities
At the tail-end of a tumultuous one and a half years for the global economy, China’s GDP now trails the European continent by $400 million at 14.7 trillion. The nation is 6 trillion behind the US economy, but its growth trajectory should see it overtake the US soon.
China’s people have embraced the internet for shopping, but the economy is expected to benefit from a “virtualization of services,” which will be partly driven by the coronavirus and the move to more digital efficiencies. Examples of this are in healthcare and education.
One key point from the McKinsey report said that:
“In education, digitization will help compensate for uneven public expenditures that are 3.3 times higher in tier-one cities than in China’s smaller tier three and four urban centers. This should drive more equitable access to education resources.”
Platforms such as Alibaba’s DingTalk, which provides enterprise communication and collaboration, will allow easier routes for online and offline education delivery.
In the healthcare sector, another disparity is seen in the distribution of doctors. Around 80 percent of medical practitioners are concentrated in only 20 percent of Chinese hospitals. This is highlighting that education and healthcare in lower-tier cities lack resources and there is a big growth opportunity to rebalance.
It’s said that only 5 percent of medical consultations are online, which could be a real opportunity for online providers to prosper and also improve the country’s health.
Real Estate is Part of the Digital Shift
Real estate is 305 of the Chinese economy when you include upstream and downstream services. The pandemic has also seen a shift by companies to provide virtual viewings.
Beike, an online real estate platform, hosted more than 10 million virtual property showings through its virtual reality technology during the peak of China’s lockdown. This was a huge 35 times the number of viewings that were conducted prior to COVID-19.
As these types of services go online, there will likely be similar offerings from legal practitioners to keep pace with the efficiency in the property buying process.
China’s property sector has been under recent scrutiny with the financial troubles of the Evergrande Group, but we have seen in other developed economies that property issues are a blip in the long-term trajectory of growth economies.
Digital Vehicles are Seeing Large Investment
The battle for market share is already underway in the Chinese electric vehicle space. The Chinese consumer will continue to be the driver of the sector, local EV brands such as Nio, Li Auto, and Xpeng at the forefront.
In the same way that US auto buyers embraced homegrown brands, such as Ford and GM, the Chinese will have a healthy appetite for their own brands. The Chinese government has also shown that it will protect the domestic economy and that could make life difficult for the likes of US automakers such as Tesla.
Another big element that is not fully embraced yet is driving data and smart technology, where the Internet of Things revolution can bring innovation.
The other side of the coin is in mobility as a service (MaaS) with the plans by the Chinese government to reduce passenger traffic by 30% before 2035. This will see EV-driven ride hailing services as a big industry in the country. The country is also planning to have large electric vehicle fleets on the streets within the same timeline.
Supply Chains will be Improved
The next part of the digital innovation path in China will be in supply chains. The recent disruption to supply chains in 2021 has shown a need to embrace tracking and new efficiencies.
The internet of things and the blockchain could play a part in this and also improve food distribution and shelf life.
Again, data sharing by companies can be a driver of innovation here and automate areas such as the sales process and re-ordering of parts and stock. The semiconductor shortage that was seen in 2021 is highlighting that need for companies to digitise the inventory process further.
Manufacturing bases will also utilise the latest digital technology and one example is the use of artificial intelligence at the automaker SAIC. AI tools continuously monitor the manufacturing process to identify errors and have improved order configuration accuracy to 99.8 percent.
So far, we have seen the majority of lighthouses spring up among consumer-facing industries like autos, consumer goods, and home appliances, but the next phase will be to extend the revolution to traditional industries such as steel, machine tools, and manufacturing. The use of 3D simulations is also used in the ordering process.
Conclusion
The Chinese consumer has really embraced the use of e-commerce in the country and currently has double the digital adoption of the USA. The coronavirus pandemic lockdowns have also seen a push to online digital services, and this has big growth potential for the healthcare and education industry. Other areas that are at the outset of transformation are in electrical vehicles and manufacturing. As all of these areas embrace digital technology, the industry could snowball as data-sharing and IoT achieves its full potential.
By Kevin George