The Bottomless Potency of Chinese Tech Companies
Surfing through my WeChat moments, the Chinese equivalent of a Facebook newsfeed, I read “you can pay NYC taxis using Alipay now…”, followed by two eye-rolling emojis. I can tell from the tone of this post that the friend who posted it felt a queer mixture of ultimate confusion and low-key excitement as it became increasingly obvious that there were not going to be any cap to what Chinese tech companies could do. Similarly, I no longer worry about forgetting cash every time I crave food truck Chinese food, since all I need to do is to scan a QR code and discharge RMB as WeChat Pay comes to my rescue.
Just a few days ago, the Alibaba Single’s Day festival grew into the biggest shopping event in the world—ever—as it generated $25.3 billion of gross merchandise volume under 24 hours, a 39 percent increase from last year. Equally remarkable, Alibaba’s main rival JD achieved a record high $18.14 billion at its own 11.11 event, a 50 percent increase from last year. While both platforms mainly concern customers within mainland China, the inclusion of countless foreign brands marks a pivotal moment of economic transition. Slowly but surely, China is moving from export-oriented industrialization to import-oriented consumerism.
Globalization in the form of import-oriented consumerism stands immune to Trump’s protectionist rhetoric, as the real culprit to U.S. manufacturing job loss is not trade but the Internet. When I can use RMB to pay for food or take a ride at the touch of my smartphone—in the middle of NYC—tariffs and quotas appear obsolete by comparison. But the story does not end there. Alibaba and JD are as much about e-commerce as Amazon is about selling books. The real genius of Ma Yun lies in his ability to somehow reconcile apparent conflicts of interest, as 11.11 would not have been nearly as successful without a simultaneous boom in conventional retailing.
You might wonder how he did it. The answer is by incorporating the countryside. The graph below shows that much of the growth in number of internet users took place in the countryside, where people are more accustomed to conventional retailing. For these rural citizens, the Internet serves more a portal of information by which to locate promotion than a place to purchase. Accordingly, Alibaba and JD amplify the multiplier effect with collaboration from retailers who in turn benefit from unprecedented outreach made possible by Alibaba and JD.
But the story does not end here either. More valuable than 11.11 profits is the amount of customer data that Alibaba and JD singlehandedly collected in one day. As Alipay processed 257,000 transactions per second, it also gathered the financial information of 257,000 individuals behind those purchases.
Such giant user base invites more e-commerce merchants to hop on board and partake in an omnipotent marketing campaign that penetrates every corner of the country and beyond. Alibaba’s own version of supply side economics involves an ever-expanding pool of sellers who would then keep products cheap in a price war against each other.