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Digital platforms in China

Rong Chen's picture

From the e-commerce site Taobao.com to the social media app WeChat, China has drawn global attention to its digital platform economy. A third of the top-200 digital platforms were born in China according to the Global Platform Survey 2016. They are also growing fast. A 2017 report published by Ali Research shows that the digital platform sector contributes to 10.5% of China’s GDP.

The World Development Report 2019 points out that digital platform firms increase market efficiency by matching producers and consumers. New business opportunities emerge. Take Pinduoduo, a Chinese e-commerce start up, as an example. It enables farmers in remote areas to sell fresh produce directly to customers in cities. More than 5.5 billion kilograms of agricultural products have been sold on the platform since 2015. Approximately 50,000 migrant workers returned from cities to their villages to engage in e-commerce activities via Pinduoduo. As another example, Meituan Waimai, an on-demand food-delivery platform connecting restaurants and customers, created more than 600,000 jobs of food delivery people since 2013. As a third example, from June 2016 to June 2017, 1.3 million unemployed citizens earned income from Didi Chuxing, a ride hailing platform.

Digital platforms show promise in creating jobs. Several lessons can be drawn from the Chinese experience. Internet connectivity and mobile phone penetration is the first prerequisite. Mobile cellular subscription is 104 per 100 people in China. Less expensive smartphone devices from smartphone manufacturers Xiaomi, Oppo and Vivo have brought many rural people onto the mobile internet. Second, logistics infrastructure is important for rural e-commerce. Collaborating with local governments, Alibaba launched the Rural Taobao Program in 2014 to improve rural logistics system through establishing service centers. Those service centers serve as one-stop shops for rural residents who are not very tech savvy to buy and sell products through Taobao.com. By 2017, Rural Taobao service centers are present in over 30,000 villages across 700 counties in 29 provinces.

Embedding mobile payments and social media into the platforms contributes to their rapid takeoff. The success of Pinduoduo results from its seamless integration of e-commerce, social networks and mobile payments. Pinduoduo, which means “the more you join together, the more you save”, allows its users to team up with e-friends to enjoy volume discounts directly from manufacturers. Users share the product link on social networks such as WeChat to attract other potential buyers to form a shopping team. Leveraging China’s largest social network WeChat which has more than 1 billion users, Pinduoduo attracted 350 million users in two years. Mobile payments embedded in the WeChat app enable instantaneous transactions.

Human capital is also essential to promote digital platforms. China ranks 46th on the Human Capital Index launched in the World Development Report 2019, ahead of the majority of emerging economies. A large group of talented young entrepreneurs with science, technology, engineering and mathematics knowledge bring creative solutions. JDD (previously known as JD Finance), a leading digital technology firm, has created an online platform for disabled people to receive training and tasks on data annotation. JDD has matched over 30,000 people with data jobs, many of them were unemployed disabled people.

Challenges arise as platforms take hold. Data protection is at the center of the discussion considering the large amount of data accumulated on platform businesses. According to a 2018 survey by the China Consumer Association, 85% of people had experiences with data leaks. Ant Financial, a fintech platform, was accused of enrolling users automatically to its credit scoring program (“Sesame Credit) which tracks social interactions and online behavior patterns. Regulators are catching up: in particular, by studying the General Data Protection Regulation (GDPR) adopted by the European Commission, which came into force in May 2018.

Comments

Submitted by Aline on

Thanks for sharing! The prosperity of the digital platforms in China contributed greatly by flexible government regulations.

Submitted by Anonymous on

Really interesting innovations - perhaps entrepreneurs from advanced and other developing countries alike can learn from these business models to disrupt their own home markets, increase industry competition and raise consumer welfare.

Submitted by Peter D on

This is an insightful piece of article. Hope there are more discussions in this topic.

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