China is home to dynamic digital innovators and is a leading global investor in the latest technologies
Digital China is already more advanced than many observers appreciate. In e-commerce, China accounted for less than 1 percent of the value of worldwide transactions only about a decade ago; that share is now more than 40 percent. The current value of China’s e-commerce transactions is estimated to be larger than in France, Germany, Japan, the United Kingdom, and the United States combined. Penetration of mobile payments among China’s Internet users grew from just 25 percent in 2013 to 68 percent in 2016. In 2016, the value of mobile payments related to individuals’ consumption was $790 billion, 11 times that of the United States. One in three of the world’s 262 unicorns is Chinese, commanding 43 percent of the global value of these companies (Exhibit 1).
China’s venture capital industry is increasingly focused on digital. Overall, China’s venture capital sector has grown rapidly, from just $12 billion, or 6 percent of the global total, in 2011–13 to $77 billion, or 19 percent of the worldwide total, in 2014–16. The majority of venture capital investment is in digital technologies such as big data, artificial intelligence (AI), and financial technology companies. China is in the top three in the world for venture capital investment in key types of digital technology including virtual reality, autonomous vehicles, 3-D printing, robotics, drones, and AI.
Three factors suggest that there is huge upside for digital in China:
- The big and young Chinese market is enabling rapid commercialization of digital business models on a large scale.
- Three of China’s Internet giants—Baidu, Alibaba, and Tencent, or BAT—are building a rich digital ecosystem now growing beyond them.
- The government gave digital players space to experiment before enacting official regulation, and it is becoming an active supporter as an investor and consumer.
The impact of digital China on the global economy has been increasing. China ran an annual surplus in digital services of $10 billion to $15 billion over the past five years. Its outbound venture capital totaled $38 billion in 2014–16, up from $6 billion in 2011–2013.