China Internet Report 2019 - ChinaBriefs on Tour 2 - Offline Retail - Click Farms 😳

Hello from Beijing & Hamburg,

welcome to the new issue of the ChinaBriefs newsletter.

Today we start with a number: 4,418,287. This is the total number of Volkswagen Jetta that have been produced in China since production started more than 28 years ago. In comparison, in 2018 alone Volkswagen sold more than 4.21 Mio vehicles in China. We felt a bit of a wave of nostalgia coming over us as the press announced that an era will come to an end this month as production of Jettas will be discontinued. Long live the Jetta!

Topics for this issue:

As always, we are looking forward to any kind of feedback!! So pls send us an email (feedback@chinabriefs.io) or leave a comment on one of our channels on Twitter, Facebook and LinkedIn.

Thx & best wishes

B. & M.

Last week, the South China Morning Post and its online subsidiary Abacus published the brand new China Internet Report 2019. If you want to get a good overview of what is happening in Digital China, about key players and main trends you should check it out!

The authors have identified 4 top trends for 2019+:

While our online players are becoming less innovative, their Chinese counterparts are on a roll - testing new ideas & concepts every day. And now Western companies are trying to copy what is successful in China: Facebook wants its own WeChat-like Superapp, deeply integrating eCommerce to Social Media makes a lot of sense and TikTok-like super short video is everywhere (maybe Twitter should bring back Vine? 🤔).

Are those Chinese concepts & ideas compatible with the thinking of Western companies & customers? Time will tell… 

In Germany the auction for 5G frequencies ended just a few weeks ago. When will we start using 5G now? 🤷‍♂️! China on the other hand granted its first 5G commercial licenses to the country’s big three telecom operators in June and they will deploy upwards of 200,000 5G base stations across the country by the end of the year… 🚀

(More on 5G in China)

AI is already being used everywhere: for access control, customized recommendations, smart city applications and, of course, surveillance…

Reading Western media reports could give you the impression that “Social Credit” is already rolled out everywhere in China as an all-encompassing system. But so far it isn’t, there a some national blacklists for deadbeats and many local tests runs with various approaches - very often ignored by the citizens on the streets. But that will probably change next year as the official deadline for a national system will approach.

Btw, how can you tell that the Social Credit System is a big deal for the central government? Because it got its own theme song and music video! 😳 

(More on the Social Credit System)

These are just four trends. For a deep dive into 11 other topics (Ecommerce, Content & Media, Social & Messaging, Sharing Economy, 5G, AI, Autonomous Car, Smartphones, Smart Devices, Gaming, Blockchain + Fintech) download the 100+ page report - for free!! 

Back to out little tour trough Digital China and a heartfelt “Welcome” to Hangzhou. That’s where we arrived via high-speed train in less than an hour from Shanghai.

Our first stop for the day was: Wedoctor. The company was founded by Jerry Liao in 2010. His ambition was to build an Amazon for health care. Today the outfit is valued at $5.5 billion with services like:

During our tour of the headquarter we could inspect many of the offline hardware and components to remotely run mobile ambulances in far-flung regions of China and as far way as Africa as well as units for corporate clinics for China’s high-tech companies that often have thousands if not tens of thousands of employees. We also saw an Amazon Echo-like $600 speaker for home use that links to fitness wearables and doubles as a doctors’ hotline with a nurse on duty 24/7 for remote diagnosis.

Wedoctor is not yet profitable and while making preparations for an IPO, it became quite apparent, that the amount of domestic patient data the company holds might make it difficult to list overseas. Times have changed. Chinese companies can now consider to IPO on Shanghai’s new board STAR.

Btw, among all the companies we at ChinaBriefs have visited so far, WeDoctor was the one that left our trip participants truly amazed and “blown away”! So if you have a chance to visit this company, take it!!

Next stop: the Flyzoo Hotel - Alibaba’s autonomous robot-operated hotel experiment right next to the company’s main campus. It’s a fun visit as you can experience automated check-in via face scan. Pretty much the rest of the hotel functions via facial recognition as well: elevators, hotel room doors or vending machines. And if the face doesn’t work then you can surely rely on voice recognition in your room to switch on lights, get the telly going or order food - all through Alibaba’s own TMall Genie (btw Mandarin only, of course).

Then there is the room service, which is done by robots. And even the lobby cafe is run by a RATIO robot arm mixing cocktails or doubling as a barrista for fancy macchiatos.

It’s all cool and gadgety but we still prefer the human touch of a classic hotel. Park Hyatt Hangzhou anyone?

Our last visit for the day took us to the headquarter of Netease where we had an appointment to learn more about it’s cross-border ecommerce business Kaola, where Chinese customers can buy products directly imported from a foreign country - like a NIVEA cream with German label and packaging.

Netease started out as an email, social messaging and gaming business (I remember my first email address in China was from Netease with the famous 163.net address). A few years ago it became obvious that Chinese consumers began upgrading their lifestyles and started craving more and more overseas brands, because of its quality and authenticity. Founder and CEO Ding Lei didn’t wait long and started competing with the big boys at Alibaba and JD.com. Now his platform is leading (and has been for the last eight quarters) this category with a 27% market share according to the latest iiMedia Research.

Kaola as a platform is easy to do business with and they have offices in Frankfurt and Paris for brands to get in touch with them.

We left Hangzhou by plane and arrived late at night in Beijing. The next morning saw us going straight to the biggest ecommerce player the city has to offer: JD.com with a revenue of 67B USD in 2018 and unlike Alibaba is pursuing a heavy-asset strategy where it owns and operates large chunks of their logistics networks and warehouses themselves.

We were welcomed by Ella Kidron, senior communication manager at JD.com and her team. By the way, “JD” stands for Jing Dong: Jing as in Beijing and Dong as in Liu Qiangdong, the founder of the company.

His story is a true rags to riches story that began in Beijing’s Northwestern Zhongguancun district with a small stall selling computer spare parts. The HQ we are now visiting has more than 20,000 employees working in it and is truly symbolic for the massive rise ecommerce has seen in China. The ground floor and reception area is where you can witness and inspect all different types of technological innovations around ecommerce, new retail and logistics, including very cool delivery drones that have already been deployed since early 2017 in Zhangwei near Suqian (Liu Qiangdong’s birth place) and other remote areas in China’s vast country side.

JD.com had a tough year in 2018 and the beginning of 2019 but is reorganizing now and is getting ready to prove that it is betting on the right strategy by leveraging its massive logistics empire. Alibaba has a substantial lead but one should never underestimate Mr. Liu’s fighting spirit.

Next up was China’s version of Linkedin: Maimai. The unicorn company was only founded in 2013 by Fan Lin. In the last two years they have gained more momentum by focussing on localized features like individual and group chat rooms as well as anonymous chat that made it also a lot like Glassdoor. From my own experience watching the Chinese tech blogosphere, most of the juicy stuff that is happening in China’s tech companies was first found on Maimai. The app has now more than 50 Mio registered users and clearly overtaken LinkedIn China as most popular job search and professional networking site.

If you ever have to find talent in China, this platform is your go-to solution and maintaining an updated company profile is a “must”. Also the Maimai example goes to show once again that the big foreign incumbents mostly can’t win if they don’t know how to adapt and localize their winning formula for the China market.

Our three-part report will conclude next time with our take-aways from visits to the remaining four companies: Kuaishou, Horizon Robotics, Bytedance and Xiaomi.

These last weeks made massive headlines with the announcement that French hypermarket operator Carrefour eventually sold 80 percent of their China business to local player Suning.

Carrefour arrived in China in 1995 and as of this year operated more than 210 large format supermarkets mostly in first and second tier cities - somewhat successful with lots of ups and downs over the years. Lately the revenue had been falling significantly accompanied by losses of more than 200 Mio EURO. Considering the seismic shifts in China’s grocery segment in the last three years, an exit sale was understandable.

But here is what was really interesting about this acquisition and we at ChinaBriefs wanted to bring to your attention: Suning buying Carrefour is really an example of the ongoing proxy fight between Alibaba and Tencent for dominance in the offline retail space. Suning is partially owned by Alibaba. And Yonghui Supermarkets, the other potential suitor in the Carrefour sale counts Tencent among its larger shareholders. The two internet giants have made it abundantly clear that it will be crucial for their survival to extend their online empires into the bricks and mortar world in an attempt to seek access to more traffic sources to fill their digital channels.

The battle for offline retail is in full swing. It’s a sad ending for Carrefour. However, there maybe a final sweetener one day when they can sell the remaining 20 percent of their China business. It would not be the first time that a foreign company’s share in a China business becomes its most valuable asset (remember Yahoo’s stake in Alibaba?). For Suning and Alibaba, the acquisition is a smart move as they gain exquisite real estate, warehousing and logistics expertise for fresh groceries (especially cold-chain) and a database with 30 Mio loyal customers. Keep in mind, online customer acquisition cost is estimated to be around 100-200 RMB (12-24 Euro) per User in China now. This in itself could easily justify more than half the total purchase price of 700 Mio USD that Suning shelled out for Carrefour.

As we reported in our last issue, Germany’s no-frills discount grocery chain ALDI made its debut in Shanghai a few weeks ago. What can be learned from ALDI: they tested the water by using a digital-market-entry-first strategy by opening a cross-border ecommerce store on TMall Global. This allowed them to develop a thorough understanding of what the Chinese consumer really wants. On the basis of big data they spent an adequate amount of time to finetune their offline sortiment to maximise their chances of long-term success.

Alibaba and Tecent are fighting for dominance in offline retail, because they desperately need to tap into offline traffic resources to fuel needed growth for their online businesses - hence a bidding war for Carrefour’s struggling China unit.

In China there are still online stores on Taobao where you can buy “Likes” by the hundreds or thousands. Those clickfarms are not a recent phenomenon - rooms filled with sometimes tens of thousands of mobile phones operated by a handful of low-paid workers who click those phones for “Likes” and “Views”.

Nowadays you also see Chinese KOLs (key-opinion Leader aka influencers) performing their marketing activities, like beauty and make-up tutorials (including follow-up sales for their Wechat Group followers) on various video live-streaming apps in front of up to hundreds of mobile phones.

Those pictures give an interesting insight into how this young and fledgling industry operates, especially now that live-streaming and short video platforms massively penetrate traditional ecommerce.