December 2022

Accuracy Talks Straight #6 – Industry Insight

Frédéric Recordon
Partner,
Accuracy

Helena Javitte
Manager,
Accuracy

Data, one last reason to take an interest in China?

Why should we still take an interest in China? The signals it is sending of a country locked up, tempted to turn in on itself and asserting an alternative model of society are now leading people to understand it in terms of risk analysis. The latest studies from the European and US chambers of commerce in China testify to a significant re-evaluation in the strategies of foreign companies.1

Yet, in this sombre context, for those of us who have been working in the country for over 10 years, China is a country that deserves attention from Europe. The most relevant reasons to take an interest might not be those that come to mind first, however. Some may even prove discomfiting. What if China was ahead of the West? Ahead in the thinking that is shaping the world of tomorrow? In the absence of a commercial El Dorado… ideas!

The source of this Chinese head start is data. The country has numerous advantages: structural – 18% of the global population provides an unparalleled testing ground to explore new ideas; economic – its regulation or even the abundance of tech investments; cultural – the launch of quick & dirty solutions, which are later improved or abandoned, where Westerners only want to launch more finished products.

This article aims to analyse through three different lenses how China considers data. (1) How regulation turns data into a competitive advantage. (2) How data is at the heart of retail transformation. (3) How it uses data to create new business models.

1. REGULATION FAVOURING COMPETITIVE ADVANTAGE

The first thoughts on data as a factor of production started in China at the beginning of the 2000s and continued throughout the following decade with the creation of a regulatory framework to launch a data exchange platform.

The turning point came in April 2020 when data was officially considered as the fifth factor of production, on the same level as capital, labour, property and technology.

This is effectively the birth certificate of a data economy considered as the disruptive accelerator for the growth of Chinese companies.

The first objective of public authorities is to encourage players to structure their data in such a way as to facilitate their sharing. For this, the government has put in place public platforms.

From 2019, the SASAC, the governmental body that supervises state-owned companies, published a list of 28 state-owned and private companies tasked with federating their industries through sectoral platforms.

The China Aerospace Science & Industry Corp. is in charge of aeronautics; the CSSC, of naval construction; Haier, via its COSMOPLAT platform, of 15 different sectors (electronic, industrial manufacturing, textile, chemical industry, etc.).

The second objective aims to create a data exchange platform. Led by local authorities (Shanghai, Beijing, Shenzhen, Hainan, Guangzhou), this takes the form of freetrade zones and pilot data trading platforms.

Thus, the Shanghai Data Exchange Centre (SDEC) is similar to a technology exchange guaranteeing the legal conformity of transactions for member companies, whilst the Beijing International Big Data Exchange favours the sharing of public data at national level with the hope of international expansion.

These initiatives show that China has started to lay the foundations of the data economy.

It is trying different things, experimenting with answers to the most crucial question: how can data be transformed into an item of value? A first challenge lies in the multitudes of data – personal, financial, industrial, meta, etc. – as well as their of ten incompatible formats.

Their standardisation and exchange protocols are crucial stakes for leadership in the world of tomorrow. In parallel, we also have the question of valuing data. The SDEC is currently working on these questions of ownership, source, quality, certification and price setting.

We can see it: China has started thinking about the new asset that data has become. It is advancing in incremental steps leveraging public and private economic actors, thus building a gigantic world of possibilities.

2. DATA, AT THE HEART OF RETAIL TRANSFORMATION

‘Today, we don’t know how to monetise data, but we do know that people will not live without data. Walmart generates data from its sales, whilst we do e-commerce and logistics to acquire data. People talk to me about GMV2 but we’re not looking for GMV. We sell purely to get data, and that is very different to Walmart.’3

This is, in just a few words from Jack Ma, founder of Alibaba, the fundamental difference between China and the West:

WHEREAS WE SEE E-COMMERCE AS AN ADDITIONAL DISTRIBUTION CHANNEL, THE CHINESE SEE IT AS A DATA MINE.

Though comparing the combined figures for Black Friday, Thanksgiving and Cyber Monday in the US ($25 billion) with the Chinese Double 11 ($139 billion)4 shows China’s significant lead, it does not take account in any way of this difference of philosophy.

The fact that China is much more connected than the US and Europe, that 99.6% of Chinese internet users access the internet from their smartphones, is hiding what is most important.

Limiting ourselves to quantitative analyses would be to misunderstand the disruptive nature of Chinese retail. The giants of e-commerce have created innovative payment solutions leading to their dominance of retail and their leadership in mobile payments.

This explains the dizzying growth of retail that depends on a fundamentally different approach from traditional players. Alibaba offers the most complete example with its concept of New Retail, defined in 2015. Two characteristics shape this model: (1) Alibaba positions itself above all as an intermediary facilitating exchanges between retailers and customers. (2) Alibaba has modelled a holistic ecosystem, each segment feeding into the others thanks to the data created by the transactional system.

As an intermediary, Alibaba offers retailers its digital tools in branding, traffic generation, etc. as well as its financial services that are highly appreciated by SMEs neglected by banks.

Concerning consumers, Alibaba makes available to them a universal plat form for all their daily needs: social relationships, administrative operations, consumer loans, etc.

Alibaba therefore sets itself apart from its Western equivalents. It operates an ecosystem, the purpose of which is to produce, analyse and monetise data, whilst its Western equivalents remain, despite their latest developments (cloud, etc.), integrated

distributors whose data is only a result. For Alibaba, retail is the support function, in no way the raison d’être. Its leadership relies less on GMV than on its central position in the generation and exploitation of data. Alibaba has come a long way since Jack Ma’s declaration on 16 June 2016 at the China Internet+ Conference 中國互聯網+峰會 that Alibaba ‘doesn’t know how to monetise its data’!

Since then, seeing huge opportunities far beyond its current revenues, Alibaba has transformed its ecosystem and its services. As a result of its perspective on data, China is leading the transformation of a whole industry, potentially paving the way for its Western counterparts.

3. DATA, A SOURCE OF NEW BUSINESS MODELS

Even though the New Retail example illustrates China’s capacity to pivot an industry from the sale of goods to the monetisation of its data, the spectacular development of electric vehicles highlights its ability to create innovative business models from scratch.

This is the example of electric charging stations. An electric charging station essentially differs from a fuel station in two ways. First, the charging time encourages users to charge their vehicles at home or place of work, which translates into very low utilisation (below 5%) of charging stations located in public spaces. Second, as the price of electricity is strictly regulated, operators’ very low margins prove insufficient to generate a return on investment. The solution in China was to shift the focus from the driver (the focal point of the fuel model) to the electric ecosystem.

In order to be successful, a Chinese operator considers itself a service platform for drivers, site providers (i.e. developers), local councils in their town policies, electricity providers, etc. It is not just about selling energy anymore but about optimising flows and prices: traffic, energy flows, etc. The critical point is, once again, data. The start-up X-Charge 智充科技, a specialist in SaaS B2B services, which our Beijing office knows well having worked with them, is illustrative of this business model revolution. It enables charging station operators to analyse their data in real time, adjust their prices by station based on the utilisation rate and road traffic, store electricity under the best conditions and sell it back to electricity providers or building managers during peak periods, etc.

The start-up has developed predictive models of activity and revenues that are highly appreciated by operators. It comes as no surprise that Shell Ventures invested during its Series B; beyond a financial investment, it is a disruptive model that the major company came looking for in China. It is quite obvious that the race to build the world of tomorrow has started and China seems intent on establishing its leadership through innovation guided by the state and relayed by the tech giants. In this strategy, data is clearly considered a critical asset. It is designed to secure the country’s future place in the world. In parallel, the monetisation of data will generate gigantic revenues that only a few players will control sufficiently to maximise their gains.

In some sectors, only the monetisation of data can, at least in a transitory phase, make capital-intensive business models viable.

For all these reasons, we consider it essential to take an interest in these topics and why not to take inspiration from certain initiatives in China.

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1 The latest study is that of the Chambre de Commerce et de l’Industrie France Chine (CCIFC – the France–China chamber of commerce and industry), conducted from 2 to 14 September 2022 with 303 French companies: 79% consider a deterioration in China’s image; 62% see an impact on their profits, 58% are revising their investment strategies in China; 43% do not plan to increase their presence in the next three years; and 16% are considering reducing their presence in China.
2 GMV: Gross Merchandise Value
3 Jack Ma speech from China Internet+ Conference (中国互联网+峰会) on 16 June 2016
4 2021 data, sources: Forbes, Bloomberg

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