China - Digital Economy and Digital Media

Synopsis

With the world’s largest online population, China’s digital economy has grown rapidly to cater to the needs of the online masses. Much of the initial growth in China’s digital economy was underpinned by the online demand for information, media and commerce, giving rise to China’s three domestic digital economy giants; Baidu (search), Alibaba (e-commerce) and Tencent (social media). Traditional media players largely struggled to keep pace with the migration of audiences to online media, while China’s telcos missed the opportunity to develop into digital giants as they focus on deploying fixed and mobile broadband networks.

Also evolving within China’s digital economy to meet the needs of China’s online audience are the banking and financial services industry, public administration services, health services and education services.

China’s digital economy will continue to grow as only half of China’s 1.4 billion people are online. This online audience is growing wealthier due to China’s consistent macroeconomic growth and demographic trends such as ongoing urbanisation. As a consequence China’s online audience is increasingly willing to spend online, a trend encouraged by the government as it seeks to balance the economy away from an overreliance on building infrastructure and exporting goods towards domestic consumption.

The fate of China’s traditional media players is largely secure given that they are government owned and hence seen as an integral part of the government’s desire to control the media. The competition for audience share and hence revenue between privately and state-owned operators reflects the same competitive challenges faced by state-owned operators in other industries in China’s evolving economy.

Key developments:

• 2016 China Unicom announced plans to install a narrowband internet of things (NBIoT) system consisting of 3,000 base stations by the end of 2017
• China’s big digital giants are consolidating their position by branching into non-core areas through investments in China’s many start-ups, some of which were launched by ex-employees, mirroring the trend that developed Silicon Valley’s start-up ecosystem.
• China’s broadcasters are under threat as audiences shift from traditional broadcasters to online media platforms operated by new players; the largest online platform boasts almost one billion daily mobile views.
• The TV is expected to become one of the biggest battlegrounds for China’s digital giants as its role evolves into a dedicated hardware interface into one of China’s many developing “walled garden” digital ecosystems.
• China has largely completed digitalisation of its traditional broadcasting platforms.
• China’s largely state-owned CATV industry is undergoing consolidation to capture the economies of scale that was not possible through operating thousands of smaller CATV operators.
• China’s massive online population allows a number of social media platforms to flourish, a number of which have pivoted towards e-commerce in order to monetize traffic.
• China’s digital economy is yet to reach its full potential as just over half of the population is online.

Companies mentioned in this report:

Alibaba, JD.com, China Telecom, China Unicom, Baidu, Tencent, SINA, Weibo, Sohu, Xiaomi, Meilishuo, Mogujie, RenRen, China Central Television (CCTV), Youku, Iqiyi/Qiyi, V.QQ.com, BesTV