The Chinese Consumer Is Driving Global Innovation

This year’s Economist Innovation Summit in Hong Kong brought together about 200 industry luminaries, entrepreneurs and venture capitalists to debate one of the hottest topics regarding China: will China become an innovative economy and what will it mean to the world?

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One of the themes that emerged was Chinese consumers have become a driving force for global innovation. In 2015, China’s industrial sector barely grew, but its service sector saw higher than usual growth at 12%. Latest data indicate that consumption accounted for more than 60% of China’s GDP.

As I wrote here and here, there are more than 600 million Chinese middle class consumers–and counting. They have been evolving and maturing quickly over the past decades.

“I don’t think that there is a consumer in the world now that is more demanding than the Chinese consumer,” said Victor Fung, chairman of Fung Group, a business consultancy based in Hong Kong.

A different breed of consumers

Younger generations are a different breed when it comes to consumption. Kathy Xu, founder and managing partner of Capital Today, said that those who were born after the 1980s are spenders. They travel extensively. When they stay at home, they shop online.

Most of them use mobile phones to browse their favorite brands. Mobile commerce in China is way ahead of that in the West. Chinese companies such as Alibaba, WeChat and JD.com are innovating in order to meet the demands of Chinese consumers.

For example, Alipay, Alibaba’s payment system, started to handle mobile payment as early as 2009, long before Apple Pay was launched. It allows users to access their bank accounts, transfer money to family and friends, pay utility bills and more. Now, its transaction volume is more than double Amazon’s.

Xu also pointed out that China’s mobile internet commerce is “a once-in-a-lifetime opportunity” for retailers.

In areas such as e-commerce, Chinese companies are evolving from copycats to innovators. They are beginning to venture into other markets, such as Brazil, India and Indonesia. Before we know it, they will creep into western markets. Recently, Alipay inked deals with 10 international airports, including Munich, Aukland and Tokyo.

Global brands have also sped up their innovation to appeal to Chinese consumers. For instance, British fashion brand Burberry has kicked-off a new trend called “show-now, shop-now.” During New York fashion week last month, it live-streamed its fall fashion show on WeChat. Chinese consumers could purchase Burberry’s fall collection immediately on the app while they watched the show.

The nature of innovation

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Photo credit: The Economist

During the summit, many debated the nature of innovation. Vijay Vaitheeswaran, the Economist’s China business editor and Shanghai Bureau Chief, defined innovation as “fresh thinking that creates value.” Markus Steilemann, an executive at Covestro, believed that innovation is “invention that makes money.” Others argued that innovation should be focusing on solving market problems.

Which means innovation doesn’t have to be technical breakthrough. The ability to make things cheaper and better is a form of innovation. For example, Chinese smartphone makers such as Huawei, Oppo and Vivo are beating Apple and providing affordable and high-quality mobile phones to Chinese consumers. Huawei is challenging Apple in India as well, vowing to beat Apple in three years.

On that note, Ken Wilcox, chairman of Silicon Valley Bank, said that China has many bad habits such as inefficiency and low productivity, and that will propel China to innovate more. “It will be more interesting to look at this [innovation] ten years from now,” he said.

It may not take ten years to see the results. The power of hundreds of millions of consumers is very real. They are demanding better products and services, and the private sector is stepping in to meet the challenges.

The Chinese government now sees innovation as the new recipe for growth. The lastest five-year plan set incentives for innovation. At the G20 summit in Hangzhou, President Xi Jinping told world leaders that China will become an innovation-driven economy by 2020.

As Jonathan Woetzel of the McKinsey Global Institute proclaims, “China will not only innovate, but will change the nature of innovation itself.” No doubt, the Chinese consumer is a major driving force behind that.

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