How will China’s internet economy develop further? (Part one)

Here’s a hint: everyone wants to be entertained.

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How will China’s internet economy develop further? (Part one)

Even with a cooling economy amid trade tensions with the United States, China’s official growth rate is marked at 6.5%, which is still massive compared to other countries in the developed world. Yet given the physical size of the country, as well as its massive population, there are still many untapped areas for companies to explore. To that end, Tencent’s research arm, Penguin Intelligence, has published a report to highlight the opportunities that can still be explored by businesses that reach their customers via smartphones.

Already, we have seen Alibaba, JD.com, and Tencent shape the Chinese population’s shopping and browsing habits, as well as how they connect with each other. This is particularly true in the country’s biggest (and most connected) cities, like Beijing, Shenzhen, and Shanghai. But altogether, these areas account for just 18.1% of China’s population.

Medium-sized or smaller cities, which are informally labeled as tier-three or lower, hold the most promise for tech companies and startups to tap into. The population in these regions is coming online or already online, and will utilise new services as they become available.

 

Source: Penguin Intelligence

 

We’ve already seen how targeting this segment of the population can be extremely lucrative. The e-commerce site Pinduoduo avoided direct competition with Alibaba and JD.com, and instead offered group discounts that were appealing for those who lived outside major cities in China. It quickly became the go-to e-commerce site for many.

Here’s how the lifestyles and habits of this massive segment of China’s population have changed, and what this means for tech companies and startups in the immediate future.

 

The Mobile-ready Generation

As cheaper smartphones have become widely available, internet penetration in China has also exponentially gone up. In 2017, 27% of China’s online population was from smaller cities.

 

Source: Penguin Intelligence

As more phone-based services are being introduced, it’s natural to see people spend more time on their smartphones. In smaller cities, nearly three-quarters of the population spend more than half of their spare time browsing, shopping, reading, playing games, or participating in other activities on their phones.

It isn’t entirely uncommon for these folks to stay up all night while using their phones.

That leads to the natural conclusion that tech companies can capitalise on these habits. But what do these people use their phones for?

 

Smartphones are Everything in China

 

Source: Penguin Intelligence

 

When it comes to smartphone usage, there are two fields where Chinese users in medium- and small-sized cities differ from their counterparts in major cities—short video apps and e-books. This is partially explained by smaller cities having fewer entertainment options, so people turn to their phones for alternatives to kill time.

Firms like Pinduoduo and Hello Chuxing have managed to adapt business models popular in China’s top-tier cities for the rest of the country, and quickly carved out corners for themselves. There is still plenty of space for growth in these parts of China, and tech firms that pull ahead in the race will find an extremely large client base.

In part two of this series, KrASIA will look at a specific demographic group in China—the elderly—and how their spending habits might shape businesses that develop services for them.

Editor: Brady Ng