‘China First?’ Exploring innovation in Beijing

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30 July 2018

In June 2018, David Levin travelled to Beijing as part of our team leading a Quest in the city. The experiential learning programme saw 450 senior partners from a global consulting firm explore wide-reaching themes, including disruption, innovation and social change.

Touching down at Beijing’s Capital Airport, I realised it was 18 months since my last trip to China. I expected change, of course, but as I ventured out on my first day of the Quest, the sheer scale of street-level innovation took me by surprise.

Accompanied by a dozen global consulting partners, I spent the morning in a migrant community under the airport flight path. I saw fruit and veg being sold from the back of bicycles and noticed that the vendors only accepted mobile payments. In fact, all around me, ordinary Chinese folk were using their phones to buy and sell. On these modest urban streets, the cashless marketplace had well and truly arrived. Surrounded by this frenzy of app activity, I began to wonder what the future holds for traditional credit cards. How will Visa, Mastercard and Amex compete? More broadly, how will global banks compete, in an era when Ant Financial’s Alipay dominates Chinese mobile payments (54% share and rising)?

Our Quest exposed the interplay between user-friendly mobile payments and the iron grip exercised by the state when it comes to internet access. VPNs are tolerated (if web content is in English) but broader control seems to be increasing. As soon as we landed on Chinese soil, we found that our handsets no longer functioned as standard smartphones – monitoring had been activated and censorship was in full swing.

There were other contrasts too. Leaving the city centre one day, we headed out to a village on the fringes of Beijing, to visit a small, state-authorised migrant museum, curated with a low-key human touch. It paints a relatively candid picture of migrant lives, covering human rights abuses (considerable), the role of gang masters (extensive) and depressingly squalid living conditions. This tiny museum reflects the lives of some of the 250 million migrants who have flowed into China’s cities since the 1990s – a staggering figure, even in a country of 1.4 billion. Our driver, whom we invited to join us on the tour, wept as he told us that this was his story. And he could barely believe it was being told, in all its poignant truth. As we listened, it was clear how difficult life had been for him during his relocation, but that life was calmer now. Today, rural migration continues, but at a much slower, more controlled pace.

I was struck, throughout my trip, by the sense that China is moving far beyond its ‘made in China’ label, to a new tagline: ‘innovated in China’. Much of the western press has spent the last couple of decades focusing on the tech shockwaves coming out of Silicon Valley. But today it’s the west which is playing catch-up, and mobile tech is running the game. Western brands might still come top for recognition, but Lenovo (the world’s largest PC-maker), Huawei (smartphones) and Alibaba (e-commerce), are gaining ground.

Artificial intelligence is omnipresent in China. Face recognition is rolling out and the state is feeding social data into its central planning – including economic forecasts and policy strategy. My sense is that Alibaba’s vast arsenal of hourly data plays a key role. And state encroachment goes further: in a way which will be eerily familiar to viewers of the Netflix hit Black Mirror, the average Chinese citizen’s social media profile is augmented by ratings-style data and WeChat social behaviour information. This means that an interaction with ‘the state’ (eg a parking attendant) is essentially being rated and used to create a ‘social credit score’. Data of this sort is openly used for tracking in situations where resources are finite (eg a fixed supply of peak-hour train tickets), but less benign purposes may be on the horizon.

To be sure, local entrepreneurism isn’t always a success. bike-sharing Mobike has changed the shape of local transport. But the business model isn’t quite right yet. In villages around Beijing we saw mountains of discarded bikes, and others chained up (many without saddles – the user ‘reserving’ them by rendering them inoperable to others). As this sort of bike (and scooter) scheme spreads across the US, (and indeed world) it will be one to watch and I doubt cities will accept the chaos of abandoned bikes/scooters everywhere.

But this was a rare misfire amidst a wave of future-tech consumption. Indeed, the level of Chinese ambition was striking, everywhere we went. Against this backdrop, nativism seems to be on the rise: we got the impression that westerners who are working in China are struggling to extend the term of their stay. All of this added to the impression that ‘the system’ is keen for locals to up their game. Of course, the central role of the Party cannot be ignored, but it was also fascinating to see the growth in NGOs – from zero in 2000 to almost 250,000 today.

As I left Beijing, on my way back to a sweltering Manhattan, I was left with this thought: every business, every investor (and every country) should have a holistic view of China – and a China strategy. As trade wars heat up, a lot will happen in the next 12 months. It’s going to be fascinating. Expect the unexpected.