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8 Innovative Industries China Does Better Than Anywhere Else

What do you think are China’s biggest and best innovations?

China has long been known as the factory to the world, and with good reason. In 2011, for example, it manufactured 90% of all the personal computers produced globally that year, as well as 80% of the air conditioners, 74% of the solar cells, and 70% of the mobile phones.

Like a factory, China has a reputation for being dirty, noisy, crowded and jarring to the senses – the kind of place you’re eager to clock out from and leave at 6 PM. And like the factory floor, China is usually the last and perhaps the least interesting stage of manufacturing and assembly in global supply chains. Typically, the innovation happens elsewhere.

But amid the gritty business of global supply chains, some Chinese industries are developing surprisingly innovative services and products. Here are eight of the industries in China that are doing a better job at meeting people’s needs and pushing the boundaries of innovation than more established competitors in other parts of the world.

1. Micropayments

Micropayments have finally become a standard in the West, with internet users now paying small fees for virtual goods from the Apple iTunes store and games like Candy Crush. But before they were popularized in the U.S., these mini-payments were common in East Asia, where widespread piracy made it difficult for companies to profit from selling games or software, as most companies have in the West.
Instead, Chinese tech companies would offer their games and web services for free, and then charge small amounts of money for individual pieces of content – such as a virtual sword to help a gamer reach the next level, a new outfit for a virtual avatar, or a new ring tone for your cell phone. This business model not only helped digital companies make money despite rampant piracy, it also proved more appealing in a lower-income country, where consumers were less willing and able to shell out a big lump sum for a digital product up front. Tencent, now one of China’s most successful companies, built its empire on countless of these mini transactions.

2. E-commerce

Americans are more aware than ever of the promise of the Chinese e-commerce market, after Alibaba’s massive and successful U.S. listing this fall. Alibaba is an innovative company, adapting eBay’s business model to the Chinese market in a number of interesting ways. But the most innovative thing about Chinese e-commerce may be simpler and broader reaching: That e-commerce has basically leapfrogged traditional retail in China, bringing modern consumerism to developing rural areas before brick-and-mortar stores can.

China is a massive country, both in terms of size and population. Faced with these logistical challenges, many upscale brands have barely penetrated into China, establishing just a few stores in the country’s largest coastal cities. Apple, for example, has only 13 stores in China, despite recording net sales of $9.3 billion in China in the second quarter.

Chinese consumers outside of the major cities have quickly taken to going online to buy products, obviating brick-and-mortar stores. That demand from lower-tier cities helped e-commerce revenues expand at more than 70 percent per year between 2009 and 2012, according to research by KPMG.

Of course, none of this would be possible without…

3. Delivery services

Of course, sometimes your delivery guy gets lost, or is vague about what time he will arrive. But in general, courier services in China are flexible, fast and very cheap – so much so that some friends in Shanghai would use delivery services to send freshly baked cookies to friends across the city.

The low cost and high quality is due to lots of competition in the segment, high demand for deliveries due to the bustling e-commerce business, and a low cost of labor in China. As more Chinese head abroad, Chinese delivery companies have sprung up that offer international delivery at a fraction of the price of companies like UPS and DHL.

4. Online investment products

The banking sector is still tightly regulated in China, but new online investment platforms in China are providing many people who aren’t served by the traditional banking system with access to investment options.

The most famous and biggest of these services is Alibaba’s Yu’e Bao, which since launching in June 2013 has rapidly become the largest money market fund in China and among the biggest in the world. The platform allows internet users to invest the leftover cash that is sitting in their accounts at Alibaba’s payment service, Alipay, for a roughly 5 percent return. Tencent, Baidu, Sina, and other technology companies are offering competing products.

Most of these services have no minimum requirement for the amount invested, unlike Chinese banks, which typically require at least 1,000 RMB ($162) for many investment products. Due to the lower cost of operating a digital platform, these services can afford to cater to the lower-earning or rural consumers that traditional banks have previously ignored.
5. Cheap smartphones

For many Chinese people, a smartphone is their sole way of accessing the internet, and even more central to their careers and social lives than in the West. Although Apple and Samsung are still hugely popular in China, many people are turning to cheaper domestic brands to acquire the same bells and whistles at a fraction of the price.

Xiaomi is among the most successful of China’s cheap mobile brands. Xiaomi sells its phones in flash sales to generate buzz, and then keeps costs low by selling most of its products online and generating revenue from software sales, rather than handsets. The company plans to sell 60 million smartphones in 2014, a sharp rise from 18.7 million sold in 2013 and 7.2 million in 2012.

Xiaomi’s success has inspired a lot of followers, including Coolpad, Oppo and OnePlus. Lenovo, China’s more seasoned electronics product maker that acquired IBM, has also done well selling less expensive smartphones in markets such as Indonesia, India and Russia.

6. High-speed rail

The designs for China’s high-speed rail system aren’t particularly original. China modeled its train systems on those in Japan, Europe and elsewhere, and acquired the know-how through technology transfer agreements with multinational companies.

But the extent of China’s network, and the way it has been subsidized to make high-speed rail affordable for hundreds of millions of people, makes the system transformative. China has the longest high-speed rail network (+124 mph) anywhere in the world, with nearly 7,000 miles of track at the end of 2013.
7. Hydroelectricity

China has a long-running fascination with hydroelectric power. Mao Zedong dreamed of a dam stretching across the Yangtze similar to the present-day Three Gorges Dam. Before he served as president and party chief, Hu Jintao was a water engineer who worked for the state owned company Sinohydro for five years. When in office, Hu saw the Three Gorges Dam, the largest dam in the world, completed.

Today, China is the world’s largest producer of hydroelectric power, with more than 250 gigawatts of hydroelectric capacity and 11 of the world’s largest 25 hydroelectric plants. As China runs out of rivers to dam, its state-owned companies are increasingly looking abroad. Chinese banks and companies have been involved in 330 dams in 74 different countries since 2000, particularly in Africa and Southeast Asia, according to the NGO International Rivers.

Whether these dams are really a net positive for China and the world is debatable. They’ve necessitated the relocation of millions of people, destroyed ecosystems, flooded archeological and cultural sites, increased the risk of landslides, and raised pollution levels downstream. But hydroelectric dams are also the biggest source of renewable energy in the world, and in China they have helped to offset the burning of coal. Whatever your view about dam building, it’s undeniable that China has taken hydroelectric power to a level unseen before.

8. DNA sequencing

The cost of sequencing a complete genome has fallen from $3 billion in 2003 to just a few thousands dollars today. That accomplishment is in large part due to one Chinese biotech firm called Beijing Genomics Institute, or BGI, which today accounts for about half of the world’s global genetic sequencing capacity.

BGI sequences more DNA than any other institution on earth, including Harvard and the National Institutes of Health. The company it has mapped out the genomes for cancer cells, plants, insects, humans and the giant panda. It is now working to catalogue the genes of more than 2,000 families with autistic children. B.G.I. aims bring the cost under $1,000, at which point it could be incorporated into normal medical care.

What do you think are China’s biggest and best innovations?

 

–from Forbes, Ana Swanson





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