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China has just leapfrogged the US in a big way

I just arrived back from one of my regular business trips to China. Here’s my tally: air pollution is even worse, water in rivers is filthy. Yet the built environment is even more impressive and the Chinese people have made giant steps forward over their American and European counterparts in the convenience of their lives. How so?

 

It’s called WeChat. You might think of WeChat as a messaging app. You'd be wrong because it’s way more than that. Pay using WeChat at your local supermarket; pay on subway using WeChat. Pay taxi same way. Pay at any shop the same way. Restaurants, etc. China has almost ceased using credit cards except for visiting backward Americans like yours truly.

 

Of course China is already way ahead in online shopping – using WeChat of course, and getting delivery which is faster and more accurate than in the US. Want some Mongolian dishes for dinner? Order via eleme, the national takeout service, any cuisine, any dish, any neighborhood, any time. We’re several years behind in this area too.

 

There’s dock-less bikes galore, and of course there’s some issues here including piles of bikes everywhere often blocking the sidewalk. But it’s childishly simple to get and use them. Of course you pay by WeChat.

 

Americans hugely underestimate China’s achievements in building the country over the last few years. It has hundreds of cities, almost all of which are way larger than most of ours, so even a small city is 5 million plus inhabitants.

 

In that short span of time it has built cities complete with modern transportation, sewage, water, power, bridges, roads and so on. It’s what we Americans did 100 years ago on a vastly smaller scale. The Americans who designed and built our entire infrastructure have long since retired and died. In contrast in China almost all of them are still alive.

 

That makes China vastly more competent than the US in designing and building things on a huge scale. That’s why the Africans love them, despite our jibes about the Chinese just paying off the locals (which probably happens also anyway, just as we have seen it happen recently with European and US companies).

 

Yep the US is still ahead in pure, raw innovation compared to China. But China more than makes up for its lack of real innovation by the scale of its companies due to the huge population which enables even commodity product first-movers to get vast distribution and economies of scale that we in the US cannot.

 

Right now China is about 5 years ahead of the US in the payments space; that’s my assessment. Here’s what’s going to happen. New apps will emerge which can only prosper once you have a sophisticated payments infrastructure. These apps will then explode. The US won’t be in such a position for at least 5 years. China is already there. We can’t predict what these new apps will be, but we can be certain they will be transformational.

 

And you can’t say that China is not innovative either. There are many areas that China is ahead in in the tech area (see this smartwatch from Xiaomi for example); many of these leaps are in areas that haven’t become visible yet since we are too far distant and the Chinese language is too great a hurdle for us to see what is truly going on. We see the big leaps only once they have happened, and by then it’s too late. Watch for some big surprises to come out of China in the next few years which will totally blindside us.

 

Of course there’s some longer-term dynamics that could be very unfavorable to China, including pollution, debt, an aging population and a skewed gender ratio. Any of these could cause a bending of the curve back to the US. I think that’s a particular risk with the looming debt-bomb in China, although the authorities are aware of it and so far have handled it creditably.

 

Clearly there’s a lot going on the US-China relationship right now. The US aims to bring what it regards as more fairness into the equation. From where I sit it doesn’t matter what we do; China is already ahead of the US and the gap is continually widening in its favor.

 

And I think there’s even more going to happen which has not been factored in yet which will favor China. This includes the explosive penetration of the Internet into the commercial and personal lives of its people far more than it has in the US.

 

We tend to forget an important point with China. With a population of 1.3 billion it has four times the number of brains we have and that means four times the number of great and innovative brains. We can never make up that disparity. That means in the end they’re going to get 4 times the number of innovations and breakthroughs. We can’t keep up with that. So we’re not just talking the advantages of commercial scale and distribution here.

 

Remember Zheng He? Looks like the Middle Kingdom is King of the Hill, again.

 

 

 

 

 

 

 

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Monday, 17 December 2018

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