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Prediction 6

China, by design: World-leading connectivity nurtures new digital business models

“China is well-known for being the world’s technology manufacturer; it is now becoming a leading designer of digital products, services, and business models.”

The key trends that Deloitte predicts for China’s telecommunications networks:

  • In 2019, China’s telecommunications will be leading and, most likely, in the medium term.
  • China’s communications infrastructure will provide a foundation for the gestation and maturation of multiple new industries, each of which could generate tens of billions of dollars in revenue annually by 2023.
  • 600 million people will use their phones to make mobile payments as of the start of 2019, about 550 million people will regularly use their smartphones to shop online, and about 200 million people will use bike sharing services through their phone.
  • China will have the world’s largest fibre-to-the premise (FTTP) deployment by a significant margin.
  • At the start of 2019, China is likely to have over 330 million full-fibre connections, representing about 70% of the world’s total. At this point, the UK is likely to have 500,000 – 1 million full fibre connections.
  • 600 million people in China will use their phones to make mobile payments as of the start of 2019.
  • Approx. 550 million people in China will regularly use their smartphones to shop online in 2019.

What are the key factors supporting our predictions?

China’s strengths in connectivity will likely be a key factor in enabling it to diversify from manufacturing technology to developing - and executing - new digital business models.

For starters, China is likely to have the world’s largest 4G network, measured by base stations and subscribers. At the start of 2019, it will have almost 5 million 3G/4G base stations and 1.2 billion 4G subscribers. There are about 40,000 base stations in the UK and there were 58.4 million 4G subscribers in June 2018. Only India could rival China’s billion-plus subscribers; as of the end of 2017, India had about 238 million 4G subscribers.

Over the coming years, China is also poised to become one of 5G’s leading markets, enabled in large part by the volume and density of the 4G network that the country has already built out. China had almost 2 million cell sites in early 2018, and is expected to launch 5G on a wide-scale basis by 2020 and to be the leading 5G market, with 430 million subscribers, by 2025.

What does this mean for China’s tech future?

China’s world-leading fixed and mobile telecommunications networks should enable it to become the leading location for developing and deploying applications requiring hyper-fast speeds of 500 megabits per second or more.

The upshot of all this connectivity should be business model innovation: step changes in connectivity over the past few decades have always enabled and catalysed new business models, whilst disrupting existing ones.

Of course, connectivity alone isn’t enough to support new business models; a base of users - potential customers - must also exist. But the recent upgrades to China’s telecommunications networks have already provided a foundation for massive digital user bases, which are the largest in the world by a margin.

These include:

  • The world’s largest base of fixed and mobile internet users, with more than 825 million people projected to be online at the start of 2019. With a population of 1.4 billion, there is scope to connect further hundreds of millions more users.
  • The world’s largest base of mobile internet users - more than 800 million - with almost all of these (97.5%) using the mobile web.

How does the magnitude of mobile payments in China vary from the UK?

Our prediction of 600 million people in China will use their phones to make mobile payments as of the start of 2019 compares with 531 million mobile payments users at the end of 2017 and 474 million at the end of 2016. The largest platform, AliPay (owned by Alibaba), alone had 520 million users in February 2018.

In a typical day, 3% of all phone owners in the UK purchase a product online and 3% of all phone owners pay for a product/service in store.

The value of mobile payment transactions in China reached 81 trillion yuan (£10.1 trillion) in the first 10 months of 2017. This compares with an estimated £39 billion worth of mobile transactions in the US during the same period. In 2013, 3.8 billion transactions in China took place via nonbanking apps; in 2016, the volume was nearing 100 billion.

In 2017, 506 million Chinese regularly used their smartphones to shop online, a 15% increase over 2016. This positions China as having the largest base of mobile commerce users in the world.

Is China the world’s leading technology manufacturer?

China is well-known for being the world’s technology manufacturer; it is now becoming a leading designer of digital products, services, and business models as well. Its world-class communications infrastructure is likely to be a key enabler of this shift. It should position China well to become the premier nation for the development of applications that rely on hyper-fast connections.

The ubiquity of fibre and high-speed mobile in China also provides a vast base of beta testers and users. Indeed, the sheer size of China’s market, as well as users’ receptiveness to trying out new ideas, may make it the venue of choice for trying out new digital concepts.

China’s strengths in connectivity should also catalyse the development of AI-based applications. AI depends on access to data sets - the larger, typically, the better. Thanks to the country’s 1.2 billion 4G subscriptions, 825 million internet users, 600 million mobile payments users, and 200 million bikesharers, China’s data sets are unparalleled in size. If these data sets deliver better algorithms, competitive advantage may follow.