November 7, 2016

The famous book “Journey to the West”, written by Wu Chengen from the Ming Dynasty, could just as well conclude the economic and social reality of China in the past three decades. The journey continues today, but has taken a new turn.

The power of a new economy

China’s economic story has for a long time been, that it has successfully copied the West and replicated it more cheaply. This has been gradually replaced by a new story. China is no longer the cheapest place for production. Today, skilled labor and well managed factories are a symbol of quality to a broad set of global clients. The Chinese service sector, especially the internet services space, is also drastically changing businesses and society. Today, many Western companies are instead looking to copy ideas from the East.

Today we see Facebook trying to replicate what Tencent has been doing on WeChat. WeChat has 700 million active users and is creative as well as technically optimized.

Last year people were still talking about London, Berlin, or Stockholm as the world’s FinTech centres where innovative companies attracted tech-savvy capital. But now over half of the globe’s FinTech investment takes place in China (with Beijing as the dominating city).

The trend suggested by data is certainly verified by my own experience travelling in China. In most first and  second tier cities – from Beijing and Shenzhen to Chengdu and Wuhan, people go out with less and less cash – a smartphone is now enough to survive on for at least a week. Alibaba’s Alipay and Tencent’s WeChat Pay are the two biggest payment solutions making some parts of China turn cashless quickly.

With any of these apps installed and connected to a bank card, one has everything needed in order to commute, pay bills, or buy something at a street stand, book so called ”O2O” (online-to-offline) services such as a chef coming to cook his or her signature dish at your home and much more.

If you really need cash, but can’t find an ATM nearby, you can easily turn any stranger passing by into a ”human ATM” and exchange cash for an Alipay or Wechat pay transfer in 10 seconds.

Opportunities for both the East and the West

China joined WTO in 2002, and in just over a decade the country has become the world’s second largest economy measured by GDP. But what’s more important, the economic structure has moved to an inflection point where the “new economy” is starting to take over from the “old economy”.

The earlier examples of Mobile Internet or the FinTech sector that are on the rise are probably the most obvious signs of the new economy, backed by domestic wealth accumulated in the past 15 years. What is happening now and in the coming years is another mega trend we all need to be aware of.

The new economy does not only affect China but also generates waves that affect the rest of the world. Both through the increasing activities with the rest of the world and through the slowly but gradually more open Chinese capital and FX market.

In my view, we are now experiencing extremely interesting times, seeing how the movement of capital interacts with real economies both inside and outside of China. For industry players, it seems most don’t really have to make a choice here about “to go” or “not to go”, one just needs to ride on the mega trend of increasingly globally connected capital and investment opportunities – and you will certainly meet us on this path.

No one doubts that China’s huge population base creates opportunities for most businesses, but I have also, in my past seven years living in Europe, heard many having difficulties understanding how it works and how to benefit from it.

We believe that connecting the East and the West and providing unique values for our clients from both sides is what we do best. We have spared no efforts in educating our Chinese and European clients about the opportunities we see towards the other side, explain the mysteries, bridge understandings and help them to figure out and execute a strategy once we see a unique angle of a transaction and/or partnership that could benefit both buyer and seller.

FinTech investment ($) by geography

fintech-investment

Source: CB insights, Beringer Finance

 

 

See you soon on this journey together!

Huizi Zeng 曾惠子
Senior Associate

 

 

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