The evolution of China’s ecommerce space

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This article is part of Tech in Asia’s partnership with The Jay Kim Show where we publish the revised transcripts from the show’s podcast interviews with top entrepreneurs. This is heavily revised from the original show transcripts. For the full interview, go here.

Marco Gervasi has been working in China since 2004. He focuses on the technology sector and is one of the experts on China’s ecommerce space. In 2016, he wrote about the industry in his book called East-Commerce.

According to Gervasi, China displayed extraordinary growth when he first came into the country. He also said that China was very meritocratic (the more investment effort you put in, the more it gives back to you), something that he wasn’t seeing in Europe anymore.

In this interview, Gervasi shares how China’s ecommerce scene has evolved and explains the trends in the Chinese tech scene.

What is China’s digital world like right now?

A lot of people are saying, “China is catching up.” “China is better than the US.” “Entrepreneurs are going to Shenzhen, Beijing, or Shanghai.” There’s a lot of hype about it, but there’s also a lot of confusion.

If we compare where is China today compared to the US, I think there’s no black and white answer. But we have some numbers that can help.

First of all, China is still behind the US. This is a fact. But it’s catching up very fast. Back in 2012, the Chinese tech industry was only 15 percent as powerful as the American tech industry. Now, let’s say by the end of 2017, China’s tech industry was 42 percent as powerful as the US’. It’s still behind the US, but it’s catching up fast with that kind of growth in a span of five years.

First of all, China is still behind the US. This is a fact. But it’s catching up very fast.

In what way is it behind? I found some interesting figures in a recent article on The Economist. In terms of market value, Chinese tech companies’ total market value is only 32 percent of American tech companies. In terms of investment, Chinese tech companies’ absolute budget is only 30 percent as big as that of the American companies.

But where is it catching up? In ecommerce, Chinese firms are collectively 53 percent as big as America’s. And in terms of unicorns, Chinese unicorns are worth 69 percent of the America’s unicorns. Chinese VC activity—fostered by companies like Baidu, Alibaba, and Tencent—is 85 percent as big as America’s.

But there’s one thing that is extremely interesting: AI. Wherever you go now in Asia, when you mention the word AI, everybody’s eyes start glittering. China’s population of AI experts is only 6 percent of that of America—still very small. But when we look at the number of AI papers published by Chinese scientists, they are already at 89 percent of the American level.

According to a McKinsey study, China might be able to catch up well between 10 and 15 years. But I think it’s going to be faster.

Before the latest news about Alipay and Alibaba and what is happening in China, the US market was still very skeptical about China. But now that they’re seeing these numbers, they’re saying, “Hang on a second. This company might be worth more than Goldman Sachs. We’ve got to do something about it.”

How has Chinese ecommerce evolved?

What do you think about the power struggle between China’s ecommerce giants?

What are some areas worth investing in?