In this webinar, Mr Brian A. Wong – Managing Director of Seacliff Partners Limited and Founder and Chairman of RADII Media expounds on his views of the digital transformation in China and Southeast Asian countries, whereby he draws on his knowledge that is largely influenced by his first-hand professional experience working as Alibaba’s former executive.
REGIONAL ECONOMIC STUDIES PROGRAMME
19 January, Thursday – This webinar gives the background on the growth of the digital economy in China, and the role Alibaba had played in contributing to that growth. Further touchpoint includes Mr Brian A. Wong’s opinion on how Southeast Asian countries could accelerate digital transformation in their economies. Mr Brian Wong is joined by Mr Manggi Taruna Habir, Visiting Fellow at ISEAS – Yusof Ishak Institute, who serves as a moderator for the webinar.
Wong started off by explaining the concept of ‘Tao’, in which the webinar and his recently released book ‘The Tao of Alibaba: Inside the Chinese Digital Giant That Is Changing the World’, are named after. He explained that ‘Tao’ encompasses an important concept that affects people – a path or journey, a natural flow of the universe and the dynamics of a person, organisation or country. It also captures the possible co-existence of contradictions. With this concept in mind, he then explained the ‘Tao’ of China’s digital transformation and useful lessons that Southeast Asia can learn.
China grew from 8 million internet users, with a per capita income of (current) US$873, in which it dominated less than 1% of the world’s e-commerce in 1999 to it having more than one billion internet users with a per capita income of more than (current) US$12,000 and dominating nearly 50% of the world’s e-commerce in 2022. Today, China’s digital retail market has become so mature that it surpasses the traditional retail market. Wong went in detail regarding the key components of China’s digital economy, particularly the external layer (societal environment) that enabled China to experience the growth in its digital economy. The themes included in the external layer (societal environment) sphere are: social stability, population and market size (e.g., cheap labour for its manufacturing sector and having the largest middle-class population in the world), physical infrastructure (e.g., in 2000, China had no high-speed railway, but within the next 10-15 years, China built 38,000 km high-speed railways, equivalent to more than all high-speed railways built in the rest of the world combined during the same period), internet infrastructure (e.g., 98% of villages in China now are covered by the Internet), integrated markets (e.g., harmonized system in terms of tax and regulations), education (e.g., China has the highest number of college graduates and STEM graduates in the world), government and policy (e.g., a ‘light touch’ approach encouraging investment and innovation in the beginning), entrepreneurship and finance market (e.g., facilitating investment into e-commerce, logistics, etc., through tax, policies and incentives). He also touched on global market trends such as China’s participation in the World Trade Organisation that catalysed China and its export growth, which also dovetailed with e-commerce growth, Chinese businesses looking for markets overseas and domestic market trends such as China’s drive towards domestic consumption.
Next, Wong gave a brief history on the structure of Alibaba’s business and how it evolved over the years. At least in the first five years, Alibaba’s door-to-door educational approach for business owners and for consumers was key to Alibaba’s growth. Alibaba first started as a B2B global wholesale business. It then introduced C2C online retail with the induction of Taobao that transformed the old shopping experience to improve choice and convenience. Alibaba then created digital services such as Alipay to solve the problem of trust in online payment and cloud computing services to save the cost of data storage. Lastly, it created Cainiao to improve logistics as the volume of transactions grew and traditional post office was no longer able to handle the large volume of deliveries.
Habir posed some questions to Wong regarding lessons Southeast Asia could learn from China’s experience and the key issues the upcoming ASEAN Digital Economy Framework Agreement that is to come in 2 years should focus on. Wong gave his thoughts on these questions, and shared that Southeast Asia has a large economic, social and cultural diversity. There are disparities in digital and physical and basic infrastructure – in which they have an importance of creating connectivity. He further pointed out that when economies are too developed, it may also serve as a disadvantage with its strict regulations and infrastructure control that may discourage entrepreneurs. What is previously advantageous in the traditional economy could serve as a disadvantage to transform digitally because the legacy system o the traditional economy could impair the transition.
Wong also brought up the importance of the internet for digital transformation in which he suggested that Southeast Asian countries could improve their internet connectivity (currently, 30% of the Southeast Asian population is not online). Southeast Asian countries should also tackle the wealth gap and invest in education to create a labour force with the necessary skills to adopt and accelerate digital transformation, not only by the government but also by institutions like the private sector and universities. A lot of the digital transformation will be driven by the private sector. But the government has a pivotal role in providing the fertile ground to build a conducive ecosystem for entrepreneurs who need some role models from the region, and not only from the Silicon Valley. Furthermore, the government can facilitate the public-private partnership by providing physical and digital infrastructure, as well as proper incentives for entrepreneurs to take risks such as investment and tax incentives.
In the Q&A segment, Wong elaborated on the different development paths to e-commerce between India and China. Although India introduced e-commerce early on, it did not take off in the same way as China did, partly because of the fragmented and less connected market, but India has done very well in digital payment to spur further digital transformation. When asked whether ASEAN DEFA should be more aligned with the norms and standards of China, the US or EU, bearing in mind the wide gap in digital economy norms and standards across ASEAN countries and geopolitical alignment of some of these ASEAN countries, Wong said that because of a large diversity in ASEAN, the biggest risk is that if we impose policies of developed economies, they may suppress innovation in the developing economies. There needs to be some level of flexibility within the ASEAN policies. ASEAN could set guardrails and minimal standards in regard to data privacy, consumer rights, etc., but when it comes to tax incentives, maybe we need to give more support. The region could think about improving the most basic infrastructure to connect the poor countries because what ASEAN could think about is how to leverage lower labour costs to produce goods that could be exported from the region. Otherwise, we will continue to see migrant workers moving from poor to richer countries. ASEAN could think of its own unique challenges and pick and choose from China, India, and even the US.
In regards to US-China rivalry, ASEAN is in a very good position to take the best from each and tailor it to their local market. There will be some level of bifurcation in terms of standards and governance because of China-US technological rivalry. China will have its own approach to Web3/blockchain, Metaverse, crypto, etc. that should be watched closely. There will be growing tensions and potential split because of this. Moreover, with the signing of RCEP and the geopolitical landscape, ASEAN is the largest trading partner of China. A question worth considering is what role ASEAN can play in response to China’s 5-year plan.
Some noteworthy questions include how China provided the enabling environment for small-medium enterprises to flourish. Wong responded by bringing up the incentivisation strategy China adopts. For example, China to date has never taxed transactions in the e-commerce industry. Instead, it taxes income, and in which only certain SMEs have the financial eligibility to be taxed. Additionally, export subsidies were also given when e-commerce was still nascent in China. He contrasted China’s strategy to that of Africa, where taxation on e-commerce is imposed, which kills the incentives of entrepreneurs.
When asked about his opinion of the crackdown of China’s technology industry and its future prospects, Wong responded by first highlighting that governmental control over big tech has not solely occurred in China, but has happened in the US, Europe and elsewhere before as well. This was because the digital economy in terms of size and influence have grown much bigger than what these governments had expected before. What differentiates China’s government and other governments that exerted control over big tech was its methodology in how they controlled big tech. However, intentions are the same – make the market a level playing field, and protect consumers’ privacy and security. China’s approach may have raised eyebrows and triggered people to hedge. But, recently, many are in fact returning to China. Wong still believes the digital economy is a key part of growing the future economy which in turn is critical for ensuring the legitimacy of a government. He suggested looking at the 5-year plan of China as an indication of where China is heading, and which industries the government will lend their support to. From there, we can conclude that government resources will be diverted to high-quality sectors such as Artificial Intelligence, Electric Vehicles, Biotechnology, industrial digitization, etc. moving forward. Moreover, going forward, data will become the new collateral to be able to lend (in the e-commerce and fintech sector), including in the agriculture and insurance sectors, that could reach the far end of the society.
Download the speaker’s slides here.