Bernardo M. Villegas
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China Leads Asia in Digitalization (Part 1)

          Thanks to the decision of anti-trade US President Donald Trump to torpedo the Trans Pacific Partnership (TPP), top officials of the ASEAN have increased their resolve to benefit from the free flow of goods, services, capital, investment and skilled people, the main objective of the emerging ASEAN Economic Community (AEC).  During the first week of last September, trade and industry officials from the ten ASEAN countries met in Manila to encourage one another to advance the region’s integration, not only within the AEC, but with the rest of the world.  The AEC is not making the mistake of closing itself to the rest of the world as it promotes free trade within the Southeast region.  There is no intention of decoupling from the world economy.  On the contrary, there is every intention to pursue their Free Trade Agreement (FTA) with such giant economies as China, India and Japan and other First World countries in the Asia Pacific, South Korea, Australia and New Zealand.  They are also open to other dialogue countries such as the U.S. and European countries within what is called the Regional Comprehensive Economic Partnership (RCEP).   The meeting of the trade and industry officials was in preparation for the big event in November 2017 when world leaders come to Manila to celebrate the fiftieth anniversary of the establishment of the Association of Southeast Asian Nation (ASEAN).  There is a great probability that the world will witness the first encounter of two very controversial Presidents, Philippine President Rodrigo Duterte and   US President Donald Trump!

         In a keynote address I delivered in a well-attended forum entitled “Shaping Digitalization—Leading the Journey in the Philippines”, organized by German MNC Siemens, I highlighted the importance of thinking global from the start of any strategy for digitalization in the Philippines.  I suggested that they modify the title by appending the phrase “within the global context” after “Philippines.”  More importantly, I told the audience to give special attention to the leadership that China already has in digitalization, not only in Asia, but in the whole world.  One cannot strategize about AEC + China without giving the greatest importance to the way ASEAN countries can benefit from the leading role that China already is playing in many sectors of the digital world.  As the US, under the leadership of President Trump, is turning more protectionist and ultranationalist, it is ironical that China is becoming the world’ champion for globalization. 

         Here, let me refer to a major thesis of famous author Thomas Friedman, the first journalist to attempt to explain to the nonspecialists what globalization is all about in his book “The World Is Flat” that was a best seller in 2004.  Thirteen years later, he has written another best seller entitled “Thank You For Being Late.”  According to Friedman, to understand the 21st century one has to understand that the planets’ three largest forces, i.e. Moore’s law (technology, the Market (globalization) and Mother Nature (climate change and biodiversity loss) are accelerating all at once.  The word “acceleration” is key.  It is not only that change is coming, as the campaign for Duterte posited.  Change has been happening since the universe began.  What characterizes the twenty first century, especially as regards digital and other technologies, is the much more rapid rate of change.  To use a mathematical term, it is not the first derivative that is important.  It is the second derivative, which in the Calculus measures the rate of change, which has a high  value.  

         In the area of digitalization, the exponential increase in computing power defined by Moore’s law has a lot to do with this phenomenon.  The year 2007 was a major inflection point:  the release of the iPhone, together with advances in silicon chips, software, storage, sensors and networking, created a new technology platform.  Friedman calls this platform the “supernova” because it is an extraordinary release of energy that is reshaping everything from how we hail a taxi, pay our bills, order books or groceries, to the fate of nations to our most intimate relations.  This supernova (the term “cloud” is not dynamic enough) is creating vast new opportunities for individuals and small groups to save the world or to destroy it.  Despite the initial leadership of the US in digitalization, it is not surprising that China and rest of Asia will not only catch up with Silicon Valley but can surpass American technology because Asia will be the epicenter of economic growth at least for the next twenty years.  No consumer markets in other parts of the world can compete with those of Asia, especially China, India and the ASEAN.

         The New York Times International Edition carried an article last August 19 to 20, 2017 which describes vividly the catch up process of China in the area of digital technology.  The report stated that the technology world’s $400 billion-and-up club—long a group of exclusively American names like Apple, Google, Facebook, Microsoft and Amazon—is making room for two Chinese members:  Alibaba group and Tencent Holdings.   These Chinese giants in technology dominate their home market of more than 700 million online users of internet, twice the population of the US.  Chinese people already spend more money online than Americans.  Soon Tencent will be the only company other than Facebook to have a social network with more than one billion users (Facebook has 2 billion).  WeChat—which includes payments and a social network—has 960 million monthly active users.  In market capitalization, Apple still leads with $800 billion, followed by Facebook and Amazon with $450 billion each.  But Alibaba ($450 billion) and Tencent ($400 billion are not too far behind.  The dark horse is Baidu, called the Google of China.  Alibaba and Tencent are mostly anchored in China.  It will be a matter of time before they start targeting the lucrative consumer markets of the ASEAN with 650 million people, rapidly transitioning from low-income to middle-income households, the transition most associated with an explosion of demand for consumer goods and services.

         Despite government censorship, the Chinese companies are emerging as global leaders in areas like games, e-commerce and communications.  The world’s biggest money making smartphone game is a China-only title called Honor of Kings that is more widely played than Pokemon Go at its peak.   Last September 5, 2017, there was a seminar held in the best Asian business school, the China Europe International Business School (CEIBS) entitled “How International Airlines Can Adapt to Digital Developments in China.”  Organized by a global leader in the airline industry that was established almost 100 years ago, Air France KLM, speakers in the forum highlighted the fact that China’s fast-growing travel market (Chinese tourists are now the largest tour group in the world, including in the Philippines) is evolving as a global market place.  In many ways its online travel platform are more advanced than those in the West.  (To be continued).