How the mobile market is changing China

China’s internet population (of 649 million) and mobile market are growing fast, according to a 2014 report by China Internet Network Information Center (CNNIC). Most notably, the growth of mobile internet users by 57 million was faster than that of the entire internet population (31 million), as the world’s biggest internet market continues its shift to mobile.

China also has the biggest smartphone population, with 557 million people using their handsets to go online. CNNIC reported that the number of people in China who surf the internet via mobile devices had, for the first time, exceeded the number of people doing so via their computers. This means the mobile phone has become China’s primary internet device.

CNNIC found that 90.6% of mobile owners use a messaging app to manage their money, order taxis and even invest money. Altogether, this smartphone ecosystem has driven a rapid rise in innovation that interlinks e-commerce, instant messaging and entertainment applications.

For instance, recent innovations in mobile payment and mobile banking have challenged China’s traditional banking and money management models. In 2014, use of mobile payment apps grew 73.2%, while mobile banking apps grew 69.2%. The new financing activities of internet companies may see further breakthroughs, making China’s financial system more efficient.

There has been an unprecedentedly large flow of capital into start-up projects. According to Dow Jones VentureSource, investors poured $15.5 billion into deals in 2014 – more than twice the previous record of $7.3 billion set in 2011, and the largest amount since VentureSource began collecting data on China in 2006.

As would be expected, businesses focused on mobile consumers have dominated capital-raising in 2014. Among the top few was Xiaomi, the fast-rising Chinese smartphone-maker, which received a new $1.1 billion investment in its latest round of fundraising. Xiaomi’s business model is inherently mobile, and its success largely due to marketing through social network fans and mobile messaging, selling online, and avoiding traditional marketing and advertising expenditures.

The latest round of fundraising valued Xiaomi at $45 billion, making it the most highly valued start-up in the world, even ahead of $41 billion achieved by car-sharing service Uberin the United States.

For sure, this mobile transformation is also disrupting traditional industries in China. Online retail poses a threat to traditional retail, despite the large number of shopping malls built during China’s recent urbanization drive. While shopping outlets could possibly differentiate themselves by offering special services, creating grand design or, better yet, joining the mobile market by integrating into online-to-offline (O2O) plays, there is every sign that the shift to mobile is accelerating and irreversible.

Author: Winston Wenyan Ma is a Managing Director and Head of the North America Office of the China Investment Corp (CIC). He is a Young Global Leader at the World Economic Forum.

Image: A man looks at the screen of his mobile phone at Pudong financial district in Shanghai July 8, 2013. REUTERS/Carlos Barria