VIDEOS | JUNE 2017
Matt Miller: Let‘s talk for a minute about China‘s internet and e-commerce companies. I mean, they‘ve become these huge forces, Andrew. Can they sustain this kind of growth in the period ahead?
Andrew Dougherty: The first thing to say is they‘ve been growing at incredibly fast rates for now, five, six, eight years, depending on the sector you‘re talking about. But e-commerce — taking that for example — the total volume of e-commerce sales in China is enormous. You have now an enormous base, but they‘re still growing at above 20%—
Matt Miller: Every year?
Andrew Dougherty: Every year — well, for the last several years. It‘s come down from 100 [percent] to 60, 50 to now, you know, 30 and then 25, but that‘s still substantial growth on a relatively high base. Now, one would expect that to continue to slow from here. But the reason I think they‘re sustaining some relatively high growth, and could for a while, is you‘re changing the way people shop at the same time as the middle class is expanding and the consumption economy is expanding geographically. You‘re penetrating in two directions at the same time.
And so I think there‘s still some room to go in terms of double-digit growth in the e-commerce sector and the internet in general.
Stephen Green: The first time I came to work in Beijing was in 2004. I remember standing up in front of my local Starbucks — and Starbucks was quite new, still, then — and take out my renminbi. And now I stand in line in Beijing, and everyone‘s got their phones and is using Alipay.
Andrew Dougherty: Yeah.
Stephen Green: Or Tencent and the WeChat Pay system. It‘s almost kind of "Oh, he‘s got cash. What do we do with that?"
Andrew Dougherty: Yeah.
Stephen Green: So it‘s amazing how fast the culture has changed, you know? You find you can‘t hail a cab in Beijing anymore. You have to use your app to get a cab, order food. I mean, the young person‘s consumption experience, social experience online talking to their friends with WeChat, it‘s amazing how quickly it‘s just — it‘s the core of many people‘s urban lives now.
Andrew Dougherty: That‘s exactly right. Yeah, technology adaptation is proceeding at an incredible pace. I mean, I actually downloaded the WeChat Pay application, and it‘s so convenient. I can send it to any vendor, any friend any amount, and all I have to do is punch in the code from my bank card onto my phone — and immediately, it‘s transferred.
Matt Miller: Wow.
Andrew Dougherty: So the ease with which you can transact within the same app that you do social media, within the same app that you do texting — I mean, it‘s all sort of a one-stop-shop app. It‘s really powerful, which is why Tencent has done so well. The economies of scale make it so compelling for these companies, and so innovation is happening in some pretty cool ways.
Matt Miller: Stephen, how about you? There‘s one famous story I think that I‘ve heard you tell about the difference between, you know, 15 years ago and today.
Stephen Green: I arrived in Shanghai in 2004, and I was working in the ”financial district,“ right? I was working in this small bank, and it was so small, when I walked into my room — it was called the “trading room“ — but when you walked in, the room was so small, everyone had to get out of their seats so I could go walk behind them to get to my desk. I mean, that was the state of the trading room when I first arrived. By the end of my time there in 2011, it was a kind of 150-seat room, with FX trading over there and rates trading over there.
But just sort of on a social basis, when I first walked up, there were these sort of trucks trundling along the streets. Cement trucks. And it must have been late summer, early autumn. All the watermelons came in from the surrounding farms, so these huge trucks with watermelons would trundle down the street, and you‘d go and spend your few renminbi to buy watermelon. And you‘d often have to avoid getting killed by these things. By the end of my sort of 10 years in Shanghai, you‘d be more likely to be killed by a Ferrari, roaring down the streets. There were so many of these fast cars.
Matt Miller: By a watermelon truck, right?
Stephen Green: Than by a watermelon truck. Yeah.
Matt Miller: Do you have any kind of watermelon-to-Ferrari index that you can measure—?
Andrew Dougherty: Well, I do have a couple of interesting related anecdotes. When I first came to Beijing in 2001 as a student in the student district, where a lot of the top universities in China are based in Beijing — northwest Beijing — it was quite common to see a horse trotting down the street, drawing a carriage with the watermelons on the back. You had horses running around 10, 15 years ago. Doesn‘t happen, as you say, now. It‘s this sort of Lamborghinis and Ferraris.
And speaking Lamborghinis, I had lunch with a guy who was running Lamborghini for Asia a few years ago. And I just asked him, you know, ”How many are you selling a year? How does it work?“ And he told me this story. He said, “Yeah, whenever we have people come in to buy a car, we have to shut down the shop for the entire day, because in most cases, they bring cash to buy the car. And so we pull out the eight cash-counting machines.“ And in China, the largest denomination bill is 100 renminbi, which is about, give or take, 12, 15 bucks. And so they pull out $12 or $15 bills times a Lamborghini, and they stuff these things in eight different cash-counting machines, and it takes eight to nine hours to count the cash sufficient to buy a Lamborghini.
Stephen Green: That‘s great.
Andrew Dougherty: So fast-forward only three or four years later, they probably use WeChat Pay on a cell phone, swipe, to buy the Lamborghini. So I mean, the pace of change in China is exponential in so many different ways — from horses to, 12 years later, buying Lamborghinis with cash to, three years later, buying them on your phone. It‘s an astounding place.
Andrew H. Dougherty is the China affairs specialist at Capital Group. He has 11 years of investment industry experience, all with Capital Group. Andrew began his career at Capital as a participant in The Associates Program, a two-year series of work assignments in various areas of the organization. He holds a master of philosophy in modern Chinese studies from the University of Cambridge and a bachelor’s degree in economics and international affairs from George Washington University graduating summa cum laude. Andrew is based in Beijing.
Stephen Green is an economist at Capital Group, responsible for covering Asia. He has 14 years of investment industry experience and has been with Capital Group for four years. Prior to joining Capital, he was head of economic research for Greater China at Standard Chartered Bank, in Beijing, Shanghai and Hong Kong. Before that he ran the Asia Programme at Chatham House, the U.K think tank. He holds a PhD in government from the London School of Economics and a first-class honours degree in social and political sciences from Cambridge University. Stephen is based in Hong Kong.