China is effectively creating a new culture of consumption behind protectionist walls, as a tool of political control and an engine of economic growth.
Recently I landed in Shanghai and found myself in the middle of a remarkable technological revolution in terms of scope. The passport scanner automatically communicates with visitors in your language. Digital payment applications have replaced cash. Foreigners trying to use paper money meet the confused looks of shopkeepers.
Nearby, in the city of Hangzhou, a prototype hotel called FlyZoo uses facial recognition to open doors, without the need for keys. The robots mix cocktails and provide room service. Further south, in Shenzhen, we saw the drones that are already delivering electronic commerce in rural China. In the city center, traffic flowed smoothly, guided by synchronized traffic lights and controlled by police cameras.
Outside of China, these technologies are considered precursors of an “automated authoritarianism” with the use of camcorders and facial recognition systems to prevent citizens from violating the law and also with a “citizen rating” in order to classify them according to their political reliability . An advanced version has been deployed to counter discontent among Muslim Uyghurs in the mainland of Xinjiang. However, in China in general, surveys show that confidence in technology is high and privacy concerns remain low. If people fear Big Brother, then they don't reveal it.
In our travels along the coast, many expressed pride in the sudden rise of China as a technological power.
China began its economic miracle by opening up to the outside world, but now it is encouraging national technology giants by banning foreign competition. Foreign visitors cannot open Google or Facebook, an experience that causes a strange sense of isolation, and the trade agreement announced on January 15 by US President Donald Trump postpones dialogue on those barriers.
However, unlike the Soviet Union, which failed with a similar strategy, China is effectively creating a new consumer culture behind protectionist walls as a tool of political control and an engine of economic growth.
This happens at a crucial moment. If we look back, we must remember that, in 2015, China seemed to be on the verge of its first recession since four decades ago it began to reform its economy. China's average income had reached the middle class phase in which developing economies often stagnate. Its working-age population had barely begun to shrink. The runaway credit system, which Beijing used to combat the global recession of 2008, had caused the private debt to be 230% of GDP, an increase of 150%.
That was the largest lending period in the history of the developing world and the binge-ups of that size had always generated major crises. However, although China's growth has slowed, according to official figures, from double digits in 2010 to just 6%, it has not yet suffered its first recession.
What changed was the unexpectedly rapid rise of a new digital economy, which is now valued at more than $ 3 trillion, or a third of national production. Anchored by Internet giants such as Alibaba and Tencent, the technology sector is not only compensating for the decline of older industries such as steel and aluminum, but is also largely debt free. So, the larger the digital economy, the greater is China's ability to manage rising debts in the old economy and keep growth alive.
By 2017, technology already made up such a large percentage of national production in China as in Germany. A Tufts University survey ranked China as the fastest developing digital economy in the world. In addition, the Visa executive director quoted a Beijing regulator saying that almost eighteen months earlier, the country's technology giants "were too small to worry, and now they are too big to do anything about it."
The available studies depend on data from at least two years ago and perhaps underestimate the speed with which China is jumping into the developed world as a technological power. Research and development have more than tripled over the last decade to reach 440 billion dollars a year, more than in all of Europe. Currently, nine of the twenty largest Internet companies in the world are Chinese (along with ten Americans and one Canadian).
Explosive growth in online banking is helping to drive 20% annual growth in consumer credit and a late change in the manufacturing industry exporting to domestic consumption as the main driver of economic growth. Established in 2015, Alibaba's MYbank has already granted loans to sixteen million clients, including “3-1-0” micro loans that only need three minutes to make an application, a second to be approved and zero human beings involved.
Automation is ending jobs. In the Hema grocery stores, owned by Alibaba, small white robots work at the lunch counter instead of the waiters. Gym users follow the steps on a giant video screen built into the floor, without the need for a coach. Shenzhen residents say criminals have been expelled from the streets thanks to surveillance cameras.
However, technology is probably creating more professions than it destroys. A recent article from the International Monetary Fund estimates that, after subtracting the jobs it eliminates, digitalization makes up more than half of all the increase in jobs. Alibaba's platforms alone contain millions of small companies that, over the past decade, have added 30 million jobs - more than China has lost in heavy industry.
China's technological revolution was made possible by two of the forces that were expected to slow down the economy. The population may be aging, but it still provides a huge market in which emerging companies can flourish. And although growth normally slows down when countries reach a middle class income, in China the new middle class provides the main customers for new mobile internet services.
No other country has that combination. India has the population, but not the income. Brazil has the income, but not the population. In addition, these democratic societies also show many more suspicions about government surveillance, unlike China. Just look at the widespread controversy over the deployment of biometric identifications in India.
In China, at least outside Xinjiang, the relatively low concern for personal data has helped boost the heyday of digital payments and electronic commerce. China is the world's largest e-commerce market by far, and motorcycle fleets painted in the colors of digital delivery companies have five to six rows in parking lots outside shopping centers and office towers.
To compensate for the reduction of its workforce, China had to increase the productivity of workers who continue in the sector. And, as the technological peak took off around 2015, productivity growth began to recover after being stagnant for almost a decade. The IMF article argues that the economy is destined to slow down in the coming years, but will slow down much more dramatically if digitalization stagnates than if it continues at the rapid pace of today.
No economy can grow continuously forever, and growing debts and a declining workforce still weigh in China. By making online loans so easy to obtain, technology may exacerbate the risk of a financial crisis.
But, for now, it seems that the technological revolution arrived just in time to postpone the day of judgment and rescue the Chinese economy from a deeper crisis.
Digital Newspaper El País