The rapid growth of the Chinese internet -- and where it's headed | Gary Liu

Once every 12 months,

the world's largest human migration happens in China.

Over the 40-day travel period of Chinese New Year,

three billion trips are taken,

as families reunite and celebrate.

Now, the most strenuous of these trips are taken

by the country's 290 million migrant workers,

for many of whom this is the one chance a year

to go home and see parents and their left-behind children.

But the travel options are very limited;

plane tickets cost nearly half of their monthly salary.

So most of them, they choose the train.

Their average journey is 700 kilometers.

The average travel time is 15 and a half hours.

And the country's tracks now have to handle 390 million travelers

every Spring Festival.

Until recently,

migrant workers would have to queue for long hours -- sometimes days --

just to buy tickets,

often only to be fleeced by scalpers.

And they still had to deal with near-stampede conditions

when travel day finally arrived.

But technology has started to ease this experience.

Mobile and digital tickets now account for 70 percent of sales,

greatly reducing the lines at train stations.

Digital ID scanners have replaced manual checks,

expediting the boarding process,

and artificial intelligence is deployed across the network

to optimize travel routes.

New solutions have been invented.

China's largest taxi-hailing platform, called Didi Chuxing,

launched a new service called Hitch,

which matches car owners who are driving home

with passengers looking for long-distance routes.

In just its third year,

Hitch served 30 million trips in this past holiday season,

the longest of which was further than 1,500 miles.

That's about the distance from Miami to Boston.

This enormous need of migrant workers has powered fast upgrade and innovation

across the country's transport systems.

Now, the Chinese internet has developed in both familiar and unfamiliar ways.

Just like in Silicon Valley,

some of the seismic shifts in technology and consumer behavior

have been driven by academic research,

have been driven by enterprise desires,

with the whims of privilege and youth sprinkled in every once in a while.

I am a product of the American tech industry,

both as a consumer and a corporate leader.

So I am well acquainted with this type of fuel.

But about a year and a half ago,

I moved from my home in New York City to Hong Kong

to become the CEO of the South China Morning Post.

And from this new vantage point,

I've observed something that is far less familiar to me,

propelling so much of China's innovation and many of its entrepreneurs.

It is an overwhelming need economy

that is serving an underprivileged populous,

which has been separated for 30 years from China's economic boom.

The stark gaps that exist between the rich and the poor,

between urban and rural

or the academic and the unschooled --

these gaps, they form a soil

that's ready for some incredible empowerment.

So when capital and investment become focused on the needs of people

who are hanging to the bottom rungs of an economic ladder,

that's when we start to see the internet truly become a job creator,

an education enabler

and in many other ways, a path forward.

Of course, China is not the only place where this alternative fuel exists,

nor the only place where it is possible.

But because of the country's sheer scale and status as a rising superpower,

the needs of its population have created an opportunity

for truly compelling impact.

When explaining the rapid growth of the Chinese tech industry,

many observers will cite two reasons.

The first is the 1.4 billion people that call China home.

The second is the government's active participation --

or pervasive intervention, depending on how you view it.

Now, the central authorities have spent heavily on network infrastructure

over the years,

creating an attractive environment for investment.

At the same time, they've insisted on standards and regulation,

which has led to fast consensus and therefore, fast adoption.

The world's largest pool of tech talent exists

because of the abundance of educational incentives.

And local, domestic companies, in the past, have been protected

from international competition

by market controls.

Of course, you cannot observe the Chinese internet

without finding widespread censorship

and very serious concerns about dystopian monitoring.

As an example:

China is in the process of rolling out a social credit rating

that will cover its entire population,

rewarding and restricting citizens,

based on highly qualitative characteristics

like honesty and integrity.

At the same time,

China is deploying facial recognition

across many of its 170 million closed-circuit cameras.

Artificial intelligence is being used to predict crime and terrorism

in Xinjiang province,

where the Muslim minority is already under constant surveillance.

Yet, the internet has continued to grow, and it is so big --

much bigger than I think most of us realize.

By the end of 2017,

the Chinese internet population had reached 772 million users.

That's larger than the populations of the United States, Russia,

of Germany, of the United Kingdom, of France and Canada combined.

Ninety-eight percent of them are active on mobile.

Ninety-two percent of them use messaging apps.

There are now 650 million digital news consumers,

580 million digital video consumers,

and the country's largest e-commerce platform, Taobao,

now boasts 580 million monthly active users.

It's about 80 percent larger than Amazon.

On-demand travel, between bikes and cars,

now accounts for 10 billion trips a year in China.

That's two-thirds of all trips taken around the world.

So it's a very mixed bag.

The internet exists in a restricted, arguably manipulated form within China,

yet it is massive and has vastly improved the lives of its citizens.

So even in its imperfection,

the growth of the Chinese internet should not be dismissed,

and it's worthy of our closer examination.

Let me tell you two other stories today.

Luo Zhaoliu is a 34-year-old engineer from Jiangxi province.

Now, his home region used to be extremely important to the Communist party

because this was the birthplace of the Red Army.

But over the decades, because of its separation

from the economic and manufacturing centers of the country,

it has slid into irrelevance.

Luo, like so many in his generation, left home at a young age

to look for work in a major city.

He ended up in Shenzhen, which is one of China's tech hubs.

As the young migrate,

these rural villages are left with only elderly,

who are really struggling to elevate themselves above abject poverty.

After nine years, Luo decided to return to Jiangxi in 2017,

because he believed that the booming e-commerce marketplace in China

could help him revive his village.

Like many rural communities,

Luo's home specialized in a very specific provincial craft --

making fermented bean curd, in this case.

So he started a small factory

and started selling his locally made goods online.

There have been many years of consumption growth

across China's major cities.

But recently, technology has been driving an explosion in craft goods sales

among China's middle and upper classes.

WeChat and other e-commerce platforms allow rural producers

to market and sell their goods

far beyond their original distribution areas.

Research companies actually track this impact

by counting what is called "Taobao villages."

This is any rural village where at least 10 percent of its households

are selling goods online and making a certain amount of revenue.

And the growth has been significant in the last few years.

There were just 20 Taobao villages in 2013,

212 in 2014,

780 in 2015,

1,300 in 2016

and over 2,100 at the end of 2017.

They now account for nearly half a million active online stores,

19 billion dollars in annual sales

and 1.3 million new jobs created.

In Luo's first year back home, he was able to employ 15 villagers.

And he sold about 60,000 units of fermented bean curd.

He expects to hire 30 more people in the next year,

as his demand rapidly rises.

There are 60 million left-behind children scattered across China's rural landscape.

And they grow up with at least one parent far away from home,

as a migrant worker.

Alongside all the general hardships of rural life,

they often have to travel vast and dangerous distances

just to get to school.

They account for 30 percent

of the country's primary and high school students.

Ten-year-old Chang Wenxuan is one of these students.

He walks an hour each way every single day to school,

across these deep ravines, in an isolated landscape.

But when he arrives at the small farming village in Gansu province,

he will find just two other students in this entire school.

Now, Chang's school is one of 1,000 in Gansu alone

that has less than five registered students.

So with limited student interaction,

with underqualified teachers

and schoolhouses that are barely furnished and not insulated,

rural students have long been disadvantaged,

with almost no path to higher education.

But Chang's future has been dramatically shifted

with the installation of a “Sunshine Classroom.”

He's now part of a digital classroom of 100 students

across 28 different schools,

taught by qualified and certified teachers

live-streaming from hundreds of miles away.

He has access to new subjects like music and art,

to new friends

and to experiences that extend far beyond his home.

Recently, Chang even got to visit the Frederiksborg Castle museum

in Denmark --

virtually, of course.

Now, online education has existed for many years outside of China.

But it has never reached truly transformative scale,

likely because traditional education systems

in other tech centers of the world

are far more advanced and far more stable.

But China's extreme terrain and size

have created an enormous and immediate need for innovation.

There's a tech start-up in Shenzhen that grew to 300,000 students

in just one year.

And by our best estimation at the Post,

there are now 55 million rural students across China

that are addressable and accessible by live-streaming classes.

This market of need is larger than the entire US student population

between kindergarten and grade 12.

So I'm extremely encouraged to find out

that private investment in ed-tech in China

now exceeds one billion dollars a year,

with another 30 billion dollars in public funding

that is committed between now and 2020.

As the Chinese internet continues to grow,

even in its imperfection and restrictions and controls,

the lives of its once-forgotten populations

have been irrevocably elevated.

There is a focus on populations of need, not of want,

that has driven a lot of the curiosity, the creativity

and the development that we see.

And there's still more to come.

In America, internet population, or penetration,

has now reached 88 percent.

In China, the internet has still only reached 56 percent of the populous.

That means there are over 600 million people

who are still offline and disconnected.

That's nearly twice the US population.

An enormous opportunity.

Wherever this alternative fuel exists,

be it in China or Africa, Southeast Asia or the American heartland,

we should endeavor to follow it with capital and with effort,

driving both economic and societal impact all over the world.

Just imagine for a minute what more could be possible

if the global needs of the underserved become the primary focus

of our inventions.

Thank you.

(Applause)