The Biggest Tech Trends From China To Watch Out For In 2017

By Jordyn Dahl
Posted date: December
Original source: http://www.forbes.com/sites/jordyndahl/2016/12/21/the-biggest-tech-trends-from-china-to-watch-out-for-in-2017/#db41a7e08b35

China’s technology sector dominated headlines in 2016 both in the Middle Kingdom and abroad, ranging from coverage of Uber’s merger with Chinese rival Didi Chuxing to the newly popular bike-sharing apps.

Just a few years after China’s tech scene emerged, the conversation has shifted from questioning if Chinese firms can innovate to how Western firms can mimic the success of Chinese mobile apps, such as WeChat. As the year comes to a close, analysts and VCs are now shifting focus to new emerging trends and companies.

A Boom in Fintech

Financial products aimed at an emerging and growing middle class are on the rise and are expected to grow amid burgeoning demand.

China’s consumers have skipped many stages in their technological progression, bypassing aging Western technology in favor of new trends, said Jeremy Peruski, from ICR, a consulting firm.

“I really do believe that China is becoming a global hub when looking at global technology and they historically have led with creating financial products,” Peruski said. “This will only continue to accelerate because we see China skipping growth patterns we saw in the U.S.”

Credit cards have never taken hold, with most customers opting instead to use their phones and payment apps such as Alibaba’s payment system, Alipay, and WeChat. An Ernst & Young report found that 40 percent of consumers in China now use new payment methods.

Further underpinning growth in the country’s fintech segment is a new social credit system that the government expects to fully implement by 2020. The system assigns each citizen and business a credit score based on their social behavior, previous purchases and other financial data. The score would then be used to determine a person’s eligibility for everything from loans and government jobs to where they can travel.

While the system has been criticized as draconian and a further reach into the lives of the country’s private citizens, eight of China’s largest companies are developing credit systems that could be incorporated into the new system, including Alipay and Sesame Credit – both offshoots of Alibaba.

In the meantime, China’s peer-to-peer lending segment is expected to continue to grow over the next year to fill the space left by more traditional banking. China Rapid Finance, one of the country’s largest consumer lending platforms, facilitates in providing loans to online consumers and the middle class, who by and large do not have access to credit scores. The company currently has more than 1 million borrowers, and analysts anticipate that number will rise.

“The next year will definitely be a pretty pivotal year in terms of what the future of credit scoring is in China,” said Matthew Wong, a senior research analyst at CB Insights.

Lower Valuations and Tightening Investments

Valuations hit a peak in 2015 after an influx of cash hit the market from new venture capital funds and wealthy Chinese looking for new investment vehicles.  Nineteen Chinese firms were valued at more than $1 billion in 2015, but that number dropped to 11 in the first 11 months of 2016 and is expected to decrease further in 2017 , Wong said.

Beauty app Meitu is the latest Chinese firm to have an initial public offering, going public on the Hong Kong stock market earlier this month with a valuation of $4.6 billion – lower than investor expectations.

Investments into startups are likewise expected to continue to slowdown in 2017. The number of VC-backed deals rose slightly in the third quarter of this year but the investment amount dropped about $1.8 billion, according to a KPMG report.

Those who do get larger funding amounts will likely be in the artificial intelligence segments of the industry, including automated driving and robotics.

“As humans get more comfortable with automation in daily life, this whole conversation around human-machine interactions will become key,” said Jenny Lee, a managing partner at Shanghai-based firm GGV Capital.

Global Expansion

Chinese firms had a particularly active 2016 abroad, spending more than $207 billion in mergers and acquisitions. The spree in M&As and other overseas investments is likely to progress over the next year.

The largest tech firms have begun their global expansion, branching off in Europe, the United States and Southeast Asia. Ant Financial, Alibaba’s financial arm, recently invested in Ascend Money, a Thai fintech company, to expand its own online financial products.

Chinese companies invested $3.5 billion in American companies during the first nine months of this year, and they will likely extend those investments over the next 12 months.

“I see no reason why they wouldn’t continue to be aggressive moving into 2017, and we’ll start to see more of that global ambition,” Wong said. “I would definitely expect to see a more aggressive expansion in Europe and the United States.”

Some companies are choosing to bypass the domestic market altogether. Cheetah Mobile, a mobile tools provider, generates more than half of its business outside of China’s borders, though it is headquartered in Beijing. Musical.ly, a video social network app based in Shanghai, is one of the most downloaded apps in Europe and the United States.

“The younger entrepreneurs are exposed to international news. Thirty years ago, they were more concerned with China, but now the younger ones are more in tune with what is happening globally,” Lee said. “There is less fear of the unknown and an interest in the international market so some apps are starting internationally first.”