2014: The Year of China’s Digital Cambrian Explosion

At MacroPolo we are dedicated to dissecting the sources and implications of China’s arrival as a technological power. Our work in this area includes analyses of the building and stumbling blocks of China’s AI ambitions, AI talent, and the role of a little-known government program in creating China’s science and technology parks.

The following piece—excerpted and adapted from the author’s recently released book The Transpacific Experiment: How China and California Collaborate and Compete for our Future—is in conversation with that work. It zooms in on a pivotal year and describes what the changes in China’s technology landscape looked like at the ground level.

For the first twenty years of its existence, the Chinese internet had largely nibbled around the edges of mainstream society. It was a playground for the technologically savvy, an outlet for the politically engaged, and a novelty for adventurous Chinese shoppers. But the internet had not yet soaked into the fabric of everyday life for most Chinese people. The vast majority of conversations, purchases, appointments, and payments were all made the old-fashioned way: in person.

2014 marked a dramatic diversification of what you can do using the internet–and who is actually doing it.

In 2014 that all began to change. That year marked a digital Cambrian explosion of Chinese internet services and start-ups—a dramatic diversification of what you can do using the internet and who is actually doing it. During this period, a whole slate of services and exchanges migrated from the physical world into smartphones, first catching up to the United States and Europe, and then branching off into apps and business models not seen anywhere else.

The seeds of this blossoming were sewn throughout China’s tech ecosystem in the preceding years. Chinese venture capital—an alien concept just a few years earlier—had coalesced into a real industry, and it began funding an array of local entrepreneurs that would lead the charge. The years 2012-2015 saw the birth of dozens of tech unicorns that would eventually shake the global technology industry: ride-hailing and Uber-slaying app Didi, creator of Tik Tok and future “most valuable startup in the world” Bytedance, bike-share pioneer Mobike, and many more.

These apps would all make their contributions, but nothing played a bigger role in spurring China’s digital Cambrian explosion than WeChat. Disguised as a simple chat app, WeChat has morphed into a “digital Swiss Army knife” for life in China, one that blurs the line between the online and offline world. The WeChat app was created in 2011 by Tencent, the internet juggernaut that already owned the largest Chinese messaging platform for desktops, QQ. In its early years, the WeChat app mainly served as a convenient way to send text messages, pictures, videos, and voice messages.

But in 2014 the app added a function that would change everything: money. During Chinese New Year 2014, WeChat allowed users to send each other digital “red envelopes,” a traditional way of giving cash to relatives during holidays. Wanting to get in on the red envelope fun, tens of millions of users entered their bank account details into the app, and Chinese commerce would never be the same.

Having amassed a huge user base and the ability to have them transact within the app, WeChat capitalized by cramming a dizzying array of new functions into the app: the ability to hail a taxi, pay your utility bills, reserve a hotel room, donate to charity, top up your phone minutes, buy plane tickets, and even invest in financial products. (For an interactive look at these functions within WeChat, and how they contribute to China’s AI ecosystem, see the Data section of MacroPolo’s ChinAI project.)

Wanting to get in on the red envelope fun, tens of millions of users entered their bank account details into WeChat. Chinese commerce would never be the same.

The app then took another major step into the physical world by allowing any real-world business to accept payments simply by scanning a QR code within the app. The vast majority of Chinese businesses had never embraced credit cards, and as of early 2015 the national consumer economy still ran on cash. But when WeChat introduced digital payments at physical stores, that changed almost overnight.

The cashless movement was quickly filtering down to all levels of society: street food vendors, bicycle repairmen, and even beggars soon began accepting money via WeChat. Every month WeChat tacked on new real-world functions, and the app gained an almost gravitational pull to it, sucking in more and more dimensions of Chinese life: social, professional, bureaucratic, and commercial.

But China’s digital Cambrian explosion spread far beyond WeChat. Ubiquitous mobile acted as a catalyst for thousands of start-ups specializing in online-to-offline (O2O) services—anything in which digital activity translates to real-world purchases. Population-dense, stocked with cheap labor, and generally tough to move around in, Chinese cities proved to be the perfect petri dish for on-demand services. Food delivery was an obvious first move, but soon everything from manicures to dog-walking services was instantly available at your literal fingertips.

This round of technical and business innovation was seeping into the very pores of Chinese society. Mobile payments were not merely enriching the technological elite—they were driving changes at every level of the socio-economic ladder. Silicon Valley futurists had long fantasized about a world of frictionless payments and the seamless integration of communication and commerce. A combination of Chinese protectionism and indigenous innovation was yielding just that.

China had entered full-fledged start-up fever. Two events in the second half of 2014 threw even more fuel on the fire: Alibaba had the largest initial public offering ever on the New York Stock Exchange and Chinese Premier Li Keqiang rolled out a major bureaucratic push for “mass entrepreneurship and mass innovation” at the “Summer Davos” in Tianjin.

Silicon Valley prides itself on a counterculture ethos that scoffs at traditional sources of authority and disrupts inefficient “legacy” industries. But for most people in China, the opposite ethos holds. Mainstream Chinese society still places great stock in industry rankings and government directives. The former give some signposts in a chaotic marketplace, and the latter can still make or break an industry. So when in the span of one month the New York Stock Exchange and China’s number two politician both gave ringing endorsements of Chinese tech, the country’s love affair with technology companies kicked into another gear.

In the ensuing years, some of this “innovation” mania would fade, and many of the new startups founded in 2014 would run up against hard realities—can you really build a business around sharing umbrellas or cement mixers? But at the time they were helping to bootstrap the commercialization of Chinese digital innovation, pushing tens of thousands of ambitious young Chinese people into career paths their parents never would have dreamed of.

When the New York Stock Exchange and China’s number two politician both gave ringing endorsements of Chinese tech, the country’s love affair with “innovation” kicked into another gear.

Living in Beijing, I began receiving messages from young Chinese friends in far-off provinces: “Matt, can you introduce me to any start-ups in Beijing? The product isn’t important—it just needs to be a start-up.”

Excerpted from The Transpacific Experiment: How China and California Collaborate and Compete for Our Future, copyright © 2019 by Matt Sheehan. Reprinted by permission of Counterpoint Press.”

Matt Sheehan is a Fellow at MacroPolo. You can find his work on tech policy, AI, and Silicon Valley here.