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”Why has China changed?” –The power generated by 1.4 billion ”individuals”

August 29, 2018

China is an essential market to consider in planning growth strategies for many companies in all over the world. Without a correct understanding of the market, it would be difficult to formulate correct growth strategies. Mr. Nobuhiko Tanaka, speaking at the WISDOM Special Seminar entitled “Next-generation China: Taking a look ahead into the future of a giant market,” claims that major changes are taking place in the behaviors of Chinese people. Let’s delve into what is really happening in China.

Mr. Nobuhiko Tanaka
Lecturer, Graduate School of Asian and International Business Strategy, Asia University
Resides in Shanghai, China

China: simultaneously ”filling up holes” and ”creating mountains”

China is currently an indispensable factor in planning growth strategies for many companies in all over the world. With a population of 1.4 billion, the Chinese market has immeasurable potential. Without doubt, a company’s presence in the Chinese market would be a major factor that determines its global business performance.

I know that you all recognize the importance of the Chinese market and are closely watching the market’s trends, but I think there are some disparities between the image of China and what is actually happening there. Allow me to share with you my thoughts about what is going in China right now.

First, the keywords that I usually use to describe China are ”expansion” and ”change.” Expansion and change are two different phenomena that are simultaneously occurring in China right now.

Going back a little into its history, China had flourished to become the world’s most pre-eminent civilization, but started to decline after getting caught up in the wave of modernization during the Qing Dynasty. In the 1960’s, the planned economy carried out under the name of Cultural Revolution eventually brought China down to the depths of economic decline.

Whether artificially or not, however, this opened ”hole” naturally becomes filled up to some extent. Naturally, after shrinking, things would eventually grow bigger again. In other words, the present growth of the Chinese economy, i.e., the ”expansion,” is something that was bound to happen.

Even if the hole would naturally fill up, however, the ”mountain” cannot be created naturally. Achieving further growth requires causing ”change” from within. Although in most cases the mountain is created after the hole is filled up, China is doing both simultaneously. Change is occurring while the economy is expanding at a very rapid speed. Massive projects of an unprecedented scale are now underway in China.

The Chinese people are acquiring the power to disseminate information for the first time in their history

So, what is actually happening in China? The following are three hints in understanding what these changes are.

(1) Flow of information in society

(2) Behavior patterns centered on ”person-to-person” interactions

(3)Changes in people’s behaviors brought about by information

First, let’s talk about the flow of information in society.

Until quite recently, newspapers and TV had been the main sources of information in China, which were basically under government control. Printing factories could not operate without permits from the government, and TV broadcasts were also regulated. The government decided the content, timing, and extent of transmission of information, with the people basically having no recourse but to accept the information provided by the government.

It was the advent of the smartphone that brought about major changes to this situation.

With China’s vast territory, installing physical cables that cover the entire country entails enormous time and cost. The spread of the Internet among the general public, therefore, did not come until the advent of the smartphone, which is based on wireless communications. I believe you all know first hand about the impacts of smartphone and SNS to society and people’s lifestyle. Other countries including Japan, however, has benefited from the free flow of information early on, even for newspapers and TV, and has undergone a gradual transition through the Internet generation via the use of personal computers. China, on the other hand, in a single bound, made the shift into a society where ordinary people are able to disseminate and exchange information from the palm of their hands.

Extremely speaking, for the first time in their history, the Chinese people acquired the power to disseminate information. And the magnitude of its impact has been immeasurable. As an example, the increase in the number of Chinese tourists to Japan is not only due to economic reasons, but also largely because of people becoming connected through SNS. Today, people can easily share about the beauty of Japan, inciting others to go, thereby causing a chain reaction of tourists visiting Japan.

Higher regard for individuals who share their common interests, over country and society

The second hint on the changes taking place in China today lies in behavior patterns centered on person-to-person interactions that are unique for the Chinese people.

Japanese people are generally known for being good at thinking and behaving in terms of organizations and systems. This is the exact opposite of Chinese people, who have little trust for structures and systems, but value connections with people they trust more than national or social establishments.

It is difficult to investigate the exact reasons for this, but suffice it to say that this behavior has been incorporated into their disposition as a product of their long history. From very early times, society had rulers that used their power to do as they pleased, and laws and social systems were created for their convenience. These were the commonly accepted norms, and since as individuals they had absolutely no chance fighting against their rulers, they obeyed for the sake of obeying, but did not really trust those above them.

Add to this their inherent sense of competitiveness, instead of considering laws as “something to be observed”, people think of them as ”something to use” for their own benefit; as the saying in China goes, “for every measure from above, there will always be a countermeasure from below.”

Also, trust for people is not something that is based on heart and conscience, but is deeply tinged with the premise of protecting their interests: what can this person do for me, and what can I do to provide benefit to the other person? They therefore highly regard and trust those people with whom they share common interests, banding together to protect their own safety and interests.

This is at the heart of China’s ”society based on connections.” If you interpret this as merely having many acquaintances, then you will fail to grasp its true essence.

Quantification of social credit based on smartphone payment history

Major changes are taking place as a result of the widespread uptake of the smartphone and their inherent national trait of putting a high regard on persons rather than social systems. This brings us to the third hint, ”changes in people’s behaviors brought about by information.”

The uptake of the smartphone has led to the widespread use of smartphone payments in China, wherein people don’t need to carry much cash anymore to make daily payment transactions. Other than for everyday shopping, people can now use their smartphones to pay taxes and rent, and even for settling traffic violation charges. In 2017, smartphone transactions have reached a staggering scale of approximately 1,500 trillion yen.

This widespread use of smartphone payments cannot be simply interpreted in terms of the convenience it brings.

The fact is, a person’s payment history is a picture of that person’s lifestyle and behavior; the amounts used for payments indicate the person’s income level. Alipay, the leading payment service in China, is operated by the Alibaba Group, which has created a scheme to quantify users’ credit worthiness based on work history, academic background, and other information, in addition to smartphone payment history, through a service called Sesame Credit. They have created a credit service, therefore, based on smartphone payment transactions.

Disclosure of credit information to encourage moral behavior among citizens

Sesame Credit ratings, which range from a score of 350 to 950, are openly available on the Internet. For Japanese people, disclosure of such kind of information is quite unimaginable. Chinese people, however, have a different consciousness about personal information, and the use of credit scores has become commonly accepted by many people due to its many advantages, such as quicker screening for loans, preferential interest rates, and elimination of the need for deposits at hotels and car rental services.

A low Sesame Credit rating results in inconveniences, such as longer screening time for loans, etc. Although it rarely causes extreme inconvenience under normal circumstances, there are also schemes that provide opportunities to improve one’s credit worthiness.

For example, properly returning an umbrella borrowed from a free lending service increases one’s score. Most people, therefore, make sure to promptly return the umbrellas they use by the next day.

Through the management of information, therefore, it has become possible to change the behavior of the Chinese people, who had often been called out because of the unpleasantness of their manners. This is the goal of the service.

The Chinese mentality of ”using laws and social systems for their own benefit” and ”valuing people that share their own interests” have thus far often resulted in a not very positive mindset, such as indifference to society and other people. The goal, therefore, has been to use smartphones as a tool to leverage the Chinese people’s high regard for personal trustworthiness, and widely establish a service that is highly compatible with this characteristic. This in turn brings about change in society by encouraging moralistic and conscientious behavior and rewarding those who behave accordingly.

There are in fact a number of ongoing social experiments aimed at instilling observance of social rules based on credit rating—initiatives that have led to very positive results. Further, I believe that this scheme holds the promise of compensating for the Chinese people’s weakness of being poor team players and their tendency to behave in a self-serving manner.

The case of credit rating is just one example of how the use of information has resulted to change in Chinese people’s behaviors. Many other changes are taking place in China today. Taking a second look at China as a nation and as a market by taking these changes into consideration might bring to light a new and different perspective. I hope that this new perspective would prove useful for your business.

Figure: Sesame Credit Scheme
Credit worthiness is quantified based on a comprehensive assessment of daily activities, payment history, personal connections, etc. Scores range from 350 to 950, with various benefits for having higher scores.
Nobuhiko Tanaka

Partner, Brighton Human Capital Consulting Co, Ltd. Beijing (BHCC)
Lecturer (Part-time), Graduate School of Asian and International Business Strategy, Asia University (MBA)
Former Visiting Researcher at Recruit Works Institute

Mr. Tanaka graduated from Waseda University School of Political Science and Economics in 1983. After working as a writer at Mainichi Shimbun, in the early 1990’s, he moved to China to work as a contributor and consultant on human resource management. His involvements include projects with RGF Human Resource Consulting, and business of a major casual wear chain in China. He also works as a consultant and adviser for major corporations both in Shanghai and Tokyo.

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