Mobile payments, the online-to-offline (O2O) model and bicycle-sharing services such as Mobike can literally change the world. But these are not the only innovations being created in China. Active work is also underway in quantum physics, supercomputing, Artificial Intelligence (AI) and other fields.

A question may arise as to whether these innovations are truly Chinese. In fact, today not everyone believes that China is capable of creating breakthrough products comparable to paper or gunpowder in the past. However, innovation is not the same as invention, which involves creating an entirely new product or process. Innovation can be viewed as the application of a better solution, for example, to meet existing market needs or new requirements. This is precisely the area in which China is a leader.

Anyone from the West is familiar with the difficulties of paying for purchases in cash at a supermarket. People waiting behind you in line make you nervous. Even paying by debit or credit card takes some time.

In China, especially in first- and second-tier cities, this problem hardly exists. Mobile payments have long been the norm in China. Not only can they save consumers from the stress of paying for purchases at supermarkets, but entirely new business models are also being developed on this foundation, radically transforming many markets. In China, models such as O2O and rental services are flourishing thanks to the development of mobile payments and the use of apps such as Alipay (支付宝), Tenpay (财付通) and WeChat Wallet. Compared with the United States, China demonstrates much higher adoption of mobile payments, with transaction volumes reaching USD 5.5 trillion versus USD 112 billion in the United States.

The popularity of bicycle-sharing apps such as Mobike and Ofo (共享单车) demonstrates how China innovatively integrates services into existing conditions rather than simply inventing them. Bicycle-sharing apps also exist in other countries, of course, but the Chinese approach is unique in its own way. Consumers in China connect their phones, through the services mentioned above, to their bank accounts. As a result, setting up the app is much easier and faster than in other countries, where users need to connect a credit card, which involves numerous security checks. “Two-click” registration increases the number of users.

Recent studies have shown that since bicycle-sharing models were introduced in 2016, the number of users has increased every month. In March 2017, growth exceeded 100%. Thanks to its high degree of accessibility, China became the global leader in the entire on-demand transportation market — bicycles and cars — accounting for 67%. This success is an example of how the Chinese model can change the way transportation systems are used around the world.

The O2O model is another example of how the innovative use of mobile payments can bring about a revolution. In a world where it was generally assumed that street stores would be absorbed by e-commerce, China demonstrates how these two types of retail channels can be combined.

Consider a common problem in the West. For example, the popular online retailer Zalando sells all types of footwear, clothing and accessories and allows customers to return purchases free of charge. Nevertheless, the consumer still has to go to a post office and wait for the next delivery. In fact, a model in which the consumer could return a recently purchased product of a particular brand and try another one would be more convenient. China sees a new opportunity in this.

In general, O2O in China involves a range of services because consumers expect comprehensive service. First of all, O2O offers services where a product can be purchased online and collected in a store. According to a Daxue Consulting study on O2O in China, in 2016 72% of Chinese consumers wanted the option to make purchases online and return or exchange them in a store. In addition, most Chinese consumers wanted to purchase coupons online and redeem them in stores. In the future, O2O services will include customized product design and the ability to check physical store inventory online, as well as the option to purchase products in a store and have them automatically delivered to the consumer’s home.

Major changes could take place in China through the combination of mobile payments and QR-code technology. Today, many street stores are disappearing because consumers buy products online or visit stores only to evaluate a product before finding a better offer and ultimately purchasing it online. However, the introduction of QR codes could prove useful for stores.

Placing QR codes next to products in a particular store allows consumers to obtain detailed information about them. For example, a consumer can see the product they need in person before buying it online. One example is Leyou (乐友), China’s largest retailer of children’s products, which introduced QR codes so that parents could obtain all the information about a product and select the most appropriate one for their child.

Another innovative way of connecting offline stores with the online world is the Dmall (多点) app, which turns physical supermarkets into virtual ones.

The app lists supermarket products and allows consumers to select what they need. Consumers pay through Alipay or WeChat, and the goods are usually delivered within one hour. This app could change the way consumers around the world buy food and household goods. It is certainly an extremely efficient innovation when one considers supermarkets and their long queues. First, the app reduces the time customers spend shopping. Second, supermarkets do not lose customers because of queues. Third, it creates additional jobs.

The introduction of mobile payments combined with QR-code technology in the rest of the world will help change the way people buy, use, return and exchange goods. In this way, it affects the global economy. Companies will need to reconsider their business models, for example by efficiently integrating online and offline operations. In addition, startups with entirely new business ideas based on mobile payments will continue to emerge around the world.

Reasons for China’s Prosperity and the West’s Lag

The real question is whether the rest of the world will be able to adapt to modern Chinese standards. So what is driving the rapid development of mobile payments and O2O in China? And does this also explain why the West is lagging behind?

One of the main reasons mobile payments are easier to use in China is the low penetration of credit cards. For example, overall credit card penetration in China in 2014 was only 16%, according to the latest report by the Institute for Business in the Global Context. Even among urban consumers with bank accounts, penetration was only 41% for the generation born in the 1990s, compared with 77% in the United States. The main reason for the low penetration of credit cards in China is the fact that Chinese consumers prefer mortgage loans, which account for around 75% of the entire Chinese credit market. This has stimulated mobile payment activity, which increased to 25.71 billion transactions, with a total value of CNY 157.55 trillion, in 2016, up 86% year on year.

The foundation of mobile payment systems in China is the “ubiquity” of QR codes. The ease of simply scanning a code to transfer money to a particular supermarket, restaurant or even the smallest street food outlet further simplifies the use of mobile payment systems.

It is also worth considering that consumers, regardless of their country, find it difficult to switch between different payment methods. This helps explain why mobile payments are flourishing in China but not in the West.

As for the O2O model, China demonstrates unique practices that cannot be observed in the West. The main factor behind the innovative and effective introduction of new O2O services is, of course, low labor costs. This makes inexpensive delivery possible, which is the foundation of most O2O models in China.

A food delivery service such as market leader Ele.me (饿了么) is a good example of how psychological factors in Chinese culture play an important role in the success of O2O in China. Chinese consumers always want to keep everything under control, so online food delivery services constantly need to improve their tracking capabilities. This makes such services much more advanced than their Western counterparts.

Overall, mobile payment and O2O penetration in China has reached an unprecedented scale. The use of mobile payments and the development of multiple O2O models became possible due to the low penetration of credit cards and low labor costs in China. In the West, by contrast, the situation is fundamentally different, and it has so far failed to adapt to the opportunities provided by these innovative business models.

Other Technological Innovations in China That Could Bring About a Revolution

Mobile payments and the use of the O2O model are not the only developments bringing major changes. Today, Chinese supercomputers are the fastest in the world, which undoubtedly affects how scientists and engineers around the world can use supercomputers. Supercomputers are high-performance computers measured by the number of calculations they can perform per second — FLOPS, or floating-point operations per second.

At present, supercomputers can perform a quadrillion operations per second, or PFLOPS, and two Chinese supercomputers lead the ranking of the world’s fastest computers. The fastest supercomputer, Sunway TaihuLight (神威·太湖之光), located in Wuxi, operates at 93 PFLOPS, almost five times faster than the first non-Chinese supercomputer, located in Switzerland and operating at 19.5 PFLOPS, according to the latest Top500 list released in June of this year.

A supercomputer itself is not a unique innovation. What matters is how the Chinese use it. For example, supercomputers are used for weather forecasting and climate change research. To do this, meteorologists must analyze constantly changing data as accurately and quickly as possible. A supercomputer can be used to study how new medicines affect the human body. It can also simulate physical processes to understand how the Universe originated or to study spacecraft aerodynamics. However, the ultimate purpose of supercomputers is to simulate human brain activity, something the developers of each new model are striving toward. China is already developing a new supercomputer in Jinan that is planned to be capable of performing quintillions of calculations per second. By continuously maintaining the pace of developing faster supercomputers, China is forcing the rest of the world to do the same.

Closely related to supercomputers is Artificial Intelligence (AI). AI will continue to develop in China. The next major step in the evolution of artificial intelligence will most likely come from BAT — Baidu, Alibaba and Tencent, China’s three main technology companies. The government is investing billions of dollars in the successful development of AI, with funds distributed among large companies, startups and universities. For example, Liu Lihua (刘利华), Vice Minister of Industry and Information Technology, stated that China had filed 15,745 AI-related patent applications, according to China Daily.

According to the Chinese Academy of Sciences (CAS, 中国科学院), China’s AI market grew by 43.3% in 2016 and reached CNY 2.1 billion (USD 1.47 billion). The corresponding figure was projected to reach CNY 15.21 billion in 2017 and CNY 34.43 billion in 2019. In addition, on July 20, the State Council of China issued the New Generation Artificial Intelligence Development Plan (新一代人工智能发展规划), under which China is to become a global leader in AI. Under the Plan, funding will be allocated to organizations such as the CAS Institute of Automation and a Beijing consortium of companies and universities working on AI projects.

China has set an ambitious goal of becoming a global AI power by 2030. According to the State Council report, China’s AI market is expected to exceed CNY 150 billion by 2020, CNY 400 billion by 2025 and CNY 1 trillion by 2030. The country is expected to become a global leader and surpass the United States. Chinese technology giants Baidu and Tencent have indeed established AI research centers in the United States. Baidu, in particular, is acting quite boldly. For example, it hired AI specialist Andrew Ng as its chief scientist.

AI could play a major role in China’s development, from self-driving vehicles to automation and product storage methods. Jack Ma, the richest person in China and CEO of Alibaba, stated that in 30 years CEOs could be replaced by robots.

AI has become such an important field for several reasons. First, AI can predict the needs and behavior of people or companies faster than humans, thereby saving a company millions of dollars or helping us gain more time. For example, AI could warn us that we are running out of milk and order it online. Moreover, as predicting the near future becomes strategically important, marketing and other departments around the world will want such a tool to assess whether their product will be successful without investing tens of millions of dollars in market research.

Second, with the development of robotics, AI can become a tool for performing tasks that humans cannot or will not perform. One good example is a robot operating during a forest fire. AI could also reduce logistics costs worldwide through autonomous truck operation and intelligent routing to identify the best delivery methods.

Finally, China has also found another use for AI: predicting crime. According to Chinese Vice Minister of Science and Technology Li Meng (李萌), crime prediction is one of the most important AI applications for the Chinese government. AI can be used to collect personal data on potential suspects and review surveillance footage, including conducting “crowd analysis” to identify suspicious behavior. Although this idea is very noble and could genuinely change the world by reducing crime, Li Meng is highly doubtful that the rest of the world will adapt in the same way because of privacy requirements.

Finally, Chinese scientists have come a long way toward demonstrating that they can perform better in quantum physics than their foreign counterparts. Thanks to outstanding universities that have emerged across the country, Chinese scientists have achieved major successes in this field over the past several years.

The latest global achievement was the successful transmission of entangled photons from space to Earth using a satellite. The experiment involved splitting sunlight into its constituent elements — photons. The photons were then sent to two observation stations located 1,500 miles apart.

The experiment may be difficult to understand, but the ultimate idea is to use photons — that is, light — in the future to transmit data around the world. Although today this technology can be applied in military communications, state-owned companies could also develop their own satellite networks using this technology and deliver information to consumers much faster.

Moreover, Chinese scientists were able to create a quantum computer. They announced this at the Shanghai Institute for Advanced Studies of the University of Science and Technology of China. The computer developed could be 24,000 times faster than other supercomputers. This does not undermine the capabilities or plans associated with the supercomputers mentioned above, because such machines can solve only certain tasks. Nevertheless, Chinese quantum physics is now on a par with that of the United States and may even lead the next major leap in quantum technologies. But China could influence the global market in other areas as well.

In conclusion, these Chinese innovations are potentially revolutionary for the entire world. First, the innovative use of mobile payments influences how consumers buy and rent products. Innovations in computing, meanwhile, lead to major improvements in how scientists can calculate and simulate phenomena. They could change the way reality is simulated and therefore affect many industries, including medicine, pharmaceuticals and logistics.

Some Recent Inventions from China

China has also invented other revolutionary physical products from scratch. The best-known of these is the electronic cigarette. Chinese pharmacist Hon Lik (韩力) invented the modern electronic cigarette in 2003. Motivated by a desire to quit smoking — his father had died because of this harmful habit — he discovered that he could quit painlessly only with another form of smoking. His breakthrough idea was to use a piezoelectric ultrasonic element to vaporize a nicotine solution in a cigarette-like device. He received a US patent for the device.

Later, after the patent was acquired by tobacco giant Fontem Ventures, a huge number of electronic cigarette variants appeared. Today, electronic cigarettes are available in various flavors, with or without nicotine, helping consumers around the world quit smoking or reduce their consumption of conventional cigarettes.

Another recent invention by Chinese entrepreneurs is the world’s first passenger unmanned aerial vehicle, the Ehang 184 (亿航184), developed by Ehang (Beijing Yi-Hang Creation Science & Technology Co., Ltd.). It was presented at CES in Las Vegas last year and could become a genuinely breakthrough project. The passenger drone is intended to operate as an autonomous flying taxi. Its unmanned propulsion system is designed for a 23-minute flight, at a maximum altitude of 3.5 km, carrying a passenger weighing up to 100 kg. Before the flight, the passenger enters the route using a tablet inside the drone and then controls it with only two commands: “Take Off” and “Land.” Although the invention has not yet been implemented in real life, it creates many opportunities for addressing transportation problems in large cities.

Eurasia Development Ltd. has long sought to dispel the stereotype that China is merely the “world’s factory” and does not create anything new.
Beijing has deliberately made science and innovation a priority, and this direction is reflected in the country’s development strategy. China ranks first in the number of researchers and patent applications filed. In recent years, a large number of fab labs, business incubators and accelerators have been established across the country. More than 145 high-tech zones and several hundred technology parks are actively operating.

In addition to high-quality infrastructure, China possesses substantial financial resources. For example, the five-year budget of China’s Ministry of Science and Technology through 2021 amounts to USD 1.58 trillion. In 2015, USD 231 billion was under the management of state venture funds, while in 2016, USD 30.2 billion was invested in Chinese companies.

Most importantly, China ranks second in the world by the number of unicorn startups. The United States remains the leader with 107 companies, while China has 56. But of the 41 companies that achieved unicorn status in 2017, 15 were Chinese.

To sum up, it can be stated with confidence that China is no longer an ordinary factory. Innovation and entrepreneurship are widespread in the country. Favorable opportunities have been created for young and ambitious innovators. China has long been a serious competitor to Silicon Valley and will certainly continue to surprise the international community with its innovations.