1.04  Leveraging on Internet for Growth I: Internet Plus Initiative 

2 August 2018

Internet Plus Initiative Concept.jpg

Internet Plus Concept & Action Plan 

 

Premier Li first presented the Internet Plus concept (“互联网+”概念) in March 2015 during his Government Work Report to the 3rd Session of the 12 National People Congress (NPC) (十二届全国人大三次会议).[1] The concept was first proposed by Pony Ma (马化腾), the CEO of Tencent (腾讯) and a representative of the National People Congress, before Premier Li incepted it as a national strategy to promote industry upgrades and advance market reforms.

 

The core of the initiative is the integration of traditional industries with internet to create a new engine for economic growth and to help Internet companies increase their international presence. By building on the huge success of the internet industry, Chinese policymakers hoped to inject a new impetus of growth to the traditional services industries so that the China’s future economic growth can be driven not only by manufacturing but also services, and for that matter, agricultural as well. In other words, economic growth will be more sustainable with multiple engines of growth.

 

Conceptually, Internet Plus involves connecting the internet of things (IoT) of all industries with businesses and consumers so that communication and transaction can take place in the virtual world without physical interactions and ideally also without facilitation by intermediaries.[2]

 

IoT, in particular, is the backbone of Internet Plus while new digital technologies such as cloud computing, big data analytics, artificial intelligence, augmented reality, and virtual reality serves as important catalysts for change.

 

The growth of internet is said to have gone through three distinct stages. Internet 1.0 is characterized as the expansion of personal computers, while mobile devices such as smartphones ushered in the era of Internet 2.0. Growth is now in Internet 3.0 which connects almost every object that can be embedded with intelligent technology, be they small wearables such as spectacles, ties and shoes, or large items such as refrigerators, cars or even planes. Internet 3.0 is thus the age of IoT to which intelligent devices can be connected 24/7. The ubiquity of internet and the ability of more and more devices to be connected via IoT have a revolutionary impact on traditional business models. Because consumption of services are made more convenient now through the virtual world, opportunities are abound for new startups to provide internet-based interactive services, while traditional businesses struggle to adapt and transform to stay relevant and to meet the new competition.

 

In July 2015, the Chinese government formally launched the Internet Plus Action Plan (“互联网+”行动计划) to provide guidelines for the execution of the concept. To help the plan move forward, the Chinese government set aside $4.4 billion to invest in startups and technologies in 2015.[3] This was followed by the setup of another RMB 100 billion ($14.6 billion) Internet investment fund in January 2017 to support internet companies via equity investment.[4]

 

China’s internet industry has seen robust growth in recent years. As of December 2014, the country had 780 million broadband users, 555 million mobile users including 162 million 4G users. China is indisputably the largest internet market in the world and it makes perfect sense for the government to leverage on the success to bring about a broad “uberisation” of the economy where anyone can buy or sell online.[5] In fact, by 2014, the Internet industry had already created 13.22 million new urban jobs [6] and was responsible for 7% of China’s Gross Domestic Product (GDP), a percentage point higher than in the US. Much of that contribution to overall economic growth comes from e-commerce driven initially by Alibaba’s (阿里巴巴) Taobao (淘宝) then followed by Dang Dang (当当) and Jing Dong (京东) as well as a myriad of other new e-commerce platforms.

 

The role internet played in promoting the development of small- and micro-sized businesses was particularly instrumental. According to Jack Ma, the founder of Alibaba Group with more than 20,000 employees, its ecommerce sites had indirectly facilitated the employment of a population of 10 million people in 2013 through the growth of small- and micro-sized businesses.[7]

 

E-commerce also played an important role in boosting China’s rural economy, which is another key objective of the Chinese government seeking to close the rural-urban development gap. In 2014, for example, the Qingyanliu Village in Zhejiang province’s Yiwu City, made the headlines by being one of the first big “Taobao village” when 800 households started 2,800 online stores on Taobao.[8]

 

In support of the Internet Plus Initiative, China’s three biggest internet conglomerates, Baidu (百度), Alibaba and Tencent, collectively known as BAT, formed an “Internet-Plus Alliance” in December 2015. Chaired by Jack Ma (马云), the alliance includes businesses, government agencies as well as NGOs.

 

Pony Ma, CEO of Tencent Group, is particularly bullish about the potential of rejuvenating traditional services industries  by integrating them with internet. Today, the group has interests in businesses that spread across social networks, gaming, media entertainment (including music, video, movies, radio, and live streaming), cloud services, financial services, education, training & development, news, and publication, all of which provide services with a strong presence online.[9]

 

Unlike Alibaba, whose advantages lie in payment, e-commerce and logistics, Tencent’s strengths are in online gaming and social media. Its two most popular social media APPs are WeChat (微信) and QQ. WeChat, in particular, has become so popular that its daily active user base had grown 17% YoY to reach 902 million by September 2017. Pony Ma’s Internet Plus strategy is therefore to build its empire revolving around WeChat, leveraging on its massive user base.

 

To see how Internet Plus concept works to add new impetus of growth to the services industries, we look at Tencent’s foray into China’s healthcare (medical) and insurance industries through WeChat.

 

Tencent’s Internet Plus Healthcare Strategy

With rising income, Chinese demand for good healthcare services has been growing exponentially in recent years. According to a 2017 report by McKinsey & Company, the market is projected to grow at 12% annually to reach $1 trillion by 2020 and $2.3 trillion by 2030.[10]

 

Tencent’s interest in the healthcare industry began even before the Internet Plus Initiative was launched. In 2014, it started building its WeChat-based medical ecosystem with the introduction of WeChat Intelligent Healthcare Platform (微信智慧医疗平台) to allow users to book appointments (挂号guahao), make payments, and more at hospitals and other medical facilities through WeChat public accounts. Cutting out physical guahao and payment lines help patients cut down an average of 42.6 minutes of waiting time. As of 2017, over 38,000 medical facilities in China have WeChat accounts. 60% of those provide online consultation and guahao while 35% support medical bill payment by WeChat Pay.[11]

 

Since 2014, Tencent is estimated to have also invested RMB 20 billion in local and international healthcare and medical startups offering a gamut of innovations, from wearable tech to genomics, as well as providing services such as online consultation, doctor and clinic directories, and appointment booking.[12] It even has a joint venture Tencent Doctorwork (企鹅医生), with GAW Capital, Medlinker and Sequoia China, operating bricks-and-mortar medical facilities called Tencent Clinics in Beijing, Chengdu and Shenzhen.[13] Already, Tencent is beginning to see returns from its investments. WeDoctor Group, a Hangzhou-based online healthcare services firm which Tencent invested in, is valued at US$5.5 billion and is currently seeking an IPO in Hong Kong.

 

In 2018, in an attempt to fill the gap for more reliable sources of online medical information in China, Tencent signed a content-licensing deal with New York healthcare site WebMD to translate and provide WebMD’s health and medical content – including articles and videos – to its one billion active WeChat and QQ users. The deal comes after Tencent’s 2014 investment in Hangzhou-based DXY, a medical information platform similar to WebMD.  According to a survey by state media China Youth Daily in 2017, nearly 60% of Chinese people use WeChat as a major source of medical and health information.[14]

 

Going forward, Tencent is planning to leverage on its research on advanced digital technologies, including artificial intelligence, blockchain technology, augmented reality and virtual reality, to improve its service offerings.

 

In 2017, for example, Tencent launched the AI Medical Innovation System or AIMIS (觅影 Miying in Chinese), a diagnostic medical imaging service powered by artificial intelligence to detect esophageal cancer, lung sarcoidosis and diabetic retinopathy in more than 100 hospitals across China. In November 2017, the Chinese government named Tencent and four other companies, including Alibaba and Baidu, as the country’s AI champions. AIMIS was chosen as the technology for the national AI diagnostic medical imaging platform.[15]

 

More recently, in April 2018, Tencent also announced plans to use blockchain technology in the tech giant’s medical ecosystem to prevent data tampering. It may not be long before Tencent begin testing the use of augmented reality, virtual reality and live streaming in the less developed areas of the country to compensate for shortages of medical resources.[16]

 

Tencent’s Internet Plus Insurance Strategy

 

China has a huge insurance market with annual premium income growing from RMB 1.4 trillion in 2011 to RMB 3.1 trillion in 2017 at a 16.8% CAGR. More and more affluent Chinese are becoming aware of the importance of insurance. To meet the growing demand, insurance companies have introduced a wide range of innovative products that covers many aspects of Chinese people daily life. Today, the market size of insurance in China has surpassed Japan and is second to only the US market. However, the digital insurance’s market still accounts for less than 10% of the overall domestic insurance market in 2017, despite having grown 10 times since 2012. There is therefore a lot of room for the digital insurance market to grow particularly with maturing InsurTech (i.e. insurance technology) and with the continuous expansion of the overall insurance market.[17] Already, about 65% of new insurance policies were sold through the internet in 2016. One estimate projects that China’s online insurance industry will grow to RMB 1.41 trillion ($214.1 billion) by 2021, up from RMB 363 billion in 2016.[18]

 

Tencent began its quest of the Chinese insurance industry by investing in both local and foreign insurance firms in the life and property insurance sector. By 2017, Tencent had built an impressive investment portfolio with its 12.1% stake in Hong-Kong listed Zhong An (众安在线), 20% percent stake in global life insurer Aviva (英杰华人寿), and a 15% share in Hetai Life Insurance (和泰人寿).

 

Of these, Zhong An Online Property & Casualty Insurance is China’s first online-only insurer set up in 2013 by Alibaba and Tencent as well as insurance giant Ping An (平安保险). The Shanghai-based company, which raised $1.5 billion from its Hong Kong IPO, now claims to be China’s largest insurer in terms of customers, with 492 million enrolled in plans, as well as in terms of policies, with about 7.2 billion sold.[19]

 

Notably, Zhong An is regarded more as part of a new wave of Chinese financial technology (fintech) companies rather than an insurance company. Many of these fintech companies do most or all of their business over the internet, taking advantage of China’s recent opening of its financial services sector to private investment, ending the sector’s previous domination by state-run firms. According to market experts, the rapid growth of fintech and the growing demand for insurance in China is opening lots of doors for insurance players. What Zhong An does is that it marries up fintech with InsurTech (insurance technology) to take on the brick-and-mortar business model of traditional insurance companies.

 

In October 2017, Tencent up the ante by taking a majority stake of 57.8% in Weimin Insurance Agency (微民保险代理), after the latter got the green light from the China Insurance Regulatory Commission. This marks the first time that Tencent has obtained an insurance agency license and set up an insurance intermediary in mainland China.[20] Other shareholders of Weimin include Taiwan-based Fubon Property & Casualty Insurance Co. and a Chinese private equity fund.[21] Given that Tencent has a higher stake in Weimin than in Zhong An, some market watchers believe Tencent may hereon focus more on Weimin than ZhongAn, challenging the growth of the latter.

 

In November 2017, Tencent also launched its proprietary platform WeSure within its social app WeChat to provide a medical insurance called WeCare jointly underwritten by Tencent and licensed digital insurer Taikang Online. [22] WeSure differentiates itself by offering an attractive and yet easily understood policy that provides policyholders with a 6 million RMB coverage with no deductibles for a premium of just a few hundreds. By doing away with agents as intermediary, WeSure is able to keep its policy competitive.[23] At the same time, WeSure is building on Tencent’s strength in medical industry to establish connections with 36,000 hospitals so that they can launch their own official accounts on WeChat, through which WeCare patients can pay for stays and make claims.

 

In other words, Tencent can now integrate its strength in both the medical and insurance industries to provide better services to its growing base of online users. This would be a competitive advantage that others will find hard to beat. Meanwhile, the company is in talks with several insurance companies for possible rollout of additional products.[24] In March 2018, for example, WeSure announced the launch of an aviation accident insurance policy offered jointly with global Life and health insurer MetLife.[25]

 

Overall Impacts of the Internet Plus Initiative on China’s Insurance Industry

Of course, the growing online opportunities in the burgeoning medical and insurance industries have attracted the attention of not only Tencent.

 

Take the insurance industry for example.

In addition to its stake in Zhong An, a joint venture with Tencent and Ping An, Alibaba-backed Ant Financial (蚂蚁金服) created an open platform in 2016 that hosts some 80 insurance companies with more than 2,000 products reaching 400 million people. It also shares data with 18 insurers so that they can leverage these data for precise demand forecast and better risk control. For instance, the firm has launched a car insurance score ranging from 300 to 700 based on a car owner's user portrait and risk analysis.[26] In 2016, Ant Financial also acquired a controlling 51% stake in Taiwan’s Cathay Century Insurance Co (国泰产险). Since then, Cathay Century prioritizes technology as a key business driver, effectively competing head-on against other bigger players like ZhongAn and now also Weimin.[27]

 

Not to be left behind, Robin Li’s Baidu dipped his toes into the field by announcing, in November 2015, a tie-up with global insurer Allianz (安联保险) and Asian investor Hillhouse Capital Group (高领资本) to establish a nationwide digital non-life insurance company (百安保险) in China. In June 2016, it also unveiled plans to form an online car insurance venture with China Pacific Property Insurance (中国太保). In September 2017, Baidu also succeeded in obtaining a national insurance brokerage licence through its wholly-owned subsidiary Baidu Penghuan Asset Management (Beijing百度鹏寰资产管理有限公司) which purchased a 100% stake in Heilongjiang Lianbao Longjiang Insurance Agency (黑龙江联保龙江保险经纪有限责任公司). Finally, in February 2018, Baidu set up its online insurance platform, offering eight products in business-medical insurance, major illness insurance and travel insurance.[28]

 

Despite Robin Li’s efforts, however, China digital insurance market is currently led by Tencent and Alibaba because of the strength of the two giants in the payment market which is basically a duopoly at the moment. As an internet search engine giant, Baidu has a relatively much weaker presence in fintech industry. Its Baidu Wallet, for example, had only 100 million activated accounts as at the end of 2016. This is a much smaller customer base than Alipay or WeChat Pay.[29]

 

Besides Baidu, another Chinese internet company jumping into insurance market is fast-rising e-commerce giant Jing Dong (JD, 京东). In July 2018, approval has been given for Jing Dong to invest RMB 483m ($71.1m) for a 30% stake in Allianz China, making it the second largest shareholder in the insurance firm.[30] In February 2018, the world’s largest O2O lifestyle platform, Meituan-Dianping (美团点评), also obtained an insurance license through a subsidiary to serve its 600 million users.[31]

 

Just barely 3 years from the launch of Internet Plus Action Plan, the Chinese insurance industry have seen disruptive changes that have modified the rules of competition, provided new impetus for economic growth and expanded the choices of the consumers. Today, tech giants, traditional insurers and start-ups are all jostling for a share in the burgeoning digital insurance market. Competition will get increasing intense and interesting especially with the maturing of digital technologies such as artificial intelligence, big data analytics, augmented reality and virtual reality.

 

Internet Plus Initiative Fuelling the Rise of China’s Digital Economy

 

Via Internet Plus initiatives, China is making substantial progress toward the integration of the Internet with all industries, even faster than most of the advanced countries.[32] Eventually, all Chinese businesses, big or small will have to learn to exploit the opportunities presented by the digital economy or risk being left behind. Even manicure and massage services are performing traditional businesses in an innovative way. Instead of running brick-and-mortar shops, many are beginning to collect online booking through their WeChat mobile accounts before sending masseurs and manicurists to customers' homes, and even offices.

 

One contributing factor to the rapid growth of the Internet Plus Initiative is the growth of Fintech industry which began budding in 2013 but really only blossomed in 2015 after a phase of adjustments by regulatory agencies to ensure an orderly growth of the industry. Today, payments can be easily made through e-wallets linked to services such as Tencent’s WeChat Pay and Alibaba’s AliPay. The convenience helped to accelerate the adoption of e-payments so much so that even mobile street vendors hawking their wares have jumped on the bandwagon and demand cashless payments. All they need is to carry a printed QR quote which their customers scan to make payment. Gone were the days when a terminal is needed to swipe credit cards. The developments of China Fintech have therefore catalyzed not only business activities online but also in traditional channels. Today, China is far ahead than any country in moving towards a truly cashless society.

 

Moreover, because of the increasing popularity of cashless payments, massive amount of information is being captured instantaneously. With the help of powerful data analytics, the intelligence gathered can be used to help businesses carry out precision marketing and to improve strategies relating to merchandising and financial services.

 

Evidence of early success of the Internet Plus Initiative lies in numbers. In 2015, China’s mobile transactions surged to $235 billion, surpassing the U.S. for the first time. According to iResearch, China’s mobile payments market is estimated to be worth RMB 15.7 trillion in 2016—about 28 times the $62.5 billion forecasted by eMarketer for the US in 2017—and RMB 28.5 trillion in 2018. Alipay remains the country’s leader in mobile payment, with 68% of the market, as of end 2016, though WeChat Pay is catching up fast. In a sign of the scale of China’s mobile payments, Alibaba reported that, as of end 2016, payments through Alipay exceeded even those through the state-owned payment network connected to China’s central bank.[33] Today, China is the most advanced mobile Internet consumption market in the world.

 

According to the “China Internet Plus Index Report (2018)” published by Tencent, China’s Internet-based economy posted year-on-year growth of 17.24% in 2017 to reach RMB 26.7 trillion (approx. $4.25 trillion) in total. The digital economy’s share of Chinese GDP rose to 32.28% in 2017, from 30.61% the preceding year.[34]  Given that China’s internet penetration as of July 2016 was a mere 52% compared with 88% in the United States, growth potential for Chinese internet industry is still huge. This is particularly so because, at age 28, China Internet users are an average of 14 years younger than in the US.[35]

 

Looking ahead, if the evolution of China’s digital insurance and healthcare markets is any indication of how services industries in China will be transformed by its Internet Plus strategy, a brave new world where virtuality and reality seamlessly merged will likely emerge. In that “Internet Plus” world, Chinese consumers will find themselves spoilt for choices over services covering possible almost every aspect of their daily life, all available at their fingertips.

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REFERENCES

[1] See 百度百科. “互联网+”; See Li’s “Report on the Work of the Government.” 5 March, 2015.

[2] See Business Times. (2015). “China unveils 'Internet Plus' action plan to juice slow economy.” 4 July 2015; 百度百科. “互联网+

[3] See Martin Pasquier. (2015). “Internet Plus: China’s Official Strategy for the Uberisation of the Economy.” InnovationisEverywhere.com. May, 2015.

[4] See Priyankar Bhunia. (2017). “Chinese government sets up US$ 14.6 billion Internet Investment Fund.” Open Gov Asia. 24 January, 2017.

[5] See Martin Pasquier. (2015). “Internet Plus: China’s Official Strategy for the Uberisation of the Economy.” InnovationisEverywhere.com. May, 2015.

[6] See Gov.Cn. (2015). “Internet Plus: Premier Li’s new tech tool.” 13 March, 2015.

[7] See Gov.Cn. (2015). “Internet Plus: Premier Li’s new tech tool.” 13 March, 2015.

[8] See Gordon Change. (2015). “China's 'Internet Plus' Strategy, A Net Minus.” Forbes. 19 April, 2015.

[9] See Tencent’s corporate website.

[10] See Iris Deng. (2018). “Tencent to introduce WebMD’s content on WeChat to improve reliability of medical information in China.” SCMP. 24 July, 2018.

[11] See Linda Lew. (2018). “How Tencent’s medical ecosystem is shaping the future of China’s healthcare.” TechNode. 11 February, 2018.

[12] See Linda Lew. (2018).

[13] See Iris Deng. (2018). “Tencent to introduce WebMD’s content on WeChat to improve reliability of medical information in China.” SCMP. 24 July, 2018.

[14] See Iris Deng. (2018).

[15] See Linda Lew. (2018).; See Iris Deng. (2018).

[16] See Iris Deng. (2018). “Tencent to introduce WebMD’s content on WeChat to improve reliability of medical information in China.” SCMP. 24 July, 2018.

[17] See Zarc Gin. (2018). “Market Insights into China: "Clear and simple" Tencent launches Wesure - its insurance platform.” DigitalScounting. 22 November 2017.

[18] See Yang Qiaoling and Leng Cheng. (2017). “Tencent Will Sell You Insurance — in Its Apps.” CaixinGlobal. 12 October, 2017.

[19] See Yang Ge. (2017). “Online Insurer ZhongAn Raises $1.5 Billion in Hong Kong IPO.” CaixinGlobal. 27 September, 2017.

[20] See Dou Shicong. (2017). “China’s Insurance Regulator Okays Tencent’s Insurance Intermediary.” YicaiGlobal. 12 October, 2017.

[21] See Prnewswire. (2015). “Tencent's SY Lau lays out his vision for Internet Plus and its significance to China and Asia.” 7 November, 2015.

[22] See Linda Lew. (2018). “How Tencent’s medical ecosystem is shaping the future of China’s healthcare.” TechNode. 11 February, 2018.

[23] See DigFinGroup. (2018). “Tencent’s WeSure works with insurers – not agents.” 29 March 2018.

[24] See Zarc Gin. (2018). “Market Insights into China: "Clear and simple" Tencent launches Wesure - its insurance platform.” DigitalScounting. 22 November 2017.

[25] See BusinessWire. (2018). “MetLife and WeSure Form Strategic Digital Insurance Partnership.” 20 March, 2018.

[26] See Wu Yiyao & He Wei. (2017). “Tencent expands insurance footprint.” China Daily. 13 October, 2017.

[27] See Yang Qiaoling and Leng Cheng. (2017). “Tencent Will Sell You Insurance — in Its Apps.” CaixinGlobal. 12 October, 2017.

[28] See Asia Insurance Review. (2018). “Baidu sets up online insurance platform.” 12 February 2018.

[29] See Julie Zhu and Sijia Jiang. (2018). “China’s Baidu Selling Majority Stake in Fintechs; May Enter Insurance.” Insurance Journal. 30 April 2018.

[30] See Asia Insurance Review. (2018). “E-commerce giant gets green light to take stake in Allianz China.” 26 July 2018.

[31] See Zhao Xiaochun. (2018). “Meituan-Dianping Just Acquired An Insurance License, while BAT’s Online Insurance Battle is in Full Swing.” Kr-Asia.com. 26 February, 2018.

[32] See Gov.Cn. (2015). “Internet Plus: Premier Li’s new tech tool.” 13 March, 2015.

[33] See Eveline Chao. (2017). “How WeChat Became China’s App For Everything.” Fast Company. 2 January, 2017.

[34] See China Banking News. (2018). “China’s Internet Plus Economy Hit $4.25 Trillion in 2017: Tencent Report.” 12 April, 2018.

[35] See Russell Flannery. (2017). “What Makes China's Internet Growth So Fast And Volatile?” Forbes. 10 October, 2017. Quoting BCG’s 2017 report “Decoding the Chinese Internet.”