Caixin
Apr 25, 2018 09:21 AM
TECH TALK

China: Technology Highflier or Paper Tiger?

The story of new U.S. sanctions against local telecom champion ZTE Corp., which has dominated global headlines for the past week, has become a sort of “Emperor’s New Clothes” tale for exposing how China’s high-tech prowess is something of an illusion. At the very least, the story shows just how dependent China’s new generation of tech giants still are on foreign imports, as ZTE revealed that its very existence could be threatened by sanctions cutting it off from its U.S. suppliers as punishment for illegally selling American products to Iran.

I got my own personal encounter with the “paper tiger” face of China’s high-tech industry last week during a tour of Hema, a high-tech supermarket concept being rolled out by e-commerce giant Alibaba. After reading too many times about this cutting-edge chain and Alibaba’s broader vision for a “new retail” landscape combining online and traditional shopping, I came away from the visit unimpressed and even quite disappointed at the lack of anything even remotely cutting-edge.

I’ll describe the visit in more detail shortly, but first I do need to step back and briefly recount the huge strides China has made in the high-tech realm over the last three decades. The country I encountered during my first stint in Beijing in the late 1980s was a technological backwater in every sense of the word.

Phone service was rudimentary at best back then, with only the most well-connected officials having telephones in their homes. During a recent meeting with a friend, I was surprised to learn that at that time people sometimes even resorted to letter-writing to arrange simple meetings like a lunch date, since there was no other real form of communication that was widely available for most.

Computers were equally primitive. Back then the idea of personal computer ownership was unheard of, since most Chinese earned the equivalent of less than $20 per month. I have no idea where the parts used to make China’s rudimentary PCs and phone networks came from. But even if they were manufactured in China, they were almost certainly churned out using technology that would have been at least a decade old in the West, and sometimes probably much older.

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A customer browses the products available in a Hema store in Beijing's Shilipu area on April 19. Photo: Zhang Boyuan/Caixin

Jump to the present, when China has become a global high-tech giant, at least superficially. ZTE and crosstown rival Huawei are now two of the world’s biggest suppliers of equipment used to build big telecom networks, and the latter actually passed European powerhouse Ericsson to take the global crown last year. China also makes a major slice of the world’s smartphones, with Chinese brands Huawei, Oppo and Xiaomi taking three of the top five places globally last year.

But the ZTE sanctions case showed just how dependent these new China tech champions are on key foreign components, exposing how in some ways the nation is still mostly a workshop where things are assembled using foreign know-how.

Eye opener

My Hema visit was a similar eye-opener. I set up the tour to better understand the “new retail” concept constantly being touted by Alibaba, one of the main faces for China’s new high-tech prowess. The company has gone on a relentless acquisition spree of traditional retailers over the last couple of years, while also developing Hema and a number of other high-tech retail concepts on its own. The aim, as it likes to say, is to show everyone how the future retailing world will be a hybrid of online and offline shopping, including traditional brick-and-mortar stores with high degrees of automation and other high-tech touches.

I was ready to document such touches on my visit to the store in Beijing’s Shilipu area. I expected to find things like sensors that could detect when I lifted items from shelves, facial recognition technology that could tell when I put something in my cart, and a checkout line that would total up everything before I even arrived and let me pay by simply holding my smartphone to a scanner.

As anyone reading this can probably guess by now, my actual experience was far more low-tech than I imagined and not all that different from shopping at a regular supermarket. Finding items still required the usual strolling up and down the aisles and asking employees for help. The only high-tech touches I could find were a self-checkout where you could scan your own items and pay without a cashier, a feature that’s been available in the West for years now.

There was also a ceiling-suspended, Legoland-style conveyor belt snaking its way through the store carrying shopping bags for people who placed orders online. That online ordering concept was certainly more high-tech, and I was told items could be delivered in as little as 30 minutes after an order was placed. But even that process had plenty of low-tech support, staffed by store employees walking up and down the aisles to take items off shelves and put them into bags after receiving each online order.

Even here, it seems like such online grocery shopping would be better handled by big warehouses manned with robots rather than these expensive traditional stores manned by real people. Alibaba has touted its rapid expansion plans for Hema, with 33 stores planned for the Beijing area alone by the end of this year from a current eight. The plans are even more ambitious nationally, with Alibaba saying it hopes to have some 2,000 Hema stores open within the next three to five years.

Perhaps I’m being a bit harsh, or at least expecting too much from relatively young companies like ZTE and Alibaba. I also was probably guilty of buying into Alibaba’s hype just a bit too much, and my Hema visit provided a nice reality check to counter all the press releases and news coverage I’m constantly reading.

At the end of the day, I do believe the retail world, like many other things, is rapidly changing with the rise of the internet. Alibaba and other Chinese tech champions could one day well be at the cutting edge of that and other high-tech revolutions. But such companies will need to delve a little deeper beyond the surface and come up with truly new concepts if they really want to lead such a movement.

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

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