Jiang Xiaojuan on China's Big Tech & Private Enterprises
Jiang Xiaojuan on China's Big Tech & Private Enterprises
The influential intellectual & ex-senior govt official's thoughts on the Central Economic Work Conference: Part II.
The following is based on a December 2022 lecture given by Jiang Xiaojuan, Member of the Standing Committee of the 13th National People's Congress (NPC) and Deputy Chairman of the Social Construction Committee of the NPC, at the Institute for Service Economy and Digital Governance at Tsinghua University, published first by the institute on its WeChat blog. She was formerly a Deputy Secretary-General of the State Council, China’s government cabinet.
The institute published a four-part series on Jiang’s analysis of the Central Economic Work Conference held in December 2022. This is Part II. For Part I:
In this lecture, Jiang highlighted that:
Platform enterprises play an essential role in leading development and creating jobs
e-commerce platforms have connected and paired a vast number of consumers and suppliers through the use of smart technologies.
digital production enterprises can encompass various services required in the industrial chain.
digital recruiting platforms improve the efficiency of the labor market by providing accurate matching between job seekers and job openings on a large scale and with high efficiency.
Platform enterprises are where Chinese jobs are mainly created
digital recruiting platforms provide many jobs and will be the main area for employment growth.
platform enterprises create a cushion for people with disadvantaged employment and absorb shocks from unemployment.
digital technologies provide low-income groups easy access to the national job market at a meager cost and from the comfort of their homes.
digital technologies excel in intelligent matching by efficiently identifying and pairing the most suitable individuals and products from a vast pool of resources for transactions and cooperation.
Women can achieve work-life balance by taking up online jobs that offer flexible schedules and locations, which increases their opportunities to enter the workforce.
Digital platforms provide a buffer for young people who are unemployed or job-hopping.
platform enterprises lead digital technology innovation
Platform companies should seize new opportunities that arise from global industrial restructuring, boldly explore new areas and win new tracks
Digital platforms can ensure unimpeded domestic and international economic circulations.
Digital services generate essential opportunities for the transformation and upgrading of the manufacturing industry.
With digital technologies, China can seize the opportunity provided by the restructuring of the global industrial chain.
By expanding globally, digital platforms can leverage their strengths to serve destination countries while also improving themselves in the process.
Jiang says
Chinese news outlets should stress that platform enterprises are essentially technology companies, or “Big Tech” as they are called in the West.
China’s platform enterprises, with their technological solid power and huge markets, should be recognized and treated as technology companies so that they can be effectively regulated, be held accountable for anti-trust issues, and be fairly viewed by the public.
[The PRC government tends not to recognize platform companies as seriously engaged in or being able to contribute to bona fide ‘science and technology’ 科学技术.”]
关于平台经济、民营企业和稳定预期
Platform economy, private enterprise, and stabilizing economic expectations
by Jiang Xiaojuan
The prominent focus of the Central Economic Work Conference is on supporting the development of platform enterprises, enhancing routine regulations on enterprise compliance, treating SOEs(state-owned enterprises) and private enterprises equally, and encouraging the prosperity of private sectors in the principle of ‘two unswervings’ - ‘unswervingly’ consolidate and develop the public sector and encourage, support and guide the development of the non-public sector.
Based on the content above, I would like to share with you my three points of view: First, platform enterprises [Beijing’s preferred term for large Internet companies] have played an essential role in leading development and creating jobs; second, “platform companies” should seize new opportunities that arise from global industrial restructuring, and boldly explore new areas and win new tracks; and lastly, it is essential to ensure the “three equals” (equal access to the market, equal market competition, and equal legal and administrative protection), and the “Two Unswervings,” which involves consolidating and developing the public sector and encouraging, supporting and guiding the development of the non-public sector.
Platform enterprises play an essential role in leading development and creating jobs
For China’s economy to recover and grow apace in the mid-and long-term, the digital economy must fulfill its key leading role with a growth outpacing the overall economy exponentially.
"Platform economies” underpins and lead the digital economy while completing it as part of the industrial chain.
Firstly, e-commerce platforms have connected and paired a vast number of consumers and suppliers through the use of smart technologies.
With the help of intelligent algorithms and smart search features, hundreds of millions of users are empowered to make efficient choices from a vast selection of items, while customized products and service recommendations are made possible on the sales side. From January to August 2022, the revenues generated from online retailing of physical goods hit 7241.4 billion yuan (about one trillion US dollars), representing a 5.8% YoY growth, which outpaced the overall retail industry’s performance and accounted for 25.6% of the total retail sales of consumer goods during the same period.
Secondly, digital production enterprises can encompass various services required in the industrial chain.
They can provide data collection and analysis services to lubricate cooperation, increase productivity, and hence, improve the production efficiency of the entire chain.
Thirdly, digital recruiting platforms improve the efficiency of the labor market by providing accurate matching between job seekers and job openings on a large scale and with high efficiency.
In 2020, 83.5% of China's job seekers used online channels to find jobs, with 43.8% using a combination of online and offline channels.
Lastly, digital energy efficiency platforms [for example, cloud services] optimize carbon-reducing solutions for businesses in various scenarios while maintaining the product’s comfort and safety.
There has been a lot of research on the amplification effect of digital platforms on online consumption and production efficiency. I have discussed this in detail many times, so I will not elaborate further here. Instead, I will focus on the platform's contribution to employment and innovation.
Platform enterprises are where jobs are mainly created
First, digital recruiting platforms provide many jobs and will be the main area for employment growth.
In 2018, employment in China's digital economy-related fields reached 191 million jobs, accounting for 24.6% of the total employment for the year, according to the China Academy of ICT, CAICT). Moreover, platform enterprises created approximately 78 million jobs in 2019, according to 国家信息中心分享经济研究中心State Information Center for Sharing Economy Research. Flexible employment reached around 200 million people in 2021.
Although the number of employed people nationwide decreased by 4.12 million year-on-year, the number of employees in large platforms enterprises is still increasing, according to the National Bureau of Statistics). For instance, the number of registered drivers on Didi [a car-hailing platform in China that went through heavy state scrutiny in recent years] exceeds 10 million, with 3.389 million holding state-issued driving licenses for car-hailing services as of April 30, 2021, while all the others being part-time drivers. In October 2022, Meituan [a Chinese delivery and e-commerce platform] has about 5 million delivery drivers nationwide.
These data from various sources and periods demonstrate that digital platforms provide many jobs.
Secondly, platform enterprises create a cushion for people with disadvantaged employment and absorb shocks from unemployment.
1. digital technologies provide low-income groups easy access to the national job market at a meager cost and from the comfort of their homes.
For example, Meituan has hired 77% of its delivery drivers from China’s rural areas, with a quarter coming from villages in the country's former poverty list. The recruitment process for these drivers takes just one or two days, allowing them to find employment opportunities quickly. Ele.me [another Chinese food delivery platform] has also created nearly 300,000 delivery jobs for impoverished villages. The income increase of those delivery drivers is significant, with an average monthly income of around 5,800 yuan [approx. 850 USD], which is much higher than the average salary of 3,530 yuan [approx. 517 USD] for urban residents in China during the same period. These jobs also offer flexible working hours, allowing low-income earners to earn more by working longer hours. For example, 15% of delivery drivers from Linquan County, a poverty-stricken county in the country’s poverty list, earn more than 8,000 yuan [approx. 1170 USD] a month.
2. digital technologies excel in intelligent matching by efficiently identifying and pairing the most suitable individuals and products from a vast pool of resources for transactions and cooperation.
This particularly benefits disadvantaged groups, who suffer from weak social networks, poor searching skills, and limited channels for commerce. Small business owners in remote areas can efficiently market and sell their products at fair prices with the help of e-commerce platforms. An impressive example of this is the significant growth of e-commerce in formerly impoverished counties in China, where over 300 million consumers purchased 270 billion yuan worth of goods from 832 counties on Alibaba from 2018 to 2020.
Through e-commerce, households income in Taobao villages [where 10% of all households own an online shop on Taobao and the total revenue from e-commerce reaches 10 million yuan every year, as defined by Taobao, the e-commerce site] nearly triple the average household income of Chinese villages in 2017 - 35,000 yuan vs. 13,432 yuan. 35,000 yuan a year is comparable to the average urban household income, which was 36,396 thousand yuan in 2017.
3. Women can achieve work-life balance by taking up online jobs that offer flexible schedules and locations, which increases their opportunities to enter the workforce.
In fact, half of the virtual shop owners on Alibaba.com are women.
4. Digital platforms provide a buffer for young people who are unemployed or job-hopping.
For many who have lost their jobs or are looking to switch careers, or who need to work in new places for various reasons, starting as a food delivery driver or ride-hailing driver may be their insurance policy to pull through the hardships. The flexibility of online employment, with its flexible schedules and locations, also helps to reduce the pressure on those who are job-hopping or currently without work.
Thirdly, platform enterprises lead digital technology innovation
Innovation, in a traditional sense, typically follows two routes, while both encounter the challenge of converting scientific research into practical application.
The first route involves scientific research and new technology on paper, but they are hard to be transitioned from the lab to the production line. The second route involves companies investing in the research and development sector, relying heavily on the innovative and frontier technologies developed by universities and research institutes. Still, they often struggle to apply and adapt these technologies to production. In the digital era, however, technological innovation provides a new route and a solution to these problems.
The first reason is that as the primary source of innovation in industrial technology, large digital enterprises do not need to tackle the challenge of “conversion” [from scientific research to actual products].
These enterprises innovate their technologies to meet market demands and application scenarios and build an instant, online, and low-threshold market for the proliferation of new technologies based on hundreds of millions of consumers and tens of millions of enterprise users.
For the second reason, large digital enterprises serve as an essential driving force of innovation in digital frontier technologies with a clear focus on application.
These enterprises have already become the pillar force behind digital technology innovation in China, covering diverse areas such as autopilot, cloud computing, data storage, data engineering, and blockchain. This is demonstrated by the fact that among the top 20 international applicants for invention patents in quantum computing, 14 are enterprises, 2 are universities, and 4 are other institutes.
Thirdly, large digital enterprises are the leaders in driving innovation in the industry chain innovation and have the ability to empower the entire chain. Top digital companies understand the strengths and weaknesses of each link in the chain and the impact of new technology applications on the entire chain so that they can facilitate the flow of information and capital between enterprises in the chain and external resources. By doing so, companies can create demands and tap into new markets.
Fourthly, large digital enterprises are the driving force of fundamental scientific research with a clear focus. Some leading Chinese digital companies have shown massive capacity in conducting fundamental scientific research and produced highly original results. The fundamental R&D institutions established by these enterprises have incubated original technological innovation at an internationally advanced level, exemplified by the fact that in China, only big corporations are seen on global technological innovation rankings, while in other countries, universities and corporations are both included.
However, big companies are decreasing their R&D capacity by cutting investment in the innovative sector. Last year, companies embarked on strategy adjustments that included cutting costs in innovation and shrinking research teams, making it hard to attract highly-skilled researchers. These cuts are primarily due to the economic downturn, geopolitical tensions, and weakened expectations and will inevitably hurt digital innovation in China.
Platform companies should seize new opportunities that arise from global industrial restructuring, boldly explore new areas and win new tracks
Digital platforms can ensure unimpeded domestic and international economic circulations.
Digital platforms can efficiently connect consumers and suppliers from home and abroad and quickly switch tracks (quickly adapt to the changing market conditions).
Firstly, e-commerce platforms utilize data and technology to cater to consumer demands, minimize cross-border transaction costs, and play a significant role in trade promotion.
This includes tapping into offshore customer demand, creating influences, facilitating cross-border payments, managing supply chains, and building brands. As a result, e-commerce platforms have been leading the growth of the global digital economy and trade.
Secondly, China has a competitive edge in digitizing logistics platforms.
Our highly-developed smart logistics systems are now widely used in various fields, such as trade-related logistics and warehousing, payment and settlement, financing and loans, customs clearance, foreign exchange collection and settlement, and advertising and marketing. These applications made the whole logistical chain more responsive to consumer demands.
Thirdly, many integrated platforms conduct not only overseas customer mining and improve logistic efficiency but also develop assistant systems for intelligent design and use cloud platforms to link the domestic supply chain.
They do this by automatically generating orders based on product sales and inventory, and distributing them to cloud-based factory platforms, realizing intelligent decision-making for supplementing orders, automated order dispatching and receiving, intelligent tracking of production progress, and speeding up manufacturing efficiency as a result. These platforms have made the supply of products and services more timely so that some new products can enter the market within days after the demands are detected.
Digital services generate essential opportunities for the transformation and upgrading of the manufacturing industry
The producers' services trade is being rapidly digitized. In global services trade, trade in producer services is the fastest-growing segment, with R&D services, data services, business services, marketing services, after-sales services, and industrial chain services, among others, being increasingly presented in digital form.
The weak links in the domestic manufacturing industry do not lie in the manufacturing process but in the service links of the entire industry chain, such as R&D service, data service, etc. The introduction of high-level digital services will be a powerful driver for the digital transformation of the manufacturing industry.
With digital technologies, China can seize the opportunity provided by the restructuring of the global industrial chain
Firstly, digital technologies reinforce the weak links in the industrial chain that have been impacted.
For example, long-distance travel is hindered during the pandemic, but digital platforms maintain and reinforce the stability of the industrial chain by providing various remote after-sales services.
Secondly, digital technology can help enterprises bridge broken links.
For example, when orders or supplies are disrupted by the epidemic, online platforms of the industry can make up the breakage from the consumer side to the supply side . Moreover, these platforms can also provide a remote supplement of human capital for online-service oriented enterprises facing a staff shortage.
Thirdly, digital technologies deconstruct and reorganize industrial chains. Due to their capacity to reconstruct efficient industrial chains and production organizations, traditional industrial chains are likely to be impacted or even deconstructed.
For example, cloud platforms with thousands of suppliers and manufacturers continuously generate flexible small-valued orders, reconstructing the industrial and supply chain through an intelligent system that manages the supply chain. This might signal a shift from an enterprise-centered to a product-centered industrial chain, deconstructing and even replacing the industrial chain.
I want to explain more about the last point: digital technology has a powerful capacity to create new links. It not only enables the reorganization of existing chains at high frequencies but also empowers more traditional off-chain links to be reconstructed and integrated into the chain in pursuit of smoother coordination. This has become an unstoppable trend and will be the norm in the digital era. We cannot expect such reorganization to stop post-pandemic. Instead, it will linger for an extended period.
Enterprises and related sectors should brace themselves for the unprecedented changes in the industry chain. They should maintain and strengthen the resilience of the industry chain, tackle the impact, and seize opportunities.
By expanding globally, digital platforms can leverage their strengths to serve destination countries while also improving themselves in the process
Transactions through cross-border e-commerce platforms have significantly boosted the growth of global trade. Over six years, from 2016 to 2021, the top 100 digital multinational companies in the world saw impressive growth in their sales revenue, assets, and net income. Specifically, sales revenue increased by 158%, assets increased by 165%, and net income increased by 181%. On average, this translates to an annual growth rate of 21.5%, 20.5%, and 23%, respectively. In the more recent period of 2020-2021, there was substantial growth in net income for these companies, with an increase of 60%.
When investing abroad, digital platform enterprises can fully leverage big data and algorithms to integrate resource among destination countries, home countries, and third parties.
On the one hand, this strategy can develop the upstream and downstream industries in destination countries, bringing tangible benefits such as job opportunities, tax revenue, and the construction of an industrial system. On the other hand, foreign investment involves our country’s advantageous industries, allowing for the introduction of competitive goods, services, technologies, standards, and ideas into the global market and facilitating high-quality cooperation with international partners.
DiDi's success in the overseas market has set an example for Chinese digital companies' foreign investment. Since entering the Brazilian market, DiDi has gained over 20 million users in more than 800 cities and has collaborated with Chinese EV company, BYD, to produce affordable electric vehicles for consumers in Brazil.
Through this collaboration, DiDi has not only successfully exported Chinese-manufactured cars but has also fostered a virtuous cycle of digital platform investment leading to manufacturing exports. Along with other Chinese digital enterprises, DiDi has ignited a wave of Chinese investments in Brazil that have impacted several sectors, including digital transactions, e-commerce, social media, and online ride-hailing.
Ensuring the “three equals” (equal access to the market, equal market competition and equal legal and administrative protection) and the “two unswervings” (consolidating and developing the public sector and encouraging, supporting, and guiding the development of the non-public sector)
The Central Economic Work Conference has called for the equal treatment of state-owned and private enterprises in terms of systems and laws. To put that into practice, each sector must share responsibilities - policies from multiple sources should take effect in a coordinated way, clear guidance and practical measures are necessary. At the same time, the compliance within the enterprises and their cooperative responses to external regulations are also required.
We must stay on the track of “two unswerving”
Firstly, we should develop favorable policies and public opinions to support the private economy and enterprises. We need to highlight their positive role in expanding domestic demand, boosting exports, increasing employment, and contributing to common prosperity.
Using concrete facts and data, state media and news outlets should guide public opinion to foster a favorable social atmosphere that upholds the rights of platform enterprises, hopes for their growth, and respects their entrepreneurs and businesspeople.
Second, news outlets should stress that platform enterprises are essentially technology companies, or “Big Tech” as they are called in the West.
[The PRC government tends not to recognize platform companies as seriously engaged in or being able to contribute to bona fide ‘science and technology’ 科学技术.”]
China’s platform enterprises, with their technological solid power and huge markets, should be recognized and treated as technology companies so that they can be effectively regulated, be held accountable for anti-trust issues, and be fairly viewed by the public.
An accurate positioning [categorizing “platform companies” as technology companies] also provides a broader stage for R&D experts in platform enterprises to display their talents, allowing them to engage more in major tech-related decision-making and win various awards they deserve.
Thirdly, we should continuously signal the upcoming favorable policies for the industry through concrete and effective measures to stabilize stakeholders' expectations.
Strengthen normalized regulation on compliance, by enhancing both internal management of the enterprises and external regulations by the government
Over the past two decades, platform enterprises developed mostly in a relaxed regulatory environment, resulting in accumulated problems due to a lack of regulations. If left unattended, these problems will impede the sector's future development and disrupt the functioning of social, economic orders in the long run. In recent years, China has taken action to address these issues, which has yielded positive results.
However, there are still challenges and difficulties from a regulatory perspective. The outstanding issue is the complexity of online transactions. In digital platforms, the density of transactions was unprecedented. The content and formats of transactions happening today are vastly diverging from the rules set for previous trades in terms of complexity.
As a result, governments are having difficulty following up on the rules and have expressed frustration over compliance issues caused by transactions on the platforms. Regulating the ever-evolving trades on digital platforms will therefore be the primary challenge for regulators. It is a significant challenge to shift towards appropriate and effective regular supervision after focusing on addressing prominent issues. The complicated nature of digital platforms made it impossible for regulators outside companies to directly intervene or regulate based on reports of inappropriateness. To tackle this issue, enterprises should build a compliance management system within themselves respectively, and the construction, implementation, and effectiveness of this system should be subject to government regulations.
Enterprises should step up efforts in constructing a digital compliance system.
To make enterprises compliant is not simply asking them to obey the law, but to build a system that can avoid, detect and tackle risks if they violate laws or regulations. While compliance is nothing new to the private sector, compliance in the digital platform sector is particularly lagging due to a lack of investment of time and money, a clash with profits, a shortage in experiences and expertise in compliance, and of course, a loose regulatory environment for the relatively new sector.
Platform enterprises should realize the importance of compliance in increasing the credibility of their brand image and build their compliance system as soon as possible, before being forced to do so. A compliance system must include the protection of user privacy and public data, regulations on consumer protection and algorithm design, and regulations on intellectual property protection.
The government should ramp up regulations on the compliance system of platform enterprises.
The compliance of enterprises requires resources from all sides, and without external regulatory pressure, there may be insufficient motivation. Furthermore, the absence of a clear and unified regulatory scale could lead to undesirable consequences of “bad money drives out good.” [Gresham's law] To prevent this, regulatory agencies should strengthen their capacity and develop normalized regulatory measures for compliance supervision. This could include establishing standards for compliance systems, implementing dynamic regulatory initiatives such as compliance assessment and inspection, and promoting compliance systems among enterprises through various means such as penalties, incentives, and guidance.
Stronger collaborations between regulators and companies should be fostered.
Governments should collaborate with enterprises. Although platform enterprises are regulated themselves, they also hold regulatory power over their respective markets [in their platforms]. Therefore, it is in the best interest of both parties to collaborate in creating regulatory frameworks that safeguard the growth of platform economies while empowering governments to enforce regulations. Moreover, given that digital platforms operate globally, it is essential to leverage global experiences and join forces across different countries to address the diverse regulatory challenges.
Equal treatment of state-owned and private enterprises must be implemented with a focus on “three equals” (equal access to the market, equal market competition, and equal legal and administrative protection)
Firstly, it is important to ensure equal access to the market for all enterprises.
In choosing service providers for the digitalization of large-scale application scenarios, now the state is hesitant to give contracts to platform companies. While safety must be ensured, the market should be open to private enterprises, as platform companies have the greatest competitive advantage in complex scenarios with many users. At the same time, platform enterprises must also shoulder their social responsibilities. Platform companies should strengthen corporate social responsibility and willingness for shared development and provide services that have positive externalities, which will not only help to build their credibility but also burnish their image among the public.
Secondly, create an environment that allows for equal competition across sectors.
All enterprises, regardless of their ownership, should be treated as equal in market competition. This includes judgment and supervision of their anti-trust behaviors and anti-competitive conduct. Platform enterprises should leverage their advantage in algorithm and data resources to ramp up protection for consumers, intellectual property, and personal privacy. They should be socially responsible and avoid self-preferencing and other anti-competitive conduct.
Thirdly, equal legal and administrative protection should be provided to all enterprises.
While the judicial system has continuously improved and effectively protected platform companies according to the law, there are challenges posed by unclear responsibilities among multiple agencies within the administrative branch of government and the complex and ever-evolving problems in regulating these companies. To meet the requirements of the Central Economic Work Conference, policy coordination and cooperation should be strengthened to create synergy in promoting high-quality development. Administrations should not only fulfill their duties but also coordinate with each other to provide effective regulatory services, which will boost expectations from market entities and promote innovation and growth in platform economies. In addition, platform enterprises should pursue joint regulations by reducing friction with regulators through active cooperation and technological assistance.
In summary, the Central Economic Work Conference has expressed its support for platform economies and the development of private enterprises, as well as its commitment to the “two unswerving”. I believe this conference can be seen as a milestone for both platform enterprises and private enterprises, helping them to raise their game. From now on, these enterprises play a more critical role in creating jobs, venturing into the global market, and promoting China’s recovery and mid- and long-term growth in the post-pandemic era.
Again, for Part I
Some related readings
Pekingnology, a sister newsletter of The East is Read, also published some of Jiang’s other writings, including
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