In their hands

Until recently, the Chinese credit card industry was bizarrely unprofitable. Bizarre, that is, because credit cards themselves were extremely popular.

“Having a credit card used to be a status symbol,” explains Matthew Cule, CEO of M&Y Data Solutions, a BPO company with delivery centres in China that he set up with university friend Yan Xu. “I remember one dinner time when my business partner’s father put all his cards out on the table to show how proud he was.”

But that pride was usually trumped by Chinese frugality. People might possess four or five cards, Cule says, but they would only use one and they would typically clear their balance immediately, meaning no interest for the credit card providers.

That is now changing. “The age group under 30 are now spending,” Cule says, “and more importantly, they are not paying their full balance every month. This is good news for the banks.”

Generational shifts in culture are a constant and inevitable part of human society. But when the society in question is China, with a population of well over a billion and a rate of cultural change more pronounced than most, generational shifts become world-shaping trends.

The ways in which China’s younger generation influences technological development are twofold. First, with their newly liberal spending habits they are a growing market for consumer gadgetry, an industry that has traditionally catered predominantly (Japan and South Korea aside) for Western tastes. But they are also increasingly in the driving seat when it comes to technology research and development.

An EU report published in September predicted that by 2025 China and India will control 20% of the global R&D industry. Recently, the Chinese government announced a 25% increase in its own R&D investment budget to $26 billion. And while it has been somewhat tempered by the recession, investment by foreign firms in Chinese research centres is still growing apace.

This R&D investment is imbuing young Chinese people with commercial and technical know-how. As a result, a vibrant start-up community is blossoming, says Jacob Hsu, chief executive of China-based R&D company Symbio, which counts Microsoft, Google, IBM and CA among its clients.

“Predominantly, these start-ups have been focused on the domestic market,” he says. “But this is why China is becoming so innovative – it’s a very difficult market to crack, and highly competitive.”

In the past few years, young China’s appetite for online gaming and social networking has attracted the attention of start-ups. Now, as smart phone penetration grows, a lot of interesting work is being done in areas such as speech recognition and augmented reality (see page 20), says Hsu.

Of more immediate significance to enterprise IT is the development work relating to infrastructure. China’s online population of over 250 million – 75% of which is under the age of 35 – is the largest in the world, and is driving demand for highly scalable systems.

”China has done a lot of research into scalability, because obviously everything needs to scale,” says Hsu. “There are six popular online video sites in China, and each of them is adding a terabyte of storage every day.”

But perhaps China’s most significant contribution to technological change will be to accelerate the pace. “Typically, Chinese engineers can crank out new releases faster than is expected [in the West],” says Hsu. “Getting stuff done quickly is embedded in the culture.”

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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