55: The App That Runs China's Economy

symbol for let's see, mostly Snapchat, Instagram. I'm a I'm a millennial, so shamefully, what about you? You Facebook lighter Venmo? I just got rid of Facebook. I'm really proud of myself for that text messaging. I do text message. Yes, what about you, Scott? I would say definitely the Bloomberg That's my primary app, but yet but also Facebook, Twitter been using Venmo to pay our babysitter recently. Text messaging.

But you know, I lived in China for a few years, and if you happen to be in China, you would have just one app for many of those functions. In Chinese it's called wasein, which roughly translates as micro message, and it's known as we chat in English. Now, when I was there, I was just using it for occasionally messaging with friends, but I was really just barely scratching

the surface. And over the past few years, use of we chat has exploded and seems to permeate every part of people's lives, and I think it probably accounts for a good chunk of China's GDP. We're an economic podcast, and that's what we like to talk about here. So if it were to shut down for whatever reason, it could take a slice of the world's second largest economy

down with it. And we're talking about seven hundred and sixty million users, and that's more than double the entire population of the United States, right, yeah, yeah, yeah, well more. That's incredible. And the company behind we chat, ten Cent. They're worth more than two hundred and fifty billion dollars, which that makes it one of the most i mean, i'm sorry, the most valuable company outside of the United States and ranks it tenth worldwide overall. Yeah, I mean,

it's just unbelievable to think about that. But joining us to help explain all this is our colleague June Lawrence, who's going to tell us about what it was like to use we Chat in China. Done as a writer for Bloomberg in New York. She speaks Mandarin and lived in China for about five years, most recently in Beijing as a correspondent for Bloomberg. Now, she's a good test case for the magic of we chat in China because she left Beijing in two thousand nine before we Chat

even existed, and recently went there and used it a lot. Hey, Dune, Hey, thanks for being with us. Yeah, I'm love we chat. So dude, can you tell us a little bit about we Chat? How is it different than what Americans tend to use their smartphones for. Well, again, I'm also a good test case because until, like fairly recently, I had a flip phone. I'm not joking, so I'm just so.

I'm also a test case for like just the magic of mobile technology and generally, um, So, the main difference is that in China everything happens through we Chat, really everything. So all of those separate apps you have for Uber or Venmo or Yelp or Tinder, none of which I have, by the way, but I know they exist and I know a lot of people use them. And in China,

all those things happen within the wee chat ecosystem. It looks when you open it up, you know, like what's app doesn't look that different from a basic messaging app. But then when you go further into the app, you know, you tap on your profile and then you tap on your wallet. It there's just this huge list of services that you can get to through we chat. So it includes ride sharing and ride hailing apps, includes like a Venmo style, you know, shared payment. It includes utilities you

can pay your electric bill, include city services. You could go in and figure out the bus route you need to take, you could go in and figure out where to park your car, and then you can pay for all this through e chat. And how has this all changed life in China compared with when when you were there and what you saw more recently. It's just made everything so much easier. I mean, you talk about and I'm saying this not in economic sense, but it's just efficient.

There's efficiencies and it makes everything so much easier from a business perspective too, So that's got to have huge economic knock on effects. But one thing that we can't forget when we're talking about, you know, apps in China, especially when it comes to social media, is that so many of them are not usable in mainland China. So I'm think king of Facebook and Twitter, right, those aren't Yeah, so so much is that contribute to we chat success?

I think that contributes a great, a great, great deal to it. I mean on the economy side, it's never been an economy with very strong services in a lot of ways, um, And it's also just on the internet side. Obviously, there are a lot of restrictions on the internet. It's a very specific space. A lot of foreign companies have

been barred from providing services on the Chinese Internet. So that that has definitely contributed to we chat success and means to a certain extent that you know, whether it can move beyond China is an open question, and it hasn't really been very successful in doing that. But also China's a huge market. Do they need to move beyond China?

I mean I was reading something about we Chat a couple of days ago talking about how little they've really focused on attracting non Chinese customers, and like they were talking about like the stickers that you can use and they have tons and tons and tons as the circles

that you can use for Spring Festival, for example. But I think like when you searched Ramadan, there was virtually nothing, So I mean, why has the company not even I mean, it sounds like they're not even interested in really bringing this outside of or I mean, I guess anything besides

the shell of the messaging service outside of China. I mean, it doesn't really sound like there's any incentive for them to do so, I don't know, I can't really answer that, but I think I think they have definitely made efforts, but it's a it's basically a totally different business outside of China, right, It's a totally different endeavor inside China. And also just culturally now like we Chat has formed

the culture. People are so used to it, and they're so used to going through we Chat for everything that is just you know, they don't have to do that much. They keep on offering. They have this incredible pace of offering new services and new platforms. And I was thinking, Scott, when you said, how we Chat if it just disappeared, would take out like a large chunk of the g d P. I was just thinking more, it would be sort of mass insanity. People would just lose their minds.

It's so it's so much something you depend on. Is it possible to live your life in China, you know, no matter what age you are or what business or who your employer is without having we Chat these days, I'm sure it is. One guy I talked to who works on a we Chat based company that does English tutoring, made this funny comment that I that I loved, which was that it's sort of this socially awkward thing to not use we chat. So it's like he was grasping for an analogy and he said, it's sort of like

refusing to wear shoes and going everywhere barefoot. So I'm sure that there are people who do it, obviously, but you know, if you're in the mainstream, you're using we chat. So I have a question for you. I'm thinking about like the evolution of like Facebook, at Twitter, Instagram, now snapchat. Facebook when it first came out was like, you know,

the first adopters, and it was your younger people. It was cool to use it, and now Facebook is really just like you know, everyone's grandparents are on it, it's your aunts and uncle and now people don't really use it anymore. They moved over to Instagram, and now it's like now everyone's aunt and grandmother is on Instagram, So now they're moving over to Snapchat. Like, is there any kind of like evolution of moving onto the latest greatest

thing in China? Or is it just kind of like we chats it and that's it doesn't matter how new and cool it is, people are always using it. Well, yeah, I mean, I think there's a difference between something that you like to use because it's cool and something that has a fundament mental impact on the ease with which you live your life. And that is the difference between we Chat in China and Facebook outside of China, and I think it's something that Facebook is trying to address.

But that is something that makes me chat extremely valuable, you know, and extremely powerful because it's not a coolness factor. There are cool elements to it, and they are introducing new elements all the time, but the basic utility is more sort of fundamental to your life than it is for us using an app here, right, all right, for some more perspective, let's bring in gond Lee, who's joining

us on his cell phone from China. He's an economics professor at Texas A and M University, but he also has another major role as director of the China Household Finance Survey at the Southwestern University of Finance and Economics in the city of chang Do. Professor Scott, thanks for hiving me here now. Professor, you spend a lot of time in both the US and China. What are the main differences you see and how people use their phones in the two countries and how people use we chat

in China. So lots of people using cell phones, lots of people on the smartphones, and all the time. This is posed to in the United States and in China. So the major difference from years ago is you see everywhere people just look at the phones. In still of interact with were saying, nine, you don't interact with you with a person around you, You just look at your cell phones. I think for smartphones makes people one way to makes people close to each other from far away.

Another way I think actually makes people even for people close to you far away. So I don't see difference in that in that one. But in terms of which had, yes, I agree with everything just said. The witch had which has become a major part of the people's daily life. And there's no estimate, but I would guess personally, I would guess that people spend let's say hours a day on witch Head. At least how many hours a day

do you spend on wit Chat? I spend maybe two hours, one hour, two hours on days the things I use, which had to travel a lot, even within China, so I use which had as a major work too. I talked to my people using witchad. I basically bring people together, have conferences on witch Head. So it's been not me just for entertainment. Mostly is not for intedtaim Mostly is actually is a tool people use for the productivity for two to work together. It sounds like it really permeates

people's lives there. But let's talk about some broader perspective. If you remember ten Cent, the company behind wa Chat, they're actually China's most valuable company based on market capitalization, and by that measure, it's bigger than you know some major US companies like JP, Morgan, Wells Fargo, even Walmart. Does it contribute to China's GDP the way those companies contribute to the US economy. So Penson major profits are coming from online games. The wait chad produced very little

revenues for Tencent. I think Penson has not yet figured out how to make money, or basically they're not interested in making money via their you know, the dominance on the communication tools over the wait chat. About we chat has a major tool. As I mentioned that it has contributed to the Chinese GDP, it's very difficult to calculate. I was thinking about how to calculate that which had

contribution to the GDP. It's it's difficult, right, And I'm sure, I'm sure it's difficult to calculate how Facebook or Twitter contribute to us GDP. One thing that I focused on a lot when I was visiting in April was just I thought how interesting it is that it makes that we Chat makes it so easy for startups to kind of throw themselves out there and to raise money, to get followers and you know, create these sort of mini businesses.

So anecdotally, even though Tencent hasn't really figured out how to monetize we chat for their own purposes, I mean, anecdotally, I think it seems to be promoting consumer spending, promoting job creation and entrepreneurial endeavors. Things like that. So again, I mean I read that it would it's hard to measure, but just if you talk to people, the ease is not just in daily things like buying your food or

hailing your taxi. The ease in is in sort of more sharply economic things like raising money or starting your own business. Well do you get that sense, professors that it has kind of helped in some intangible or entrepreneurial ways that aren't measured in the GDP statistics. There are other similar products, one of them which I've been used before I thought served as a similar tool like I don't even heard of. That called Dindin is actually made

by ali Baba once upon a time. There are a few pire of time ali Baba requires their communication official complications via Dindin instead of which had. So that's what that's how I have to use it, install the Dindin in my cell phone. My point is, yes, which had indeed helps a lot, and all these entrepreneur activities or other activities a lot. But if there were no witch Head, I'm sure there other softwarees would fill in the gap.

My point here is it's a technology innovation. It's a it's a smartphone era of the smartphone have made all these activities become much easier, makes our lives, it makes work become much easier. So it's not necessary the uh, it's necessary the witch head itself, I would say, it's a smartphone itself, I think, which has done a wonderful job facility the process of people using smartphones, and so

that's of course it's I'm sure it is that case. Yeah, But let's let's say, for example, ten Cent ran into some trouble with the government and they decided to suspend the app for some reason. Would that be disruptive to hundreds of millions of people until they figure out how to communicator you business? Otherwise I would say that hospital is very slim. I know the Tencent team reasonably well. I was very very careful in terms of not doing

anything offending the government. But yes, and I think that that interruption, of which if you're happened, it will disrupted a lot of the country, but for a short period of time because other software we're filling in the gap quickly. I wanted to talk a little bit about kind of the downside of having one company, because you were saying, you know, other other companies could fill that vacuum, but as it stands up, it sounds like there's kind of one that dominates, and I wanted to talk to you

about the downside of that. So here in the US, I know that a lot of people get very concerned about companies like Google and Facebook and kind of the ubiquitous use of those and all of the information that they track on those users, you know, to the point where you know you see very very specialized advertisements when you're using those platforms. Is there any concern with in China about that happening on we Chat because it's it's so much more information and it's so much more centralized.

So at this stage, I don't think there's any concerns. Which had has been rather careful not offending people's privacy, not pushing up too many advertisement pencon knows and everybody knows that which can make a lot of money, they can use which had to make a lot of money for sure because of the ecosystem, because of the so many people are using it and so many people depend

on it. But Pence has not found that, not found it because they're very very careful about to raise people's concern about their dominances online and use that dominant dominance to online to to make money or to do anything else. So not yet in you're traveling between the US and China, I mean, can you talk a little bit about the privacy expectations when people are, you know, using websites online.

I mean, what's the difference. I'm trying to get an idea of someone a user on wi chat kind of what their expectations are compared to a user on let's say a Venmo or a Facebook. So, um, many people, at least the many I was internaturals, quite many internatural aware that Witch had never leave, uh so anything on the wit chat. They don't. It's not on their servers all they are honest on their server, not for a very short period of time, then deleted, not kept on

the server. That actually makes a Witch had a pretty good pool for for for people's private talks, for protecting people's privacy side, which has been doing quite well. Let me turn to a broader question about the economy. In our coverage of China's economy, we talk a lot and write a lot about how China is trying to change from an export and investment led economy to one that's

more led by consumer and services. How important has we chat been, you know, along with other things like Ali baba and talbau in this rise of the consumer economy, and how how important will it be in common years? Actually, it's quite important, It's very important. The most recent data have been showing that the consumption that you know has contributed to h three quarters of the total growth of

the Chinese GDP. So that's uh, the consumption has already become I would say quietly, not very not any fanfare becomes a major driving force of Chinese economy. The more important, the most important part of that is a online consumption. So typically Chinese consumption grow about ten percent nine percent a year, but online uh consumption has growed by t thirty per sen a year. Most recent data so much much faster. So I think the data said of the

Chinese consumption now happen online. I'm not sure about US data. I would say, my, my, just got feeling in the US probably is not even that high in terms of percentage wise online consumption, So I would say, yes, uh, you know, online consumption has been quickly and quickly has become a critical part of the Chinese economy. And I'm sure the witch head and uh, and it's a football and other online payment system or people help people depend online.

They use to spend a lot of time online on the under cell phones and smartphones has contributed a lot to that. Yeah, it's really something that, you know, even as prominent as we chat spin has been a little bit under the radar as a theme supporting China's growth. Professor, We're going to leave it there. Thank you very much for petty much Ye, So, Kate, did we learn today that an app can bring down China's economy or is it maybe a little more complicated than that. I think

it's a little more complicated. It sounds like it's more the lubricant to kind of changing China's economy to be more service friendly. I mean, yeah, it's amazing how much life has changed with w chat and other kinds of payment systems and doing business online texting in the last few years. It's part of this broader development of China's economy in the past four decades since they opened up after decades of isolation. So you know, it's it's definitely

part of the story. And I really do think if you were to take it away, there would be insanity, as as student says, maybe not destroy the economy, but it would be very, very highly disruptive. Well, I'm thinking about how people freak out when like Gmail goes down, like it's all anyone can talk about. Like Twitter, that's all anyone's tweeting about. It's and that's just like one. I mean, I'll be at large, but like one thing that people use, So I can't imagine if that was

also Venmo and Facebook and Twitter and Instagram. Like well, if you know, the Chinese government does not want one point four billion people freaking out, So, as the professor said, it's a slim chance that that's going to happen. But that's another thing to keep in mind. Uh So, thanks to our guests June Lawrence and gon Lee, Benchmark will be back next week and until then, you can find us on the Bloomberg Terminal and Bloomberg dot com, as

well as on iTunes, pocket casts, and Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what you thought of the show. You can talk to us and follow us on Twitter at by Kate Smith and at Scotland and and You can also find June at at Dune Lawrence, See you next week. Bye bye, s.