Pandemic strengthens China’s platforms as infrastructure providers

Analysis

From rural live-streaming to coordinating medical care, technology platforms in China have taken on a central role during the Covid-19 crisis. The pandemic accelerated trends that further cement these companies as key infrastructure providers working in close tandem with the state – but this cozy relationship comes at a cost to many.

Teaser Image Caption
Browsing through rural livestreams in the Taobao app.

After strict lockdown measures went into place in China, nearly all commercial activity shifted online. E-commerce expanded its reach in the form of rural live-streaming (村播): farmers-turned-online-hosts selling fresh produce and the nostalgia of the countryside to tens of millions of urban consumers glued to their smartphones at home.

The exchange is simple. Using apps like Taobao or JD.com, farmers set up and manage personal profiles and online stores. Users can make purchases while watching and gratification is speedy, with packages at the door within 48 hours.

It’s all made possible by a handful of tech platforms that have spent years carefully assembling infrastructure and nurturing a culture of virtual interaction and commerce; these platforms generated CNY (Chinese yuan) 61 billion (EUR 7.6 billion/USD 8.6 billion), through live-streaming in 2019. Similarly, e-commerce giants have long tried to increase their influence in rural areas. In 2014, Alibaba set up its rural Taobao initiative to provide entrepreneurship training and rural financial services to 212 villages. The initiative grew to 30,000 villages by 2018, with online rural retail sales jumping from  CNY 180 billion (EUR 22.4 billion/USD 25.4 billion ) to 1.24 trillion (EUR 155 billion/USD 175 billion) during the same period.

Despite these gains, live-streaming for farmers had yet to truly take off – until the pandemic.

Once farmers across the country were unable to sell their produce at traditional markets, they turned to this plug-and-play platform infrastructure. Last year, Taobao’s goal was to add 1,000 farmers to its platform. Now, it has 50,000. According to China’s Ministry of Commerce, more than four million e-commerce live broadcasts were hosted in the first quarter of 2020. Analysts expect the live-streaming market to double in 2020, up from CNY 433 billion (EUR 54 billion USD 61 billion) a year earlier. Rural live-streaming is the latest key commercial function to be platformed and it seems to be here to stay.

But while the growing popularity of e-commerce live-streaming has helped empower farmers and create new economic opportunities, their reach also exacerbates socioeconomic problems in a country where technology companies are deeply connected to the government.

Browsing through rural livestreams in the Taobao app. In the first video a son chats with his mother about her experience growing vegetables, later a bamboo farmer takes you through the bamboo forest himself, and finally a seller of locusts shows you exactly how to fry them.

Platforms as tools of the Chinese state

China has the largest platform economy in the world. In 2018, 760 million Chinese participated (i.e. were consumers) in the sharing economy, while 75 million participated as service-providers (i.e. gig workers and vendors). Like its global peers, China’s tech platforms have been increasing in size and influence as apps and services become ubiquitous and essential in everyday life.  

However, while large platforms in the United States or Europe often have a combative relationship with the government – over issues ranging from anti-monopoly law to free speech – in China, the relationship is far more symbiotic. ‘What sets the current stage apart from China’s previous “informatization” plans is the unprecedented role granted to China’s private Internet firms in carrying out many key public services that were traditionally offered by the state’, says Carnegie Mellon researcher Hong Shen.

Since the early 2010s, platforms have been gradually co-opted into state planning and positioned as the ‘driving force’ for economic growth, social welfare, and sustainable development in an ‘innovation-driven economy’. These platforms very publicly enroll in a variety of state initiatives, from eliminating poverty to job creation, all in the name of serving state goals of maintaining economic and social stability. Rural live-streaming, for instance, ‘is all about connecting the bottom of the pyramid market, the 600 million people with disposable incomes under CNY 1000 (EUR 124 USD 141)’, says David Li, co-founder of Shenzhen Open Innovation Labs. The leading ride-hailing company, Didi, claims to have absorbed over three million workers cut from shrinking state industries like coal and steel. In exchange, these platforms face less public scrutiny and enjoy freer reign in their business operations.

At times, collaboration can mask a power struggle underneath. Platforms ‘centralize and decentralize, at once drawing many actors into a common infrastructure’, theorizes Benjamin Bratton. Platforms that grow large enough will inevitably step on the toes of the state – and that’s what happened in 2017, when Didi was placed in the crosshairs of the government and public opinion due to two rape cases that exposed its lack of attention to passenger safety. The company was forced to take Didi Hitch, at the time its largest revenue-generating service, offline, and publicly reflect on its role as both a provider of both jobs and transport. That same year, news aggregator Toutiao had to issue a public self-criticism after its app was suspended for promoting content deemed in conflict with ‘core socialist values’.

During the Covid-19 pandemic, however, this co-dependent relationship was on full display and China’s efforts could not have been as successful without the active participation of platform companies as infrastructure providers. As Yu Fengxia, deputy director of the National Sharing Economy Research Center, recently commented, platforms contributed to social causes that ranged from dealing with medical emergencies to labor shortages. Ding Ding and Wechat Corporate became the national arteries for working and studying from home; Elema and Dianping helped keep the food-and-beverage industry afloat through online delivery. WeDoctor helped coordinate access to medical supplies and medical care; Douyin (the mainland China version of Tik Tok) and Weibo were central to media and entertainment; and Alibaba and Tencent helped facilitate surveillance through health passports like HealthCode.

The dark side of the rise of platforms

When only a handful of technology companies control commerce, small businesses – and now farmers – are placed at the mercy of platforms that operate with little transparency and skewed incentives. Outside of a small group that attains internet celebrity status, the majority of live-streaming farmers will encounter much higher barriers to earn the same reach as early adopters,  while potentially contending with shrinking demand for offline retail. As the recent case with the email platform Hey shows, platforms can set the rules for engagement and lock out anyone that does not follow, leaving many vulnerable.

Ultimately, platforms are profit-seeking companies whose business models rely on extracting profit from labor and data. They primarily remain accountable to shareholders, not the public or their users. As a result, University of Toronto scholar Julie Chen, who studies the ride hailing and delivery industry in China, argues that the dominant narrative of the benevolent platform is a mirage built to suit the interest of companies and the state at the expense of workers. The mirage does occasionally disappear: Since 2018, food delivery workers in more than 24 provinces have staged 102 different protests over pay cuts, low wages, wage arrears, and unfair labor practices.

The issue of labor exploitation in the gig economy is universal, but the lack of channels for workers and the close relationship between the state and companies helps mask these issues in China. Unlike in the West, it is much more difficult for platforms to overtly resist the state, and their key operations are within Chinese jurisdiction.

It will be useful to observe how China manages its evolving platform ecosystem. In their role as infrastructure providers, platforms should be subjected to public oversight and regulatory scrutiny, and a major change in public opinion against certain practices – as seen in the 2017 Didi case – may pressure Chinese regulators to take a more ambitious and invasive approach. The stronger platforms become, affecting more industries and people’s livelihoods, the more difficult it will be for the state and platforms to keep the mirage intact going forward.