ChinaEU at the 9th Digital Regulation Forum: What Lessons can Europe Learn from the Chinese Model

The 9th annual digital regulation forum, held on April 28-29 in London, brought together some of the most senior decision makers with major international investors and industry leaders for a two-day seminar on the latest policy and regulatory issues affecting the digital economy. The seminar saw the participation of, among others, Roberto Viola, Deputy Director of DG Connect, Fatima Barros, Chairwoman of the Body of European Regulators for Electronic Communications (BEREC), Eduardo Martinez Rivero, Head of Unit at DG Competition, Ajit Pai, Commissioner of FCC, the US Federal Communications Commission, and several representatives of some of the world’s most renowned banks and investment funds, including Barclays, HSBC, AXA Investment Management, Alliance Bernstein, Wellington Asset Management, Fidelity Management & Research and Ontario Teachers’ Pension Plan.

The Forum was dedicated to the “Juncker Digital Revolution”, in light of the new set of reforms being put in place by European Commission President Jean-Claude Juncker. Digital is top on Juncker’s political wish list, coming only after the very first priority of delivering jobs and growth in the depressed region. On May 6, the Commission will unveil a very ambitious agenda, aimed at realizing a digital single market for the European Union, in an effort to put an end to the current fragmentation into 28 national markets. This is exactly what investors demand these days, together with greater clarity and predictability of the regulatory framework and more consolidation across the continent’s industrial players.

CHina Panel light

For the first time in a European-focused digital seminar, China has been given a prominent space. ChinaEU hosted a panel entirely dedicated to China’s Internet and telecom market, touching upon some of the recipes that enabled the Chinese digital industry overtaking some other countries in the world. The objective? Give Europe the necessary sense of urgency to move things forward, to strike the right balance between ensuring the fundamental principle of competition and shaping the right industrial policy to attract more investments in a sector that relies heavily on infrastructure upgrade.

The European Union is sadly, and belatedly, discovering its failure to keep up with other regions in the world in digital innovation. In Europe, we tend to complain that we are not able to produce world-leading over-the-top (OTTs) players, that incumbent operators are struggling against declining revenues and do not have the right incentives to upgrade the existing digital infrastructure –crucial ingredient for the development of the Internet of Things era, that we do not have an industrial policy nor the right investment environment to attract venture capital. Back in the 90s, the EU was at the center of the telecom liberalization and provided a model for the rest of the world. Nowadays, things have dramatically changed. Other regions are now leading: the US as regards operating systems, apps, chips, and high end handsets, the far East –and China in the first place– as regards manufacturing of network equipment and handset and top online services.

Europe represents the status quo. China represents the change and reminds us of the incredible things that can be achieved through the disruption of the current state of things. Europe is characterized by time-consuming negotiations to reach a consensus among several and often contrasting layers of decision makers. China, similar to the US, enjoys the benefits of a central government, which can ensure that regulatory progress timely adapts to a fast-changing market. This means one thing: while Europe is busy talking, China is moving ahead.

CHina Panel 2

China, today the second largest telecoms market, the biggest market for internet and mobile phones and the fastest growing e-commerce marketplace, seems to have understood the winning recipe to ensure impressing results in the digital arena: a handful of telecom players with the large scale necessary to rollout the network infrastructure, a clear vision for the future that translates into a transparent regulatory mechanism, plentiful resources for R&D, and an extra dose of competition in the internet market.

Another important ingredient emerged from the discussions: a culture of cooperation. In Europe, telecom operators are fighting against the challenge born by WhatsApp, Skype, Facebook, and other Internet players, who are gradually cannibalizing the traditional sources of revenue of the telecommunication industry: voice and sms. They call for a more “level playing field” between telcos and OTTs, which risks to result into the introduction of new regulation for the Internet sector. Thus, less chances for Europe to produce its own Silicon Valley. In China instead, the government fully supports the development of internet as a major driver for innovation, making sure that national idols like Baidu (the largest search engine), Alibaba (the biggest e-commerce company) and Tencent (the uncontested leader in on-line messaging and on-line games), commonly known under the acronym of BATs, do prosper and expand their businesses, collaborating and not fighting with the telecom industry. Another example is the recent introduction of a new company, named China Tower, through which China Mobile, China Telecom and China Unicom will share telecom infrastructure and reduce their related capital expenditure, for the common goal of delivering better service at lower prices to the end user. This model may be difficult to replicate in Europe, where over 200 operators compete with one another over the marginal customer in a highly fragmented market, with extreme waste of resources.

The Chinese industry, represented at the China panel by China Mobile and ZTE, was very humble in presenting their latest innovations and extremely cautious in positioning China ahead of Europe in the digital value chain. With great modesty, China claims that it has still much to learn from Europe and the US, especially in terms of international management. In any case, the image of “copycat China”, business model based on the imitation of the latest Western technology, is speedily fading away, to leave space to a country with full capacity to lead with home-made advanced solutions and teach lessons to the once-upon-a-time leaders in the technological arena. A concrete example of China’s innovative capacity? Just think about what Alibaba and Tencent are doing in the electronic banking segment through Alipay and Webank, providing now small loans to individual consumers and small businesses, filling an important gap in the national credit system. Or consider Alibaba’s Taobao division and its first tests of drone-based delivery across China, which is expected to soon surpass the US in drone production.

In Europe, there is one country that has grasped the long-term vision of the Middle Kingdom. That country is Germany, who this year selected China as partner country for CeBIT 2015, inviting over 600 Chinese companies to show their technology progress in Hannover. Germany is betting on China not only as a promising marketplace for German products and services, but also, and what is most striking, on its increasing ability to support the very development of Germany’s digital industry. Much can be achieved through long-term collaboration mechanisms between Europe, the old brain, and China, the emerging innovative powerhouse.

While all eyes are on Europe’s ability to keep its promises and implement the necessary digital reforms, to be revealed to the public on May 6, on the same day China and Europe will be celebrating their 40th Anniversary of diplomatic ties. For the occasion, Federica Mogherini, EU’s Head for foreign affairs, will be visiting Beijing to hold discussions with China’s political leaders and some industry representatives. The overlapping of these two important events may be interpreted as the opening of a whole new set of opportunities between Europe and China, facilitated by the de-facto harmonization of the European digital market, coupled with China’s “Internet Plus” strategy, which puts internet at the center of the future economic structure.

By Claudia Vernotti, Director of ChinaEU