BAT Role in the Development of Chinese Internet Markets and the Future Challenges for the PRC Digital Economy

Digital economy – with Internet economy as an important part of it – is among key PRC responses to new developmental challenges. Baidu, Alibaba and Tencent (BAT) as unchallenged leaders of the Internet markets, play here an important role. Due to increased competition, global expansion, and declining efficiency of imitational innovations, BAT are turning into technology companies, investing huge resources in startups (BAT are biggest investors on PRC venture capital markets) and research and development in the most promising areas. As a result, BAT are now key actors and drivers of the Internet and digital economy in the PRC. Moreover, through the spillover effects and implications for inclusive growth, BAT stimulates changes in other industries and regional markets. Government policy played an important role in these processes, although, it was not always effective. At first, regulators preferred stateowned enterprises, but their failures led government to refocus its efforts, choosing BAT as agents for the development of new markets. However, the period of a very moderate government interventions in BAT`s efforts gave BAT needed freedom to develop optimal market solutions and ensure growth. Since 2010s, state policy supported market monopolization by BAT, their international expansion and innovation efforts. For the future, BAT will still play a major role in the development of the Chinese Internet economy. However, challenges are also growing. Innovation development of the PRC Internet markets are imbalanced due to the policy-driven dominance of BAT, with possibly negative consequences of monopolization. High risks are also associated with archaic industrial policy instruments used for supporting BAT. There is also a clear need to optimize BAT`s enormous ecosystems and rationalize hyperactive technological efforts. Changes in BAT strategies are needed – as well as the evolution of governmental approaches towards the agents for development (rising support of competition, new actors, horizontal links in the ecosystems, emphasis on qualitative changes, etc.). Serious weakening of BAT is extremely unlikely, but even small fluctuations will be of great importance for their positions on global markets, development of China’s Internet industries. In many respects, they will define Chinese innovation system and the digital transformation of the PRC economy.

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