Chinese internet companies that imitate Western products often end up outpacing the very models they mimic in the Chinese market. So, why does this phenomenon of the apprentice surpassing the master occur so frequently?

It’s not that Chinese internet companies lack innovation; rather, they primarily engage in “combinatorial innovation” or “secondary innovation.”

Combinatorial innovation is a concept relative to “primary innovation.” Primary innovation is mainly aimed at creating an entirely new technology or business model from scratch, whereas combinatorial innovation involves reorganizing existing technologies, business models, and market conditions to develop new solutions. Throughout history, primary innovations in their purest form have been relatively rare, but by combining their outcomes strategically, a vast number of new innovative results can be produced. If the combination strategy is well-executed, the resulting products may integrate the strengths of multiple primary innovations, making them more competitive in the market than the original primary innovations themselves.

Taobao is a representative case of a Chinese internet company successfully applying a combinatorial innovation strategy. At the time, payment difficulties were one of the most significant obstacles to the development of e-commerce in China.

On the one hand, owing to the relatively underdeveloped financial sector in China, many people did not have credit cards, making it difficult to use them as a payment method, as is common in Western countries. On the other hand, since online shopping was still a new experience for most people, there was a lack of trust in online transactions. Many worried that they might not receive their goods after making a payment, or that they would face difficulty with after-sales service if they received counterfeit products.

To address these two issues, Alibaba launched Alipay in October 2003. In terms of product design, the initial version of Alipay primarily mimicked the U.S. electronic payment tool PayPal, offering little in the way of original innovation. However, at the time, introducing such a product was highly significant. First, it solved the problem of limited payment channels, enabling users without credit cards to make online payments with ease. Second, its mechanism of holding user payments in escrow until the goods were received and verified effectively addressed the trust issues associated with online transactions.

As a result, after Alipay was launched, Taobao’s user base expanded rapidly. Before long, the platform’s position was completely reversed in its competition with eBay.

In practice, Chinese internet companies apply this strategy with great frequency. Not only have they used it to successfully defeat the foreign counterparts they once benchmarked against—staging the drama of “the apprentice surpassing the master”—but they have also developed “super apps” that integrate multiple software functions into a single platform. The most notable example is WeChat. Although hardly any of WeChat’s key features are original, the platform has successfully combined and integrated them into a super app. Such super apps are becoming a significant hallmark of China’s internet competitiveness today.

However, the “going global” process of Chinese internet companies still faces numerous risks. On one hand, as they expand overseas, these companies may blindly apply the successful experiences they gained domestically, directly transplanting business models that have been proven in China to foreign markets. This could lead them to repeat the same mistakes foreign companies made when entering the Chinese market years ago. Lessons from the setbacks of the first wave of Chinese companies venturing abroad have already underscored this issue.

On the other hand, during market expansion, Chinese internet companies may inadvertently disrupt certain tacit commercial norms in target countries, encroaching on the interests of various stakeholders. This could invite unnecessary policy and legal risks for them.

 

Over the past four decades, China has undergone an unprecedented process of rapid urbanization, with rural households swept along by the tides of change, continuously adjusting their strategies for building and purchasing homes. Real estate is the most significant investment and consumption for Chinese rural families, closely tied to social reproduction and social status. However, as plans often fail to keep pace with changing circumstances, rural housing has exhibited dynamic differentiation across different phases and regions.

Looking back over the past few decades, we can clearly identify several key turning points. In the 1980s, with the implementation of the household responsibility system, farmers’ enthusiasm for production was greatly stimulated, leading to a gradual improvement in living standards. During this period, rural areas saw a boom in housing construction. Entering the new century, as rural tax and fee reforms advanced, coastal economies grew rapidly, and policies regarding migrant workers’ employment in cities became more favorable, rural households underwent another significant transformation. Not only did farmers in the eastern regions begin purchasing homes in cities on a large scale, but those in central and western regions gradually followed suit.

However, the pace of home purchases among farmers varies significantly across different regions. Take the North China Plain as an example—its dense population, convenient transportation, stricter regulation of rural residential land, along with a strong sense of intergenerational responsibility, have contributed to a relatively fast rate of rural-to-urban home purchases. In contrast, in the mountainous regions of Southwest China, where the population is sparse, transportation is inconvenient, and the regulation of rural residential land is more relaxed, farmers are more inclined to build homes within their villages, resulting in a relatively lower rate of urban home purchases.

In recent years, with the deepening interaction between urban and rural areas, there has been a new shift in the housing choices of rural households. Some farmers who have already purchased homes in cities are now choosing to return to their villages to rebuild their homes. This reflects both their attachment to rural life and their reconsideration of the differences between urban and rural lifestyles. At the same time, although farmers in the mountainous regions of Southwest China enjoy decent housing conditions locally, they are also facing pressure to purchase homes in cities due to limited access to medical and educational resources.

These regional differences not only affect the urbanization process of rural families but also have a profound impact on the basic socioeconomic structures of different regions. The migration of rural families to cities is a long and complex historical process, marked by significant heterogeneity in the pace and degree of urbanization across different regions, families, and even individual family members. Exploring the notable disparities in the urbanization process and extent among different families and their members from various perspectives, and uncovering the significant differentiation occurring within this process, is of great importance for a deeper understanding of China’s dramatic urbanization practices.

At the same time, urbanization represents a monumental transformation of rural China’s social structure, propelling the country into what can truly be described as a “once-in-a-millennium shift.”

Due to differences in geographical environments and other factors, the urbanization processes and urban-rural relationship patterns of rural families in different regions are undergoing significant divergence, which may have profound implications for the basic socioeconomic structures of these areas. Clearly, in the coming period, the strategic planning and policy choices for China’s urbanization will face new challenges.

This article aims to explore the fundamental path forward for the development of China’s digital economy. Based on this starting point, the article reflects on several prevailing narratives surrounding the digital economy, seeking to understand its developmental direction and core logic.

The article begins with two simple digitalization scenarios—home-based elderly care and smart Peking duck—as case studies to illustrate the immense potential of integrating the ubiquitous Internet of Things (IoT) and artificial intelligence (AI) in the digital transformation of the economy and society. These examples also serve to inspire readers to reassess the limitations of traditional approaches such as “the enhancement of operational efficiency” and “mass customization,” guiding them toward a broader perspective on “product digitalization.”

Today, product digitalization is primarily reflected in the integration of hardware and software, and even the evolution toward “software-defined products.” The article argues that as the “frontline” of industrial digitalization, product digitalization not only serves as a crucial link in the transition from an industrial economy to a digital economy; it also facilitates improvements in operational efficiency and personalized value-added services through data-driven closed loops and software updates, both of which are key to driving economic growth through digitalization.

However, due to various constraints, the development of software technology in China has been less than satisfactory. These limitations include systemic inertia favoring hardware over software, insufficient trust within industry chains, cross-industry “talent siphoning,” and an oversimplified understanding of the complex software-hardware-computing power structure. Collectively, these factors have hindered the advancement of product digitalization across the entire industrial system.

Building on this, the article points out that “AI+” stands as a key pillar of product digitalization. In most cases, within the “scenario–data–algorithm–service” AI improvement loop, digital products serve as a company’s touchpoint to engage closely with users in real-world scenarios. This, in turn, initiates the process of collecting user scenario data, predicting needs based on data analysis (via algorithms), and ultimately delivering personalized services—forming a complete digitalization loop.

Understanding the closed-loop improvement of artificial intelligence can help address many strategic questions in the development of China’s digital economy. For instance, it enables a shift from a narrow focus on “(transactional) platforms” to recognizing the role of innovative platforms in promoting the healthy development of the platform economy; from an overemphasis on general large language models to a more diverse and comprehensive understanding of “next-generation AI”; from prioritizing data assets and the marketization of data elements to acknowledging the fundamental role of “services” and “algorithms” in data value creation; and from a fragmented perspective to a deeper appreciation of the systemic advantages and strategic depth that industrial foundations, latecomer status, and scenario resources provide for China’s digital economy.

Based on the above discussion, the article concludes by offering recommendations at both the macro and micro levels. In the process of building a Digital China, the government should play a leading role by adopting a “scenario-driven, apps-guided” principle to formulate an overall strategy. This includes coordinating data openness, optimizing data ownership and privacy protection systems, supporting independent software development, regulating the behavior of transactional platforms, and promoting the decentralization of the socio-economic system.

At the same time, enterprises must embrace an ecosystem collaboration mindset, break down data silos, achieve service-oriented upgrades, and identify pathways to value realization within a co-built and shared ecological relationship. The micro-foundation for all these transformations lies in establishing the dominant role of the Schumpeterian entrepreneur in business decision-making.

Currently, both China and its “overseas capital” are at a historical turning point, bringing both new opportunities and structural challenges.

Overseas capital refers to assets owned or managed by a home country’s government, enterprises, or individuals in foreign nations. Its scale and form are directly linked to the home country’s international status.

In the era of globalization, the definition of a “great power” has increasingly shifted toward a focus on overseas interests, particularly the ability to expand overseas capital. Overseas capital is not only a reflection of economic strength but also a vehicle for a nation’s participation in globalized mass production. As such, it must embody characteristics of openness, freedom, mobility, and adherence to established regulations.

The understanding of overseas capital involves four key dimensions:

1. Subjectivity – Overseas capital transcends national sovereignty, driven by profit maximization and global strategic positioning.

2. Home Country Structure – It encompasses national strategy, developmental needs, and international relations.

3. Host Country Perspective – It requires navigating complex relationships with the local government, economy, and society, including legal frameworks, rent-seeking dynamics, and diplomatic balance.

4. Global Capital Attributes – As part of the global capital system, it must balance the interests of the home country with transnational cooperation.

Since joining the WTO, China’s overseas capital has expanded rapidly but continues to face structural challenges. First, it must reshape global economic rules through overseas capital, deepening the logic of the industrial chain division. Second, it needs to shift from merely relocating industries to cultivating capital forms with global competitiveness, enhancing the international attributes of domestic capital. Finally, it must balance multiple dimensions of interests: aligning the home country’s strategy for overseas capital with adaptability to host countries and compatibility with global rules.

Historically, overseas capital has existed in four major forms:

1. Colonial Form (e.g., the East India Company): Reliant on military and political hegemony to control colonial resources.

2. Extraterritoriality Form: Capital monopolized host country markets through privileges, as exemplified by the imperial powers of the nineteenth century.

3. Local Governance Form: In regions with a weak rule of law, capital depended on rent-seeking to secure operating permits.

4. International Rules Form: Post-World War II, developed nations dominated the global economic order through market mechanisms and legal frameworks.

The upgrading path for overseas capital includes three stages:

1. Transnational Capital (Export-Oriented Stage): Primarily serving the home country’s economy, with operations focused on the domestic market.

2. International Capital (Industrial Transfer Stage): Operations become decentralized, radiating influence across regional economies.

3. Global Capital (Innovation Economy Stage): Driven by technological and managerial innovation, establishing a multi-centered global influence.

In the future, the top-tier overseas capital of global powers will adopt a “home-country-centric + multiple technological and financial hubs” model, leveraging technological generational advantages and integrating global resources.

In this new era, Chinese overseas capital faces the dual challenges of global rule restructuring and technological transformation. It must learn to become a rule-setter, redefining the meaning of free trade, promoting two-way openness, and coordinating relations with developed countries. At the same time, it should deepen the global division of labor: shifting from low-end industrial transfers to high-end industrial chain positioning, reinforcing its leadership in the innovation economy.

Strategically, China should strengthen the rule of law in its overseas operations by abiding by local laws and adhering to universal rules as a benchmark to improve the compliance and sustainability of its overseas capital in host countries. It must also achieve a balance of interests, seeking a dynamic equilibrium in protecting the rights of workers, consumers, investors, and innovators to strengthen the social legitimacy of its capital. Finally, it should focus on rule-making, utilizing platforms such as the Belt and Road Initiative to participate in formulating technical standards and investment rules, thereby increasing the international influence of Chinese capital.

China’s overseas capital has transitioned from a “going-out” phase to a new stage of “globalization.” The country must prioritize innovation-driven growth and the reshaping of rules in order to build a capital ecosystem that balances the interests of the home country with global cooperation. Only in this way can China achieve a win-win outcome for both national interests and the global economy amid the changing landscape of globalization.