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China poised to overtake the U.S. in innovation

Китай становится первой экономикой мира на рынке высокотехнологичных компаний. Власти США встревожены этим обстоятельством и, чтобы защитить свой рынок, вводят высокие пошлины на китайские товары. Об этом говорится в докладе агентства China Insiders, недавно представленном CEO компании Ольгой Болкуновой в Агентстве стратегических инициатив. China Insiders — компания, помогающая российским предпринимателям выйти на китайский рынок.



Китайцы перешли от имитации к инновациям
Китай долго отставал от США в области технологий. В то время как в США в 1975 г. Билл Гейтс основал Microsoft, в Китае с 1966 г. по 1976 г. была культурная революция, и инженеры и техническая интеллигенция бежали в Тайвань или ссылалась в деревни. Только в 1977 г. вновь были открыты университеты; никаких инноваций и изобретений в это время здесь не было. В 1998 г. была основана компания Google. В Китае в 1988 г. только 0,2% жителей имели доступ к интернету. Сегодня 90% мобильных телефонов, 80% компьютеров и 60% телевизоров в мире производится в Китае. Большая доля приходится и на автомобили (25%), корабли (40%) и кондиционеры (80%).
When did the innovation revolution in the Middle Kingdom begin? In 1997, when the Chinese switched from imitation to innovation. It was at this time that American corporations began to bring their R&D centers here. Foreign investment flowed into China with the beginning of the opening-up policy, and it was then that the Chinese began copying the goods of foreign companies. In 1997 there were only 24 R&D centers of transnational corporations in China, now their number exceeds 2000. One of the reasons for opening R&D centers is the need to localize and develop products unique to the Chinese market.

Chinese Wang Xing (Wan Xing) cloned Facebook and other American startups. In 2010, Wang Xing created Meituan -analogous to the popular U.S.-based Groupon, a group-buying service where people get discounts by buying electronics or food at restaurants together. #In just seven years, Meituan became one of the largest retailers in the country by acquiring Dianping; today, Meituan Dianping has a capitalization of $30 billion, while Groupon s is barely $3 billion. Meituan Dianping is more valuable than Airbnb and SpaceX Ilon Musk. There were 500 other similar startups competing with Wang Xing at the same time. Why did Meituan Dianping take off? Because it was customized for the Chinese market.
Own way
E-bay and Google failed to take over the Chinese market because they tried to introduce a boxed product without trying to follow the principles of doing business in China. For example, E-bay took payments for placing goods on their site, took payments for PayPal transactions, and its servers were located in the United States, which slowed down page loading speeds considerably. Online store Taobao (owned by Alibaba) did not take money for the placement of goods and transaction fees, which incentivized sellers. In addition, Taobao built trust (guanxi) between seller and buyer by incorporating chat rooms into its platform.



Communist China didn't just learn to copy, but also came up with its own business models. How did it work out? The Chinese government is stimulating domestic demand and trying to move away from an export-oriented model. There are two main government programs - Made in China and Internet+. These programs were launched in 2015, they stimulate innovation, introduction of artificial intelligence in all spheres of life, in robotics, VR/AR, blockchain and so on. Business incubators and gas pedals are opening in all provinces, startups are given tax vacations, office subsidies and many other preferences. Several innovation hubs have appeared in China - Shenzhen, Shanghai, Guangzhou and others. The Chinese state began to enter into partnerships with private companies - venture capital funds.To finance such joint ventures, the government has set up a $30 billion fund. The new generation of entrepreneurs lives in a fiercely competitive environment, where project launch times are as short as a few months because they have to compete with similar startups. In addition, large Chinese corporations create multiple teams to launch the same product.

In China, by 2020, 46 000 km of new high-speed roads will be built, the total length of highways will be 170 000 km (in Russia, the total length of federal highways is 58 000 km). For the US, the Chinese developments in artificial intelligence (AI) came as a complete surprise, like the USSR's space flight in the 1960s. China has never been strong in AI. Today, thanks to AI, China collects information about the behavior of Internet users (primarily through social networks), and the country has a system of social ratings.

It is true that the Chinese economy is now slowing down: previously GDP growth was 10% per year, now it is 6-6.4%. The shift in the economy is toward service. 72% of foreign investment attracted last year was in the service sector. In 2005 China accounted for less than 1% of transactions in global e-commerce. Now it is more than 42% (Bloomberg data for 2016). Transactions via mobile devices in China are 11 times higher than in the US.
Unicorn companies
There are many unicorn companies in China, and their value exceeds that of their American competitors. The largest of them, or the big three, are Alibaba, Baidu and Tencent (the latter two, by the way, are actively working with blockchain technologies). Thus, the value of Tencent (social network WeChat and etc.) at the end of last year exceeded the value of Facebook: the company was worth about $500 billion. Today, Chinese people not only communicate through the mobile application for text and voice messaging WeChat, but also make payments,  sell things, order a cab, food, haircut the dog, etc. - about 50 services in one mobile application. So far, no major social network has created such a universal mobile application. It is worth noting that Western social networks, including Facebook and Twitter, are blocked in China.



Author: Natalia Kuznetsova