The rise of China as an innovation superpower – part one
Innovation and disruption is coming on a big scale from China with new devices, Artificial Intelligence (AI) and new business models. Even if your business does not sell or manufacture in China your organisation is going to be impacted by these changes. The challenge will come with the next generation of customers, workers and fast-growing economies who will be utilising the new tech and business models which are being implemented at scale and speed in China.
In the first of this two part series, we’ll look at the rise of China and the development strategy for the country that is driving the next generation of products and systems. In the second part we will look at the rise of China as it dominates manufacturing and the creation of world leading systems. The opportunity and challenge is for them to then lead the world as they come out of China – I refer to this as ‘Enter the Dragon’.
These articles build on over 15 years’ experience of travelling and working with corporates and venture units to enter the innovation ecosystem in China, as well as extensive work with Chinese ventures.
China is taking the lead
China is a specific example of a global innovation superpower that deserves a deeper discussion. Since 1978, when Deng Xiaoping opened the economy and gave the ‘Middle Kingdom’ (the Chinese name for China) its economic drive, growth has been exponential and led by its government’s five-year plans.
China is now on its thirteenth five-year plan, and innovation is at the top of the list with strategies and actions to develop leading positions in Artificial Intelligence, environmental technology industries, Electric Vehicles, High Speed Train lines over 30,000 km of the country, a move to a 60 per cent urban population, and agricultural development etc. Understanding the focus areas and approach in China to this kind of planning is important for your own innovation planning.
For more than thirty years China has been the world’s fastest-growing major economy. With growth rates long running over 10 per cent per annum, it has become the world’s second-largest economy by nominal GDP and the world’s largest economy by purchasing power parity, according to the International Monetary Fund (IMF). Having such a large economy now makes it difficult to achieve continued high percentage growth rates but the country’s economic expansion and rise up the value chain continues.
On a per capita basis, China still has a long way to develop. IMF figures for 2019 show China’s nominal GDP per capita valued at US$10,099, with the United States at a value of $65,112, and the United Kingdom with a value of $41,030. In each of these cases, there will of course be large variances within the population. And, in the case of China, the same applies to the variation between the well-developed eastern seaboard cities of Shanghai, Beijing, Shenzhen, and other inland cities versus the rural population.
Lines in the sand
Chinese leader Xi Jinping has set Two Centenaries, or aspirations, for the country which reflect its economic and societal aims. First is the centenary of the founding of the Communist Party of China in 2021, at which point, a full xiaokang society will have been achieved. Xiaokang roughly translates to ‘moderately well-off,’ with a rough quantitative target of doubling the 2010 per capita income by 2021.
The second aspiration for the centenary of the founding of the People’s Republic of China is that in 2049, China will have become a ‘strong, democratic, civilised, harmonious, and modern socialist country.’
While you can see other proclamations and question their details, I raise these examples to give a different perspective on the approach and thinking in China. You may also recognise some of these aspirations and approaches to driving innovation and change in other locations such as Singapore and Israel but on a smaller scale.
It is a direct contrast to the United States, which is generally becoming more protectionist during these down times, looking inward. On the other hand, the Chinese economy pushes forward as a growth engine.
There are three perspectives I first outlined in 2012 that describe the reasons why China has grown and continues to thrive as a hotbed of innovation.
The Great Wall of China
Over three decades of growth, we have seen that China has been building its economy and Western companies have been selling into this growing economy. The trade in goods with China has been in China’s favour. In the case of the United States, the trade deficit in goods to China has averaged around $330bn per year in the period from 2011 to 2016.
As investment in infrastructure has been drawing in commodities, it has become more difficult to sell in Western products. I would say the Chinese economy has grown behind its ‘walls,’ and Western companies have resorted to trying to toss products into the region to sell. Instead of seeing large returns, though, they have often been met with language barriers, cultural barriers, and the Chinese economic system—which, understandably, supports the specific growth of the Chinese economy, not those of outsiders.
There is also what has been termed the Great Firewall of China. From an Internet protection point of view, China has been successful in developing massive, innovative, and fast-growing technology businesses that are now some of the world’s most valuable companies.
The leading three are referred to as BAT—Baidu, Alibaba, and Tencent. Baidu is a Chinese search engine, roughly the equivalent of Google in the West. ByteDance, the owner of TikTok – a rapidly growing social media, short video platform – may now replace Baidu in BAT, as whilst it is just seven years old, it is one of the most valuable unicorn startups at over $70bn.
Alibaba emerged as a successful retail sales business similar to eBay and Amazon and went on to create cloud computing options for customers. It also has the leading financial services solutions in its associate business Ant Financials.
Tencent originated from an online gaming business and went on to create the WeChat platform, which has grown to become a vital social media communication platform for financial transactions in retail, transportation, and other markets.
Behind the Great Firewall of China, BAT built new capabilities, new models that are ahead of the platforms in the West and has seen tremendous returns as a result of those innovative efforts.
Looking for more?
In the second part of this article we will look at the rise of manufacturing, the ‘New Silk Road’ and the potential for China to come out and lead world markets higher up the ‘innovative new value chains’.
I host a series of podcasts – Gaule’s Question Time – that share perspectives on innovation and venturing globally.
Insights on China Innovation can be found with:
- Cha Li – iStart fund and incubator who has been a partner of Aimava for over 10 years
- Eva Yoo – Chinese tech watcher and writer, who also cycled from Shanghai to London!
- Oscar Ramos – China Accelerator, venture and investment ecosystem
“Global Innovation and Venturing – China. Understand the rise and partner”
Join this Aimava programme on 22 January 2020 in London: https://www.eventbrite.co.uk/o/aimava-is-a-global-advisory-firm-11938296163
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Read more from Andrew Gaule here.
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