Mind the Gap

China tech is going to change the world – or mire the industry in a sea of useless junk

There is a wave of individual inventiveness happening in Shenzhen and other mainland Chinese cities that cannot be ignored

PUBLISHED : Sunday, 17 July, 2016, 3:11pm
UPDATED : Monday, 16 January, 2017, 10:26am

Innovation and entrepreneurship in China. It’s either going to change the world or it will mire Chinese technological development in a sea of useless junk. Chinese tech companies are regularly accused of copying and intellectual property theft , but there is a wave of individual inventiveness happening in Shenzhen and other cities that cannot be ignored.

And when you visit these entrepreneurs it is an experience that could fundamentally distort reality where the laws of science do not apply. Big Chinese internet companies like Alibaba, Tencent, JD and Baidu dominate broad swathes of the e-commerce market. But their success has inspired countless numbers of individuals to seek their fortune on new ideas.

Add to that confidence an enormous amount of risk capital available in renminbi and you arguably have the world’s largest startup market. In the US, the venture capital market invested US$58.8 billion across the US in 2015, making it the second highest full year total in the last 20 years, according to PwC and the National Venture Capital Association.

What underpins China’s current phase of entrepreneurship is the rapid emergence of an educated, white collar labour force

In 2015 Greater China recorded more venture capital deals in a year than Europe for the first time ever. While North America, especially Silicon Valley, continues to dominate the venture capital industry, China has significantly increased its startup activities.

VCs deployed a record US$37 billion into China startups in 2015, more than double the previous year’s amount in 1,555 China deals, according to Prequin. The annual shift from 2013 to 2015 in amounts from US$4.5 billion to US$15 billion to US$37 billion demonstrates the immense appetite for startup capital in China.

But, the only way to see if China is emerging as a legitimate challenger to the US for leadership of the technology industry is meet with some start-ups. They run the gamut from kitchen appliances, marital aids and industrial machinery.

Besides a series of mixing tanks, I didn’t see any labs in an ethanol alternative fuel facility in a field outside of Nanning City, Guangxi. The inventors claimed they developed a new, breakthrough ethanol mix for automobiles.

They share similar challenges with other new product developers in China. No independent test results existed and they had no idea whether someone else may have made the same product elsewhere. China’s internet restrictions also prevent academics and inventors from exploring ideas outside.

Pokeman Go has revived, if not revolutionised, interest in the mobile video game industry. It has spark an entire craze based on location based games for Shenzhen’s culture of game developers to build upon. China already has a sprawling mobile gaming industry with over US$22 billion in 2015 revenues (greater than the US). But, any game which people are willing to die playing will attract an especially loyal and rabid fanbase – and spawn new versions.

What underpins China’s current phase of entrepreneurship is the rapid emergence of an educated, white collar labour force. Over 10 million of these graduates enter the workforce each year. Public policy has been designed to encourage employment in these industries.

Most of these young employees and entrepreneurs are sons and daughters of factory workers who could finally afford post-secondary education. They don’t want to return to factories or farms. They seek the cool urban, knowledge worker, digital lifestyle. Their aspirations, however quirky, will translate into an attitude that will define China’s post-industrial revolution.

Peter Guy is a financial writer and former international banker