America surprised China’s tech scene thriving despite controls on internet access

In the 1990s China was a centre for semi-skilled and unskilled labour. Today it is the world leader in e-commerce and internet innovations, and that confuses Americans who haven’t spent time in the country

PUBLISHED : Friday, 29 July, 2016, 5:01pm
UPDATED : Friday, 29 July, 2016, 6:00pm

Silicon Valley may be powered by organic kale, but when Chinese tech gurus gather at 3W, a coffee shop/incubator in Beijing, they want sunflower seeds. And they want them fast.

Ahead of a recent meeting, 3W’s co-founder, Xu Dandan, used WeChat, a Chinese platform with hundreds of millions of users, to place an order with Beequick, a local start-up that delivers supplies from mom-and-pop shops. Thirty minutes later: crunch, crunch.

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And if Xu and his friends were craving a different crispy snack like crayfish? A business accelerator at nearby Peking University has a start-up just for that. Grab your China-made phone, open WeChat, and your crustaceous needs are met.

For those who haven’t spent time in China’s thriving cities, it can be hard to imagine how digitally connected they are. Many still think of the China of the 1990s, a nation of shoe factories and fake bags, not cutting-edge apps.

Outsiders tend to know one thing about the country’s internet: it’s blocked – no Facebook, Twitter or Google. They imagine a country languishing behind a digital Iron Curtain, waiting frozen in time for the fall of the web’s Berlin Wall.

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The US wants to believe that the scourge of censorship thwarts online innovation, but China is challenging the idea in ways that frighten and confound some Americans.

“There’s this strange belief that you can’t build a mobile app if you don’t know the truth about what happened in Tiananmen Square,” says Kaiser Kuo, who recently stepped down as head of international communications for Baidu, one of China’s leading tech companies, and hosts Sinica, a popular podcast. “Trouble is, it’s not true.”

The truth is that behind the Great Firewall – the system of censorship designed to block content that could challenge the Chinese Communist Party – the tech scene is flourishing.

Most of the country’s nearly 700 million users don’t have unfettered access to information and are often stuck with painfully slow web speeds.

They are nonetheless powering a web boom that last year saw four Chinese firms in the world’s top 10 by market capitalisation, according to data website Statista.

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China is now the world leader in e-commerce. Morgan Stanley projects that by 2018 China will be conducting more online transactions than the rest of the world.

Buoyed by that cash, the country’s tech start-ups are experimenting with new models that have the potential to make real money – and influence people around the globe.

“You go on Facebook and you can’t even buy anything, but on WeChat and Weibo you can buy anything you see,” says William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, a start-up accelerator.

Venture capitalist Terry Zhu understands how China earned a reputation for copying, but he can’t get his head around the fact that the “can’t innovate” myth persists.

When Zhu entered Beijing’s tech scene in the late 1990s, China was a different country, a place with huge ambition but a tiny middle class. Of course that emerging cohort looked to California, he says. Where else was there to look?

China’s initial tech offerings certainly felt familiar. Tencent copied ICQ, a 1990s-era chat service, creating the not-so-subtly named OICQ. Baidu looked a lot like Google. Alibaba resembled Amazon.

Zhu, who is now a partner at the Beijing office of Blue Run Ventures, says what’s more revealing is how Chinese firms have taken the best tech and adapted it.

Tencent’s WeChat, which is censored, is also hugely innovative. It combines some of the most useful parts of chat services, social networks, mobile payment and even online maps. You can use it to read news, send a real-time location to a friend, or pay for a pancake at a street stall.

The rapid development of China’s mobile market is accelerating the trend towards local innovation, experts says.

Because mass retail is relatively new in the country, Chinese e-commerce faces less competition from bricks-and-mortar shops. And the middle class is growing, from 4 per cent of the population in 2000 to 68 per cent in 2012, according to research by McKinsey. By 2022, it will be 75 per cent.

While American firms focus on ad revenue, Chinese companies have become pace setters in e-commerce. A more recent trend is live-streaming sites where people pay real money to reward performers with virtual gifts. (You sang beautifully, here’s a digital Lamborghini, dear.)

Bean called the amount of money flowing through these apps “significant”. Like their peers in Palo Alto, however, Chinese start-ups need to show they can generate enough revenue to make the model work in the medium term.

They also need to think about the state. Americans imagined the web as a utopia; China’s former web tsar, Lu Wei, once compared the internet to a car with no brakes.

Regulation has helped push internet’s booming growth in China, Lu Wei says

“It doesn’t matter how the car is capable of travelling. Once it gets on the highway, you can imagine what the end result will be,” he said.

The implication is that China’s government is happy to have companies build shiny, fast things as long as regulators can put up roadblocks as they please. So far, they’ve mostly targeted foreign firms. In April, the US government officially named the Great Firewall a barrier to trade. The American Chamber of Commerce in China says four out of five of its member companies report that it hurts their business.

Chinese firms have generally been protected, but the government could very well turn on someone, or something, home-grown.

Asked about the Communist Party’s vision for a “sovereign” internet – one that is managed and secured by the government – some in China expressed concern that edgy ideas would be ignored, that bright minds might go elsewhere, that China could lose out.

Some Chinese scientists and scholars have complained that blocking foreign sites hurts their research. But many Beijing-based entrepreneurs and analysts say they are confident that mobile tech will continue to flourish behind the Great Firewall.

Xi Jinping’s government may be sceptical about the web, but it is also struggling to shore up China’s economy. Beijing recognises the commercial power of the internet and wants to get on board.

Last year Premier Li Keqiang visited Xu’s 3W cafe. In May, Xi vowed increased support for start-ups and tech. “Our biggest advantage is that we, as a socialist country, can pool resources in a major mission,” he said.

Zhu, the venture capitalist, says he knows that Chinese companies will find a way to operate under ever-changing rules. China’s entrepreneurs have never known a truly “open” web – who has? – and yet internet use has grown by leaps and bounds.

Politics, like innovation, goes around, he says. And comes around.

“There will be a new cycle.”