China-US Tech Exchange: The New Global Trade

Hans Tung
Hans Tung
Aug 27, 2017 · 5 min read

When it comes to trade between China and the US, we tend to think of it as one directional; Western companies design products and Chinese manufacturers build them. But a new trend in US-China trade is emerging that’s far more two-directional and symbiotic: the open flow of technology innovation.

Two-Way Technology Trade

China’s manufacturing might is still formidable — accounting for about a third of China’s GDP — but the maturing Chinese economy is shifting to one dominated by services and domestic consumption. Chinese consumers are becoming wealthier, and at the same time, internet access rates are surging, driven by the country’s over 1 billion (and growing) smartphone users. And its growing startup culture has nurtured a deep talent base. This combination of factors has made China not just a manufacturing base for American tech companies, but a desirable place to do business.

On the flipside, Chinese technology companies are increasingly interested in bringing their unique mobile-first products to US consumers, who are a wealthy and attractive market. Chinese tech startups see a golden opportunity to get in on the ground floor of m-commerce, IoT, app-driven services, and other mobile markets just taking off in the US.

Chinese Tech Companies Take on the US — and the World

Chinese manufacturers have been supplying the US market for years, but they have traditionally sold their goods to US retailers, who in turn sell to US consumers. But the new internet and mobile technology companies in China are now going to direct to US consumers.

Some Chinese companies — Musical.ly, Ehang, and More Technology for instance — are directly targeting US consumers via mobile apps, online sales, and US partners. They are opening US offices and creating “US-ready” products. Alibaba even launched AliExpress, a shopping site that allows US consumers to buy Chinese-made goods at very affordable prices.

Chinese companies are also increasingly looking to do business in fast-developing countries such as India, Brazil, Thailand, and Vietnam. Mobile usage in these regions is growing at a far faster rate than in the US and Europe. Tencent, Baidu and Xiaomi are focusing much of their international growth strategies on India, Southeast Asia, and South America, for example.

Chinese tech companies may also be better positioned to succeed in emerging markets than western companies, because these markets are more likely to be similar to China’s than the west. Monetization models that are common in the US and Europe (such as advertising), don’t work in China or in developing markets in general. Chinese mobile companies have found other innovative ways to make money through e-commerce, virtual items, subscriptions, and transactions — instead of through advertising. Payments systems are another hurdle. Credit card payments are very common in the US and Europe but almost non-existent in many emerging markets. Chinese companies have experience with online banks, carrier payments, and other systems that are more viable in emerging markets.

US Companies Break into China

US companies have been trying to break into China for decades — with mixed success. Tech giants like Google, Facebook, and Yahoo! have largely failed in their past forays into China. But now is the time for American tech firms to gain a foothold in this massive, but complicated, market. Why? Because China’s huge consumer base is now younger, more mobile, more affluent, and more tech savvy than ever before — and they’re more open to buying products and services from Western brands.

Back in 2005, e-commerce in China was negligible. Fast forward 10 years and e-commerce in China now represents 14% of all retail (vs. 7% in the US) and will represent 30% of all Chinese retail within five years. The rise mobile internet infrastructure and inexpensive smartphones coupled with the poor offline retail experience has led to an explosion of online (mostly mobile) shopping in China. This presents a great opportunity for US brands to reach Chinese consumers.

Chinese consumers will use their smartphones for any and all purchases, not just retail. They turn to mobile apps to book travel, shop for cars, take classes, make stock trades, buy insurance and beyond. With China’s 350 million millennials interested in traveling outside of China, Airbnb is growing faster in China than anywhere else.

But for US companies to connect with China’s mobile-savvy consumers, it can’t be business as usual. They have to be flexible, adapt to local customs, partner with local players, hire local teams, and localizing their offerings. This is true for offline brands too: Haagen Dazs and Kentucky Fried Chicken have both done well in the market by developing China-specific products.

This moment in history is an unprecedented chance for China and the U.S. to go beyond just “trading” with each other. With the internet erasing more and more global borders, China, the US and the rest of the world can share ideas, talent and technology to succeed worldwide.

Disclosure: GGV Capital is an investor in Airbnb, musical.ly, Ehang, and More Technology.

)

Hans Tung

Written by

Hans Tung

Global VC. GP@GGV. Lived in 10 cities. Travel b/w SF/China. Proud #Stanford alum & #Lakers fan. Served on BOD of Xiaomi, eHi, Fanli, Wish, Curse, RED, Misfit

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade