Hidden Dragons

“The phrase ‘Crouching Tiger Hidden Dragon’ (Wo hu cang long) is a Chinese idiom in which the words ‘Tiger’ and ‘Dragon’ directly refer to people with special hidden talents. This idiom is used to remind people to never underestimate anybody.”

As a continuation of last week’s Crouching Tigers, this week’s Hidden Dragons is focusing on China. After Indonesia and Singapore, I spent last week in Beijing and Shanghai. While it’s just across the South China Sea, China is significantly different in many ways… Soon to be the World’s largest Economy, China’s growth spur is shaping the country in different ways.

Culturally there seems to be a diversion between traditional China and modern China. Traditional China is seen in the older, pre-Millennial generation and is shaped by conservatism, strict rules, and a narrow mindset. Modern China is shaped by the Millennial generation which has a “Western” oriented mindset and is decoupled from the strong political influence of China’s past.

In Beijing, the Communist past and the heavy government influence are well visible. I was surprised to see that Policemen do random ID checks on the street. Then, the closer you get towards Beijing’s center, the more cameras and Policemen are watching you. Tiananmen Square and the Forbidden City feel like a high security zone with mandatory body checks and passport controls at the gates.

One major issue in China is that nearly no one speaks (or reads) English. That’s a large problem for the Country to be competitive on a global basis: take any other large developing country for example — Brazil, Indonesia, India, Malaysia, Russia, Nigeria, etc., and you will always be able to communicate in some way, even with less educated people. While in China it is nearly impossible to find a cab driver who understands anything in English. That is a major problem for the Country as a whole, but also a huge opportunity for businesses addressing that need. English learning is a key priority and has been elevated as a major part of the Gaokao test (the Chinese SAT equivalent).

However, China’s younger generation is emerging as a top educated population and is well prepared to compete on a Global basis over the next decades. Chinese parents spend 40% of their household income on their kids’ education, a figure multiple times higher than that in the U.S. The teacher-student ratio is also as high as it gets, with one teacher for every two of the 200 million K12 students. A major reason for the low ratio is high demand for after school tutoring, which is mostly one-on-one.

One of the rising stars in the K12 space is 17zuoye, also called Homework Together in English. The company was founded and is run by Andy Liu Changshui who previously helped build and grow New Oriental Education. 17zuoye is an online platform connecting K12 students with their teachers, and also provides access to the parents to monitor their kids’ homework projects and progress. Only three years into its making, 17zuoye has already well over six million active users and is growing very rapidly. Just last week, H Capital, DST, Temasek and Shunwei invested $100 million in the startup, indicating there might be something big in the works.

Internet access is another issue in China. Logging into wifi is slow and you get warnings that the government might be reading your emails and tracking your activity…at least they say they do it, while “other governments” do it without warning you. Also, depending on which website you click, it might take up to ten seconds to load as “someone” is actually checking your click…at least it feels like that.

As widely known, some of the World’s most popular sites and apps are blocked: Facebook, Twitter, Instagram, Google, Dropbox, Spotify, Snapchat, WSJ, NYTimes, are some of the major ones that can’t be used. And while some people have been working around these restrictions by accessing these sites via VPNs that are connected to servers outside of China, these have been officially banned by the Government now. Personally, not having access to the above mentioned apps felt similar if not worse than being without a phone. (Disclosure: GSV owns shares in Facebook, Twitter, Dropbox, Spotify)

Transportation is a big challenge — and especially in Beijing. The city’s unique ring structure is helpful for outer traffic, but bad for the inner city circulation. Cabs are everywhere, but getting a cab the old fashion way is impossible. Every cab is on Didi Dache or Kuaidi Dache — the two leading cab hailing apps who announced their merger last week. Cab drivers only accept rides through the apps as they can see the passenger’s destination. And while Uber is in China, its service is mediocre. Estimated time to arrival as displayed upon request and actual time to arrival differ significantly, often as much as 10–15 minutes later. And even more frustrating is when the driver suddenly cancels the trip after ten minutes of waiting…something that happened to me twice… So Didi and Kuaidi seem to be very well positioned in China, with their estimated value now being above $6 billion.

One of the measures for reducing traffic in Beijing is that you can’t drive your car on one day of the week. That day is determined by the last letter on your license plate, and cars with non-Beijing license plates are banned to drive in the city between 9am and 8pm on work days.

Beijing also has a subway which has grown from just three lines to 14 lines over the last decade. While it is quicker to go from point A to point B, the metro is jam-packed at most times and is not recommendable for elders and for kids.

Another big problem is pollution, especially this time of year when coal heating adds to the problem. On the last two days of my trip, the air quality index stood at 350 — classified as “Very Unhealthy.” With that layer of heavy pollution, the sun feels and looks like the moon at night… I even saw people with big air purifiers in their cars.

On the positive side, Chinese are always on time, and “on time” meaning ten minutes early. Chinese get things done quickly and effectively. That’s something that’s impressed me a lot, and it’s something I wished I’d see more often in business circles in the U.S. and Europe.

Tencent’s Wechat is how people communicate. In fact, 468 million monthly active users use the app, making it the largest communication platform in China. No one uses email, and not even for business purposes — except for legal matters. People text on Wechat, they send voice messages back and forth in real time (almost like having a phone call), they follow brands (Didi Dache announced its merger on WeChat), etc. Simply imagine Gmail, Outlook, iMessage, Whatsapp, and Twitter all combined in one, and that’s Wechat. (Disclosure: GSV owns shares in Tencent, Facebook, Twitter, Apple)

E-commerce leader JD.com is among the most visible (literally) tech brands in the Country. It’s delivery scooters are everywhere in the cities, delivering packages to customers.

Given the government’s ban on many of the popular sites and apps from the “West”, it is an “easier” task for Chinese entrepreneurs to just copy a model that’s working well in the rest of the World and to apply it to China. If that service emerges as a leader, it has a huge user base to feed. We’ve seen this in the past with Baidu, Tencent, Sina, Alibaba, Vipshop, and are now seeing some new startups replicate the more recent successes from the West. Some of those examples include Mushroom, the Pinterest of China, Didi and Kuaidi Dache, the Hail-o/Uber/Lyft model of China, Renren, the Snapchat of China, Bitauto, the TrueCar of China, etc. (Disclosure: GSV owns shares in Baidu, Tencent, Alibaba, Vipshop, Lyft, Bitauto)

China is a fascinating country and its magnitude doesn’t come without challenges. With the beginning of the Lunar New Year — or Year of the Goat — China’s role in the World is set to be as important as ever before.

新年快乐 / 新年快樂 (Xīnnián kuàilè)!

As published in this week’s A 2 Apple http://bit.ly/1BDiD1H