China Trip Debrief — Top 5 Takeaways

Mind maps I created to help me identify the parts I needed to learn about in order to paint a better picture of China

We’ve all heard stories about China’s rapid economic development and how it’s become a hotspot for tech, startups, and VC in recent years. A recent article written in Recode by Cyriac Roeding, the ex-CEO of Shopkick, concluded that “Beijing is Silicon Valley’s only true competitor” after his 3-week China trip.

In April 2016, I was fortunate enough to do my own 2-week trip and get a glimpse into just how crazy things are going on there. Special thanks to Mark Evans & Frank Meehan for the Asia overview chats before my trip, the London Business School for organizing the Global Business Experience in Hong Kong and Shenzhen, tak_lo for inviting me to the Shenzhen Cross Border conference, Ivan Shyr, Shannon, & Shel for the introductions in Shanghai, Ray Lian for arranging many of my meetings in Shanghai and Beijing, and Jeff Hsu for the tour in Beijing. Without your help, I would not have been able to cover so much ground in such a short time — 40 companies, startups, VCs, and academic think tanks.

I originally wanted to write one post for my China experience but once the word count reached ~2K in my bullet point outline, I knew it was a good time to break things up into separate posts. I figured I’d start the series with the top 5 things I learned about China. Future posts will be in-depth looks at each point.

  1. The understanding of many westerners (Americans in particular) of China and its growth path is outdated. Many westerners still think that Chinese companies and people want to be like the west. The truth is that some Chinese companies have already caught up and/or surpassing their western competitors. Many Chinese companies in fact have global ambitions and they are supremely good at executing on that vision.
  2. China lacks the “legacy systems” that hold other countries back. For example, Chinese people generally tend to want to get deals done and ask less questions on why they shouldn’t do something compared to Europeans. In some instances, there is a near perfect alignment of government, academia and business. More on this later.
  3. Chinese companies are killing it in the domestic market and have global ambition. This is very apparent when you see companies like DJI and Huawei as they are selling lots of products within China but have also broken into the global scene. A recent player to join this trend is 1More, a Shenzhen-based headphone company founded in 2014. It has sold more than 20 million units in China and started shipping to the US in January 2016 under its own brand rather than creating a new one to cater to the US market. When I met Gary Hsieh, 1More’s founder & CEO, he said that he wanted to stand behind the quality of Chinese manufactured products and compete with Beats headphones on its own turf.
  4. Innovation is very centralized and resolves around the BAT (Baidu, Alibaba, Tencent). Similar to GAFA (Google, Amazon, Facebook, Apple) in the US, BAT hold a lot of power in the tech space because 1) their alumni do a lot of angel investing and have started a fair number of startups, 2) they have extremely active venture arms, 3) they control the platforms in which many other smaller players use to reach users, and 4) they are extremely agile and can and do quickly copy anything a successful startup is doing. The last point is one of the reasons why the BAT casts a longer shadow on the startup scene compared to GAFA in the US and contributes to the greater need for secrecy and other protection measures. Finally, unlike in the US, China doesn’t have many anti-trust regulations to keep the BAT’s M&A activities in check so they can grow as big as they want to. The BAT’s only true competitors are among themselves.
  5. China faces some pretty big obstacles in the next decade but people are optimistic. Being China, it’s all about scale, and the numbers can either work for or against it. There are some major macroeconomic hurdles China will need to solve in its transition to an advanced economy. Some major ones include privatizing the SOEs (and dealing with the subsequent unemployment from those reforms), employment for people living in tier 3 and 4 cities and the rural areas, striking a balance between increasing labor wages and employment costs for the private sector, and weighing the benefits of sustainability with the cost of increased consumption. Despite these daunting challenges, the Chinese government is acutely aware of these issues and has publicly addressed several in Xi Jinping’s 5-year plan. Similarly, most of the people I spoke to are also optimistic and generally excited about where China is heading.