“China is catching up in the innovation game with the United States…”
“China’s economy has been the world’s largest when adjusted for purchasing power parity (PPP) since 2016…”
“China is leading the global A.I. investment…”
As you might have come across those headlines on LinkedIn, BuzzFeed, TechCrunch, or other social media feeds, it seems like that China has been one of the ultimate leaders in global innovation.
It’s true that China is taking up a big chunk in the Global Weal Growth currently, as measured by the World BankBank.
And it’s also true that China’s innovations in mobile payment and e-commerce (and thus caused market volume) are making other country markets deterred.
Not even to mention that China has over 100 cities with more than 1,000,000 inhabitants. Among which, each city’s GDP is likely equal to or more than a European country’s.
And of course, with 74B USD raised, 635 exits, 22 new unicorn companies, just in 2017, China is definitely one of the innovation behemoths. Besides the first-tier internet giants, BAT (Baidu, Alibaba, Tencent; the Chinese equivalents of FANG), there are dozens of unicorn companies paddling in the second-tier. such as Ant Financial, Xiaomi (IPOed in 2018), Meituan (IPOed in 2018), Didi, and etc.
Ye, all those stats and media coverages only tell the truth of China’s current innovation phase. What you probably never heard about is:
Where will China’s next innovation phase happen?
As almost all those emerging tech giants and unicorns are in the I.T. field, will China’s innovation horsepower stay in the same zone in the next ten or twenty years?
First, let’s take a look at those two graphs:
The Top 10 States Ranked in Order of Revenue Earned by Their Largest Companies:
- Arkansas, Walmart, Inc.: $486B
2. Texas, ExxonMobil Corporation: $226B
3. Nebraska, Berkshire Hathaway Inc.: $224B
4. California, Apple Inc.: $216B
5. Minnesota, UnitedHealth Group Incorporated: $185B
6. Rhode Island, CVS Health Corporation: $178B
7. Michigan, General Motors Company: $166B
8. Pennsylvania, AmerisourceBergen Corporation: $147B
9. Washington, Amazon.com, Inc.: $136B
10. New York, Verizon Communications Inc.: $126B
Comparing both graphs, it is obvious that the largest company in every U.S. state crosses over various industries; from retail to e-commerce, from banking to electronics, from energy to food. In contrast, the largest company in every province of China tends to gather in metallurgy, automotive, manufacturing-related industries; a.k.a. the “traditional industries” in the Chinese context.
And if we take the math to a further step, we will find out that 70% of those “largest company in every province of China” are State Owned Enterprises (SOEs).
What does that mean?
- The Chinese government still seize a huge, dominant portion of key resources in core industries of China’s economy.
- Traditional sectors remain controlled and operated by SOEs, which means that
Where are those internet giants?
- Yes, each of B.A.T. and other second-tier tech giants in China is surely influential in every single Chinese’s life, but in terms of economic impact those internet giants only take up a small portion of China’s economy.
- Most internet behemoths in China have effectively reached their roots into the 2C market, but the 2B market, particularly in the “traditional sectors”, remain mostly uncultivated.
So, what you have probably missed or most English media did not weight on much is:
- The Next Round of China’s Innovation Boom Will Actually Happen in the 2B Market of the “Traditional Sectors”.
It is about the digitization process and innovative solutions powered by front-tier technologies, dedicated to improving the production efficiency and reducing management cost for large corporates or SOEs in China.
It is about a national-wide government-lead innovation campaign involving a trillion-dollar market.
My previous business trip (summer of 2018)to and market research in China are both educational and confirming that China’s next innovation boom will occur in the 2B market of the “traditional sectors”. It is difficult to see this coming up through those innovation bubbles cooked up by media, but it is an inevitable fact if we can take a closer look on relevant data and have field experience with Chinese corporates. If you are interested in validating this or learning more about where lucrative chances are, I would highly recommend you participating in a well-curated innovation trip to China to witness the whole new innovation wave arising there. You will never see the true potential behind the picture portrayed by the media until experiencing it by yourself in person.
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Also, I’m working at Accathon Capital, a global innovation platform, connecting corporate innovation with startup acceleration and bringing together top entrepreneurs and corporate teams to create innovative outcomes. You can also visit our website to know more about what we are up to. Also, we’re conducting a research project about “Challenges in the Cross-border Business”, specifically for the USA-China scenario. Want to receive a copy of the report or stay tuned in general? Feel free to subscribe to our email list: http://eepurl.com/dEiOHD.