Thoughts on China’s Tech Industry
*These opinions are solely my own and don’t represent those of anyone else including my employer*
The following thoughts are based on several visits to mainland China during 2018. It is not a holistic picture of China as a multicultural billion+ person country, but rather an analysis of the tech industry as it relates to geopolitics.
China all grown up. China has managed to pull a half billion people into middle class in 40 years. They closely resemble the American baby boomers. They travel internationally, they work hard (harder actually: 12 hours a day 6 days a week) and they can make goods cheaply. As they shift from an economy of manufacturing (toys for westerners) to services (their versions of Uber, Airbnb, Amazon, Google, Expedia) not only can they manufacture for those services in-house, but their educated top level government employees and entrepreneurs pull from lessons learned in the West. By valuation, 6 of the top 10 tech firms are Chinese. The biggest advantage over the West I see (despite a sacrifice to personal freedoms and important political discourse) is the all knowing all doing government. Sure they monitor their citizens but they also have a treasure trove of massive data on a scale you can’t imagine. As machine intelligence and AI infuse themselves into everyday sectors (smart cities, self driving cars, healthcare, financial services) the winners are those with the most data. To quote an engineer at a Chinese AI tech startup, “why wouldn’t you want to work in China? We have the most data, the largest scale affecting the most people!”…. now replace the word “China” in that sentence with the word “Silicon Valley”… the same draw that brought me out to the valley.
Carving up the world. The Chinese firms are finishing up practicing in China (the government moves whole cities to let startups play with new idea). Now they’re turning to rapid international growth with heavy forays into Southeast Asia. Market share in India will be the biggest battleground and I’m curious to see how it plays out. Internationalizing services (Facebook vs Chinese WeChat) is really hard and the West is better at it so some Chinese firms are simply buying large stakes in local competitors of Google/Facebook. For example Tencent owns a large part of India’s PayPal called PayTM instead of pushing their Chinese version WeChatPay. How about Africa? Africa is lost for the West to Chinese influence. The Chinese government is investing $1 trillion building free ports, trains and infrastructure in African nations to curry their support, expand their geopolitical influence and also to find jobs for millions of Chinese workers they send out there. If you’re the autocratic government of Nairobi and want to align yourself to a US Deal or a Chinese Deal, would you prefer Malaria pills in exchange for free elections (US Deal) or a massive port that creates 10k local jobs (Chinese Deal)? Benefit of the Chinese deal: you get to stay in power forever just like China’s President, Xi Jinping (who has now removed all constitutional term limits). The choice is clear to me. So why would China buy this influence in Africa? When the UN votes on a worldwide data privacy law — having 40 African votes in your back pocket isn’t bad. And who’s leading the climate change fight now? China. China used to put up a wall, peek outside, and copy/paste everything they saw internally. Now the wall is a one way mirror — they see what we’ve done and they’re trying to make something newer and better and export it abroad.
Not out of the woods yet. Don’t get me wrong, China still has a ton of problems — 400 million people in poverty, an annoyed upper middle class tired of using VPNs to watch international sports and using nicknames on illicit chat forums to speak ill of their leader. The best tech innovations are still coming out of the West where people are more creative. But data will be king and I’d rather bet on a company with 3 creative leaders and 1000 machine intelligence/AI engineers working 100 hour weeks than a sleepy American firm bound by slow moving city governments where their employees complain about not having massages Tuesdays AND Friday. Food for thought!
Tech Trends to look out for in China:
- Voice for text communication/search — it’s culturally acceptable to talk loudly in front of others. Young people and old people use voice-to-text. Plus Chinese characters are hard to write.
- Gaming — everyone plays games. All the time. Shopkeepers and food vendors sit on their plastic stools and all play video games or watch videos all day long.
- Messaging is the new OS — Everything is done on WeChat. WeChat mini-programs are easier to make than apps and have higher distribution and remove the need to buy a new iPhone. Apple only has 50% iPhone retention in China vs 80% in the rest of the world.
