A global game of Go: Is China pulling away?
Investment in transportation technology is not just about innovation and out-sized returns; it’s about securing our future
The United States is no stranger to the positive economic effects of new transportation technology; early in our nation’s history, our economy was built on a network of rivers and railroads, where steamboats and trains helped move our economy and the country forward. On the heels of the Great Depression, the development of an interstate highway system born out of the New Deal led to an estimated $41 billion in government spending on highway infrastructure, propelling our country out of stagnation and into a new era of prosperity and global leadership.
The United States remains a major hub of innovation in transportation, but other countries are recognizing the strategic significance of global trade and the economic influence of a robust transportation network, particularly in the Asia-Pacific region. India, Korea, and Japan continue to build state-of-the-art transportation networks in the region, but China stands out among them for the sheer size, scope, and ambition of its plans.
Why is China’s investment in transportation fundamentally different from that of other countries, particularly the United States? Simply put, China’s demand for transportation and logistics infrastructure is the product of a much broader long-term strategic vision — one that spans nearly a century and three political epochs, beginning in the 1950s. With China’s current leadership, the country has shifted its focus from gaining political influence and economic prosperity to a grander vision: China at the center of the world. China’s current leader, Xi Jinping, is looking to broaden and strengthen the country’s sphere of influence; according to Jinping, “Being strong first of all means being a global power: being a world leader and therefore leading the world.”
A significant part of this grand vision is to rapidly transform China from its agrarian roots into a global trading hub, with highly efficient transportation networks spanning not only within and across Chinese cities but also to the continents of Africa and Europe and across the entire Asia-Pacific region. Of course, China’s steady focus on this vision spells major infrastructure development in these regions, but it also has a significant impact on investment trends in transportation technology around the globe.
While innovation in transportation technology in the United States is still believed to be leading the pack globally, government support in China in the form of direct investment and supportive regulations is paving the way for China’s leadership in transportation tech in the near future. The country’s supportive regulatory environment, along with its seemingly endless supply of cash, is a recipe for speedy development and public adoption in the sector. The prime example of this supportive backdrop is China’s national “One Belt, One Road” policy, in which the country plans to invest trillions of dollars into transportation and logistics infrastructure across the Asia-Pacific region in the coming decades. This single policy has massive implications worldwide, as the projects involved will cover about 65 percent of the world’s population, about one-third of the world’s gross domestic product, and about a quarter of all the goods and services the world moves.
While in recent months it looks as though venture funding in China may be cooling off, the transportation sector is one area of interest that is only getting more intense, as Chinese founders and entrepreneurs vie to build the Ford or FedEx of the future. Take a look at capital flows into transportation startups in China and the United States. In 2015, traditional venture capital invested in transportation-related startups in China was on par with that in the United States — about $5 billion each. By 2018, China outpaced the United States by two times, with nearly $13 billion in private capital flowing into the sector compared with approximately $6 billion in the United States.
These figures say nothing about the direct Chinese government support of new transportation technologies and infrastructure projects across the Asia-Pacific region. In 2014, government investment in new technology in the region was a fraction of the government investment in the United States. So far in 2018, the Asia-Pacific region has seen approximately $18 billion in government investment in this sector, led by China, compared with around $10 billion in the United States and approximately $9 billion in Europe. Chinese government investment in transportation tech went from relatively inconsequential in global terms to leading the region in less than five years.
Underpinning the strategic significance of China’s investment in transportation technology is the country’s reliance on foreign oil. In 2013, China became the world’s largest net importer of total petroleum fuels; by 2017, China surpassed the United States in annual gross crude oil imports by importing 8.4 million barrels of crude oil per day compared with 7.9 million barrels per day by the United States. As a result of increasing demand and declining domestic production, Chinese dependence on crude oil imports is continuously rising and is set to grow further for the foreseeable future. According to a July 2018 overview by the U.S. Department of Commerce, China’s oil import reliance is forecast to rise to 80 percent by 2030.
This is a big strategic issue for China, which in part is why the country is leading the charge globally in solar, battery and particularly electric vehicle (EV) technology. Take a look at venture financing trends for EV technology globally: It’s important to note that China’s investment in these technologies has knock-on effects throughout the Asia-Pacific region. While investment in EV technology in the region was almost nonexistent in 2014, just four years later the region saw $6 billion in new venture investment, dwarfing the United States by nearly six times.
After a global dip in investment in 2017, investment in ride-sharing and autonomous vehicle technology is seeing renewed interest from private investors in 2018, totaling nearly $12 billion in the first half of the year compared with $9.6 billion in all of 2017. Interestingly, investment by the United States and the Asia-Pacific region are about one-to-one here, signaling a more level playing field with the United States when it comes to innovation in artificial intelligence and autonomous vehicle hardware. Both the U.S. and Chinese markets are likely to adopt autonomous vehicle technology swiftly, and ride-sharing companies in both countries are seeing continued growth by expanding their platforms to other forms of transportation, such as bike-sharing and electric scooters.
While some could argue that the secular shift of capital into transportation and logistics technology is a signal of China’s further growth into the status of “global superpower,” the question remains: Where does this leave the United States? Here in Silicon Valley, I’m happy to say that the transportation sector has not seen a more innovative period in U.S. history since the invention of the steam engine, and the frontier tech team at SVB could not be more excited to help the entrepreneurs and innovators in this space move our country and our economy forward. Today, it’s up to SVB as a financial partner — along with supportive public policy and government regulation to help these entrepreneurs and ultimately our country — to cement the United States as a global leader in the future of transportation.
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