A Rising Rivalry
Rebecca A. Fannin, founder of Silicon Dragon Ventures and author of Tech Titans of China, looks into how the US and China are racing to lead the global tech industry
The United States is the world’s technology leader, but China is catching up at a fast pace. Various factors have contributed to the Asian country’s growth, including the government’s ambitions to make the country a tech superpower, and investment in “unicorns”—China now has 86 startups valued at $1 billion or more, compared with 151 in the US.
China already has the world’s largest internet and mobile communication markets, the highest number of STEM graduates, at 4.7 million, the most scientific academic papers published and more supercomputers than any other country, according to Fannin’s new book, Tech Titans of China. It is also in second place in patent filings globally, at 21% of the world total, just behind the US at 22%.
Rebecca A. Fannin is a leading expert on global innovation. Following the flows of venture capital money, she became one of the first American journalists to write about China’s entrepreneurial boom, reporting from Beijing, Shanghai and Hong Kong.
Fannin’s first book, Silicon Dragon: How China is Winning the Tech Race, profiled Jack Ma of Alibaba and Robin Li of Baidu, and she has followed these Chinese tech titans ever since. Her second book, Startup Asia, explored how India is the next up-and-comer, again predicting a leading-edge trend. In September, her latest book, Tech Titans of China: How China’s Tech Sector is Challenging the World by Working Harder, Innovating Faster & Going Global, was released. In this interview, Fannin discusses China’s new wave of tech giants and what we can expect to see coming out of the country’s tech sector in the future.
What inspired you to write Tech Titans of China and what is its purpose?
My first book, Silicon Dragon was published in 2008 and documented the early China internet revolution and the entrepreneurs who were behind it, such as Jack Ma and Robin Li. The book followed the rise of Alibaba, Baidu and Tencent, but much has changed over the last decade since these companies took center stage. As China developed, a whole new group of newcomers have emerged, such as ByteDance, Didi, DJI, SenseTime and Xiaomi. In addition, the whole venture capital market has changed.
I felt I needed to tell the story of how much the tech system has transformed in China, as well as how fast it’s all changing now and how advanced it has become. If you look at the statistics, there are many indicators that reveal how China’s market is gaining on Silicon Valley.
When my first book was published, nobody could believe that China’s tech sector was advancing quickly, except for those who were following it closely, so there was a lot of pushback from Silicon Valley. And now, the growing power of China’s tech world has progressed so far that it’s become a challenge to Silicon Valley. Chinese companies are producing new business models that are in some ways more advanced than what is available in the Western world. It’s been a remarkable journey really.
What are the most important ideas that readers should take away from your book?
Silicon Valley remains the global technology leader in many ways, but China is rising quickly. Just as the Western world has Amazon, Apple, Facebook and Google, China has its own tech titans, dominating their market. Chinese tech giants are also expanding into all kinds of new markets, away from their original core business such as from search, e-commerce and social networking toward new areas like AI, biotech, fintech and robotics. These companies are not just giants, they continue to be innovative.
Meanwhile, a whole new group of tech newcomers have sprung up in China and these fast-charging startups have become unicorns very quickly.
China is now the world’s second largest venture capital market, as well as home to the world’s second largest number of patent applications and patents in use. It recently came close to surpassing the US on national spending.
A talent base has grown up in China, and these entrepreneurs are more confident than any generation before them. They are aggressive, they’re hardworking, they’re innovative and always pushing to scale up and branch into new sectors.
So many changes have been taking place not just in the internet market, but also in AI, mobile apps, robotics and social commerce—and China is advancing in all of these.
There are other areas where China is innovating, such as in electric vehicles where the country is getting ahead. This is partly because of the government’s push to develop its own industries, but there is a lot of venture capital money and talent behind it too. Numerous private companies have developed as a result.
What is there for Western tech companies to learn from the development and operational models of Chinese tech companies?
Chinese founders are very aware of what is happening on the ground at a grassroots level. They’re competitive and able to withstand challenges without going back and automatically looking for new funding. They’re able to last longer on the original capital that they raised, which I think is something that entrepreneurs in Silicon Valley can learn. In many Chinese startups, they first make sure that they have the China market sewn up before they look elsewhere, which is another key lesson.
A significant difference is also in the two countries’ working habits. China is known for its 996 entrepreneurial culture (working from 9 a.m. to 9 p.m., six days a week), which some say is not necessarily a good thing. In Silicon Valley it’s more like eight to six, five days a week. There used to be more of an entrepreneurial flair in Silicon Valley during the dotcom rush, but China has surpassed the US when it comes to entrepreneurial energy.
Because the pace of work in China’s tech sector is so fast, innovation is also happening quickly. China has been able to leapfrog the personal computer age right into mobile. Being able to do so was a huge advantage for China.
China’s mobile market is much more advanced than in the Western world.
Overall, Chinese entrepreneurs can stretch capital to last, they’re grassroots hungry, driven and very passionate because the opportunity is huge and they want first-mover advantage.
What are some misunderstandings that people have about Chinese tech companies?
The biggest misunderstanding is that people think it’s all just about copying, but there’s a lot of innovation going on, particularly around business models. For instance, a revenue source that really took off in China that didn’t become popular in the West is the sale of virtual goods to support a website or mobile app.
Another innovative business model comes from TikTok, the 15-second video app developed by ByteDance, which has become popular not just in China, but internationally.
Are there any Chinese tech companies that you are particularly excited about right now?
There are a few that stand out. The drone company DJI, based in Shenzhen, is solid and innovative, although it’s faced some security concerns in the US as a Chinese-originated company. DJI has more than half the world’s market share in drones and the company has a visionary entrepreneur.
SenseTime is another company that the world should watch. SenseTime has solid backing as well and is obviously working in a hot area right now—AI. China’s AI sector is growing like crazy, particularly in tech involving security and surveillance, though some challenges have been placed on this sector by recent US restrictions on sales to Chinese AI companies.
Pinduoduo, in the sector of social commerce, is also a company to watch. Social commerce is another idea that originated in China and hasn’t reached the same level of popularity the US. Pinduoduo has combined social commerce and gaming, which I find incredibly interesting.
What do you see for the future of the China-US race to lead tech?
We have the two superpowers racing with one another, with the China-US tech and trade wars escalating. If this continues, we’ll start seeing separate spheres of influence develop and less cross-border activity, investment and fundraising. We’ll see these two spheres develop separately, and this trend will escalate.
From the US perspective, do you feel they are on the defensive about China’s rise? How so?
Yes, there is a certain level of fear involved from the side of the US, which feels threatened by China’s rise. The Huawei restrictions are a clear indication of the US pushing back. There are also stricter regulations on Chinese investments in America. US regulators and policy makers are keeping a much closer watch on Chinese companies doing business in the US. These are all friction points, for sure.
Why haven’t mega China apps, such as Alipay and WeChat, exploded in the same way in the US they have in China?
The US simply doesn’t adapt to new technologies as swiftly as the China market does. The China market is younger and more digitally savvy than the typical Western consumer.
To use WeChat and Alipay in the US, you must have a Chinese bank account, so that’s an automatic deterrent. Alipay and WeChat are not going to really take off in the US unless banking regulations change.
Moreover, Apple Pay is not nearly as commonly used as WeChat and Alipay are in China. Mobile payment in the US has not caught on to the extent that it has in China. People in New York City still use cash, which is sometimes hard for me to wrap my mind around.
It’s interesting to see how other industries such as e-retail have taken off in China, but have been slow to catch on in the US. Super apps are much more developed in China than anywhere else in the world. We don’t have anything like Meituan (a food delivery app) in the US—the closest thing would likely be Uber and Uber Eats.
What business opportunities do you predict will arise from the race to lead tech?
Both sides will have to strengthen their own capabilities and just like anytime you have two competitors, each of them tries harder, right? It could spur innovation because each side is under pressure to produce and innovate faster.
What role is there for outside investment in China’s tech sector?
There are a number of startups that are on the leading edge and they need capital to grow and to get to the next level. More funds are raised recently at substantial amounts to invest in China’s tech sector, primarily from a core group of firms that have an established track record of Chinese investing.
The primary source of funding for China’s tech sector is from China funds that have a Silicon Valley anchor, those that have a China base, as well as several new funds that are offshoots of long, established players. At the top is Sequoia Capital China, which has the largest funding levels in China and is among the most active investors.
Venture capital funding globally has been centered on China and the US, but now more money is starting to flow into Southeast Asia and other emerging markets in light of the recent China-US tech and trade frictions.
What can we expect to see coming out of China’s tech sector in the future?
We will definitely see autonomous driving developing to a much fuller extent than it is now. Smart cities with self-driving cars, self-driving buses and self-driving trucks will soon become a reality. We’re going to have cities that are entirely powered by AI. I believe China is going to lead in that.
Transportation is one of the sectors that has been totally disrupted. All of the tech developed for smart cities, such as big data and sensors, go together to form the basis of super smart cities, which is one area where China is headed and could take the lead in.
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