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So long, Silicon Valley. China is the world’s innovation engine.

China’s innovation leap appears unstoppable, writes John Shmuel. Even Western startups are starting to copy Chinese ideas.
John Shmuel

BEIJING and SHANGHAI — You don’t have to look very far to see evidence of the startup boom in China’s capital. On nearly every main thoroughfare, hundreds of bright yellow or orange bicycles are lined up along the sidewalk, where pedestrians stop to unlock them with their smartphones.

The bikes are a ubiquitous feature of many large Chinese cities, where bike sharing exploded into the mainstream overnight and a rush of startup companies flooded the market. While initially chaotic—damaged bikes were tossed haphazardly on the sidewalk and even on the street—a semblance of order has emerged as companies have developed loyalty programs that reward users for dropping off bikes in designated areas.

“China had an oversupply problem last year,” says Angela Cai, global PR lead for bike sharing startup ofo. “There were 20-30 industry players that suddenly emerged within six months.”

The bike sharing industry’s rapid growth mirrors that of the technology sector of Beijing and China as a whole. In just a decade, the country has gone from the world’s factory that produced cheap goods for the West to a country on the verge of being a world tech leader. To do that, it has to usurp Silicon Valley. After all, from the computers we use to the social media platforms we communicate on, our lives have revolved around technology Silicon Valley has dreamed into reality. If the Chinese tech scene has its way, some time in the not so distant future those ideas will instead come from China.

In recent years, a vast amount of venture capital funding, talent migration and government support have led to a surge of startups in Beijing. Last November, business resource company Expert Market named Beijing’s Zhongguancun district (where ofo’s headquarters are located) the world’s top tech hub—ahead of even Silicon Valley. Evidence of Beijing’s startup culture is easy to find beyond just the bike piles. You’d be hard pressed to set foot anywhere in this city of 21 million people without being a subway ride away from a co-working space filled with programmers and designers, or an office housing a new tech company.

“The West has a really wrong idea of what’s happening in China,” says Helena Javitte, director of the innovation program at DayDayUp. “They think China is copying Western technology and trying to take over the world.”

DayDayUp provides co-working spaces, as well as accelerator programs for both startup companies and large corporate firms looking to innovate. Javitte, who is originally from France, works with both Chinese companies and global firms from countries such as France and Israel who are eager to tap into local talent or gain a foothold in the Chinese market.

Javitte is based in the company’s Sanlitun office, a trendy Beijing neighbourhood where high-end Western retailers like Adidas and Apple have opened flagship stores in glitzy new malls nearby. The area is popular with both locals and foreigners, and it’s not uncommon to find those like Javitte who have come from outside of China to be part of the tech scene here.

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Emerging technologies define Beijing’s startups

Many of China’s startups and tech companies are focused on emerging technologies like artificial intelligence and self-driving cars, making the country a global leader in these spaces.

Chinese firms are benefitting from global talent wanting to work in cities like Beijing and Shanghai.

“Sometimes, it’s not even because we [companies in China] have the highest pay, it’s that we have the most exciting challenges,” said Le Shen, a spokesperson for Ant Financial.

Ant Financial is currently the world’s most valuable private technology company, with a recent funding round putting its worth at $150 billion—more than even Uber. It’s best known for Alipay, a ubiquitous mobile payment system in China that allows users to make payments with their smartphones.

Shen points to Single’s Day as an example of one of the challenges that makes China a unique market. It’s a Chinese holiday similar to Valentine’s Day, but the sheer size of the Chinese domestic market means that a crush of users head online to shop for the holiday. Alipay broke records in 2017 when it handled 256,000 transactions per second—a number that eclipsed even Black Friday and Cyber Monday in the U.S.

Ant Financial, like many technology companies in China, has also begun deploying significant resources into artificial intelligence as it sees the number of users rapidly accelerate. Its AlphaRisk system, for instance, is an unsupervised AI that can detect emerging fraud patterns and respond accordingly—without human intervention.

It’s all these challenges and projects that that help draw global talent to Ant Financial, says Shen.

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Obstacles to global ambitions

Of course, where China still needs to catch up with Silicon Valley is international success. China’s domestic economy is so large—its population is equal to that of Europe and North America’s combined—that many companies simply don’t have a need to expand beyond its borders.

Chinese companies can also be perceived negatively outside the country. Cai of ofo says that her company encountered this when it came time to expand internationally. Depictions of ofo in Western media have focused on the piles of bikes that have accumulated on Chinese streets. Toronto’s media were no different—several outlets ran with the “bike pile” angle when Ofo’s North American head of communication said earlier this year that Toronto was a “top choice” for the company’s next expansion.

There is also a prevailing fear that the Chinese government can use espionage or seize data on a whim from Chinese companies. Chinese smartphone makers Huawei and ZTE can’t get U.S. carriers to sell their phones, and have also been accused of spying on American citizens by the heads of the FBI and the CIA. To date, however, no evidence has been produced to back up the spying allegations.

To those in Beijing’s startup scene, that’s all noise. The ideas coming out of China and the speed at which they’re being executed make China’s innovation leap unstoppable.

“China used to copy ideas because of poor quality here,” says Rae Liu, marketing manager at DayDayUp. “But poor quality is not so much an issue anymore.”

In a conversation at DayDayUp’s offices, Liu and the team note that in some cases, Western companies are starting to copy ideas from China. Chinese social media companies have for years integrated mobile payments through their apps—something Western players such as WhatsApp now want to do as well.

“It feels like a real shift,” says Rei.

John Shmuel is a 2017-18 Asia Pacific Foundation of Canada media fellow.