It’s not exactly a secret that the early days of China’s tech industry, just like the early days of pretty much all of its other sectors, revolved around let’s say “importing” technology if we were to be elegant, whereas others (especially US entities) would most likely choose more blunt terminology. In other words, something which shouldn’t surprise those with even modest business acumen the least bit, China was just not sophisticated enough to innovate for many decades.
Instead, what took place at the beginning of China’s modernization process was a combination between wage arbitrage (with companies doing business in China so as to take advantage of its much lower labor costs) and an inevitable transfer of technology. However, as initiatives such as the “Made in China 2025” (announced in 2015 by President Xi Jinping as an effort to reduce the reliance of China on Western technology and move to an “in-house” approach when it comes to research and development) make clear, such a state of affairs cannot continue indefinitely.
A transition therefore started taking place.
In light of the fact that it is difficult to imagine the Internet without a search engine, Baidu came as a response to Google. The same way, Alibaba’s Taobao manages to successfully cater to the online commerce demands of the Chinese public, like Amazon and eBay do in the West. From these basic digital needs to even more specific services such as Twitter-replacer Weibo for microblogging, China understands the importance of having strong domestic players to not just cater to the Chinese consumer but even dominate abroad.
Even if we limit ourselves to simply seeing things from the perspective of domestic demand, a population that exceeds 1.4 billion and a steadily growing GDP Per Capita represent a more than generous pie for any company. However, as players such as Huawei make clear, Chinese companies are not just interested in making the most of their domestic markets. Sticking to the Huawei example, it’s worth noting just how aggressive they have been when it comes to 5G infrastructure, with China even having long-term plans with respect to 6G.
Of course, context needs to be kept in mind. Even with the tremendous progress that has been taking place, Chinese tech companies are still tackling basic necessities of the public such as online commerce to a greater degree than their Western counterparts. For example, roughly 5 out of 10 so-called Chinese “unicorns” can be considered projects that focus on commerce-related needs, whereas when it comes to let’s say the United States, 4 out of 10 US “unicorns” tackle more sophisticated and research-dependent issues such as AI and robotics. Again, a market does not simply mature overnight.
Even so, however, China is surpassing Western players even when it comes to fields such as AI. When it comes to AI specifically, for example, there are already more AI papers being published in China than in the United States at this point. While also a function of China’s population, it does make it clear that progress is being made and the same principle applies when it comes to other hi-tech fields.
All in all, whether we’re talking about cutting-edge fields China is already dominating (such as solar and wind energy production, to name a surprising one) or, as mentioned previously, about fields China is poised to dominate, it becomes clear that Chinese companies have bold plans.
However, this doesn’t mean there aren’t challenges involved. Anything from the tech sector layoffs experienced in 2018 due to issues such as P2P lenders going through difficulties to geopolitical hurdles brought about by the attitude of Western nations like the United States when it comes to companies such as Huawei. Growing pains are without a doubt inevitable.
But as a conclusion, even the fact that companies like Huawei are seen as a systemic threat by countries such as the US makes it clear that Chinese tech companies have come a long way, from being mocked through terms such as “copy/paste operations” to being perceived as significant economic threats by some of China’s trading partners. At the end of the day, the transition from cheap labor-oriented fields to more sophisticated sectors is crystal-clear, with the positives (company valuations, the tech industry as a percent of China’s GDP, etc.) as well as negatives (growing pains, geopolitical challenges, etc.) representing proof to that effect.