The innovation game: Can China regain its lead over the West?

When the media talks about the ‘tech giants’, what particular companies come to mind?

For a lot of us, it’s the likes of Google, Amazon, Facebook and Apple. Smaller, but game-changing companies, like Tesla and Uber might also get a look in. But what about Didi Chuxing, Xiaomi or Meituan-Dianping? Ring any bells?

Those Chinese enterprises aren’t exactly household names in the West; but, according to Christina Larson (in a report for Wired), they comprise “three of the world’s top five most highly valued private companies.”

Clearly, the notion of China as a supplier of cheap manufacturing capacity for the West is getting out-of-date:

“…a few years ago, China’s leaders decided they wanted the country to be known for a new kind of electronics – not only ‘Made in China’, but ‘Designed in China’.”

What China’s leaders want, they usually get:

“China [now] has the largest number of unicorns outside the US. In 2014, it overtook Europe as a destination for venture capital, according to PricewaterhouseCoopers.”

(In this context, a unicorn is a start-up business, typically in the tech sector, valued at $1 billion or more.)

Some might suspect that the Chinese have merely graduated from copying western products to copying entire business models. Larson argues there’s a lot more to it than that:

“China’s established internet titans – Baidu, Alibaba and Tencent, sometimes called ‘BAT’ – began as clones of US companies like Google and eBay. But these giants have since evolved in distinct new directions, rather like megafauna evolving new breeds within a Galapagos Islands ecosystem.”

That “ecosystem” is certainly well-protected from the outside world by trade barriers. Nevertheless, the pace and scale of development is impressive:

“In a country where personal cheques and credit cards never went mainstream, paying with your smartphone has become the norm: in 2016, China’s mobile payment market was 50 times the size of that in the US, according to research firm iResearch. Now the sidewalks of Beijing and other metropolises are crowded with millions of bright orange and yellow ‘smart’ bicycles, activated by commuters who scan a QR code with their phone camera and pay using one of the country’s two dominant digital platforms, Alipay and WeChat Wallet.”

In many ways, China is going further – and certainly faster – in applying technologies whose fundamentals were developed in the West. But is it enough to make the most of what’s already available?

As I’ve written about previously, innovation follows pathways whose potential eventually becomes exhausted. Unless they make the conceptual leaps necessary to discover new pathways, businesses, industries and eventually entire economies can find themselves themselves running out of steam.

It’s easy to feel overawed by the Chinese rate of economic growth (especially compared to ours) – but, of course, they’ve had the advantage of being able to implement in a few decades technologies that were originally developed elsewhere over centuries. Indeed, they’ve been able to leapfrog intermediate stages of development that the West not only had to implement, but also invent in the first place.

There was a time when westerners were the catch-up kings, making the most of technologies that the Chinese (and other civilisations) had invented centuries earlier – such as paper and gunpowder. But eventually, to maintain our forward momentum, we had to become the pioneers. It won’t be long before modern day China has to do likewise.

It’s a challenge the Chinese government understands, hence their massive state-led investments in frontier technologies like quantum computing. An awful lot hangs on whether China’s top-down approach to fundamental innovation produces better results than the mostly market-driven approach of the West.

---

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.

peterfranklin_