It used to be the case that Chinese tech companies built a foundation in the domestic market by copying the business models of successful US companies and localizing them to make them more relevant for Chinese consumers.
Baidu was China’s answer to Google, Sina Weibo was China’s Twitter, and Alibaba’s Taobao was a Chinese version of eBay – with some incremental tweaks.
Photo credit: Baidu
Today, that is changing, and companies in China’s rapidly expanding tech sector are now driving fundamental innovation that is increasingly being adopted elsewhere, according to many investors who attended an Asia Venture Capital Journal private equity forum in Beijing last week.
“It used to be called either ‘me too’ or ‘me better,’ which means Chinese companies learned from the US model and then sought to replicate or improve it for the Chinese market,” said Jonathan Wang, partner at Orbimed, an investment firm that focuses on health care.
“But now, fortunately, we’re seeing real innovation coming out of China and not just copying,” said Wang, adding that in his field of health care many new medicines and treatments are now being produced in China and bought by US companies.
China has recently signaled its ambition to become a global tech superpower, with top leaders – including President Xi Jinping – saying that science and technology is one of the main battlefronts of the economy. Part of the campaign is the Made in China 2025 strategy unveiled in 2015, which aims to break the country’s reliance on foreign technology in sectors such as robotics, semiconductors, aerospace, and new-energy vehicles.
At the recent National People’s Congress, Beijing also called on the private sector to beef up its investment in basic research, which is seen as a foundation for China to cut its reliance on foreign technology. Basic research aims to improve scientific theories, which can then be used to improve applied technologies and techniques. China is often seen as being good at applications but less strong in fundamental research.
“China has seen some developments in fundamental innovation recently, especially in the areas of 5G and quantum communications,” said Xiong Zhang, professor of computer science at Beijing University of Aeronautics and Astronautics. “But China is still trying to catch up with the Western leaders in most fields.”
China has already surpassed the US in number of published AI papers, and the country’s AI researchers are poised to be in the top 50 percent of most cited papers this year and in the top 10 percent next year, according to findings by Allen Institute for Artificial Intelligence, a Seattle-based non-profit that conducts research and engineering projects.
“Citation counts are a lagging indicator of impact, so our results may understate the rising impact of AI research originating in China,” the report said.
But even the experienced investors attending the forum thought Chinese tech companies need to do more in the realm of fundamental research.
“If you look at the composition of unicorns in China, 50 percent of them are ecommerce-related or focused on the commercialization of B2C (to consumer) models, whereas 40 percent of [US counterparts] are focused on AI and robotics – areas that are more related to fundamental research,” Esther Wong, managing director of strategic investment at SenseTime, one of the world’s biggest AI unicorns, said at the same conference.
Nevertheless, Wong said that in China’s investment industry, opportunities and sentiment towards enterprises that provide hi-tech solutions to companies instead of simply serving consumers was definitely rising.
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