China has long been considered the copycat nation of the world. For generations, its goal was not to build on what the competition has done, but rather play catch-up by piggybacking on other people’s technological advances and underpricing the competition. For years, Chinese copycat knockoff products have flooded western markets.
This raised concerns about brand infringement and intellectual property theft. The Chinese government has failed to protect intellectual property rights. To get a sense of the scale of this, consider the fact that China is home to fake Apple stores filled with employees who think they work for the U.S. company.
Even some of the more recent Chinese internet entrepreneurs have been accused of copycat success. For instance, isn’t Baidu just a copycat of Google, Xiaonei (now Renren) another Facebook, and Alibaba a clone of Amazon and eBay?
Challenges Creating an Innovation Culture
What’s behind this? For one thing, the United States has historically been a huge consumer market, so simply piggybacking on popular U.S. trends and providing copycat products at scale at a fraction of the cost is a fruitful strategy.
The lack of innovation certainly isn’t due to a shortage of engineers. China has the largest number of people with degrees in STEM fields (science, technology, engineering and math). According to the World Economic Forum, 4.7 million people in China graduated with STEM degrees in 2016. That figure is almost double the number of STEM graduates in any other country that year: India had 2.7 million and the U.S. a paltry 586,000.
However, this has resulted in many Chinese startups being founded by engineers and not by designers or artists, which limits the creativity the could lead to new ideas and designs. Chinese engineers tend to be very book smart but lack practical experience, which also limits their range of thinking. China’s universities don’t help the situation: they place a lot of emphasis on examinations and grades. It’s hard for students focused on test scores to become innovators.
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Innovation Runs Deep in China
It wasn’t always this way. China was once renowned as the home of many great inventions, such as paper, gunpowder, printing, the compass, the mechanical clock and even alcohol and paper money. Alchemists in China created gunpowder after they discovered the quick ignition of sulfur and niter. Paper was first created around 105 AD using mulberry fibers, broken fishnets, old rags and hemp waste. Chinese military forces first used kites to signal warnings. Umbrellas were invented for protection from the sun as well as the rain. The first compasses were made of lodestone, a naturally magnetized ore of iron around 300 BC, during the Han dynasty.
The Chinese invented many things that could have taken other countries centuries to develop, but the innovations stopped in the middle of the 15th century. Many academics have studied why that happened. The isolation that set in when the Ming Dynasty withdrew from the rest of the world may have played a part. That happened at a time when economies throughout Europe were flourishing as a result of mercantile trade. As the relatively small (in comparison to China) European states grew strong economically, they became fierce rivals, and those rivalries fostered a lot of technological competition and innovation.
A New Generation of Chinese Entrepreneurs
The copycat era is coming to an end. China is now home to a new generation of entrepreneurs who are developing their own technologies, business models and world-class products. In her books “Silicon Dragon” and “Start-up Asia,” Rebecca Fannin describes the shift that has occurred over the past decade around the expanding power, influence and impact of China’s Silicon Valley. According to CB Insights, more than 50 Chinese companies now have valuations above $1 billion.
A new generation of innovation-obsessed entrepreneurs like Huawei Technologies founder Ren Zhengfei, whose company filed more patent applications last year than any other company in the world, are at the forefront of this shift. Huawei is now the third largest smartphone maker, behind Apple and Samsung. Xiaomi has quietly emerged as China’s largest smartphone company and is aggressively targeting India and Malaysia.
The country’s two largest Internet companies, Alibaba and Tencent (which developed the popular messaging app WeChat), now lead the world in ecommerce, mobile payments, social media and online gaming. China has become the focus of global investment, and the GAAFA Big Five (Goggle, Apple, Amazon, Facebook, Alibaba) continue their quest to become universal portals for all services. Alibaba founder Jack Ma is now as much of a household name as Jeff Bezos, Tim Cook or Mark Zuckerberg. He is the richest man in China (worth $40 billion), and Alibaba’s IPO in 2014 set a record as the world’s biggest public stock offering, raising $25 billion.
In addition to the upsurge in innovation, Chinese businesspeople are rolling out new business models at a scale and speed the global economy has never seen. A new term has been coined to describe their work ethic, “996,” which refers to the schedule many people are said to keep: 9 a.m. to 9 p.m. six days per week. China has labor laws that dictate 40-hour workweeks, but many tech companies circumvent that regulation by telling employees that their jobs require flexible work schedules. The 996 work ethic is an unspoken rule at tech companies in China. Silicon Valley’s much-touted “valley speed” can look decidedly sleepy in comparison.
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The Emergence of China’s Global Innovation Hub
China is now on a mission to become the world’s largest innovation hub. It has declared its intention to lead the world in artificial intelligence (AI) by 2030 by creating a $150 billion AI industry that will fuel paradigm shifts in brain-inspired neural network architectures and quantum-accelerated machine learning. China’s road map for advances in AI is divided into three stages: Keep pace by 2020, become a leader by 2025, and be recognized as the “premier AI innovation center” by 2030.
One advantage China may have is the ability to develop the advanced hardware necessary to accelerate the evolution of AI. A recently announced chip called Thinker is specifically designed to support neural networks with very low power consumption. Thinker will be embedded in a wide range of devices, including smartphones, watches and home robots, as well as equipment stationed in remote areas.
China has other big advantages in AI. For example, it has a wealth of talented engineers and scientists and it is rich in the data necessary to train AI systems. China is amassing huge databases that don’t exist in other countries because it has fewer regulations governing data collection and use.
The results can be seen in the growth of AI startups that are quickly emerging, like SenseTime, which was launched in 2014 by researchers from the Chinese University of Hong Kong and provides computer-vision and face recognition technology to leading companies. A company called Face++ offers technology designed to detect human faces in an image and generate high-precision face bounding boxes. Technology from Face++ is already being used in several apps, such as Alipay, a mobile payment app that enables users to transfer money using only their faces as credentials. Alipay has more than 120 million users in China.
The Next Frontier: Never Downloading an App Again
This new focus on innovation and AI is positioning China to be at the heart of offering personalized consumer services. Platforms like Tencent’s WeChat are becoming one-stop shops for consumers by expanding their functionality to include payments and even ride-sharing services like Didi Chuxing. Tencent’s “mini programs” (or sub apps) now allow users to order food, book hotels, hail rides, shop online and much more.
The way WeChat is evolving, Chinese users may never have to download another app again. And that may be one of the most innovative business models the world has ever seen.