True to Form
After 200 years, China is once again leading the world's science and technology innovation
By Michael Zakkour  ·  2017-12-26  ·   Source: | NO. 52 DECEMBER 28, 2017

Visitors try self-ordering services at the "restaurant of the future" booth on the Computing Conference 2017 in Hangzhou, capital of east China's Zhejiang Province on October 11. The four-day event hosted by Alibaba Group kicked off that day, displaying latest technological achievements (XINHUA)

Until the middle Qing Dynasty (1644-1911), China was not only a global economic power; it was also one of the world leaders in the development and deployment of science and technology. China was responsible for the Four Great Inventions: papermaking, the compass, gunpowder and printing. That is to say nothing of silk, porcelain and tea. These products, and others, were key drivers of China's economy and the basis of its wealth for hundreds of years.

During the Qing Dynasty a "great divergence" occurred whereby Western nations, by way of the age of Enlightenment, became the dominant drivers of scientific and technological innovation. China largely closed itself off from the scientific revolution that was occurring in Europe, exemplified most famously when George III sent Lord McCartney to Beijing to show the Emperor the fruits of European technology and trade and was sent home with just a letter for his King letting him know that China had no need for Western products and invention.

China's development over the last 40 years, culminating in the world's second largest economy, has been one of the most important, impressive and consequential achievements of the late 20th and early 21st century, and the high point of the reemergence of a traditional global power. This Chinese renaissance has been built on a foundation of manufacturing, exports and infrastructure.

But now, in this new era, or modern China 2.0, the focus of future growth is on services, innovation, science and technology.

In 2017 China officially took its place alongside the United Sates as the world's most important hub of innovation, science and technology in the world, and is still striving to become the number one. This, however, is not an overnight success story. China's technology sector has been developing at a steady, and sometimes rapid, pace for more than 10 years and has already produced innovative products and services, as well as some of the biggest and most important companies in the world over the last 10 years. Alibaba and Tencent are now among the 10 biggest companies by market capitalization in the world, and Tencent is one of only six global companies with a market cap of over $500 billion. The U.S. has its FANG—Facebook, Amazon, Apple, Netflix and Google—and now China's BAT plus J—Baidu, Alibaba, Tencent and JD.com—are changing the world as well.

Key to success

How has China achieved its position as one of the globe's two major technology powers? Firstly through the drive, imagination, and brilliance of visionaries such as Jack Ma of Alibaba, Pony Ma of Tencent, Ren Zhengfei at Huawei, Robin Li with Baidu and JD founder Liu Qiangdong. Secondly through a government that has been willing to make a long-term commitment of money, people and resources toward research and development (R&D), a commitment to public-private partnershp for development, and through regulations and laws that have encouraged and helped to create domestic champions, who are now going global.

Thirdly this success has been achieved through a massive influx of domestic and foreign investment capital, both venture capital and private equity.

On this last point, a recent report by Clay Chandler in Fortune magazine stated that "between 2014 and 2016, China attracted $77 billion in venture capital investment, compared with just $12 billion in the preceding two years. China is now among the world's top three markets globally for venture capital in digital technologies including virtual reality (VR), autonomous vehicles, 3D printing, drones, and artificial intelligence (AI).

Danyi Yang, Practice Leader at Frontier Research Group consultancy firm, says that not only is investment funneling into China, but Chinese technology is going global. She explains that a major development this year was "the global influence of Chinese tech players and their online behaviors. Companies like Alibaba initially expanded abroad to follow Chinese outbound travelers, but they are now investing even more heavily to build local infrastructure and capture local customers around the world. Examples include Lazada in Southeast Asia and Paytm in India. Global mergers and acquisitions will remain a critical strategic area for Chinese tech companies."

This year was also the year of the Chinese "unicorn", a term used for startups that reach $1 billion in valuation. China has 262 such companies, accounting for 43 percent of the global total. The rise of the Chinese unicorn is further evidence that innovation, new concepts and new ideas are the new normal in China and on the world stage.

We can look to Tencent for one example of how Chinese technology is creating new experiences for consumers. More than 800 million people are now using WeChat's red envelope feature. During the Spring Festival in China, friends and family give each other red envelopes for luck and prosperity. WeChat has digitized the tradition, empowering users to gift other people money through the app. The lucky recipients get red envelopes as credits that they can then use to buy other products.

Alibaba has also grown exponentially this year by integrating online and offline retail, mastering mobile technologies, using the power of self-developed data science tools and the power of cloud computing to fundamentally reshape the way people in China, shop, travel, entertain themselves and start businesses.

Foreign companies are now copying and applying Alibaba technologies and ideas for use in their home markets.

Chinese companies have also saved the QR code from the obscurity of its industrial and manufacturing roots. Tencent, Alibaba and others use QR codes for an amazing array of functions including social groups, brand affinity, signs, price lists, menus and cash registers, enabling orders to be processed more efficiently and accurately.

More to come

Why was 2017 such a pivotal year for China's technology sector?

"Chinese technology really went global, for instance Alibaba kept investing in smart cities not only at home but also abroad. Huawei made a major push in building its international network from building an R&D base in Tokyo and an innovation center in Nigeria, to winning a network upgrade contract in Iran, and signing collaboration agreements with French and American tech firms. The battle for Africa continued throughout the year: Alipay arrived in Africa, while Huawei teamed up with WorldRemit to also offer mobile payments in Africa," said Ashley Galina-Dudarenok, CEO of Cho-Zan, a Hong Kong-based China technology consultancy.

Galina-Dudarenok also points out that in 2017 Chinese mainland firms established global dominance in digital payments, drone manufacturing and AI as well as state of the art facial recognition systems, which can now be used in China to authorize payments, provide access to certain facilities, and track down criminals.

There are legitimate concerns about how some of these emerging technologies will be used in regard to privacy and potential hacking vulnerabilities, much like the way Twitter and Facebook have been compromised and used for less than savory purposes in recent times, but this is true of emerging technologies from other parts of the world as well.

Yang, of the Frontier Research Group, notes that "China's local tech landscape is highly differentiated from other global markets due to strict government control. Therefore, local tech giants such as Alibaba and Tencent have been expanding across business areas including e-commerce, social media, entertainment and cloud computing, which will continue in the next few years. While we have begun to see the investment market becoming more rational about the sharing economy fad, new tech investment areas like e-sport, AI, new retail and various other O2O (online-to-offline) platforms will keep emerging in 2018 given the rapidly changing digital industry environment."

In 2018 China and Chinese companies are expected to further solidify the gains made in 2017. Key areas of expansion and growth for technology will include e-commerce, AI, cloud computing, semiconductors, telecom networks, supercomputing, green tech and VR. China's reemergence as a global economic, cultural, geo-political and financial power was achieved over a 35-year period. This was the year China could rightly claim it's reemergence as a technology, science and innovation superpower.

The author is Vice President of China/Asia Pacific Practice and Global eCommerce Practices at Tompkins International

Copyedited by Laurence Coulton

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