Innovation Nation: China's Return to the Top / by Thomas O'Malley

I wrote this China fluff feature for the Johnnie Walker House Edit

When the Qianlong emperor received George Macartney, Britain’s first envoy to China, in Chengde in 1793, he made it quite clear what he thought about trading goods and ideas with Britain:

Our Celestial Empire possesses all things in prolific abundance and lacks no product within its borders. There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce.” 

For a nation that had given the world paper, printing, gunpowder, and the compass, and could boast an illustrious civilization stretching back millennia, Qianlong had justification to be dismissive of the European advances.

But had he taken a different tack, the next couple of centuries might have panned out differently for China. Unknown to the Son of Heaven, 8,000km away in England, vast new factories were employing power looms and moving from water mills to steam engines. Production soared; iron-making technology leapt forward. The Industrial Revolution forged ahead at full steam, its technological benefits affecting every aspect of society and reverberating throughout Europe and later the US. China, meanwhile, stood still. It’s economy declined in the final years of the Qing Dynasty. And so followed protracted decades of war, hardship and upheaval. 

After a lengthy slumber, the mighty dragon awoke, nurtured back to prosperity by the economic reforms of Deng Xiaoping in the 1980s. State industries were privatized, competition flourished, and entrepreneurs were given official permission to start businesses. From 1978 to 2013, the Chinese economy grew by almost 10 percent a year.

For years, ‘Made in China’ and ‘Factory Asia’ became the primary driver of growth, as the world’s most populous country become the world’s manufacturing powerhouse, leveraging its size and low labor costs. But as China’s economy enters a ‘new normal’, from hyper growth to high growth, and with a rapidly expanding middle class, the world is starting to witness the shift from ‘Made in China’ to ‘Created in China’. This is the bold new era of the innovative, responsive Chinese company.

China as Global Innovator

 “You should learn from your competitor but never copy. Copy, and you die.”

The words of Jack Ma, a figure of the stature of Steve Jobs or Mark Zuckerburg in China, and the founder of Alibaba Group, the world’s largest e-commerce company. The first mainland Chinese entrepreneur to make the cover of Forbes, Ma has given the world a suite of wildly successful web businesses including Taobao, China’s eBay (but more expansive in its offerings), a site that accounted for 80 percent of the country’s online commerce in 2014.

The secret to Ma’s success, in the man’s own words, is putting the customer first. “I’m not a tech guy,” he has admitted. “I’m looking at it with the eyes of my customers – normal people’s eyes.” It’s precisely by responding to the evolving demands of China’s enormous customer base that has propelled so rapidly the growth of tech companies like Alibaba.

Alibaba unveiled Taobao in 2003, the same year that another Chinese tech company, Tencent, launched its QQ chat platform. But it was Weixin (Wechat in English), a smartphone chat app and digital wallet with a suite of Facebook-style features, that really sent Tencent into the stratosphere. As of the first quarter 2016, Wechat broke the 700 million user mark.

China’s breakneck development has occurred in parallel with the rapid rise and widespread adoption of the smartphone, meaning an entire generation leapfrogged home PC ownership. Emails and SMS messaging never fully caught on, allowing chat apps like Wechat to seize the opportunity. Wechat, and Alibaba’s Alipay, allow users unprecedented levels of functionality. Both apps are tied seamlessly with bank accounts, letting users do everything from buying dinner in restaurants to taking taxis or paying utility bills.  

Dual Track Innovation

Of course, innovation flows down as well as up. The Chinese government has been busy re-wiring the very fabric of the country for the twenty-first century, in every field from telecoms to travel. In less than a decade, thanks to colossal government investment, China has built the world’s largest high-speed rail network, connecting city’s across the country.

Meanwhile in the private sector, a more traditional form of transport is making a high-tech comeback. MoBike is a new start-up, backed in part by Tencent and the brainchild of Wang Xiaofeng, previously head of Uber in Shanghai. It represents the apex of China’s recent innovations in the realms of e-commerce and mobile technology.

In contrast to traditional urban bike-sharing programs, MoBike bicycles don’t need docking stations or a registration process; all that is required is a smartphone. The tech-loaded bikes use a QR scanner to be unlocked and so can be parked anywhere, and located via GPS within the app. The scheme has already taken Shanghai and Beijing by storm since it launched in June 2016, with thousands of the distinctive silver and orange bikes already visible on the road.

"The MoBike model,” explained Gao Fan, an associate professor of economics at Shanghai’s Fudan University talking with China Daily, “is not a result of rational planning by the government, but a product of the innovative private sector." More broadly, it goes to show how willing China is to widely and quickly adopt new ideas and systems, to everyone’s benefit. 

Seeking Soft Power

In October 2016, Alibaba branched out into the movie business, teaming up with Steven Spielberg’s Amblin Partners (previously DreamWorks). Chinese box-office sales are no. 2 globally behind the U.S, and Hollywood is desperate to carve out a share of the pie. Equally, China craves the kind of soft power that the global reach of Hollywood has given the U.S. for so long. This is why, increasingly, Hollywood blockbusters are Chinese co-productions, and stars with global appeal like Matt Damon are heading big budget Chinese epics like 2016’s The Great Wall.

Another Chinese company, Dalian Wanda Group, owned by Wang Jianlin, reportedly China’s richest entrepreneur, has already made great strides in the movie business, acquiring US theatre companies AMC and Legendary Entertainment. But that’s not enough for Wanda. Another target in their sights is the expanding service sector – specifically the global luxury hotel market. In September 2016, after just four years, the group opened its one hundredth hotel.

“For Wanda Hotels & Resorts, our company vision is to become a respected international luxury hotel company from China,” explained Ken Zhu, Executive Vice President of the group. For Ken, building Chinese brands that can stand toe-to-toe with the best in the world is the next logical step in China’s development.

“I believe that in a few years, with our overseas properties opening in the Gold Coast, Sydney, Chicago, London and Los Angeles, we will achieve our vision, while guests from around the world see a respected luxury hotel brand from China.”

Innovation Future

China is sending rovers to the moon, spreading its cultural and economic influence globally, investing in new-energy vehicles (NEVs) on its roads and developing brands that are starting to make the world sit up and take serious notice. But what, if anything, can shackle the rise of the dragon as it soars up the value chain?

Political and environmental issues and volatile stock markets remain ever-present concerns, of course, but for China to realize its growth potential in the next ten years, research by Research by McKinsey Global Institute suggests that two to three percentage points of its annual GDP growth will need to come from innovation, amounting to trillions of dollars.

To this end, the government is pumping serious cash into R&D and more recently, innovation and entrepreneurship education, laying the platform for China’s next Jack Ma. Integrated enterprise ecosystems are in place to nurture hi-tech development, from Beijing’s Zhongguancun with over 20,000 companies to Shenzhen in the south, until recently a fishing village and now home to domestic tech giants like Huawei. And that’s not to mention over a million science graduates coming through China’s increasingly well-regarded university system every year.

Taken together, the prospects looks bright for China. If the Qianlong emperor was around today, he’d surely have to agree. The “Celestial Empire” he presided over is strong once again, and getting stronger.