Last week’s launch of China’s Chang’e-4 spacecraft to the dark side of the moon showed that the sky’s the limit for China’s achievements and ambitions in technology and innovation.
China’s online economy is booming, there are over 802 million Internet users (out of a population of 1.6 billion), and many companies want a slice of the digital pie. For foreign companies, their entrance into the Chinese market can be a bumpy road due to a combination of cultural and communication differences, complicated entry regulations, differing treatment, and tight regulations. Perhaps, it is no coincidence that these market conditions have given China’s own companies the space to thrive and dominate the market – a phenomenon that is particularly evident in the Chinese tech world.
Breaking Down the Great Firewall
While the Internet arrived in China in the late 1980s, it was only in 1994 when access was opened up to the public. Throughout the 2000s, the Internet became a diverse space for Chinese ‘netizens’ (Internet citizens) who used it as a popular source of entertainment and discussion, including blogging, live-streaming, gaming, political commentating and more.
Since Xi Jinping took the reins in 2012, his aim has been to galvanise the economy and its people. Championing globalization on the world stage, the ‘Belt and Road’ initiative, an anti-corruption clampdown… Xi has also exerted his influence over the Internet – the main way Chinese people consume media and information – to protect ‘social harmony’ in China. One of Xi’s keys instruments is the the ‘Great Firewall of China’, which manages exactly what Chinese Internet users can see and not see. It is actually comprised of different campaigns involving government, local authorities, universities and even private companies.
- Great Firewall – a combination of standard firewalls and proxy servers for URL filtering, IP blocking, DNS poisoning etc. of foreign websites,
- The Golden Shield Project – created for Chinese public security services for domestic Internet surveillance.
- The 50-Cent Army – an estimated 2 million people hired as ‘Internet opinion analysts’ to create pro-government content, monitor and delete online content.
- Self-censorship – while most Chinese Internet and media companies are private, they almost always have links with the government and toe the Party line. Regardless, all companies must abide by Chinese law or risk being censored or shut down.
Xi Jinping wants China to be a world leader in innovation by 2050 and a world leader in AI by 2030. In China’s relentless pursuit of innovation and technological advancements, can the country balance this with its desire for social harmony? Does the Great Firewall of China benefit or hinder innovation and technological developments in China?
Research & Development
With his vision of China as a leading global science and technology powerhouse, Xi claims researchers should be able “to freely explore and test the bold hypotheses they put forward”, which runs counter to the country’s current academic environment. Without access to academic websites, like Google Scholar (the largest and more comprehensive academic search engine), researchers have previously warned that it will be difficult for China to achieve its goals without access to other countries’ research from which to learn from and compare. The Chinese government’s actions has made it difficult for researchers in China to access, collaborate on and compare research as well as innovate. It could even lead to a brain-drain, pushing China’s best academics out of the country and abroad.
To compensate, the Chinese government are putting their money where their mouth is: investing eye-wateringly large sums of money into R&D (over RMB 13 billion for major R&D programs this year), offering preferential tax policies for venture capital investment and state-backed VC funds investing in domestic companies. As a result, China is now the second largest VC market in the world and there has been a shift to RMB, as the dominant currency of Chinese VC funds.
The government’s ‘Internet Plus’ strategy, launched in 2015, aims to integrate the mobile internet, cloud computing, IoT and big data for the benefit of China’s traditional industries. It indicated the push from the Chinese government for Chinese businesses to focus on their side of the Firewall; instead of waiting to see what Silicon Valley is doing, Chinese businesses should innovate and localize their R&D processes and business models.
Competition stimulates innovation: without competition from foreign tech companies, how can Chinese companies innovate? Equally, constraints can also stimulate innovation and the Internet restrictions have encouraged netizens to get creative in their discussions and Chinese companies to create their own social media platforms: WeChat is an amalgamation of Facebook, PayPal, Tinder and even SkyScanner with 1 billion monthly active users.
In addition, some argue that the technology market and ecosystem inside of China is so big that it does not necessarily need to look beyond its borders for inspiration to innovate. With a population of 1.6 billion, there is already enough market segmentation for companies to target different consumers and their needs, and also enough competition to drive innovation. The battle of the sharebikes between ofo and Mobike shows how fierce the competition can be: both companies have bought out their domestic competitors and are now competing globally, differentiating on sustainability and optimizing processes using AI, GPS tracking, and more.
In the age of the Internet, we are becoming more and more accustomed to high-speed Internet thanks to fibre optic broadband and cellular data, but Chinese internet connection can be slower and more unreliable if you try to access information and websites on the other side of the Great Firewall. To compensate, Chinese companies have not only developed China-specific products that provide an all-in-one solution, but they are also incredibly responsive to their customers’ needs and wants and equally fast with their speed-to-market time for their innovations.
For example, Xiaomi began selling smartphones in China before expanding their product range to smart tech wearables and home devices, which use IoT to create a personalized ecosystem for your home. Targeting price-sensitive but quality- and brand-conscious consumers, Xiaomi also differentiates on its efficiency and speed releasing new products as well as software updates once a week. It is now one of the top three Chinese smartphone manufacturers competing with Apple and Samsung worldwide.
The current environment and Internet ecosystem has favoured and allowed Chinese internet and technology companies to thrive: Baidu, Alibaba and Tencent (known collectively as BAT) did originally fill the void left by Google (banned in 2010), eBay (defeated by Alibaba’s Taobao in 2006) and Facebook (banned in 2009), respectively. Now, these companies are using the interior-facing market to their advantage – independent of any accusations of copying Western companies and their business models – to fuel their own success and innovation. Last year, Tencent was the first Chinese company to surpass the $500bn valuation mark – beating Facebook to the mark: their success, along with other Chinese tech companies, cannot simply be reduced to ‘copying’.
Like Amazon, Google and Microsoft, Baidu is aggressively pursuing AI but its human computing platform ‘DuerOS’ has the most conversation-based skills sets than Siri, Cortana and Alexa. Alibaba’s Taobao uses optical recognition search algorithms, machine learning and AI-powered marketing design platform and chatbots to improve customer experience and keep them coming back – developed in-house and so successful that 150 million users visit the site every day.
What these three companies have in common is that they focus on creating communities and ecosystems within which their partner companies can also innovate and develop their technologies inside for the benefit of all involved. Perhaps, it is no surprise then that China has the largest number of unicorns (outside of the US), many of whom are racing to master deep tech, including IoT, machine learning, and AI, in the Chinese market and globally too. If China wins the race against the US and other innovation hubs to become the world leader in innovation by 2050, it will be the most appropriate and largest sandbox given the wealth of data available and number of consumers that these companies have access to.
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Many critics did not previously believe that it could be possible to monitor and manage the Internet in the way that China had planned, but now this has become a reality for the 1.6 billion people who live in China. The irony is that the Great Firewall itself could be called ‘innovative’, as it uses the latest technologies, such as machine learning and optical character recognition, thanks to support from China’s tech giants.
There are many more who did not believe Chinese companies could move beyond imitating Western companies, but today these companies are innovators in their own rights. While the Great Firewall has previously benefited Chinese companies by providing them with a safe space and putting up barriers to competition, these companies have grown larger than the domestic market and are now pursuing innovation and technological advancements to become leaders in global deep tech markets. On the world stage, these companies like Tencent, Xiaomi and Mobike are on the same playing field as other global players, where they are competing strongly and even beating them at their own innovation game.
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