China accelerates innovation: how will Japan respond?

The process of technological innovation in China is accelerating, and the group of “new economy” enterprises behind these technologies is coming to the fore. How should we respond to China’s growing presence as a global source of innovation? This question is answered by the author, who is directly familiar with the situation at the forefront of ongoing events.

Accelerating Chinese Tech Innovation

In recent years, China has begun to offer new products and new services. Whereas in the past, Chinese-made products had a reputation for being “cheap and not very good,” now it has become not only producing high-quality industrial products, but also new services generated by the spread of mobile payments. The author divides such innovations of Chinese origin into four types (for more details, those who wish can read the author’s position in the series of articles “Accessible about economic science” in the Nihon Keizai Shimbun newspaper, issues for March 20-29, 2018).

First, there are innovations taking place in the field of production, the basis for which is the maturity of supply chains. Especially noticeable is the leadership of Chinese enterprises that focus on research and development, the most representative of which is Huawei Technologies Co., Ltd. In the field of Android smartphones, in addition to Huawei, local manufacturers such as Xiaomi, Oppose and Vivo are increasing their positions in the global market share ranking. Based on a China-based electronics conglomerate, next-generation product development is faster than ever.

Secondly, it is a mechanism of innovation, the main role in which belongs to the enterprises-creators of platforms that have emerged in the field of the digital economy. Large Internet companies, the most prominent of which are Baidu, Alibaba and Tencent, with the advent of the era of mobile communications.

are deploying services, the starting point of which is mobile applications as the central core. Alibaba’s Taobao e-commerce website is expanding functionality with the Alipay checkout app, and Tencent has developed the WeChat mobile app using experience from its QQ messenger app for personal computers.

These applications, in addition to the possibility of making small payments, allow you to purchase air and train tickets, book hotels, use car sharing services, order food delivery, movie tickets, pay utility bills, and even manage your investments. In this way, they create ecosystems of the digital economy, the core of which is the so-called “super-applications”.

The third type is social implementation innovations. The spread of the already mentioned “super-applications” and payments through mobile devices create conditions that allow excluding a person from the process of calculations. As a result, numerous completely new services are born, such as convenience stores, convenience stores, convenience stores without sales assistants, automatic bike-sharing systems, automatic restaurants, automatic car parking, etc. there were no ready-made solutions, new technologies enter the life of society by trial and error.

The fourth type is scientific and technical innovations Chinese research institutions are making progress in areas such as quantum communication and genome editing. The mechanisms of scientific and industrial interaction are also being developed, the task of which is the practical implementation of the results of scientific research, in connection with which Tsinghua University should be noted first of all. The task of commercial implementation is undertaken by companies associated with universities through the ownership of blocks of shares.

Speaking about the conditions and environment for the birth of all these diverse innovations in China, they note the existence of a gigantic domestic market, the spread of mobile Internet, the leniency of regulations and government policy to support innovation, as well as the existence of a fundamental research base. For example .

the Chinese government is striving to be at the forefront of the application of artificial intelligence and the use of so-called “big data”, and it is time for us to understand that the era has come when countries like China have begun to implement such policies, which, in terms of GDP per capita remains among the countries with moderate incomes.

The rapid deployment of the “new economy”

Particularly important is the fact that in China a mechanism is being formed for the cultivation of venture capital enterprises, in other words, an ecosystem, each element of which is connected with the whole world.

As of November 2017, 120 unicorn startups have emerged in China. This is the name given to enterprises that, without even entering the capital market, increase their value to $1 billion or more. Of the 120 such firms, 105, or 87% of the total, are located in 4 metropolitan areas – Beijing, Shanghai, Hangzhou and Shenzhen, with 54 firms concentrated in Beijing. Enterprises representing China’s “new economy”, which are concentrated in innovative cities geographically located on the coast, are experiencing impressive growth.

Note: As of November 30, 2017, according to the Chinese private research institute Heron, the list of enterprises valued at $1 billion (7 billion yuan) or more.

Source: Heron Greater China Unicorn Index 2017 (http://www.hurun.net/CN/Article/Details?num=5602F6026D18).

Shenzhen as China’s “Silicon Valley”

As the place that most clearly demonstrates the Chinese venture ecosystem, let’s look at the “Shenzhen Bay Software Industry Base” in Shenzhen City, Guangdong Province. This industrial zone, developed by a regional state-owned enterprise with full funding from the Shenzhen city government, is a hub for venture capital enterprises along with a neighboring “BioPak”. A new headquarters building for Tencent is being built in this area, and Badious and Alibaba are establishing their outpost here. In other words, three leading enterprises, which received the common name BAT, concentrated their forces here.

It is also home to a venture capital building with a large concentration of venture capital firms and venture capital service businesses around it. Thus, in this area, in addition to venture enterprises, all those who work in the digital economy are concentrated – the giants BAT offering super-apps, venture capital opening promising venture enterprises and investing funds, as well as companies providing related services .

The area also has an abundance of cafes where presentations can be made; there are often introductory meetings organized by venture capital firms, as well as events for attracting venture capitalists to investors. Perhaps this place can be called one of the real embodiments of China’s “new economy” ecosystem.