Innovation and Entrepreneurship in China: A View from the Field
Entering the third decade of the 21st century, China’s innovation landscape is as broad, varied and colorful as her physical geography. What does that landscape look like for its main actors?
Based on Global Innovation Index research, China is the most innovative country among middle-income economies, followed by India, Russia, Brazil and so on; the US is the most innovative country among high-income economies, followed by Germany, Japan and Switzerland, etc. In terms of innovation levels, the research considers both the input and output sides: input as expenditures from education and R&D and output as patents, inventions, and positive cashflows generated in business.
As China’s startup environment grows more favorable, the country has been attracting ambitious young entrepreneurs and foreign investors. The startup atmosphere is highly centered on tier-1 cities like Beijing, Shanghai and Shenzhen, where development and openness draw in startup talents; further helping this concentration is the fact that the best universities are clustered in these cities.
Oscar Ramos, a partner of SOSV based in Shanghai, said in an interview at WIM2019 – a big innovator event in China – that the startup climate in China has improved a lot due to regional development. The Guangdong-Hong Kong-Macau Greater Bay Area (GBA) is more centered on hardware startups while the Yangtze Delta is crammed with cross-border trade startups. Regional differentiation in the economy leads to local centralized industry chains.
The GBA’s economy relies on the dividend of Reform and Opening. The manufacturing industries thrive there, where the presence of a complete industry chain has enabled the growth of companies like Huawei and Gree Electric. For the Yangtze Delta, cross-border trade grows more naturally due to its historical legacy as a port city group. Meanwhile, the success of Alibaba, formerly an e-commerce marketplace company and now a conglomerate, is bringing more incentives for startups to practice trade-related business, which completes the cross-border trade circle from trade to B2B service.
‘Made in China’ has long been a tagline for the ‘China Miracle’ – now the state is delivering a picture of ‘Created in China’ to the world, which requires higher standards in talent and innovation. “The ‘Industry-University-Research trio’ (产学研, a phrase in Chinese that stands for R&D cooperation between universities and enterprises) should integrate ‘Application’ to close the loop,” said Li Yizhong, the First Minister for Industry and Information Technology, at WIM2019. “Consolidating lab results in the real economy demands a stronger connection between research institutes and business practice,” he added.
As the investment environment in China matures, capital flushed into startups has created investment ‘legends’ one after the other – in 2018, China incubated 32 new unicorn companies, while some sectors were over-valued over the years by ‘hot’ money. The recent cooling-off investment trend yielded to a period for the market to re-evaluate the performance of previous ‘star’ portfolios, including AI- and shared-workspace companies.
“Startup founders must focus on what can create the most value for the company,” said Phillip Beck – the Chairman and Co-founder of DuBeta – at WIM2019. “2020 is coming, and startup founders must find a way to realize values and compete in an even fiercer environment of competition.”