China, the beast of innovation

China, a nation that has dominated the world multiple times over the past thousand years, is on its way to repeating history once again. Economic reforms introduced by communist leader Deng Xiaoping in the late 1970s propelled China into a nation now seen as worthy of challenging the US for the No. 1 title. In 2017, PricewaterhouseCoopers (PwC) reports that the Chinese economy will overtake the US as the largest economy by 2030. China averaged 10% annual growth between 1999 and 2008, and has hovered between 6 and 8% in recent years. With the recent push for technological innovations, we may see growth in numbers and eventually overshoot to become the world’s largest economy.

“China has long been one of the richest countries, that is, one of the most fertile, best cultivated, most industrious and most populous in the world.” Quote from Adam Smith’s magnum opus “The Wealth of the Nation.” In fact, in recent years, China has taken concrete steps to make it a reality. In 2015, China announced “Made in China 2025”, a strategic plan detailing the steps needed to equip and transform the nation with local technological innovations and orchestrate the Chinese equivalent of the Fourth Industrial Revolution. In 2017, China’s spending on research and development totaled 1.76 trillion yuan ($279 billion), up 14% year-on-year. In fact, a term was invented to describe China’s unique innovation policy and its ability to drive innovation and technological advancement within its own geographic boundaries. Dubbed “Indigenous Innovation”, China has set itself up to be the next world capital of innovation and technology. Below are some of the reasons why China may dethrone the US in the next decade or so.

1. Size matters. China is a huge nation, either because of its geographic size or because of its population. While China and the US are equally large at 9.3 million square kilometers and 9.1 million square kilometers respectively, China outnumbers (no pun intended) the US with over 1.4 billion citizens, over 4 times the population of the US. China’s high rate of technology adoption as well as its closed ecosystem has created a perfect environment for Chinese companies to grow and prosper. With more than 772 million Internet users, China is a data haven. Furthermore, it has long been known that citizens in China are more permissive in sharing their personal data, a stark contrast to Western nations where personal data policies and regulations are strictly enforced. The recent Cambridge Analytica saga regarding Facebook user data highlighted the importance of keeping personal data private, but it’s something we may never see in China. However, reports of the employment of “emotional surveillance” where the brainwaves of employees are monitored at military sites and state-owned companies seem to have crossed the line in their latest efforts to monitor their people.

2. Chinese government support. Policies such as China’s 13th Five-Year Plan (2016-2020) and Made In China 2025 are strong evidence of China’s ambitious plans to establish itself as the world leader in technology. Subsidies, low-interest loans and tax breaks are among the supports tech companies are expected to receive as part of China’s plan to boost research and innovation within the nation. It’s more,

Instead of making Western companies like Google, Facebook and Twitter prosper, the Chinese government encouraged domestic companies through protectionism and huge subsidies. Local tech giants like Baidu, Alibaba and Tencent, commonly known as BAT, were able to grow in a protected environment and have the whole Chinese cake to themselves. Since then, these companies have expanded abroad through acquisitions and the creation of research and innovation centers, a move that many nations have considered a blatant act of “technology import,” also known as technology transfer.

3. Lastly, it’s just sheer ignorance about China. In fact, many who have little awareness of China today would still perceive it as a “copycat” country that thrives on manufacturing counterfeit and “Made-In-China” products for the outside world. The fact is that they are now producing innovation leaders and they are the ones to beat. A good example is Shenzhen, which has evolved along the way to become its own innovation hub. Known as China’s Silicon Valley for hardware, Shenzhen is home to many of the companies that produce the tech product we see today, from drone producer DJI to iPhone maker Foxconn. It has positioned itself as a hardware and IoT hub for many electronics manufacturers and a hotspot for Chinese tech startups. Ignorance used to be a blessing when one can freely enjoy the low cost of manufacturing in China; ignorance is now an imminent threat of takeover.

“China has a pretty deep understanding of what’s going on in the English-speaking world, but the reverse is not true.” Quote from Andrew Ng, co-founder of Coursera and one of the pioneers in Artificial Intelligence.

The future will be dominated by technology, and China has prepared itself to be part of the future. President Xi Jinping knew the difficulties of sustaining China’s economic growth and understood the potential of technology to scale millions of businesses and eliminate inefficiencies while benefiting end consumers.

However, it would be naive to conclude that China will overtake the US simply on the basis of superior technology. The possibility of a trade war between the US and China only benefits China, as it has the advantages of economies of scale and a single, independent market. The ongoing trade surplus with the US is evident from the US’s dependence on China’s products, and a trade war will only hurt the country with price increases in consumer goods. The trade surplus for the first quarter of 2018 soared nearly 20% to $58.25 billion, citing the possibility of a trade war. Furthermore, China has been expanding its economic and political influence with the Belt and Road Initiative (BRI). Expected to cost more than a trillion dollars and impact 60% of the world’s population, the BRI is the Chinese’s biggest undertaking since the Great Wall of China. All signs point to the fact that China has the money, technology and influence to dominate the world.

In general, China has evolved from a nation of imitation to one of innovation, from one of product production to one of product invention. China is the elephant in the room that Western counterparts have chosen to take for granted for decades and ignore its uprising. Perhaps it is time for the world to take a good look at China and, ironically, replicate what they are doing now. For the US, cooperation may be the best and only way forward.

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