China 2.0: From imitation to innovation

China's start-up scene is buzzing, with coastal cities gearing up to rival Silicon Valley. Long considered a nation of imitators rather than innovators, perceptions of the country are shifting, with investors flocking to fund innovative new Chinese tech companies.

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By George Hammond / Springwise Staff Writer

If imitation is the sincerest form of flattery, China is the consummate charmer. Whether replicating consumer electronics, luxury cars, cigarettes or even entire brands, Chinese counterfeiters have been prolific. Historically, the effect of this industrial-scale imitation has been to suppress home-grown innovation and discourage established foreign brands from investing in the Chinese market.

That model is changing. A growing middle-class; substantial government investment in R&D; a developed manufacturing infrastructure and changing cultures in workplaces and schools are making Chinese soil fertile for innovation. From that soil thousands of start-ups are springing up, creating products for the Chinese market and, increasingly, exporting them abroad.

There have been a number of profound changes in China which have encouraged disruptive technological innovation. The first of those is state-led: the last decade has seen a drastic increase in government R&D spending, from 1.6 percent of GDP in 2010 to 2.1 percent in 2015 – compared to 2.7 percent in the US that year – and an aspiration of 2.5 percent by 2020. That outlay, coupled with a raft of government initiatives to actively promote innovation – most notably the $300 billion Made in China 2025 program aimed at creating self-sufficiency in areas including electric vehicles and computer chips – have helped to propagate the start-up environment.

Substantial infrastructure – developed in line with China’s ascent to the world’s largest manufacturing nation – has also been critical. The factories that proved so capable at replicating Western technologies are just as adept at building original Chinese designs, and they are not in short supply: coastal manufacturing hubs like Shenzhen are teeming with facilities capable of building high-tech goods.

Equally important is the inherited experience from innovation pioneers who are now supporting a smaller home-grown businesses with cash and expertise. The first generation of Chinese tech entrepreneurs – the likes of Tencent founder Ma Huateng or Alibaba’s Jack Ma – were obliged to look beyond Chinese borders for investment, while the current crop of pioneers can access domestic investment from any number of angel investment groups. Two multi-billion dollar companies founded in 2010, smartphone maker Xiaomi and group deal site Meituan both benefitted from substantial domestic investment at an early stage. 2010 also saw the launch of China’s first hackerspace, XinCheJian in Shanghai. The first of many, XinCheJian is a clear marker of a culture of innovation taking hold.

The massive expansion of the Chinese middle class has also had a big impact on innovation. McKinsey, a global consultancy, estimates that the Chinese middle class now amounts to 225m, expected to rise to 275m by 2020, from a baseline of just 5m in 2000. That boom has created an enormous new swathe of consumers, justifying ever greater expenditure towards innovative new products.

All of that has laid the foundations for a vital, innovative Chinese start-up scene. Dynamic Chinese businesses have already come to dominate their industries at a national level, and are increasingly threatening international incumbents in their own backyards. Weibo, WeChat or Lenovo have all flourished not simply by copying existing technologies, but by augmenting, inventing and innovating.

Beyond these behemoths, a wealth of small, disruptive companies are emerging in fields as diverse as driverless cars, wearable tech, artificial intelligence and the Internet of Things. Shanghai’s Emotibot is making strides in artificial intelligence and machine learning, with the development of more emotionally intelligent chatbots. Elsewhere, BlockCDN have developed a blockchain-powered, decentralized content delivery network which enables users to sell their unused bandwidth, bringing down the costs of distributing content. Operating at a larger scale, Xiaomi’s coverage of Internet of Things devices is already fairly comprehensive, and consistently growing – offering everything from air purifiers to rice cookers and fitness trackers.

China’s startup-scene is clearly in rude health, a point underscored by the creation of Hyperstarter – a tool which analyzes crowdfunding pages and offers suggestions for improvement. These innovations are just a tiny sample of the of ideas featured in the Springwise database.

That database covers a decade of innovation. Tellingly though, almost half (44 percent) of features from China have been in the past 24 months. With a powerful government agenda, swelling consumer base and domestic companies leading a strong innovation culture, we should expect that number to grow.

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The Wall Street Journal News Organization was not included in the creation of this content.