Can China overtake Silicon Valley in the next few years?

Jeremy Arnold

Jeremy Arnold, Consultant. Ancien co-fondateur. Fond d'analyste d'affaires.

Mise à jour il y a 120w · L'auteur dispose de réponses 838 et de vues de réponses 6.3m

The Chinese have no national interest in replicating Silicon Valley.

That wouldn't play to their strengths, nor would it establish the future they've long been working toward.

Keep in mind the lesson of the Olympics. China picks the events it thinks it can win, then throws unmatchable resources at them until they do. There's a reason they don't field a competitive hockey team: it wouldn't build on an existing strength, and there is no obvious ROI to justify building the competency from scratch.

What does China want?

It is in their interests to shift from traditional manufacturing clusters to those suited for global competition in high-margin sectors (advanced electronics, especially). But this is more in line with the 90’s version of the Bay Area than today’s incarnation.

Silicon Valley arose from the confluence of brainpower and capital in a single geographic area. Startups there had unparalleled access to talent, research, private money, and complementary services. At the time, these resources were largely leveraged in the service of sophisticated hardware production.

As the region matured, it kept those advantages as the core of its spine, but began applying them to more evolved goals. The word of this era is “scalable”. VCs there want exposure to high-upside experiments that can provide out-sized marginal profits. Manufacturing, while still present, is no longer as sexy a proposition.

Every region, if smart, plays to its unfair advantages. For the Bay Area, that’s their legacy positives multiplied by their present concentration of CS-focused STEM talent. This means software. The next Facebook simply isn't reaching terminal velocity anywhere else (apologies to Boston and Seattle).

What’s keeping China from taking that mantle over time?

As others have pointed out, China has significant barriers to attempting a copycat cluster. Their IP laws are lacking and poorly enforced; their business culture isn't readily compatible with radical originalism; their VC infrastructure is still nascent, and they have no ability to will a Stanford or a Caltech into being.

But that doesn't mean they don't have their own advantages.

  • They already have comparable competencies when it comes to complex manufacturing and product logistics (at a much better labor cost).
  • They have a government willing and able to pump obscene amounts of money into the system.
  • Their local market is massive and well-suited for rapid domestic scaling (with most customers being particularly adoption-friendly).
  • They have less bureaucracy to deal with when it comes to getting things done (especially when your project is a "government priority").

So, if not Silicon Valley 2.0, what’s their endgame?

If you fast forward to 2025, ask yourself where the next Amazon or Samsung is going to come from.

We already see the early waves of this shift in motion with Alibaba, Lenovo, and Huawei. Give them another decade and I'd suggest that they'll have an insurmountable lead for anything involving retail-level physical technology.

Mike Kehoe

Mike Kehoe, Co-Founder at BitTiger (2015-present)

Répondu il y a 14w

The answer to this question depends on how you define “overtake Silicon Valley”

I’ll move forward with the following definition for “overtake”:

“Chinese tech companies will overtake their US counterparts in certain verticals by having both the best-in-class product and higher overall revenues and profits within that vertical”

Here’s Why Chinese Companies Won’t Overtake Silicon Valley in the Next Few Years

1.) Previous Shielding from International Competition

This one is relatively straightforward, and the search giant Baidu is a good example. Due to the Great Firewall, Baidu (China’s equivalent to Google) has been shielded from competition from Google for years, meaning it didn’t need to provide as good a user experience and could still survive. Ask anyone who’s used both Baidu and Google and they’ll be quick to pick Google as the clear winner.

This shielding effect will keep Chinese tech giants less competitive internationally when they make initial pushes outside the domestic market. These shortfalls won’t stop Chinese companies forever, but will be a hurdle that will take more than a few years to overcome.

2.) Chinese Companies Are Not in A Rush to Go International

Up until the last couple of years, most Chinese tech companies were content to see double-digit growth year-over-year within their own protected domestic market, and had little incentive to take costly bets abroad on international expansion.

China’s rapidly expanding middle class, and extremely high smartphone adoption rate meant plenty of new customers to be found for 10–15 years in the first and second wave of Chinese internet industry expansion.

3.) Chinese Tech Companies Did Not Grow With Product Design as a Focus***

This one’s a bit longer but important. Please bear with me!

Due to the mystique around companies like Apple and Steve Jobs, many people have this idea that tech companies HAVE to win by having the best product design and overall service.

The product-focused and design-driven business model Apple made famous was excellent in a mature and crowded market (the US consumer market) where the best profit margins could be made on premium-branded products that stood out from the crowd.

The Chinese domestic market, where the current Chinese tech giants grew up, is very very different. Often times, Chinese tech giants are providing services to markets that have never been served before. Alibaba may be the first eCommerce platform a rural Chinese user has ever seen. WeChat could be the first time a Chinese user has ever used a messenger app.

Because of this more “open field” and less mature consumer market, Chinese companies are much more focused on market share land grabs than they are perfectly refining a product to design perfection.

A great and funny example of this, is the internet giant NetEase opening a pig farm for premium pork. Why? Because there’s money to be made there and they have the capital and infrastructure to act on it. They’d rather put capital towards grabbing a new and relatively unrelated market than refine existing product designs.

This has resulted in Chinese tech companies placing a heavier emphasis on operational execution than high-end product design. Not because they’re not capable, but because capturing new markets quickly is more important and profitable than having the most beautifully designed product.

While that strategy works well domestically in China, there is no easy land to grab in mature consumer markets like the US, so Chinese tech companies core-competencies are currently not aligned well to compete internationally in more developed markets.

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Here’s Why Some Chinese Tech Companies WILL Eventually Manage to Overtake Their US Counterparts

1.) Pure Size and Power Allowing for Significant R&D

Chinese tech companies are getting huge off of a healthy and huge domestic market. With extra margins comes room in the budget for significant R&D efforts that will be able to launch best-in-class products.

This is already happening. Many Chinese tech companies have opened expensive Silicon Valley research centers where they are hiring ex-Google and ex-Facebook engineers to work on new product development.

2.) Use of Other Emerging Economies As a Springboard

Chinese companies will be more familiar with markets in Africa and Southeast Asia that are at similar stages or closely behind China in terms of development. In a move to lay the groundwork for access to consumer markets in Africa, China has been investing significantly to develop both hard infrastructure and “soft power” ties to African countries through foreign aid and investment.

Their operational expertise and familiarity with the services such markets are likely to demand will serve them well there, and be a path to eventual international expansion.

3.) The Government Sponsored Research Long Game

If you look back at how Silicon Valley first got started, a lot of it came off the back of initial government-backed research. Stanford researchers played a key role in spinning off many of the hardware companies that helped launch Silicon Valley into the established ecosystem it is today of top notch talent, investors, and service providers.

China is extremely effective at putting research dollars behind technologies it deems as critical to national economic development. You can look at their progress in both supercalculateurs, artificial intelligence, and l'informatique quantique to see just how effective it has been.

While these research gains may not be immediately apparent now, they are long horizon bets and are sure to pay off with commercialization opportunities in the future.

The US is much more vulnerable to changing political administrations and less stable long-term research funding. This could impact Silicon Valley down the road if that means less startup spin offs from top universities.

En résumé: China has the talent, capital, government backing, and culture to produce world class products and companies. China may not be poised to overtake Silicon Valley in international dominance in the next few years, but eventually is bound to become a leader in at least a few tech verticals in the future.

Greg Blandino

Greg Blandino, travaille à Beijing, Chine

Répondu il y a 143w · L'auteur dispose de réponses 1.6k et de vues de réponses 2.3m

In the short- to mid- term I say no for the following reasons:

1) Silicon Valley has access to an international labor market. SV can attract the best and brightest from India, China, Russia, Israel, etc. Part of that has to do with the American society's openness to foreigners, assimilation, and immigrants. For cultural reasons, this is not the case for China and will make it harder to keep and retain long-term top-notch foreign talent. English as the international lingua franca certainly helps.

2) SV makes products for an international market, Chinese tech companies make them for the domestic market. Alibaba's success can not be replicated easily overseas without access to the ubiquitous 快递哥's that make it possible. Chinese UI and design is hampered by being in a protectionist market that keeps out foreign software, and results in bad design choices and UI being perpetuated for longer. Use Didi Dache and Uber and tell me I'm wrong. A stroll down the Chinese internet reveals lots of respectable sites that look like 1997 Ask Jeeves results.

3) SV and the ZhongGuanCun scene both get government support. Despite libertarian protestations to the contrary, the US government and defense establishment funnels money and scientists into this market. Chinese companies get the same thing. It's a wash on this count.

4) Capital funding and legal recourses are well-established in SV. In China, they are emerging ad-hoc, but legally companies are still in very much the wild west, especially concerning IP issues, and this issues will certainly take more than a few years to sort out. Capital is there, but it's harder to access and the dream of an IPO and mainstream legitimacy is currently in limbo for new companies due to uncertainty and shenanigans in the Shanghai stock market at the moment. It'll take at least a couple years to get that sorted out. Until then the "family hedge funds" where all of the uncles and extended family pitch in will be a go-to for many start ups. It's hard to see such a mom-and-pop mode of financing scale up in the short to mid term.

5)Brain drain. Lot's of Chinese you meet dream of emigrating. Wages are higher, no pollution, houses are cheaper, food products generally safer, societal competition is viewed as less cutthroat, and schools are better/cheaper/don't require a "gift" to the principal. The Chinese tech industry is centered around Beijing, and despite notions to the contrary, Chinese people dislike 500+ PM 2.5 days as much as everyone else. Chinese people are often China's worse critics. These problems will always be a factor sucking talent out until they are solved, and exacerbating the cultural problems enumerated in reason 1.

All these being said, I don't think there is anything culturally precluding Chinese from being creative as is communly bandied about in the West. In 10 to 20 years this could easily be a different story.

Godfree Roberts

Godfree Roberts, Ed.D. Education & Geopolitics, University of Massachusetts, Amherst (1973)

Mise à jour il y a 22w · L'auteur dispose de réponses 460 et de vues de réponses 4.9m

Réponse d'origine: Can China overtake Silicon Valley in the next few years?

Can China overtake Silicon Valley in the next few years? Here are some clues:

June 3, 1953: US bans international trade with China. (China became the world's largest trading nation in 2013).

16 avril 2011: The US bans space technology cooperation with China, declaring satellites to be weapons. Chinese-American rocket scientist Qian Xuesen was accused of being a Communist during the McCarthy era. His crime was said to be accompanying a friend to a US Communist Party meeting. Iris Chang has suggested in her book Thread of the Silkworm that China’s missile technology would not have advanced so rapidly had it not been for Qian. (China launched a space station in 2011, landed a rover on the moon in 2013 and will complete global coverage with Beidou in 2020).

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August 2013: Chinese participants banned from attending a conference on NASA’s space telescope. (China completed the world's largest spherical telescope in 2017).

August 21, 2012: Ren Zhengfei, CEO, Huawei warns, “It is out of strategic concern that we decided to develop our own device OS. If they forbid us from using Android and Windows Phone 8 one day, will we be caught empty-handed and have nothing to do? When they refuse to sell things to us, our products can also be used as backups even though the quality is not as good as theirs”.

12 août 2015: US requires Intel get export license to sell Xeon and Xeon Phi for use in Chinese supercomputer projects. (A year later China unveiled the the world's fastest computer with entirely domestic IP).

19 avril 2016: Xi Jinping says, “Core technology controlled by others is our greatest hidden danger”.

Septembre 2, 2017: Huawei unveils Kirin 970 chipset with built-in artificial intelligence and dedicated neural processing unit using a 10nm process with 5.5 billion transistors/sq. cm. delivering 25x performance and 50x efficiency of quad-core Cortex-A73 CPU cluster.

February 11, 2018: Intel announces alliance with Tsinghua Unigroup Spreadtrum to develop 5G solutions using Intel’s XMM 8000 modems and Spreadtrum’s application processors targeting 5G modem chips for Chinese handset market by 2H19. Qualcomm shares fell 2 cents.

February 14, 2018: US Congress labels Huawei “an arm of the Chinese government” and bans it from bidding for US government contracts.

March 5, 2018: China’s integrated circuit (IC) industry grows 21 percent annually from 2013’s $13.6 billion to $30 billion in 2018. China announces goal for domestically-made ICs to overtake imports by 2025 after investment of $160 billion.

Mar 27, 2018: Trump, Treasury block China investment in US tech firms, stocks, preventing Chinese investment in emerging technologies.

April 16, 2018: U.S. prohibits transactions with ZTE Corporation for seven years on the grounds that ZTE violated 2017 settlement agreement.

April 20, 2018: Chinese government announces, “Many domestic enterprises are paying a terrible price for ZTE’s short-sightedness and dishonesty. Relevant leaders at ZTE Corporation have no awareness of legality or confidentiality. The company’s legal team exists in name only and has taken risks by engaging in illegal operations numerous times, not only in China–where social integrity is not high–but have even exported its domestic lack of integrity to foreign countries”.

April 26, 2018: Qualcomm begins layoffs to cut costs.

April 26, 2018: Huawei Placed Under U.S. Criminal Investigation For Illegal Iran Sales, fights for its life.

May 1, 2018: A joint venture involving Arm Holdings, which is controlled by SoftBank Group, and its Chinese partners went into operation at the end of April, with the unit taking over the British chip company's operations in China, people familiar with the matter said. Arm mini China, as the unit will be called, is officially registered in the southern Chinese city of Shenzhen and is 51% owned by Chinese investors, including state-backed entities, with Arm controlling the remaining 49%. It will be responsible for handling all the licensing and royalties business with local partners. Arm is one of the most influential chip technology providers in the world. The company's chip blueprint is used in roughly 90% of mobile devices globally. Companies including Apple, Samsung Electronics, Huawei Technologies, Qualcomm, Broadcom, MediaTek and many others all need to license technology from Arm to develop chipsets for smartphone, tablets, wearables and various connected devices.

Can China overtake Silicon Valley in the next few years?

China was a bystander in 2G, a bit player in 3G and a major voice in 4G development. Today, China has the world's biggest market, the biggest subscriber base, three of the top five handset makers, the biggest network equipment vendors and the biggest share of 5G patents in a market whose 2035 estimated value is $ Billions 12. Huawei leads ZTE in revenues but trails it in 5G IP. Here’s a profil of ZTE: ZTE (Chinese National Communication Rejuvenation) derives only six percent of its profits from handset sales but leads the world in international 5G patents. Responding to the network function virtualization (NFV) trend, ZTE has become a forerunner in the cloud network era. In February 2016, ZTE cooperated with VimpelCom, a multinational operator group, to build the industry’s largest commercial vEPC network across five countries that supports the convergence of 2G, 3G, and LTE networks. ZTE and Telefonica are jointly building a large scale vIMS network in Latin America, which covers seven countries and the control layer is centralized deployment of Multi Country. ZTE and Velcom (the Belarussian subsidiary of Telekom Austria Group) are building together the first worldwide commercial fully virtualized Core Network, including vEPC/vSDM/vCS. In October 2016, the RCS network built exclusively by ZTE for China Mobile was put into commercial service. Serving 100 million users, this network has become the world’s largest commercial vIMS/RCS. In June 2016, ZTE’s virtualized core network (vCN) was awarded the Best Core Network Product at the 5G World Summit held in London. It’s the first to verify key technologies in 5G millimeter frequencies and has 5G agreements with China Mobile, China Unicom, China Telecom, Deutsche Telecom, SoftBank, Korean Telecom, Telefonica, UMobile and eight others.

Chinese engineers around the world know everything China needs to lead the world in IC design and manufacture. Spurred on by endless FBI persécution, how many will answer the calls they’ll receive this week to help the Motherland in her time of peril? The Chinese do mass mobilization better than anybody and, right now, every Chinese engineer in the industry with critical knowledge is being asked to rally to the flag, to help the motherland and, btw, to make more money than they ever dreamed of. State Councilors (the administrative Brains Trust) are asking every tech company, “Can you contribute any IP, process technology, or trade secret that might help the country? We’ll handle compensation”.

Foreign recruiting is picking up fast. Lee Pei-ing, President of Taiwanese memory chipmaker Nanya Technology dit, “Like our bigger rivals Samsung, SK Hynix and Micron Technology, we are already under pressure from Chinese competitors poaching our best workers. We continue to feel the pressure. To be honest, it's difficult for us to retain all of them as it's unlikely for us to totally match the salary package Chinese rivals offer”. Chinese recruiters’ pay packages are three to five times higher than chip specialists earn in Taiwan. At Tsinghua Unigroup's R&D lab facility in San Jose, California, is within walking distance of Samsung's U.S. headquarters, as well as those of Cisco and other tech giants. "Most of the people here, including me,” said one engineer, “came from the world's leading memory chipmakers–not only from U.S. companies but also from Asian multinational companies' American head offices". Tsinghua Unigroup Chairman Zhao Weiguo said, "One of our key strategies is to hire employees who are capable of leading projects and give them a big stage and opportunities that they could not find anywhere else”. Senior managerial salaries average $216,000 in China, competitive even with Silicon Valley. "China has really become a huge magnet and an attractive destination for talent and investment," said Y.W. Sun, chief executive of China Fortune-Tech Capital, "as our semiconductor industry is growing at a speed no-one can compete with."

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Prognosis: According to the Japan Science and Technology Agency, China now ranks as the most influential country in four of eight core scientific fields, tying with the U.S. The agency took the top 10% of the most referenced studies in each field, and determined the number of authors who were affiliated with the U.S., the U.K., Germany, France, China or Japan. China ranked first in computer science, mathematics, materials science and engineering. The U.S., on the other hand, led the way in physics, environmental and earth sciences, basic life science and clinical medicine. China is also rapidly catching up in physics, where the U.S. has long dominated. It is spending more than $6 billion to build the world's largest particle accelerator, which could put it at the forefront of particle physics.

In January, the United States National Science Foundation reported that the number of scientific publications from China in 2016 outnumbered those from the US for the first time: 426,000 versus 409,000. 45% of technical papers published in the USA have a Chinese co-author. Chinese scientist Bai Chunli has been re-elected as the president of the World Academy of Sciences for another two years.

China leads the world in all fields of civil engineering, Manufacturing, Supercomputing, Speech Recognition, Graphenics, Thorium power, Pebble Bed Reactors, Genomics, Thermal Power generation, Quantum Communication Networks, ASW Missiles, In-orbit Satellite Refueling, Passive Array Radar, Metamaterials, Hyperspectral Imaging, Nanotechnology, UHV Electricity transmission, Electric Vehicles, High Speed Rail, Sustainable Energy, Radiotelescopy, All fields of Sustainable Energy Research and Manufacturing, Hypersonic Space Weapons, Satellite Quantum Communications and quantum secure direct communications. “Approximately 72% of the academic patent families published in QIT since 2012 have been from Chinese universities. US universities are a distant second with 12%.” (Patintformatics).

Both countries will lose the gains they made in from collaboration and will have to replace newly missing parts in their supply chains. Though tariffs can be imposed and lifted, trust is gone and it won’t come back–so everyone will be looking for secondary suppliers. The embargo will crimp ZTE’s style in the short term but long-term, instead of overtaking US-made imports by 2025, China will mount an IC Manhattan Project and do it by mid-2021. 200,000 patriotic engineers with 150+ IQs and a government with a hundred billions dollars will make it happen. Why mid-2021?

June 1, 2021 is China’s coming-out party, the centennial of the Party’s founding and the day the nation finally–after trying for 2,100 years–becomes a Confucian xiaokang society where ‘no one is poor and everyone receives an education, has paid employment, more than enough food and clothing, access to medical services, old-age support, a home and a comfortable life’. Every official, company, agency and think tank is preparing gifts for the occasion, an exascale computer and the first general purpose quantum computer. An IC victory would both ice the cake and change the world’s balance of power.

On a darker not, I’d also speculate that there’s an outside chance this might drive China towards more self sufficiency in a broad range of the tech sector, including software. I can almost guarantee that every large business in China will be meeting to discuss what components from the US are used in their business and they will be working towards reducing their dependency upon them. There is another category one doesn’t see mentioned anywhere near as often, namely tourism. US tourism is considered a US export to China when Chinese people visit and spend money in the USA. Last year China got into a serious dispute with South Korea over the installation of the American anti missile shield known as THAAD. The Chinese government chose tourism as a weapon, the result being: Chinese Tourists to South Korea Drop 40 Percent in March Amid THAAD Row. South Korea gets the cold shoulder as Chinese shun Winter Olympics. How big is Chinese tourism to the USA? It’s estimated at $33 billion a year according to the US Commerce Department, Chinese tourists spend most in US. The Trump effect is already happening, Chinese Tourists Are Skipping The United States In Favor Of Canada.

If you want to hear more from a genuine expert, read America’s weak case against China, by Steve Roach, former chairman of Morgan Stanley Asi

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