China’s rapid rise as a tech superpower has been astonishing, but can its companies challenge Silicon Valley? And what are the implications for Africa?
In August 2018, Alibaba’s founder Jack Ma, who founded one of the biggest e-commerce platforms in the world, launched a $10m prize for African information and communication technology (ICT) innovators in Africa. Ma received a rapturous reception in the auditorium at the University of the Witwatersrand in Johannesburg, South Africa. The excitement in the tech community had not been this feverish since Facebook supremo Mark Zuckerberg received a similar welcome during his tour of Lagos, Nigeria. While Zuckerberg’s visit had aspiring tech entrepreneurs swooning, it could be argued that African technologists felt a closer affinity to Ma because of the parallels between Africa and China. China’s richest man – who announced his retirement in September – spoke about the challenges, which many African entrepreneurs could relate to, when he set up Alibaba in 1999, such as slow broadband and unnecessary bureaucratic hurdles.
Since the late nineties, however, China’s tech sector has rapidly transformed itself to a point where some commentators are claiming it could challenge the global leader in the field, Silicon Valley, according to Kai-Fu Lee, CEO of venture capital firm Sinovation Ventures. “The US has always been the singular tech power in the internet, mobile and AI software space, but out of nowhere an equal partner has emerged in China, so the world order is different from that perspective,” says Lee during a webinar on technology.
China’s emergence as a tech superpower has been astonishing. The world’s second-largest economy is home to nine of the 20 biggest tech companies, with the market capitalisations of Alibaba and Tencent doubling in 2017 and now comparable with those of Facebook and Alphabet, Google’s parent company. One of the most significant drivers of China’s tech boom is its large population. At 55.6%, smartphone penetration is below the global average of 66%, but at 775m it already exceeds the total population of Europe.
Even in the area of hardware, Chinese tech firms are challenging the hegemony of traditional technology giants, especially Apple and Samsung. While the latter is still the market leader, China’s Huawei surpassed Apple to become the second biggest smartphone seller this year.
Many of China’s tech companies started out as copycats of US companies, but have now blossomed into juggernauts. Mobile phone companies such as Huawei and Xiaomi have succeeded in new markets, including many African countries. Chinese firms have produced cheaper smartphones with similar functionality to more expensive counterparts in mature markets. China’s Transsion Holdings is Africa’s biggest seller of smartphones, with sales of 50m sets on the continent in the first six months of 2018 alone.
But the key to the industry’s growth was the fact that many US companies were initially locked out of China, according to Steve Tsang, director of the SOAS China Institute. “The Chinese tech firms have made the most of the domestic market size,” Tsang says. “The blocking of foreign tech companies was vital in allowing the Chinese tech companies to build up capacity at home and then use this platform to improve products. Today they produce a full range of products available globally both at the low- and high-end.”
The boom has led to some commentators predicting that China could reach tech parity with the US in terms of innovation in 10-15 years. Such a statement would have been laughable in Silicon Valley 20 years ago. “Many people in Silicon Valley believed that China’s tech industry would never be innovative,” Lee says. “But that proved to be completely wrong because as China’s market exploded, capital began to flow in and a virtuous cycle was created where smart venture capitalists would help develop entrepreneurs who would in turn create great companies and products which drew in more consumers.”
“The industry in China is really tough and it’s almost like a colosseum where only one winner emerges. Comparatively, in the US, competition is fairly gentlemanly where the firms tend to avoid stepping on each other’s toes,” Lee adds. Despite its rapid rise, China’s industry is still some way off challenging Silicon Valley in terms of investment budgets and the number of mid-sized firms worth $50bn to $400bn. There are also doubts about China’s ability to come up with the next big product, according to Tsang.
“China is catching up very fast in terms of some of the existing products, so you are seeing some impressive high-end products being produced, but there remain questions about their ability to develop the next product that has a revolutionary impact on our lives like the iPhone,” he says.
Rise of AI
One area in which China could develop the next big thing is in artificial intelligence (AI). This year, the Chinese government decreed that the country will lead globally in artificial intelligence by 2030. AI startups in the country have received more than $4.8bn in funding in the last three years, with Beijing-based SenseTime securing $600m funding in April and facial recognition company Megvii receiving $360m last year. The Chinese security services and military have also taken a keen interest in AI, especially in the areas of autonomous biometric identification and weaponry. The Communist Party of China has tasked some of the country’s biggest tech firms – including Baidu, Alibaba and Tencent – with developing the AI industry, and it has also promised financial backing, including constructing a $2.1bn AI industrial park in Beijing.
China may very well succeed in achieving this goal because it can implement policies which would not be possible in Western countries, according to Tsang. “The Chinese are doing very well because they have a different environment in terms of research ethics,” he says. “They have less issues related to privacy and personal rights so they can use facial recognition, for example, as part of their technological development. This would be inconceivable for Western companies because of legislative constraints.”
The effects of China’s AI drive are already being felt in Africa. The Zimbabwean government, which has had a poor human rights record, has already partnered with the Chinese startup CloudWalk Technology to implement a country-wide facial recognition programme, which will be used by security and police services. The agreement is part of China’s Belt and Road initiative. While many Africans are yet to grapple with the effects AI might have on them, it seems that African countries will continue to adopt China’s technological advancements for better or worse.