From Silicon Valley to Silicon Dragon

David Thomas at Alibaba HQ in Hangzhou, China

David Thomas at Alibaba HQ in Hangzhou, China

In previous articles, I have written about China’s rapid transition from a culture of ‘copying and low cost manufacturing’, to one of ‘innovation and commercialisation’. Recent developments in high-tech, fintech and e-commerce have positioned China at the forefront of innovation in Asia and is starting to rival and disrupt the traditional centres of technology and innovation around the world. However, throughout this year’s Federal election campaign and the bipartisan support for an “ideas boom”, there was a deafening silence around China’s potential role in Australia’s efforts to build a national plan for innovation. Instead, we are looking towards the usual sites like Silicon Valley and start-up hubs around London as a source of inspiration, support and investment. China is not only closer to Australia than Europe and America, but has more capital and a bigger incentive to invest overseas, particularly in Australia which has seen substantial investment flows, particularly into mining, property and infrastructure. 

Why China?

China’s innovation story is not so unlike that of the Silicon Valley’s – the increasing speed of consumer demand, sophistication and education coupled with the crucial imperative to be globally competitive and move up the supply value chain, has created the impetus for more focus on innovation. However, what is different about China’s model of innovation is the level of Government support. Whilst China’s Government actively promotes, initiates and provides finance to support innovation, their western counterparts tend to rely on an entrepreneurial culture, new start-ups and private capital to lead the way. China’s huge market (a population of over 1 billion), combined with government support and abundant capital resources means that products are developed, tested and launched in a fraction of the time that it takes for a similar product to reach developed markets.

‘Innovation-driven development’ has become the key theme of the Chinese Government’s 13th Five Year Plan (2016-2020). The ambitious targets and strategies documented in the Plan highlight their seriousness, and past experience suggests that they can be relied on to implement their plans! The Government has claimed that their R&D budget will account for 2.5% of their GDP by 2020 and, whilst this number may seem small compared to say manufacturing (which accounts for 40%of GDP), they have made some big announcements of intended investments (eg RMB 6-10 trillion into environmental initiatives) and infrastructure projects (the expansion of their high-speed railway to cover more than 80% of major cities). Another initiative worth following is the “Made in China 2025” plan which is intended to completely transform their manufacturing industry and has identified ten priority sectors for investment including new-energy vehicles and equipment, IT, agricultural equipment and advanced medical products.

The opportunities

With the focus on entrepreneurialism, innovation and technology in Australia, we should be including China as our strategic partner.  China’s 13th Five Year Plan also includes an extension of their ‘Going Out’ Policy to identify and invest into companies, technologies and projects in target industries. Australia’s agricultural science, healthcare (particularly aged care) and cleantech sectors have seen increasing levels of interest from Chinese investors (both state-owned enterprises, private companies and entrepreneurs). Whilst Australia’s National Innovation and Science Agenda (NISA) has drawn attention to the above sectors, it has remained silent on China’s role in helping to bolster innovation, design and the production capabilities of relevant start up companies.

However, there is a misconception that only large Australian companies or institutions are attractive to Chinese investors which often deter SMEs from engaging with China.  From my work with Australian SMEs over the past decade, I know that businesses with innovative products and services are just as appealing and we are currently working on a number of China-Australia projects involving small, flexible and ambitious companies in the food, healthcare, engineering and cleantech sectors.

Another avenue for Australian businesses to consider is Alibaba. In early 2016, it was announced that they would establish their first Australian office by the end of the year. The office will work with Australian partners and merchants to provide better support and more opportunities for local companies to sell their products to the 407 million active Alibaba users. However, we should expect that their innovations in fintech, specifically mobile payments and e-commerce, could enter and potentially disrupt the Australian market. 

For Australian companies looking to enter the Chinese market, the cities of Hangzhou and Shenzhen cannot be overlooked. Hangzhou, the birthplace of Alibaba, has consistently been ranked as one of China’s top cities for start up businesses with an abundant pool of private capital, a highly educated labour force and competitive business costs (an average of new 5,000 SMEs emerge each year).

And in Shenzhen, its old industrial and manufacturing factories have been replaced by flashy tech companies, start-up hubs and incubators, churning out some of the country’s most innovative and advanced technologies and products. According to its Mayor, in 2015, emerging industries such as information technology, biotech, green energy and new materials accounted for approximately 40% of the city’s economic output. As China’s first city to be ‘opened up’ it has a well-developed international-based economy that welcomes foreign talent, ideas and capital.

As China rapidly moves up the value chain, Australia needs to pivot our innovation-centred policies away from America and Europe and towards China. As Ted Greenwald of Technology Review puts it “Chinese companies iterate, build things and grow faster than their US counterparts… Beijing compressed thirty years of start ups into five!” As Australia enters a new phase of innovation, ideas and inventions, who better to learn from (and partner with) than our largest trading partner and emerging economic super-power on our doorstep?