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China, the Innovation Beast

China, a nation that had dominated the world several times over the past thousand years, is on track to repeat history once again. Economic reforms introduced by Communist leader Deng Xiaoping in the late 1970s has propelled China to become a nation now deemed worthy to challenge the U.S. for the number 1 title. In 2017, PricewaterhouseCoopers (PwC) reports that the Chinese economy will overtake U.S as the largest economy by 2030. China had averaged a 10% annual growth from 1999 to 2008 and in recent years, hovered in the 6-8% range. With recent drives for technological innovations, we may see a growth in the figures and eventually, an overtake to be world largest economy.

“China has been long one of the richest, that is, one of the most fertile, best cultivated, most industrious, and most populous countries in the world.” Quote from Adam Smith magnum opus “The Wealth of Nation”. Indeed, over the past few years, China has taken concrete steps to made that a reality. In 2015, China announced “Made In China 2025”, a strategic blueprint that details the necessary steps to equip and transform the nation with local technological innovations and stage the Chinese equivalent of the Fourth Industrial Revolution. In 2017, China spending on research and development totaled $1.76 trillion yuan (USD $279 billion), a year-on-year increase of 14%. 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 geographical boundaries. Termed “Indigenous Innovation”, China has primed itself to be the next world’s capital of innovation and technology. Below are some of the reasons why China is able to or rather, will dethrone the U.S. within the next decade or so.

1. Size matters. China is a massive nation, whether its geographical size or population. While China and U.S are equally big at 9.3 million square km and 9.1 million square km respectively, China trumps (no pun intended) U.S with over 1.4 billion citizens, over 4 times the that of the U.S. China’s population high adoption rate for technology as well as its enclosed ecosystem has created a perfect environment for Chinese enterprises to grow and thrive. With over 772 million Internet users, China is a data haven. Furthermore, citizens in China have longed been known to be more permissive in the sharing of their personal data, a sharp contrast to the Western nations where personal data policies and regulations are strictly enforced. The recent Cambridge Analytica saga regarding Facebook’s user data highlighted the importance of keeping personal data private, but it is one that we may never see in China. However, reports of ’emotional surveillance’ being employed where employees’ brain waves are monitored in military sites and state-owned enterprises seems to have crossed the line in its latest efforts to monitor its people.

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

Instead of having Western companies such as Google, Facebook and Twitter thrive, the Chinese government nurtured domestic firms through protectionisms and huge subsidies. Local tech giants such as Baidu, Alibaba, and Tencent, commonly referred to as BAT, were able to grow under the sheltered environment and having the whole Chinese pie to themselves. Since then, these companies have expanded overseas through acquisitions and setting up of research and innovation centers, a move that many nations have deemed to be a blatant act of ‘tech importation’, aka transfer of technology.

3. Lastly, it is simply sheer ignorance about China. Indeed, many who have little awareness of today’s China would still perceive it as a “copy-cat” country thrives on manufacturing counterfeit goods and “Made-In-China” products for the outside world. The fact is that they are now producing innovation leaders and are the ones to beat. A prime example is Shenzhen, which has evolved along the way to become its own innovation hub. Referred to as China’s Silicon Valley for hardwares, Shenzhen houses many of the companies that produces the tech product we see today, from drone producer DJI to iPhone manufacturer 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 bliss when one can freely enjoy the low cost of manufacturing in China; ignorance is now a looming threat of takeover.

“China has a fairly deep awareness of what’s happening in the English-speaking world, but the opposite is not true.” Quote by Andrew Ng, co-founder of Coursera and one of the pioneers in Artificial Intelligence.

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

However, it will be naïve to conclude that China will overtake U.S. simply on the basis of superior technology. The possibility of a trade war between the U.S. and China only benefits China, for it has the advantages of economies of scale and a single, independent market. The ongoing trade surplus with the U.S is evident of U.S. reliance on China goods, and a trade war will only harm the country with price hikes in consumer goods. The trade surplus for the first quarter of 2018 spiked nearly 20% to hit $58.25 billion, citing the possibility of a trade war. Furthermore, China has been extending its economic and political influence with the Belt and Road Initiative (BRI). Expected to cost over a trillion dollars and impact 60% of the world’s population, the BRI is the largest undertaking by the Chinese since the Great Wall of China. All signs point to the fact that China has the money, technology and influence to take over the world.

All in all, China has evolved from a nation of imitation to one of innovation, from one of producing products to one of inventing products. China is the elephant in the room that the Western counterparts have chosen to take it for granted for decades and ignore its uprise. Perhaps it is time for the world to take a good look at China and ironically, replicate what they are doing now. For the U.S, cooperating might be the best, and only way of going forward.