Who says China’s tech scene is not competitive?

Before co-founding fintech group PingPong in 2015, Ning Wang spent five years of his life working for PayPal, first in San Jose and later in Shanghai where he headed the payment group’s finance division for China.

The experience convinced him that mainland Chinese tech start-ups would quickly leapfrog their American counterparts.

“Chinese entrepreneurs are more aggressive,” said the executive, who is now based in Hangzhou. “Companies don’t move fast enough in the United States.

And the capital markets give too much slack to start-ups.”

Today, part of the US backlash against China is based on the fact that the country has rigged the tech game — through closing its market to foreign players in numerous sectors, or requiring them to hand over critical technology to their local partners, or stealing it outright.

Many US politicians and executives believe that if China had a level and open playing field, the landscape would look very different.

Local players dominate China’s tech scene. Alibaba has a greater market share in ecommerce than Amazon at about 56 per cent and fended off a laughable challenge from eBay more than a decade ago; WeChat is the first choice for communication, not Facebook; Baidu is the primary search engine, not Google.

In India, by contrast, two American giants — Amazon and Walmart — are fighting for dominance in ecommerce, while the English-speaking elite overwhelmingly favour Facebook and WhatsApp for communication.

Although Mumbai-headquartered Reliance Jio intends to take them on, the capital backing the conglomerate’s digital push is almost all foreign.

Yet how different would the landscape look if the Chinese market was truly open? Is local dominance due to a Great Firewall of mass internet censorship, rather any real competitiveness?

Mr Wang, along with virtually every entrepreneur and venture capitalist on the mainland, believes the picture would still look similar.

A Darwinian “survival of the fittest” attitude prevails in the corporate world, but the absence of foreign contenders means that outsiders fail to appreciate just how competitive China actually is, they argue.

“For every IPO of a tech company, there are 40,000 start-ups who don’t make it,” says Richard Ji, founder of venture capital firm All-Stars Investment, and previously a tech analyst for Morgan Stanley.

“Regulators do impose some barriers to entry but that is not the root cause of the dominance of domestic companies. The root cause is the quality of the entrepreneurs. Entrepreneurs have to have a killer instinct to survive so much competition.”

By contrast foreign firms hoping to penetrate the Middle Kingdom use salaried employees, not entrepreneurs, Mr Ji notes.

“They have no incentive to take risks,” he adds. “Chinese entrepreneurs will bet the ranch to survive for the long term. They sacrifice everything.”

Chinese tech companies have also evolved more rapidly, pioneering the concept of “super apps” — offering multiple services within a single app — which their US rivals are only now beginning to emulate.

The platforms do not merely want a sliver of customer loyalty: They want to own them entirely.

Certainly, some advantages for local players are inevitable given the large role of the state.

“You need political savvy,” argues Mr Ji. “You need to know where the lines are that should not be crossed.”

Consider Uber, which made some inroads before ultimately being vanquished by local start-up Didi Chuxing despite the former’s deep pockets. Running a successful car-hailing operation in China requires extensive networks of relations, with politicians, bureaucrats, police, trade unions and tax bureaus — both local and central.

Analysts suggest that, as well as fierce competition from its Chinese rival, Uber's lack of experience in navigating those connections meant it was doomed to fail. 

Moreover, a subsidy-fuelled expansion rarely works long term in China, since it just leads more price-sensitive Chinese consumers to look for the most attractive bargain at that moment.

Brand loyalty is fleeting. In addition, many Chinese entrepreneurs who visit Silicon Valley for the first time are shocked by what they regard as the slothful work habits of their American counterparts.

“We work so much harder,” Dai Wenyuan, founder of Fourth Paradigm, a Beijing-based AI firm rightfully points out.

Backers — such as Sequoia Capital’s China arm — believe Mr Dai’s company has vaulted past US rivals such as Palantir.

“Chinese entrepreneurs understand they need to keep going to not be left behind,” says Rebecca Chua of Hong Kong-based Premia Partners.

“And their teams keep pace relentlessly. They sacrifice personal life to adapt faster to opportunities. In Silicon Valley people have better work/life balance. That will happen in China — but not yet.” FINANCIAL TIMES

ABOUT THE AUTHOR:

Henny Sender is chief correspondent for international finance at the Financial Times, based in Hong Kong.