TOPICS 

    Subscribe to our newsletter

     By signing up, you agree to our Terms Of Use.

    FOLLOW US

    • About Us
    • |
    • Contribute
    • |
    • Contact Us
    • |
    • Sitemap
    封面
    VOICES & OPINION

    Why Chinese Tech Firms Are Turning Back to the Domestic Market

    An increasingly protectionist U.S. market is encouraging China’s tech companies to focus on a booming industry at home.

    A number of technology company stock offerings in Hong Kong might be on the cards during the next 18 to 24 months, led by Didi Chuxing, China’s popular ride-sharing service. Didi’s initial public offering (IPO) could raise $70 to $80 billion, and the Beijing-based firm has been in serious talks with investment banks during the month of May, according to Hong Kong Economic Times, which cited unknown sources.

    During last fall’s Central Economic Work Conference, President Xi Jinping promised a “new era” for the Chinese economy based on local technological innovation. That envisioned economic epoch may be arriving sooner rather than later, with Xi getting out in front of the parade just as China’s technology economy is accelerating and the country transitions from a manufacturing-based economy to one driven by digital entrepreneurship and professional services.

    Chinese state spending on the domestic technology industry will climb to an estimated $234 billion in 2018, an 8 percent increase from last year, according to a report from American market research company Forrester. This is due to a combination of state and corporate financing and strong growth in China’s software, consulting, and outsourcing industries, the report claimed.

    In addition, Chinese e-commerce sales revenue far outpaces the United States’. Rising Chinese tech leaders in artificial intelligence and analytics — including Didi, mobile payment firm Ant Financial, and wealth management company Lufax — are moving forward with plans to go public on global stock exchanges by the end of next year, according to the South China Morning Post.

    Meanwhile, foreign direct investment was down in China for general manufacturing, but up by nearly 10 percent year-on-year to nearly $9 billion in high-tech manufacturing, according to a report from consulting firm Dezan Shira & Associates. These trends confirmed that as China’s low-cost manufacturing industries are losing their competitiveness, high-tech support will help to increase productivity and transition from manufacturing-centered growth toward service- and consumption-based growth, the report stated.

    “China is quickly rising as a tech superpower,” said Gordon Styles, president and CEO of Star Rapid, a prototype manufacturing firm in Hong Kong. In addition to government funding, the sector is being buoyed by changing cultural attitudes, especially among China’s post-1990s generation, Styles said. “They were raised to believe that they must have their own businesses or create their own products,” he explained. “They are formidable in their drive to make money and be independent, and feel like they must branch out on their own — be it success or failure.”

    There are other economic factors at play, too. Western businesses once saw China as an economic copycat and a threat to their intellectual property — a view that fueled anti-Chinese rhetoric during Donald Trump’s election campaign in 2016. But that perception has started to change in recent years due to more equitable technology transfer and development deals made with American and other Western technology firms.

    “It was only a matter of time before China increased the quality of its services and products,” said Dimitris Mavrakis, an analyst with the New York-based technology tracking firm ABI Research, in an email to me. “Bear in mind China has a huge internal market to cater for, and products [and] services are important there, too. Also, there have been cases where Western companies won lucrative contracts in China (e.g. energy, manufacturing) with a requirement to pass on know-how to their Chinese clients. It was only a matter of time before China became a leader.”

    Sometimes, smaller, multimillion-dollar investments generate more profound local economic changes than headline-grabbing multibillion-dollar deals. “It’s not just about big investments,” Gordon Orr of McKinsey wrote in an email to investors. “Smaller investments and political changes around the world will impact the tech sector’s development. [These are] minority investments too small to show up in national statistics but that gave companies access to innovative technology.”

    Although normally cautious Western publications, including The Economist and Forbes, have mused that China may soon overtake Silicon Valley, others with a more local focus in China are soberer about that prospect.

    “China is now getting its feet wet with an innovation overhaul so it won’t overtake Silicon Valley right now, but could do so in the future,” said Styles, an Englishman who relocated his company to Hong Kong in 2005. “In China, almost every major city now has multiple private and government-sponsored incubators and accelerators,” he added, referring to organizations that provide shared resources to innovative tech startups. “If we continue to see exponential growth in innovation after a few years, China will pose significant competition for Silicon Valley.”

    So while growth in the domestic technology market is continuing, the past 12 months have seen a slower pace of investment in the U.S. by Chinese firms, partly due to tighter regulation stateside. After peaking in 2016, China’s overall outbound investment to the U.S. was down 40 percent last year. However, these statistics do not seem to have influenced President Trump’s views on Chinese trade with the U.S.

    “We have seen a slowdown in overall volume in China technology investments in the U.S. due to regulatory concerns, especially in certain areas such as semiconductors where the U.S. government has explicitly stated there are potential U.S. national security concerns,” said Paul Chen, a partner at global business law firm DLA Piper, referring to the computer chips integral to many high-tech devices, from mobile phones to cruise missiles.

    “With that said, we continue to see substantial interest from Chinese investors in targeted U.S. companies and industries where innovation is a strong driver of growth,” Chen concluded, adding that interest was particularly strong in the sectors of life science, insurance, health, and medical technology, although he declined to provide names of Chinese investors due to client confidentiality.

    In general, an increasingly protectionist American technology market is less worrying to China today than it would have been in the 1980s or 1990s. Now, with a burgeoning homegrown tech industry and vast resources to work with, Chinese technology companies are pivoting back toward the domestic market in the knowledge that there may be more money to be made at home than overseas — and Didi and other companies’ potential IPOs are merely a recent sign of this trend.

    Editors: Wu Haiyun and Matthew Walsh.

    (Header image: An aerial view of Shenzhen Science and Technology Park,Guangdong province, Aug. 10, 2017. Liang Xiashun/VCG)