At a global summit on artificial intelligence in Washington last November, Eric Schmidt, former executive chairman of Alphabet, the parent company of Google, delivered a stark warning on China’s technological prowess.
“By 2020, they will have caught up. By 2025, they will be better than us. By 2030, they will dominate the industries of AI,” he said.
But Schmidt’s keynote speech at the Centre for a New American Security only addressed part of the story of China’s emergence as a technology powerhouse – and the growing threat its big companies pose to the hegemony of Silicon Valley.
Over the past year, the best-known US technology giants – Facebook, Amazon, Apple, Netflix and Google – the so-called FAANGs – have experienced a rollercoaster ride.
While Apple and Amazon have become the first companies in history to achieve a market capitalisation exceeding $1tn, Facebook’s reputation has been bruised by its record on data privacy and the Cambridge Analytica episode, while Google has been fined billions of euros by the European Union for violating antitrust laws.
But for every US tech giant, there is a Chinese equivalent that has seen unfettered success. Baidu, Alibaba and Tencent, referred to as the Chinese BAT, are the Eastern versions of Google, Amazon and Facebook respectively.
To Western consumers, these companies may not be so well known. But all of them have made big advances across a variety of important technologies: in search, payments, messaging, video, e-commerce, and gaming – and have picked up handsome market values to boot.
The US and China find themselves in a growing trade war, which threatens to weaken the stocks of Silicon Valley companies like Apple through tariffs that target crucial supply-chain components such as semiconductors.
Alibaba, founded by Chinese businessman Jack Ma in 1999, is the heavyweight of China’s tech industry with a market capitalisation of $477bn, (£362.7bn) while Tencent, headed by Ma Huateng, also known as Pony Ma, is worth $385bn.
At $8,123, China’s annual GDP per capita may still trail the US, where it stands at $57,466, but it’s a country which in some respects has already stolen a technological march on the West.
It’s a place where street beggars carry QR codes to receive donations, emails are almost nonexistent and an attempt to pay for a Starbucks coffee in cash will attract looks of confusion.
James Crabtree, an associate professor of practice at the Lee Kuan Yew School of Public Policy in Singapore, sees the rise of the Chinese stars as an inevitable one that shows no sign of slowdown.
“The biggest Chinese tech firms are if anything going to end up being larger than their American rivals, particularly the big two. Tencent and Alibaba are in a league of their own,” he said.
Some of the success enjoyed by Chinese technology companies has resulted from the country’s protectionist policies.
Foreign competition has been shunned by the “Great Firewall” – an elaborate legislative and technological framework propped up by Beijing to censor companies like Facebook from appearing on the devices of Chinese citizens.
It has meant apps such as WeChat – a Tencent-owned social media and payments service which boasts one billion monthly active users – have thrived while the likes of Facebook’s Messenger and WhatsApp have been kept at bay.
“If you compare China to India, two big Asian tech markets, India has been relatively open, so the largest search engine in India is Google, the largest social media company is Facebook,” said Crabtree. “In China, many of the western companies are not really allowed to enter or they were beaten back by domestic competition.” Early critics of Chinese companies reduced their growth to a “copycat” strategy that saw technologies from the US and other overseas tech hubs replicated for China’s home market, but the narrative no longer stands.
The Chinese internet market has proven to be “ferociously competitive”, giving incentive to incumbents to continue innovating or risk being dethroned.
Alibaba was once the dominant player in China’s mobile payments sector, operating the majority of transactions in a now estimated $12.7tn market through Alipay, a financial platform of Alibaba subsidiary and $150bn-valued Ant Financial. But the introduction of WeChat and its payment feature has given Tencent a chance to eat into half of the market.
China’s innovation has occurred so quickly that Silicon Valley is forced to look eastwards for the future of technology. In China, the shopping done on Amazon, the online payments made through PayPal and the messages sent through Facebook are services that are usually consolidated into one app, giving ease of access to users for all their online needs.
“What they’ve been able to do is build these big ecosystems that feed off each other. Tencent has WeChat, which is like Facebook plus Twitter plus all of your [other] media,” said Crabtree.
“Once you bring all of these things together in one place, people begin to think of WeChat in a sense as the internet, it’s the place you go to for almost everything.”
China’s dominance on home soil has given it confidence to look overseas. According to Andrew Cainey, associate fellow of the Asia-Pacific programme at Chatham House, countries outside the US, Europe and China are the new battleground for companies from both tech hemispheres.
“Chinese brands are often popular as they start at lower price points that meet budgets of those in lower-income countries,” he said.
For Ray Wang, principal analyst and founder of Constellation Research, an advisory firm in Silicon Valley, China’s international growth carries huge potential given the foresight of companies to target countries untapped by the US.
“I think the biggest market people have forgotten about is Africa, where China is completely dominant from the telecommunications side to all the payments infrastructures they’re putting up in place,” said Wang.
China’s international success could also come from the lessons it learns from the missteps of its US counterparts. Facebook’s breach of data privacy and its role in the Cambridge Analytica breach have been closely watched by Chinese firms to avoid similar mistakes.
Regulatory suspicion around Chinese companies will be heightened as they start to move into markets far from mainland China, with some services likely to come under greater scrutiny than others.
The mobile payments sector in China will face the greatest attention, as the extent to which countries in the West will be comfortable with them operating large parts of their banking system remains unclear.
But China’s international expansion is a gradual one. China’s BAT has spent time learning about international markets by investing in rivals to US tech companies in regions such as south-east Asia. By contrast, aggressive attempts to penetrate the Chinese market from Silicon Valley tech giants have fallen flat. Didi Chuxing, a Chinese equivalent of ride-hailing start-up Uber based in Zhongguancun, Beijing, forced the US firm to retreat in 2016 after just three years of business in China.
Google has received intense criticism after it announced plans to re-enter a search engine market it initially left in 2010. Questions were raised about how much Google would have to compromise by kowtowing to Xi Jinping’s government.
However, Google’s ambitions in China could be to do with the potential it sees to advance its artificial intelligence capacities – the field Schmidt said China would one day dominate. Artificial intelligence harnesses machine learning to improve, with access to bigger data sets offering faster evolution.
“In an era in which so much tech innovation is going to be driven by AI, it will be a very substantial competitive disadvantage to a global tech company … they realise that if they’re cut off from access to data about Chinese consumers then there’s going to be an enormous disadvantage,” said Crabtree.
Challenges lie ahead for China’s vision of a hyperconnected, digital future. But it’s clear that the full potential of these technologies is yet to be realised as new companies with untold capacity emerge.
Bytedance is an internet technology company that uses machine learning for content aggregation for news and short video clips. In the space of six years since its founding, it has drawn a valuation of $75bn, while Meituan Dianping, an on-demand delivery platform, enjoyed a successful initial public offering this week, which valued it at $53bn.
“Baidu we understand is Google, Alibaba and Tencent are the two giants, Didi is like Uber, but beyond that level there are gigantic Chinese tech companies,” said Crabtree. “We’ve barely begun to understand how they work.”
“By 2020, they will have caught up. By 2025, they will be better than us. By 2030, they will dominate the industries of AI,” he said.
But Schmidt’s keynote speech at the Centre for a New American Security only addressed part of the story of China’s emergence as a technology powerhouse – and the growing threat its big companies pose to the hegemony of Silicon Valley.
Over the past year, the best-known US technology giants – Facebook, Amazon, Apple, Netflix and Google – the so-called FAANGs – have experienced a rollercoaster ride.
While Apple and Amazon have become the first companies in history to achieve a market capitalisation exceeding $1tn, Facebook’s reputation has been bruised by its record on data privacy and the Cambridge Analytica episode, while Google has been fined billions of euros by the European Union for violating antitrust laws.
But for every US tech giant, there is a Chinese equivalent that has seen unfettered success. Baidu, Alibaba and Tencent, referred to as the Chinese BAT, are the Eastern versions of Google, Amazon and Facebook respectively.
To Western consumers, these companies may not be so well known. But all of them have made big advances across a variety of important technologies: in search, payments, messaging, video, e-commerce, and gaming – and have picked up handsome market values to boot.
The US and China find themselves in a growing trade war, which threatens to weaken the stocks of Silicon Valley companies like Apple through tariffs that target crucial supply-chain components such as semiconductors.
Alibaba, founded by Chinese businessman Jack Ma in 1999, is the heavyweight of China’s tech industry with a market capitalisation of $477bn, (£362.7bn) while Tencent, headed by Ma Huateng, also known as Pony Ma, is worth $385bn.
At $8,123, China’s annual GDP per capita may still trail the US, where it stands at $57,466, but it’s a country which in some respects has already stolen a technological march on the West.
It’s a place where street beggars carry QR codes to receive donations, emails are almost nonexistent and an attempt to pay for a Starbucks coffee in cash will attract looks of confusion.
James Crabtree, an associate professor of practice at the Lee Kuan Yew School of Public Policy in Singapore, sees the rise of the Chinese stars as an inevitable one that shows no sign of slowdown.
“The biggest Chinese tech firms are if anything going to end up being larger than their American rivals, particularly the big two. Tencent and Alibaba are in a league of their own,” he said.
Some of the success enjoyed by Chinese technology companies has resulted from the country’s protectionist policies.
Foreign competition has been shunned by the “Great Firewall” – an elaborate legislative and technological framework propped up by Beijing to censor companies like Facebook from appearing on the devices of Chinese citizens.
It has meant apps such as WeChat – a Tencent-owned social media and payments service which boasts one billion monthly active users – have thrived while the likes of Facebook’s Messenger and WhatsApp have been kept at bay.
“If you compare China to India, two big Asian tech markets, India has been relatively open, so the largest search engine in India is Google, the largest social media company is Facebook,” said Crabtree. “In China, many of the western companies are not really allowed to enter or they were beaten back by domestic competition.” Early critics of Chinese companies reduced their growth to a “copycat” strategy that saw technologies from the US and other overseas tech hubs replicated for China’s home market, but the narrative no longer stands.
The Chinese internet market has proven to be “ferociously competitive”, giving incentive to incumbents to continue innovating or risk being dethroned.
Alibaba was once the dominant player in China’s mobile payments sector, operating the majority of transactions in a now estimated $12.7tn market through Alipay, a financial platform of Alibaba subsidiary and $150bn-valued Ant Financial. But the introduction of WeChat and its payment feature has given Tencent a chance to eat into half of the market.
China’s innovation has occurred so quickly that Silicon Valley is forced to look eastwards for the future of technology. In China, the shopping done on Amazon, the online payments made through PayPal and the messages sent through Facebook are services that are usually consolidated into one app, giving ease of access to users for all their online needs.
“What they’ve been able to do is build these big ecosystems that feed off each other. Tencent has WeChat, which is like Facebook plus Twitter plus all of your [other] media,” said Crabtree.
“Once you bring all of these things together in one place, people begin to think of WeChat in a sense as the internet, it’s the place you go to for almost everything.”
China’s dominance on home soil has given it confidence to look overseas. According to Andrew Cainey, associate fellow of the Asia-Pacific programme at Chatham House, countries outside the US, Europe and China are the new battleground for companies from both tech hemispheres.
“Chinese brands are often popular as they start at lower price points that meet budgets of those in lower-income countries,” he said.
For Ray Wang, principal analyst and founder of Constellation Research, an advisory firm in Silicon Valley, China’s international growth carries huge potential given the foresight of companies to target countries untapped by the US.
“I think the biggest market people have forgotten about is Africa, where China is completely dominant from the telecommunications side to all the payments infrastructures they’re putting up in place,” said Wang.
China’s international success could also come from the lessons it learns from the missteps of its US counterparts. Facebook’s breach of data privacy and its role in the Cambridge Analytica breach have been closely watched by Chinese firms to avoid similar mistakes.
Regulatory suspicion around Chinese companies will be heightened as they start to move into markets far from mainland China, with some services likely to come under greater scrutiny than others.
The mobile payments sector in China will face the greatest attention, as the extent to which countries in the West will be comfortable with them operating large parts of their banking system remains unclear.
But China’s international expansion is a gradual one. China’s BAT has spent time learning about international markets by investing in rivals to US tech companies in regions such as south-east Asia. By contrast, aggressive attempts to penetrate the Chinese market from Silicon Valley tech giants have fallen flat. Didi Chuxing, a Chinese equivalent of ride-hailing start-up Uber based in Zhongguancun, Beijing, forced the US firm to retreat in 2016 after just three years of business in China.
Google has received intense criticism after it announced plans to re-enter a search engine market it initially left in 2010. Questions were raised about how much Google would have to compromise by kowtowing to Xi Jinping’s government.
However, Google’s ambitions in China could be to do with the potential it sees to advance its artificial intelligence capacities – the field Schmidt said China would one day dominate. Artificial intelligence harnesses machine learning to improve, with access to bigger data sets offering faster evolution.
“In an era in which so much tech innovation is going to be driven by AI, it will be a very substantial competitive disadvantage to a global tech company … they realise that if they’re cut off from access to data about Chinese consumers then there’s going to be an enormous disadvantage,” said Crabtree.
Challenges lie ahead for China’s vision of a hyperconnected, digital future. But it’s clear that the full potential of these technologies is yet to be realised as new companies with untold capacity emerge.
Bytedance is an internet technology company that uses machine learning for content aggregation for news and short video clips. In the space of six years since its founding, it has drawn a valuation of $75bn, while Meituan Dianping, an on-demand delivery platform, enjoyed a successful initial public offering this week, which valued it at $53bn.
“Baidu we understand is Google, Alibaba and Tencent are the two giants, Didi is like Uber, but beyond that level there are gigantic Chinese tech companies,” said Crabtree. “We’ve barely begun to understand how they work.”
