China: The Long Road from Parochial Imitator to Multinational Innovator

China: innovator or imitator? This article discusses China's plans to become an 'innovation-oriented country'.

Chinese search giant and Google nemesis Baidu recently open its doors on a new research facility in Silicon Valley. The Institute of Deep Learning (IDL) in Apple’s backyard of Cupertino, and not a million miles from Google’s Mountain View HQ, is the US outpost of a facility back in China. Staff there will be tasked with researching a new cutting-edge field in artificial intelligence, which is getting a lot of people in the search industry rather excited in that it aims to mimic the human brain to provide more accurate results.

So why did Baidu, with access to the brightest and best grads from China’s top universities, feel the need to set up camp in the Valley? After all, it’s not planning to enter the US search market anytime soon. Baidu’s head of search Kai Yu told Wired: “In Silicon Valley, you have access to a huge talent pool of really, really top engineers and scientists, and Google is enjoying that kind of advantage.”

Advantage? So China is still failing to provide enough high-end tech specialists to meet demand, and enable many of its firms to make the leap from imitator to innovator.

That is not to say it won’t get there. Last year the government boldly announced it wanted China to become an “innovation-oriented country” by 2020 and a “world technological power” by 2049. Then in January, it issued an edict calling for the creation of five to eight “backbone enterprises” in IT with annual sales of over 100bn yuan (£10.5bn). So far, only Lenovo and Huawei fit that criterion.

Now, with any other target – largest smartphone market in the world (done); 800 million web users by 2015 (well on its way) – what Beijing wants Beijing gets. But turning the nation’s tech firms from copycats to innovators and creating up to eight multinational super-companies by 2015? More tricky.

Government-imposed self-censorship obligations can be prohibitively expensive for internet firms while IP protection is virtually non-existent. Both of these points discourage innovation. Then there’s the cultural stuff. There are a lot of bright sparks coming out of the top universities but the Chinese way of doing business is more risk-averse and consensus-seeking than in the West – not the best ingredients for an innovation-driven culture.

Even in Hong Kong, the can-do free market city where minimal regulations and web freedoms reign, there are issues. Entrepreneur Paul Tomes, co-founder of local start-up PassKit, told me there are few government initiatives to help firms like his get off the ground.

“As Hong Kong is traditionally an international financial hub, many of the top talent have been attracted by the money offered by investment banking, fund management or consultancy,” he said. “As such it’s been tough to find talented people with an entrepreneurial system engineering mindset, which a business like PassKit needs.”

Bandit innovation versus imitation

It’s certainly too sweeping a judgement to brand all of China’s tech firms with the copycat brush though. Yes, the streets of every major city are filled with shanzai grey-market electronics, and, yes, many of the PRC’s most successful web firms have flourished precisely because government blocking of sites like Facebook and Twitter removed the major competition. But it’s also true that many have gone further than the western platforms on which they’re supposed to be modelled.

Sina Weibo, the hugely popular Twitter-like service, offers embedded media, chat functionality, threaded comments and a games portal. It’s more like Twitter+. Tencent’s Weixin (WeChat in English), meanwhile, trumps WhatsApp by offering video and voice messaging alongside regular text messages. And for the record, Baidu was always better than Google with Chinese language queries.

This is what Zhou Hongyi, co-founder of Qihoo 360, refers to as “micro innovation” and what outspoken Tinsghua University economist Li Daokui recently called “bandit innovation” – tweaking and improving imported technologies for the local market. So with this kind of success, does China even need to be an “innovator”? After all, Microsoft famously never made it first to the browser game but subsequently muscled out Netscape with Internet Explorer. Now Google’s Chrome and others are doing the same to Microsoft.

Well, ‘yes’ is probably the answer, if China’s tech firms want to stand the test of time. As Li said recently of the so-called bandit innovators: “This type of imitation can’t replace fundamental research … they don’t have the accumulation of knowledge, the know-how to continuously grow.” It’s no coincidence that two of the country’s most successful and longest standing, Lenovo and Huawei, spend millions on R&D every year.

As to whether China can pull it off, only several decades and the Party hierarchy can answer that. It remains to be seen whether the political will is there to improve IP protection, deregulate the internet and nurture genuine innovation. In the end, taking western multinationals on at their own game may be one step too far for the Middle Kingdom.

John Anderson has been writing about technology and all things Asia for over a decade. From his perch in the Far East he keeps a keen eye on the global significance of emerging trends in the region.