This video explores the unexpected rise of Chinese technology companies from mere imitators of Western counterparts to leading innovators on the global stage. Despite initial criticisms as copycats, China's tech giants have made significant strides, boasting achievements like possessing the fastest supercomputer, pioneering in digital payment systems, and fostering unicorn companies, making them a formidable force in the tech world. The speaker highlights how this shift came to be, focusing on the rigorous competition and the lack of traditional burdens that propelled unique business models and technological advancements.

The speaker dispels common misconceptions that China's success in technology was due to protectionism or cheap labor. Instead, they assert that the intense competition in China, where companies are forced to continuously innovate and evolve, is the true driving force. The relentless imitation among companies led to innovation as they strived to outpace each other by tweaking models and creating high entry barriers, resulting in resilient entrepreneurs. The unique environment shaped by these conditions has allowed for rapid technological advancement in China, distinguishing it from places like Silicon Valley.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. copycats [ˈkɑpiˌkæts] - (noun) - Someone who imitates or replicates another's work or idea. - Synonyms: (imitators, replicators, mimics)

The world looked down upon Chinese technology companies. They were considered to be copycats, imitators, appropriator rather than innovator.

2. unicorns [ˈjuːnɪˌkɔːrnz] - (noun) - Privately-owned startup companies valued at over one billion dollars. - Synonyms: (billion-dollar startups, top-rated startups, high-value startups)

Out of the top ten unicorns, seven are Chinese.

3. savage [ˈsævɪʤ] - (adjective) - Fierce and violent; uncontrolled and uninhibited. - Synonyms: (fierce, brutal, intense)

The brutality and savagery of competition, and of the most ferocious kind.

4. entrenched [ɪnˈtrɛntʃt] - (adjective) - Firmly established and difficult to change. - Synonyms: (established, ingrained, fixed)

When a country is without the burden of tradition, entrenched systems and legacy, it is actually easier to adopt innovation.

5. dysfunctionality [ˌdɪsˌfʌŋkʃəˈnælɪti] - (noun) - Abnormal or impaired functioning or operation. - Synonyms: (malfunction, defect, breakdown)

The tradition of dysfunctionality actually helped China escape the burden of tradition.

6. cannibalize [ˈkænəˌbʌlaɪz] - (verb) - To affect the sales or market of a related product. - Synonyms: (erode, impact, diminish)

The second choice is to cannibalize yourself.

7. leapfrog [ˈliːpˌfrɒɡ] - (verb) - To surpass or overtake someone or something, often rapidly. - Synonyms: (surpass, overtake, outdo)

...by starting behind and backward in 1980, you're able to leapfrog further by 2020.

8. backwardness [ˈbækwərdnəs] - (noun) - The state of being behind in development or progress. - Synonyms: (underdevelopment, deficiency, lagging)

There's a concept called economic backwardness that I like to go to.

9. iterate [ˈɪtərˌeɪt] - (verb) - To repeat a process or set of instructions from the start. - Synonyms: (repeat, redo, revise)

Constantly tweak their business models, endlessly iterate their products.

10. monetization [ˌmɒnɪtaɪˈzeɪʃən] - (noun) - The process of earning revenue from a business, product, or service. - Synonyms: (revenue generation, commercialization, earning)

Invent new monetization models, and build very high barriers of entry.

How China's Tech Companies Transformed From Imitators to Innovators

So once upon a time, the world looked down upon Chinese technology companies. They were considered to be copycats, imitators, appropriator rather than innovator. So that was true. The copying was shameless and ruthless. What was Facebook was first on campus, which became Ren Ren, which is everybody. Groupon was the darling startup in Silicon Valley. For a long period of time. It was a group buying business. Meituan, the Chinese copy is called group beautiful. Yahoo became Sohu with so being, search and YouTube became you could the exact identical copies of their American counterparts.

So while the rest of the world sneered, China was actually rapidly catching up. So today, China has the fastest supercomputer in the world. Its digital payments market is 50 times larger than that of the US. China's 500 meters wide radio telescope has joined the global search for extraterritorial life. Huawei became the biggest issuer of new international patents. And out of the top ten unicorns, seven are Chinese. Out of the top 20, half of them are Chinese. Now this one is just the ones that were the previous unicorns. Of the five, four were Chinese.

So the revolution, technological revolution, is happening in China. And I find this very interesting because it is actually the first time in history that a developing country with only 25% of GDP per capita of the US is actually at the cutting edge of technology and leading it in many aspects. So there are three common explanations for why that is for China's success. The common explanations are protectionism, government protectionism, or outright theft or cheap labor. Now, all of these things happened, but none of it is true. None of it is the real explanation driving China's technological boom.

The two real reasons are the following. The first is competition. The brutality and savagery of competition, and of the most ferocious kind. So, Meituan, I mentioned this group buying business now valued at $30 billion. While by the way, Groupon is basically nothing more than a shell, today is one out of 5000 group buying businesses. Alibaba, of course, which kicked out, which was the exact copy of eBay, but kicked out eBay eventually was one of 12,000 e-commerce platforms. Today, online lending is all the rage. And Pai PI Dai is one of 6000 p to P platforms that are ferociously competing with each other.

Imitation is very easy in China. They relentlessly copied each other. They drove prices down to the ground, they deinstalled each other's software, they even sent each other's CEO to the police. That's how competition works in China. So this is from this blood shedding gladiatorial stadium actually emerged the most robust business models and the most resilient entrepreneurs because of competition.

Now, I think this is very interesting because we usually think there's imitation, the stage of imitation, and then there's a stage of innovation. Somehow, one country managed to transition from being an imitator to an innovator. But the fact of the matter is, in China, the easy and ferocious imitation actually caused innovation. It led to innovation because competition forced companies to constantly innovate, constantly tweak their business models, endlessly iterate their products, invent new monetization models, and build very high barriers of entry so that you're protected.

Now, when you're in the Silicon Valley, uncontested, where copying is really frowned upon and not the typical practice, well, it's better and more comfortable to not have that pressure and change. So I think that the best way to capture this idea is, as always, there are three choices in life. The first, of course, is to be lounging your chair on a vacation and doing nothing. The second choice is to cannibalize yourself. And the third choice is to be cannibalized by somebody else. Now, when three is never possible, then you're always going to choose one over two, right? When you're in a comfortable position and you don't have that competition, you always choose one. When three is actually a living reality, well, then it's better to choose two rather than choose three. And so that is the spirit of the Chinese Internet ecosystem, constantly changing, constantly innovating so that they can survive.

That's the first factor. Now, for instance, that imitation led to a lot of innovation. Now, WeChat is a great example. For those of you who don't have WeChat, I recommend downloading it, trying it out. It is actually a combination of all these things. The combination of Skype, WhatsApp, PayPal, Facebook, Twitter, all on one platform, and it works incredibly well. And so those people who thought that Chinese were always just innovating, well, think again. They are constantly coming up with new features and new models and optimizing their product, expanding their product lines, and optimizing their business models and adapting.

The second factor leading to China's success, which has been unconventional, is by having no burden of tradition. Now, there's a concept called economic backwardness that I like to go to. Alexander Gerschenkron is an economic historian, and the notion is that actually by starting behind and backward in 1980, you're able to leapfrog further by 2020. Now, Beijing, where I come from, has a fantastic airport, highways, roads. When in 1990, it was virtually in shambles or nonexistent. Now, no one admires, I think no one admires the Kennedy airport in New York, but actually it was a decent airport in 1980, so it kind of just clutched its way along and didn't need to change.

In China, most people don't have access to the traditional banking system, so they went straight to online banking. Now, Alipay, which is one of the largest unicorns, the financial arm of Alibaba, has this massive online lending to small companies, to households, to rural people, and it gives you loans much cheaper, much faster, with a 2% default rate. Now, when you're in the rural area in China, you don't even have banks, even in your vicinity, you go straight to online lending. And actually, research has found that you have a 40% increase in the likelihood of becoming an entrepreneur through these ant financial platforms of online lending.

So actually, fintech is not only closing the urban-rural gap, it's also reducing inequality at a rapid pace. So when a country is without the burden of tradition, entrenched systems and legacy, it is actually easier to adopt innovation. When you don't have to break things down before you build them up again, it is easier to move forward because dismantling things is costly. Renovating something is more difficult than starting from scratch. So China doesn't have the burden of tradition, but it's actually also able to escape any tradition that it has.

And the first way of doing that is actually by having a different kind of tradition. And that's the tradition of dysfunctionality. If stuff just doesn't work well in the real world, in the physical economy, then that gives more room for the efficiency gains provided by the digital economy and the Internet economy. So the financial system in China is a mess. Unreliable households don't really have access to it. And this gives fintech the space to improve, basically escapade velocity.

So the tradition of dysfunctionality actually helped China escape the burden of tradition. And the second is the second advantage is the capacity to scale. When you have the opportunity to scale, tradition recedes in the face of explosive growth. When there is no scale, tradition and legacy prevail and tend to linger. So here is this example, or these are some of the facts of the capacity to scale in the mobile penetration in China. 772 million Internet users, 55.8% penetration rate, and still growing. The new generation, most of them are online, of course.

We have 1.3 billion people. Smartphone, 717 million users mobile Internet, 753 million users mobile payment, 527 million users, et cetera, et cetera. Higher than most countries in the rest of the world. So that is the capacity to scale, which helps you escape economic backwardness. And of course, coming down, going forward, China is investing a lot, of course, in artificial intelligence with policy ease, the government support. This is a big data industry, so the more data you have, the more advantage that you will have as well. And that is also another advantage of scale. China has risen by defying conventional wisdom.

So let me give you two unconventional thoughts to conclude as a summary for what I think has driven China's success. Now, the first is that we usually think about intellectual property protection as a key factor to promote innovation, because that gives you the incentive, that gives people incentive to innovate because they can harness their profits. Well, actually, China has proven that that's not necessarily the case. More limited protection of intellectual property is not a failing of capitalism per se, but actually may be a contributor to progress.

And the second and last is that, as in many other things, it is actually potentially far better to be leading from behind. Thank you very much. Thanks very much. So we've got time for a couple of questions. So I don't know if there's anybody in the audience who would like to ask a quick question. Yes, there's a handheld mic. Just a second.

So, regarding the point about competition, so the kind of export of Chinese businesses to the west, and vice versa, has kind of been somewhat limited. So what do you foresee being the trends in the next couple of years as to how those businesses globalize? I guess China's success has been mostly domestic and unlike what most people think, which is that the foreigners were not, foreign companies were not able to compete in China because government doesn't let them, is actually wrong.

The example of Alibaba is driving out eBay is a great example of that. eBay used to say, free is not a business model. They laughed at Alibaba's business model because eBay wanted to charge a price for sellers to list, wanted to charge a price for transaction, and Alibaba made it all free because it understood the Chinese mentality. Then everybody went onto Alibaba's platform, and then you ended up having to pay a high advertisement cost or paying more just to get higher on your search rank. And then Ali actually won over.

So that's one example where the Chinese companies were very good at focusing on the local market, adapting to local conditions, and being successful, and because of the scale. Now, the same is not true necessarily about exporting that model. Just as a lot of these Western companies took their standard model and said we can do copy paste and expect it to work in China. It would also be very difficult for China to do the same to other countries because of that understanding of cultural tradition and because China still has to need Chinese companies have to learn the strength of soft power.

So I see that as a weakness. So even if it has international expansion ambitions, my guess is that most of the success will still stay domestic. Any other questions? Yes, maybe a good follow-on from that question. With the Chinese companies expanding overseas, what do you think of the potential for them to expand via their diaspora or the Chinese ethnicity outside of China?

Well, interestingly enough, there is a trend of kind of Chinese returning to China, whether they grew up in China, even without growing up in China, a lot of them are going back to take advantage of that. I see the Chinese kind of the Chinese population as not so much trying to, let's put it this way, the Chinese government is very interested in kind of expanding its influence through the Belt Road projects or by exporting some kind of its cultural elements through cinema or various things like that.

But I think that in reality, the reverse is happening is that a lot more people who have lived outside of China is returning to the Chinese market, where there is that kind of scale and that kind of opportunity to expand.

Business, Technology, Innovation, Competition, Chinese Tech Companies, Economic Growth