The rise of Silicon Valley East
China’s tech giants have conquered their home market — now for the West, reports Hasan Chowdhury
At a global summit on artificial intelligence in Washington last November, Eric Schmidt, former executive chairman of Google’s parent company Alphabet, 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 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 US$1 trillion, 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 in a variety of important technologies: search, payments, messaging, video, e-commerce, and gaming — and have handsome market values.
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 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 US$477 billion ($718b), while Tencent, headed by Ma Huateng, also known as Pony Ma, is worth US$385b.
In some respects, China 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 at the Lee Kuan Yew School of Public Policy in Singapore, sees the rise of the Chinese stars as inevitable.
“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 says.
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.
Early critics of Chinese companies saw their growth as a “copycat” strategy that replicated technologies from the US and other overseas tech hubs for China’s home market, but that view no longer stands.
The Chinese internet market has proven to be “ferociously competitive”, giving an incentive to incumbents to keep innovating or risk being dethroned.
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,” says 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. Andrew Cainey, associate fellow of the Asia-Pacific programme at Londonbased Chatham House, says 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 says.
Ray Wang, principal analyst and founder of Constellation Research, an advisory firm in Silicon Valley, says “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.”
Regulatory suspicion about 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.
Mobile payments will face the greatest attention, and it is unclear how comfortable countries in the West will be with Chinese companies operating large parts of their banking system.
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 southeast Asia.
By contrast, attempts by Silicon Valley tech giants to penetrate China have fallen flat. For example, Didi Chuxing, a Chinese equivalent of ridehailing 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 reenter 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.
“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,” says Crabtree. “We’ve barely begun to understand how they work.”
— Telegraph Media Group
By 2020, [China] will have caught up. By 2025, they will be better than us. By 2030, they will dominate the industries of AI.
Eric Schmidt (above)