"New era, new revolution. I am a maker, for the hearts of the dream."
So goes a rallying cry carved in giant letters on the wall of a warehouse in Shekou, a seaside enclave near Hong Kong. Many of China's most promising entrepreneurs flocked there recently for a conference organized by TechCrunch, a technology publisher from Silicon Valley. Yet Baidu, Alibaba and Tencent — established Chinese internet giants collectively known as the BAT — were overshadowed by upstarts such as Didi Chuxing, a ride-hailing firm that chased the United States' Uber away from China, and Ofo, a bike-sharing startup that is going global.
They are part of a new wave of inventive young firms emerging from China. A few years ago, Chinese innovation meant copycats and counterfeits. The driving force is now an audacious, talented and globally minded generation of entrepreneurs. Investors are placing big bets on them.
Around $77 billion of venture-capital investment poured into Chinese firms from 2014 to 2016, up from $12 billion between 2011 and 2013. Last year China led the world in financial-technology investments and is closing on the U.S., the global pacesetter, in other sectors.
China's 89 unicorns (startups valued at $1 billion or more) are worth more than $350 billion, by one recent estimate, approaching the combined valuation of the United States'. And to victors go great spoils. There are 609 billionaires in China compared with 552 in the U.S.
"Innovation moves faster here," said Kai-Fu Lee, a former head of Google's Chinese operations who now runs Sinovation Ventures, a VC fund and accelerator in Beijing. Gone are the "C2C" (copy to China) and "JGE" (just good enough) strategies of their parochial predecessors. China's nimble new innovators are using world-class technologies from supercomputing to gene editing. Having established themselves in the cutthroat mainland market, many are heading abroad.
There are three main reasons why China's determined entrepreneurs can expand their businesses rapidly. First, the economy, the world's second largest, is big enough to let firms attain huge scale just by succeeding at home. It helps that language and culture are more homogeneous than in Europe and physical infrastructure (such as roads and wireless broadband) is new and excellent, unlike in the U.S.
Second, Chinese shoppers are voracious and venturesome, an advantage to innovators with clever products. They are also unusually eager to embrace technology. China's penetration rates for mobile phones and broadband internet are high, making it easy for startups to reach a vast market cheaply. And China is rapidly becoming cashless. The volume of mobile payments shot up almost fourfold last year, to $8.6 trillion, compared with just $112 billion in the U.S. This is why China breeds financial-technology startups so quickly and is home to many of the world's most valuable fintech firms. Ant Financial, spun out of Alibaba, may be worth more than $60 billion.
Third, state-dominated industries ranging from telecommunications and banking to health care are woefully inefficient and even hostile to consumers. This allows agile newcomers, with business models that put the customer first and deploy the latest technologies, to jump ahead of incumbents more easily in China than their counterparts in developed markets.
The government's inability to run industries well is counterbalanced by a willingness to support new ventures, which in turn hastens innovation in areas such as transport.
David Frey of KPMG, a consultancy, said he believes that it has played a useful role as a "market maker," one reason why China is far ahead of the United States in both electric-vehicle (EV) registrations and the number of charging facilities. An announcement of an eventual ban on gasoline engines (probably after 2030) could help to secure a long-term lead in the global EV market. But the most useful change was a decision to allow venture-backed startups without previous carmaking experience to enter a field previously dominated by inept firms cranking out subpar EVs.
Consider Nio, a three-year-old automotive company. Its headquarters and research center are tucked away in a huge complex of low-rise buildings in Shanghai's Jiading district, a cluster that aspires to become the Detroit of China. It is the brainchild of Li Bin, one of China's most formidable serial entrepreneurs. Nio, backed by the country's most astute early-stage investors, including China's Hillhouse Capital and the United States' Sequoia Capital, is valued at around $3 billion.
Leaping to a whiteboard, Li calculated that the impact China's cars have had on the planet in the past decade equals that of all cars in the previous 100 years. "From 2000 to 2017," he added, sketching a declining curve, "there was diminishing happiness from owning a car." Traffic, pollution and accidents were to blame. So too, he added, is a car industry locked into "a 100-year-old way of doing business."
His solution has three pillars. The first is to combine cloud computing, artificial intelligence and sensing technologies to advance autonomous driving. This will not end traffic jams, he reckoned, but it can bestow on erstwhile drivers the gift of free time in their cars. Nio has unveiled Eve, a concept vehicle that is in effect an AI-powered living room on wheels. The second pillar is to speed up electrification. To augment the rollout of conventional chargers, he will offer rapid battery swapping in big cities. The third is to design cars specifically for the digital era.
The firm has developed much of its technology in-house. It employs people from 40 countries, some poached from established carmakers including Ford and Volkswagen. Last November, Nio presented its first vehicle at a glitzy event at the Saatchi Gallery in London. The EP9, which holds the world speed record for EVs, is designed to wow critics and show off technological prowess, not for mass-market sales. That will come in time, Li said.