China has consistently remained in the headlines recently as the back and forth between Donald Trump and Chinese President Xi Jinping continues. Discussions about imports, tariffs and the ongoing trade war have attracted the majority of the attention, but there’s another story developing just below the surface often overlooked — is China going to control the future of technology?
Over recent years, Chinese tech firms and conglomerates have been hard at work not only producing more content (websites, apps and services) but expanding and acquiring additional companies of their own. One of the most prominent examples can be seen with the explosive growth of the Chinese-developed TikTok, a widely popular short-form video app.
Growth and Acquisitions
Currently, TikTok is in the midst of a legal battle after news broke of a potential ban on the app being upheld in India. But beyond concerns of protection of its users is another surprising fact that’s the main reason authorities are even paying attention to the app in the first place. In the first quarter of 2019 alone, TikTok added as many as 188 million new users of which 88.6 million were Indian. The Chinese app has erupted in popularity both in India and globally, warranting additional scrutiny from regulators.
But TikTok’s success story isn’t just one of growth within the app, it’s included acquiring promising companies as well. The owner of TikTok, ByteDance, successfully bought a similar Chinese giant, Shanghai-developed Musical.ly, to merge with the app for a reported $800 million. The acquisition brought with it 100 million users and was one of the first Chinese apps to successfully penetrate the American market.
Now, other Chinese conglomerates are looking to replicate that success by acquiring
more companies to aid in their expansion beyond just social media. More recently, the
highest valued fintech company on the market, Ant Financial, has begun making acquisitions of its own. The Alibaba affiliate has agreed to purchase another fintech company, WorldFirst, though details about the sale have not been disclosed. This recent purchase marks the efforts of China’s most successful company expanding into newer markets yet again.
It will be interesting to see how the UK-based payment company and currency exchange fits into the plans of the Chinese powerhouse. Ant Financial already has a fintech play of their own, Alipay, though is looking to expand operations without drawing too much scrutiny.
Favorable Conditions and Lots of Capital
Besides success with consumers, Chinese companies enjoy very favorable market conditions compared to many of their western counterparts with a lot of room for growth. One area in particular this growth can be seen is in venture capital spending and investments. Nine years ago, the United States was far ahead of the globe in venture capital spending with $30.8 billion compared to China’s $5.6 billion. However, by 2018 China has nearly caught up to the US boasting an impressive $105 billion in VC investments compared to $111 billion for the US, a drastic shift over the past eight years.
Venture capital expenditures in the region reflect shifts not just in the economic power of China, but in the technological development as well. With the rise in VC spending has come an impressive amount of unicorns, privately held startups valued at over $1 billion, in the country as well. Though not yet on par with the US, China is second when it comes to startup unicorns with the vast majority of startups focusing in the tech space.
With a high-growth mindset and what seems like nearly limitless capital for investment, China could well be on its way to challenge much of the current tech world. Unlike the China of the past, known for imitating successful tech companies in the US, the tables are beginning to turn. More investment for startups can often translate to more creative and innovative ideas as we’ve seen in recent history. Mobike, a Chinese bike-sharing app launched in 2015 saw success in Shanghai and Beijing witnessed an eerily similar concept take the US by storm three years later with the rise of scooter-sharing apps like Bird and Lime. Is China going to be a new leader in tech, not a follower? It will be interesting to watch things play out.