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Chinese Tech Firms’ Global Rise

· April 6, 2018

For all the focus on competition between and among Internet firms and other sectors of the U.S. economy, the greatest challenge to U.S. technology companies arguably comes from abroad.

China’s largest technology companies, Alibaba, Baidu, Tencent, and Xiaomi — collectively termed “BATX” — have a combined market capitalization of $900 billion, report an average annual growth around 50%, and extend across countless sectors.

Baidu runs China’s largest search engine, but the company is also a leader in artificial intelligence (AI). Alibaba leads China’s e-commerce sector, running the country’s dominant online retailer. Tencent dominates Asia’s social communication space with its messaging service, WeChat, which has over a billion users worldwide. Xiaomi is a consumer electronics company that got its start manufacturing smartphones.

As of last year, Tencent and Alibaba are now among the world’s 10 biggest companies by market capitalization, and while Xiaomi and Baidu have not (of late) secured this title, they continue to aggressively expand.

The BATX firms’ explosive growth has, in part, been attributed to their investment in new companies. Over the past decade the BATX has reportedly incubated over 1,000 new ventures, both in Asia and abroad. This has amounted to “over US$30 billion of funding rounds worldwide.” In 2015 alone the BATX reported that around 10% of their total revenue came from abroad.

Tencent, in particular, has been heavily investing in foreign tech companies. To date the company has secured a “a 5% stake in Elon Musk’s electric-car maker, Tesla (TSLA), and bought up 12% of Snap (SNAP), the parent company of SnapChat.”

These footholds in Asian, European, and American markets have helped BATX gain “hundreds of millions of users in international markets.”

BATX’s investments and acquisitions have also helped them deviate from their traditional markets — across “more than 20 sectors, both online and offline.”

Although Xiaomi got its start as purely a smartphone manufacturer, it is now a leader in the production of smart wearable technologies, smart speakers, and other Internet of Things devices. In fact, Xiaomi’s “massive internet-of-things network” is reportedly comprised of “more than 300 million connected devices.”

By comparison, the Consumer Intelligence Research Partners estimates that Amazon sold upwards of 30 million smart speakers (“Amazon Echo”) in 2017 alone.

Meanwhile Alibaba, originally an e-commerce company, and Tencent, which got its start in the social communications space, are making “advances in mobile technology, from payment to communication, [that] are world-leading.” Specifically, Alibaba now offers the online payment app, “Alipay,” and Tencent offers an online payment service through its social messaging app WeChat.

Xiaomi similarly offers an online payment service, called “Mi Pay,” available on its “Xiaomi Mi 5” smartphone, and Baidu offers “Baidu Wallet,” which is now partnered with PayPal.

But financial technology is not the only market in which the BATX is competing with one another. The companies are also going head-to-head in the online entertainment and livestreaming space; the offline to online (O2O) market (such as “food delivery and online sales of movie tickets”); e-commerce; autonomous vehicles; AI; and in the sharing economy.

The BATX can attribute their successful expansion in part to Chinese government policies focused on supporting domestic technology development.

Last year Chinese President Xi Jinping “announced a set of initiatives to make China a leading innovator by 2030 and a world-leading science and technology power by 2049.” This involves: growing the Chinese startup sector by allocating greater funds to research and development projects across a variety of sectors within the country; investing in startups, and especially AI-focused ventures; “build[ing] a smart and connected city… that will serve as a model for other metropolitan areas in China”; and developing and implementing innovation-friendly policies.

The Chinese government has also specifically tasked Baidu and other “hi-tech companies… to lead artificial intelligence (AI) development in the country,” particularly as it pertains to autonomous vehicles, intelligent voice interactive systems, and smart home products, among others.

The initiatives’ impact is already noticeable.

Last October Bloomberg reported that the Chinese facial recognition company, Megvii Inc., “set a new record for the largest single-round investment in an AI company, raising $460 million from investors, including one of China’s largest state-backed venture funds.”

This January the city of Beijing also announced its plan to construct a “$2.12 billion AI development park” with a “dedicated zone to test autonomous vehicles.”

Baidu’s vice-chairman and chief operating officer, Lu Qi, stated that, although “the US is still by far the best in terms of top-tier talent… China is closing the gap fast,” thanks to the “infrastructure and… friendly policy environment” President Xi Jinping’s initiatives have helped create.

“We’re facing a historic moment with immense opportunities for people around the world,” Lu Qi explains, and this “requires big countries and great enterprises, including China and Baidu, to lead and explore together.”

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.