New Heights of Transpacific Competition
Amid a simmering trade conflict, rapidly growing Chinese tech firms have emerged as one of the key competitors in the global race for digital prosperity. China’s leading tech companies – Baidu, Alibaba, Tencent, and Xiaomi, or “BATX” – continue to expand globally. [1, 2, 3, 4] Furthermore, a new generation of companies – Toutiao, Meituan-Dianping, and Didi Chuxing, or “TMD” – is rising in China that focuses on certain young and powerful technologies such as artificial intelligence and electric vehicles. Chinese firms have moved beyond copying others’ innovations; they are innovating and expanding and have begun to reach outside China to compete globally and with many top U.S. tech firms.
During a Brookings event focusing on China’s tech sector, author Rebecca Fannin detailed China’s history of entrepreneurship and innovation. Fannin also briefly discussed the history of competition between U.S. and Chinese tech companies, outlining two distinct eras of operation. First is the era when Chinese firms duplicated U.S. firms and second is when we see Chinese firms no longer simply copying U.S. services but proving themselves as innovators. Fannin made clear the trend of Chinese firms’ rapid growth and the shift into the second era.
Many leading U.S. and Chinese tech firms fulfill similar roles in their geographical regions. In broad terms, companies like Facebook and WeChat are social services, businesses like Amazon and Alibaba both specialize in e-commerce and retail, apps like Snapchat and TikTok are both video sharing services, and Starbucks and Luckin Coffee quite plainly both serve coffee. In the past, Chinese services have often followed the lead of their U.S. counterparts, copying the advances U.S. services have implemented. However, that is no longer the case. Current and emerging Chinese firms are innovating and expanding into new fields, offering services with greater functionality and looking to compete in new ways. Many of these quickly expanding Chinese firms could soon operate globally.
Luckin Coffee, a firm founded in October 2017, recently became the second largest coffee chain in China behind the long-standing global firm Starbucks. Unlike Starbucks, which prioritizes eating and drinking in stores, Luckin Coffee operates through pickup and delivery which can be placed through the mobile app. Luckin Coffee also aims to have more than 4,500 stores by the end of 2019, which would surpass Starbucks’ approximately 3,600 stores. Following the rapid growth of Luckin Coffee, Starbucks has adapted some of Luckin’s practices, announcing the expansion of its delivery service and the opening of its first mobile pickup store.
The comparison between WeChat and Facebook is another example of a Chinese company innovating in a manner that surpasses a U.S. counterpart. WeChat has innovated by expanding its service into an “all-in-one platform” with some features Facebook does not have. In addition to the capabilities Facebook and WeChat share, WeChat users can make payments and transfer money, repay credit cards, pay utility bills, buy a virtual currency that can be used in the app, and access a range of public services like booking doctor’s appointments and applying for visas, and other third party services including ride-hailing, online shopping, and food delivery. WeChat is effectively making themselves the only necessary app on consumers’ phones, a one-stop-shop for all of a user’s needs. Facebook has long been seen as a service offering a wide variety of capabilities but its recent commitment to increased encryption and next steps for the future appears to look towards WeChat as a model. However, while WeChat’s all-encompassing service still holds more capabilities than Facebook, WeChat has had trouble expanding past China where Facebook hasn’t. In an effort to make inroads globally, Tencent, WeChat’s parent corporation, has laid out a global strategy for WeChat Pay, the payment aspect of its service. More recently, Tencent has also given foreigners access to its digital payment service in WeChat through connections with international credit card companies. Both of these actions are some of Tencent’s more recent efforts to have WeChat step further into the global marketplace.
Luckin Coffee and WeChat aren’t the sole data points signaling the increased levels of Chinese innovation and transpacific competition. China’s younger firms, TMD for example, have set their sights on newer technologies such as artificial intelligence (AI) and electric vehicles¹. China plans to be a world leader in AI by 2030. Some Chinese tech giants including Alibaba, Baidu, ByteDance, Huawei, and Tencent have established AI labs. ByteDance, the parent company of Toutiao (another firm in TMD) and TikTok, has integrated AI into many of its services and just last year was regarded as the most valuable startup in the world. Toutiao is a highly popular news service that utilizes AI and machine learning to collect and share content with its users. Through its AI-curated content, Toutiao attracts over 120 million daily users, where the average user spends 76 minutes per day on it. TikTok is a social media service that allows users to share 15-second videos of themselves they can stylize in a multitude of ways. TikTok is a clear first step in Chinese firms gaining massive popularity and competing with other services outside of China.
Five years ago, the U.S. held nine of the top twenty Internet firms ranked by their market valuation while China held only two. Last year, the U.S. held eleven while China held nine. Simply put, transpacific competition between U.S. and Chinese firms is only becoming more fierce.
¹DiDi Chuxing, a comprehensive transportation service, has recently turned its focus towards electric vehicle technology and partnered with BJEV (a subsidiary of BAIC, which is China’s largest state-owned enterprise of several automobile manufacturers). Furthermore, DiDi Chuxing has also partnered with BP to build out electric-vehicle charging infrastructure in China. Furthermore, the efforts of BAIC and Didi Chuxing are only part of China’s efforts to lead the electric vehicle market. [1, 2, 3]