
China VC has overtaken Silicon Valley, but do aggregates tell the whole story? - rbanffy
https://techcrunch.com/2018/07/05/china-vc-has-overtaken-silicon-valley/
======
tynpeddler
There are several factors at work here. First, China is extremely
protectionist. A lot of the Chinese tech companies are reimplementations of
American companies where they get to learn from history and their
counterpart's IP. This means that even if China was not developing any new
products or technologies, they would still be spending a huge amount of money
to replicate the US tech companies. Supposedly economists should be lambasting
this wasteful protectionism, but that kind of negativity isn't commonly
applied to China yet.

Secondly, American companies have received enormous pushback when they do
attempt expansion overseas. Some of this pushback is valid, and some is not.
But often American companies are hit hard for stupid reasons because they
don't have the political cover that Chinese companies ostensibly possess.

Which leads to the next point which is that Tencent, Alibaba and Baidu (which
are the biggest Chinese tech players) are effectively government sponsored
entities. Baidu especially was created after the Chinese government ran Google
out of the country. This gives them much more political firepower when working
out deals with other countries.

American anti-corruption laws are some of the strongest in the world, which is
a good thing, but this does mean that American companies are operating at a
big disadvantage when working in countries and industries where bribery is
practically required. Russia, Brazil and Mexico are often problem countries
for example. To get away with the backroom shenanigans required for dealing in
those countries, you need the kind of political clout that companies like
Exxon possess, and nobody in the tech industry wields that kind of power.

American companies operate under a number of "disadvantages." Some of these
are disadvantages are good and some are not, but it does mean Chinese tech
companies have much wider latitude to act and have much closer access to the
political levers of their country. The biggest question here (as always with
China) is how much do metrics that are developed for a free market actually
matter when applied to a country that is not a free market but is pretending
to be one when it suits their needs. The west faced a similar problem with the
USSR during the cold war. The only news the west had access to was news that
made the USSR look good, so we were constantly panicking at how powerful the
Soviet Union seemed to be while they ineptly blundered from one error to
another.

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thisisit
The Total Addressable Market is huge in any developing country. The only
problem was that the previously internet penetration was very low and not many
people had computers to get online. Cheaper and more mature smartphones has
changed all that. Now with the huge and growing "online" population it is not
surprising that this is happening.

But, I must add that China's notorious protectionism is also playing it's
part. No international company can take money from Silicon VC and then pump it
in China to build their brand. Uber tried and failed. This is in complete
contrast to India. If you look at it ecom saw bigger and bigger deals for
Flipkart until Amazon happened. Same with Uber holding it's ground against
Ola. I am sure if India had similar protectionism, we might have seen similar
headlines for them too, maybe not at the same time but couple of years give or
take.

------
jorblumesea
China is an interesting case because many of the startups are directly backed
by government interests. This is also true for SV but not to the extent that
it is in China. Most SV firms are backed by private capital with a few notable
exceptions (In-Q-Tel).

It's not really an apples to apples comparison. Massive government funding is
providing huge amounts of capital to make this happen and there is speculation
on bubbles forming by cheap credit with few strings attached.

Links:

[http://www.chinadaily.com.cn/business/2017-07/28/content_302...](http://www.chinadaily.com.cn/business/2017-07/28/content_30275307.htm)

[https://news.crunchbase.com/news/one-china-based-vc-
backed-g...](https://news.crunchbase.com/news/one-china-based-vc-backed-
government-invests-home-abroad/)

[https://www.wsj.com/articles/chinas-tech-startup-funding-
the...](https://www.wsj.com/articles/chinas-tech-startup-funding-the-wild-
west-in-the-far-east-1513248609)

~~~
wei2012
This is not true. In fact, most of the startups are avoiding government
interested related projects because China government can easily shutdown or
take control of your startups for FREE.

That's why there is no SpaceX or anything that can used in weapon area.

~~~
greglindahl
China has a bunch of orbital rocket launcher startups.

------
contingencies
We[0] are currently raising Series A and are based in China. Notes from our
experience to date:

(1) Very few VCs here speak fluent English. I have had to pitch in Mandarin
many times, even to partners at local branches of leading international firms.

(2) Many mainland VC firms now run USD denominated funds, some are explicitly
looking out of China, especially to Southeast Asia.

(3) A great place to be for VC next week is RISE in Hong Kong,
[http://riseconf.com/](http://riseconf.com/) ... please reach out with an
email if you are attending.

(4) Many companies here seem open to partnership deals. I suspect that non-
equity sources of funding may have a greater influence here than elsewhere.

(5) An environment of extreme capital availability combined with a huge
largely homogeneously regulated market definitely affects business model and
growth strategy. It would be interesting to see aggregate research in this
space.

[0] [http://infinite-food.com](http://infinite-food.com)

------
adrianN
Adjusted for purchasing power it probably looks even worse for Silicon Valley.
How much is an office and a good developer in a big city in China?

~~~
seanmcdirmid
Chinese real estate prices are SV level already in some cities that are
popular with tech. However, they lean more on dense open offices and even
converted underground shopping malls. They also tend to put development
centers way out in the suburbs away from expensive city centers (well, it
depends, for every Lenovo that is almost out to changping, there is a
Microsoft in the heart of Zhongguancun).

High office prices only applies to Shenzhen, Beijing, and Shanghai (and maybe
GZ and HZ).

As for labor, good programmers and managers are definitely not cheap in China,
even if cheaper than SV.

~~~
forkLding
I'd argue its still easier than SV, I'm seeing SV employees move back to China
and start their own things due to:

a) The VC funding b) The overall startup environment c) Cheaper worker wages

Theres definitely communist red tape but right now tech startups are in vogue
unless they directly/indirectly interfere with communist or harmonious society
guidelines.

~~~
adventured
Building start-ups in China is great, if you're primarily interested in the
China market. Chinese tech companies are overwhelmingly domestic capture
entities, they can't get outside the country very easily.

The state now very openly controls all companies in China, directly or
indirectly. They dictate what you can do, what you can build, what you can
say, what you can sell, where you can sell, what you can do outside of the
domestic market, how much capital you can move internationally, when you can
move it, who can own your business, how much of your business foreigners can
own, etc. You're not allowed to cross their edicts under any circumstances. If
you fall out of favor for any reason, at any time, they will destroy you
personally.

SV start-ups get the entire rest of the planet as a playground, almost
entirely unencumbered by the type of highly restrictive state policies that
Chinese tech companies constantly deal with. That's why Baidu was never able
to go global and challenge Google. It's why China can never fully go global
with most of their social products. They can never compete properly on the
international stage with Google, Facebook, Instagram, Amazon, Reddit, Github,
Snapchat, Twitter, Salesforce, Workday, Oracle, Windows, iOS, Android, MacOS
and countless other types of companies and product categories. It's why
WhatsApp & FB captured the world, and WeChat primarily owns China, but does
not - and will never - own the rest of the world: aggressive state censorship
sucks.

If I want to say that Xi looks like Winnie the Pooh, I can do that on
WhatsApp. If I want to make jokes the Communist Party dislikes, I can do that
on WhatsApp. If I want to mock Mao, I can do that on WhatsApp (or Reddit, or
Twitter, etc). You can't do that in any ecosystem controlled by China (note,
those are intentionally non-serious, illustrative examples, China's
restrictions are far more smothering and comprehensive).

SV can't get into China. China mostly can't get outside of China. SV wins.

------
wave9x
Comparing a country of 1.4 billion people to a metro area of 2 million people?
Stupid.

------
pnathan
> China has its money where the action is.

This has been absurdly obvious for about 3-5 years now. The knowledge of
actual hardware creation & manufacturing has largely migrated to China (hello
outsourcing). Costs of living in reasonably stable environments (required for
broad innovation) in the US is absurdly high. Government support and funding
for innovation - _which is required for high value research_ \- has been
gutted since the Cold War. These things have a long-term effect.

All of the above are USA policies driven by politics. They can all be 100%
fixed with political muscle and will. Much like our infrastructure. We can fix
it: _we choose not to_.

China's government is not stupid; they can watch the US hamstring itself via
libertarian policies and work to avoid such approaches. I don't _like_ their
approach to human rights, but they are working very hard to fund innovation
and infrastructure.

~~~
space_fountain
What do you mean by reasonably stable. Suburban Ohio is literally an order of
magnitude cheaper than say San Francisco and Cleveland isn't that much more
expensive or for that matter unstable.

~~~
aphextron
>Suburban Ohio is literally an order of magnitude cheaper than say San
Francisco and Cleveland isn't that much more expensive or for that matter
unstable.

Do you know what else is within 300 miles of Cleveland Ohio?

Absolutely nothing.

~~~
grandmczeb
> Do you know what else is within 300 miles of Cleveland Ohio?

~50 million people live within 300 miles of Cleveland vs about ~16 million
within 300 miles of SF.

[https://www.freemaptools.com/find-
population.htm](https://www.freemaptools.com/find-population.htm)

~~~
aphextron
A circular radius of Cleveland is meaningless because half the circle is in
Canada. A large portion of that population would be metro Toronto. On top of
that the absolute numbers don't matter at all; it's about density.

------
stcredzero
Aggregate ROI is the true story.

------
snovv_crash
The most populous country in the world has invested more in startups than a
small region of the US.

Honestly, why is this news?

~~~
echevil
It also invested more than US+Canada

[https://news.crunchbase.com/news/in-q2-2018-global-vc-
scales...](https://news.crunchbase.com/news/in-q2-2018-global-vc-scales-
tipped-in-favor-chinese-startups-over-north-america/)

~~~
snovv_crash
Now _this_ I consider news.

------
maerF0x0
Of course they do! China has 4x the people. I don't understand these kinds of
articles when they dont adjust per capita.

IMO this is the meat of the article:

    
    
      The U.S. can’t continue to look inward and expect the high
      rates of growth we have seen in the tech sector over the 
      past two decades. Only new, global markets are going to be
      the driver of prosperity, and right now, China has its 
      money where the action is.

~~~
sf_rob
Why would population be the correct normalizer? Would we expect Nigeria to
have 57% of the startup funding that the US does?

~~~
fredliu
I guess the premise of the parent comment is that China, at least in the tech
sector, is considered as "developed" as the US. If that assumption holds true,
what the parent comment isn't far off. But that's an assumption that may or
may not be true, depending on who you ask at least.

~~~
sf_rob
Sure, that's reasonable. I guess my point was there are likely better naive
correlates for amount of startup funding than population. Perhaps number of
STEM or college educated adults, perhaps levels of general economic growth,
perhaps GDP, perhaps levels of business freedom, perhaps population (I'm not
ruling it out).

Also Nigeria was a particularly bad example because they're developing
spectacularly well, should have picked a large population country with a poor
business climate.

