Innovative economies: Has China surpassed the United States?

By: John Ninia ’22 (CALS), EMI Research Assistant
Hong Kong skyline at night

China has become one of the global leaders in technology innovation, and even while experiencing a trade-war with the United States, has surged in innovation across many sectors of its economy from technology to e-commerce. Many startups are born in China and they must compete with one another for loyal consumers. The Chinese government has also begun to fund more areas of its economy that involve clean energy, aviation, space, robotics, and other emerging sectors. Easy access to many raw materials can be used to further fuel innovation within the economy.

A unicorn is a privately held startup company that is less than 10 years old, not listed on the stock market, and valued over $1 billion. As of December 2018, the United States is the global leader of unicorns with 151 out of the 327 (46%), and China is second at 88 (27%). India, another emerging market and growing economy is in third at 23 (7%). However, of the Unicorns from the United States, only 37% are involved in the digital market or e-commerce, sector of the economy while 53% of those in China are. China has created such a large market within the e-commerce sector of its economy that there is much more room left to grow and innovate for entrepreneurs. In 2019, China’s online retail sales will account for 56% of all online retail sales globally. By 2022, this number is estimated to rise to over 60%. The number of unicorns developed also reflects the current stage of development within a country as well as the size of its overall economy. As emerging markets such as China and India continue to advance in research and technology and as the size of their economies increase, they will begin to produce more unicorns as well.

Even though America may produce more unicorns than China, more than half of unicorns involving artificial intelligence (AI) were founded in China. SenseTime is an AI startup founded in China and when compared globally to other companies in the same sector, currently has the highest valuation. They play a major role in and provide algorithms for various industries that involve finance, retail, smartphones, internet, entertainment, education, and even smart cities. The capabilities of their facial recognition software have even been used for “smart policing” by helping to recognize criminals via surveillance systems.

China’s government published a policy paper mid-2017 on how they would become the global leader in AI technology by 2030. However, when comparing the use of AI, China may already be considered the global leader. Shockingly, 85% of Chinese companies are actively adopting or have adopted AI technology in some way. The United States comes in second at 51% of companies. They have also adopted the use of mobile payments much faster than the United States. In 2018, consumers in China spent over 41 trillion dollars on mobile payment platforms while US consumers spent under 100 billion dollars on similar platforms.

One issue in China is that many Chinese startups seem to be copycats of United States companies. Baidu is known as the “Google of China”, Alibaba as the “EBay of China”, and Xiamo as the “Apple of China” due to their similar business models and platforms. However, these startups must innovate and adapt to the local Chinese market after copying these western business models in order to thrive. Restrictions and limitations also further fuel the copying and innovating that occurs. One such example is seen with the banning of Facebook within China which swiftly led to several Facebook spinoffs.

Of the many developed unicorns, the only way for these startups to flourish among others within the same sector of the economy, besides competitive pricing, is by continuing to innovate. Thus, many of the current services offered in China, especially in the digital and e-commerce market, are quite unique. Didi is a rideshare app that broke ground in China and although their service is a copycat of Uber and Lyft, in order to thrive they added many more useful features that are unavailable in the United States. Some features they offer include a “Police Assistance” feature in case of an emergency and even sending a driver to your own car if you are unable to drive due to intoxication. Didi ended up outperforming both Uber and Lyft services in China through intense marketing and innovation.

China has outnumbered the United States in the number of Research and Development (R&D) personnel since 2013. China may invest a smaller fraction of their GDP into R&D (2.10% versus 2.74% in the United States) however, they continue to invest a larger portion each year. In 2018 alone, China increased its investment into R&D by 11.6%. Although China may still be close in competition with the United States, its economy has grown drastically over many years and they continue to invest more money into emerging sectors of the global economy. China is striving to become a more innovative economy than the United States and the way in which these various investments play out will be important for China in upcoming years.

Opinions in this article are the author’s and do not necessarily reflect those of Cornell, Johnson, or the Emerging Markets Institute.

John Ninia

John Ninia ’22 (CALS), EMI Research Assistant

John Ninia is an undergraduate research assistant at the Emerging Markets Institute and is majoring in environmental and sustainability sciences. He is working with Lourdes Casanova to conduct research regarding emerging markets’ approach to corporate sustainability. His interests include entrepreneurship, emerging multinationals, and sustainability. John is the VP of finance for the Cornell European Business Society and is also interested in international finance.

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