China’s leading spot in the race for technological innovation

The U.S. and China are competing for technological supremacy in almost every innovation field from artificial intelligence to 5G networks, from big data to the internet of things and from cloud computing to blockchain technology.

The presence of a duopoly in the tech world is now certified by the 2020 edition of the Hurun Global Unicorn Index, a list published by the Shanghai-based Hurun Research Institute. The index shows that the U.S. and China largely dominate the future of innovation with nearly 80 percent of the world’s 586 known unicorns and that China is home to most of the largest start-ups in terms of valuation.

The rise of China as an innovation hub has not happened overnight. It can be explained as the result of a clever combination of policies to aggregate skilled talent, substantial capital funding and government support towards the creation of a start-up ecosystem. These all contribute to the country’s aim to become a future tech powerhouse.

The creation of innovation clusters, with the presence of tech incubators and accelerators, has been an extremely successful policy for China. The story started about three decades ago with the establishment in Beijing of the Zhongguancun Science Park, an innovation hub where companies such as Baidu and Sina were set up, and continued by extending the same business model to other places within the country. In some cases, it has turned small villages into thriving metropolises.

This is the case of Hangzhou, famous for being the place where the headquarter of the e-commerce giant Alibaba is located and now a world-class center in the development of cloud services and smart cities for the modernization of national governance; there’s also Shenzhen, home of the leading smartphone producer Huawei and of the internet-based platform Tencent and the place where most of the hardware and electronics devices in the world are produced.

The formula of success for China, in order to maximize the efficiency and reduce the time-to-market, has been to aggregate in the same geographical area the availability of talent to recruit due to the presence of nearby top universities, the easy access to smart money because of the proximity to numerous business angels and venture capital, and the existence of adjacent manufacturing facilities that are an essential part of the value chain. They are able to instantly turn the ideas generated by the best minds and the funds provided by investors into final products.

In addition, numerous ad hoc policies have been rolled out by central and local governments to promote the development of the innovation clusters. These policies include the creation of green card channels for obtaining permanent residence to attract overseas talents and preferential policies such as tax breaks and favorable funding for qualified business ideas.

Through the combination of state-level policies and firm-level strategies in a partnership that has enabled successful entrepreneurial stories to become at times Harvard-like case studies, China has set global standards in terms of quality of innovation and a benchmark for the rest of the world in terms of implementation of cutting edge technologies that have become even more relevant after the outbreak of coronavirus.

Lastly, it is about environment and work culture. China’s market is too vast to waste the opportunity and the tech economy grows too fast to be lazy. The pace of China’s innovation is thus the result of the desire of Chinese founders to succeed.

The unfortunate COVID-19 outbreak has been crucial in creating an unexpected and dramatic technological disruption by accelerating the shift of the global economy to an all-digital business model, but it would be an understatement to say that China has been catapulted to the world’s leading spot of innovation by pure chance. 

It is rather the result of a well-defined long-term plan besides the combination of a high pace technological innovation, a hypercompetitive domestic market, a large pool of skilled talents and a set of supportive immigration and fiscal policies that have made possible for China to make more technological breakthroughs.

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China’s leading spot in the race for technological innovation
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