Innovation nation: Chinese start-ups take on Silicon Valley

The government is injecting huge amounts of cash into innovation in an effort to bolster China's economy.

Innoway in Beijing's Zhongguancun, a pedestrian street lined up with tech incubators and shared workspaces. Photo: Sanghee Liu

Tian Shuo, 28, wants to launch a matchmaking app with a twist. Photo: Sanghee Liu

Startup Salad. Photo: Sanghee Liu

Participants of an event organised by accelerator Startup Salad gather at Tsinghua University in Beijing. Photo: Sanghee Liu

Entrepreneurs brainstorm. Photo: Sanghee Liu

A mentor gives a lecture to potential startups at tech incubator Innohub in Beijing. Photo: Sanghee Liu

Innoway in Beijing's Zhongguancun, a pedestrian street lined up with tech incubators. Photo: Sanghee Liu

Participants of an event organised by accelerator Startup Salad. Photo: Sanghee Liu

Lei Jun, founder, chairman and CEO of Xiaomi (seated) with his seven co-founders. Photo: Xiaomi

exit

Beijing: It's first thing on a Saturday morning and the foyer at Beijing's Tsinghua University is echoing with the busy chatter of more than 100 wannabe startup entrepreneurs.

The crowd of mostly 20-somethings had all given one-minute presentations the night before. Those with the strongest ideas – or, perhaps, the most magnetic personalities – are allowed to recruit team members from those who didn't make the cut. Tomorrow, they will present their pitches to an audience of fellow entrepreneurs, mentors and venture capitalists at a Startup Salad roadshow.

Chen Xu, 25, moved to Beijing five years ago to develop a job seeking platform for blue collar workers, believing there is a yawning gap in a market where existing websites mainly cater for white collar professionals.

Yang Lu, 26, is working on a healthcare and nutrition monitoring system targeted at simplifying the work of aged care homes straining to cater for the country's rapidly greying population.

Much of Tian Shuo's future happiness, meanwhile, could well depend on the success of her idea. The 28-year-old is hoping to find  love and riches by developing a smartphone dating app, but one that eschews the casual hook-up culture engendered by existing phone apps. She says her brainchild is targeted at "older" singles in their late-20s who are serious about settling down. As a further way to filter out the duds, only those within two degrees of separation will be able to contact each other.

"This is something borne from my own personal experience, because I am an older 'leftover woman'," Tian says, using the popular, if rather derogatory, Chinese slang for single women of perceived marrying age. While marrying late, or not at all, is increasingly common in larger Chinese cities, pressure can be relentless from parents struggling to reconcile more traditional mindsets with the onset of swift generational change.

The epicentre of China's innovation boom is in Beijing's Zhongguancun, where a cluster of tech incubators, startup accelerators and shared workspaces have sprouted near the capital's university district. It has drawn some of the country's brightest young entrepreneurs, programmers, venture capitalists and angel investors – seeking to alter China's lingering image of technology copycats to world-beating innovators one idea at a time. As Wired magazine put it, "The next Silicon Valley has emerged – and it's in the East".

The risk-taking mindset required for success, though, has taken time to evolve. Chinese graduates are still brought up through an educational system rooted in rote-learning. And most are still drummed by their parents and peers to seek solid, respectable jobs at solid, respectable state-run companies.

While Chinese youngsters have arguably long had the talent, they are now immersed in an environment where they can see what is possible. The more ambitious among them might have once sought to make it in Silicon Valley; now angel investor cash is pouring in on the mainland. Don't worry about Google or Facebook, they dream of being the next Alibaba (online e-commerce giant) or Xiaomi (fourth-largest smartphone maker in the world and growing).

Like most things in China, the country's startup and innovation scene is exploding because the government actively wants it to. The country's government-backed venture funds raised a staggering 1.5 trillion yuan ($300 billion) last year, tripling the country's total amount under management in the space of a single year. It is five times the sum raised by other venture firms around the world combined – Silicon Valley included.

The huge cash influx is part of the government's effort to bolster the Chinese economy through innovation as it transitions away from its traditional dependence on heavy industry and cheap exports. Premier Li Keqiang, in particular, has backed a far-reaching campaign to lift internet-based innovation and support entrepreneurship.

"This program is far more aggressive than any other countries in the world," says Xu Hongbo, the founder of Guangzhou-headquartered InnoHub, which has ambitions to become the biggest startup accelerator network in the world. "They are putting a lot of emphasis nationwide, from top-down to push this transformation and innovation.

"And this has actually been made very clear [by] the leaders of this country. The way China's economy worked during the last 30 years, it's not going to work in the next 10 years."

On this issue at least, Premier Li could well strike up an instant bond with Malcolm Turnbull, who is travelling to China next week in his first official visit as prime minister. Exploring avenues of collaboration in the innovation space is expected to feature prominently in their discussions, as Turnbull too seeks to adapt the Australian economy to meet the shifting needs of China, away from reliance on iron ore and coal to a more diversified trade mix of tourism, education and services.

Turnbull's visit coincides with Australia Week in China, comprising a trade mission of 1000 delegates led by Trade Minister Steven Ciobo and Trade Envoy Andrew Robb spread across 10 Chinese cities. Innovation is one of the business streams for the first time.

"Australia is great at generating intellectual property, [but] perhaps we lack some of the capital depth required," Ciobo says. "In that respect, China will present a wide and deep pool of potential capital."

InnoHub's Xu is planning to launch a $10 million to $15 million fund in Australia targeting promising local startups and helping them open doors in China's massive market. One under advanced consideration is Australian-developed underwater drones which can survey dam leakages.

"China accounts for 80 per cent of total dams all over the world. That's why they should come to China because in Sydney you only have one or two reservoirs but in China we have 8000 dams," Xu says.

Xu's ambitions extend to convincing Australian startups and tech entrepreneurs to think beyond Silicon Valley as the holy grail.

"China is certainly going to be the largest market and my goal is to bring the best innovation to this biggest market. I won't say China is the centre of innovation but that it is the centre for innovation to become commercialised. That is the best place."

But the huge influx of cash in such a short space of time has raised natural concerns over whether, like the country's property industry and stockmarkets before it, the hot tech boom is yet another government cash-fuelled bubble primed to pop. This is especially given the government wants to attract money for riskier startups shunned by private investors who generally only back surer returns.

Gary Rieschel, founder of Qiming Venture Partners, says the Chinese government has a "fantasy that if they give everyone money they'll create entrepreneurs". But in reality, with so much cash in the system, inexperienced or corrupt managers would likely make poor investment choices.

Those in the industry have already watched valuations skyrocket compared with international standards, and freely admit bubbles have formed where even marginal projects can often attract large valuations.

Xu says angel round valuations in Beijing were typically between $6 million to $10 million, some three to five times more expensive than overseas in cities like Sydney.

"To go from nothing to something, and then from something to fast-paced growth, there's bound to be some bubbles appearing," says Startup Salad founder Jim Zhao. "The bubble will grow to a point, and then people will discover it, and then it deflates, that's how markets mature."

Back at Tsinghua, 32-year-old Bi Jingyuan says the government support helps encourage young people to not be afraid to try and fail, and then try again.

"Whether or not we can discover some opportunities, make the most of our worth to realise our dreams, this type of environment for entrepreneurship is really beneficial for our generation."

Follow FairfaxForeign on Twitter

Follow Fairfax Foreign on Facebook

The story Innovation nation: Chinese start-ups take on Silicon Valley first appeared on The Sydney Morning Herald.

Source: Innovation nation: Chinese start-ups take on Silicon Valley