China's innovation, not investments, should worry Europe

For several years now China has been increasingly investing in Europe.

In 2016 Chinese companies invested €35 billion in the EU.

Often these investments are in advanced manufacturing sectors or meant to buy certain technologies. Afraid of losing some crown jewels of the European economy, the EU is preparing measures to halt this trend.

But perhaps Europe shouldn´t worry too much about this. After all, the next wave is already coming: Chinese innovation and technology which will conquer the world.

And the first signs are visible. A few week ago, Europe launched two initiatives which are symptomatic and a reaction to the Chinese threat. Europe decided to form an alliance among some top European companies in order to regain lost ground on Chinese electric car battery manufacturers.

And because Chinese high-speed trains and their technology are being sold worldwide, French Alstom and German Siemens have formed a coalition against the Chinese train manufacturing company CRRC, which has recently won several projects in Europe.

Over the past few years China has implemented a policy which focuses on mass entrepreneurship, technology and innovation.

Pivot to private sector

Now the traditional sectors which spurred its economic growth have become weaker - a trend reinforced by increasingly more expensive Chinese labour - the Chinese government hopes that the private sector and innovation will become the new drivers of the economy.

As so many trends in China, big government is the driving force behind this. And that might just work. China has a labour force of 800 million, among whom 170 million have received higher education or possess high professional skills.

Add in the massive number of Chinese students who studied abroad, and return now in increasingly bigger proportion back home, and one can understand that China possesses a critical mass of innovation and entrepreneurial spirit.

The effects of this policy are becoming increasingly clear.

In 2016 China's ZTE Corporation overtook its crosstown rival Huawei Technologies as the biggest filer of international patent applications.

Last year Chinese companies spent 14 times more money on R&D than in the year 2000.

Only US companies spend more on R&D. Additionally China is home of a thriving startup scene which plenty of venture capital and hot money pouring in. In 2016 Chinese venture capital funds tripled their budgets to €320bn. They are responsible for 25 percent of the global venture capital investments.

From 'Made in China' to 'Invented in China'?

Especially in the internet sector Chinese innovation is leaving its global mark. Chinese society is already much more digitalised than western counterparts, but nowadays it's simply impossible to live without a smartphone in China.

Last year alone, 467 million smartphones were sold in China, and there are more than 730 million active internet users. The Chinese e-commerce market is simply gigantic and is predicted in 2020 to be bigger than the Unites States, Great Britain, Japan, France and Germany combined.

WeChat, with its 900 million users, is an absolute marvel of Chinese technology.

It is one platform for communication, marketing, payments and e-commerce. All-in-one and made in China.

Chinese tech companies are also conquering the world with new products and services of superior quality. Baidu, Alibaba, Tencent and Xiaomi belong to the top ten of the biggest internet and technology companies worldwide.

But three of them only entered the rankings since 2013.

In 2014 Xiaomi was the world's most valuable tech startup. Silicon Valley is looking now more and more to China where innovation and entrepreneurship go hand-in-hand.

The focus is especially on Shenzhen with its 30,000 technology companies - and a combined value of more than €200bn.

That evolution is also starting to leave its mark internationally. In the past only big (ie state-owned companies) were expanding globally, but now the second wave of internationalisation is taking shape. Buses from BYD, the global leader in electrical cars, are already driving around in the London city centre.

One third of all 'unicorns' are now coming from China.

Ambitious Chinese startups expand internationally from the very beginning, with increasing success.

Besides famous names like Xiaomi, Mobike or DJI, is Musical.ly - with its 100 million users worldwide - one of those startups which go global form the very start, which is way they are being called micro-multinationals.

It's obvious that China is transforming itself again, and that the next wave of innovation and private entrepreneurship will be the wave of the future, with huge global consequences.

Sven Agten is an author on China, and Asia-Pacific president for a German multinational

Source: China's innovation, not investments, should worry Europe