Over the summer, comments made by former Hewlett-Packard CEO Carly Fiorina regarding China’s inability to innovate became the subject of much discussion. Her belief that “…the Chinese can take a test, but what they can’t do is innovate,” is by no means exclusive to the Presidential candidate.
The debate over whether China can transition from its perceived role as “the world’s factory” to an innovation leader is fiercely contested. Those who believe it will struggle to do so argue that an emphasis on rote learning, misspent research and development (R&D) funds, and a history of copying rather than creating are all inhibiting factors. One article posted by Thinkers50 alleged; “Innovation thrives in a culture of diversity where people don’t feel the compulsion to fit in and where those with strong backbones are likely to be viewed as heroes. Unlike the United States, especially Silicon Valley, which thrives on a diversity of ethnicity, national backgrounds, cultures, and languages, China is largely a sea of homogeneity.”
In terms of investment, news that China’s R&D spending increased by over 45% (to $300 billion) from 2013-2014 hasn’t impressed everyone. Even amid predictions that China will lead the world for R&D spending by 2019, some skeptics question the value of the numbers; “Why is there such a big gap between China’s standing on the input versus the output side of the R&D equation? With rare exceptions such as Huawei and ZTE, state-owned enterprises rule the corporate landscape in China. Their primary goal is employment and job creation, not disruptive innovation that may be risky but could create shareholder value.”
Such assertions sit uncomfortably alongside the Chinese government’s often-repeated desire to nurture innovation at every turn. But they also only represent one side of the coin.
Offering a counter claim to the idea that China’s increased R&D spending will yield limited returns, The Guardian says; “There was never any real reason to expect that China would be content with the role allocated to it by the west. This is a country, after all, that made key breakthroughs with the compass, gunpowder, printing and paper making … The fact that it is now enjoying a ‘brain gain’ of scientists from the rest of the world should be seen as evidence that it wants to reassert its old dominance.”
Expanding the argument, consultant Edward Tse’s new book argues assuredly that the Chinese government’s fixation on innovation has, in fact, played a key role in fueling entrepreneurship. Elsewhere, FP’s “Start-up Nation” article claims a thirst for startup success is spreading among China’s youth.
Only time will tell if China can achieve its apparent ambition of shifting “from making iPhones to inventing them,” and whether or not the notion that the country “can’t innovate” ultimately proves to be bankrupt.
One reason for optimism is the rising level of FinTech investment in China’s startups. Of the estimated $6.8 billion invested in funding FinTech globally in 2014, $797 million went to Asia—a sum “triggered mainly by FinTech investments in China.” This increased investment mirrors the sharp rise in the number of Chinese FinTech companies looking to follow in the footsteps of major players like Alibaba and Tencent. One estimate suggested that peer-to-peer (P2P) lending startups alone total around 3,000 in China.
The presence of so many P2P lenders reflects a key reason why FinTech is so at home in China. With SMEs struggling to receive loans from state-run banks, financing through online platforms is massively attractive. Likewise, with 432 million unbanked citizens—37% of the population—having no credit history and limited access to banking services, FinTech is a powerful enabler for anyone and everyone who is online (and almost 650 million people in China are).
With so much debate centered on China’s economy, it’s natural that there’s no clear consensus on whether it can become a hotbed for global innovation. But with the government seemingly putting its money where its mouth is on the R&D front, and the flood of funding and new entrants into its FinTech market, one thing is clear: If China is meant to be leaving innovation to the rest of the world, they didn’t get the memo.