China Needs 20 More Years to Become Really Innovative

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On Saturday I went to a Yale Club of Beijing Masters Tea talk by Xu Xiaoping at Peking University. Xu Xiaoping is one of China’s most prominent angel investors; but not just in the fields of tech start-ups but also film and philanthropy. At the end of 2011, his angel fund Zhenfund announced its partnership with Sequoia Capital China to create a US$30 Million JV seed fund. He is probably most famous for being the former co-founder and Vice Chairman of New Oriental Group, a NYSE-listed education company that helps prepare Chinese to study overseas, mainly America.

The main topic of discussion was about ‘Innovation in China’. One of his conclusions was that, in this generation, China will not be able to produce their very own equivalent of Steve Jobs or Bill Gates. However he did say, things are changing and it will just take time to happen. Here are some of his reasons:

1. China has a culture of education first at the expense of passion

Asians like to joke about Asian parents being strict and paranoid about studies and grades for their children.  Generally it is true but of course not every Asian parent is like this.

In China, there are a number of factors which feed into parent’s paranoia. The main one is fierce competition. With so many people, fighting to get into the best schools and presumably best jobs, the only way-in besides guanxi, is through stellar grades. Xu explained that China’s most important high school and university entrance exam called the Gao Kao is a killer of passion and creativity – a rather bold statement. He highlighted his reasoning through two stories. The first was of a Chinese boy in Canada who had a great passion for programming and was encouraged by his parents to explore his skills. This boy went on to amazing things and created a very valuable technology company. The second was of a boy in China who also had a deep passion for programming and even invented something that Apple could have used. But conversely, his parents told him to stop working on it and instead focus on studying for the Gao Kao. After years of draining preparation, his mind was so consumed it sucked his passion away for programming and he eventually just became an employee of a company. Xu believes that this traditional Chinese mindset of fighting to be accepted, rather than encouraging peoples natural curiosity and passions deters China from reaching its true potential.

Xu is convinced that China’s education system lacks behind more Western countries such as America. That is why his former company, New Oriental is built upon sending Chinese overseas to study and broaden their perspective and almost discover themselves. However as China’s economy booms, this trend of going overseas is starting to slow. At the end of the talk, I asked Xu Xiaoping, “How long will it take until China has to keep sending students overseas to become really creative and innovative?” He replied “At least 20 years”.

2. Chinese products and services need more soul

Xu is a unique case because he studied music and was a music teacher at Peking University, so he is passionate about arts and culture. In relation to many Chinese tech companies and their products and services, he feels that they lack ‘soul’, a rather profound thought.

What does this mean? For example, Steve Jobs was more artist than engineer. He believed his products needed a personality and evoke emotions in people. Xu said this way of thinking and intuition is largely missing from China and is a fundamental reason why China will not have a Steve Jobs in this generation. Lei Jun, the founder of Xiaomi Tech, is known to be China’s closest contender for China’s Steve Jobs but even his friend, Xu believes that he is not the right guy. He explained that Lei Jun is an engineer at heart but not an artist. Now Xiaomi is looking for a CEO who can execute like an artist but Xu believes that could be difficult, finding that person in China.

This partly explains why there is so much cloning in China. Many Chinese start-ups are not really founded by designers and artists but engineers who often don’t have the creative minds to think of new ideas or designs. For now, cloning works because it speeds up the process of time to market but even Chinese are starting to criticize such blatant copying. The latest is called DianDi, an exact clone of popular mobile journal, Path. Perhaps if people revolt against copying more and more, the copiers’ will start to change their strategy.

3. Innovators are discouraged by big giants that want to crush them

In America and especially the Silicon Valley, there is a start-up culture of build-to-acquire. Meaning many start-ups create a start-up that a big company like Facebook, Google, Apple, Microsoft want and then sell to them. Usually the reason is because a big company really just wants their talented team. The other reason is that by acquiring their technology, it saves them time building it themselves.

However in China, many big companies like Baidu, Sina, Tencent prefer and can afford to simply hire a big team to crank out the product rather than buy a start-up out. Often, if they see a Chinese start-up working on something with big potential, they will just copy them, pump the product with their huge amounts of existing users and eventually crush the original start-up product. Such a threat from big gorilla companies discourages people from innovating and trying their luck.

But Xu, said things are starting to change a little now. Companies like Tencent are trying to be more equitable and instead of sharing only 10-20% of revenue with game developers, they are taking a more developer friendly stance with 70% revenue sharing. Hopefully things continue in this direction.

Curious about Xu’s thoughts on what kind of trigger can speed up China’s path to innovation, I asked “Does China need a top-down approach from the government or does it have to happen from a bottom-up approach from people leaving China and coming back?” Xu answered that it will be somewhere in between. Of course trying to change something so engrained as culture and thinking; is extremely difficult and can only happen from a top leadership position, but needs to happen. On the other hand, since China does not promote creativity and free thinking in the same way as other countries, the innovators will continue to come from people who are exposed to other countries and cultures. Yet, given China was able to accelerate its economic transformation and overcome poverty within 30 years, transforming China to become more innovative in 20 years seems possible.