Now it’s official: The world has two tech superpowers—the incumbent and the rising rival, emerging as separate and competing players.

The Economist cites the US and China as the two superpowers of artificial intelligence (AI), far ahead of the EU. Thomas Friedman, in his New York Times column, lays out in detail how China is catching up or has surpassed the US in the number of world’s largest publicly traded tech companies, cashless economy, AI and number and quality of engineers and scientists in the workforce.

Kai-Fu Lee of Sinovation Ventures, in his latest book and a recent op-ed piece in the New York Times, speaks of what China can teach the US about artificial intelligence. Eric Schmidt, former CEO of Google and executive chairman of its parent company, Alphabet, predicts that within the next decade there will be two distinct internets: one led by the US and the other by China.

For American and Chinese consumers this new status means a rapidly expanding choice of products and services online and offline. Yet the rosy figures and cheerful media reports gloss over a reality in which China still lags significantly behind the US in the quality of its engineers and patents, the maturity of its tech ecosystem, and its ability to attract the world’s best talent. The Economist reports that China’s tech industry is 42% as powerful as America’s, but it is catching up fast—in 2012 the figure was just 15%.

China’s total tech market value is only 32% of the figure for America’s. China’s semiconductors and user-facing business software are in their infancy; tech products are only beginning to be adopted by the industrial economy: Chinese non-tech firms are only 26% as digitized as American ones.

Viable alternative

Chinese policy makers are aware of these weaknesses and are pushing an agenda that attempts to pry open the country to foreign innovators, yet it is insufficient in itself to achieve the goal. It will take much bolder action on the part of China’s leading venture capital firms and other business sector investors to take on Silicon Valley, to make the Chinese ecosystem a viable alternative for the trailblazers among foreign startups.

Further steps to welcome foreign startups and innovators are necessary if China is to become a leader in AI and achieve the other innovation-related goals the country has set for itself.

China’s central, provincial and city level governments offer subsidies and support to foreign tech entrepreneurs who set up shop in China, including more lenient visa policies. Shanghai, for example, has launched 25 pilot visa policies to streamline and simplify the foreigner visa application process and most recently has been issuing an “entrepreneurship visa” or “business startup visa.”

Shanghai vies with Beijing and Shenzhen for top global talent; districts in Shanghai such as Yangpu, Jing’an, Zhangjiang, Baoshan, Xuhui, Minhang and Songjiang each have their own standard programs for foreign founders that include incubation, co-working space, funding and support in registering a local company.

What will it take to attract the professional cadre of foreign entrepreneurs with Silicon Valley DNA? Zeev Holtzman, Chairman and Founder of Giza VC, a top-tier Israeli venture capital firm that is highly active in Asia and China, asserts that “a more proactive approach from Chinese investors is warranted, firmer commitment to Israel and Israeli startups, which includes cultivating their brand name locally before we see the deep tech startups and disruptors turning to the Chinese market for commercialization and not only to the US.”

Holtzman, who is also a Co-Founder of the Israel Venture Association and one of the pioneers of the rise of hi-tech in Israel, does not mince words: “Israeli startups are not waiting for Chinese investors.”

Need for clarity

In a recent gathering in Tel Aviv of Israel’s Robotics Meetup that focused on the convergence of robotics and AI, startups at various stages expressed deep interest, mixed with a dose of skepticism, about prospects for fundraising and scale up in China. Common Sense Robotics, developer of on-demand grocery delivery solution that in February 2018 raised $20 million from former Google CEO Eric Schmidt’s Innovation Endeavors and Aleph, an Israeli VC firm, is focused on pilot projects in Israel and New York City.

“Shanghai is the ideal hyper-urban testing ground for our technology but we would need a clear roadmap for capital raising and market access if we were to redirect our efforts there,” says Eyal Goren, Co-Founder and VP of Business Development.

China’s age-old policy of forced technology transfers through joint ventures and lax enforcement of IP protection may have played itself out. Many in China’s tech scene have come to realize that the way to compete and achieve ambitious goals is to create a more level and transparent playing field, highlighting the need to attract foreign scientific and entrepreneurial talent. Thomas Friedman says that in the process of US “entanglement” with China, America’s “weight will depend on the talent we attract.”

Clearly China realizes this too, which means that Israeli entrepreneurs like Eyal Goren soon might get a break there.

Rami Blachman is a tech entrepreneur and venture capitalist based in Shanghai and Tel Aviv. He is a frequent speaker and writer on China cross-border tech investing and how it relates to Israeli startups.

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