The party is over for China’s second-generation tech giants. Fueled by easy money, new markets, and lower transaction friction, they have fought for their market share, burning money as they went. Now it’s time to pay the piper. While economists are still undecided about the exact figures, it is clear that the Chinese economy isn’t doing very well. In 2018, according to official data, China’s GDP (gross domestic product, a measure of the market value of goods and services in a country) grew by a sluggish 6.6%, the lowest since 1990.
When first encountering the Chinese tech ecosystem, many people are surprised by the scale and speed. Amazed by the work ethic, pragmatism, and ambition, their attention is drawn away from the risks that such scale and speed entail. Too much, too fast has been the downfall of many a Chinese tech entrepreneur. From Ofo to LeEco, China’s tech is littered with the bodies of the fallen, both big and small. China tech entrepreneurs, as Kaifu Lee has put it, are best compared to gladiators: locked in a life-or-death battle for survival. Growing up in a scarce but rapidly developing environment, they’ve learned not only to move fast and be aggressive, but also to build their moats by any means necessary.
At TechNode, we’ve written quite a bit about the “2VC” model, the many restructurings, and the existential challenges that established players are currently facing. There’s a lot going on and I recommend you read those pieces to get a full understanding.
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