Asia Insider Minute - China's Tech Appetite

How concerned should Americans be about Chinese investment in US tech companies? That’s a the heart of this week’s Inside Asia conversation with San Francisco-based tech investment advisor Brewer Stone. 

The Rhodium Group – an independent research organization that tracks global economic trends – says that in the past four years China money has flocked to about 100 US tech deals. That adds up to about US$13 billion-worth of investment. In dollar terms, it’s only a drop in the bucket. But that’s not the point. 

It’s the natureof these deals that has some US policy makers nervous. China-based investors appear to be targeting tech’s cutting edge, investing in artificial intelligence, 3D printing, facial recognition and military software. China may still lag the US in terms of traditional tech in areas such as chip and semiconductor manufacturing, hardware and networking equipment, but it has accelerated and now surpasses the US in next generation tech categories including e-commerce and mobility. 

In other words, rather than play catch up, China is banking on its ability to breakthrough to the next level of tech innovation. This shouldn’t come as a surprise. “Made in China 2025” is a government sanctioned policy initiative to keep China out in front as the world’s premier manufacturing center. Identifying and acquiring technologies to advance its cause is central to the policy.

If providing a degree of protectionism for its home-grown businesses has been the plan over the past decade, China’s push to invest aggressively in overseas tech is the call-to-action going forward. As Brewer points out, Chinese investors are making different kinds of investments and assuming new levels of risk to achieve those objectives. If they can design it, they will. If they can’t, they’ll buy it and deploy it at home. If you can make it there, says Stone, you can make it anywhere.

Ambitious? Damn straight. But is it doable? Partly yes and partly no.

In terms of enterprise-level technology designed to advance its manufacturing capability, the answer is most likely yes. China ranks among the most ambitious in the world when it comes to investment in robotics, advance manufacturing and supply-chain innovation. While job security is a leading political hot potato in the US and joblessness is a key indicator of a president’s success, there’s resistance to any innovation that threatens to displace people and increases unemployment. China sees it differently. They’ve sacrificed before and they’ll sacrifice again. Better to invest in the future than count on sunset industries to see their economy through. 

On the consumer side of the tech equation, China’s prospects are less clear. For sure, to date, a combination of Chinese entrepreneurial tenacity, government protectionism, and cheap financing has underpinned the rise of a new generation of tech giants such as Alibaba, Tencent and Baidu. The real test of success, however, lies beyond China’s borders. Like Google, Facebook and Amazon, China’s tech upstarts will need to show that they too can operate cross-border and go global.

Put more succinctly, only whenAlibaba and Amazon go head-to-head will we know the degree to which Chinese government coddling has benefitted the home team. If China Inc has served as the proverbial nest, now is the time for China’s consumer-focused companies to take wing. Whether they fall or fly depends on each individual company’s commercial vigor and market innovation. 

Having said all this, let’s get back to the original question: Is there reason to fear China investment in US tech? The answer: Only ifthe US fails to present a progressive industrial and tech policy of its own. And do we have one? Well…not really. For that you’ll have to ask Donald Trump. 

What do you think? Let us know by leaving us a comment on iTunes, or visit our website at www.insideasiapodcast.com. 

Thanks for listening!