China has innovation under control

Building Brics: China searches for the next big thing since Apple.

Although there are concerns that creativity in China's internet industries has yet to be fully unleashed, investors are nonetheless queuing up to pump money into the sector. Forbes Conrad / Bloomberg Show more

Steve Jobs, the late leader of Apple, was adored in China. His death was mourned by the technology-crazy younger Chinese generation.

Yet the sadness at Jobs's death was mixed with questions about when China would produce its own tech entrepreneurs to match the influential American.

Those asking "where is our Steve Jobs?" may also have wondered where the home-grown rivals were to internet innovators such as the Facebook founder Mark Zuckerberg and software design giants such as Microsoft's Bill Gates.

Many analysts point to the difference in mindset between the US, which prides itself on freedom, and China, with thousands of years of authoritarian rule.

"China has centralised government, the US has a more market-driven [system] - a lot more freedom," says J Leon Zhao, a US-educated professor at the City University of Hong Kong and a specialist in IT systems. "We have to say the education system in China is not as free-thinking as the education system in the US. It's more highly controlled."

While there are concerns that creativity in China's internet industries has yet to be fully unleashed, there is no lack of confidence, shown by the fact investors are queuing up to pump money into the sector.

Kai-Fu Lee, the former head of Google's China operation and now the chairman and chief executive of the Beijing company Innovation Works, has raised US$180 million (Dh661.1m) to fund start-ups in the internet sector.

"The Chinese internet will undoubtedly grow in usage, mobility, monetisation, e-commerce - all faster than the US market, so this is clearly one of the best investment opportunities," Mr Lee said in August.

Thanks to the size of the Chinese Web-using population, about half a billion and counting, home-grown internet businesses have been able to achieve success on a vast scale.

Tencent has its QQ instant messaging service, which claims to have more than 800 million active accounts and has been ranked among the world's top 10 websites - only just behind Twitter, its English-language equivalent.

The search engine Baidu has managed to see off the mighty Google in China, having achieved dominance in the market even before its US rival pulled out of the mainland last year.

Prof Zhao points out that China is gradually catching up in research and development, both in the internet sector and other areas of high technology.

"If you look at Tencent or [the telecommunications company] Huawei, there are many patents every year," he says.

A dominant position at home and in the wider East Asian market can also lead to global ambitions.

Alibaba Group, which runs business-to-business online marketplaces and Taobao, China's biggest cyber retail platform, has ambitions to take over Yahoo. At present Yahoo owns 40 per cent of Alibaba.

While US regulators might not be enthusiastic about a deal, Jack Ma, the Alibaba chief executive, said this week the company had $20 billion of cash to fund a purchase.

Investments and listings in the US show that Chinese internet companies are "catching up", according to Wong Kam Fai, the director of the centre for innovation and technology at the Chinese University of Hong Kong.

These companies also have Beijing behind them, he points out. "The central government is actually very eager to do this; they know they have to do this," Prof Wong says.

Companies with larger amounts of research and development spending as a proportion of revenue can benefit from favourable regulations on taxes and mergers and acquisition.

On the other hand, the heavy restrictions on the internet imposed by the authorities in China may act as a brake on innovation in one of the few key industries to be dominated by private companies.

Liu Qi, a member of China's 24-member ruling politburo, said during a visit to the offices of Sina.com that "the internet's healthy development" was the responsibility of the companies working in the sector.

This was a thinly-veiled warning that they should ensure the Web does not become a focus for anti-government dissent.

Baidu was recently the subject of a critical investigation by state-run China Central Television, another sign that the authorities will keep internet companies in check if they are unhappy about how they are operating.

"They're very worried about the consequences of opening up the internet market," Prof Wong says. The likes of Facebook, he adds, are regarded by the authorities as "media that may cause turbulence, may cause chaos". That attitude hardly encourages the type of freewheeling invention that leads to breakthrough technologies.

Yet, while not saying China should ignore innovation, some commentators believe the country's focus in all sectors should not necessarily be on such a groundbreaking scale.

Instead, in a much-talked about book published recently, Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China, the authors Dan Breznitz and Michael Murphree say the country's expertise is in "process innovation".

This would involve everything from improving supply chains to efficiencies that allow products to be manufactured in China more cheaply than they can be made in other countries.

Prof Zhao believes that Chinese internet companies are in no rush to roll out innovative products.

"For Chinese companies, you can say this: they will do trendsetting innovation when they have to," he says. "Apple was dying without trendsetting innovation. Chinese companies, maybe they don't need to do that. Maybe they're in the stage of copying technology from other companies and making lots of money."

In future, things might be different, so concerns remain about whether the environment in China will be conducive to innovations of the kind that Silicon Valley has produced.

"Steve Jobs had all the freedom in the world to do what he wanted. In China, I don't know. There may be control that has an impact on innovation in a certain way," Prof Zhao says.