The Future Is Made In China

How Chinese Design and Values Are Driving Global Innovation

Like many other children who grew up in Canada with parents who did not, we felt the light embrace of a distant – yet distinctly present – country and culture. We learned what it was like to grow up in China through the stories of our parents and grandparents. The China our families remembered was one defined by a simple life but also underscored by a lack of basic infrastructure. There were no roads or bridges, they told us. Educated youths were sent to the countryside to pursue farm labor, where they would have the best chance of a secure livelihood.

Despite an awareness that things have changed since our parents were children, we have both found ourselves stuck in China’s past. Even when visiting several times in the last decade, we were always surprised and amazed by the country’s modernity each time we arrived. The advancements in technology and the country’s overall progress since the Open Door policy was introduced 40 years ago is even more startling from our parents’ perspective. Ever since then-leader Deng Xiaoping opened the country’s doors through the introduction of free market principles in 1978, China’s GDP has grown at a pace so rapid that the World Bank described it as “the fastest sustained expansion by a major economy in history.” Even more significant is that with GDP growth averaging 10% per year – three times the global average – an estimated 800 million people have been raised out of poverty.

Conversations within our social circles, as well as observations of China’s representation in Western popular media, have made it apparent to us that most people in North America share our original assumptions about modern life in the country our parents once called home. What they don’t realize is that China has been working tirelessly to catch up.

Watch, Learn, and Do It Better

The narrative that China is a “copycat” of the US, particularly in terms of its products and services, is a popular one in tech circles. In recent decades, however, this idea gained traction across the international community, and the Chinese government and its people decided they no longer wanted to be seen as imitators. They wanted to rid themselves of the misconception of China as “manufacturer to the world” – only executing others’ ideas, never originating new concepts themselves. This was the catalyst for a 2015 initiative known as Made in China 2025.

This initiative identifies 10 industries within which China aims to be globally competitive by 2025, ranging from robotics, to new materials (such as those used in solar cells), to new-energy vehicles. While these goals may sound familiar, particularly to Westerners, Made in China 2025 stands out because it clearly outlines how the country plans to grow in these industries. The project acts as an extremely public blueprint for shifting the nation from an industrial economy to a service-based economy driven by technology and innovation. As a country, China is unified by a holistic approach and a shared vision rooted in innovation and research, enabling the many public and private actors required for change to work toward a common goal. China’s long tradition of direct government intervention in the economy has enabled it to succeed rapidly and on a massive scale.

China’s tech industry continues to expand rapidly, though the recent trade tariffs introduced by President Trump’s administration highlight the unstable dynamic between China and the US. In addition, it appears that there is still a shroud of mystery surrounding China’s advancements as a leader in the global innovation space. In a recent Wired article, Kai-Fu Lee, former president of Google China and current CEO of venture capital firm Sinovation Ventures, said:

I think from a logical standpoint the time has come to copy from China … but in practice, it’s not. Chinese entrepreneurs know everything about what’s happening in Silicon Valley. Silicon Valley people, a few of them know a lot about China; some of them know a little bit about China; most of them know nothing about China.

Rather than dismissing China or perceiving China’s advancement as a threat, it is time to acknowledge that in some areas, the country’s best-in-class technology has become an example to learn from.

Move Fast and Don’t Break Things

China is a blank canvas, largely due to a lack of legacy technology infrastructure combined with a uniquely enclosed innovation model despite substantial foreign investment. For China, following the common adage that spurs many companies in Silicon Valley – “move fast and break things” – would be a rash move with serious consequences. Freedom is a luxury that must be handled delicately, especially considering the sheer size of China’s population and its relatively nonexistent privacy laws. The following companies have managed to find this balance in their respective industries.

Payments: Alipay and WeChat Pay

At the forefront of the payments space are Alipay, operated by Alibaba’s fintech affiliate Ant Financial, and WeChat Pay, developed by Tencent. With Alibaba and Tencent both making the 2018 Top 10 Risers list in Kantar and WPP’s 2018 “BrandZ™ Top 100 Most Valuable Global Brands” report, the meteoric rise of mobile payments led by these two companies is proof of China’s remarkable ability to scale. The technology for quick response (QR) codes was originally developed in Japan in 1994 for the automotive industry and was later adapted by Alipay for use with mobile payments. China’s vast market and lack of credit and debit card use has expedited the expansion of mobile payments across the country. This, coupled with the centralized nature of Alibaba’s and Tencent’s ecosystems, quickly proliferated Alipay and WeChat Pay through ecommerce and social media, respectively. This meant that brick-and-mortar stores, from massive chains to the neighborhood food stall, had to follow suit or be left behind. And follow suit they did: Data from iResearch Consulting Group shows that mobile payments in China grew from 1.2 trillion yuan ($187B) in 2013 to 58.8 trillion yuan in 2016. In 2018, QR code settlements are expected to reach 165.9 trillion yuan: more than 90 times the size of the US mobile payments market, as reported by Forrester Research.

Illustration: Jennifer Backman

According to an article from [email protected], published by the Wharton School of the University of Pennsylvania, over the past three years Alipay and WeChat Pay have enabled 98.3% of Chinese consumers – including those in rural areas – to shift directly from cash to smartphone. By contrast, only 5.6% of the surveyed population in the US have used mobile payments. Looking ahead, Alibaba and Tencent are hoping to take their expertise in QR technology and go-to-market strategy to begin scaling in developing countries where consumers have less access to credit cards and other traditional banking services. If innovation is the process of turning ideas into outcomes, China’s nearly cashless transaction model has definitively allowed it to emerge as an innovation economy.

Online-Offline Integration: Hema Fresh

As ecommerce continues to boom and brick-and-mortar retailers find themselves coming up against rising land and labor costs, the question of how to blend digital and physical commerce becomes increasingly important. Many believe that the ideal state for bringing these two worlds together will come in the form of an integrated process that provides consumers with a seamlessly engaging experience while enabling companies to optimize both digital and physical operations. This future seemed elusive until recently.

Illustration: Jennifer Backman

For most, an important shift occurred when Amazon announced its purchase of Whole Foods in 2017 and opened its first Amazon Go location in January of 2018. Unbeknownst to many, however, Alibaba was three years ahead of its North American competitor, debuting its first attempt at “new retail” in 2015 in the form of Hema Fresh. For a first attempt, Hema Fresh is impressive. By connecting product barcodes with a mobile app, Hema Fresh allows consumers to research products during their in-store shopping experience. Shoppers can trace a product’s origin, delivery, and nutritional information, and the app also recommends recipes and other relevant products. The data taken from these cashless transactions enables further personalization of the user’s recommendations. The physical aspect includes an eat-as-you-shop option, where shoppers can hand-pick fresh seafood and have it cooked on-site. The food is soon ready for shoppers to eat in Hema’s dining area. Facial recognition is also used at checkout. Meanwhile, Hema stores act as fulfillment centers for online shoppers, who can have their orders delivered within 30 minutes of placement.

There are now 25 Hema stores across China, and Alibaba has plans to more than double the store’s presence in 2018. In a press release for Alibaba, Hou Yi, CEO of Hema, said that he hopes that “as [the] model becomes more established, it can be shared with other traditional retailers to help them transform in the digital age.”

Mobility: Didi Chuxing

Migration from rural areas in China has led to the ongoing expansion of urban populations over the past few decades, causing urban development to grow at breakneck speeds. Sprawling expressways and superblocks congested with cars now connect cities across the country. Didi Chuxing (“DiDi”), the world’s largest ride-sharing service, was founded with this simple frustration in mind. DiDi aims to “redefine the future of mobility” by leveraging big data and machine learning to help solve this problem, which is characteristic of many Chinese cities. While Uber and Lyft dominate ride-sharing in the US, the sheer scale and size of DiDi sets it apart. According to recent articles from Reuters and Wired, the service has 550 million users in over 400 cities in China, delivering 25 million rides every day. In contrast, Uber reported 15 million rides per day for 2017, while Lyft announced a milestone 1 million daily rides halfway through that year.

Illustration: Jennifer Backman

For DiDi to establish this stronghold in the Chinese market, it first had to defend itself from Uber’s entrance. After an expensive duel between the two companies, Uber China exited the market and was acquired by DiDi in 2016; DiDi’s president, Jean Liu, prefers to think of it as a partnership rather than a victory. On its home turf, DiDi uses localized data to improve traffic problems through predictive dispatching models and also works with local traffic police across cities. Moving beyond a sole focus on car-hailing, DiDi has integrated bikesharing, busing, test-driving, and car-rental services into the app so that users can access all of their transportation needs in a one-stop-shop platform. Next, DiDi plans to go global.

As she explained in an interview with Wired, Liu’s motivation to stay focused on the original goal of solving traffic congestion stems from this philosophy: “You cannot afford to be disruptive if you haven’t thought about everything. I think the key is: be humble. And be open minded. And not to think you know everything.”

Once and Future Values

The next generation of technology will be predominantly powered by 5G networks and AI. The international community anticipates that the first global power to understand, hone, and scale either of these technologies will possess great influence over how we will live our lives.

China is well aware of this. In July 2017, a Chinese State Council paper was released to the public detailing how the nation plans to work toward becoming the leader in AI by 2030. The country has embodied its “fail fast, learn fast, scale faster” mentality time and time again in both the strategy and execution of its innovations. This deeply ingrained mindset will not be soon abandoned. China’s 2030 AI roadmap is not isolated to the technology sector; it is top of mind across all sectors, with government organizations from the Ministry of Science and Technology to the Ministry of Education pursuing new initiatives.

The practice of rallying around a common objective is rooted in traditional Chinese values, especially the concept of harmony. Harmony does not necessarily mean uniformity; it is about encouraging coexistence while respecting diversity and nurturing mutually beneficial cooperation. As the future nears, we may have an opportunity to take this thinking across borders. By bridging knowledge and understanding across geographies and cultures, perhaps we can work together to bring sustainable innovation to the next generation.

the author

Samantha Lew

Samantha Lew is an innovation analyst at Idea Couture.

the author

Ronnie Pang

Ronnie Pang is a senior innovation analyst at Idea Couture.