China Revisited

I recently returned from a week in China – my second trip there in the past five weeks.  On both visits, I had the chance to catch up with several entrepreneurs and friends.  Some interesting themes and patterns emerged for me – here are some of the highlights:

  • Western Headlines Miss Local Nuances of China’s Economy. There’s been lots of talk in the press about the economic slowdown in China. Although I’ve often found press reports overblown on this topic, most folks to whom I’ve recently spoken in China do share a view that the overall economy is weaker than it’s been. However, this needs to be taken in context. The benchmark to which folks are comparing the current state of the Chinese economy is the last several years of torrid growth. Additionally, everyone I spoke to believes the long term prospects of China are very strong, especially in the new economy. Folks involved with e-Commerce, travel, robotics & connected devices, mobile & social consumer services, new media and cloud software are very optimistic for the future of their sectors within the Chinese economy. Similar to the US, traditional industries, such as manufacturing and low tech services, may be slowing down and facing a more difficult future, but this doesn’t paint a full picture.

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The last mile of e-commerce in China – where necessity meets invention.

  • The Drumbeat of Innovation Continues in China. As I’ve discussed and others have noticed as well, innovation is coming out of China at a rapid pace.  In areas such as drones, robotics, mobile payments and mobile commerce, China is extending its lead over the US. A great example from my trip to elucidate this point came when a Beijing-based CEO told me he had just gone on a business trip to Hangzhou (the home of Alibaba and picturesque West Lake) but forgot to bring his wallet. He was able to survive without cash or credit cards for three days, paying with his mobile phone, using Alipay and Weixin Pay (Tencent’s mobile payment app) for everything including car rides, food, hotel rooms, trains and even movie tickets. Despite Apple Pay and Square, a GGV portfolio company, attempting to outfit merchants of all types with the ability to accept mobile payments, we all know the US is nowhere near as advanced as China.

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Buying a movie ticket using Alipay

  • Catching Up Fast in Many Areas. Even among friends in the US who know the Chinese startup ecosystem is pumping out innovation, there is still a widely held view that Chinese startups are deficient in areas such as product, marketing and selling to businesses. While this may have been true in the past, things are shifting rapidly. For example, in the product domain, Chinese mobile companies are innovating rapidly, often times now being copied by their US counterparts. Even companies like Facebook routinely learn from the likes of Tencent’s WeChat, as pointed out by my partner Hans Tung. In the marketing area, the same is now true. For example, while in China I had the chance to participate in a marketing event organized by my GGV colleagues in our Beijing office. There were 30 portfolio company execs in attendance and the content was as sophisticated as what one finds in the US. As far as enterprise selling goes, we’ve been tracking several SaaS startups in China and its clear this segment is starting to evolve, with Chinese SaaS founders coupling learning from US SaaS companies and adapting to their local market.
  • Convergence Continuing to Gain Momentum. Chinese companies, investors and entrepreneurs are becoming more important to the global startup landscape, decidedly so in Silicon Valley. The recent news of Apple’s $1B investment in Didi Chuxing, a GGV portfolio company, is strong evidence of this growing trend. As Hans and another of my partners, Jixun Foo, both mentioned on CNBC, Apple, like other US tech companies such as Uber and AirBnB, another GGV portfolio company, is placing a high priority on the Chinese market and knows it must invest now or risk losing the opportunity. This is the start of a long term trend with many other drivers. For example, there are more than 200,000 Chinese nationals currently attending US universities and colleges per The Economist, many of whom will live a professional life with one foot in the US and one in China, both economically and culturally, hastening convergence. Similarly, more Chinese companies and VCs are spending time in the US to build relationships and learn.

Now in my eleventh year at GGV with 48 trips to China under my belt, I’ve seen tremendous evolution of the Chinese economy and people’s outlook. To sum things up, China’s “economic miracle” has matured a ton over the past decade, but with the new economy pumping out innovation and jobs, the future looks quite bright for China. There will certainly be bumps along the way, but at GGV Capital, we’re committed to and excited about what the growing China/ US convergence will bring.

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