China – U.S. Tech Exchange

When it comes to trade between China and the U.S., we tend to think of it as one directional; Western companies design products and Chinese manufacturers build them. But a new new trend in U.S.-China trade is emerging that’s far more two-directional and symbiotic: the open flow of technology innovation. Chinese consumers are becoming wealthier, and at the same time, internet access rates are surging, driven by the country’s over 1 billion (and growing) smartphone users. This combination of factors has made China not just a manufacturing base for American tech companies, but a desirable place to do business.

A generation ago, well-known Internet and tech giants ike Google, Facebook, and Yahoo with global ambitions tried to break into the Chinese market but often failed. Western conventional wisdom attributes this to Chinese government restrictions, but in truth, that is not the whole story — it is more due to the lack of localization practices by those U.S. giants, as well as being a generation before the large entrepreneurial and mobile technology wave hit China. After all, the competitors to Google (i.e. Baidu), Yahoo (i.e. Sina, Sohu, Netease), eBay (i.e. Alibaba), Facebook, and MSN Messenger (i.e. Tencent) were all startups founded by entrepreneurs with no government ties, were funded by America-trained VCs and institutional investors, and not favored by the Chinese government, so they too needed to comply with the same Chinese laws regulating the Internet sector.

Today, American startups have a real chance to break into China, no matter how global financial markets are behaving. Because China’s huge consumer base is now younger, more mobile, more affluent, and more tech savvy than ever before — and they’re more open to buying products and services from Western brands. The rise mobile internet infrastructure and inexpensive smartphones coupled with the poor offline retail experience has led to an explosion of online (mostly mobile) shopping in China. This presents a great opportunity for US brands to reach Chinese consumers.

With China’s 350 million millennials interested in traveling outside of China, Tthe San Francisco-based online room-sharing company, Airbnb is growing faster in China faster than anywhere else. “The future of international travel is really the Chinese tourist,” Chief Technology Officer Nathan Blecharczyk said to Bloomberg. Despite the company’s operational prowess, Uber is in fact “late” to China. They are currently fighting with Didi Kuaidi, which is backed by three Asian Internet giants — Tencent, Alibaba, as well as SoftBank. WeChat, the massive mobile messaging platform, is owned by Tencent and is the most dominant mobile gateway in China with over 600M active users. As a result, WeChat and Tencent are not making it easy for Uber to compete in China by blocking access to Uber within WeChat. In a way, it’s a reverse of the Facebook-Google dynamic, where the social network demotes Google searches within its walled-garden.

On the flipside, Chinese technology companies are increasingly interested in bringing their unique mobile-first products to U.S. consumers, who are a wealthy and attractive market. Chinese tech startups see a golden opportunity to get in on the ground floor of m-commerce, IoT, app-driven services, and other mobile markets just taking off in the U.S. Some Chinese companies — Musical.ly and Ehang, are directly targeting U.S. consumers via mobile apps, online sales, and US partners. They are opening US offices and creating “US-ready” products. Alibaba even launched AliExpress, a shopping site that allows US consumers to buy Chinese-made goods at very affordable prices.