The Nikkei Asian Review reports that the startup and technology industry in China used to be a strong competitor to the United States, even leading the way in some technology fields such as artificial intelligence, mobile payments, transportation, and delivery, worth studying and catching up for developing countries. However, since the crackdown on billionaire Jack Ma, the founder of Alibaba Group, by the Chinese government in 2020, Beijing has been determined to rectify the activities of startups and large technology companies through new regulations. China has gradually lost its glory and leading position in the technology sector.

The golden age is over

According to the Nikkei Asian Review, China used to be a strong competitor to the United States in artificial intelligence (AI), solar power, and electric vehicles. A few years ago, specifically in certain key areas such as facial recognition, Chinese technology startups even outperformed large American corporations. This demonstrated China's potential to lead the world in some key technologies. However, Chinese technology companies are now significantly lagging behind their American counterparts in the field of AI.

The main reason is the heavy reliance on semiconductor supply from abroad by China. With the United States tightening the export of high-tech to China, technology companies in China have faced many difficulties in product development. Although the Chinese government has made efforts to develop chip technology and introduce products such as Huawei's 5G phones or self-designed processors, these products are still considered outdated compared to Western technology. The technology gap in chip manufacturing between the United States and China has increased from two generations to five generations over the past four years.

In terms of the scale of AI companies, China's are much smaller than those in the United States. The leading Chinese company is valued at $33.7 billion, with AI-related revenue of $91 million in the fourth quarter of 2023, much lower than Open AI's $80 billion valuation and $2 billion in AI-related revenue. This is concerning because developing AI technology requires billions of dollars in investment. If China cannot compete in terms of company scale, it will gradually fall behind in the global AI race.

Training AI models requires massive investment, which has become a major challenge for Chinese technology companies after a long period of tight government regulation. Specifically, in 2018, the two largest technology companies in China, Alibaba Group and Tencent Holdings, had a total market capitalization equal to about 62% of the total market capitalization of the two American tech giants, Microsoft and Apple. But now, the combined value of Alibaba and Tencent is only about 9% of the value of Microsoft and Apple.

Currently, the seven largest technology companies in the United States, including Apple, Microsoft, Nvidia, Tesla, Meta, Alphabet, and Amazon, have a total market capitalization of $13.2 trillion, while the top seven technology companies in China have a total value of over $1 trillion, much lower than their American counterparts. The increasing financial resource gap between the Bigtech giants of China and the United States shows the challenges China faces in competing with American companies, especially in technology sectors that require massive capital investment like AI research and development. According to the Nikkei Asian Review, China's technology industry is now less innovative than before due to concerns about violating strict government regulations.

In 2018, a variety of new technology trends emerged in China, such as bike-sharing apps, integrated social networks and mobile payments, and short video apps like TikTok that caught the world's attention. At that time, China was seen as the birthplace of many of the hottest global technology trends. However, the number of startups valued at over $1 billion, also known as unicorns, in China is gradually decreasing, especially after the incident where billionaire Jack Ma was reprimanded for criticizing the government in 2020.

In 2018, China had 208 unicorns, more than the 151 in the United States, but now that number has dropped to 171, equal to 1/4 of the 658 unicorns in the United States. Clearly, the mentality of "doing more is wrong, doing less is right" is spreading among Chinese startups. Beijing's strict management not only limits funding but also negatively affects market demand, human resources, creative ability, and the daring spirit of trial and error of startups.

Six years ago, Chinese venture capitalists invested more in startups than in the United States, but by 2023, total venture capital investment in China is only a quarter of that in the United States. Some attribute the decrease in funding to US sanctions, but Huawei's recovery shows that the main issue lies in China's government management policies rather than the US.

Fear of punishment

An important characteristic of the technology sector is the spirit of daring to ask questions, experiment, and accept risks. However, a series of tight controls on industries such as online gaming, e-commerce, online education, and finance by the Chinese government have stifled this open spirit. Investigating large companies for monopolistic practices has forced restructuring, as in the case of Alibaba, creating a climate of fear in the Chinese tech industry.

According to Nikkei, Chinese entrepreneurs are now more concerned about avoiding regulatory punishment than creating breakthrough products. Of course, everyone understands that Beijing needs to re-establish control over tech giants that have exceeded limits. However, this will undoubtedly have a negative impact on competitiveness and the ability to innovate in the industry. Currently, Chinese regulatory agencies determine technology investment directions instead of the market, with the state budget accounting for up to 60% of financial resources invested in science and technology.

However, planning according to the subjective will of administrative agencies is prone to failure because the future of technology and market trends is unpredictable. For example, no one thought Microsoft would succeed by investing $10 billion in Open AI, while Google, a former leader in the field, did not anticipate the explosion of GPT chat. In conclusion, Nikkei believes that a free environment and an open entrepreneurial spirit can nurture sustainable development in the technology industry, rather than rigid administrative control.

Jack Ma's lesson

Speaking at an economic club in New York, Jack Ma once admitted that the period of being a teacher with a modest salary of $12 a month, equivalent to over 300,000 dong, was the best time of his life. When he had little money, he knew how to use it effectively, but once he became a billionaire, the responsibility on his shoulders also became much greater. Jack Ma affirmed that when you have $1 million in your hand, the money is no longer yours but becomes a responsibility and trust that people have given you. Therefore, he needs to use that money to benefit society. This is not the first time Jack Ma has shared about the burden of becoming a billionaire.

At a Global Initiative event in New York in 2017, he also emphasized that the time as a teacher was truly wonderful. He admitted that he was very lucky to have $1 million, but when that number increased to $10 million, the situation would be completely different. After Alibaba went public, Jack Ma also told CNBC that he felt immense pressure because the whole world was watching the company's stock price. Despite being happy with the success, he still felt anxious when people overestimated him. The Alibaba founder said, "There is too much pressure. I always try to keep myself happy because if I'm not happy, my colleagues, shareholders, and customers won't be happy either."

Indeed, becoming wealthy has made Jack Ma suffer, especially after controversial statements with Chinese officials. After being punished by the government, he has almost disappeared from public events, including social media. Joey Chai, Alibaba's Executive Vice President, revealed to CNBC that he is in seclusion, "I talk to him every day. He spends time drawing as a hobby." Chang expressed that Jack Ma is also a normal person after building such a strong conglomerate. Jack Ma has certainly done great things for society. I think this is the time he focuses on what he truly wants.

For example, his passion and philanthropy. Jack Ma was once seen having lunch alone with a meal consisting of instant noodles, garlic, and a simple side dish, which is quite simple compared to the living standards of most middle-class families. A former employee revealed that since 1999, when Alibaba was founded, Jack Ma often had simple lunches like this. Although he is not as visible in public as before, Jack still receives attention from the community.

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