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From fishing village to the world stage: inside China's Silicon Valley

From fishing village to the world stage: inside China's Silicon Valley

Originally posted by Kirsty Needham @ smh.com.au

Beijing: In Beijing’s trendy Wangjing district, Peng Zehuan is honing his algorithm.

There are echoes of Silicon Valley’s garage days. There is every chance Peng's artificial intelligence start-up could crack the Next Big Thing.

For all of Donald Trump’s trade war talk of Chinese technology theft, many of 2018’s digital trends were made in China, where a massive, newly wealthy middle class eschew cash for digital wallets, and trade data privacy for convenience.

Tik Tok, a Chinese mobile app that helps users make 15-second, lip-syncing music videos, was one of America’s – and Australia’s – most downloaded apps last year. It ranked No.2 globally in November, surpassing Instagram and Facebook.

Peng was a core engineer in the algorithm team at Bytedance, the Beijing company behind Tik Tok. It is now worth $US75 billion ($105 billion) and is the world’s most valuable “unicorn” (a start-up worth more than $US1 billion).

But Peng left because he has dreams of his own. Ethically uncomfortable with strong social media algorithms that learn what you like and become "almost addictive", he wants to use AI to build an app that “won’t cage users”.

“You are wasting people’s attention. It is like a drug – electronic drugs,” he says.

He wants to build a content app that will broaden the horizons of the people who use it.

Chinese Millennials are insatiable content-sharers because they are only children who rely on social media to express themselves, says his co-founder at FEED Tech, Joy Dong, who sold her last internet video start-up for $US370 million. “They have a huge desire to communicate, to be recognised and to let the world know they exist,” she says.

“They are always looking for something new,” says Melbourne University graduate Jing Shen, FEED Tech’s chief product officer. “The trends change so fast here.”

Jack Ma’s Alibaba, WeChat creator Tencent and search engine Baidu are among the world’s most valuable tech companies, and household names in China. They have broken the image of China as a technology copycat, creating unique businesses that meet the needs of China’s 800 million internet users.

Peng is among the next wave of innovators, who have left key positions at these Chinese tech behemoths to strike out on their own. “We have seen Jack Ma do it, and we look at him and think, why can’t I do that too?” he says.

Peng and Dong are in the right place at the right time. Chinese President Xi Jinping has set a goal for China to close the gap with the United States in the field of artificial intelligence by 2030.

Chinese government policies are “very beneficial” to tech entrepreneurs, says Peng, and venture capitalists are willing to invest in people with experience at the top Chinese technology brands.

A report by French business school INSEAD found Chinese unicorns overtook those from the US in attracting the most venture capital globally – raising $US56 billion – with five of the world’s top 10 most valuable unicorns now Chinese. “The success of the red unicorns has spurred a culture of entrepreneurship in China, inspiring millions of young Chinese to follow suit,” the report said.

Angel investor Joanna Wei, who set up the technology incubator Beijing Makerspace nine years ago, compares the “leapfrog” China has made in digital technology to its swift upgrade from dirt roads to national highways.

Craig Zeng, an executive at finance portal LexinFintech, told a Harvard Business School conference that in the past, the most common question a Chinese company like his received from US investors was, who is your counterpart in the US? “It meant who did you copy from the US? But things have started to change. Last year, over 10 Chinese companies were listed in the US, and only a few of them could answer that question. They have been creating their own business models.”

From fishing village to the world stage

Shenzhen in China has been transformed from fishing village to the country's Silicon Valley. Here, bulidings in the city were lit up to celebrate the 40th anniversary of economic reform in China. CREDIT:SANGHEE LIU

Shenzhen in China has been transformed from fishing village to the country's Silicon Valley. Here, bulidings in the city were lit up to celebrate the 40th anniversary of economic reform in China. CREDIT:SANGHEE LIU

To understand China’s transition from copycat to innovator, you need to understand Shenzhen. Forty years ago it was a fishing village bordering Hong Kong. But Deng Xiaoping’s 1978 economic reforms – designating Shenzhen as a special economic zone within China that welcomed foreign investment – saw its rapid growth as the world’s factory.

Today, Shenzhen is China’s Silicon Valley. It is the biggest consumer electronics manufacturing base in the world. This is the “supply chain” that Trump wants to break with his trade war tariffs, vainly urging US companies like Apple to move their factories out.

But Shenzhen is also now home to China’s national technology champions – Huawei, the world’s second-biggest smartphone maker, DJI, the world’s biggest drone maker, and BYD, the biggest electric vehicle company. To visit the public museum at the headquarters of Tencent, tourists must book a week in advance. “It is China’s internet shrine,” one local explains.

The Shenzhen government spends 90 billion Chinese yuan ($18 billion), or 4.13 per cent of its GDP, on research and development – on a par with world-leader Israel.

'Innovation is the only way that we can win'

Jasen Wang’s company Makeblock sells educational robotics kits to 5 million users in 160 countries worldwide. CREDIT: SANGHEE LIU

Jasen Wang’s company Makeblock sells educational robotics kits to 5 million users in 160 countries worldwide. CREDIT: SANGHEE LIU

There is a toy unicorn on Jasen Wang’s desk and a bunch of international trophies for design excellence on a shelf above it. The 37-year-old recently presided over 3000 school children from around the world competing to build the best robot.

His company, Makeblock, sells educational robotics kits to 5 million users in 160 countries worldwide, and is integrated into the French school curriculum.

Wang has been profiled by the magazine Fast Company, and counts American venture capital firm Sequoia Capital as a backer. While most of Makeblock’s sales are to overseas schools, the Chinese domestic market is growing fast, after the Ministry of Education announced robotics and coding lessons would become compulsory.

Wang studied aircraft design at university in the northern Chinese province of Xian, but spent most of his time making robots. He came to Shenzhen in 2012 with the idea to make robotics easy.

Shenzhen was a magnet not only because it had easy access to all of the hardware components – or robot bits – he needed, but it was easy to find good engineers with so many software companies there.

And while the “shanzhai”, or copycat bandits, have largely cleared out of Shenzhen, Wang says they have left behind a useful resource – “there are so many factories”.

"Several years ago these factories were creating fake phones, but now we can use their supply chains to make innovative products. We can use their people to quickly manufacture our product.”

China still lags the US on “basic fundamental technology”, such as microchip design, he says, but Chinese companies have become very good at applying technology in new ways. “We know that several years ago most Chinese companies acted like copycats, but the situation has changed a lot. Young entrepreneurs like me, we know that innovation is the only way that we can win the competition.”

Competitors at the 2018 MakeX Robotics Competition, which is hosted by Makeblock and attracts thousands of students CREDIT: MAKEBLOCK

Competitors at the 2018 MakeX Robotics Competition, which is hosted by Makeblock and attracts thousands of students CREDIT: MAKEBLOCK

Of his 500 staff, half work in research and development. To foster an innovation culture, Makeblock holds a Makeathon every two months, where staff form teams and have 36 hours to turn an idea into the real thing.

On a much larger scale, Makeblock hosts an international schools robotics competition, attracting 1000 international children and 2000 Chinese children last year.

“Chinese traditional education is focused on how to pass an exam and get a high score. Our society is changing very fast and technology is very important. We want to help kids learn not only about technology but to have the ability to create and solve problems,” he says. “Joining the competition the children really learn how to face pressure, how to face failure and how to do team work.”

The race for intellectual property rights

According to the World IP Organisation (WIPO), Chinese companies led the world in patent applications last year, lodging 40 per cent of all applications, or 1.38 million patent requests. Most covered electronic devices, computing, telecommunications and artificial intelligence.

Patent certificates line the wall of Canbot’s Shenzhen research and design centre. Ranked among China’s top 10 robotics companies, Canbot sells 100,000 humanoid robots a year to Chinese hotels, banks, hospitals, airports, shopping malls and schools. Optus has two in its Sydney flagship store.

There are very few humanoid robots being mass produced – most exist only in labs, says Canbot’s Simon Wang.

He says China is three to five years ahead of the US and Japan in being able to bring all the ingredients of a service robot – flexible hands for gripping, facial and speech recognition to interact verbally, touch sensors and navigation so they don’t get lost – into one package.

Simon Wang introduces Canbot’s robot family to visitors at Canbot headquarters in Shenzhen. CREDIT: SANGHEE LIU

Simon Wang introduces Canbot’s robot family to visitors at Canbot headquarters in Shenzhen. CREDIT: SANGHEE LIU

“UU” has cartoon-like eyes to overcome human fears of being usurped, and converses in Chinese or English. UU’s developers have noticed a Western aversion to robots that is not shared in Asia, so UU tones down the smutty jokes in English.

A shorter robot with a pot belly is designed for school children – it can be taken apart into 30 pieces and reassembled, and is loaded with the entire Chinese middle school curriculum.

The company was founded by a roboticist who had an elderly family member who fell ill and required constant care – he created a robot who could monitor and call emergency services. The Chinese government is now looking to the robot industry to assist with the healthcare of an ageing population.

Robot sales are also boosted by government tax and legal offices, even train stations, which receive financial subsidies to buy robots to increase their efficiency, says Wang.

“The government actively promotes AI technology and the robotic industry to help China to grow faster, to save labour and to be more efficient. China was a little bit behind in mechanics or automobiles, but in AI technology and robotics we have the advantage. [Shenzhen] has the most efficient supply chain, the cheapest labour and manufacturing cost,” says Wang, who heads Canbot’s overseas sales department.

Meanwhile, small cats zoom around the floor in preparation for the launch in China of an officially licensed Hello Kitty robot. And behind a closed door, Canbot’s 30-year-old chief robot designer is tinkering with a design the company hopes will be a breakthrough in the competitive industry. The project is top-secret - to guard against IP theft.

Inventors’ heaven

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Walking through Shenzhen’s famous Huaqiangbei electronics market can feel like a scene from Bladerunner - retro holograms and flashing lights compete for attention across crowded floors of small booths. Thousands of tiny components spill across countertops.

This is inventors’ heaven, where everything is possible.

Customers come from across the globe – both foot traffic and online – to source components for their supply chain. Entrepreneurs are frequent customers.

Li Feng, 30, hands a custom-designed circuit board to a stallholder for advice. He is creating an automated prayer wheel for use in Buddhist temples. He has a customer in Taiwan who wants several hundred made, and Li is at the market to find parts for his prototype. “It is secret,” he exclaims when we take a photograph.

Li Feng buying electronic parts in Shenzhen’s Huaqiangbei Commercial Street. CREDIT: SANGHEE LIU

Li Feng buying electronic parts in Shenzhen’s Huaqiangbei Commercial Street. CREDIT: SANGHEE LIU

Queenslander Mike Reed, 26, works above the markets as an engineer at the HAX Accelerator, which has offered mentoring to more than 250 technology start-ups. There is a queue of North American hardware start-ups who want a place in HAX's workshop. They get seed funding from American investors and, crucially, close proximity to the Shenzhen factories that can help develop their prototypes more quickly.

"You can change your designs four times in a week. You get things cheaper, you get things faster to market," he says of why Shenzhen is the best place in the world to develop technology products.

HAX will take on more Chinese teams next year, and he is particularly interested in robotics start-ups. “We are seeing opportunities pop up everywhere,” he says.

"You get things cheaper, you get things faster to market": Australian Mike Reed works as an engineer in Shenzhen. CREDIT: SANGHEE LIU

"You get things cheaper, you get things faster to market": Australian Mike Reed works as an engineer in Shenzhen. CREDIT: SANGHEE LIU

The Chinese government is pushing innovation because it wants to use emerging technology to automate its industries and break the cycle where rising wages eventually force a nation's manufacturing offshore, he observes.

Reed thinks Silicon Valley remains the centre of the world when it comes to technology innovation, diversity and taking risks, but he has seen China changing fast. "The idea that China is based on copycat is definitely outdated."

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