Jenny Chan 陳詠欣
Jul 30, 2015

Innovation in China: Hotter than the US?

HONG KONG - At this morning's Converge tech conference, co-organised by the Wall Street Journal and f.ounders, Dr. Kai-Fu Lee, chairman and CEO of Innovation Works, gave his perspectives on the potentially loaded question: Is innovation in China hotter than the US?

Lee from Innovation Works and Dennis Berman from WSJ
Lee from Innovation Works and Dennis Berman from WSJ

Lee is a venture capitalist and computer scientist who in the past has held roles at Apple, SGI, Microsoft and Google. He currently serves as chairman and CEO of Innovation Works, an early-stage venture fund with US$500 million in assets and a focus on nurturing Chinese startups. This report combines comments from Lee's on-stage interview with the Wall Street Journal and off-stage chat with Campaign Asia-Pacific.

On valuations in China

The valuations in China are totally crazy. The Chinese market is traded 85 times the future earnings of a company. In the US, the average is 15 times. Most of the good internet firms already went public in the US, so the few that are left in China are being chased and valued like crazy. I am still bullish about the Chinese mobile market as there are so many sharing-economy opportunities.

On the rise of serial entrepreneurs

My company does early-stage investments, and we see a difference in the quality and essence of the people in 2015 versus 2009 when we started. At that time we called ourselves an accelerator or incubator as we really had to find very young people and nurture them, or find senior ones to help them start their companies. But nowadays, there are serial entrepreneurs everywhere.

From Dianxin, our first investment project that was later sold to Baidu, 12 out of 100 people in the company are now entrepreneurs coming out to start their own thing again. People now are not afraid of faltering or failing, especially 20-something entrepreneurs who really surprised me. Now there is a larger number of people who are ready to start companies right after college, and it is a post-95 phenomena. They grew up their whole lives on the internet, unlike us who still have "baggage", who still like to touch physical things and it’s hard to let that go. 

On the world's leader of innovation

The world thinks about innovators as those who disrupt the industry with things that people don’t even know they want. By that definition, America leads the world and will probably continue to lead the world in the next few decades. We adore Sillicon Valley because of that, but having said that, China is ready to build the equivalents of Facebook and Uber types of companies, because the VC ecosystem in China is now very strong.

On China's own innovative companies

If you have a time machine that went back to 20 years ago and showed people any of the top Chinese internet products they will be surprised how much those products were developed out of user needs. I am a big admirer of Tencent. Tencent is little more subtle than Alibaba, but they build great products like WeChat that I am addicted to. Tencent is a bit more cautious about global expansion while Alibaba has been very strategic. I also like companies like Shenzhen-based drone maker DJI, and there will be many more technology-centric companies like that that will emerge.

Do I think the Chinese ecosystem has room to allow for another Tencent? Yes absolutely. It’s easy to always think about the present, that Tencent will forever be the hottest internet company, but there were moments before Tencent where companies like Sina and Netease and Baidu were much more powerful. Technology waves will create new leaders, who will be new entrepreneurs who have no baggage. In fact Tencent almost missed this wave because of the success of QQ. They got lucky they had an engineering group that was left alone to build WeChat. At any other company with two messaging systems, the CEO will probably squash one and merge it into the other.

On the opportunities for innovation

Can non-technological Chinese enterprises be innovative then? Firstly, the big bosses at these enterprises who make the decisions are not familiar with technology. The CEO doesn’t understand it fully and will go for big names like IBM for their corporate solutions. Also, their working style (they like having drinks and believe in relationships) may be an impediment.

Our approach at Innovation Works is to find areas in China that are not yet hot, unlike ride sharing and internet finance. A distinction between US and China is individuality and dynamism, but China is a machine that can train thousands of people and churn out many permutations and iterations for business ideas. Some of these that we have invested in include O2O home renovation and hairstyling services.

On the problems that innovators face

Just like the US, Chinese entrepreneurs face the same three problems: they are really smart people with lots of ideas but do too many things without focus; they don’t think enough about what the end user needs, they think when you have a hammer everything looks like a nail; they run into trouble when their founding team have differences in their value systems.


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