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Originally published in South China Morning Post with title, “Why the US Should Not Try to Thwart China’s Blockchain and Digital Currency Ambitions.” All rights reserved.

In the October 23 Congress hearing on Facebook’s digital currency Libra, Mark Zuckerberg, the founder and CEO of the social media giant, warned Washington that blocking Libra would give way to China’s growing technological supremacy, which would eventually jeopardise America’s democratic values.

Zuckerberg’s remarks, though somewhat apocalyptic, fit into the rhetorical framework of the battle for technological leadership between the world’s two largest economies, the United States and China. Identified by the Trump administration as a revisionist power and strategic threat, China has been at the forefront of tech-enabled innovations, such as digital currency, since 2014.

During a meeting last month, President Xi Jinping endorsed blockchain as the nation’s core technology. China’s plan to launch a sovereign digital currency is also triggering new appetites for start-ups, traders, investors and researchers.

As the underlying technology of digital currencies such as bitcoin and Libra, blockchain is a distributed, decentralised and public digital ledger system which allows information and data to be immutably stored and transparent to all. The technology promises unparalleled efficiency, security and transparency and carries profound implications in a variety of scenarios from finance to manufacturing and energy.

In the finance sector, for example, blockchain can help traditional banks reduce operation costs, allowing individuals to perform transactions in a secure environment. The technology is also set to be involved in the development of smart, digitally connected cities. Blockchain-enabled parking platforms, for instance, would provide real-time information on parking spaces for drivers to reserve spaces, thus reducing congestion and on-street parking.

Source: SCMP

In the private sectors, demand for blockchain solutions for supply chain and logistics is quickly expanding. In a traditional supply chain, payments can take up to days, and contractual agreements involve different layers of third-party costs; the increasing globalisation and complexity of trade makes it almost impossible to trace products back to the source, compromising supply-chain integrity.

According to PwC, 40 per cent of food companies find food fraud difficult to detect with current methods, and 39 per cent believe their products are easy to counterfeit. Blockchain could be the answer to such supply-chain frictions.

China’s three-layered development model has lent resilience to its development. The central government sets the overarching strategy of developing a technologically advanced, innovative society while thriving entrepreneurial, private-sector companies drive business innovations, with local governments in the middle as liaisons. Guangzhou’s Huangpu Development district authorities, for instance, recently published regulations on blockchain use to cater for a major increase in applications, while a blockchain platform was launched last year in Shenzhen to serve the Guangdong-Hong Kong-Macau Greater Bay Area.

Source: SCMP

The US, meanwhile, is unsettled by China’s rapid expansion into the frontier technologies. President Donald Trump is set to help the US solidify, or regain, its position as a global innovation hub, despite his complicated love-hate relationship with the tech industry. In February, Trump signed an executive order to maintain America’s leadership in artificial intelligence. Last month, the White House revived the President’s Council of Advisors on Science and Technology, a group of experts who work to inform public policy on science, technology, education and homeland security.

The private sector is an important source of innovation in the US, as epitomised by Google’s milestone achievement in quantum computing – a technology that will produce a strong symbiosis with artificial intelligence and cryptography.

The de facto punchline of Trump’s tech move, though, was to cut Chinese companies off America’s technology value chain, especially the core scientific know-how. Over the course of the year, Washington repeatedly put pressure on Chinese telecom equipment and smartphone maker Huawei and blacklisted it, citing the company’s alleged coziness with the Chinese government, while reining back China’s dominance in 5G technology. Another 28 Chinese companies were later added to the blacklist, including the supercomputer maker Sugon along with three of its microchip subsidiaries.

Given the intensity and speed at which the rivalry is escalating, Zuckerberg’s warning is not totally unjustified. If China’s digital currency is adopted in more countries, America’s oversight and regulation of the global financial system will become challenging. This gap will only increase as the two countries diverge further into separate trajectories of the technology.

Hostile competition is likely to result in a zero-sum game. Continued blacklisting will do more harm than good, wreaking havoc on jobs and disrupting the global technology supply chain. As China develops applications of blockchain system, it should adopt best practices and international benchmarks, and establish a clearer, full-bodied legislative framework.

Source: SCMP

Though differences exist, and will continue to exist, the world will benefit if the two leading economic powers can seek commonalities, rebuild trust, cooperate on technological initiatives, and establish global governance and a code of conduct on blockchain technology as well as its applications. After all, increasingly, the issues facing humanity transcend national borders and require big powers to work together.

On the business level, such collaborations are already happening. For instance, IBM, Walmart, Chinese retailer JD.com and Tsinghua University launched a project in December 2017 to develop food safety solutions using IBM’s blockchain platform. The project also involved major food suppliers such as Dole and Kroger, benefiting offline and online consumers across the globe.

On a global level, blockchain’s potential trade-related applications could transform various aspects of international trade, including finance, customs and certification processes, logistics, and intellectual property. But for the technology to empower global growth, countries would have to cooperate with one another.

The NBA and Apple Cases Show Foreign Businesses Need to Better Understand China, and Its Boundaries

By Edward Tse
October 21, 2019

Original published by South China Morning Post titled The NBA and Apple Cases Show Foreign Businesses Need to Better Understand China, and Its Boundaries on October 21, 2019. All rights reserved.

Gao Feng Advisory’s CEO Dr. Edward Tse’s latest op-ed was published on SCMP. In this article, Dr. Tse pointed out all countries have their own “boundary of sensitivities”, and foreign companies doing business should be mindful of the host country’s boundary. This applies to the recent cases of the NBA and Apple in China and will also apply to Chinese companies as they expand overseas.

The months-long protests in Hong Kong have not only attracted international attention, but have also begun to involve major foreign powerhouses like the NBA and Apple. The fallout caused by Houston Rockets general manager Daryl Morey’s tweet led Tencent and China’s predominant broadcaster CCTV to suspend the airing of NBA games, and Chinese companies such as Ctrip.com (China’s major travel booking platform) to terminate NBA sponsorship.

Meanwhile, Apple’s approval of an app which allows users to track protest activities received an immense backlash from the Chinese government and consumers. Apple has since removed it and released a statement that the app “violate[d] our guidelines and local laws”.

Some critics were quick to jump to the conclusion that China is victimising foreign companies and preventing freedom of expression. However, as in every country, China has certain boundaries of sensitivity.

Issues such as racial discrimination are highly sensitive in the US. In 2014, Donald Sterling (the former LA Clippers owner) was fined US$2.5 million and banned from the NBA for life because of his racist remarks. The NBA reacted to the unacceptability of these comments in US society, even with freedom of expression considered.

It is common sense that companies doing business in a foreign country need to observe and understand the host country’s boundaries of sensitivity and understand what is, and is not, acceptable. Not doing so is generally the result of ignorance, incompetence, arrogance or a combination of these things.

In 2012, many pundits were quick to say that Japanese companies had no chance of succeeding in China during a period of anti-Japanese sentiment (regarding a territorial dispute over the Diaoyu/Senkaku Islands). During this time, some Toyota and Honda dealerships in China were burnt down and their sales in China plunged.

Today, Japanese carmakers are actually doing well. Japanese brands’ market share in China has steadily increased, and today is the second-largest in terms of foreign passenger car brands (measured by country where the companies’ headquarters are based).

I agree with the assertion in The Economist’s June 28, 2018 Schumpeter column that “[t]he sense of victimhood is over the top; American firms have done reasonably well in China”. The NBA has been very popular and was on the rise in China for over a decade before Morey’s tweet.

Were the Chinese people’s reactions appropriate? It depends on your point of view, of course. The negative impact for the NBA in China is likely to be temporary. After all, a company’s success is a function of its competitive advantages, especially its products and brand, so the NBA can recover.

Despite the recent controversy, passionate Chinese fans turned out for a preseason NBA basketball game between the Brooklyn Nets and Los Angeles Lakers at the Mercedes Benz Arena in Shanghai on October 10. Photo: AP

There are already signs of this, as Tencent lifted its temporary ban on live-streamed NBA games, and recently streamed two NBA games in China. Of course, the NBA and its stakeholders should continue to work on damage control.

Apple remains a strong brand in China, even while facing competition from local players like Huawei and others. The uproar regarding the Hong Kong app was simply China’s view on how a sensitive boundary had been crossed (by design or not, the app helped Hong Kong protesters organise around the city).

Apple’s response was swift and, from the Chinese perspective, appropriate. On its own, this episode will have a limited impact on Apple’s position in China.

These two episodes do not represent the institutional barriers causing difficulties for foreign companies in China. Beijing continues to open up its market, sector by sector, for foreign companies, especially since the US-China trade war started.

However, foreign companies’ success in China increasingly requires a recognition that the world is diverging into “two systems” – one led by the US; another by China. Multinationals are finding that they need to develop different strategies for each system. Striking a balance will be critical for global operations and success.

In the auto industry, for instance, global companies such as Toyota and BMW need to create strategies to meet the dynamics of these very different markets. Toyota has developed completely different and separate ecosystems, recognising the need to meet China’s unique communications, IT and software requirements.

This includes building different “mobility as a service”, technological (such as autonomous vehicle technology) and business model solutions. For example, Toyota partners with Monet (a mobility-as-a-service joint venture between Japanese carmakers and the tech investment firm Softbank) and Uber in Western markets, and with Guangzhou Automobile Group and Didi Chuxing in China.

Foreign companies in China need to step up their game if they want to capture the full potential it offers. Increasingly it’s not just about the China market but also the nation’s impact on the rest of the world, especially developing markets, which are increasingly evolving in a fashion similar to China.

They need to understand China much better. While this may sound like a broken record, significant gaps remain, partly due to the context of China, which continues to evolve and is in many aspects proceeding into unknown territory.

Foreign companies need to adjust their products, services and business models to the Chinese context. To this end, they should seek to better appreciate and incorporate China’s quickly developing innovations, and integrate them into the core of what they do in China.

At the same time, they need to be extremely perceptive of where China’s boundaries lie and respect them, while deploying measures to anticipate and manage risks.

Under ‘One World, Two Systems’, US Companies that Stay in China Must Evolve

By Edward Tse and Bill Russo
27 Sep, 2019

Original published by South China Morning Post titled Under ‘One World, Two Systems’, US Companies that Stay in China Must Evolve on September 27, 2019. All rights reserved.

More US companies are staying in China than are deciding to leave, despite Donald Trump’s trade war rhetoric. But there is an increasing need to devise different strategies, as China’s market conditions become more sophisticated and unique

In a recent business report by the American Chamber of Commerce in Shanghai, 77 per cent of the surveyed companies reported that their China operations are profitable. Around 60 per cent are optimistic about the five-year business outlook and nearly half are increasing investment in 2019.

The findings were consistent with those of another report, by the US-China Business Council in August, suggesting that 87 per cent of the US companies operating in China do not want to leave.

Both are slaps in the face for US President Donald Trump, who earlier called for American companies to leave China and to return to the US. Very few, if any, have followed.

In July, 100 academics and policy advisers around the US wrote an open letter to Trump, advising that Beijing is neither an economic nor national security threat that must be confronted in every sphere.

US animosity towards China will eventually damage its own reputation, as well as the economic interests of all nations. There can be no winner in a zero-sum game.

The above-mentioned survey results and reactions are consistent with our first-hand experience of consulting for the senior management of many US companies in China.

As Trump’s trade war drags on, while some foreign companies have chosen to leave China – usually those in labour- or cost-intensive sectors such as shoe and apparel manufacturing – most have chosen to stay, simply because of the size of the China market or the high degree of integration of their supply chain with Chinese suppliers and manufacturers, or both. Paradoxically, after Trump’s plea, US retailer Costco opened its first store in Shanghai.

Also, electric vehicle maker Tesla is set to start production by the end of this year in its wholly owned manufacturing plant in Shanghai.

Among those that have chosen to stay, there is an increasing need to devise different strategies for China and the US. As China’s operating environment evolves, its market conditions are becoming more sophisticated and unique. For example, in the tech sector, some aspects of the two countries are diverging and companies will need to consciously adapt.

Terry Gou, founder of Apple supplier Foxconn, expects a divide in 5G technology between China and the US, because of underlying differences in strategic positioning, development and market needs. As fifth-generation cellular networks and their commercial applications evolve, the divergence will only increase.

On a broader scale but in the same vein, the G2 – the US and China – will replace the G20 in a new leadership framework: “one world, two systems”.

China’s three-layered development model is the key to the country’s resilience. At the top, the central government sets the overarching strategy for developing a technologically advanced, innovative society. At the bottom, the thriving entrepreneurial, private-sector companies are driving China’s business innovations.

In the middle, local governments connect the central government and businesses by building infrastructure (not only the physical kind but also, increasingly, smart infrastructure) and by being a funding source and incubator for start-ups. The smart infrastructure, for instance, is empowering the automotive industry as vehicles become more intelligent, connected and ultimately autonomous.

An integrated smart city allows real-time governance of a city’s major functions. Local governments are raising the stakes: for example, Hangzhou is managing traffic congestion with the City Brain and Wuxi is establishing a pilot zone for autonomous driving.

Some companies are already aware of the importance of a strategy of “one world, two systems”. For example, Toyota has realised that striking a fine balance between China and the US will be critical for its global operations. Meanwhile, it faces the delicate task of creating a strategy for meeting the industry and technological specifications unique to China.

This trend began to emerge even before the trade war began. China is evolving into a leader of innovation with new disruptive technologies such as artificial intelligence, the internet of things and blockchain, and is moving ahead of the US to build the world’s biggest 5G networks.

Businesses – in particular, the entrepreneurs working in concert with governments, both local and central – will take China through new paths onto new platforms.

As a result, the industry structure, competitive conduct and financial performance for all sectors in China will evolve in their own ways. Companies, no matter whether headquartered inside or outside China, should adjust their strategies going forward.

US companies that choose to stay in China need to be much more sophisticated. Copying and pasting business models from the US to China won’t necessarily work any more. Local innovation will be critical and, in many cases, US companies will need to join with local companies and governments.

While differences exist, the world will benefit from cooperation between the world’s two largest economies. Both Andrew Ng, the former leader of the AI teams at Baidu and Google Brain, and Jack Ma, founder of Alibaba, have suggested there is plenty of room for technology partnerships between China and the US.

Huawei founder Ren Zhengfei has said the company is open to selling 5G technology to US companies to create competition and a more unified global technological environment. Companies so far only focus on beating their competition, and the idea of creating competition and sharing advantages would be a breakthrough, if implemented.

There is more room for the US and China to collaborate than fight in the face of global challenges, many of which will transcend national borders.

About the authors

Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company, and a founding Governor of Hong Kong Institution for International Finance. One of the pioneers in China’s management consulting industry, he built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies, investors, start-ups, and public-sector organizations (both headquartered in and outside of China) on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas, as well as to the World Bank and the Asian Development Bank. He is the author of several hundred articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version of 《创业家精神》).

Bill Russo is Managing Director of Gao Feng Advisory Company, he is also Founder and CEO of Automobility Ltd.

Original published by South China Morning Post on May 6, 2019. All rights reserved

Embroiled in a trade war with China, the Trump administration, in February, signed an executive order aiming to spur the development of artificial intelligence, in response to the rising fear in academia and government that the US is losing the race for global AI leadership to China.

Such fears are not entirely unfounded. China has a well-funded commitment to the development of AI. The leadership in Beijing has outlined its ambitions in various development plans, including the initiative to build “advanced manufacturing”. According to Tsinghua University’s China AI development report, released last year, China has secured a leading position in the AI echelon in both technology development and market applications. China ranked first in the total number of AI research papers and AI-related patents, and second in terms of the size of its AI talent pool.

There are several key drivers of China’s progress. First, it enjoys a fundamental system advantage. In the past four decades since its “reform and opening up”, China has somewhat unconsciously evolved its own “three-layer duality” development model. At the top, the central government’s guiding hand sets goals and directions for the country, giving the rest of the nation clear targets to follow. At the grass-roots level, private-sector entrepreneurs have re-emerged and become a major force in driving economic growth.

In the spirit of driving the development of advanced manufacturing, provinces and cities across China have instituted preferential policies for AI start-ups. For example, Tianjin, a major port city in the northeast, launched a US$16 billion fund last year to bolster the local AI industry. Tech companies collaborate with local governments on AI initiatives such as smart city, health care and autonomous driving. Alibaba’s ET City Brain project uses AI to tackle traffic jams, reducing traffic delays by 15.3 per cent in parts of Hangzhou, the city in which Alibaba is headquartered.

Second, the massive size of the Chinese economy allows companies, especially AI companies, to rapidly scale up. China now boasts more than 800 million internet users, roughly 58 per cent of its total population and three times larger than the number in the US. According to the China Internet Network Information Centre, 98 per cent of them are mobile internet users. The large online population generates an abundance of data, on which algorithms can conduct large-scale research and experiments much faster and more intensely than is possible in the West.

For better or worse, Chinese are more relaxed about data privacy than Westerners, at least for now. What may be viewed as a violation of privacy by some could be advantageous for AI developers wanting to extract a large amount of data. This situation allows Chinese AI developers to achieve more accurate machine learning models in areas such as facial recognition, voice and gesture recognition, consumer behaviour analysis and robotics process automation.

Third, a “why not me” mindset drives Chinese entrepreneurs, who are eager to show that they too could succeed. Today, younger entrepreneurs view their successful predecessors as role models and want to replicate their success. China’s hypercompetitive environment harbours cutthroat commercial activities and transformative business models, allowing the fruits of AI to quickly spread across the economy.

China tops the list of the number of active AI companies and venture capital investment. Leading players, such as Baidu, Alibaba and Tencent, are investing heavily in AI technology. For example, in 2018, Tencent invested about US$120 million in Shenzhen-based humanoid robot designer UBTECH Robotics. Baidu not only poured US$1.5 billion into its Apollo Fund for autonomous driving, but has also developed a neural-network-based machine translation system that has at times achieved speech recognition accuracy higher than that of humans.

Rising start-ups, on the other hand, have created tremendous value. Among those is the previously mentioned UBTECH Robotics, the world’s highest-valued AI start-up at US$5 billion. ByteDance, the company behind AI-powered news and information content platform Toutiao and popular short video platform TikTok, has grown 230 per cent in revenue in the past two years.

While the Chinese tend to favour applications of existing technologies, the West focuses more on the science and infrastructure behind AI. Fundamental research is high-hanging fruit that would take much more time and risk to achieve results than commercial applications.

However, there are signs that this is also beginning to change. The Chinese government is planning support for AI education, research and development. One of the newer projects, the Next Generation Artificial Intelligence Development Plan, offers a forward-looking blueprint for basic theory and common key technologies. Another project on brain science and brain-inspired research is comparable to Europe’s Human Brain Project and the US’ BRAIN Initiative. Inevitably, some of these technological experiments will fail but others will make it. It is through experimentation that progress can be made.

Should we simply focus on the winner of the “race” between China and the US? “Race” implies a zero-sum game, as if the two countries must treat each other as “strategic competitors” and acknowledge a mutual threat. While there is competition, there is also plenty on which to collaborate. In today’s increasingly interconnected world, we need organisational means to address issues that transcend national borders, including those of AI development and governance.

Some level of collaboration in AI among American and Chinese researchers is already under way. For example, the Partnership on AI, an organisation founded by Amazon, Google, Facebook and others, announced last year that Baidu would join its network. The consortium of companies recognised the importance of global discussion around the future of AI and showed a desire to counter the arms-race narrative. There is a need for China and the US to focus more on similarities and common goals for the betterment of the entire world.

Picture Source | Google

By Edward Tse

Levelling the Field: Foreign Firms will Need to Raise their Game in China with New Investment Law

Original published by South China Morning Post on March 23, 2019. All rights reserved.

China has just passed a new law that will replace existing regulations on wholly foreign-owned enterprises and on joint ventures involving overseas companies. In response to changing global realities and the need to further open up its economy, the new law includes many stipulations that aim to foster a level playing field for foreign and domestic enterprises.

Forced technology transfer, one of the main issues driving the US-China trade war, will now be banned. The law also emphasises intellectual property rights protection for foreign investors and encourages technological cooperation. Other incentives include establishing special economic zones with attractive tax and business regimes, allowing the transfer of profit and capital gains out of the country and shortening the list of prohibited investment projects. Moreover, China will encourage foreign investors to participate in the mixed-ownership reforms of state-owned enterprises.

These changes are certainly welcome news for foreign businesses and the circle of politicians and lobbyists in Washington, who have long complained about a lack of market access in China. For many foreign multinational corporations, China has become one of their largest markets, if not the largest, in the world. Even for those that are only considering first-time entry, such as cross-border payment or credit card businesses, their global business models wouldn’t be complete without a credible presence in China. However, though a favourable signal, these legal changes cannot guarantee foreign multinationals success. The market conditions in China have evolved quite significantly over the past decade.

A major shift in the past decade has been the emergence of Chinese companies as bona fide competitors to foreign multinationals. Whereas foreign multinationals still enjoy advantages in sectors such as luxury goods, premium-branded cars and patented pharmaceuticals, Chinese companies have become serious competitors in e-commerce, fintech, fast-moving consumer goods, appliances and logistics.

Source: SCMP

Some of these Chinese competitors are large state-owned enterprises, especially in sectors that require strong state roles, such as energy and telecommunications. However, the most formidable, and the majority, are private companies marked by their speed, agility and creativity, in sectors where the playing field is practically open and even.

This phenomenon is part of the rise of business innovations in China over the past decade, as a combined result of increasingly prevalent technologies, local and central government policies and grass-roots level entrepreneurship. Ridding itself of the “copycat” stigma, China has nurtured a new internet and tech sector – ranging from ride-hailing to e-commerce, robotics and artificial intelligence – that grew 20 per cent in 2018 to a total value of US$142 billion.

Two Chinese companies, Tencent and Alibaba [the owner of the Post], are now among the world’s top 10 most valuable companies. Unicorns – unlisted companies that are less than 10 years old and valued at or above US$1 billion – are thriving. Ant Financial, a Chinese fintech company and an affiliate of Alibaba, is now the world’s largest unicorn with a valuation of US$150 billion. ByteDance, owner of Toutiao, a popular newsfeed app, and Tik Tok, a popular short video app, is valued at US$78 billion, ahead of the US-headquartered ride-hailing app Uber.

Regrettably, foreign multinationals have largely been bystanders to innovation of Chinese origin. However, the rapid changes in China’s innovation context is forcing them to react.For example, in the automotive industry, transformative trends such as electrification, autonomous driving, connected and intelligent vehicles and “mobility as a service”, which combines multiple private and public transport options for users, are forcing even the leading global carmakers to adapt. Across sectors, foreign companies are eager to connect to digitally savvy Chinese consumers through means such as super-apps like WeChat and online payment systems like Alipay and WeChat Pay.

Belatedly, foreign multinationals have began to recognise the need to learn from China, to innovate in China for China and perhaps even for the world. This will not be easy, as foreign companies need to embrace China as a breeding ground for innovation and for new thought leadership in business strategy. To do this right, they have to put China at the core of their global strategy, instead of seeing it merely as a market, albeit an important one.

So far, most of the foreign multinationals’ localisation efforts have remained basic – hiring local managers and assigning them only roles involving execution, while strategic planning and decision-making take place outside China, either in global or regional headquarters. Not only is this process not fast enough, it also does not take into account sufficiently the changes in the overall China context that can have a disproportionately large impact on a company’s China, and even global, strategy. Foreign multinationals should add substance to their localisation plans by appointing local thought leaders to senior levels, with the appropriate decision-making power and resources.

Foreign multinationals have tended to try to run their business in China by themselves, perhaps with some joint ventures here and there. Going forward, that won’t be enough as the changes in China, especially in innovation, will require capabilities beyond those that foreign multinationals are aware of. They should adopt a more open-minded approach with the idea of business ecosystems in China, and form collaborative partnerships with local companies, including established companies, start-ups, academics and research institutions, to augment their capabilities on the ground.

Like every new measure that comes out of China, the new foreign investment law will not be immune from scepticism from outside. However, the new law signals a friendlier environment that enables foreign multinationals to capture greater value in one of the world’s most important and dynamic markets. In the meantime, they should remember that in this ever-changing, increasingly competitive landscape where innovation is critical, they need to step up their game in China to capture the potential that the market offers.

By Edward Tse | SCMP

Edward Tse says the trade war is helping to accelerate the mainland’s reform and innovation

Original published by South China Morning Post on February 4, 2019. All rights reserved.

In trying to curb China’s supposedly unfair trade practices and substantially reduce its trade deficit with China, the United States is unintentionally helping to accelerate China’s reform and innovation.

Washington’s trade war has gained support from many in the Sinophobic circle of politicians, businesses and lobbyists, who have long complained about Beijing’s treatment of foreign businesses, especially those from the US, on issues such as intellectual property protection, forced technology transfer and market access.

However, while it is arguable that China’s market liberalisation could be faster, it is unfair to say Beijing has blocked most foreign companies. In the tech sector, pundits lament that Facebook and Twitter are blocked in China, but neglect to mention Apple, Amazon, Bing, LinkedIn, eBay and Airbnb are not.

While Chinese tech giant Huawei has met with the American and other governments’ roadblocks overseas, its American counterpart Cisco continues to do business in China. As The Economist’s Schumpeter column notes in the June 28 edition, the picture of American firms being victimised in China is exaggerated.

Since US President Donald Trump’ tariff war broke out, China has accelerated the opening of its market to foreign companies. Last April, Beijing set a timetable for phasing out foreign ownership limits in the automotive industry. It is also easing curbs on sectors such as banking, securities, insurance, agriculture and aircraft manufacturing. Recently, BT Group became the first non-Chinese telecom company in China to get a nationwide operating licence. S&P Global’s Beijing-based wholly-owned subsidiary was also given a green light to enter the Chinese bond rating market.

Source: Internet

Reform is also coming to the private economy. To boost the private sector, Chinese President Xi Jinping met entrepreneurs last November, and China Banking and Insurance Regulatory Commission chief Guo Shuqing followed up with a statement that no less than 50 per cent of new loans should go to private businesses.

At the same time, China is stepping up mixed ownership reform, that is, diversifying the ownership of parts of the state sector. According to the National Development and Reform Commission, 100 more state-owned enterprises will join the mixed-ownership reform programme. Along the way, many “zombie” enterprises will be eliminated.

To improve the protection of intellectual property right, China’s top court has started to rule on intellectual property cases since the beginning of this year; laws are also being drafted to ban forced technological transfer.

In Davos, Chinese Vice-President Wang Qishan stressed that China would continue to carry out structural reforms and adhere to multilateralism.

Last November, The New York Times wrote in a special report: “The Chinese economy has grown so fast for so long now that it is easy to forget how unlikely its metamorphosis into a global powerhouse was.” In fact, China owes the remarkable resilience of its economy to its own evolving development model of “three-layer duality”.

At the top, the central government sets goals and directions, giving the rest of the country clear targets to follow. At the grass-roots level, private entrepreneurs have re-emerged and become a major force in driving the growth of China’s economy. And in the middle, China’s local governments channel their resources into national and local priorities, often competing but also collaborating within regional clusters. To this end, they work closely with entrepreneurs who bring innovative ideas to bear.

Undoubtedly, the current trade dispute has generated much uncertainty and volatility for China, as well as the rest of the world. It has exposed a fundamental mistrust of China in certain parts of the West, and given some Western businesses an opportunity to amplify their long-standing concerns about China, justifiable or not, through their respective chambers of commerce. This should have woken up the Chinese government to the fact that it needs to adjust its approach. This is why Beijing is reinforcing its commitment to globalisation and accelerating reform.

Source: Internet

The short-term issues brought on by the trade dispute would naturally unsettle some foreign multinational companies operating in China, but for many others, especially the larger ones, China has become so strategically important that they must figure out a way to overcome the challenges.

China’s innovation – the fast-evolving consumer demand patterns, rapidly developing government policies and regulations, increasingly prevalent tech-enabled business innovations, and the emergence of bona fide innovative and competitive local companies – has led many foreign multinationals to the realisation that what they have learned in the West won’t give them an advantage in the local market any more. Their success in China is no longer guaranteed if they rely only on what they already know. They will need to learn how to innovate in China, for China, and also in China for the world – and this won’t be easy for many.

China has reached a turning point. The age of single-minded pursuit of growth is over, and there will instead be a focus on refining the country’s economic structure, quality and sustainability. However, many in the West and even some within China are doubtful about whether Beijing will be able to make the necessary changes in a timely manner.

The challenge remains for the Chinese government to demonstrate its commitment and ability to fully implement the changes. Paradoxically, the pressure from outside, intended to thwart progress, is likely to push China into more reform and opening. Expect new waves of developments and new opportunities for companies from all over. The companies who can seize these opportunities will be among the true winners in the trade dispute.

By Edward Tse

Edward Tse says multinational companies are realising that they cannot ignore Chinese innovation and must embrace China-specific strategies

Original published by South China Morning Post on November 19, 2018. All rights reserved.

Chinese President Xi Jinping met a group of entrepreneurs on November 1 and underscored the government’s support for the private sector. Soon after, Guo Shuqing, chairman of the China Banking Regulatory Commission, pledged that at least 50 per cent of new corporate loans by China’s banks would be provided to the private sector.

These moves reaffirmed Xi’s earlier position that both the state-owned and private sector are critical to China. In fact, a “three-layered duality” working model has emerged and is providing resilience for China’s economic development. At the top, the central government sets the overall development priorities. At the grass-roots level, private-sector entrepreneurs have become a major driving force behind the economy. Sandwiched in the middle, local governments, in response to the central government’s direction and strategy, collaborate and compete in regional clusters, often by teaming up with entrepreneurs.

Source: Internet

Another major initiative by Xi was highlighted in his speech at the opening ceremony of the China International Import Expo in Shanghai, on November 5. He emphasised China’s commitment to opening up and reform, inviting more foreign participation in the country’s growing market. He further endorsed multilateralism on global trade and finance, forging a win-win platform so countries can together create greater prosperity for the world.

Over its 40 years of reform, China has been gradually opening up, sector by sector, to non-state and in particular, foreign companies. Many sectors are already open to foreign participation, including consumer goods, retail, automotive parts and appliances.

Beijing recently set a timeline to phase out the ownership cap on the automotive industry. It has also committed to liberalisation in other sectors such as financial services, agriculture, aircraft and ship manufacturing. Clearly, liberalisation of market access will be carried out against a set of constraints defined by the Chinese government. Key industries touching on “national security” – military, defence, mission-critical public utility, data and cybersecurity – will continue to be subject to investment restrictions.

All these moves carry profound meaning, especially in the context of the US-China trade war. Reuters reported in October that, as the cost of production rises, a large percentage of US companies are planning to shift supply chains out of China. However, among this growing list, only 1 per cent said they had any plans to establish manufacturing bases in North America.

[Xi has] emphasised Beijing’s commitment to opening up and reform

For many foreign multinational corporations, including American companies, the China market has become so important that an exit is almost not an option. Take the auto market as an example. Though China recorded the sharpest sales decline in car sales in September since 2011, the country remains the world’s largest market. For most major international carmakers, it is a must-win market. China is also of strategic importance to the likes of Apple, Starbucks, Nike, Adidas, L’Oreal, Johnson & Johnson, and many other global companies.

Source: Internet

While US politicians and lobbyists are pressuring China for “reciprocity” – that is, more market access – they and many foreign companies have missed China’s waves of business innovation, probably the country’s most important development in the past decade. This innovation, often led by Chinese entrepreneurs, is creating new paradigms across the board. Terminologies such as “automobility”, “new retail”, “OMO” (online merged with offline), “smart homes” and “big health” signify how industries are being reshaped.

For example, the auto industry is quickly evolving into an “automobility” industry, driven by three major forces – electrification, autonomous driving and “mobility-as-a-service”. The latter enables people to completely plan trips using digital platforms that integrate booking, planning and ticketing across public and private services. This new paradigm involves both hardware and on-demand personal mobility services, such as ride-hailing services, in contrast to the old one of people owning traditional internal combustion non-digitally-connected cars. Though car sales in China are under pressure, the automobility market size is forecast to expand from around US$30 billion in 2017 to over US$210 billion by 2025.

Global carmakers have found that, to participate in this new paradigm, they need to build competitive advantages specific to China and embrace innovations in China for China.

Thus paradoxically, as the auto market opens up – and therefore “reciprocity” is in theory achieved – foreign carmakers are not shedding local partners to form wholly owned operations. Instead, new forms of partnerships among foreign, local, state-owned and privately-owned companies are being formed.

Source: SCMP

In September, Ford and Zotye Automobile, a Zhejiang-based privately owned enterprise, formed a joint venture to focus on providing customised smart electric vehicles to fleet operators and drivers in China’s ride-hailing industry. In October, Daimler and Geely, another Zhejiang-headquartered private enterprise, announced they would set up a joint venture to offer premium ride-hailing services.

Investments by foreign multinationals in China are not shrinking but expanding. In recognition of the strategic importance of the China market, for instance, Ford has just announced an elevation of its China operations to a separate business unit led by a newly recruited CEO, who is a Chinese national, reporting directly to the company’s global headquarters.

Innovation, not reciprocity, is the real game changer. In the past, foreign multinational companies have either dismissed or ignored Chinese innovations due to a combination of a lack of awareness and disbelief. Today, most have come to realise the power of the innovations by the Chinese players, as well as the growing importance of China’s market despite the trade war with the US.

As new technologies such as artificial intelligence, the internet-of-things, 5G and blockchain emerge, old knowledge from the past and from the West will no longer be enough. Global CEOs need to develop a “new game” strategy to win, or just to survive, under a drastically different set of conditions. Those who get it will be able to reap major benefits and build a strong position not only in China but for the world. Those who don’t will be marginalised over time.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. He is also author of China’s Disruptors.

By Edward Tse

Original published by South China Morning Post on October 8, 2018. All rights reserved.

The topic of the Fourth Industrial Revolution topped the agenda last month at the World Economic Forum “Summer Davos”, where over 2,000 top-level representatives from politics, business, social sectors and the arts gathered in the Chinese municipality of Tianjin.

China has been one of the leading countries in this imminent revolution, characterised by cutting-edge new technologies that are “blurring the queues between the physical, digital and biological spheres”, according to forum chairman Klaus Schwab. The Made in China 2025 initiative, for example, has set China’s vision to take on global leadership in advanced manufacturing and hi-tech industries.

China has rid itself of its “copycat” stigma and has emerged as a global innovation hub in business. In 2017, the internet and technology sector–ranging from ride-hailing to e-commerce, robotics and artificial intelligence–grew at 18 per cent, substantially outpacing the overall economy, which grew 6.9 per cent, according to Xinhua.

In a recent op-ed in The New York Times, journalist Thomas Friedman quoted internet and technology analyst Mary Seeker as saying, “Five years ago, China had only two of the world’s largest publicly traded tech companies, while the US had none. Today, China has nine of the top 20 and the US has 11. Twenty years ago, China had none.”

In a recent Forbes op-ed, financial writer John Mauldin pointed out that China is building the world’s largest innovation economy and that its Greater Bay Area, which comprises Hong Kong, Macau and nine cities in Guangdong, is like “Silicon Valley on steroids” due to its size, policy support and innovation competitiveness.

The Chinese are fully embracing new and emerging technologies like artificial intelligence, the internet of things and blockchain, as well as 5G, to further enable innovations. Governments at both central and local levels, as well as the private sector, are investing significantly in revolutionary fields. These technology breakthroughs will enable a higher level of automation, connectivity and intelligence, as well as more game-changing business models.

For example, in a drive for automated manufacturing, in 2016, China added a total of 87,000 industrial robots, just slightly shy of Europe and the United States combined, according to the International Federation of Robotics. Schwab characterises China’s initiative in advanced manufacturing as “a supply-side miracle, with long-term gains in efficiency and productivity”.

Two-thirds of the world’s investments in AI have been going into China and have enabled a 67 per cent growth in the industry just in the past year, according to recent research from Tsinghua University.

A report by ABI Research says that Chinese AI start-ups overtook their US counterparts by raising nearly US$5 billion in venture capital funding in 2017. The Chinese companies also filed the largest number of domestic AI-related patents, trumping Silicon Valley by as much as seven times, according to data from CB Insights. Last November, Shanghai Municipality announced a new plan outlining a road map towards becoming a major, national AI hub.

In China, new value chains for the use of blockchain in different industry sectors have emerged. Around 450 blockchain technology companies have been registered in China, according to the Ministry of Industry and Information Technology. The regulatory attitude has turned from scepticism to acceptance and now encouragement.

This year, the Chinese government has funded multibillion-dollar initiatives to develop blockchain-based networks, with Hangzhou city government investing a total of US$1.6 billion in the Global Blockchain Innovation Fund this April.

In the automotive sector, innovations in new energy vehicles are gaining speed, in addition to autonomous driving and “mobility as a service”, which aims to reshape how city-dwellers get around. Traditional carmakers, both foreign and local, are trying to reposition themselves as future new-energy vehicle makers, while competing or collaborating with dozens of new, non-state-owned players, such as Nio, which was recently listed on the New York Stock Exchange.

Source: SCMP

China will be in the front seat, witnessing the turning point into the Fourth Industrial Revolution, perhaps ahead of most, but not all, other countries. Innovation has become and will continue to be a global, prevailing theme, and a country’s future well-being hinges on its willingness and ability to embrace this trend.

Many foreign companies and their lobbyists have complained for a long time about the lack of market access in China and have demanded “reciprocity”. While they remain fixated on such issues, they have largely ignored the major shift in China’s innovations in the meantime, and have become bystanders.

The US-China trade war notwithstanding, China will emerge as a larger and more capable innovative economy. China’s pathways will inevitably involve many ups and downs, some experiments may not work out as planned and some resources will be wasted.

The lack of core technologies such as cutting-edge microchips have exposed China’s weakness but this has also given the Chinese the impetus to catch up. Many start-ups will fail, but a small percentage will make it. It would be foolhardily for anyone to discount China’s will and ability to achieve its goals.

Innovations will certainly create social challenges such as job dislocations, educationre – configurations and increased wealth disparity but they will also bring about advances to humanity and create major opportunities for companies and individuals who can anticipate the opportunities and figure out ways to capture them. Those who can’t, or won’t, run the risk of being marginalised or worse. It’s time to ask yourself: which side of history would you rather be on?

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

In his 2017 book, The Fourth Industrial Revolution, Professor Klaus Schwab, chairman of World Economic Forum (WEF) wrote of an upcoming era characterized by “a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries.” It would, according to him, shift and disrupt the means that we live in this time of great promise and peril.

Source: Google

One year later on, at WEF’s ‘Summer Davos’, over 2000 top-level representatives from political, business, social sectors and the arts gathered in the Chinese municipality Tianjin. Topping the agenda were emerging and new technologies underlying the Fourth Industrial Revolution such as artificial intelligence (AI), the Internet of Things (IoT), gene editing and robotics, as well as how countries should collaborate and ensure these technologies will bring about a human-centered, sustainable and inclusive future. The Forum also highlighted China’s rapid developments in the upcoming revolution. In recent years, China has accelerated its progress towards technological leadership through a series of initiatives, including the Made in China 2025 that aims at closing the gap with Western hi-tech prowess in 10 areas.

High-tech and innovations may not come up as the most intuitive or relevant topics to China, since China has been branded as a “copycat” for decades. Western media and other pundits paint a picture that China’s industrial regulations represent forced technology transfer, confer unfair advantages on domestic companies, penalize foreign participants and cheat on the country’s commitments to the World Trade Organization.

However, particularly in the past 10 years, China has gradually moved away from its “copycat” image and emerged as a global innovation hub. Grass-root innovations have proliferated. In 2017, the growth in the internet and technology sector – ranging from ride-hailing to e-commerce, robotics and AI was 18 percent, substantially outpacing the overall economy which grew 6.9 percent, according to Xinhua. In the same year, a report by Deloitte and China Venture says that China accounts for more than a third of the total number of “unicorns” globally, becoming the world’s second-largest birthplace of companies valuing above US$1 billion. Internet giants like Alibaba and Tencent, benefiting from the scale and speed of China’s market as well as the prevalence of technology, are able to rapidly scale up and have created extensive sophisticated and lucrative business ecosystems. Today, this pair is within two of the world’s top ten most valuable companies, according to Kantar and WPP’s 2018 BrandZ™ Top 100 Most Valuable Global Brands.

Source: Google

With plans and programs in mind, China upped the ante in nascent technologies that are just around the corner and that would, if properly captured, enable yet another age of growth and opportunities.

In 2016, in a drive for automated manufacturing, China added a total of 87,000 industrial robots, just slightly shy of the combined total for Europe and the US, according to the International Federation of Robotics. Schwab characterizes China’s initiative in advanced manufacturing as “a supply-side miracle, with long-term gains in efficiency and productivity.”

China aims to become the global AI powerhouse by 2030 with a domestic AI industry that will be worth about US$150 billion. The Ministry of Industry and Information Technology released last December a three-year action plan that calls for “major breakthroughs in a series of landmark AI products”, focusing on such “core competencies” as the production of intelligent sensors and neural network chips. The plan is paralleled by governments on all levels, most notably of which are Beijing, Shanghai and Zhejiang.

Source: Google

Domestic technology giants and startups alike will be the integral players in this endeavor. For example, Baidu, Alibaba, Tencent and iFlytek formed the “national AI squad”, respectively backing the development for autonomous vehicles, cloud-empowered smart cities, medical imaging and voice recognition. Up till now, two-thirds of the world’s investments in this sector have been going into China and have enabled a 67% percent growth in the industry solely in the past year, according to recent research from Tsinghua University. Chinese companies also filed the largest number of domestic AI-related patents, trumping Silicon Valley by as much as seven times, according to data from CB Insights.

In China, new value chains for the use of blockchain in different industry sectors have emerged. Around 450 blockchain technology companies have been registered in China, according to the Chinese Ministry of Industry and Information Technology. The regulatory attitude towards blockchain turned from skepticism to acceptance and now to support. Throughout 2018, the Chinese government has funded multi-billion-dollar initiatives to develop blockchain-based networks, with Hangzhou city government investing a total US$1.6 billion in the Global Blockchain Innovation Fund this April.

In the automotive sector, China is poised to be at the world’s forefront in going through a four-phased evolution – from car ownership, on-demand mobility, then smart car ownership and lastly personalized “automobility” happening as early as 2030 or thereabouts. Traditional carmakers, foreign and local, are trying to reposition themselves as future electric vehicle makers, while collaborating and competing with more than a dozen of newer, non-state-owned NEV players such as NIO, which went public in the New York Stock Exchange recently. Caocao Zhuanche was launched by Chinese automaker Zhejiang Geely Holding Group in 2015 as the country’s first all-electric vehicle ride hailing company. In July, carmakers Dong Feng Motors, FAW Group and Chang’an Automobile launched T3 Mobile Travel Services as a new ride-sharing platform, indicating they will seek other partners to push into driverless cars.

While promising higher levels of automation, connectivity, intelligence and more game-changing business models, these new technologies also pose critical questions as to how governments and entrepreneurs should properly leverage them and minimize societal externalities. Corporates shall think critically about socially responsible business models going forward, and governments will need to rebalance the gives and takes among growth, security, privacy and citizen wellbeing.

China will be in the front seat witnessing the turning point into the Fourth Industrial Revolution, perhaps ahead of most of, but not all other countries in the world. Many foreign companies and their lobbyists have complained for long about the lack of market access in China and have demanded “reciprocity”. While they remain fixated on such issues, they have largely ignored the major shift in China’s innovations in the meantime and have become as bystanders on the sidelines. Innovation has become, and will continue to be, a global, prevailing theme, and a country’s future well-being hinges upon its willingness and ability to embrace this trend.

Source: Google

The US – China trade dispute notwithstanding, China will emerge as a larger and a more capable innovative economy. China’s pathways will inevitably involve many ups-and downs, and some of the experiments may not work out as planned and some resources will be wasted. The lack of core technologies such as cutting-edge microchips have exposed China’s weakness but this has also given impetus for the Chinese to catch up. Many start-ups would fail, but a small percentage will make it. It would be fool-hardily for anyone to discount China’s will and ability to achieve its goals.

Innovations will certainly create social challenges such as job dislocations, education re-configurations, and increased wealth disparity but it will also bring about advances to humanity and create major opportunities for companies and individuals who can anticipate the opportunities ahead of time and can figure out ways to capture them. For those who can’t or won’t, they run the risk of being marginalized or even disrupted away. It’s time to ask yourself, which side of history would you rather be on?

Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company. A pioneer in China’s management consulting industry, Dr. Tse built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies – both headquartered in and outside of China – on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas. He is the author of over 200 articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version «创业家精神»).

By Edward Tse and Josie Tai

Original published by South China Morning Post on August 22, 2018. All rights reserved.

Female entrepreneurship is on the rise in China. In the 2017 Forbes list of the world’s 56 self-made women billionaires, there were 21 Chinese entrepreneurs, accounting for 37.5 per cent of the total.

In 2017, China’s female/male ratio of an index measuring entrepreneurial activity is 0.87, above the global average of 0.7. The Total Early-stage Entrepreneurial Activity index, published by the Global Entrepreneurship Monitor, reflects the percentage of the 18-64 population who are either a nascent entrepreneur or an owner-manager of a new business.

In fact, female entrepreneurship is not new in China. Among the older generations, women who succeeded include Yang Mianmian, Haier’s co-founder and former president who helped turn the company into one of the leading white-goods makers in the world; Sun Yafang, who was chairwoman of Huawei, the world’s leading telecommunications equipment maker, from 1999 to 2018; and Dong Mingzhu, the former chairwoman of Gree Group, the world’s largest household air conditioner maker. Younger women have also made their mark, such as Lucy Peng Lei, a co-founder of the e-commerce giant Alibaba (owner of the South China Morning Post).

Before 1950, women entrepreneurs were almost unheard of in China. The strict gender roles in Chinese culture mean aspiring businesswomen face many challenges.

Source: SCMP

Why, then, are more Chinese women becoming entrepreneurs, and succeeding? Of course, both the women’s liberation movement in the West and communist China’s promotion of gender equality, especially workplace equality, have had some influence.

A closer look reveals some interesting dynamics. First, China’s women entrepreneurs are young. According to a 2017 report by the Chinese online platform 36Kr and start-up incubator GirlUp, women entrepreneurs in China today tend to concentrate in the 21-30 age group. In the national female workforce, those in the 36-45 age group predominate.

Studies in the past found that successful businesswomen cut their teeth in state-owned enterprises, where they honed their business acumen, improved their managerial skills, and saved up the capital needed to start a business. Today, more are starting from scratch, and starting earlier in their lives.

Failure is no longer stigmatised; in 36Kr’s sample, many women were second- or even third-time entrepreneurs.

Source: SCMP

Second, technology has empowered Chinese women more than ever. Several years ago, traditional sectors such as real estate and logistics were the fastest path to wealth for women. Now, new technologies are helping to unleash the internet-based economy – ranging from e-commerce and ride-hailing services to AI and robotics – that is transforming businesses. The digital economy accounted for about 32 per cent of China’s total gross domestic product in 2017, according to the China Internet Plus Index Report released by Tencent earlier this year.

Women, in particular, perceive the non-traditional industries to have lower entry barriers and a more gender-neutral environment. 36Kr found that 36 per cent of Chinese women entrepreneurs surveyed worked in the digital economy, of which around 64 per cent were in the BAT (Baidu, Alibaba, Tencent) ecosystem.

Tech entrepreneur Gong Haiyan is one of them. She grew up in a poor farming family in Hunan province but made it to university. While in graduate school in Shanghai, Gong paid 500 yuan (US$73) to register with a dating site to find a lifetime partner. But she discovered that the company used stolen profiles. That motivated her to start her own dating service. Like Facebook, Gong’s website, Jiayuan.com, was set up from her college dorm. Today, 15 years later, the site has nearly 190 million registered users across China.

Source: SCMP

Another example is Diane Wang Shutong, who once held senior management positions at Microsoft and Cisco, founded DHgate.com and grew the company into a leading business-to-business cross-border e-commerce platform.

Third, improvements in education attainment have also encouraged more women to strike out on their own. More Chinese are attending university overseas, and many return home to start a business. About 60 per cent of China’s women entrepreneurs were educated abroad; among them, 51 per cent attended college in the US. Having been exposed to a relatively egalitarian culture, they are bolder in seizing opportunities.

While many women entrepreneurs in the past were driven by the “poverty push” to start a business, after being laid off in the restructuring of state-owned enterprises in the 1990s, today’s cohort seem to be more motivated by the “opportunity pull”. The Global Entrepreneurship Monitor has found that today’s women entrepreneurs were more opportunity-driven compared to their predecessors, even their male counterparts.

In other words, instead of seeing entrepreneurship as a last resort, these women chose to start a business because of the perceived opportunities, “pulled” by their personal ambitions and goals of success.

They face several obstacles unique to them, of course, not least gender discrimination. For example, women start-up founders are often underestimated and thus overlooked for financing opportunities, and women businesswomen, like women in other professions, are expected to commit to family and child-rearing responsibilities.

Helping and fostering the next generation of female entrepreneurs will need support from everyone – men and women, government and non-government – to create a level playing field, a safe, sustainable business environment, and a fundamental change in the traditional perception of gender roles.

Edward Tse is founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. Josie Tai is a research analyst at the firm.

By Edward Tse

Original published by South China Morning Post on July 19, 2018. All rights reserved.

The Yabuli Youth Forum took place in Hong Kong last month. More than 200 people attended the offshoot of the idea-exchanging platform, the China Entrepreneurs Forum.

Government and business leaders from Hong Kong, the mainland and Macau – including former Hong Kong chief executive Leung Chun-ying, former chairman of the China Banking Regulatory Commission Liu Mingkang and Vincent Lo Hong-shui of Hong Kong Trade Development Council – spoke of deepening cross-border collaboration to foster innovation for growth. Other speakers included young entrepreneurs from different backgrounds and industries.

Almost as one, the speakers highlighted the strategic importance of talent in developing the Greater Bay Area. In particular, Albert Chuang, president of the Y. Elites Association of Hong Kong, suggested that Hong Kong youths should look beyond the city, to the Greater Bay Area and even the rest of mainland China, where changes are taking place at an unprecedented rate.

Indeed, though the 1970s and 1980s witnessed Hong Kong’s rapid growth, with a booming service sector and light industries, this former land of opportunity is now struggling with slower economic growth, especially when compared with the mainland. Skyrocketing property prices, a narrowing industry structure and, most critically, the lack of upward social mobility, make young people increasingly disillusioned about the future.

Source: Internet

Some politicians attribute Hong Kong’s problems to the “one country, two systems” model. However, this misses many of Hong Kong’s own pitfalls. First, people have become too Hong-Kong-centric and unwilling to better understand the outside world. There is, in general, a lack of outward-looking perspectives and foresight.

Second, although some high-end sectors, such as financial services, still offer attractive jobs, Hong Kong’s economic structure lacks diversity and remains disconnected from the new economy.

Vital industries, such as real estate, communications, transport and even food, are monopolised by cartels and oligopolies and thrive on cronyism, virtually immune from the digital transformations that are redefining businesses elsewhere in the world. As a result, the city’s talent pool is insufficient to meet the needs of the future economy.

Meanwhile, the Chinese mainland has emerged as a global innovation hub. In the prospering internet and technology sector, ranging from ride-hailing to e-commerce,robotics and artificial intelligence, entrepreneurs are getting younger and more geographically diverse.

China Youth Daily reported in 2016 that the average age of first-time entrepreneurs was below 25; another study showed that although start-ups generally prefer top-tier cities, they are also reaching inland, towards lower-tier cities such as Xian, Xiamen and Qingdao.

Source: South China Morning Post

With these dynamics on the mainland, Hong Kong’s youth needs to better understand the opportunities and take advantage of them. Such opportunities and innovation can occur purely through osmosis – that is, interaction, particularly among people and a sharing of ideas.

To encourage such osmosis, governments from both sides should seek to minimise the physical limitations on the movement of people and goods, and most importantly, ideas, which is also one of the main objectives under the Greater Bay Area scheme. The scheme promises a combined economic output of some US$1.4 trillion and, if done right, the unique complementary capabilities of Bay Area cities would generate huge synergy and create a bigger pie for all.

Second, officials should organise more multilateral interactions like the Yabuli Youth Forum and work together to pool resources, training and space to help young people start businesses with lower opportunity costs.

Third, role models are key to stimulating entrepreneurial activities in Hong Kong. The city needs more entrepreneurial examples – like GoGoVan, the on-demand logistics service and Hong Kong’s first US$1 billion start-up, and SenseTime, the world’s highest-valued AI start-up – to inspire others to turn ideas into action.

Young people are the future. To help Hong Kong benefit from the growth of China and make the Greater Bay Area plan work, it is critical that we focus efforts and resources on talent development and create “osmosis” to nurture the next generation of entrepreneurs.

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

By Edward Tse and Josie Tai
July 16th, 2018

On July 6th, President Trump’s tariff on $34bn of Chinese imports, ranging from water boilers and lathes to industrial robots and electric vehicles, marked the escalation of the tit-for-tat trade war with Beijing. In retaliation, Beijing immediately raised tariffs on a list of US goods that include soybeans, seafood, and crude oil.

Some analysts point to the falling trade imbalance and weakening Chinese currency, as evidence that the US has the more to gain and can weather through the short-term negative consequences of a trade war. Nevertheless, the real issue of a full-fledged trade war is not about who will gain, but that who will lose, and the answer is everyone. A brief overview of the economic history and a basic understanding of economic theories suggest that any such conflict would result in the worst disruption to the global economy. Linda Yueh, American-British economist and Adjunct Professor of Economics at London Business School, warned that trade barriers would not only damage both countries but would also disrupt global supply chains, raising prices for consumers worldwide.

Source: internet

In an ever more interconnected world, the two countries are deeply straddled in a globally intertwined supply chain, and to look at the trade relationship as merely bilateral is a gross oversimplification of its nature. Intel, for instance, carries out the most capital-intensive and technologically demanding part of its semiconductor manufacturing in the US, Ireland, and Israel;the resulting wafers are shipped to China for final testing. Even though China takes a relatively low-value step in the process, given that a number of chips from Intel or the like flow back to the US, the new tariffs will backlash against domestic companies and consumers.

In addition, American companies with operations in China are likely to find themselves in the firing line. 80 percent of products made in China by US companies were sold in the Chinese market; these companies include McDonald’s, which only owns 20 percent of its China business since the majority of its business is held by China’s state-owned conglomerate CITIC, and General Motors, which sells more vehicles in China than in any other market through joint ventures with state-owned automakers SAIC Motor and FAW Group.

Wei Zhen, head of China research at global index provider MSCI, wrote that “5.1 percent of the revenues of companies in the MSCI USA Index come from China and may be at risk as a result of a trade war. In comparison, only 2.8 percent of the revenues of the companies in the MSCI China Index come from the U.S.”

In fact, the US was actually the leading advocate of globalization that began decades ago, and in the process, it encouraged more divisions of labor across different countries according to their respective comparative advantages. The supply chain has developed through years around locations of manufacturing: while some of the most important technologies like micro-chips are largely retained in the US, China is evolving from a primitive-level world factory to a manufacturing powerhouse, and India is also picking up on software development. As a result, more and more companies are moving their operations in China to achieve maximum economies of scale.

Source: internet

After decades of the globalization experiment, however, the US is turning around the table. It is redefining the rules and beginning to set up barriers against other countries like China, in a bid to curb China’s “unfair trade practices” and “substantially reduce trade deficits”. Even though protectionism can be somewhat beneficial on the local level, based on operations research, any attempt to optimize based on local conditions without understanding the big picture will not likely produce a globally optimal, sustainable solution – and trade protection will eventually take its toll on US businesses themselves.

Avoiding a global economic disaster requires cool-headed discussions and an appreciation of commonalities from both sides. The US and China have more shared goals and responsibilities than trade disputes: building a permanent peace mechanism on the Korean peninsula, resolving terrorist threats and the refugee crisis, maintaining global economic stability and creating an international environmental regime. RAND Corporation, a US think tank, recommended in a recent report that the US should establish a comprehensive strategy and leave open the potential for cooperation to manage emerging rivalry with China.

Source: internet

The two countries also share many commonalities on the business level. Although often questioned by the West, China follows its own development model where the central government sets trajectories at the top, the grassroots entrepreneurs thrive and drive growth at the bottom, and local governments compete and collaborate in the middle. The private sector has been opening up, now supporting more than 60% of China’s GDP growth and 80% of jobs, according to statistics published by Xinhua last year.

Chinese entrepreneurs look to the West for inspiration, not only modeling their organization design on Silicon Valley but also pouring billions into US startups. Tencent Holdings, for example, holds significant stakes in high-growth American companies such as Snapchat and Tesla, becoming the second-largest foreign investor in the US tech industry. The rhetoric portraying Chinese VC investors as players of a technology transfer scheme skews the nature of and disregards the tremendous tangible benefits from these investments.

US companies can also benefit from participating in China’s thriving innovations. China’s entrepreneurs are highly driven to grab new opportunities through “multiple jumping”: they may focus on their existing core competencies at first, but when new opportunities come up, they will try to catch these new opportunities even if they don’t have all the capabilities needed to run the new business. They would collaborate with partners, and thereby building ecosystems and crossing business boundaries. For example, Meituan-Dianping, the popular food delivery app with 400 million active users in China, entered mobility service by leveraging its huge consumer database. Thus, there are still many potential benefits that American firms can capture by exploring new business models in light of the myriad of Chinese innovations.

Admittedly, a full-blown trade war is already taking shape, and it would put economic growth in both countries at risk and wreak havoc on the global supply chain. However, it is not too late for the US and China to prevent further deterioration of trade relationships. Both countries should rethink about the collateral damage of ill-conceived trade actions, establish mutually beneficial agendas and replace polarizing rhetoric with rational economic arguments.

About the Authors
Dr. Edward Tse is founder and CEO of Gao Feng Advisory Company. A pioneer in China’s management consulting industry, Dr. Tse built and ran the Greater China operations of two leading international management consulting firms for a period of 20 years. He has consulted to hundreds of companies – both headquartered in and outside of China – on all critical aspects of business in China and China for the world. He also consulted to the Chinese government on strategies, state-owned enterprise reform and Chinese companies going overseas. He is the author of over 200 articles and four books including both award-winning The China Strategy (2010) and China’s Disruptors (2015) (Chinese version «创业家精神»).

Josie Tai is a Research Analyst at Gao Feng Advisory Company. Josie is a Yale undergraduate majoring in economics and psychology, with interests in Chinese consumer behaviors, the tech industry and US-China trade relations. Her previous experience was in legal consulting, journalism and startup, and she was also trained in empirical data analysis, industry research as well as accounting and valuation.

Bernice So, Research Analyst, also contributed to this article.

By Edward Tse | SCMP
April 20th, 2018

Edward Tse says while foreign companies clamour for China to speed up its market reforms, they need to rethink their strategies to survive in an increasingly competitive business environment

At this year’s Boao Forum, President Xi Jinping reiterated China’s commitment to further open the country’s market to foreign companies and improve intellectual property rights protection, an issue that has long been a concern for foreign companies operating in China.

A couple of weeks before Xi’s speech, at a press conference at the end of China’s Two Sessions, Premier Li Keqiang said China would not force foreign companies to transfer their proprietary technology to China.

Source: Google

While some say the plans lack detail, the leadership’s commitment to opening up China further for foreign business shouldn’t be underestimated.

So, what are the implications for foreign multinational corporations? Is there anything CEOs should do differently?

For a long time, some Western politicians, business executives, lobbyists and the media have held the view that foreign companies can’t grasp all the opportunities in China because of a lack of market access, unfair competition and poor intellectual property rights protection.

While such criticism is not unfounded, it is not the whole truth. Since its reform and opening up some 40 years ago, China has been gradually opening different sectors to foreign participation. Today, while some sectors, such as commercial banking and insurance, remain relatively closed, many others are entirely open, such as consumer products, appliances, retail and automotive parts.

Though there is a 50-50 joint venture requirement for automotive manufacturing, China’s automotive market as a whole is very open in terms of products and markets. And, Beijing has just announced it will scrap the foreign ownership restrictions in the automotive manufacturing sector over five years. In the tech sector, pundits have correctly pointed out that Facebook and Twitter are blocked in China, but they forget to mention that LinkedIn, eBay, Airbnb and Amazon e-commerce are not.

Source: Google

A remarkable development in China in recent decades has been the rapid rise of entrepreneurship. Today, China’s economy is best described as a duality (state and non-state). Business innovation, often enabled by technology, is thriving, driven largely by entrepreneurial companies, such as Alibaba and Tencent, which are now some of the world’s largest by market capitalisation. Droves of young people are being entrepreneurial, aspiring to be the next Jack Ma or Pony Ma. An increasing number of fast-growing, sizeable innovative companies are emerging that have built large ecosystems of collaborative partnerships.

China has found its own development path, the “China development model”. At the top, the central government actively plans the direction of the country. At the grass-roots level, entrepreneurship is thriving, driving economic growth. In the middle, local governments compete and sometimes collaborate in clusters of cities within regions. This model has become a major source of resilience for China’s growth.

Given this evolution, corporate decision-makers need an informed and sophisticated view of the country to devise an effective China strategy.

First, their strategy requires a thorough understanding of the China context, which is evolving in a peculiar and multidimensional manner. While China’s reform has been largely gradual, changes can at times be abrupt and rapid. Too often, foreign companies enter China with a market strategy at the business-unit level, using a linear, incremental approach. By focusing on the micro conditions, they often miss the big picture.

Second, China should be at the core of any global strategy. The speed of development, uniqueness, complexity and strategic importance of China requires foreign multinationals to fully embrace China as an integral part of their strategy and organisation, not just one of many markets.

Third, companies should participate in China’s thriving innovations, rather than being bystanders due to a lack of awareness or unwillingness to take risks. Companies could consider engaging in businesses that may not be their traditional core but could provide opportunities for growth, and also form ecosystems with Chinese companies.

I am not advocating diversifying aimlessly. However, I have seen numerous cases when CEOs missed opportunities in China because they either didn’t know about them or felt they needed to focus on their “core competencies”. As a result, they also missed out on the chance to learn from Chinese consumers and the best Chinese companies.

For example, by investing in Autohome, a leading Chinese online automotive advertising platform, Telstra, an Australian telecom and media company, whose core business in China is restricted by foreign participation rules, made a profit of around US$2.5 billion in less than 10 years.

Source: Baidu

Fourth, foreign multinationals should train their China managers to be thought leaders and place them at senior levels. Too often, they treat their managers in China merely as operational people. Strategy and major decisions come from the global or regional headquarters, making it difficult for businesses to come up with an effective strategy for China.

Finally, foreign companies need to shorten their decision-making process and become more agile and flexible. After all, China is evolving fast and competition is intense. Chinese companies are known for bring fast, nimble and innovative. Foreign multinationals should become “more Chinese than the Chinese”.

The rise of China and the simultaneous development of technology are changing the country – and the rest of the world – fast. China is on the verge of a sustained, generational rise that will generate even more opportunities, and challenges, for global businesses. Foreign companies need to figure out how to deal with this.

Clamouring for equal and full market access is not entirely fruitless but that is not where the real game is being played. China will reward those who are innovative and discover new ways of creating value. This requires foreign multinationals to approach China with a different mindset.

China will continue to open up and embrace the rest of the world, perhaps not all in one go, but its direction is clear. CEOs and boards should ask themselves: “How can we capture the potential that China offers us?”

Edward Tse is founder & CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).