Five centuries ago, Italy led a major transformation of the world with the Renaissance. Today, we are living through another major re-birth – with one key geographical difference.
“A part of the world that had been totally marginal – politically, economically, militarily – suddenly became central to world affairs. In the Renaissance, that was Italy. Now that role has passed to China,” says Chris Kutarna, a historian and co-author of the best-seller “Age of Discovery”.
Just as it did 500 years ago, trade has played a key part in the shifting fates of global powers. Back then, new ocean navigation technology moved the focus – and money – away from the Silk Road to coastal cities like Seville. Over the past three decades, a similar shift has taken place.
“Back in 1990 there wasn’t a single commercial port, sea or air, in the top 20 in China, and now the majority of them are there, for trade or travel,” Kutarna says. “There has also been a pretty dramatic shift in the mix of trade… In 1995, China was importing computers and sending textiles, and now it is more or less the opposite.”
Over the past three decades, China’s share of world domestic product (GDP) has grown from 4.1 per cent to 18.7 per cent.1 Now it is working towards a transition from manufacturing to technology, as well as from fossil fuels and heavy pollution to clean energy and clean air.
Fostering unicorns
Key to its success has been specialisation – choosing specific areas to focus on, and concentrating expertise in innovation hubs.
“Florence had more artistic masters than the rest of Europe combined. So if you were an aspiring artist you needed to get yourself to Florence. Today in some ways location seems irrelevant, but actually in terms of the creation of new knowledge, the concentration is more important than ever,” Kutarna notes. “One thing China has done quite deliberately is try to create areas of both geographical and sectoral concentration – recognising that they need to build up a certain critical mass to be relevant.”
Beijing, for example, is already home to well over a thousand companies specialising in artificial intelligence (AI)2 – an area singled out by the government for accelerated development in its ambitious “Made in China 2025” strategic plan.
Last year, 48 per cent of equity funding for AI start-ups globally came from China, compared with 38 per cent from the US.3 The Asian powerhouse has also already overtaken the US in terms of the number of unicorns – startups worth more than USD1 billion.4
The launch of a new Nasdaq-style stock exchange in Beijing in July has opened up a new funding route for China’s tech firms. More investment and more initiatives are likely in the coming months and years as China moves towards its goal of 70 per cent self-sufficiency in a number of key areas, including robotics and information technology.
Powerful backing
China’s unicorns have one key advantage over their US peers – many are owned by an existing tech behemoth, such as Baidu, Alibaba or Tencent. That opens up an easy gateway to the Internet with a huge user base, drastically reducing customer acquisition costs and opening up a large potential market from day one. This is a luxury which few American based techs start-ups can exploit.
Another key advantage is access to data. In China, where the economic system combines private and state enterprise, information is more easily collected and more easily available than in most developed economies.
“The more, better quality, data you have, the better value the algorithm will be,” says Kutarna, who spent several years living and working in Beijing.
The nature of China’s government makes it easier to stick to multi-year and even multi-decade plans, compared to the more frequent changes of government and political direction seen in the developed world. This long-term, strategic approach makes it easier to drive innovation in tech and other areas of official focus, such as clean energy.
In 2017, China installed some 53GW of solar energy – more than the whole of the world put together did three years earlier – as well as initiating 13 off-shore wind projects. In total, it invested USD12.6 billion in renewable energy, or 45 per cent of the annual global total – up from 35 per cent a year earlier.5
“Normally, forward thinking on the environment is driven by its resource endowment. China has very poor fossil fuel endowment, if you don’t count very dirty coal. It is a massive oil importer,” says Kutarna, whose doctorate at Oxford University focused on Chinese politics.
“If there is a replacements for oil, it will turn one of their strategic weaknesses into a strength. So it was not hard to sell the renewable energy idea to the communist party.”
Success, however, brings its own challenges. China’s resolve will be tested, particularly as it transitions to a period of slower economic growth, which will make it tougher to fund new initiatives.
During the voyages of discovery in the Renaissance, goods traversed the world – but so did diseases. And, while the advent of printed books made reading accessible to the masses, it also accelerated the pace of revolutionary ideas and led to political upheaval.
“China is going to run into a pretty difficult suite of challenges over the next 20-30 years,” Kutarna concludes. “It is important to deflate the myth that Renaissance is a golden age. I think of it is a contest for the future with high stakes. Either we are going to harness the energy or it is going to tear us apart.”
[1] IMF, world GDP calculated in USD and based on purchasing power parity[2] Startup Genome, 2019
[3] CB Insights, 2019
[4] CB Insights
[5] Frankfurt School-UNEP Centre and BNEF, Global Trends in Renewable Energy Investment 2018
