For all intents and purposes, China plus the US is essentially the entire tech market. From a value perspective, the two countries have 90 percent of the value of all unicorns. 87 percent of articles on deep learning come from scientists in one country or the other, or sometimes both. More than 90 percent of the venture capital dollars come from the two countries. So basically the rest of the world has almost become a rounding error.
I’m going to plug a book, Kai Fu Lee’s AI Superpowers. I think it’s fantastic. Everyone should read it. In a nutshell, China is all about speed and execution. So big scale and nimble founders. Whereas the US really focuses on strategy and product. They take time to find product-market fit. Incrementally improve things. Whereas China really is just about scale. And specifically it’s about data scale and application.
That was Eric Rosenblum on the Venture Stories Podcast, “Investing in Chinese Companies.” Here were some other interesting parts:
Our big learning for this playbook, is that the US CIO [chief information officer] views their job as defensive. They’re there to make sure by God you won’t destroy their production stack. They’ll put you through security review, legal review, performance review, until you finally get the enterprise contract.
A Chinese CIO views their job as strategic. They’re there to find small advantages to make the company move a little faster, be a bit better.
In other words, CIOs in the US are more risk averse. Sounds a lot like how we tend to view the distinction between government and commercial tech. Rosenblum is pretty dovish on China, which makes sense since he lived there and has significant financial interests in US-China business. I’m likely more hawkish on China because of my work and background. But generally I think of it as being prepared for systemic risks.
The following is very interesting:
I believe the core of our anxiety [with China] is commercial competition… I think about it as Google vs. Comcast. Comcast creates monopolies and keeps everybody out of their territory and tries to get government to regulate away competition. Whereas Google in general supports open standards and believes they will beat everybody in the end. I hate to see the US turn into the Comcast of the competition world.
I think there’s some wisdom there. Adam Smith said a country should not use tariffs even if other countries are. I guess the corollary is not to subsidize particular domestic industries even if other countries are giving subsidies. But that’s a hard pill to swallow when China bans US tech firms from its markets but demands that its own firm have unfettered access to the US. Or that it has lax environmental and labor regulations allowing it to monopolize many areas of mining and manufacturing. Yes, US firms should respond by increasing productivity by enough to remain competitive, but it’s so much easier to off-shore the work and that’s what a focus on next quarter’s earnings gets you.
Here’s Rosenblum talking about the underlying reason there’s a relative lack of deep tech investment in the US:
China’s got a much larger manufacturing sector, and ancillary sectors — logistics is 2 percent of the US economy, but 12 percent of the Chinese economy. Anything like robotics and automation and manufacturing process will be much bigger there. And on top of that there is a funding environment that is more receptive to these types of deals, so you can find customers and partners there more easily.
Leave a Reply