Will China Become the New Silicon Valley?

China hit a milestone: A Chinese government report out Thursday said the country has about 221 million Internet users, tying China with the U.S. for the biggest national internet audience. The report also said China's internet population increased 61% in less than 18 months. At that rate, China will have 354 million net users by the end of 2009. The whole U.S. population is a little more than 300 million.

If China is destined to blow past the U.S. as an internet market, how long before China overtakes the U.S. in creating internet companies and services? All that activity, all those users, all those smart people looking at the Web and getting ideas -- surely there will be some tipping point when China becomes the center of internet innovation. Instead of the Chinese using translated Google (GOOG) and YouTube, we'll be using translated next-generation web services invented by the Chinese.

You think? Or...maybe not. China certainly has created some successful Internet companies, like Baidu (BIDU) and Alibaba. But so far they've been me-too companies, mimicking successful Silicon Valley entities. Nothing from China has yet broken new ground and washed ashore here.

Less noticed was another report out of China on Thursday: The Ministry of Industry and Information said the "electronic and information industry" in China grew 18.6% the first quarter, which is pretty good, except that it's 10 percentage points behind the national average industry growth -- and far behind the pace of increase in the nation's internet use.

Lots of things in China get in the way of a blossoming of internet entrepreneurs. U.S. venture capital has been flooding China, and Intel (INTC) just set up a $500 million China fund. Still, a typical Chinese with an Internet idea would have trouble raising money or getting a bank loan to get started -- it's just not part of the culture.

And then there's the censorship. My friend Paul Wiseman just published an insightful story about "hacktivists" who try to help fellow Chinese get around the state's internet censors. There's no question that heavy government interference unintentionally keeps a lid on internet innovation. Some people might think twice about starting a next-generation video sharing site or social network if they worry the government might have a problem with it.

On paper, China looks like it should turn Silicon Valley into an also-ran. In reality, that doesn't seem likely in the foreseeable future.

Comments

[city:]

David, seriously What would you call what Fed Ben did last 4 months ? Free market adjustment instead of panic intervention?

Come on guys; Why everything Chinese government did is always considered second rated?

What a pity you guys do not have the guts and insight to see this on going Credit crisis is the the direct result of your governemnt's policies during the last 15 years!!!

2008 Apr 25 06:56 AM

[rlirph:]

Can some one tell me any recent innovations that the Chinese has come up with?

China is a third world country with "copycat" mentality. The copycat culture permeats throughout the society. That is why you have copycat television programs, fake Rolexes, pirated DVD's, fake ID cards, counterfeited LVs and Coaches, and copied Windows softwares.

Being under Communist regimen in the past definitely stifle creativity and innovations. Just compare the Indian software industry with the Chinese. It would take China MANY years before people would think and behave differently.

2008 Apr 25 11:03 AM

[jamest:]

Each country has their own problem, I like Ron Paul, because he can tell the truth and let American wake up. Find all what he told American who most of them are brain-washed in decades:
youtube.com/results?se...=

2008 Apr 25 02:05 PM

[TopBull:]

"copycat" mentality? I would rather label it as Chinese pragmatism. When Chinese was technologically decade-behind of the West, the quickest and most economical ways for them to catch up is to adopt the most advanced technologies while skipping intermediate technology generations all together. This happened in telecommunication and Internet infrastructure advancements in China. At the same time, Chinese are adopting "asymmetrical" strategy that focuses on heavily investing in very specific areas: from genetic engineering of hybrid crops, to stem cell research, and to development of fuel efficient hybrid vehicles. When Toshiba lost high definition DVD format war to SONY, China picked up HD-DVD physical specification, integrated it into China HD DVD standard, and adopted the home grown AVS video coding format. China has home-grown DMB-TH for Mobile TV broadcasting, ChinaCrypt for media encryption, ITopHome for digital home automation, DRA (Digital Rise Audio) as MP3 alternative, China DRM Forum for open digital rights management, etc. This long list goes on. What I see is that China has a grand and coherent national strategy to advance their technological competence and to empower innovative thinking.

2008 Apr 25 02:14 PM

[Ajoy:]

China's per-capita GDP is still 1/12th that of the US. That is what
is getting in the way of innovation - not the imagined failings of a
culture or political system. Innovation will come with time as people
get richer and can afford to be different.

2008 Apr 25 05:07 PM

[Blodget ???:]

rlirph - you need to open your eyes before you open your month (or type). Maybe a trip to the Beijing Olympics will give you a little insight into the Chinese. Ignorance is not a defense.

2008 Apr 26 09:50 PM

[Shanghai Ad...:]

I have been consulting for senior Chinese management and US management in China for 6 years. China does not respect small company innovation. It does not protect IP. It pays lip service but by no means can it EVER be a Silicon Valley the way we know it. It can be a government owned Silicon Valley copycat to provide the party with revenues however. It will not make the common innovator rich though. And it will not be able to export its technology because there is NO WAY open source or open platform will ever be adopted in China. It's a closed shop oligopoly controlled by the government PERIOD.

2008 Apr 28 04:33 AM