At face value, the level of China’s foreign direct investment appears expected.
An unprecedented occurrence of the first generation, disposable wealth and a growing recognition of its historical lag in technological innovation. What else is it supposed to do?
Housing market uncertainty acts as a forcing function. Venture and private equity outlets are only natural, next options...right?
What on the surface looks like the expected evolution of a cash-rich nation lacking the undergirding of an entrepreneurial ecosystem is actually quite a bit more complex.
Consider the nature of China’s aggressive investment strategy: acquisitions drove 97% of FDI value with notable financings over the last twenty-four months including Jet.com, Airbnb, Uber, Tesla, SoFi and in targeted consumer service, FinTech, artificial intelligence, robotics and big data spaces.
There’s a pattern here.
China’s investments augment where it has formally underperformed. In effect, forward-thinking private industry and astute investors have turned the global technology hubs of New York, Silicon Valley, London, and India into a buffet for advancement. Investors and flush corporates are picking and choosing the talent, intellectual property, brand equity, infrastructure, technology and mechanisms of distribution they deem critical to the future.
Buying a place among the innovation juggernauts.
The country is taking a brilliant and systematic approach to advancement. It’s as if the country’s leading minds - recognizing the nearly unquantifiable domestic consumer market opportunity - have coalesced around the idea of erasing decades of under-investment and are buying back progress from the laggard years. Equally organized as it is audacious.
These financings and outright acquisitions mean that not only does China now possess leading products and services (plus, the contextual knowledge, culture of innovation and collective mindshare of the founders and employees) but exposes its nascent startup and investment ecosystems to the best of the best.
There is no better learning aid.
This proximity catalyzes learning and ecosystem maturity, meaning: China not only adopts leading technology and proven service offerings, it strengthens its own internal capabilities.
The FinTech story of 2015-16 offers a prime case study example.
Highwire PR called this the most repeated phrase at Money2020 2016 - the preeminent connected commerce and financial services innovation conference. The phrase represents what Citigroup declares in their latest report on digital disruption - China has officially unseated North America as the global investment leader in FinTech.
Whether this is true matters less than how it is true.
China now accounts for half of all FinTech investments globally, doubling its industry share year-over-year. The path is remarkable. 2015 marked the beginning of notable Chinese investment in US-based financial firms with Renren’s financing of SoFi, LendingHome, and stock trading website Motif Investing. Recognizing a general inferiority in its homegrown technology, China reached across the globe to build ownership, knowledge and operational scale to catapult output back home.
Taking the best and bringing it home.
What blossomed was revolutionary.
Spurred by collaborative partnerships (Alipay, the payments subsidiary of Alibaba boasts formal relationships with 200 financial institution partners), ecosystem acceleration (Standard Chartered bank teamed up with search engine behemoth Baidu to launch a FinTech program in Hong Kong) and talent targeting (the Industrial and Commercial Bank of China reportedly employs more than 10,000 FinTech engineers), China has essentially manufactured a robust FinTech industry primed for mobile and online activity among vast and dispersed markets.
Startlingly coordinated alignment and furious execution in disruption of the financial system means China has put the US on notice. China bought what takes decades to built. And is now aggressively improving and innovating.
Western startups, investors and corporate incumbents have historically had the edge. This should no longer be taken for granted.
As the world flattens and brands grow cross-cultural familiarity, Chinese companies, with the ability to seamlessly deliver services worldwide, will put customer bases of major global markets squarely in their sights.
But, it’s not just in China.
While China’s North American FDI grew 189% year-over-year, its European investments also topped $46B, representing a 90% YoY increase. Against a backdrop of over $200B in total global FDI, China is not prone to investment bias.
Obvious regional investment agnosticism means it is clearly focused on additive technology and innovation - wherever it happens to live. It's nuanced geographical approached is pronounced even within the United States. Other recent Chinese investments include Kabbage (Atlanta, Georgia), FiscalNote (Washington DC), and TiKL (Provo, Utah).
To remain the hub of startup and technology innovation and financing, the United States would do well to broaden its strategic approach. California startups are hungry for the cash of China’s newly minted millionaires. Especially those founders tired of the Sand Hill Road old-boys club feel. This isn’t going to change. Similarly, as TechInAsia notes, previously untapped rural Chinese markets are undergoing an e-commerce revolution and ready to embrace new technology. With rural internet penetration at only 30% nationally, the billions of next-gen consumers that comprise the second and third tier cities offer untold addressable market scale.
And you can bet China has plans to reach them all.
It’s said that Chinese companies are growing market share, moving up value chains and investing in know-how to drive domestic and international demand for their goods and services - the rest of the world would be wise to follow suit.