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China undergoing transition from world’s factory to innovation hub

world's factory, innovation hub, innovation in china

The Chinese like to remind people that they are to thank for a great many inventions, including gunpowder, the compass, printing and papermaking. Today, we'd probably refer to them as 'disruptive technologies' as they fundamentally transformed the way things were done. The reason that China is so keen to remind the world of its incredible creativity of the past is its lacklustre present-day performance.


These days, it is common for China-watchers to ask if the country can innovate as it transforms from the world's factory to a nation based on developing cutting edge science and technology? Some leading Western business people don't think the Chinese can do it.


So can the Chinese innovate? Dr Hsiao-Wuen Hon, chairman of Microsoft's Asia-Pacific R&D group certainly thinks so. "People still question this today? With the success of BAT?" (BAT refers to the three Chinese internet giants Baidu, Alibaba and Tencent).


Wuen Hon says the fact that so many multinationals, including Microsoft, set up their R&D centres in China is clear evidence that Chinese scientists and engineers can innovate.


"We invest in 3,000 people here. We contribute a lot to the development of Microsoft's global products. If we don't contribute anything in terms of innovation, why should the company invest in China? It would be totally unthinkable," he told Business Spectator. "I can say that for all the multinational companies based here in China."


Hon, an internationally recognised expert in speech technology, says the idea that Chinese companies simply copy Western technology and business models is out of date.


"Now, it is no longer true. I see some of the innovations for the first time in China. China absolutely has first-rate stuff to show the world, I would even say, in some areas, it leads the world," he says.


The veteran computer scientist says that Chinese companies are particularly good at combining, integrating and improving business models, processes and technology. A recent report by McKinsey Global Institute, titled The China Effect on Global Innovation, supports Hon's take.


The report finds China is now taking the global lead in two areas of innovation, namely in improving consumer products and in improving manufacturing processes. To take Tencent as an example, its average revenue per user was $US16 in 2014, $US10 more than Facebook. The Chinese computing giant generates most of its revenue from online gaming.


Hon also identifies two areas where the Chinese are overtaking the US: mobile internet and mobile payment. He noted: "In terms of mobile payment, more innovation will come from China."


According to Hon, Mark Zuckerberg, the founder of Facebook, is taking hints from Chinese internet giants in terms of mobile payment. There you go, a Silicon Valley giant learning from a Chinese upstart, something no one could imagine just a few years ago.


China's sheer number of consumers also help their companies to thrive. Chinese consumers are ready adopters of smart phones, social media and e-commerce. "That part I have so much confidence in, because if you look at China in terms of mobile internet usage, it is far more than anywhere else in the world. So they have an environment that is better than anyone else," he says.


"If you look at the companies that generate the most wealth, it is the ones that combine technology with better business process and models," he said. "Uber is that type of innovation."


If you are looking for signs of positive development in the world's second largest economy, the ability and enthusiasm to innovate is a good place to start.



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