China is building the world’s largest innovation economy


China is on its way to becoming the world’s largest economy.

In a single generation, some 300 million and more people have moved from rural subsistence farming to urban industrial and technological jobs. This transition from rural poverty to export power to consumer goliath may be the most important economic event for centuries.

Yet this story is largely ignored in the United States and much of Europe. We hear about a few projects here and there, but we do not understand the magnitude.

Venture capital investment

On one dollar of exports per population, China exports the United States at $ 2.263 billion. Yet the United States comes second, Germany third with $ 1.448 billion, and the Netherlands, with a population of just 17 million, exports $ 652 billion.

Beijing sees this same data and realizes that its leadership is not guaranteed. China needs to develop its own technology, and through a combination of government decrees and profit-seeking, it is right now in a major effort to build its own innovation economy.

Beijing is forcing money into venture capital at an astonishing rate.

Peter Diamandis totaled the numbers last month.

At the end of 2017, 3,418 Chinese venture capital funds were launched during the year, raising a total of US $ 243 billion or RMB 1.61 trillion.

Of the $ 154 billion in venture capital invested in 2017, 40% came from Asian (mostly Chinese) venture capitalists. America’s share? Only 4 percentage points higher at 44 percent.

In the first three quarters of 2017, 493 state-supported funds were established with a capital of 114 billion USD (756.8 billion RMB).

And two years earlier, Chinese venture capital coffers had surpassed the remarkable US $ 336.4 billion.

In a great effort to reclaim intellectual property and spur growth in key technology sectors, China’s venture capital scene is booming.

By 2016, Chinese venture capital investments had roughly caught up to US levels. Now it’s probably early.


Peter Diamandis says Chinese venture capital firms are targeting three segments: robotics, driverless vehicles and biotechnology.

Silicon Valley on steroids

There is yet another deep development in China underway.

Financial Time Recently, Beijing announced its intention to integrate the former western colonies of Hong Kong and Macao with other neighboring urban areas, notably Shenzhen and Guangzhou, in this “great bay area”.

Already, it represents 12% of Chinese GDP and 37% of the country’s exports. Beijing wants the GBA to lead the country’s innovation and economic growth.

To this end, the government is investing in infrastructure in the region, including a 35 km bridge connecting Hong Kong and Macau (not cheap!) To the mainland and a new $ 11 billion rail link to Hong Kong. It also plans to remove some of the bureaucratic barriers that are currently slowing trade.

The size of this region is difficult to understand. With nearly 70 million people and $ 1.5 trillion in GDP, it is economically larger than Australia or Mexico. Guangdong (the part of mainland China) alone exported $ 670 billion in goods last year. Three of the ten busiest container ports in the world are in the region. It will be Silicon Valley on steroids.

Besides, it could be the United States on steroids, at least geographically.

Growing scientific contribution

China has produced more scientists and engineers for decades than the West has assembled. By way of graphic illustration, here are the countries with the most STEM graduates:

However, many of us had suspicions about the quality of universities and their degrees. They couldn’t be as good as ours, could they? It turns out that they are comparable and maybe even better in some areas.

A recent study found that in 2016, around 24% of scientific papers had an author with a Chinese name or address. If you include articles in Chinese, it jumps to 37%.

Seen from another perspective, China has 15% of global GDP but produces more than a third scientific articles. It looks like these college degrees are starting to pay off in actual research.

China has everything it needs

New York Times bestseller Matt Ridley claims that human progress and prosperity take the greatest leaps when “ideas have sex with each other.” This creative process takes place more quickly and easily when the carriers of ideas share a closeness.

In the United States, Silicon Valley is often used for this purpose. With Austin, Dallas, Boston, New York and others.

China has abundant venture capital to fund research and a large number of researchers who develop ideas. It takes a central place for these ideas to have frequent sex with each other.

The Chinese government is aware of this. And with massive infrastructure projects like the Great Bay region, China is gradually building its own innovation hub.

Economic growth is largely a numbers game: workers multiply productivity. China already has both ingredients and is working diligently to improve them further.

For now, the United States is still ahead, but we shouldn’t be complacent. Nothing requires the global economy to keep us ahead, and we are not doing what we should to keep it.

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