China’s tech industry is catching up with Silicon Valley

The technology industry is the crowning glory of America’s economy. It supports 7-million well-paid jobs at home, and allows America to set standards globally.

Silicon Valley generates almost $200-billion of profits from abroad each year, several times the benefit that America gets from having the world’s reserve currency. But after losing its lead in exports and manufacturing, is America’s tech supremacy now under threat from China?

For years Silicon Valley dismissed Chinese tech firms—first as an irrelevance, then as industrial spies and copycats. Most recently China has been seen as a tech Galapagos, where unique species thrive than would never spread abroad. But as our Schumpeter column explains this week, China’s technology industry has been catching up far faster than expected. American venture capitalists return from trips to China blown away by its energy. China’s government has set a goal of becoming dominant in artificial intelligence by 2030.

China still has huge weaknesses. Its tech firms are only worth about a third as much as America’s, and their investment budgets pale in comparison with those in the United States. They generate relatively little revenue abroad, and are puny in semiconductors and business-related software. Moreover, Chinese companies in other industries make less intense use of technology products than their American counterparts do. And although China does have two giant tech firms in Tencent and Alibaba, as well as lots of small ones, it has relatively few mid-sized companies in the range of $50-$400bn.

Nonetheless, China is now approaching parity on the most forward-looking measures. In e-commerce and mobile payments, its industry is now bigger than America’s. Its universe of “unicorns” (unlisted firms worth over $1bn) is almost as large, as is its venture-capital sector. Both are proxies for China’s ability to produce tomorrow’s giant firms. And in cutting-edge areas such as facial and speech recognition, China now has recognised leaders. There are even some signs that it is catching up in hard science: it has produced nearly as many papers on artificial intelligence cited by parties other than their author as America has.

At its present pace, China is still 10-15 years away from reaching tech parity with America. But for American tech firms, the time to get paranoid is now.

Source: The Economist

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