Vivek Wadhwa: China is NOT the new Silicon Valley

While William Bao Bean said in a recent interview that we should Expect More Digital Garages in China, Vivek Wadhwa disagrees, asserting that China is not innovating and has still has not moved beyond copycat status.

“China is simply unable to innovate,” said Wadhwa, a Harvard fellow and Duke University professor. A former technology entrepreneur, Wadhwa now specializes in studying business creativity and innovation.

China’s tech economy is built on copycats that totally lack any sort of innovation, particularly given the amount of money spent on research and development by companies and the government in China, Wadhwa said.

As to Bao Bean’s assertion that creativity and digital garages will be inspired in part by the high level of investment brought in by foreign venture capitalists, Wadhwa said: “There is a lot of money being wasted by a lot of VCs in China.”

China’s younger generation is extremely creative, but those running China’s research and development are not bringing anything new, Wadhwa said.

Asked for numbers to back this assertion, Wadhwa said that the numbers tell the exact opposite story. China files a large number of patents and produces a large number of research-related papers, but there are few actual innovations coming out.

Nonetheless, those good number hide a total lack of creativity, based on Wadhwa’s qualitative analysis.

Wadhwa said the exact opposite seems to be true in India, where relatively little is invested in research and development. India has fewer patents and papers than China, but the country is building itself into a innovation powerhouse.

The fundamental difference, Wadhwa said, is that Indian engineers are encouraged to think beyond their narrow role and build more innovation into their activities.

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30 comments

  1. Boatload of nonsense! Yes, China is traditionally and culturally more geared towards copycat behavior. Emperors of the past even encouraged it, to help spread best practice in agriculture; which is not that different under the current government.

    But there’s plenty of innovation coming out of China today. Maybe the only thing lacking in China’s innovation spectrum is exposure (in pure comparison to the US). But then again; isn’t India as well?

  2. John G

    This guy has hit the nail on the head. I know the VC’s want to believe they can’t be wrong, but nearly all of their companies fail.

    Can anyone list the innovations they believe are coming out of China. I have never heard of any. Name one.

  3. hahaha

    This from an Indian!

  4. bob

    What has India done beyond IT support?

    Let’s get an impartial person in the room please, this guy is from India…

  5. bob

    John G

    China solar, IC design, semiconductor equipment, Internet (in particular, video streaming), stem cell, for example, are ahead of the usual growth curve.

    Since a sizable percentage of US engineers come from China, the same results are reproducible inside China, especially now.

  6. bob

    India will continue to be constrained to the IT support sector until it can produce some real talent:

    Algorithm contests rankings by country from TopCoder –
    1 Russian Federation 608 2973.31
    2 Poland 366 2901.36
    3 China 4158 2763.55
    4 Ukraine 200 2521.25
    5 Canada 134 2493.85
    6 United States 556 2411.90
    7 Japan 184 2307.91
    8 Slovakia 51 2266.22
    9 Netherlands 27 2252.96
    10 South Korea 129 2202.28
    11 Germany 57 2174.63
    12 Belarus 111 2144.45
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    15 India 1016 1968.30
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    19 Sweden 26 1921.19
    20 Viet Nam 37 1915.79

  7. Craig

    So what he is saying is that the numbers say a lot of innovation is coming from China, but *he feels* the country is not innovative.

    A lot of people, particularly in the US, will be very surprised over the next few years that China has ‘all of a sudden’ switched from being a copycat to being innovative.

  8. John G

    Bob, you have listed a whole series of things but what have they done that is innovative? Solar? IC design?, semiconductor equipment?

    Where’s the beef?

    This guy seems to have hurt Chinese nationalism. Please detail where the innovations are. Not one invention. Not one innovative company. Not one breakthrough. Not one technology.

    I don’t think we are debating Chinese engineers in America. This discussion is about China.

  9. nicolas

    Well, he has stirred up a hornets nest.
    If we look at just the Internet in terms of innovation, there is a hell of a lot of business strategy and process innovation happening in China.

    I think the big problem is that most people just don;t read chinese so can’t see how it works. People should read a paper presented on this BY Benjamin Joffe (www.plus8star.com) where he essentially argues, in the context of tencent, naver and miixi) that a lot of innovation is ignored because 1. Westerners can;t read chinese so can;t see it 2. it look funny therefore is just alien and not ‘real’ innovation.

  10. william bao bean

    Mr Wadhwa:

    I disagree with many of your statements and also believe its intellectually irresponsible to make such gross generalizations.

    Perhaps it would better serve the dialogue to give an example of innovation in China.

    The global video game market is a big market, expected to hit US$46.5bn by 2010. Video games in China are very popular. However game accounts have always been prone to hacking. To solve this problem companies such as The9 (NASDAQ NCTY) and Shanda (NASDAQ SNDA) have developed new anti-fraud measures that make it very hard to steal an account. Much stronger protections than on ones internet banking access. I think this is very innovative and other do as well – now game operators in other countries are adopting similar protections

    Thanks,
    William

  11. YB

    William, your example is incredibly weak. You are citing roughly one of the ONLY innovations that have come out of Chinese game companies, most of which have been very busy simply trying to copy World of Warcraft, more or less. I see very few online game projects that have a different premise, and I see VERY, VERY few innovative game designs (from being in the industry myself).

    Whether you are talking about Chinese game companies, or international ones setting up shop here: lack of creativity has been such a problem for them that to this day they STILL need to import talent from overseas.

    At the same time, why not ask yourself how come companies like Shanda, who have money to burn, are, __themselves__ complaining that they are unable to spend that money on purchasing interesting game concepts made in China, because there AREN’T any (worth their asking price, at the very least).

  12. YB

    And I have to add: isn’t it very ironic that the best example of innovation/creativity cited as coming from a GAME company is not related in any way to a game design ? Or is that also part of the innovative framework; to work on everything and nothing at the same time ? 😉

  13. william bao bean

    Thanks for your comments.

    I’m simply trying to show that the statement that there is “no innovation” coming out of china is fallacious. There is innovation.

    I didnt say its the best example. It was in fact the first one that popped to mind.

    Also I never said there wasnt copying going on, just that there is innovation happening.

    I think you are taking a very narrow view of innovation. Just because one is not revolutionizing an industry does not mean one is not innovating. The9 is not in the game design business, it is a game operator and its innovation comes there. Think back to Dell. It used to churn out hundreds of innovations and got hundreds of patents. However, very few were in the area of computing. They were mainly for logistics and the build-to-order model, an area which they innovated heavily. Just because The9 and Dell didn’t innovate on the product side does not mean they were/are not innovative.

    On Shanda, I agree that they complained about lack of local product. The key thing is what they did next. They started investing in numerous local game startups. This strategy is now paying dividends.

    I’ll give another example. I believe that Youtube was pretty innovative in what they have done although I admit one can argue otherwise. People outside of China don’t generally know this but Tudou launched before Youtube and according to comscore and nielsen Tudou has much more traffic. In fact Tudou solves a much larger problem for Chinese consumers than Youtube did for its original audience in the US in that Tudou provides all sorts of video entertainment, much of it now finally licensed, in a country where broadcast TV is pretty boring while Youtube has traditionally and still is mostly UGC, a more niche area.

    It will likely take some time before a ground shaking piece of technology or design comes along that fits a narrow definition of what constitutes a “real” innovation. But to say that “China is simply unable to innovate,” is ridiculous. There is plenty of innovation happening here and I believe that there will be more digital garages popping up here in China as the infrastructure around entrepreneurs improves.

    Hope this helps
    William

  14. John G

    I find it hilarious that the only example anyone can site here is some mystical paper written in Chinese and some game fraud protection scheme!!

    Come on William get real here. You call yourself a venture capitalist and make big statements about expecting more digital garages in China. And this is the best you can come up with!!

    The Chinese aren’t revolutionizing any industry; they are revolutionizing industrial theft!!

    The sad part here is that venture capitalists like you seem to be funding all this. You see quick profits by copying western technologies and pretend there is some innovation that behind your investments.

    Can any other venture capitalist tell me what true innovation is coming from the billions they are investing in China?! Let’s have some real examples rather than generalising.

    Let’s not get nationalistic here, lets deal with facts. LIST THE INNOVATIONS if you can find any!!

    What the Professor said on the video is that China is imitating, not innovating. Prove him wrong if you can!!

  15. YB

    Not a bad point. After all, what we’re debating is whether China is “the next silicon valley” or not. Of course there’s innovation coming out of China, I’d never say there isn’t.

    But the question is, is innovation at the basis of what’s being done here? I don’t think so. And, are we seeing the seeds being planted for this to happen yet? I’m not too sure of that either.

    And the Tudou point comes back to what i’m saying: are they really innovating? Or is it just that the pie is up for grabs? As for Shenda having invested in local developers, truth is, there’s been very little of that, and very little “pay off”, as far as I know. Why aren’t they venturing out on the international market? After all, I believe they have enough capital to make a little venture… could it be that they are not innovative enough to adapt to other markets ? Look at Baidu in Japan… more of a joke than anything else, really.

    There’s another point that’s kinda bugging me about this whole China/Silicon Valley/Cambridge/etc. comparison:

    Why is no one talking about China being the next Japan, still ? I would think there’s LOTS, LOTS more in common between China and Japan, both culturally, historically, socially, and economically, than between China and Silicon Valley ! Could it be purely out of western self-centeredness? After all, Silicon Valley is not necessarily THE world’s hotbed of innovation (well, maybe for westerners who don’t speak Japanese… ?)

    I think that’s another point worth debating as well !

  16. Adam

    Go to China, open your eyes. What about Focus Media. Maybe the idea wasn’t entirely original, but I haven’t seen the same thing on this scale anywhere else in the world. And before you say that this is just an application, I would ask how many microprocessors, computer operating systems or programming languages has India spawned?

    Even small things make a difference. Take the “star” rating system used by the better taxi companies in Shanghai. When I am there, I know at a glance if a taxi driver is a seasoned pro or just arrived from Anhui. How about mobile phones with two SIM card slots? I haven’t seen these many places outside of China, but they are a popular here as a way to avoid roaming charges on trips to HK/Macau or even to the next province. There are a huge number of these small adaptive innovations all over China.

    The fact that China hasn’t spawned a Google or a Microsoft is more a reflection of the market rather than the creativity of China’s engineers and entreprenuers. China does have world beating companies, but they aren’t always in the most visible or sexy sectors. Check out the development of China International Marine Container (CIMC) if you are in any doubt. You may argue that manufacturing shipping containers does not make the cut in terms of innovation, but you would be wrong.

  17. YB

    Sorry, who are you asking to go to China exactly? Because personally I’m right here… working in, and hanging out with people who work in, and cover high-tech industries…

    Mobile phoes with 2 simcards have existed for a LONG while, and Samsung was making them way before chinese manufacturers, so you can chalk that one up to copying. Again, small adaptive innovations for the market are great. But they don’t make the place a hot-bed of world-changing, disruptive innovation. Focus Media, you’re right, i’ve never seen it on such a large scale. But i have to say again, there’s no innovation there, it’s just a question of market conditions, of the pie being up for grabs.

    I think we can all agree that some of China’s biggest companies involved in tech include Lenovo, Haier (to some degree), and China Mobile, those are often cited. Lenovo bought over IBM, and managed to drive it down. As for the other 2, they’re remaining very quiet outside of China, and their technological advances (as debated above), have been somewhat dubious.

    Now, let’s say i DO argue that manufacturing shipping containers does not make the cut in terms of innovation (but rather, it’s simply a question of low cost of the labor and steel), how would I be wrong?

  18. Mr. Bean, I’ve been traveling (to Hong Kong and Europe) and have only just had a chance to read all these postings.

    I take issue with your statement that I am being “intellectually irresponsible to make such gross generalizations”. I challenge you to prove me wrong by listing the innovations that are coming out of China…not generalizations or examples of where you expect to make money, but true innovations. Not ideas “taken” from the West and adapted to local needs… but new ideas that contribute to productivity or do good for the world.

    Surely if you can make big statements about how you are seeing real innovation and how you expect to see more “digital garages”, you can substantiate your comments. So please do as others here have suggested, list some real examples!

    I agree that there are large amounts of venture capital now available in China. VC’s see tremendous financial opportunities and they go where the money is. But as you know, VC’s don’t usually make their money from innovation. Their only focus is on delivering substantial returns to their investors.

    I started researching globalization by taking commonly accepted measures at face value. Measures such as engineering graduation rates, patent filings and academic publications. If you read some of my BusinessWeek columns, academic papers, or some of the press interviews I gave when I started my research, you’ll see that I was ready to declare China the winner in the R&D race. By all measures, India should have been falling off the map and the U.S. should have been in serious trouble.

    But after visiting China and India several times and meeting over 150 MNC’s and local companies in these countries, I was shocked to learn what was really happening — that the vast majority of Chinese R&D was based on “cloning” western inventions, and that India was rapidly becoming a global R&D hub (and believe it or not, this goes well beyond IT).

    There are some very bright and highly motivated people in China who are really creative and can innovate. But these people are usually stifled by the system. They don’t usually have the “connections” to get the support and funding they need.

    Why don’t you read some of the research papers on my website — http://www.globalizationresearch.com.

    The last paper we published was on the globalization of the pharma industry. It shows how despite the massive advantage that China has in infrastructure, government investment, VC investment, etc., etc., India is leading in the highest value segments of the pharmaceutical global value chain.

    We will also be publishing a series of papers on other industries which shows a similar trend. My next paper tries to solve the puzzle of how or why India is succeeding. Hint: it has to do with private enterprise being really innovative in working around the deficiencies of the education system and weak infrastructure.

    Bottom line on innovation: you can’t buy or mandate it. You need free markets, open-minded and creative individuals and risk taking.

  19. william bao bean

    Mr Wadhwa:

    You stated that there is “no innovation coming out of China.” I’m sorry but I challenge you to back up that statement. I do think that its a gross generalization and irresponsible.

    I’ll repeat what I said above – innovation is increasingly coming. I’ll also repeat some examples I mentioned above. I think online video sharing is pretty innovative – Tudou predated Youtube. I believe that fraud prevention systems that make online microtransactions possible in emerging markets where people don’t have bank accounts or credit cards is innovative and applicable on a broad scale. Before this innovation there was no real video game business in emerging markets owing to rampant piracy. These systems are being used across SE Asia and in other emerging markets ie Russia and South America. I believe that what Tencent has done in driving social networking and interaction on top of its IM platform is innovative. In fact its being licensed to the likes of AOL and others.

    I think these are real innovations?. Do you agree or do you think this is repurposing?

    As for digital garages, as I said I believe that we will see more of them in China as the infrastructure for entrepreneurs builds up. I’m talking about the solid beginnings of an environment where innovation can thrive. China is importantly becoming a place where the ingredients are increasingly there for innovation to happen – mentors, cash and as you say free markets, open minded and creative individuals and an appetite for risk. As a result the number of startups is ballooning.

    Perhaps you should listen again to what I had to say to Thomas in the podcast. http://www.thomascrampton.com/china/william-bao-bean-expect-more-digital-garages-in-china/

    Everyone knows about the cloning and copying. Thats old news and has been done by every “nation” since way before the invention of gunpowder. What is interesting is the change at the margin. What is happening now and in the future. Change is afoot.

    I also suggest you spend more time in the countries you are writing about, talk to more companies and smaller companies and try and get closer to the markets. I think you will better understand that saying there is “no innovation in China” is just not true.

    And thanks for the invitation. I’ll check out your research.

  20. William, what I have said is that for the hundreds of billions being invested by the Chinese government and others in R&D and associated infrastructure, there is little innovation to show. I don’t know how factual your claims are about Tudou predating Youtube — if this is true then Youtube’s patents should be challenged and they should owe royalties to Tudou. I also don’t know what the basis of the fraud prevention patents you refer to — whether these actually infringe on patents filed by others.

    But let’s give the entrepreneurs behind these credit for doing something innovative.

    Is this all that China has to show for the massive investments it has made? This is all the innovation you get for tens of billions of venture capital?

    I have spent substantial time in China and India and I have spoken to hundreds of key players in these countries.

    What academics in China told me was that the vast majority of the academic papers they see being filed in their country are plagiarized. They say that they have to pay significant kickbacks to get research funding.

    What investors have told me is that the vast majority of R&D they see isn’t original. It seems to be an open secret that the companies which VC’s like you are funding may be violating international IP laws, but it is convenient for you to turn a blind eye to this.

    What MNC’s have told me is that nearly all of the R&D they are doing in China is focused on adapting their products to the Chinese market. Other than a handful of companies like Microsoft and Agilent who are doing global R&D in their Chinese offices on a very small scale, no one seems to be doing the types of R&D that they are in India.

    I met some entrepreneurs…many of who were as bright and as innovative as those you see in Silicon Valley. But they complained that the system prevented them from achieving success. I am sure you know what this means.

    What Chinese government officials said to me is that that they agree with my assessment and are concerned about the lack of innovation in their country. Their solution is to try to attract returnees from abroad who can innovate and to encourage foreign companies to move R&D there so they can educate the Chinese workforce.

    I believe there will be innovation coming out of China in the future and that China has already achieved some amazing feats. But let’s not fool ourselves and pretend that we are anywhere close to having the culture and vitality of Silicon Valley or that we are witnessing any significant innovation at present.

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  22. william bao bean

    Some thoughts…

    William, what I have said is that for the hundreds of billions being invested by the Chinese government and others in R&D and associated infrastructure, there is little innovation to show.
    ***actually what you said in your interview is there is no innovation coming out of china. anyway, as for the 100s of billions invested by the government no argument there that there is not much innovation coming from it, the innovation that does exist is coming out of the private sector

    I don’t know how factual your claims are about Tudou predating Youtube — if this is true then Youtube’s patents should be challenged and they should owe royalties to Tudou.
    ***Wikipedia is not the be all end all but tudou launched april 15th 2005 while youtube didnt preview until may 2005 and didnt fully launch until november 2005 http://en.wikipedia.org/wiki/YouTube
    http://en.wikipedia.org/wiki/Tudou
    As for patents I think you should try some different measures, while measurable they are not very good proxy for innovation in China where oft times companies rely on speed rather than patents.

    I also don’t know what the basis of the fraud prevention patents you refer to — whether these actually infringe on patents filed by others.
    ***I never said the fraud prevention system was patented. Does innovation have to be patented?

    But let’s give the entrepreneurs behind these credit for doing something innovative.
    ***I agree

    Is this all that China has to show for the massive investments it has made? This is all the innovation you get for tens of billions of venture capital?
    ***In all of 2007 only US$3.25bn was invested by VCs in China, according to zero2ipo. Chinaventure puts it at US$3.59. I believe most venture capital funding is not targeting innovation as it does in the US but this is slowly changing.

    I have spent substantial time in China and India and I have spoken to hundreds of key players in these countries. What academics in China told me was that the vast majority of the academic papers they see being filed in their country are plagiarized. They say that they have to pay significant kickbacks to get research funding.
    ***No arguement there. The real action happens outside the classroom. Many profs have their own companies and I have heard of and seen, although this is only anecdotal, that many profs require their students to work for free in their companies.

    What investors have told me is that the vast majority of R&D they see isn’t original. It seems to be an open secret that the companies which VC’s like you are funding may be violating international IP laws, but it is convenient for you to turn a blind eye to this.
    ***I have seen this anecdotally but cant speak for the industry overall. This is true of many companies globally. I worked with a public company called Immersion (NASDAQ IMMR) in the valley who developed some patents, acquired others and has successfully sued Microsoft, Sony and in the future likely Nintendo for the Wii. I would liken the China model to that of the big three console makers – build a product and business first and figure the rest out later.

    What MNC’s have told me is that nearly all of the R&D they are doing in China is focused on adapting their products to the Chinese market. Other than a handful of companies like Microsoft and Agilent who are doing global R&D in their Chinese offices on a very small scale, no one seems to be doing the types of R&D that they are in India.
    ***You are the expert here, I haven’t tracked the MNCs and the difference between what they say they are doing and what they are actually doing.

    I met some entrepreneurs…many of who were as bright and as innovative as those you see in Silicon Valley. But they complained that the system prevented them from achieving success. I am sure you know what this means.
    ***Agree that the system could improve but there are scores of entrepreneurs that are bright and innovative as well as successful in spite of the system. Overcoming local barriers is key in any market. In the US you need 10x or more money versus that required to start a company in China, I would say thats a pretty daunting systemic challenge for entrepreneurs in spite of the larger market size.

    What Chinese government officials said to me is that that they agree with my assessment and are concerned about the lack of innovation in their country. Their solution is to try to attract returnees from abroad who can innovate and to encourage foreign companies to move R&D there so they can educate the Chinese workforce.
    ***I would take that with a grain of salt.

    I believe there will be innovation coming out of China in the future and that China has already achieved some amazing feats. But let’s not fool ourselves and pretend that we are anywhere close to having the culture and vitality of Silicon Valley or that we are witnessing any significant innovation at present.
    ***Appreciate you coming around here. I dont pretend that we are close to having the culture and vitality of the valley or even significant innovation. I never said that. What we have is a growing number of the ingredients required to create an environment such as in the valley. Talent, VCs, angels, lawyers, etc. We are also seeing, for the first time in a long time, some true innovations.

    Grab a coffee when you are next in china

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  24. CMC

    During the past 100 years, you could count the amount of original products to come out of China on one hand. If you actually live here and do business here like I do, you would see for yourself that there is not one technology China has that they haven’t copied from the west. It’s completely shameless. No intellectual property laws here. Even Chinese people know this and just shrug their shoulders. Why should we innovate when some other Chinese will just copy us they think. I spent more on my car than these huge companies spend on R&D.

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  27. Nonetheless, those good number hide a total lack of creativity, based on Wadhwa’s qualitative analysis.

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