Rise of China’s startups – a close look at China’s startup ecosystem
China is on the rise, and so are its startups. Breathtaking technological advances are made in Asia’s emerging power hub, a progress German companies cannot ignore. For that reason StartUp AsiaBerlin (SUAB), a German-Asian entrepreneurship platform with the aim of connecting startup ecosystems, hosted a delegation trip to China and Hong Kong in early March 2019. Exploring Smart City, Mobility, and Urban Innovation solutions, the participating entrepreneurs and ecosystem builders gained valuable insights into the startup ecosystem and its sectors in China.
The delegation was organized by enpact‘s, Oleksandra Kovbasko and Colette Beukman, who were accompanied by Ms. Sabine Yang-Schmidt, the Chief Representative of the Berlin’s Senate Department for Economics, Energy and Public Enterprises. Among the delegates were the German Energy Agency (DENA), TU Berlin, and representatives from the German Chamber of Commerce.
As part of the programme, delegates were invited to startup incubators and accelerators in Beijing, Shenzhen, and Hong Kong to better understand the startup ecosystem and investment culture in China. The delegation also visited AI unicorns Sensetime and Terminus, and large corporates including Huaiwei and BYD, where they networked, learned about the progress of smart city technologies, and discussed potential partnerships.
Key insights from the trip
The Chinese market for startups is rapidly growing in size and interest
The size of the Chinese market for startups and venture capital is growing. As of 2018, China is the biggest venture capital market in Asia, and has the highest number of unicorns in the tech industry since 2012. The Chinese market ranked third in terms of potential for German companies. Due to digitalisation, high scalability, and efficacy, China is interesting for entrepreneurs and startups, especially in e-commerce and mobility.
“As China is the fastest growing market in Asia, it is important for us to understand how the country fits into the bigger picture of what we do in terms of disrupting commodity trading in the coffee industry”, said Kike Morales, Head of Roasting at Bonaverde. “China is one of the main coffee producers, and it is key to the expansion of our IoT platform into the Asian market, to build product awareness so that consumers are informed about how their consumption is directly impacting the lives of farmers.”
For startups like Bonaverde, getting Chinese investors on board is crucial for them to make an impact globally as they bridge the gap between markets in Asia and Europe. Through their IoT platform, Bonaverde is looking at providing relevant data for policymakers to make better and more informed decisions about the coffee commodity industry.
Governments and universities are the main drivers of startups in the tech industry
The major incubators and accelerators in China are affiliated with universities. Innoway, the government-backed start up village, is located at the heart of Zhongguancun and surrounded by Beijing’s top institutions, Peking University and Tsinghua University. With the aim of fostering entrepreneurship and offering a platform for an open exchange between global players and the innovation ecosystem in China, Innoway has successfully incubated 2900 startups and raised a total of 9.1 billion RMB. In Shenzhen and Hong Kong, large incubators and accelerators including the Hong Kong Science and Technology Park are teaming up with industrial partners such as Huawei and with large government-funded programs to attract promising startups and potential investors in the five tech clusters (green tech, biotech, electronics, material and precision engineering, ICT.)
Michael Zhang, CEO of MXC in Shanghai, said, “the government has a monopoly on all things smart city. They are the main investors and controllers of big data and smart city systems with large corporates such as Sensetime, Terminus, and Huawei. They are also the main drivers of the startup ecosystem in the country”. Although startups in China and HK receive large government subsidies and grants, they are also expected to become profitable after a couple of years or risk losing out to the stiff competition.
Culture and legal framework play an important role in the success of entrepreneurship
The key to successful entrepreneurship in China lies in the mutual understanding of its intricate business culture and legal framework. Unlike European counterparts, relationship building is fundamental to doing business in China, and a strong relationship needs to be established before closing a business deal.
“For me, the main takeaway from this trip was more cultural than technical. I have learned that if businesses want to establish themselves in Asia, they should not try to make connections from abroad, but come to Asia and meet potential partners and investors in person” said Alexandra Khripko, representative of the Germany Energy Agency (DENA) and Start Up Energy Transition (SET).
On the other hand, it is important to recognize market entry strategies for startups within the Chinese regulatory framework. Joint partnerships between foreign and local businesses are preferred over contractual cooperative models, and the registration of trademarks and copyrights are the first steps to incorporation. In spite of this, the market yields a lot of potential, as companies should always be hopeful that both governments are working on change. “In the EU, regulations are being introduced to boost innovation and trade – this will help encourage German funds to invest in the earlier stages of the startups”, Khripko concludes.
Meet Alexandra Khripko and Sabine Yang-Schmidt on Tuesday, 18 June at Techcode Berlin where we’ll discuss in more detail the peculiarities of doing business in China. Please register here.