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Chinese tech faces an innovation reality check as the economy cools and startups stumble

The slowing Chinese economy may be claiming some unexpected victims: without its robust engine, many tech startups relying on China’s fast growth for success are being cast out.To get more technology news in China, you can visit shine news official website.

Despite healthy capitalization, investors are finding that some companies’ underlying technologies may not be as innovative as hoped. And even after a banner year for venture capital funding in 2018, some investors predict that as many as 90% of Chinese tech startups are doomed to fail.

“The market is going through a severe selection process,” said Weijian Shan, chairman and CEO of PAG, a Hong Kong-based equity firm managing US$30 billion. “Only those with true technology and an understanding of risk control are able to survive.”

The Chinese tech industry has impressed global investors since the dramatic rise of Baidu, Alibaba Group, and Tencent in the past decade. Fearing missing out again, venture capital has been pouring into the younger generation of startups in hi-tech sectors such as ecommerce and financial technology, helping create a roster of Chinese unicorns – companies valued at more than US$1 billion – that dwarf those from other countries.Most Chinese startups had thrived, however, not because of cutting-edge technologies but through a business model that primarily built and sold everyday apps, from online payments to bike sharing, investors said.

“To call the technologies world leading is an overstatement,” said Jialong Liu, general manager of credit card business at China Merchants Bank, which works closely with online payment providers. “What made these enterprises successful has been the large Chinese market.”

In other words, China still lacks the deep repository of innovation know-how for fundamental tech breakthroughs compared with countries such as Israel, Japan, and the US.

As a weakened economy can no longer support startups as it did in the past decade, Chinese companies face a hard reality: stand on the quality of their technologies or fail. The moment of truth is dawning on an industry that has in recent years been touted as a miracle and a source of domestic pride.

The Chinese market is now experiencing what legendary investor Warren Buffett once observed: “It’s only when the tide goes out that you learn who has been swimming naked.”Globally, tech innovation is seen as a powerful force that can thrust China into a role of technological dominance. The issue has since become a major concern for Washington and governments around the world that it helped trigger US President Donald Trump’s trade war against China last year.

The US has attempted to thwart Chinese tech advancement through various means. The Trump administration blocked Alibaba’s purchase of US payment service provider MoneyGram early last year and rejected the acquisition of US telecommunications company Qualcomm by Singapore-based Broadcom to prevent technological leaks to Beijing.

In the race to dominate the next-generation 5G technology in cellular communication, the US moved to cut off business with ZTE last year and sent the large Chinese telecoms equipment maker to the brink of bankruptcy.