Silicon Valley’s China Paradox

Li Zhifei has spent his professional career cross-pollinating the world’s two most vibrant innovation ecosystems.

Born in central China at the dawn of reform and opening, Li graduated college in China and dove headfirst into the country’s dot com boom of the early 2000s. When that bubble burst, he headed to Johns Hopkins University for a PhD in computer science, and then to Google, where he applied machine learning algorithms to translation and soaked up Google’s revered company culture.

But after two years learning and enjoying the perks of the Mountain View campus, Li returned to China to found his own startup: Mobvoi, or 出门问问 in Chinese. Tapping into both Chinese and American venture capital, Li and his co-founder built an elite team of Chinese citizens with international backgrounds: researchers from Microsoft, Harvard Business School grads, and ex-Googlers. Mobvoi created the “Chinese Siri” and then its own operating system for wearables, filling a void left by the Chinese government’s blocking of Google, Li’s former American employer.

Rather than begrudging Li’s rise as a competitor, Google invested in and partnered with Mobvoi. In 2015 Google became a minority shareholder in Mobvoi, its first direct investment in a Chinese startup. Soon after, Mobvoi’s wearables app store began serving as a proxy for the Android Wear app store, marking another tentative step on Google’s twisted path back to China. Last year, Mobvoi began selling its own smartwatches in the United States following a $2 million Kickstarter campaign.

Trans-Pacific Divide

Li’s story takes us to the heart of the fundamental paradox uniting Silicon Valley and China: while trans-Pacific flows of people, money and ideas have never been greater, technology companies and the Internet itself remain starkly divided by national boundaries.

China’s tech giants are setting up research labs on US soil. American tech leaders are taking up positions at their Chinese rivals. Venture capitalists from both countries are splashing around cash looking for unicorn startups. American app developers are studying WeChat and Chinese artificial intelligence (AI) scientists are looking to Google for inspiration, even as the subject of Chinese AI investment in the United States engenders growing political controversy and pushback in Washington. Chinese social media users have even told Facebook it should “come learn from us” when it comes to scrubbing content from its platform.

Most of all, the cultural zeitgeist of Silicon Valley has seeped into China’s tech scene. As Chinese entrepreneurs and engineers ping pong between the two places, they bring with them the philosophical underpinnings and management practices of California’s technologists. Mobvoi leadership often describes their company as having “Google DNA.”

But that dynamic exchange has hit a brick wall at the company level. Apart from Apple, virtually every consumer-facing Silicon Valley juggernaut that has entered China has either been outcompeted or outright blocked by regulatory, legal, or political barriers. Chinese companies attempting to pierce US markets face far fewer technical and legal obstacles, but their business ventures on US soil have largely fallen flat. Alibaba’s US e-commerce site, 11 Main, was sold off just a year after its debut, while Tencent’s WeChat has failed to make major inroads in the United States or any other international market.

The Chinese state began blocking foreign websites as a practical quest for information control, but the vibrancy of China’s domestic Internet and the revelations of Edward Snowden ultimately turned those efforts into an ideology: “cyber sovereignty,” the purported “right” of a nation to control its domestic Internet.

The result is a global Internet that threatens to become divided by national boundaries. When Uber finally ceded the Chinese market to local rival Didi, New York Times tech columnist Farhad Manjoo compared the emerging status quo to “The Great Game” of 19th century imperialism, in which the major powers carved out regional spheres of influence for themselves.

What does this new equilibrium—the free flow of talent, money and ideas, even as companies remain trapped within the scope and span of their home countries—mean for the future of technology in these two economic superpowers?

Parallel Pitfalls: Egocentrism vs. Ethnocentrism

First, look at relative competitiveness. With both markets awash in funding, technological vibrancy depends largely on the ability to generate and absorb top-notch talent and ideas. One product manager who has worked at the epicenter of both the American and Chinese ecosystems described this to me as a race in which each side is hobbled by a core weakness: Silicon Valley’s egocentrism and China’s ethnocentrism.

Silicon Valley is great at absorbing people from around the globe, but is far less eager to absorb ideas from other places. Top executives of companies trying to enter China will pay lip service to the country’s rich innovation ecosystem, but few take the time to dissect trends in Chinese apps or user interfaces at a granular level. In the Valley, blog posts by floundering Silicon Valley founders get plenty of attention, but major product announcements out of China are often ignored entirely.

That’s partly due to a relative lack of quality English-language coverage of Chinese tech trends and innovations, but also, frankly, to an egocentrism that sees the Valley as the fount of all meaningful product innovation. In this mindset, successful companies from the developing world are dismissed offhand as copycats that survive due to their national governments’ protectionism.

In China, the situation is reversed. China and its leading companies do little to attract or accommodate non-Chinese engineers, so they limit themselves to one (albeit very large) talent pool. As in many sectors of Chinese society, it’s simply assumed that foreigners can’t really understand what’s going on in China, and so they are rarely integrated into core product roles.

But when it comes to studying and adapting innovations from abroad, Chinese entrepreneurs eagerly devour the ideas bubbling up out of Silicon Valley. The demand for real-time knowledge of the Valley is fed by Chinese folks with a foot in both worlds, as well as a cottage industry of blogs, social media accounts, and podcasts. The ideas conveyed by these media outlets are not simply copied, but instead become what Sequoia chairman Michael Moritz calls “fuel for the creative and imaginative entrepreneurial fires” that are blazing in China and beyond.

Correcting these blind spots is hard because of how deeply embedded they are in each ecosystem’s culture. But both sides are taking steps to remedy them. Quality examinations of Chinese tech trends are gaining an audience in Silicon Valley, and both Baidu and Tencent have set up AI research labs in America, partly to draw on local talent.

Beijing’s Policy Wedge

For the American government and industrial policymakers, this new equilibrium does create a problem: a diffusion of decision-making power and a move away from Washington. As the ultimate arbiter of access to the Chinese market, the Chinese Communist Party can present a unified front externally, and then work to drive a policy wedge between America’s Internet companies and their government in Washington.

White House officials may oppose China’s push to normalize “cyber sovereignty,” but the key US players are in Silicon Valley. So as long as Facebook, LinkedIn and other firms are willing to build alternate versions of their products for China, cyber sovereignty will become de facto policy in the world’s leading Internet markets.

That Chinese government wedge was on dramatic display during President Xi Jinping’s 2015 state visit to the United States. On that trip, which culminated in meetings at the White House with President Barack Obama, his first stop was not Washington, DC but rather Washington State. There, at Microsoft’s Pacific Northwest headquarters, Xi summoned CEOs from Apple, Facebook, Airbnb, Amazon and many more firms, as well as their Chinese counterparts.

The visit was a well-staged bit of economic muscle-flexing—a sign that China’s economic might reached right to the core of America’s 21st century trophy companies. And it reportedly irritated the Obama administration. Describing the moment when Xi entered the room, Apple CEO Tim Cook summed it up this way: “Did you feel the room shake?”

Winning the Next Billion Users

For entrepreneurs looking to expand globally, the key is widening the intellectual lens and shifting the focus. Chinese markets may remain impenetrable, but the innovations brewing there are a rich resource when developing products for the next billion users: mobile-first, population-dense, low-wage markets in Southeast Asia and India. American technology companies need to have their ear to the ground in China if it hopes to win these markets.

American policymakers face a tougher task. Trying to force reciprocal access through punitive actions—such as denying Chinese tech companies access to American markets—would almost certainly backfire. Chinese leaders would most likely embrace the moral equivalence of both countries walling off their markets, rather than acquiesce and open up the market to global information platforms—tools that the CCP sees as an existential threat. That’s not an argument against scrutinizing and blocking Chinese acquisitions that legitimately threaten US national security, but simply an explanation for why restricting access probably won’t lead to reciprocal openings.

The US government’s tools for whipping its own companies into line are also relatively weak: tech CEOs can be shamed at Congressional hearings, but that tactic won’t be so effective when weighed against potentially selling to one billion new users in China and beyond. Policymakers could also try to force good behavior on tech companies through a new digital rights-equivalent of the Foreign Corrupt Practices Act. But while legislating morality may sound appealing, it would be tremendously complicated, dragging in everything from Europe’s “Right to be Forgotten” to the US government’s surveillance programs.

In the end, the best approach for policymakers may be a posture of patient confidence. The United States has been the global epicenter of technical innovation and commercial creativity for decades, a distinction due in large part to a culture of openness. Given the lack of good policy levers to pull, the country is better off doubling down on its enduring strength than frantically devising ad hoc solutions to our weaknesses.