40 China The EconomistJuly 13th 2019
2 plicitly looking for tenants who “love Ap-
ple products”. As they grow, startups
migrate north, to larger office blocks. Ten-
cent, Baidu, Lenovo and Sina all have
sprawling campuses in the more distant
reaches of the city.
New companies all rely on one of the
most important geographical features of
Zhongguancun: its proximity to the best
schools in Beijing. The area is home not
just to universities like Tsinghua and Pe-
king, but also to highly regarded primary
and secondary schools. The headquarters
of one of China’s most important private
education companies, New Oriental,
which offers coaching for English-lan-
guage exams, sits across the road from the
electronics markets. Elite Chinese stu-
dents come here before heading off to
America for university.
Often they come back and start a com-
pany, as Mr Wang did after he dropped out
of the University of Waterloo in Canada.
The schools of Zhongguancun predate its
tech boom, and are foundational to it. As
tech companies grow larger, the universi-
ties supply young talent while the promise
of good schooling helps lure older recruits
with families. The concentration of bright
minds, in turn, attracts more brain power.
“Beijing has a lot of terrible things like the
air or the traffic, but the best thing is that
you can talk to the smartest people in Chi-
na within an hour,” says Mr Wang.
Most of those smart people are not
working on fundamental technologies,
says Zhou Wei, the boss of China Creation
Ventures (ccv), an investment firm based
in Beijing’s Wangjing district. Hawkish of-
ficials in America may be kept up at night
worrying about China’s advancement in
semiconductors and artificial intelligence.
But Zhongguancun’s real strength is in de-
veloping new applications and services for
the Chinese market, to be provided
through smartphones. Chinese consumers
are even more primed for such services
than their counterparts in the West. In
America or Europe, digital services must
compete with existing infrastructure. Chi-
nese digital services are often the first of
their kind.
They are also heavily in demand. Mr
Zhou points to one of ccv’s investments,
YunHu Health, as an example. The firm of-
fers medical tests for patients at primary-
care clinics, eliminating the need to wait in
long queues at oversubscribed hospitals.
Instead, samples are whisked away to local
labs on a moped, with results sent back to
the patient and their doctor in a day or two.
Just two years old, the company already
serves some 100,000 clinics throughout
the country.
The application of technology to situa-
tions where demand outstrips supply is a
guiding investment thesis for Mr Zhou. He
has invested in software to help processmedical imagery, reducing waiting times at
hospitals, and in an interactive education-
al app that (purportedly) eliminates the
need for a human teacher. DingDong Class
charges the equivalent of $1 per hour for its
automated English lessons, which use re-
corded videos of human teachers tailored
to individual students. (Mr Zhou contrasts
DingDong’s method of teaching English fa-
vourably with his own learning process:
watching every episode of “Friends”, a situ-
ational comedy, at least ten times.)
The Chinese government has adopted a
laissez-faireapproach to such companies.
“If there is no regulation, they let you run,”
says Mr Zhou. This does mean that new ser-
vices risk leaving some people behind.
“China is moving so fast that companies
don’t pay much attention to less technical
people,” Mr Zhou says. It is tricky now, in
Beijing, to track down a taxi cab without us-
ing the DiDi app on your phone. To pay for a
macchiato without using WeChat is to face
a barista’s exasperation with paper curren-
cy, or, at trendier coffee shops in Beijing
and Shanghai, outright rejection.Arms for knives and bras
Where ccvis focusing on technological
fixes to gaps in the Chinese markets for
education and health, Shunwei, another
venture-capital firm, is focused in doing
the same for China’s manufacturing indus-
try. One of its investments, Rokae, runs its
research and development centre out of a
warehouse in Zhongguancun. The ground
floor is packed with white robot arms with
a variety of appendages attached to their
wrists. One arm is set up to sharpen knives,
plucking raw blades from a box and grind-
ing them to an edge on a stone. Rokae says
it has sold hundreds of robots to a large
knife factory in Guangdong province,
where the arms have directly replaced hu-
man workers. Rokae is also teaching its
arms to manufacture bras, and says it is
working with Adidas to test whether the
arms are able to sew the three white stripes
of the German firm’s logo onto garments.
Because Rokae can produce robot armsmore cheaply than Western competitors, it
can appeal to businesses that might not
otherwise have had enough capital to in-
vest in automation.
Shunwei also aims to address Zhong-
guancun’s greatest weakness—a reliance
on imported components and technology.
The firm has investments in Chinese com-
panies that make chips which manage
charging devices wirelessly, or that fuse
camera data into three-dimensional scans.
It is also investing in companies that de-
sign new materials—antibiotic ones for
fabrics and mattresses, ceramics for
phones. Today, most Chinese companies
import these sorts of products from Ameri-
ca, Europe, Japan or South Korea. If Zhong-
guancun is to blossom as a global, not just a
regional, tech hub, and if it is to insulate
China against protectionism, it will need to
nurture its own suppliers.
The local government is doing its bit.
Haidian district, where Zhongguancun is
located, recently opened a business park
dedicated to fostering Chinese chip com-
panies. The idea behind Zhongguancun ic
Park (the icstands for integrated circuit),
according to Wu Chunyan, one of the park’s
sales team, is that it will smooth the way for
new chip companies, and not just through
subsidised rents. It offers software for de-
signing circuits, and handles licensing ne-
gotiations on behalf of its young tenants
with other chip architecture firms such as
Arm. Bitmain, a Chinese company which
makes chips for mining Bitcoin, and Giga-
Device, which makes memory chips, have
already committed to moving in. Even
though the campus seems quiet and some-
what empty, the canteen is bustling.
The latest crop of startups have set their
sights on foreign markets. Rokae is plan-
ning to sell its robot arms to Europe. Mr
Wang wants Generalized Aviation to flour-
ish globally. They see the trade war not as a
threat, but as an opportunity—to fill the
gaps in Chinese supply chains and then
compete in the West. But to become a
world-shaping force like Silicon Valley,
Zhongguancun will have to overcome
Western concerns about the potential mis-
uses of Chinese technology. So far, very few
Chinese tech companies have managed to
go global, Huawei and Bytedance being the
most prominent. And Huawei, in particu-
lar, is under threat due to security fears
raised by Western governments.
In the meantime, even Mr Wang cannot
keep up with the pace of change in Zhong-
guancun. As he rides an escalator up into
the last remnants of the electronics mar-
ket, he sees that an entire floor has been
emptied. He exclaims: “Oh no, they closed
this one down?” The spaces which inspired
him to go into the tech business are fading
into history. “I feel a bit upset, but it’s ok,”
he says. “Everything goes forward. We live
life forwards, not in the past.” 7UpstartsSource:PreqinVenture-capital deal value, $bn0204060801001202013 14 15 16 17 18UnitedStates
China