China’s innovation and entrepreneurship landscape in transition and its implications for Sino-Swedish innovation cooperation

I’ve lived in Silicon Valley for 35 years, I’ve taught in entrepreneurial clusters in New York, Boston, Helsinki, Santiago Chile, St. Petersburg, Moscow, Prague, and Tokyo, but the visit to the heart of the Beijing start-up world Zhongguancun...

I’ve lived in Silicon Valley for 35 years, I’ve taught in entrepreneurial clusters in New York, Boston, Helsinki, Santiago Chile, St. Petersburg, Moscow, Prague, and Tokyo, but the visit to the heart of the Beijing start-up world Zhongguancun has truly blown me away. Each of these clusters has wondered how to become the next Silicon Valley. Beijing is already there…

The above was the observation and reflection of Steve Blake, Silicon Valley entrepreneur who created the “Lean Start-up Movement” and “Startup Owner’s Manual”, when he visited China in 2016. [1]

A unicorn every 3.8 days

In the past few years, China’s ecosystems for start-ups and scaling-up has gone through an even more dynamic development, i.e. it is more diversified, more quality-focused and with a higher global ambition. Let us start off with looking at the unicorn numbers for China, which has attracted a lot of attention and debate. China created a total of 186 unicorn start-ups in 2018, i.e. a unicorn every 3.8 days, with a combined valuation of more than 5 trillion yuan (US$736 billion). 97 unicorn start-ups was valued at more than US$1 billion in 2018, despite an economic slowdown and a prolonged trade war with the United States (See Figure below). [2]

Ecosystems for start-ups and scaling-ups

Alongside with such a dynamic market development, there has been a long-term and strategic effort to build up an ecosystem for knowledge- and innovation-intensive start-ups and scaling-ups. The Torch Program, which Steven Blake described as “the world’s largest let’s engineer entrepreneurial clusters experiment”, is the best example and has two strategic elements:

  • Create a cluster in the form of High- and New Tech Zones (NHZs), by concentrating resources, finance and competences to a critical threshold, giving the cluster a decisive sustainable competitive advantage over other places.
  • Create collaboration between research and business, as well as between large enterprises and tech-based small and medium enterprises.
Figure: Research and technology based support system of Torch Program. Source: Presentation by Torch High Technology Industry Development Center, MoST at the 3th Sino-Swedish Innovation and Entrepreneurship Forum.

The multiple innovation models of Chinese start-ups and scaling-ups

This combined market- and policy development has created differentiated and multiple innovation models. In some areas the old model of copy and paste is still the rule, but in some other areas, China has move beyond the old model and advanced towards knowledge-intensive and sophisticated innovation development (See Figure below). 

Source: A modified version of the presentation by John Lin, Xnode. November 2018.

In the fall of 2018 and in the spring of 2019, our office, together with the Start-up Director Marie Wall from the Ministry of Enterprise and Innovation of Sweden and the Head of China Relations of Sweden’s national incubators & science parks association (SiSP) Ulf Borbos, visited some very dynamic ecosystems for start-ups and scaling ups in Shanghai, Beijing and  Hangzhou. We also had information exchanges with key public implementation agencies who are responsible for the development of start-ups and scaling-ups nationally and locally.   

The key observations from the visits can be summarised as follows:

  • The eco-systems in China see research capacity and talent attraction, both domestic and international, as key assets for their future development.
  • There are many previous and on-going “testbeds” for science and innovation policy experiments and pilots for improving the eco-systems and increasing incentives for innovation and entrepreneurship. Particularly, international incubators and corporate innovation are new and key focus for developing concrete thinking and flexible approaches.
  • Many ecosystems have a model of investment-driven science park and incubator service system, which combines its investment capacity, platform management and operating capacity. In this context, many science parks/incubators have the capacity to integrate different resources, such as financing support and industrial and market networks, which could be essential for foreign start-ups and scaling-ups when finding trusted Chinese partners for developing their technologies into real application scenarios and products as well as to develop application scenarios for global markets. 
  • However, the most important common challenge is the lack of mutual understanding and deep interactions between these domestic ecosystems and the ecosystems abroad. Against this background, many domestic ecosystems are putting stronger emphasis and efforts into making institutional and more long-term links with ecosystems abroad.

Implications for Sweden

While many Chinese know Sweden as a leading innovation nation with a number of global and innovative companies, very few know that Sweden also has a mature and selfsustained start-up ecosystem with recycling of competence and capital. As a matter of fact, Sweden’s start-up ecosystem is one of the most efficient in the world, measured by the rate of unicorns per start-up.

Source: Startup Genome.

 As an integral part of the innovation ecosystem development, the cooperation between start-ups and large companies is an enabler and accelerator for innovation development and market development – for both! Ignite Sweden, a national initiative, which aims to create meaningful match-making between start-ups and large companies and develop fruitful cooperative innovation models, has become a great success. 

For Sweden as a whole, science parks and incubators are the engines for innovation-driven growth and high-quality job creation at the regional and the local level. For instance, around 70 members of SiSP have more than 5000 companies with over 70 000 employees. Interestingly, the China survey of SiSP among their members shows that a significant share of Swedish incubators and science parks already have connections and cooperation with China. An even more significant share of science parks wants to have a closer cooperation with innovation environments in China.

Source: Presentation by Ulf Borbos, Head of China relations, SiSP at the 3rd Sino-Swedish Innovation and Entrepreneurship Forum.

“Everything is possible, but nothing is easy…” and “One week in China is a month in Europe”… this is how European and Nordic entrepreneurs describe China’s innovation eco-systems. In other words, challenges go hand in hand with opportunities. There are both high thresholds, high risks – but also big gains and unique advantages – embedded in the China speed, China scale – and China innovation models. 

The sceptics might say that the party is over when reading the latest reports that, after several years of massive growth, a wave of redundancies is now pouring over China’s Internet companies, that venture capital is no longer abundant, and that employees are revolting against the 9-9-6 culture. However, you can also see this as signs that the startup ecosystem is maturing. The best companies will still receive funding and companies will need to adjust and attract the brightest employees. The startup ecosystem and the company culture will gradually become more similar to Silicon Valley, Stockholm or London, and hence open for more fair competition and like-minded collaboration.

Given that global links – to knowledge, to innovation environments and to markets and consumers – are the key to the competitiveness and vitality of Sweden’s ecosystem for start-ups and scaling-ups, how can the China links be created? The key words will be knowledge enhancement for risk- minimizing and mutual learning as well as new thinking and new approaches for trust-building and growing-by-co-creating.

Nannan Lundin and Linnea Yang