Everytime I prepare to write on China, I get ready to be surprised by the sheer magnitude of the stats that the research reveals. This time is no exception. Within Fintech, China has been the powerhouse, thanks to Alipay, Tencent, PingAn and many more. Innovation in China is seeing massive boost, thanks to support from the state and the consumer base.
With many aspects of Fintech, and other innovative trends, China has been a case study, as both the “HOW and the HOW MUCH” has been unheard of. With payments for example, the explosion was a leap frog moment, driven by ecommerce and social media. The west hasn’t been able to replicate it, yet. To a large extent this can be attributed to state support in the form of policy around customer data sharing.
In the last few years innovation in the country has achieved unseen growth. There are quite a few indicators to substantiate that. For Fintech to boom, the mobile and internet penetration have helped. 80% of China lacked access to traditional banking services, but thanks to internet usage – 770 Million people use internet in the country. With close to 650 Million on smart phones, it is not surprising the demand for Consumer Finance leads the way to innovation and leap frog moments.
While demand has never been a problem with China, state support ensures, the supply is taken care of. In 2016, a total of 324 VC funds were set up with target size of $272 Billion. About a quarter of that capital will be used to develop AI based firms across 15 provinces in China. The push for AI in China has been so aggressive that the government aims to have a Machine:Human ratio of 15:1000 by 2020. Will this become the KPI to indicate growth of a nation in future? Part of me hopes not.
There is one more KPI that China is managing a home run on. It is now the frst in the world, ahead of the US, in the number of Patents filed in Cryptos and AI. Inspite of the ban on bitcoins and ICOs, patents in this space has grown by about 500% in three years to 1500.
My first hand experience with emerging markets innovation is largely focused on India. Every time I see such phenomenal numbers come from the innovation engine in India, I often find that, inspite of the numbers, somewhere the quality of both innovation and innovation capital (smart money) is lacking. True, there is demand from consumers that can’t be refuted. But, will just the money pumped into innovation and the number of patents be enough to surpass an ecosystem like the Silicon Valley? I have my doubts.
For innovation to thrive, its not just capital and consumer demand, but also the culture to embrace failure that is critical. Asian cultures are often punitive to failures, where as innovation needs a lot of tolerance towards failure. That would take a generation or so to change. However, China has surprised all of us in the way its broken barriers across various innovative trends, and actually set new ones. So, the next few decades might see China being the next innovation powerhouse.
Looking at the investment and growth in Chinese AI firms, Stephen Hawking in his last visit to Beijing cautioned that innovation should ensure benefits to mankind and environment. While the magnitude of growth has been good, the direction needs to be too.
Arunkumar Krishnakumar is a Fintech thought leader and an investor.
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