Chinese tech startups aren't just imitating anymore - and investors are starting to pay attention

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Fan Bao

Fan Bao

The first wave of China-based internet startups adapted Western business models, sprinkled them with some extra touches, and leveraged the world's largest base of online consumers to build huge businesses. Baidu, Tencent and Alibaba have become huge companies, dominating China's market for internet search, social networking and e-commerce.

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The most recent wave of fast-growing Chinese tech companies has taken an entirely different path. Rather than copy Western business models, Chinese entrepreneurs are experimenting with new business models, creating companies that have no analog in the West.

Room for experimentation

Chinese authorities are showing surprising tolerance for business model innovation, often allowing young companies to grow unencumbered by regulatory pushback for much longer periods of time than in other countries.

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Consider, for instance, China's booming bike sharing industry: over the course of just a few years, Chinese bike sharing companies like Mobike and ofo have deployed millions of bikes in cities across China, creating a new industry worth billions in a flash.

Bike sharing is not a new idea. New York's Citi Bike system was installed in 2013 - and there are similar programs in many U.S. and European cities. In China, however, the idea has taken a new direction: Chinese bike sharers use apps on GPS-capable phones to find the nearest GPS-enabled bikes wherever they might be parked around the city, not just at designated kiosks. They then pedal to their destinations and log out, leaving the bikes more or less anywhere and making them available again to other riders.

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The model is wildly successful. Ofo, which has more than 6 million bikes in 100 cities across China, recently raised $700 million in a round led by Alibaba. Mobike, which is only 15 months old, has a fleet of more than 5 million shared bikes, adding more than 100,000 a day to the system. Mobike customers are taking 25 million daily rides - and the total keeps growing.

Ofo China bike share

Kevin Frayer/Getty Images

In mid-June, Mobike announced a $600 million venture round, boosting total funding to date to over $900 million. Part of that will fuel international expansion - on June 30, Mobike started operating in Manchester, the company's first move outside China.

Filling the entertainment vacuum

It also helps entrepreneurs that Chinese consumers are eager to experiment with new tech products and services. That's especially true in entertainment. Offline, China is dominated by state-run entertainment options - and in rural areas, there isn't even much of that. The result is an insatiable hunger for new forms of digital entertainment.

There's no better example of this than live streaming video, which in China has emerged in ways that have no match in Europe or the U.S. On live streaming platforms like Yizhibo and Huajiao Live, celebrities and pseudo-celebrities are offering online streams of themselves speaking, singing, or even eating in return for voluntary payments from users using virtual currency. China now has more than 150 live streaming platforms, which together have more than 50 million paying customers. Revenues from the live streaming sector hit $3 billion last year according to iResearch - and the trend is just getting started.

China's e-commerce players - including Alibaba's Taobao and JD.com - are integrating live streaming functions into their core platforms. Users can watch live broadcasts of sellers doing product reviews and interact with celebrity endorsers.

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On June 18, JD.com featured more than 30 celebrities in a 12-hour live shopping spree. In one prime time slot, 10 million users on JD.com watched and interacted with singers and actors endorsing hot and spicy crayfish, a popular snack in China. JD.com said it sold 450,000 crayfish (about 15,000 boxes) in five minutes.

Chinese consumers are also paying for online education courses and lectures. Just a year old, Zhihu Live has 70 million registered users and 20 million daily active users who pay for one-on- one live streaming with experts on everything from how to become a securities trader to UI and product design. On iGet, also known as De Dao, users pay $30 a year to take classes on business, career development, parenthood, art history, music and other subjects.

Speed addicts

People wear Samsung Gear VR devices as they attend the launching ceremony of the new Samsung S7 and S7 edge smartphones during the Mobile World Congress in Barcelona, Spain, February 21, 2016.

REUTERS/Albert Gea

China's rapid pace of innovation, relentless spirit of experimentation and the country' thirst for novelty and new experiences has turned the country into the biggest competitor for Silicon Valley in the marketplace of ideas. There's an intense spirit of competition - China's startups have developed a "9-9- 6" work schedule, with staff working 12 hours a day, six days a week.

Chinese consumers are enthusiastic early adopters, even if some emerging technologies aren't quite ready for prime time. Goldman Sachs estimates that mainland China accounts for a third of virtual reality headset sales globally this year. According to EY, China is the leading country for consumer adoption of fintech products and services. China remains the largest smartphone market in the world - and it has by far the largest population of Internet users.

In China's fast evolving startup and investing ecosystem, trends, hits, and flops emerge on a weekly basis. Savvy investors and entrepreneurs globally should pay attention, because China's entrepreneurs are spawning new ideas that will serve China's 1.4 billion people - and the rest of the world as well.

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Fan Bao is Chairman and Chief Executive Officer of China Renaissance, an international financial institution that combines investment banking, sales and trading, research and investment management businesses. China Renaissance is Mobike's exclusive financial advisor; the firm also acted as joint book runner for JD.com's IPO in 2014

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