Protectionism Isn't to Blame for China's Tech Success

(Bloomberg Gadfly) -- It's becoming all too easy to throw accusations at Chinese companies, especially when trade and political tensions rise.

You know the refrain: They're just copycats of U.S. counterparts, ripping off larger rivals and protected by trade barriers such as censorship and investment laws.

Frankly, this is an intellectual crutch.

Witness the overuse of descriptive cliches -- X, the Netflix of China; Y, the Amazon.com of China; Z, the blah, blah of China. It's as if observers just can't give credit where credit is due.

Alibaba Group Holding Ltd. shouldn't be known as anything but the Alibaba of China. Same goes for Tencent Holdings Ltd. At 55 percent (for Alibaba) and 51 percent (for Tencent), the duo's average revenue growth rates over the past eight quarters are almost double that of Amazon.com Inc.

There's not much either company has copied from an overseas counterpart. Both don't have any fundamental technology that's crucial to their business, let alone something they stole from offshore.

What they do have is innovation, flexibility and the ability to develop new products at great speed whenever they spot a market opportunity. That's why they've become China's biggest companies by market value, at $532 billion for Tencent and $465 billion for Alibaba.

The pair's business models are also incredibly different. Alibaba gets most of its money from advertising, not e-commerce, whereas Tencent's WeChat has only just started tapping the ad market.

Alipay and WeChat Pay are good examples of how they stand out. No Western company has achieved even a sliver of what these products have managed. Mobile payments are ubiquitous in China in a way that makes the U.S. look like it's stuck in the Stone Age.

Alibaba's was born out of an online sales platform that is itself ubiquitous. Equate Jack Ma's empire to that of Amazon if you like, but first tell me about Amazon Pay. Tencent's version, meanwhile, came from WeChat, the most powerful communications tool in China. No company worldwide has come close to the depth and breadth of WeChat usage.

• Exhibit A: WhatsApp. Bought by Facebook Inc. for $19 billion four years ago, Mark Zuckerberg has barely done anything with it. Don't blame Chinese censorship and protectionism for the fact that you can't book and pay for a doctor's appointment over WhatsApp.

Similar can be said not only for Alibaba but its affiliate Ant Financial, which has become a vehicle for money market investments, bill payments and loans. It's only recently there have been reports from the Wall Street Journal about Amazon considering offering checking accounts.

On hardware, people often accuse Chinese brands Xiaomi, Oppo, Vivo and others of copying Apple Inc. That was once a valid observation. Xiaomi's business model is unique, though, and it has since gone on to develop its own designs based on technology developed and sold by U.S. companies.

It's also made a significant mark in India, which no Western smartphone company has managed. To complain that Chinese hardware vendors have the benefit of cheaper labor is a non-starter. Nokia Oyj and Motorola Solutions Inc. had access to the same factories (run by Foxconn) before they went belly up, while Apple still thrives.

Often it's the exception that proves the rule, so let's look at Baidu Inc., a search engine provider that borrowed ideas from Google. The Beijing-based firm has struggled to come up with a second act and lacks the innovation shown by Tencent and Alibaba. The result is stagnation and a market cap that's failed to keep pace, making it one-fifth the value of the latter.

It's quite easy to make the claim that China's biggest tech companies only got rich because of government protectionism. But that's just not very innovative.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

To contact the author of this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.

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