Cast your eyes down the list of the world’s most valuable private technology companies and you might be put in mind of the 2008 Beijing Olympics. That’s when China ran away with most of the gold medals — even though the west focused on the accomplishments of the US swimmer Michael Phelps. The same trend is evident in the list of technology “unicorns” worth $1bn or more. Uber, Airbnb and SpaceX may be hogging the limelight, but the undisputed gold medal leaders are the Chinese.
All lists of private companies contain degrees of subjectivity and error, but the Wikipedia ranking of unicorn start-ups by value offers a peek into the future. For westerners, it should be disconcerting. Of the top 50 entries, 26 are Chinese and 16 are American. There are none from Europe. The Chinese also dominate the proportion of the most valuable of these companies. Of the top 20 with an estimated market value of over $10bn, 11 are Chinese, six are American and two are Indian.
Topping the list with an estimated value of $150bn is Ant Financial, the financial services spin off from Alibaba. Its value rests on the opportunities investors believe lie ahead in China and, increasingly, in south-east Asia.
Many California-based technology investment bankers — eager to haul in trophy initial public offerings — are now romancing more companies in China than at home. Smartphone maker Xiaomi has already filed to float in Hong Kong, which must be disquieting for the US exchanges. Ride-hailing app Didi Chuxing and Meituan are among the bankers’ other targets.
The growth rates of leading public technology companies underline the same trends. For the year ending March 2018, the top five US companies grew at a 26 per cent median clip, while the top five Chinese entities jumped 33 per cent.
The US companies are generally larger, but Chinese companies are narrowing the gap. As 2016 dawned, the top five Chinese companies were worth one-quarter of their US counterparts. By the end of March 2018 this had risen to one-third. Right now, Facebook, the fifth most valuable US tech group, is just ahead of Alibaba, with Tencent not far behind. No wonder that Chinese youngsters looking for role models evoke the names of Jack Ma, Pony Ma, Lei Jun (founders of Alibaba, Tencent and Xiaomi) more than they do Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, or the late Steve Jobs of Apple.
Chinese internet companies also stand out because they are purchasing stakes in many of the more interesting, younger private technology companies. It is somewhat akin to real estate companies snapping up the best beach-front property.
Most Chinese activity is outside the US, with Tencent and Alibaba building vast constellations of satellites. Tencent has more than 600 investments, while Alibaba has around 400 — totals that almost make Japan’s SoftBank look like a penny-pinching slowpoke.
Critics of this approach may gripe that it is undisciplined, but the admirers argue that these investments are somewhat akin to Chinese premier Xi Jinping’s ambitious and far-reaching Belt and Road Initiative. The only US company that comes close is Google, which since the start of 2017 has made more than 100 investments, although they are heavily concentrated in the US. It has also purchased more than 80 companies outright since 2014.
Another transpacific difference involves the use of cash. Between 2015 and 2017, the five biggest US tech groups (especially Apple and Microsoft) spent $228bn on stock buybacks and dividends, Bloomberg data shows. During the same period, the top five Chinese tech companies spent just $10.7bn and ploughed the rest of their excess cash into investments that broaden their footprint and influence.
It’s hard to escape the view that the Chinese groups are — like all of us — creatures of their heritage. They are using their investments as one way to help fulfil the ancient Chinese definition of the Middle Kingdom — as the centre around which all else revolves.
The writer is a partner of Sequoia Capital. The views expressed are his own and he may own shares in companies mentioned