Why China’s newfound innovation is a good thing for America

March 7

Solar panels are seen on the roofs of residential houses in the village of Lianyungang. (Reuters)

Innovation is arguably today’s favorite business buzzword. Companies and countries that innovate are the business and cultural leaders, while those that lag are relegated to lower profitability and less political sway. The United States has had a preeminent role in global innovation for more than a century, but the rise of China and its focus on growing an innovative business culture threatens to upset the balance. There will be individual corporate winners and losers in each country, but the nascent competition between China and the United States will be an overall positive development for both nations, driving each to innovate smarter and faster.

China has many of the same advantages as the United States: a large domestic market that acts as a test bed for new products and ideas, plus an increasingly wealthy population, curious to try the next new thing.

Although a late comer to the innovation game, China is catching up quickly by fostering innovation through grassroots efforts, bringing back technology from abroad for further development and commercialization, as well as championing home grown private companies that are set for the global stage. While debates go on in the United States about global warming and the need for green innovation, the Chinese need no convincing with smog and water pollution affecting large regions of the country. And as a result, China’s clean technology market is projected to triple to more than $500 billion by 2020.

China also appears set to create more compelling private companies that should turn into global competitors, such as Xiaomi (mobile phones), Tencent (social media) and Alibaba (e-commerce). While these companies will be in the minority in an economy still dominated by China’s state owned enterprises, its quality of entrepreneurs and business models is quickly improving.

All of these innovations are just the beginning for China as it seeks to transition into more high value-added business. For the United States, this means greater international competition, but also a unique opportunity to reflect on its own performance on the world stage.

The United States has long been the global home of innovation, whether it is technology, media, finance or energy. However, it has lost some of its shine in recent years as support for innovation has waned in some sectors. Investment funds are largely focused on social media and mobile, leaving promising areas such as renewable energy, materials science and biotechnology underfunded. Visa issues have sent many foreign entrepreneurs away from Silicon Valley, spurring increased global innovation. The United States may still be the pacesetter, but the current competition environment may sway the pendulum East. But is it a zero-sum game?

Though some U.S. companies will be surpassed by their Chinese counterparts, we are not at the beginning of a no-holds-barred innovation arms race. Chinese innovation is not occurring in a vacuum. For a young company in China aspiring to be a global player, the United States will be an important proving ground. Likewise, American companies will find that China, with a flourishing consumer base, is an important test bed and market for their innovations especially as Beijing aims to promote consumer spending as announced by Premier Li Keqiang Wednesday.

China and the United States will continue to be strong partners and competitors in business, each with an intense national pride. China’s growing capability to innovate will likely entice the United States to be the fierce competitor it has always been. Think back to the 80′s and 90′s when the United States was challenged by Japan Inc. and Korea Inc.. New business models established segments such as Dell in desktop computing and new products in high growth segments such as the iPhone in mobile. Just a few years ago, China’s BYD was a darling of the green sector due to its battery technology and electric vehicles. However, Tesla has now roared into the lead in both of these areas.

Innovation is generally not a zero-sum game. Chinese growth does not mean the end of American innovation. Rather, it marks the beginning of a higher level of competition where one country compels more focused, more rapid and all-around better innovation from the other. Both nations should stand to gain.

Sappin is CEO of Sappin Global Strategies, a strategy and investment group focused on the energy and innovation economies.

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