A view of the waterfront Lujiazui financial district in Shanghai at night. Photo: iStock
A view of the waterfront Lujiazui financial district in Shanghai at night. Photo: iStock

Those skeptical of China’s arguably overhyped tech sector would be well advised to take a look at the numbers. China is neck and neck with the United States in terms of the global top 10 internet companies by market valuation.

Most of China’s tech giants are not household names in the West.

In fact, with the exception of Alibaba, most people outside will not even have heard of companies such as Ant Financial, Baidu, Didi Chuxing, JD.com and Toutiao. But all of them feature in a Top 10 hit-list with a total market capitalization of approximately US$1.5 trillion.

The room for growth remains enormous. This month the Chinese government announced that the number of Chinese internet users had surpassed 802 million users, according to the website Statista. That may sound like a lot – and in fact it is more than the US and India combined – but it represents only 57% of the Chinese population.

Indeed, that is a smaller ratio than Vietnam, which has an internet penetration rate of 67%.

In other words, China’s internet market may be immense, but its room for growth is almost equally immense.

Small surprise then that China is in the grip of a unicorn fever. It is already home to what has been called the king of unicorns, Ant Financial, a startup arm of Jack Ma’s mighty Alibaba that has a valuation of $150 billion, well ahead of its nearest rival, Uber, with a valuation of $62 billion.

Unicorns, once simply known as mythical beasts with a history stretching back into the mists of time in the Indus Valley 7,000 years ago, are today very real creatures, in the form of innovative startups with valuations of $1 billion or more.

Glories of them graze on a diet of venture capital from Dallas to New Delhi. Overall, they have a market capitalization of slightly more than $800 billion.

Market distribution

The US leads the world in unicorns, with 113 of them at the last count, accounting for 49% of the global total. But China, which is home to 62, comes in at second, with 80% of all the unicorns in Asia.

US unicorns tend to be more diverse in terms of market distribution, operating in 23 industries, with internet services and financing dominating. Chinese unicorns are distributed in 18 industries.

Chief among these are startups in the e-commerce, health, education and tourism, fintech, social media, cloud computing and AI sectors. But there are scattered unicorns almost anywhere you choose to look, from real estate to smart devices.

However, it needs to be noted that China’s unicorn numbers are subject to great dispute due to the phenomena of what are called “hidden unicorns” and “fallen unicorns.” Both terms are relatively self-explanatory, but, in brief, hidden unicorns are low-profile innovators, while fallen unicorns have either failed or run out of funding.

So-called “unicorns gone public,” are companies that are strictly speaking no longer unicorns at all because they have successfully undertaken initial public offerings.

China Money Network, an “artificial intelligence (AI)-powered platform tracking China’s smart investments and technology innovation,” which suspiciously looks like a hidden unicorn itself, claims that China has 123 unicorns.

Meanwhile, in March this year, the 2017 China Unicorn Enterprise Development Report, which was released by the Ministry of Science and Technology, made the bold claim that China is home to 164 unicorns, of which at least 10 are “super unicorns,” state media reported.

A “super unicorn” has a valuation of more than $10 billion

The Ministry of Science and Technology report, if it is to be believed, would put China far ahead of the US as a unicorn habitat.

But whatever the actual numbers, US unicorns and Chinese unicorns differ in many ways. Chinese startups generally tend to reach US$1 billion valuations much faster than their US counterparts.

Entrepreneurial startups

While a Chinese unicorn, on average, takes four years to achieve a valuation of $1 billion, American unicorns typically take seven years, according to a report by Boston Consulting Group released last year.

Another significant difference is that US unicorns tend to be free-spirited, entrepreneurial startups. That is not always the case in China, where, in what has been described as a “techno-nationalism” push, unicorns have garnered the support of suited technocrats in Beijing.

As of March this year, a government-supported effort was underway to encourage the country’s most innovative startups by making it easier for them to list on local stock exchanges, according to the South China Morning Post.  

Analysts are skeptical that unicorns need state assistance and question whether the very fact of Beijing’s support might stifle the innovation that unicorns thrive on.

“In its attempt to establish the next generation of tech unicorns, China has ironically injected nationalism into its development process,” one Shanghai-based analyst said. 

As another analyst told the Hong Kong-based English language daily:

“When certain companies become favored by the government, all the best resources tend to flock to them. But it directly turns smart money into dumb money.

Back in the pre-internet days of yore – 1968 to be precise – the world was gripped by a novel, The Last Unicorn by Peter S Beagle. Falling prey to a rumor that she was the last of her species, she set off on a long, perilous journey to find others of her kind.

It is inconceivable she would recognize today’s unicorns, but at least she would not have to travel far and wide to find them.

Glories of unicorns graze on a diet of venture capital from Dallas to New Delhi. Illustration: iStock
Glories of unicorns graze on a diet of venture capital from Dallas to New Delhi. Illustration: iStock

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