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Will China’s Biggest Tech Companies Surpass the FAANGs?

Will China’s Biggest Tech Companies Surpass the FAANGs?

The digital and technology hardware economy of the USA, and by extension the wider ‘West’ is dominated by the FAANGs and a cohort of smaller technology peers. The FAANGs are of course Facebook, Amazon, Apple, Netflix and Alphabet-owned Google. China has its own giant tech companies with its established big three also given its own acronym – BAT. The three letters of BAT stand for Baidu, a search engine provider compared to Google, Alibaba, known as the Chinese Amazon and Tencent, whose biggest product is its WeChat messenger-based social media platform, can perhaps be most closely matched up with Facebook.

While BAT only consists of three companies Huawei is an obvious Chinese rival to Apple and iQiyi is a streaming platform like Netflix. Several of the biggest Chinese tech companies, like Alibaba and iQiyi now also have listings in New York. Tencent’s music streaming unit, a Spotify equivalent, will IPO in New York this month. With almost no exception, there are Chinese equivalents to pretty much any established or promising U.S. tech company you care to mention.

Most of the apps on a Chinese smartphone will be logos unknown to anyone from the West. But analysts who specialise in the tech sector believe that over the coming years and decades that will cease to be the case. Some Chinese tech companies already have a significant Western market – most notably Alibaba. That’s a trend expected to continue and many sector experts and observers believe that within the next decade or two China’s big tech companies may well roar past their U.S. and other Western equivalents.

It is not so long ago that the latest technology in the world almost exclusively originated in the USA. The best tech-based innovations that have originated elsewhere in the West have inevitably been acquired by the U.S. big boys able to commercialise them better. Chinese companies would then copy these technologies and release versions on the local market. But that is now no longer the case. Most of the big Western tech companies, and their products, are banned in China.

The result of China’s censorious firewall has been a positive trend for domestic technology innovation. Chinese tech companies no longer copy existing digital models already successful in the West but create their own. And they now do so very well. Tencent’s WeChat monetises through a messenger platform in a way Facebook can only dream of. Entire ecommerce verticals work exclusively through the messenger, which has become so advanced it is essentially an entirely new messenger-based social media format. Western tech companies have started mimicking Chinese monetisation models and more. The tables are very much turning. Some would say they already have.

Western tech is in danger of being overtaken by Chinese rivals. And it’s not just digital business models. The latest Huawei smartphones outperform iPhones in many ways, with the flagship Huawei P20 Pro’s AI-powered triple-lense camera widely considered the best currently on the market. The company is now second only to Samsung on overall handset sales numbers globally. In biotech China is also pulling ahead, its leading companies and start-ups not constrained by the same level of regulation and red tape as Western rivals.

There’s a dark side to the increasing power of China’s tech giants. Pretty much every Chinese that owns a smartphone uses WeChat and the amount of personal data Tencent has on users is thought to put any criticism of Facebook and Google firmly in the shade. The government even plans to use these digital footprints. A controversial ‘social credit’ scheme based on digital footprints was recently announced. Social credit is earned by things like timely settlement of bills and not being given parking or other traffic fines. With many paying these kinds of expenses through WeChat, the government does not lack information Tencent of course cooperates with the country’s authoritarian government. The move has resulted in international condemnation and likened to a real life ‘Big Brother’ state. But it’s not as though China hasn’t been operating a Big Brother-esque state until now.

But it hasn’t been bad for the development of the latest technology in the world. AI-infused surveillance cameras are used to pick out criminals from a crowd in public spaces using facial recognition technology that cross-references with government databases of offenders at large. Government support for the development and application of this kind of technology and many others that are much more restricted in the West is given local tech companies an edge. China’s citizens also have very different attitudes to privacy and personal data. There is not the same outrage and debate, which makes the life of big tech easier.

Mobile-based e-payments systems, with Alipay the market leader, are far ahead of anything on this side of the world. In China’s larger towns and cities cash has almost disappeared from the everyday life of younger generations. Mobile payments totalled £9.9 trillion in China last year. In the USA and UK people still use cheques.
China’s one-party government is still officially socialist but as long as big tech doesn’t challenge its complete power in any way it receives huge support. The development of the latest technology in the world of AI is a pillar of government policy.

The most crucial edge that China’s biggest tech companies have is that they are able to access Western markets and are now doing so with significant success. Alipay has recently signed a deal with U.S. payment services infrastructure company First Data and its devices will be installed in local retailers. WeChat has also started establishing retail partnerships outside of China. Chinese tech companies are listing in New York and accessing Western capital markets.

But Western tech companies still find the doors to the huge Chinese market locked. Hardware companies such as Apple do sell in China with some success but most digital services are barred or are faced with restrictions that they consider too stringent to make it worth their while. Alphabet has recently agreed to relaunch Google in China years after it withdrew from the market due to its refusal to meet the local regime’s policy on censorship. It is now building a new Google for China that adheres to China’s censorship rules. The fallout has been a raft of resignations by employees, many of whom Google would have been loath to lose.

The rules are, it is hard to deny, unfair and stacked in favour of China’s tech giants. But the Chinese market is so big and valuable that the West is starting to compromise to gain access to it. However, few would bet that Western technology companies will adapt as well to the Chinese market as Chinese companies are now doing to Western consumers. Unless there is a significant change, ten years from now the world’s institutional investors may well be pouring their capital into whatever BAT has become at the expense of whatever FAANG has become.

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