Here's why China's innovation ecosystem is good for business

• China is the world's second-largest economy and looks set to become a global hub of future-looking innovation.
• But what's behind the transition from being the world's main manufacturing hub to an innovation ecosystem?
• Members of the World Economic Forum's Innovator Communities outline the cultural and societal factors driving innovation.

As the second-largest economy in the world, China plays an important role in guiding global economic prosperity.

Known as the global manufacturing hub of the 20th century, China has successfully transitioned to become a hub of future-looking innovation.

Reports suggest it has given birth to more than 300 unicorns and attracted the second-highest amount of start-up funding, just behind the United States.

But what was behind this transition, and are there any unique cultural or societal factors influencing the Chinese start-up ecosystem that differs from the rest of the world? Here's what the World Economic Forum's Innovator Communities had to say:

A prominent factor that stood out among responses from the members of the Innovation Communities was a robust governmental support mechanism, exemplified by the state’s top-level design policy.

This aspect underscores the need for start-ups to diligently monitor the Chinese government’s resource allocation priorities and seize opportunities to align and expand their businesses accordingly. Other factors include

Guan Wang, Co-Founder and Chief Executive Officer, Learnable

The Chinese government plays a more pivotal role compared to other counterparts, necessitating entrepreneurs and start-ups to comprehend the market through a broader lens.

For example, venture capitals and funds in China are mainly from government-related sources, which will push some areas to develop faster than the others.

Shan You, Senior Vice President, Smardaten Technologies

The Chinese government plays a significant role in shaping the start-up ecosystem through policies, regulations and support programmes.

Initiatives like the Made in China 2025 plan and various innovation parks provide incentives and resources to foster entrepreneurship.

Feng Xiaobing, Chief Executive Officer, Beijing Botsing Technology

At the beginning of the year, China's Ministry of Industry and Information Technology and 17 other ministries and commissions jointly released the Robot + Application Action Implementation Plan as an example, which clearly put forward the development goals and scenarios of manufacturing robots in 2025.

This means that with the advent of the "robot +" era, robots will be applied on a wider scale, and manufacturing robots will usher great development opportunities.

As a robot innovation and start-up enterprise, the introduction of this policy has further strengthened our determination to walk on this road and enhanced our confidence.

Charlotte Wang, Chief Executive Officer, EQuota Energy

Government leads subsidized support for renewable energy development and direct and indirect social consideration from residents’ point of view for startup influences.

We see those as opportunities and align our strategies with those factors like involving government and state-owned enterprise policies with our market plans, communicate with various players for establishing their understanding of our impact results.

Honghao Deng, Chief Executive Officer, Butlr Technologies

The most successful unicorns in China likely survive a lot more critical feedback and fierce competition. This has resulted in an impressive innovation speed and incredible work culture.

Within Butlr, we are always impressed by how fast our Shenzhen team prototype and improve the product based on feedback. That's why we have invested in our Shenzhen team for hardware prototyping.

China also embraces new products and applies them to use faster than the rest of the world. We have experienced one of the fastest adoptions in China for green buildings and senior care use cases.

Dr Xinhong Chen, Chief Executive Officer, Electroder

The Chinese economy has been growing quickly at its sizable scale, making it the second largest. When gross domestic product expands at 8%, tech corporations perform better and start-ups must seek even higher growth than established businesses. So, the speed to deliver solid results is very essential.

In addition, considering this high-growth environment has been maintained for decades, optimism becomes a natural result and businesses tend to believe in things which could otherwise be seen as impossible in other places.

With one of the highest populations in the world, businesses are confronted with a very high degree of competition, as well as critical feedback from users.

This leads to companies iterating fast with the mindset of a ‘lean start-up’, focused on learning from real-world experiments and prototyping minimum viable products in the market to get ahead of the competitors.

It’s also a market wherein, if a product wins the competition and is successfully validated by customers, it gains strong momentum to scale and grow at a ground-breaking speed.

Guanxi, a Chinese term that refers to the concept of personal connections and relationships, especially in a business or social context, and the world of start-ups is no different.

Just like any business context, guanxi can make or break a deal, and influence decision-making, negotiations and partnerships. Establishing and maintaining guanxi can lead to better business opportunities, access to key decision-makers, and the resolution of conflicts.

Terence Lui, Chief Executive Officer, Varadise

In the Chinese start-up ecosystem, unique cultural factors influence the procurement system for market entry. Personal relationships – guanxi – play a vital role, requiring startups to build strong connections with clients and officials.

Government policies heavily impact procurement and understanding local preferences, market dynamics and fierce competition is crucial. Localization and adapting strategies are key to successful market entry in China.

Shan You, Senior Vice President, Smardaten Technologies

Building and maintaining strong relationships with partners, investors, and government officials are highly valued. Smardaten does leverage strong connections – guanxi – with leaders in digital, technology companies and public organizations to establish a robust foundation of case studies quickly.

Other environmental factors and social phenomenon were mentioned in China and Hong Kong that made the innovation landscape unique.

Strong climate change policies, ambitious growth targets and the technological savviness of the population also benefit start-ups and other companies working with the Chinese innovation ecosystem.

Francois Amman, Chief Executive Officer, Akila Information

In China, both aggressive climate change policy and ambitious economic growth targets are at the top of the agenda and not seen as antithetical to one another.

Combine these policies with social phenomena such as continuing urbanization, declining birth rates and improving educational systems, and you are looking at a situation where there are more buildings that require maintenance, operation and sustainable optimization and fewer people to keep them running.

This makes smart building, digital twin and artificial intelligence technology crucial. The need to find a balance between productivity, growth and sustainability makes China an ideal location to be doing what we are doing with Akila’s organizations are willing to try radical new ideas to find that balance.

Gary Ng, Chief Executive Officer, viAct

Not only the integration of technology into daily life is unparalleled, offering a fertile ground for technology start-ups to thrive, but being from Hong Kong (SAR), the government's proactive measures, such as favourable policies, targeted investments and regulatory flexibility, have played a key role in shaping the ecosystem’s trajectory.

Apart from this, Hong Kong's welcoming environment, driven by its strong economy, business-friendly policies, multicultural society, language advantages, and networking opportunities have attracted talent for remote jobs.