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Startups

Silicon Valley faces four challengers, all in China

Beijing, Shanghai, Hangzhou and Shenzhen emerge as high-tech centers

According to a Chinese government report published in March, the country had 164 unicorns in 2017, up 33 from a year earlier. These include ByteDance, which provides video-sharing app TikTok.

TOKYO -- For decades the U.S. was the world's startup leader, spawning a generation of companies, especially in technology, that went on to become world leaders. But Silicon Valley is looking over its shoulder at China, and for good reason: 16,000 companies are born there every day.

A Chinese government report put the number of "unicorns" -- privately held companies valued at $1 billion or more -- in the country at 164 in 2017, a 25% increase from the year before. By some counts, it already has more unicorns than the U.S., although cross-country comparisons are difficult and putting a price tag on unlisted companies is more art than science.

The authorities in Beijing are looking to these new companies to transform an economy that still relies heavily on state-owned enterprises. From fintech to ride-sharing, China's unicorns are beginning to have an impact on the global industrial order.

Chinese unicorns are concentrated in four cities: Hangzhou, Shanghai, Shenzhen and Beijing.

Hangzhou, 180 km southwest of Shanghai has a vibrant small and midsize business scene. Birthplace of e-commerce leader Alibaba Group Holding, the booming city has the third most startups in China after Beijing and Shanghai. New businesses in finance, logistics, big data and e-commerce are constantly popping up.

"Master Ma says the future lies in big data," said Chen Jiping, CEO of data analysis startup DTstack. "Master Ma" refers to Alibaba founder and Chairman Jack Ma Yun. Business people in Hangzhou revere him like a god.

Before founding DTstack in 2015 to handle big data for retailers, Chen worked for Alibaba for 11 years. His experience at Alibaba in analyzing data for retailers on online shopping malls, helped him start his business.

StartDT's "smart" vending machines help retailers understand their customers.

Most of DTstack's clients are big, traditional companies that struggle to incorporate information technology into their business. When DTstack analyzed the sales data of high-end liquor maker Kweichow Moutai, it found that 99% of the company's online orders were placed by third parties, which then resold the products. It helped the distiller introduce a system to screen out such orders.

DTstack is just one Hangzhou startup founded by Alibaba alumni. Although most of these new companies do not have direct capital ties with the e-commerce giant, many former employees made their fortunes as Alibaba shareholders. Those nest eggs have proved handy in starting new companies.

Personal ties help as well. StartDT, which collects and analyzes customer data from "smart" vending machines equipped with cameras, sensors and facial recognition technology, was founded with help from an investment by former Alibaba CEO Jonathan Lu.

Shanghai has been at the forefront of China's economic development since long before "startup" became part of the business lexicon. Although some complain that the city, with its many large enterprises, is risk-averse, only Beijing has more startups.

One of Shanghai's leading lights is XNode, an accelerator. Earlier this year, it teamed up with the local unit of French spirits maker Pernod Ricard to introduce a sales promotion system using social media.

XNode sought startups able to tackle the problem for Pernod Ricard. It selected eight out of 123 applicants and put them through its management training program. After three months, it held a competition to choose the winner.

Pernod not only adopted the system but invested in the winner. XNode, founded in 2015, has carried out similar projects with German carmaker BMW and Chinese home appliance maker Haier Group.

Some startups in the city provide services to others that are consumer-facing. Shanghai Qiniu Information Technologies, which provides cloud-based image storage, is one startup that has achieved unicorn status. Its clients include online fashion retailers and image-processing app developers. Eighty percent of China's internet users indirectly use the company's services, which are aimed at "narrowing the distance between ideas and merchandise," according to Qiniu executive Brown Du.

Shenzhen, just north of Hong Kong, was chosen as China's first special economic zone in 1980. Foreign companies entering the Chinese market via Hong Kong transformed the former fishing village into a trading hub. Now Shenzhen is a center of electronics manufacturing.

One Shenzhen startup that is attracting notice is Insta360. JK Liu founded the developer of smartphone-compatible 360-degree video cameras in Nanjing after studying information engineering at Nanjing University. But Liu moved his company to Shenzhen in 2015 due to "the lack of hardware engineers" in Nanjing. Apple gives Insta360 cameras precious shelf space at its Apple Stores. Its products are sold in more than 100 countries.

"Shenzhen has an ecosystem that enables the world's fastest development and mass-production design for electronic equipment," said Junichi Fujioka, who heads Jenesis, a contract manufacturer in the city.

Beijing's main advantage is its position as a center of innovation and its deep pool of people, goods and capital. It sits atop China's startup rankings and has a large cluster of IT and other high-tech industries. Its northwestern Zhongguancun district is home to Tsinghua University, Peking University and national institutes such as the Chinese Academy of Sciences. Collaboration between academic institutions and industry has produced many startups.

Fu Jianbo, who has a doctorate in physics from Peking University, founded Beijing XMatrix Tech with three classmates in 2015. The startup makes high-precision wearable devices to measure pulse and body temperature. Fu, who now serves as the company's chief operating officer, said the company uses semiconductor processing technology to shrink its devices.

Xmatix Tech is one of many startups located at  this science park.

Its "smart thermometer" monitors a child's physical condition based on changes in body temperature. The product went on sale in Shanghai this year.

Xmatix Tech is located at a science park managed by an investment company that was established in partnership with Tsinghua University. Many of China's leaders in science and technology hail from that university.

The park is one of the largest of around 30 university-affiliated science parks in Beijing. It attracts high-tech companies to its vast grounds, and uses the rent to pull in new startups with ideas and technologies.

Zhongguancun attracts highly trained professionals, many of whom studied in the U.S. or Europe. One is Yin Qi, founder of Megvii Technology, a unicorn that develops facial recognition technology. Beijing's technology hubs contribute to the supply of human resources essential for entrepreneurship, according to Li Zhihui, a senior consultant with Nomura Research Institute.

Beijing is also, of course, China's political nerve center. Zhang Fei, who founded an intellectual property management startup, attended a seminar organized by city authorities. The weeklong closed-door event gave participants the chance to interact with officials in charge of intellectual property policy and scholars. "The seminar helped me learn policy trends that affect my business," Zhang said.

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