This article was contributed by TechNode.

China’s digital economy has reached a turning point.

Before, new user growth could offset digital businesses’ strategic and commercial missteps. Double-digit or triple-digit MAU growth could mute criticism of flimsy unit economics, absent strategy, dodgy investments, or lackluster monetization efforts.

Now, internet user saturation within China’s consumer class makes it harder to avoid scrutiny with eye-popping user growth. Companies like Meitu, JD, and Zhihu are facing tough questions: shareholders and investors want to whether these platforms can turn their impressive scale into profits.

Weaker players might have a hard time meeting impatient investors’ demands for return on investment, but China’s digital giants are adapting. They are repositioning themselves to adjust to new market dynamics, developing strategies to take advantage of enduring opportunities as mature businesses.

Previously, China’s internet companies grew by latching onto investment frenzies in a particular product or industry vertical, known as fengkou (literally “a gap where a strong wind blows”) in Chinese startup lingo. These rapid influxes of capital and speculative behavior are so notorious that leading Chinese executives have joked that investors could pump in enough money to make pigs fly.

Investment frenzies have reshaped markets, delivered exponential growth, and minted some of China’s internet success stories. Meituan, Didi, and VIPKID were built off all the back of them.These companies identified white space, shaped user behavior, and benefited from oodles of capital to achieve scale and outlast a slew of competitors to win winner-take-all or winner-take-most positions. However, as the mobile internet’s white space shrinks, these investment frenzies are more volatile and less conducive to value-creation.

The recent struggles of live-streaming, bike sharing, and automated convenience stores illustrate the danger of relying on speculative investment flows. My own analysis estimates 80% of live-streaming players with Series-A funding didn’t last two years. ofo, a bike-sharing firm, has gone from a $2 billion valuation to the verge of bankruptcy. There are now serious doubts that Bingo Box, the automated convenience store darling backed by GGV Capital, can survive long enough(Chinese link) to make a meaningful dent in China’s retail landscape.

Six durable white spaces

China’s digital giants—Baidu, Alibaba, Tencent, Bytedance, Meituan, Didi, Pinduoduo, and JD—are looking for something more durable than spaghetti-against-the-wall investment flows.

When they first burst onto the scene, today’s digital giants were a thin, interfacing layer between consumers, products, services, and attention. Now, being a thin, interfacing layer isn’t enough. The giants are making themselves thicker in a way that adds new users, gives depth to existing offerings, deepens competitive advantage, and creates new revenue streams.

The giants are pursuing six avenues to growth:

New Tech R&D: China’s digital giants can develop or apply technology to existing or new operations. Leading players, such as Baidu, Tencent and Alibaba are developing leading capabilities in artificial intelligence, big data, and cloud computing.

Industry digital transformation: They can also offer new products and services to industry. Having shaped consumers’ digital behavior, China’s digital giants are lining up to lead the digital transformation of traditional industries such as retail, hospitality, tourism, and agriculture, packaging software and platforms as services.

Overseas expansion: They can seek growth overseas. China’s digital giants consider themselves well-placed to service mobile-first emerging markets, such as India and South-East Asia. These markets also have the growth prospects associated with relatively low existing internet user penetration.

Lower-tier cities: They can develop products, services and experiences for consumers in lower-tier cities. The stunning rise of Pinduoduo, Qutoutiao, and Kuaishou have shown that existing e-commerce, news, and entertainment apps don’t always meet the needs of users in China’s populous third, fourth, and fifth-tier cities.

Local services: They can further penetrate and digitize food, accommodation, shopping, and transportation markets. The size of the local services market and its potential for further digitalisation means the competition between “super-apps” like Meituan, Ele.me, Didi, and Alipay is just getting started.

New mediums: They can also explore new ways to search, connect, shop, and get informed. Innovations in newsfeeds, multimedia messaging, gamified reading and social commerce present opportunities to unseat incumbents in search, social media, and e-commerce.

Who’s playing where

Each of China’s digital giants has restructured in the last two years. That’s no coincidence. China’s digital giants are re-orienting themselves for future growth. If you cross-reference each restructure’s relationship to the above growth directions, you get a pretty good sense of who’s playing where for future growth.

Alibaba and Tencent’s investments, products and proxies will fight for market share across all six growth avenues.

Baidu continues its push to be relevant beyond search through artificial intelligence investments and applications.

Bytedance plans to take its content creation and recommendation products into lower-tier and overseas markets. At the same time, its recent tinkering with e-commerce integration and social messaging shows that it’s thinking about next-generation video commerce and social media.

Meituan hasn’t abandoned its ambition to be a super-app but has doubled down on services to restaurants and retailers on its platforms, with new features like order-management systems.

JD will strengthen its core business through investments in smart logistics, expand its offline retail partnerships and open up its logistics network to third parties.

Didi’s quest to become the world’s largest transport platform in 10 years continues unabated with overseas expansion, investments in developing markets’ ride-hailing services and autonomous driving tests.

Pinduoduo, China’s newest force in e-commerce, will improve merchant quality and test the upper limits of user growth.

As China’s digital economy has reached a turning point, China’s digital giants haven’t stood still. They’re seeking out durable sources of future growth. In so doing, they’ve set the stage for a new wave of intense competition.

This article will feature in Karateng magazine of the African Chamber of Commerce in Shanghai.

By Timothy Ang

Last November, in the bustling central Chinese city of Chengdu, hundreds of ambassadors and counsellors representing 19 African nations met with the leaders of China’s technology sector for the first China-Africa E-commerce Industrial Development Forum.

Just days after the much-hyped International Import Expo, where around 200 African businesses put their goods on display in Shanghai, the e-commerce forum was the latest public display of China’s commitment to this relatively minor aspect of its Africa engagement strategy.

Some of China’s largest tech giants are establishing roots in Africa’s still immature e-commerce market, where a mixture of structural limitations and more exciting markets elsewhere have deterred global players.

The prospect of getting an early seat at the table, however, has seemingly caught the eye of bigwigs such as Alibaba executive chairman Jack Ma, who has kickstarted a number of preliminary initiatives aimed at sewing ties with promising African tech talent.

In August Ma launched a $10 million annual prize scheme for budding African business people, called the Netrepreneur Prize, which Ma hopes will foster hundreds of future tech leaders over the next decade. Each year candidates will pitch their business models and 10 finalists will receive a $1 million grant from the Jack Ma Foundation and mentoring from leaders in the industry.

“As a fellow entrepreneur, I understand the importance of getting support during the early days,” Ma said at the program’s launch event in Johannesburg. “This prize demonstrates our support of a next generation of young entrepreneurs across Africa that is paving the way for a better future and impart positive change in their communities.”

Just two months later, Ma was in Rwanda, one of Africa’s fastest-growing economies, where he and President Paul Kagame signed a series of agreements to promote cross-border trade, digital infrastructure and tourism. At the meeting, Alibaba welcomed Rwanda into its Electronic World Trade Platform, or eWTP, which provides smaller businesses develop their logistical capacity and digitalisation

TMall, one of Alibaba’s online shopping platforms, has also rolled out its “Tear Off the Label for Africa” educational campaign, aimed at eroding the negative image many Chinese consumers have of goods originating from the continent.

Despite being a dynamic and emergent space, the nascency of Africa’s e-commerce market nevertheless carries with it a heap of issues that the world-leading Chinese giants may be ill-equipped, or unwilling, to tackle. Compared with what the likes of Alibaba are achieving back home in the domestic market, Chinese companies are still dipping their toes into Africa.

Emerging market

E-commerce is far from Africa’s largest earner, but the market is growing, and fast. According to research site Statista, the industry was worth $16.5 billion in 2017 and is poised to hit $29 billion by 2022 as necessary infrastructure, such as mobile phone ownership, and household incomes continue to rise. By 2025, when half of Africans have internet access, this figure could be over $75 billion, say Mckinsey.

For companies already setting up shop, this growth is paying off. Alibaba, with 4.2 million customers on the continent, saw the value of transactions through its AliExpress portal almost quadruple in 2017, driven by hungry consumers in key markets such as South Africa, Nigeria, and Kenya.

Admittedly this is pocket change next to China’s now $1 trillion digital marketplace, where two-fifths of the world does its online shopping, according to official figures from the Chinese commerce ministry. But China’s lightning-quick growth in this area may also offer a model and inspiration for less developed economies such as those in Africa – a narrative often taken during China-Africa trade talks.

Africa already has familiarity with ideas like mobile payments, which helped fuel the explosion of Chinese ecommerce. One of the largest service providers, Kenya’s SimbaPay, recently launched a service piggy-backing on China’s WeChat messenger, allowing money to be transferred cheaply and easily between merchants in Africa and China both using the app.

Furthermore, homegrown platforms such as Kilimall or Nigeria’s Jumia, both of which have operations in several countries and stock goods from China, reflect the appetite both among customers and local entrepreneurs. Disrupt Africa, a platform for African startups, says there are currently close to 300 e-commerce ventures across the 54 countries, all trying to get in on the activity.

The key step now, experts say, is for Chinese firms to tailor services to local African markets. As a diverse continent composed of different nations, languages, and sub-cultures, this will be no mean feat. But the mobile phone revolution in Africa driven by Chinese brands sets a good precedent.

“Look at Transsion in Hong Kong, the maker of Tecno brand phones – they’ve made Africa their focal market,” said Aubrey Hruby, senior fellow with the Africa Center at the Atlantic Council and author of ‘The Next Africa’. “They offer keyboards in local languages, and even have extra-long-lasting batteries to deal with inconsistent electricity access.”

Testing the water

Chinese giants such as Alibaba are hoping to emulate in Africa what they have rolled out in other emerging markets, such as Turkey and India, capitalising where the US players such as Amazon have shown less or no interest.

“Alibaba is a very smart company. They aren’t trying to go global everywhere at once,” said China-based digital marketing consultant. “It has been the company in China’s e-commerce market. They see poorer countries that have little infrastructure, as China before, so they know exactly how to deal with this sort of aspirational consumer-base.”

Currently only a handle of African nations – usually the largest economies with some exceptions such as Rwanda – are investing in e-commerce. Although Alibaba and Tencent have plans to scale up, Hruby of the Atlantic Council believes priorities will come first.

“Like many technology firms invested in Africa, they tend to congregate in places like South Africa, Nigeria, Morocco, and Kenya,” said Hruby. “Expanding into smaller, though rapidly growing, markets can often prove too difficult.”

And as with any budding industry, African e-commerce has roadblocks that Chinese attention won’t solve alone. Crucial requirements for an effective online delivery service, such as individual post codes, for example, are still lacking in many regions of even the richest African nations. Add to that a low bank account penetration and scepticism towards handing over cash via the internet, and it becomes clear that it will be many years before we see investment in Africa returning big bucks.

“There is not an established culture of online buying due to a big trust deficit,” said Stephany Zoo, head of marketing at BitPesa, a cross-border payment platform based in Nairobi. “Even the biggest players don’t have advanced inventory systems, meaning what you paid for may not be in stock and you end up with something completely different. Then there’s still the question of getting the package to your door.”

But there the optics to consider. Beijing often touts its ‘win-win’ approach to Africa. We see in Africa what the world saw in China a generation ago, they say. China’s staggering growth has in no small part been aided by its ability to absorb new technologies and leapfrog stages of development. Will this be Africa’s path?

E-commerce and services appear to be the next stage of China’s strategy into the continent. Beginning with strictly state-mandated infrastructure projects, China’s engagement then expanded to include private investment in the telecoms industry by the likes of Huawei and ZTE. If Africa can sustain its growth and development, we could be on the verge of a retail-centred third wave in Afro-China relations.

This article was kindly contributed by TechNode. For the original article, click here.

Looking at China tech headlines of recent months, one trend becomes evident: a whole lot of companies are not laying off workers. At least, officially.

In reality, it’s becoming clear that headcount control is occurring across China’s tech sector, and jobs are becoming scarce.

At the end of November, embattled e-commerce giant JD.com refuted rumors circulating that the company would be cutting 10% to 15% of its workers.

Online services company Meituan-Dianping, which recently had its IPO, said in December that reports of large-scale job losses were untrue, and that staff changes were part of “normal operational restructuring.”

Tencent claimed in late September that it had “no plans for layoffs,” as it announced a “strategic upgrade” amid gaming regulations that have threatened to kill one of the Shenzhen-headquartered company’s main cash cows.

Knowledge-sharing platform Zhihu also recently denied slashing its workforce.

It’s difficult to prove or disprove such rumors or refutations specifically. In China, few companies admit to laying off staff, even when downsizing is obvious. Part of this is often attributed to culture, but to be sure, no company would like to bring attention to fact that they are putting some of their employees out of a job.

Yet another reason why few companies in China publicize job cuts is that in many cases, they are technically not laying workers off.

“To officially conduct sizable layoffs, a company shall file with its local labor bureau after consultation with all employees or labor union,” explains Alex Luo, an attorney and partner at Anli Partners, a law firm that works with many of China’s top technology and internet companies. “However, this is rarely done, as it reflects poorly on the company, is a tedious process, and the labor bureau will often challenge it.”

Instead, it is far more common for companies to negotiate with workers individually, hoping to come to amicable terms of separation. “In the best cases, a company will offer an employee a few months’ salary, the specific number usually depending on their total number of years spent working at the company, and the employee agrees to leave of their own volition,” says Luo.

In less pleasant circumstances, a company could threaten to dismiss the employee based on poor performance, potentially damaging their future career prospects, Luo adds. “In this case, the company usually will agree to give the employee a positive reference, on the condition that they accept the severance terms.”

Time to let go

Once-hot startups like bike-sharer Ofo and phonemaker-turned-messaging-app-investor Smartisan now face overwhelming financial challenges, prompting speculation of potential bankruptcy.

Ride-hailing firm Didi Chuxing is reportedly cutting staff bonuses in half after a scandal-plagued year that saw the company lose money at an accelerating rate.

Fintech platform Qudian is also reportedly letting go of hundreds of workers, as the company struggles. Its NYSE-listed stock price is down more than 80% from its October 2017 IPO price.

Meanwhile, Xiamen-based selfie app Meitu was rumored to have been cutting staff throughout 2018, after a failed overseas expansion and disappointing foray into e-commerce.

Two stars of the once-hot cryptocurrency arena, Bitmain and Huobi, have confirmed layoffs. Bitmain has denied rumors that they will be cutting its workforce in half.

Looking at the difficult conditions facing Chinese tech firms, it is unsurprising that many are evaluating again their staffing needs. While the top headlines have focused on Chinese trade tensions with the US and the overseas legal and political troubles faced by Huawei and ZTE, there are a number of other factors at play.

“It seems to me that there are two big problems facing many Chinese technology companies,” explains Luo, the attorney. “The first is that it is very hard for startups to raise funds. For more mature companies, the slowdown of the Chinese economy is hurting sales.”

Indeed, the funding tap, which was flowing freely in early 2018, has since dried up. As tech valuations have come back down to earth from their highs a year ago, investors are wary of getting burned, as has been the case for several the late-stage investors in Xiaomi and Meituan-Dianping, whose stocks have performed poorly after their high-profile IPOs.

Indeed, many of the hottest destinations for capital in China’s tech world just a few years ago have since proven to be bottomless money pits. Bike-sharing, once labeled as one of China’s “four new great inventions,” has failed to develop a business model to match the ambitions of startups and investors.

The P2P collapse revealed a number of “fintech” startups to be little more than Ponzi schemes. The smartphone market is saturated and slowing in growth, offering companies few options with which to differentiate themselves and their products.

For larger firms that have risen to prominence by capitalizing on China’s growing economy and consumer class, times are getting tough as well. The trade war with the US has weakened Chinese consumer confidence. The wallets of Chinese spenders are also being impacted by the government’s deleveraging campaign, meant to control the country’s unsustainable surge in corporate debt, which has been fueled by loose lending from state banks over the past decade.

As the country attempts to ween its firms off their borrowing addictions, the trickle down of that austerity effect that is likely hitting consumers. For retailers like Alibaba and JD.com, this may cause them to adjust their sales expectations.

Mounting challenges

To further complicate an already-fraught situation, regulation has also hampered some of the most promising areas of China’s tech sector. A nearly year-long freeze in gaming approvals, along with a regulatory clampdown, has placed strain on a field in which Chinese companies had been excelling.

Restrictions on development and application of blockchain technology have caused many Chinese startups to at least partially relocate overseas. A series of crackdowns in online content has limited growth options for social media platforms, and required many to spend heavily on managing and censoring content.

To be clear, job cuts are rarely a pleasant ordeal in any part of the world. Yet in China tech, there are some unique factors at play. The bulk of the individuals losing their jobs were born in the 1980’s or 1990’s, forming part of the country’s one-child per family generation.

Many of these people are saddled with the burden of being the only caretaker for their aging parents, while also either personally desiring or socially pressured to have a family and children of their own. For this cohort, losing a job is disappointing not only for themselves, but their entire families, too.

China’s tech firms are also known to place high demands on their employees’ time and attention. The “9-9-6” work schedule—9 a.m. to 9 p.m., six days a week—leaves little time for family, relationships, or hobbies. In these instances, being laid off can feel like losing more than just a paycheck.

“To be honest, I feel betrayed [by the company’s CEO],” explained one recently laid-off tech worker in Shenzhen, who asked to remain anonymous citing privacy concerns.

“I did so much for him, for the company. They demanded that every employee love the company, to give them everything we had. They didn’t just want our minds or our skills, they wanted our hearts. That’s what we gave. And yet, when the time came to let us go, what to us was personal, to them, became ‘just business.’”

By Timothy Ang

For Chinese youngsters, choosing a cosmetic surgery procedure has become as casual as picking out a new pair of shoes.

Dubbed the “Facebook of cosmetic surgery,” nip-tuck app SoYoung (新氧 xin yang) has achieved a billion-dollar valuation by piggybacking on the exploding popularity of plastic surgery in the world’s second-largest economy.

China is home to the world’s fastest-growing cosmetic surgery market, which more than doubled in value between 2015 and 2017 to reach RMB 193 billion ($28.1 billion), according to Deloitte. By the end of the decade, the Chinese market is predicted to be worth RMB 334 billion, making it the second largest in the world behind the United States.

SoYoung has been the largest beneficiary of this boom by appealing directly to China’s self-conscious millennials. According to the company’s research, China is unusual in that 96% of people undergoing cosmetic procedures are under 35 years old, compared to just 25% in the US.

SoYoung aims to hook in young people by creating an online community for those going under the knife. The app not only allows users to find nearby clinics and compare prices for different procedures, but also to upload photos of their treatments for their friends to admire.

The approach has been hugely effective in terms of attracting investor capital. In 2018, SoYoung raised $160 million, allowing it to join China’s growing list of tech unicorns—startups valued at over $1 billion.These cash injections have helped SoYoung cement its position as the dominant player in China’s plastic surgery market, fending off closest rival Gengmei (更美). SoYoung now hosts more than 7,000 clinics across 351 cities on the app, which company CEO Jin Xing—himself the son of a cosmetic surgeon—claims accounts for more than 90% of China’s licensed service providers.

The Changing Face of China

The rise of SoYoung comes amid an exponential rise in demand for beauty treatments that started long before the company was founded in 2013, according to Jonathan Sullivan, Director of the China Policy Institute at the University of Nottingham.

“Chinese attitudes toward consumption and presenting the ‘self’ have changed as material wellbeing has increased and social media have become popularized,” says Sullivan.

Just ten years ago, wearing makeup was often frowned upon. Today, China is arguably even more selfie-obsessed than the West, with young people feeling enormous social pressure to conform to strict beauty standards online.

Photo-editing app Meitu has attracted more than 350 million active users due to its ability to heavily touch up selfies to give its users the perfect porcelain white skin, pointy chin and large, sparkling eyes associated with Japanese or Korean pop stars.

“Many people in the West edit their selfies, but in general Westerners’ selfies are more ‘realistic’ than the Chinese ones,” says Andrew Zhao, an assistant professor of anthropology at the University of Louisville, Kentucky, who studies fashion in China. “These kinds of image-enhancing apps have the effect of heightening people’s consciousness of their imperfections.”

The pressure extends into the offline world too, fuelling the desire for a surgical fix. During last year’s graduation season, hospitals and clinics reported that the number of procedures tripled as students, particularly female graduates, underwent surgery in the hope that it would boost their chances in a job interview.

A 99-page report by Human Right Watch earlier this year found that sexist job listings were rife in the Chinese employment market, with many companies asking applicants to be certain heights, body shapes or “aesthetically pleasing.”

It’s not just women, either. Chinese men now make up over one-fifth of all cosmetic procedures, according to data from Gengmei, and around a quarter of total industry spending. Again inspired by Korean pop and soap stars, the “little fresh meat” look is driving men towards popular non-invasive treatments such as acne removal or hair transplants.

Plastic Surgery for the People

The success of SoYoung has played a major role in democratizing cosmetic surgery, for better or worse, for China’s young people.

By bringing thousands of clinics onto one platform, the app is a powerful tool for connecting small clinics hidden away in dingy shopping malls users that might be unaware of their existence.

“I found out that this clinic was just 20 minutes from my house after scrolling through SoYoung,” says Yi Hua, a 25-year old who recently underwent a procedure to make her cheek bones appear more defined. “I wanted to have something done for my birthday, and my mum said she would pay for it as my present.”

The ability to see ratings and comments by other users is also key to SoYoung’s success. Like many sectors in China, the cosmetic surgery industry has grown extremely quickly with a shocking lack of regulation.

A report by SoYoung found that there were more than 6,000 surgery clinics in Guangdong Province, but only 43 of these had an official license.

“By creating an online community for patients to share their experiences and rate clinics, beauty service apps are becoming trustworthy sources of information that helps consumers make better choices,” Liu Xiao, Vice President of SoYoung, told Caixin.

But though the ratings system helps build trust among consumers, SoYoung is also fuelling an aggressive, ultra-competitive culture that could put patients at risk. This is pushing down prices for consumers, but at a cost.

With little regulation to police behaviour, surgeries are resorting to dangerous cost cutting to remain in business. An industry report by HSBC in 2016 found that botox injections were being supplied at up to 60% discounts in order to keep up with the competition magnified by apps. In that same year, according to research website Cnii.com, over half of botox products in China were fake or smuggled into the country illegally. 

Then there is SoYoung’s financially successful but questionable practice of allowing clinics to pass on discounts to customers in return for posting pictures and reviews. If financial incentives are geared toward volume of circulation, a clinic’s rating can quickly become detached from its quality.

The company has also come under fire for partnering with lending agencies, which advertise enticing loans to app users who may be a few yuan short of their next operation. An investigation by Caixin found that users could borrow up to RMB 200,000 ($29,100) at 1% interest, after only uploading basic personal information such as employment status and your last pay cheque. SoYoung claims that between 70% and 80% of all loans made in-app are approved.

A Future Transformed

It remains far from certain whether SoYoung will be able to justify the enormous investment it has received so far.

On the one hand, the fundamental trends all point toward a continued increase in demand in China for beauty treatments. Economic growth and increases in income levels, though slowing, are still fast by global standards.

Demand for surgery does not spring merely from app-fuelled egotism but from deeper roots in East Asian culture, which has long promoted more rigid ideas of beauty. As a result, it is difficult to imagine Chinese consumers turning away from cosmetic surgery en masse.

Yet the cosmetic surgery industry, and by extension SoYoung, does face a number of challenges. Above all, it remains intensely vulnerable to an increase in regulation. Crackdowns in China can often lead to massive closures of unregistered businesses. This would likely push up prices for customers.

At a time when consumers are already cutting back on spending in anticipation of tough economic times ahead, this could slow down growth in the industry significantly.

A loss of momentum would create problems for SoYoung as China’s tech sector feels the chill from a slowdown in investment. Many apps have raised hundreds of millions of dollars from investors despite making large losses. That will become much more difficult this year, as investors will be looking for a return on investment.

And although a large-scale turn against cosmetic surgery is unlikely, it is possible that its popularity could be dented by a change in fashion. According to Sullivan, China will inevitably develop a counterculture opposed to mainstream, image-focused values.

“China, Japan, Korea all have dominant ‘mainstreams’ but also healthy subcultural scenes,” says Sullivan. “I expect that individual responses to what can be cloying conventions in China will continue to find expression in diverse ways.”

This article was kindly contributed by TechNode. For the original article, click here.

China is racing against time to establish its own technological intellectual property, particularly in the semiconductor industry. The moves come amid growing pressure on Chinese tech companies overseas, underscored by the recent arrest of Huawei CFO Meng Wanzhou and punitive measures by the US on Huawei rival ZTE.

This time around, China appears to be taking a more discreet approach, pursuing more low-profile strategies rather than eye-popping, state-led partnership initiatives such as the National Integrated Circuit (IC) Industry Investment Fund, which was set up in 2014 and raised RMB 138.7 billion ($20.1 billion) in its initial phase.

“Sino-US tensions are pushing China into a corner,” the head of an integrated circuit trading company told TechNode, requesting anonymity because of the sensitivity of the topic. As a result, he said, there’s been a shift in policies at both national and local levels where greater emphasis is being placed on investing in the semiconductor industry. “We are seeing increasing integration of government budget and private money in good projects,” he added.

“China will increase support to the semiconductor industry, while target projects and allocation of capital will see more subtle shifts,” said Kyna Wong, head of Credit Suisse’s China Technology team.

Wong pointed to the recently announced Shanghai-based tech board plan as a sign of new efforts to bring in individual investors and developing companies into the world of tech investment.

For semiconductor and other projects requiring long-term capital injection in research and investment, and fixed assets such as factories and labs, a stock exchange allowing flexible capital exit could benefit private investment.

In contrast to listed A-share stocks which should report earnings before IPO filling, the registration-based tech board will have no profit requirement for IPO candidates. This is likely to encourage R&D driven projects characterized by high investment risks but also high returns.

Meanwhile, the Chinese government is extending material support to early stage semiconductor projects developed by students and educational institutions.

Earlier this month, for example, during the final of the Beijing University of Aeronautics and Astronautics’ global innovation competition, the top prize for early stage projects was awarded to a project that focuses on chip security, while the prize for the growth-stage projects was given to a team that is developing non-civil communication chips. Both winners will be given access to an undisclosed amount of private capital.

Chinese semiconductor companies also are aggressively investing in open source projects. One example is instruction set architecture (ISA) RISC-V. ISA works between hardware and software, and defines how a computer is programmed.

In April, Ni Guangnan, a member at the Chinese Academy of Engineering Science, said that Chinese companies should pour the whole country’s resources into chip-making. He drew parallels to the mission of those who dedicated their lives to develop significant national projects such as developing China’s own nuclear weapons.

In November, during China’s Wuzhen Internet Conference, Ni was assigned as the general director of China’s own RISC-V alliance. At another technology forum held in the same month in the southern Chinese city of Shenzhen, Ni mentioned that Intel and ISA ARM are dominating the core chip-making technology. “If we could work together on RISC-V, under the current situation, we can be the third major power,” Ni was cited in Chinese media as saying.

“The government is very interested in the technology,” Fang Zhixi, former global vice president at Intel and now the chairman of RISC-V Foundation’s consultancy committee in China, told TechNode prior to the Wuzhen Internet Conference. “I have been getting in touch with high government bodies including the Cyberspace Administration of China (CAC) and Ministry of Industry and Information Technology (MIIT). We see no problem organizing talks or having both Chinese and international researchers and universities working together.”

Fang explained that the Chinese government’s interest in RISC-V is due to an open-source technology’s “natural advantages.” Tech companies may build their own applications on the “open and free” fundamental tech standards, and produce commercial projects with no extra-legal pressure such as patent disputes imposed by external parties.

“Open-source [solutions and communities], in fact, can be a way to avoid tensions in the tech sector,” Fang added.

Rick O’Connor, executive director at RISC-V Foundation, the official non-profit organization of ISA RISC-V, told TechNode in the same interview as Fang’s that IoT and AI, two major Chinese national strategic industries, were also eagerly looking for open source solutions.

Nevertheless, Wong believes China still has a long way to go.

“From the perspective of policy, support to open source technologies can be easily done. However, one concern is communication across standards. China still has to tackle challenges when racing with players leading mainstream tech games in many fields.”

Wong believes China’s intention is to establish its own intellectual properties in mainstream tech games. If it were not for the purpose, China could always pay for US patents’ use right and projects built on open source platforms, as the US tech entrepreneurial ecosystem is highly commercial.

“[Therefore] open source is not always enough, though it will produce positive outcomes,” Wong added.