China’s President Xi Jinping is taking big steps to improve the country’s economy as the trade war with the U.S. continues. In November, he enacted a number of measures that will expand imports and liberalize key sectors in the economy, predicting that China’s imports of goods and services will exceed $40 trillion in the next 15 years.
Innovation is at the core of Xi’s strategy to advance the “China Dream” of national rejuvenation, and the country’s policymakers are taking steps to attract foreign innovators to China to bolster the country’s efforts to cement its position as the global tech power to watch. In the face of increased economic pressure from the U.S., China recently launched an initiative to build an innovation community in Hainan.
Hainan, in southern China, is a tropical island often dubbed the “Hawaii of China.” Thirty years after formally becoming a province, with strong tailwind from central government, Hainan is emerging from obscurity under the government’s plan to make it a magnet for global techies and digital nomads.
In late December, Hainan’s provincial capital, Haikou, held a three-day inauguration event for a new startup incubation program. A group of foreign “China hands” descended on the island to participate in the event that brought together 20 startup founders and a panel of a dozen investment managers, mentors and entrepreneurs from the US, Europe, Australia, India, and the Middle East. Alongside local R&D centers run by China’s tech titans Alibaba, iQiyi Mobike, and by Microsoft, the new Fuxing incubator is being promoted by its managers and officials as an international go-to place for those who have their sights set on the Chinese market.
In April, Xi announced at the Boao Forum, Asia’s Davos, the launch of a special economic zone and a free port in Hainan as a part of his signature Belt and Road Initiative. Hainan, one of the poorest provinces in China, is intended to “serve as window on reform [and] promote the formation of a new pattern of opening up.” The speech was a catalyst, and since then Hainan government officials have been scrambling to execute on the president’s vision.
“Hainan has been given the green light to take reform further and deeper than ever before. They have the budget from central government to make it happen,” said Nishtha Mehta, a panel moderator at the Haikou event and an Indian national who lives in Shanghai and coaches corporate innovation teams.
Those more familiar with China are reminded of Deng Xiaoping, the chief architect of China’s economic reform and modernization and his famous “Southern Tour” in 1992 that preceded the transformation of Shenzhen from a tiny fishing village into a vast tech hub of nearly 12 million.
With a view to history, Hainan’s leaders are promoting an ambitious vision for the island-province. “Digital disruptors will be the catalysts for Hainan to evolve into the epicenter of a tech ecosystem that could one day even rival that of Shenzhen,” said Peter Yang, cofounder of PreShares, a VC firm and manager of the Haikou Fuxing incubator.
“We are not newcomers to high-profile conferences in China,” said Matthieu Bodin, general manager of Tech Stars, a US-based accelerator, in China. “But success ultimately hinges on the ability to implement the grand plans. My impression is that they are serious about Hainan.”
President Xi’s designs for Hainan make this a potential game changer for the island province, which will resonate in China as a whole. Startup founders from Europe and Asia that have chosen China as the base for their startups are coming to Hainan in an effort to build out their customer base and find new engines of growth.
One foreign entrepreneur I came across at the Hainan “entrepreneurship festival” was WikiFactory cofounder Nicolai Peitersen, who had come down from Chengdu, where his company is headquartered. Peitersen is Danish, and he has three European cofounders. Their startup uses artificial intelligence to enable makers of physical components and hardware anywhere in the world to source a suitable manufacturer in China, then use the company’s solution for design and production.
WikiFactory, established in 2015, has received $1.6 million to date from angel investors. In 2019 Peitersen and his partners plan to raise at least part of a $10 million A round in RMB to finance their main operation in Shenzhen. When asked to explain the choices he made, Peitersen says that China is the manufacturing arm of the world. “It leads the global push for smart manufacturing. Chengdu offers a combination of pleasant lifestyle and a rich talent pool.” But Peitersen and his team are betting that they can exponentially grow their cross border ecommerce services from the digital free trade zone and port in Hainan.
I also came across Milad Nouri, a software engineer and a native of Nantes, France, at the Haikou event. Nouri has been living and working in China for 13 years, picked — together with four cofounders from India, China and France — Hangzhou as the base for their startup, YooSourcing. Hangzhou, an emerging tech dynamo 150 miles southwest of Shanghai on the Yangtze River Delta, is home to ecommerce giant Alibaba and 13 out of 120 unicorns in the Greater China region, according to Hurun Research Institute, a Shanghai-based research firm.
Like Peitersen in Chengdu, Nouri and his partners in Hangzhou are interested in the prospects Hainan can offer their business. Nouri’s YooSourcing service introduces tools such as crowd verification, matchmaking driven by machine learning, and instant messaging to help optimize the match between wholesale buyers and sellers.
Why Hangzhou? “Connecting with Chinese entrepreneurs is easier here than in other big cities like Shanghai,” said Nouri. “And also for the quality of life.”
The China Daily, a newspaper that reflects the government line, reported earlier this week that Jack Ma, founder and chairman of Alibaba, and Pony Ma, chairman and CEO of Tencent, China’s two largest tech titans, were elected as chairman and vice chairman of an advisory council for the Hainan provincial government. This is a political act that with high certainty was beckoned from the highest echelons.
China is pushing Hainan front and center and reinforcing this outlier with its heavy hitters, but pomp and fanfare alone will not be enough. For success there needs to be substance, and we will only see substance if foreign startup founders buy into the story and feel that Hainan levels the playing field for them. It will certainly be an interesting development to watch in the near future.
Rami Blachman is founder of China Israel Innovation Accelerator (CIIA) in Shanghai and Hangzhou. He is also an advisor for international business development at AgriNation VC. He was previously Partner at Giza Venture Capital in Tel Aviv and Shanghai and led international business development for the financial services arm of Zhejiang Zhongda, a Chinese state-owned conglomerate.