CHINA’S NEW NORMAL

529412_184_ChinasNewNormal_Engels.indd 1 09/08/2019 14:58 529412_184_ChinasNewNormal_Engels.indd 2 09/08/2019 14:58 PASCAL COPPENS CHINA’S NEW NORMAL HOW CHINA SETS THE STANDARD FOR INNOVATION

Pelckmans Pro

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China’s New Normal 4 SMART SECURITY SMART 1 CHAPTER CHINA’S NORMAL NEW INTRODUCTION BY HINSSEN PETER FOREWORD The master plan Transparency Open Sesame The blacklist The crisisofsocialconfidence Comfort orcontrol A face-liftforthefuture Facial recognition Military expansion Military catch-up Expensive isbetter Chinese nature lovers China’s newleaders A quantum leap 5G The fourthindustrialrevolution ‘Unqualified’ Chinese? The Chinesepuzzle Egg orbanana Eight NewNormalindustries Artificial intelligence makes Chinasmarter China astheNewNormalforWest Speed isthenewinnovation ofinnovationThe N-curve ofWesternThe S-curve innovation China’s NewNormalisveryspecial A guideforanyonewhowants to understand thefuture

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CONTENTS

60 30 68 65 56 70 66 66 58 54 25 45 64 62 46 63 32 32 22 42 57 72 72 67 27 14 71 09/08/201914:58 5 Contents 09/08/2019 14:58 09/08/2019 91 111 78 79 83 84 89 88 98 99 85 80 90 114 112 115 122 124 132 132 134 123 129 136 125 135 130 103 108 108 106 109 105 100

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The ant that became a giant The ant that payment Digital Online lending lending (P2P) Peer-to-peer Innovation is taking risks is taking Innovation Tick, tick, tick, tick, ... boom Fintech The state Money is time Shopping is fun HNWI me with your money Trust Daigou opinion leaders – key KOL Short-video Omo-sapiens New retail A two-speed China E-commerce Context The modern Chinese consumer Social e-commerce business (C2B) to Consumer Polarised harmony Polarised China for aliens Artificial counsellors. A digital Sparta A digital Artificial counsellors. Social control The new media Sport is good The new Chinese heroes Responsible games Chinese fun Data Media CHAPTER4 INSURANCESMART& FINANCE CHAPTER3 SMARTRETAIL CHAPTER2 ENTERTAINMENT SMART & MEDIA 529412_184_ChinasNewNormal_Engels.indd 5 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd6

China’s New Normal 6 SMART MANUFACTURINGSMART 6 CHAPTER MOBILITY SMART 5 CHAPTER SMART HEALTHSMART 7 CHAPTER The future ofthebank Micro-affinity The newinsurer isChinese China’s visionaries Is thisresponsible China’s codeforsuccess Traditional thinking Digital health The world’s medicalfactory Trust inAItechnology Hospitals The acceptance process Made inChina2025 Smarter machines Activate poorentrepreneurs Protection ofintellectual property rights The Shenzhenmiracle Micro-surgery Micro-enterprise Micro-innovation Micro-collaboration Shanzhai What isChina’s secret Smart factory bosses Exporting mobility Shared Electrical Connected Autonomous With orwithoutacar A highergear Distance ormobility Smarter cities

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190 180 155 195 199 170 153 198 148 139 196 138 149 146 183 193 182 194 192 175 175 176 179 157 173 172 137 147 177 177 151 181 161 09/08/201914:58 7 Contents 09/08/2019 14:58 09/08/2019 217 221 214 218 216 215 215 201 227 227 222 224 223 234 228 226 246 235 240 202 203 208 208 206 200

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Rise like a phoenix Rise like Steam and Steam Smart Chinese is best where East-West, The school of the future A mindset for the future children weapon is its real China’s The end of Chinese toys learning Long-distance smart is not rich. He’s My tailor Who am I More, please of education The reform kills creativity Education Chinese Creative The biggest polluter the world China saves Smart Education Data privacy Data biotech Hunger for Japan as suffer the fate Will China same Healthy China 2030 1.4 billion Chinese feed How to HOMEWORK ENDNOTES CONCLUSION CHAPTER8 SMARTEDUCATION 529412_184_ChinasNewNormal_Engels.indd 7 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd 8 09/08/2019 14:58 9 A word of thanks 09/08/2019 14:58 09/08/2019 !

THANK YOU THANK 529412_184_ChinasNewNormal_Engels.indd 9 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd10

China’s New Normal 10 feel finehere inBelgium. giftthatYou are themostwonderful China ever gave tous. new thingsandto keep onmovingforward. Althoughyouare acitizenoftheworld,younow old. Duringthenext sixteen years itwasyoursmileandjoythat gave ustheenergy to try Our daughter, Amelie,who cameinto ourliveson11June2002,whenshewasninemonths insights that have resulted inthisbook. life. Without you, I could never have gathered together the knowledge, experience and physically. You were mydailysupportandtheonlyconstant inarichandoften eventful 27 years ofmywildChina adventures. Beinganentrepreneur ishard, bothmentally and My wife,Annelies,whohasshownalternating patience andenthusiasmthroughout the I dedicate thisbookto thetwomostimportant peopleinmylife. ! 谢 谢 09/08/201914:58 11 A word of thanks 09/08/2019 14:58 09/08/2019 - - - China’s China’s go to all the people who have inspired, stimulated and supported me. and supported stimulated inspired, people who have all the go to . It was mainly because I trusted you that I believed you, because for me all me for because you, I believed that you trusted I because was mainly It . A special thanks to my friend David G. Brooks for all the long hours you spent to help you spent to for all the long hours G. Brooks my friend David to A special thanks me, who helped everyone to my gratitude express to but not least, I would like Last I would also like to thank the China experts who read through the earliest version version earliest the through read who experts China the thank to like also would I Luc De Cleir. Thank you for encouraging me to write. You were the first person to be person the first were You write. me to Thank you for encouraging De Cleir. Luc for was the right choice Pro Pelckmans convinced me that You Elisabeth Torfs. Peter Hinssen. Thank you for showing me a completely new way and for taking me new way and for taking completely Hinssen. Thank you for showing me a Peter directly or indirectly, with the realisation of this book: Jason Breen, Kurt Wang Lin, Wim Wang Kurt of this book: Jason Breen, with the realisation or indirectly, directly Vos, Julie Vens-De team. Damme and the whole nexxworks Garriau, Inge Van Rombaut, Felix deservemention a special De Kesel Boesmans and Stephanie Elegem, Cathy Van Laurence Belleghem and Nancy Van Steven give me a new podium, as do Rik Vera, for continuing to surf of inspiration. for allowing me to on their wave Rademaker-Gysbrechts Jonckheere. Jonckheere. I somehow trig of my book. I hope, in the process, the English version me edit and improve and insights as your unique China experiences a book about China, write you to gered the world. to should be revealed New Normal New me they promised you what produced team trust. Your business is based on personal them. you and to both to I am enormously grateful, would, and for that and Jan Der Borght Jan Van den Bergh, of Jan Van my manuscript: Thierry Raymaekers, reborn! Your inspirational foreword to this book was, for me, the icing on the cake. on the cake. this book was, for me, the icing to foreword inspirational Your reborn! me, time after inspire you continue to pen is so powerful that Your in me as an author. lieve at all!’ really not bad was eight months of writing, your final feedback was: ‘That time. After been written. have Without you, this book would never Thank you for your sincerity. along on your own journey. Since 2018, I have no longer been active as technology entre no longer been active as technology Since 2018, I have along on your own journey. Today, we followed together. a single moment of the road regretted never but I have preneur, phoenix a like and feel than ever people more reach I can network, your to part thanks in My heartfelt thanks not among the following those who are and I hope that name them all many to too are There my forgetfulness. list will forgive 529412_184_ChinasNewNormal_Engels.indd 11 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd 12 09/08/2019 14:58 FOREWORD

by Peter Hinssen

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China’s New Normal 14 cultural differences and,mostofall,hugefrustrations. of hugemarkets andhugeopportunities, butalsohugechallenges,thresholds, huge with both hands and went off to establish ‘Shanghai-Bell’. They returned homewith stories Belgium) andBertDeGraeve (later theCEO oftheVRT and Bekaert) seizedthischance up operations inShanghai.Pioneers like JulienDeWilde(laterset theCEO ofAlcatel in West’s level of(technological) development, numerous companieswere encouraged to Xiaoping introduced his‘open door’policyin1978, inaneffort to closethegapwith wave ofBelgianmanagers andtechnologists hadalready setoffforChina.WhenDeng secrecy. Unknownandunloved. for manyothers, thecountryremained aclosed‘blackbox’, shrouded inmystery and as each of which excelled as world centres of innovation and growth. But China? For me, before, certainly muchhigher thananycomparable brand inStuttgart orDetroit. industry,automobile Toyota andLexus setthebarforcomfortandsafety higherthanever or Sony, themostcreative andinventiveplayerinthefieldofpersonal electronics. Inthe emergence ofcompanies like Canon, whichmade the mostadvancedcameras in the world, class innovation thrived, both in technology and design. The Japanese ‘miracle’ saw the about achangeinperception. Japanevolved from acopycat nation to anation where world- copying things, albeit really well. However, first Japanandthen Korea slowly began to bring the Far Eastasahugefactory withdirt-cheaplabourthat wascapableofnothingmore than the cheaptoys Iplayedwithasachild.For adults, thisconfirmedthestereotypical imageof where trueinnovation was deadandcheapimitation wasthemainwayofworking. role asthe‘engine ofthe world’,whileAsiaasawholewaswidelyregarded asaregion bathed inthewondrous luxuriesofcapitalism. TheUnited States hadtaken overEurope the commercial marketing violenceofthe‘greatest nation onEarth had onlyreally beenonewinner: The United States. Western Europe wasbeing flooded by trying to reinvent itself after the terror andtragedy oftwoworldwars, outofwhichthere Lotus of China—andthat’s puttingitmildly!ReadingtheTintincomicbookentitled stories emerging about the Cultural Revolution had seriously coloured the West’s perception Cold War. Thecombination ofageneral fearofadvancingCommunism andthehorror ‘The Yellow Peril’. That musthave beenmyearliestimageofChina,asIgrew upduringthe it hard to keep upwiththepace ofAmericantechnological development. world. For me,theepicentre wasPalo Alto anditsoonbecameclearthat Europe wasfinding was taking place in Silicon Valley and theresulting digital tsunami that soon flooded the on theWest. Inparticular, Ifocused withincreasing intensity ontheinternet revolution that didlittleto setmyyoungmindat rest! For thenext twenty years, Iconcentrated myownprofessional gazealmostexclusively When I started working in the 90s as a young engineer at Alcatel in Antwerp, a first ‘The Era ofAsia’ hadbegun,ledbythepowerhousesofJapan,Korea andSingapore, Gradually, thisimagewasovertaken byreality. Isaw ‘MadeinHongKong’ onmanyof As theyoungboybecameaman,IfoundmyselflivinginEurope that was A GUIDEFORANYONE WHOWANTS TO UNDERSTAND THEFUTURE ’ andbabyboomers The Blue ’ s 09/08/201914:58 15 Foreword 09/08/2019 14:58 09/08/2019 - - - to Silicon Valley and make lots and lots of money. and lots lots and make Silicon Valley to If you travel to China nowadays, you have the feeling that you are travelling to the to travelling you are the feeling that China nowadays, you have to If you travel When, not so long ago, I first went to China with my company, nexxworks, to visit to visit nexxworks, to China with my company, went When, not so long ago, I first In just a few years, the general perception of Chinese (digital) technology has under technology of Chinese (digital) perception the general In just a few years, But in recent years this has all changed. Once they have completed their studies, studies, their completed Once they have this has all changed. years But in recent For some time it had been a common sight to see Asian technologists employed in employed technologists see Asian been a common sight to some time it had For harder landing for the American tech-gurus returning to Palo Alto. Once they led the world, Alto. Palo to returning the American tech-gurus landing for harder to tour I went on a seven-day Last year, being left behind. increasingly but now they are After innovation. of digital in terms hotspots Shanghai and Shenzhen, two of the absolute I also planned where Valley, to Silicon in the new China, I flew directly immersion a week’s richness of apps and the versatility of services like WeChat were truly fascinating. But truly fascinating. were WeChat of services like richness of apps and the versatility drive of a country in full a clear common theme: the massive innovative it all shone through transformation. even an perhaps is It Europe. to return you when landing’ ‘hard a much very is It future. copiers of American examples may have been correct. Alibaba, for example, was first seen first was example, for Alibaba, correct. been have may examples American of copiers much further Alibaba is moving it is now clear that as a ‘Chinese knock-off of Amazon’. But innovative. is, above all, much more American rival and than its and much faster were eyes my Valley, Silicon in do to used we Chineselike just experts, and start-ups unbelievable the technology, digital of omnipresence The world. new whole a to opened tech superstars that you don’t need to go to Palo Alto to make your fortune. Jack Ma, Jack Ma, your fortune. make to Alto Palo go to you don’t need to that superstars tech He is a perfect in cross for my students. model par excellence is now the role particular, than life, and above all, very Chinese. Jobs and Elon Musk: larger between Steve than the no more were the Chinese players The initial idea that gone a metamorphosis. these Chinese whizz-kids can now hardly wait to pack their bags and return home to China. home to bags and return pack their wait to these Chinese whizz-kids can now hardly the where always the same:If you ask them “why”, the answer is nearly “Because that’s it is now shown that Alibaba and Baidu have Tencent, Huawei, like action is.” Companies like in China. Entrepreneurs of world standing players technological develop possible to of generation the new to demonstrated have Ma (Tencent) (Alibaba) and Pony Jack Ma best students from every country and continent. But a decade ago, it was a clear sign of and continent. But a decade ago, country every from best students very best of the best — systematically — the the most brilliant students that come things to they well, so that speak English increasingly China. They also began to come from began to their way make MIT, from graduate most of them held: to that the ambition could achieve presto subito previously unseen spectacular rates of growth, with Alibaba as one of the first. with Alibaba as of growth, rates spectacular unseen previously the very among were roots with Eastern back then, these developers Even Silicon Valley. one of the MIT in Boston, at been lecturing I have the past few years, For best in the business. of this educational to be part fantastic in the world. It is universities technological finest the attract to see how the MIT continues to and revolution Mecca of the technological Over the past ten years, however, the Far East has slowly been edging its way back into the way back into been edging its East has slowly Far the however, years, ten Over the past found confirma in Asia increasingly rise of digital about the rapid The early rumours picture. revolu mobile the embrace to fully Asian country first Japan was the markets. tion in world the suit, quickly becoming soon followed i-mode. Korea NTT DoCoMo's like tion, with players about Chinese companies enjoying emerge to began even Stories world leader in broadband. 529412_184_ChinasNewNormal_Engels.indd 15 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd16

China’s New Normal 16 for roughly one-thirdoftheworld's entire economicactivity. Indeed,China’s positionwasso studies have confirmed that throughout thecourse of recorded history Chinahasaccounted impressed bythisprophecy. — andquicklyto what ishappeninginChina.Needlessto say, the nerds were lessthan Michelin-rated chefs. Moritzisconvincedthat SiliconValley ishistory unlessit“cottons on” by theGooglebusandtreated to alltheprivilegesofstardom, suchassushilunchesfrom pared thiswiththepampered nerds ofSiliconValley, whoare picked upeachdayforwork nies andtheirhungryyounglionshave anaggressive driveto changetheworld.Hecom He describedtheworkmentality ofthestart-ups hehadseeninChina:howthesecompa Financial Times ciers forSiliconValley. Some timeago,Moritzwrote anoutstanding editorial articleforthe venture capital. Hesoonworked hiswayupto becomeoneofthemostimportant finan Magazine but he wasoriginally a journalist.Back in the 80s, after he wrote a portrait piecefor one ofmyfavourite riskcapitalists inSiliconValley. Today heisapartnerinSequoiaCapital, ping inWalmart. Thecontrast ishuge;thedifference betweendayandnight. rive backintheUSAto seepeoplestillpayingwithpaperchequesfortheirweeklyshop have theirownQR-codeto receive money!It's abitoftechno-shock whenyouthenar smartphone to pay for everything via WeChat or AliPay. Even the beggars on the streets a furtherweek’s stay. Itwaslike stepping backintime.InShenzhen,everyone usestheir ideological matters. For me,the greatest monumentto DengXiaopingisShenzhen,my major reform inthe economicfield,butalsohadanequallyimportant impact onsocialand accelerated path oftransformation. Thenation's newleaderwasnotonlythearchitectof ning speed.Following thedeath ofMaoin1976, DengXiaopingsethiscountryonanewand powers, suchasEnglandandJapan. train, butalsofoundthemselvesincreasingly dominated andhumiliated bynewworld Humiliation’, duringwhichtheynot onlyfailed to jumpon board thenewtechnological pening, Chinastood still.TheChinese peoplestillrefer to this periodasthe‘100Years of developments andscalethemupto giganticindustrialproportions. Whileallthiswashap chemical revolution inGermany.and Later, theUnited States wouldcapitalise onthese hands. Thisledfirst to thesteam revolution inGreat Britain, followedbytheelectrical which initiated worldwidechange basedonnewtechnology that waslargely inEuropean century wasEurope‘s century. Aboveall,itwasthecentury oftheIndustrialRevolution, 1800 and 1900, when China lost the dominant position it had held for centuries. The 19th the case.Themostfascinating andmostrecent oftheseperiodsspanstheyears between for theglobaleconomy. There have onlybeenrelatively shortperiodswhenthiswasnot ‘Middle Kingdom’or thatcrucial and so unassailable the country came to see itself as the centre of the earth: the Today’s China is working to erase the memory of the ‘Century of Humiliation In otherwords, throughout muchofhumanhistory Chinahasbeenthepivotal point Since timeimmemorial,Chinahas been animportant hub in world trade. Academic is true about the respectiveMuch the same spirit of the countries. Michael Moritz is aboutSteve Jobs,hedecidedto switch careers andtryhishandintheworldof , inwhichheargued: “SiliconValley wouldbewiseto followChina’s lead.” Zhōngguó . ’ at light Time - - - - - ­ - 09/08/201914:58 17 Foreword 09/08/2019 14:58 09/08/2019 ------, with ’ (OBOR) ’ approach is frowned on or even on or even is frowned approach ’ . This makes it an ideal machine for . This makes ’

’ , an idea that finds its best expression in the famous ‘One Belt One Road in the expression best finds its , an idea that ’ China has become a long-term thinking machine, with a visionary ‘day after tomor after ‘day a visionary with machine, thinking a long-term has become China The latest evolution in Chinese thinking is the idea of China as the hub of the ‘New in Chinese thinking evolution The latest Perhaps this story is true; perhaps it is not. Even so, it brilliantly encapsulates the is true; perhaps it is not. Even so, it brilliantly encapsulates this story Perhaps China opened the door slightly to the West at the end of the Mao era, with the leg the end of the Mao era, at the West slightly to China opened the door a sprawling and complex country of 1.4 billion inhabitants. and complex a sprawling all, a ‘ruthless power of execution focus and, above row’ focuses in this book, Pascal is why, pace. That a rapid changing at times when things are sider, for example, the discussion about social credit scoring: the three-figure code or scoring: the discussion about social credit for example, sider, Chinese citizen by the year 2020 and will be correlated every will be given to that score This ‘Big Brother their WeChat-account. with, for example, in China, But if you discuss the matter in the West. by many commentators openly reviled run to way in the world it as the most natural They regard people just shrug their shoulders. Silk Road hun past the in seen has world the project economic largest the perhaps is This initiative. this to and barrel” “lock, stock itself The Chinese government has committed years. dred in the nation innovative in the hope of making China the most (technologically) project, to fascinating are project with the associated planning and leadership direction, world. The eyes. Con Western to although the methods can sometimes seem a little strange watch, being said, the Chinese people and their leaders have not lost their ability to think and plan think and plan to not lost their ability have being said, and their leaders the Chinese people still has a remarkable in mind. The country future than the immediate more with something everyone way of persuading effective go and a remarkably to it wants clear vision of where same direction. move in that to on the French Revolution’. Zhou Enlai thought for a while, gently swirling his liquor around Zhou Enlai thought for a while, gently swirling his liquor around Revolution’. on the French tell. early to answering: ‘It is too his glass, before monolithism associated thinking. The old stereotypical for long-term Chinese capacity In the meantime, China has developed China has long since disappeared. with Communist in the world. That system is now perhaps the most capitalist what speed into with startling visit in his autobiography. At the first meeting between Nixon and Mao, it soon became Nixon meeting between the first At visit in his autobiography. In his with Kissinger. a passion for history Zhou Enlai, shared Chinese Premier, the clear that place over a glass of cognac took scene that describes a later book, the American diplomat discussing their The two men were in the heart of Beijing. somewhere an open fire around is your opinion his Chinese host: ‘What asked subject, when Kissinger suddenly favourite based on the newly emerging electronics industry. Today, the city is the headquarters of is the headquarters the city Today, industry. electronics emerging based on the newly Ping and WeChat) of owners (the Tencent giant), telecom (the Huawei as such companies company in the world). insurance An (the largest The US Direc Nixon. Richard president, by the American the country in 1972 endary visit to of this has left us a brilliant description the time, Henry Kissinger, at Security of National tor absolute favourite city in China. When Deng came to power, Shenzhen was little more than was little more Shenzhen power, Deng came to in China. When city absolute favourite with economically side of the border on the Chinese station village, the last railway a rural Zone as a ‘Special Economic it designated Deng immediately Hong Kong. prosperous insignifi pale into would Kong alongside which Hong a new city, build to the ambition of growth amazing rates of China, achieving the Silicon Valley cance. Shenzhen became 529412_184_ChinasNewNormal_Engels.indd 17 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd18

China’s New Normal 18 through SiliconValley. Iwassurprisedbyhowirritated theywere bytheattitudes and to achieve. I recently led a Chinese management team from a large multinational on a tour about China,howandwhyitisdeveloping soquicklyandwhat, ultimately, ithopes cial momentfortheWest. Europe willplaywithinit.Yet foralltheuncertainty, onethingiscrystal clear:thisisacru dom reassert its leadership intheworld.Itwants to re-establish its positionasthe‘MiddleKing required to fendforitself. power to imposeits willontheinternational agenda,sothat eachindividualcountryisnow we are evolving towards G0 or G-Zero: a situation in which no group of countries has the vein, the G20 has shown itself to be toothless and the G8 is equally impotent. As a result, The UNisnownothingmore thanaceremonial ‘talking shop tively aboutthefuture ofourplanet—hasbeendevalued to thepointofmeaninglessness. teaches at NYU,argues that theoriginalfunctionofUnited Nations —thinkingcollec mentality, to use the phrase coined by the American Professor Ian Bremmer. Bremmer, who Cold War. Concurrently, weare alsolivinginaworldincreasingly dominated bya‘G-Zero superpowers, ChinaandtheUnited States. Itisperhapseven possibleto speakofanew an impactonusall,thescaleofwhichisstillworryinglyunknown. less onChina’s pastandmore onits present and its exciting future, whichiscertain to have which his or her children will live. In other words, it is a must-read for all of us! After twenty experience, orwants to beinspired, orsimplyhopesto better comprehend the worldin a company, orisengagedininnovation, orwishesto provide hiscustomers witha better ade ago,almosteveryone isseriouslyunderestimating thelikely impact. even alittlehard to stomach orbelieve. Asaresult, andaswiththedigital revolution adec focal pointofourNewNormal.Thisideastillsounds‘odd’ to ourWestern ears, perhaps tive era fedbyAI,willunquestionablybeinChina.Inthenearfuture, Chinawillbecome the the next phase,the‘Fourth IndustrialRevolution centre fordigital development inthepastclearlyresided in SiliconValley, thecentre for and society thingisnowhappeningwithChina.Whereas asawhole.Exactlythesame many peoplehugelyunderestimated thespeedofchangeandits impactonlife,work idea sounded ‘exotic’, perhaps even a little fanciful. Surely, I was exaggerating? As a result, dicted that digital would soon become a normal part of our everyday lives. At the time, this to beaware of—andlearnfrom. field of tension betweenthe‘new’and ‘old’ inChinesethinkingissomething weneed thinking aboutChina.Theynolongerknowwhat Chinastands forinourmodern world.This with a clear noteChinese,” they said, of contempt in the old way of in their voice, “trapped oftheirformer compatriotsbehaviour inSanFrancisco‘s Chinatown. “Theseare theold ’ . Itremains to beseen,of course, howthisnewCold War willdevelop andwhat role At the time of writing, tension is growing between the world‘s two great economic For thisreason, this bookisamust-read foreveryone whoisanentrepreneur, or runs It islessthanten years sinceIwrote mybook For thisreason, itisvital to doeverything possibleto learnandunderstand allwecan It iswithinthecontext that of thiseconomicandpoliticalfree-for-all Chinawishesto ’ asKlausSchwabcallsit,thenewcogni The NewNormal ’ withnoreal power. Insimilar (2010),inwhichIpre ------’

09/08/201914:58 19 Foreword 09/08/2019 14:58 09/08/2019 - s New Normal, before it is too late. late. it is too before s New Normal, ’ Peter Hinssen Peter In recent years, I have come to know Pascal as the very best of guides for everything for everything as the very best of guides Pascal know come to I have years, In recent relating to China and I am proud to regard him as my partner in this fascinating and inspi and fascinating this in partner my as him regard to proud am I and China to relating wants manual for anyone who written His book is a brilliantly voyage of discovery. rational China is a country: it is becoming a that forget Just future. on our uncertain get a grip to standard. years of living and working in China, Pascal knows better than anyone precisely what what precisely than anyone knows better in China, Pascal of living and working years him it possible for this makes style, irresistible tick. In his own the Chinese people makes show us to but also ignore, we can no longer that facts us with harsh confront not only to China we can learn from what 529412_184_ChinasNewNormal_Engels.indd 19 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd 20 09/08/2019 14:58 < China’s Go player Ke Jie loses on 25 May 2017 to Google’s artificial intelligence machine, Alpha Go.

INTRODUCTION

CHINA’S NEW NORMAL

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China’s New Normal 22 been drivenbydomesticconsumption, anincrease of45percentage points sincethe thanthe‘rich’West.disposal Moreover, inrecent years up to 78%oftheGDPgrowth has as AmericaandEurope combined.TheChinesealready have muchmore money at their tries) from 2015onwards exceeds that ofAmericaandEurope, andby2050willbeas great power parity (awidelyused parameter to compare the purchasing power ofdifferent coun each year. Andthere are twootherimportant newgrowth normalities.China’s purchasing rate, China’s economyisstillgenerating around athird oftheworld’s total economic growth domestic innovation, rather thanfrom exports andstate subsidies. an improved andmore balancedeconomicstructure withgrowth comingincreasingly from growth rates intherest oftheworld.Bythishemeantamore modestgrowth rate, linked to malcy’, duringwhichits economicgrowth wouldbemorerange orlessinthesame asthe citizens andto thewiderworldthat hiscountryhadentered anewphaseofeconomic‘nor era he called the New Normal (xīnchángtài growth rate oflessthan7percent. InMay2014,Xideclared that Chinahadentered anew assumed thereins ofpower. SincebecomingPresident, Xihashadto confront anannual 1987. TheChinesegrowth miracle appeared to cometo astuttering haltjustasXiJinping Chinese leaderfollowingthedeath ofMaoZedong in1976 andheremained inofficeuntil Deng Xiaoping( This high-speedeconomicgrowth wastheresult ofthe‘OpenDoorPolicy’ adopted by nearly unbroken 35-year period of average annual GDP growth of more than 10 percent. event coincidedwiththecountry’s first deceleration inthe rate ofeconomicgrowth after a on from countryto country. AndnowitisChina’s turn. it seemsthat mostinnovative thetitleof‘the placeonEarth’isonethat isregularly passed tion ofandimprovement Japanesemethods.Throughout uponsuccessful modernhistory LG andSamsungwouldbecomesodominantintheirsectors, largely through theirimita automotive industry. Similarly, 20 years later few could imagine that Korean companies like servers at thetimebelieved that Japanwouldever develop into theworldleaderin In the1960s itwasJapan’s turn to copyAmerica’s leadingtechnology, althoughfewob Industrial Revolution inAmericawiththestolen designsofBritishcotton-making machines. the English-born Samuel Slater, known forever after as ‘Slater the Traitor’, kick-started the inside sackssame kindofthinghappenedintheUnited ofcoffee.Muchthe States, where who in1798managedto smuggleimportant parts ofthespinningmuleinto Ghenthidden mainland to witnesstheIndustrialRevolution. Themanresponsible wasLieven Bouwens, Two hundred years ago,mynative city ofGhentwastheveryfirst city ontheEuropean advent ofXiJinping. advent state-run companiesthat are nowbeingsystematically written off, onebyone. amounted to nearly7%,giventhat alarge partoftheeconomystillconsists ofloss-making However, China’s NewNormalisanythingbutnormal Xi Jinping( CHINA ’ S NEWNORMALISVERY SPECIAL 邓小平 习近平 1 Itisremarkable that Chinese reported GDPgrowth in2017still ) after hisrise to powerin1978. Dengbecamethemostimportant ) becamePresident ofthePeople’s RepublicofChinain2013.This 新常态 ). In doing so, he made clear to his own

! Evenwithaslowergrowth - - - - 09/08/201914:58 23 Introduction China’s New Normal 09/08/2019 14:58 09/08/2019 - - -

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2 , private companies that are worth more worth more are that companies , private 3 5 than 1 billion dollars. This is three more than the United States. than the United more This is three than 1 billion dollars. (R&D) as Europe and development China now spends as much on research they only spent half as much. ago just eight years or America, whereas China already has 149 unicorns China already companies reveal new concerns for America towards the real capabilities the real new concerns for America towards companies reveal firms. of Chinese technology of similar technology If a comparison is made between the growth nearly growing those in China are companies in China and the West, active on their still almost exclusively though they are even twice as fast, domestic market. China accounts for 40% of all the world’s patent applications and is now applications patent for 40% of all the world’s China accounts American and to granted number of patents the total approaching Japanese companies. and other Chinese high-tech Huawei firm actions against Trump’s The list of the world’s 20 most valuable internet companies (by market companies (by market 20 most valuable internet The list of the world’s nine Chinese enterprises. contains already valuation) + + + + + + + + + + + + nothing to fear from China and its dramatic economic renaissance. Nothing could be fur economic dramatic China and its fear from nothing to that phenomena and examples In this book I will highlight the trends, the truth. ther from this the Chinese people, in the hope that image of China and of this outdated will shatter competitive as individuals and companies in a world where remain to us better will prepare continue. The assumption remains that China needs to copy because it is not capable of copy because it is not capable to China needs that continue. The assumption remains many politicians, that ‘story’ own. This is the stereotypical on its innovation generating their pop about China. It reassures tell love to in the West and journalists business leaders reassuring a be might this while ‘them’.than Yet innovative more still are ‘we’ that ulations West has the that one, since it feeds a self-fulfilling prophecy it is also a dangerous story, by most people in the West is outdated or even totally wrong. This is the image projected This is the image projected wrong. totally or even is outdated by most people in the West the American to Vice-President, in a broadcast in 2014 by Joe Biden, the former American one inno project, you. Name me one innovative “I challenge television: people on national played has come out of China.” Donald Trump that product change, one innovative vative 300 stolen China had already that on much the same theme in 2018, when he tweeted could not be allowed to that a situation rights, property in intellectual billion U.S. Dollars This handful of facts and figures is enough to show that the standard image of China held the standard to show that is enough and figures This handful of facts need to look at the spectacular rise of innovation over the past five years. In 2018, this rise In 2018, five years. the past over of innovation rise spectacular the look at to need innovative the overtaking point, with China apparently a tipping reached in innovation point: signal this tipping developments key Some capacity States. of the United In my opinion, China’s New Normal is about much more than classical economic growth growth than classical economic is about much more New Normal China’s In my opinion, from and other legacies intervention state on highly reliant the economy is still analysis, as look at to today meaningful be more it to analysis, I believe a future-focused the past. For huge country’s of the as the best indicator in China of innovation growth the exponential we perspective, proper its in Normal New China’s view to want we If potential. economic 529412_184_ChinasNewNormal_Engels.indd 23 529412_184_ChinasNewNormal_Engels.indd 529412_184_ChinasNewNormal_Engels.indd24

China’s New Normal 24 Secretary inChongqing, themostdenselypopulated city inChina,andamemberofthe middle classintheworld to astheChineseFacebook the newstandards incommunication setbyTencent’s WeChat product –mistakenly referred five years earlierwhentheOlympicGameswere hosted inBeijing fidence to make thisplayground theirown.In2013,anewandmore innovative China awoke. homeland. Themobiledigital era wastheirplayground, andtheyhadtheambition andself-con Chinese experts returned from AmericaandEurope to setupandrunnew companiesintheir from thenewclassofChinesesuper-rich.Itwasalsoyearinwhichfirst majorwave of power theypossessandinwhichFerrari wasunableto keep upwithunprecedented demand next JackMa,thefounderofAlibaba;yearinwhichconsumers first recognized thehuge the yearinwhichyoungentrepreneurs suddenly started to believe that theycouldbecomethe This wastheturning pointyear:theyearinwhich switch wasmadefrom quantity to quality; force behindtheChineseinnovation revolution. comparable to peopleinWestern driving Europe –isunquestionablythemostpowerful of 1.4billionChineseto liveabetter life.Thisdesire –thewishto enjoyastandard ofliving (the country’s largest socialmediaplatform) oreven byXiJinping,buttheurgent desire is notpredominantly directed byAlibaba(China‘s biggeste-commerce giant)orTencent ing thetrends that stimulate innovation inChina.Iwillexplain whyandhowthisinnovation New NormalChinawillbeamajorforce. Iwilllook pastthehackneyedclichésbydescrib six years). Icallthese theChinesephoenixes, incontrast to theunicornsof West. years ago(orelseare oldercompaniesthat have totally reinvented themselvesoverthepast global standards are all supremely innovative and the majority were founded less than six will notcontinueto copyinthefuture, butthe Chinesecompaniesthat are currently redefining seeks to becomeaninnovation powerhouseinits ownright.Thisdoesnotmeanthat China structure andasource ofknowledgethat thecountrycannow exploit to its advantage asit to thedevelopment ofaproduction industrywithmillionsoffactories andexperts: aninfra capable ofmakingaprofit. Incontrast to the experience inJapan and Korea, inChina thisled turned this culture of copyinginto its trademark byreplicating almosteverything that was ing fruitthat dangledtantalisingly from thetree ofWestern innovation. China,inparticular, achieve thisinlessthan20years. These Asiancountriesallstarted bypickingthelow-hang decades to make thetransformation from innovation copycat to innovation leader, Chinawill China’s New Normalalsostarts inthat year. same Althoughittook JapanandKorea many and entered anewageofinnovation ofatype never seenbefore. Asaresult, thisbookabout in theChinesezodiac,ayearassociated withwisdom,intelligence andintuition that provided thedecisive impetus ment influential leaders) signalledtheendofera of extravagant andunprincipledself-enrich Chinese Politburo, themost senior politicalorgan inChina, containing thecountry’s 25most

? OrwasittheappointmentofXiJinpingasPresident andCommunist Party Secretary Whatever thereason, there nowseemslittledoubtthat in2013Chinaturned acorner Was thisperhapstheresult oftheimpulsethat Chineseentrepreneurs hadreceived My personal experience suggests that Chinaentered the newageofinnovation in2013.

? OrbecausethecorruptiontrialofBoXilai(theCommunist Party

? OrwasitbecauseChinasuddenlyfounditself withthelargest

? Orwasitsimplybecause2013theYear oftheSnake

? Or was it the influence of ? Orwasittheinfluenceof

? - - - - - 09/08/201914:58 25 Introduction China’s New Normal 09/08/2019 14:58 09/08/2019

- 凤凰 time S-curveinnovation of phase 3 phase

), the duality of existence that gives the universe its shape its the universe gives that of existence ), the duality 阳 phase 2 phase ) and yang (

阴 phase 1 phase THE S-CURVE OF WESTERN INNOVATION WESTERN OF S-CURVE THE funds represents yin ( represents Unicorns, like phoenixes, are mythical creatures. But unicorns are much rarer. The desire to desire The rarer. much unicorns are But creatures. mythical are phoenixes, Unicorns, like and emphasises individuality that culture in a Western is rooted unicorn next become the In of entrepreneurs. the vast majority for out of reach remains that a dream uniqueness, the phoenix ( In China, become phoenixes. contrast, want to entrepreneurs Chinese but also and prosperity, strength virtue, with the strongest associated fènghuáng) is not only In Belgium, Ernest Solvay invented the ammonia-soda process to produce soda ash. Henry produce to the ammonia-soda process In Belgium, Ernest Solvay invented The list is almost endless. of cars. a brilliant method for the mass production developed Ford 1 Figure uniquely Chinese investment and innovation strategy. uniquely Chinese investment and innovation than 100 years. success for more commercial to has been the secret innovation In the West, start-ups or the phoenix departments in major Chinese companies are all less than six yearssix than less all are companies Chinese major in departments phoenix the or start-ups this And this is what them all as start-ups. to refer to accurate more it is probably old. In fact, know as we start-ups not these are But Chinese start-ups. remarkable about: these is book allied to potential all young companies with an enormous growth They are them in the West. of a and is the result fast is breathtakingly the top to Their race resilience. an equally great and form. The phoenix also has the ability to reinvent itself, to rise from the ashes of its former the ashes of its rise from to itself, reinvent to also has the ability and form. The phoenix a phoenix, you need to be you wish to as an entrepreneur, If, as a new entity. be reborn to self, wis the with combined (yang), risks take to courage the and a start-up of mentality the have can be offered that and security for the necessary search resources allow you to will dom that phoenix- or partner (yin). Chinese an investor as organisation with a larger by collaboration 529412_184_ChinasNewNormal_Engels.indd 25 529412_184_ChinasNewNormal_Engels.indd