By Alan Murray and Geoffrey Smith
December 5, 2017

Good morning,

Can China innovate? I’ve explored that question in previous posts, but this morning I’m doing it after a day spent listening to presentations from 15 of the most promising startups in China, brought together for the first-ever Fortune Brainstorm Tech International, in Guangzhou.

Jay Walker, serial entrepreneur and founder of Priceline.com, started the day by highlighting the forces inherent in Chinese culture that resist innovation. Confucianism honors the old, while entrepreneurs must reject the old to develop the new. Moreover, the Chinese state and its emphasis on stability work against those who chase disruption.

But what today’s conversations demonstrated is that Chinese entrepreneurs also have some very significant advantages over their Western counterparts. One is an immense and demanding sea of consumers, that are driving leading-edge innovations in areas like e-commerce and online payments. It’s what enables bike-sharing company Mobike, for instance, to host close to 30 million rides a day in China—equal to what all bike sharing companies in the U.S. do in a year. The outsized population also is an advantage in biotechnology, where new drugs and therapies can be discovered and tested much more efficiently than in the West. In addition, strong government support is helping to provide both capital and talent for the innovators. The result is a burgeoning start-up scene that defies the traditional reputation of China as a copycat culture.

That’s why China has taken a lead in the development of drones (see Clay Chandler’s piece in last month’s edition of Fortune), as DJI President Roger Luo told the group in Guangzhou, or why there are more “mobility” platforms—bike sharing, car sharing, motorized scooters, etc.—in China than in the U.S., as Mobike’s Davis Wang boasted.

The audience chose five winners from the group of 15, each of whom won a new car, courtesy of Guangzhou Automobile. The winners will be honored at the Fortune Global Forum here, which begins tomorrow and lasts through the end of the week, and will include interviews with Tim Cook, Jack Ma, Pony Ma, Terry Gou, Carlos Brito, Bill Ford, Chuck Robbins, Henry Kravis and more.

News below.

 

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Stocks Run Short of Breath at End of Tax Bill Rally

Business groups lobbied for changes to the Senate’s tax bill, having been ‘blindsided’ (to use The Wall Street Journal’s phrase) by a last-minute decision to keep provisions for an Alternative Minimum Tax (AMT) on business. Senators had decided to keep the AMT, which puts a floor under income tax liabilities at 20% of net profit, fearing a $40 billion shortfall in revenue over the next decade if they abolished it. On Wall Street, the record-breaking rally inspired by the tax bill’s passage started to run out of steam, with tech stocks in particular falling back on profit-taking.
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• ‘We’d Like to Know a Little Bit About Your Client File…’

Special Counsel Robert Mueller has subpoenaed Deutsche Bank, requesting full details of its relationship with President Donald Trump and his family. The request moves the investigation onto highly sensitive territory, as Trump has indicated he would view any digging into his personal finances as beyond the competence of the ongoing investigation into Russia’s manipulation of the 2016 election. However, Trump’s freedom to move against Mueller is increasingly constrained by the guilty pleas of some of his closest staff. One of them, ex-campaign manager Paul Manafort, risks having his bail agreement revoked after he was accused of helping a colleague draft an op-ed justifying his political work.
Fortune

Bordering on the Ridiculous

The Irish Question reared its age-old head in British politics again, as the Democratic Unionist Party, whose 10 lawmakers give Theresa May a wafer-thin majority in parliament, vetoed an agreement that would have let talks about future EU-U.K. trading relations start in the new year. May and the EU had agreed a temporary fudge letting the sides settle the fine points later, but there is ultimately no squaring this circle: if the U.K. wants to leave the EU’s Single Market and Customs Union, then it will have to install border infrastructure along the border between Northern Ireland and the Republic of Ireland, tearing up the peace deal it negotiated with the Irish Republican Army in the process. The pound fell nearly 1% in trade-weighted terms in response.
FT metered access

Up, Up and Away

Fuel prices may be on the rise, but the world’s airlines will generate record profits in 2018 thanks to robust travel demand and broad-based global growth, according to the International Air Transport Association. IATA said it expected sector profits to rise 11%, as higher seat prices help passenger yields rebound after falling for the last six years. Elsewhwere, Japan Airlines agreed to bankroll Boom Supersonic’s project to build a supersonic 55-seat airliner with $10 million. Boom boasts pre-orders for 76 planes from various airlines including JAL.
Fortune



Around the Water Cooler

Cineworld Ties Up Regal Deal

Britain’s Cineworld Group tied up the acquisition of Regal Entertainment for $3.6 billion in cash, creating the world’s second-largest movie theater chain. That’s broadly as outlined by rumors last week except for a price tag that’s about 10% higher (Cineworld’s shares fell 2.5% on the news). The deal values Regal at $5.8 billion, once debt is included.
Fortune

Dialog Boxed by Apple

Apple’s efforts to bring more of the iPhone’s internal plumbing in-house took their toll on another big supplier Monday. Shares in Dialog Semiconductor fell 24% after it acknowledged that its biggest customer could develop its own power management chips for the iPhone. Apple responded with a deafening silence. Separately, a European court ruled overnight in Apple’s favor in a trademark dispute with Xiaomi, arguing that the name of its ‘Mi Pad’ tablets resembled ‘iPad’ too closely.
Fortune

Simon Throws a Wrench In Starbucks’ Cost-Cutting

An Indiana judge ruled in favor of mall operator Simon Property Group, forcing Starbucks to keep 77 failing Teavana stores open and honoring their leases. Simon had sued to stop Starbucks’ plan to close all 379 Teavana locations in July. It argued that Starbucks was “shirking its contractual obligations at the expense of Simon’s shopping centers and the dozens of communities they serve and support.”
Fortune

Can I Get an Immersive, Multi-Sensory AR Experience? Oh, And a Latte. I Need a Latte Too.

It isn’t all bad news for Starbucks. Tomorrow it’s opening its biggest ‘roastery’ yet, a 30,000 square foot monster on the West Nanjing Road in Shanghai that’s half the size of a football field. It offers a “multi-sensory retail experience”, an “immersive…integrated offline and online augmented reality digital experience,” and 10,000 handmade, hexagonal wooden ceiling tiles, according to the company’s breathless copywriters. If you only want a quick decaf Americano to go, this is not the place for you.
Fortune

Summaries by Geoffrey Smith; geoffrey.smith@fortune.com

@geoffreytsmith

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