President Donald Trump has accused China of intellectual property theft, forced technology transfer, protectionism, and driving a trade deficit. But these disputes obscure an embarrassing reality: America has voluntarily ceded its intellectual arbitrage to China by opening the U.S. up for total download without even attempting to return the favor.
Information flows abundantly and freely eastward. Little returns west. Chinese investors, students, government officials, and corporations have mapped every inch of America. The same cannot be said for Americans.
But this situation is not actually due to protectionism by the Chinese state. Rather, Americans have voluntarily chosen isolation.
The flood of Chinese students into the U.S. has accelerated at a blinding pace, with a nearly 650% increase between 1999 and 2017. From 2015 to 2016, China sent over 328,000 students to America, while the U.S. sent roughly 11,000 to China. America sent around the same number of students to Ireland, whose economy is less than 3% the size of China’s.
American students have voluntarily eschewed China, cementing a generation ill prepared to effectively collaborate, compete, and respond to its rise. An estimated 300-400 million Chinese students (about 25%) are studying English, while only about 200,000 U.S. students (roughly .06%) are currently studying some form of Chinese.
While trade balances and import tariffs might be highly controversial and fiercely contested, this intellectual imbalance has no significant opposition within the U.S. China’s door is open, but few Americans will venture through.
Popular U.S. media perpetuates constant negative narratives about China: ghost cities, real estate bubbles, pollution, corruption. While many of these problems are real, the predominately negative coverage drowns out the positive elements of life in China and its abundant economic opportunities. In doing so, the media dissuades America’s rising students, as well as business and political leaders, from learning more about the country.
Chinese elites and netizens, on the other hand, carefully observe American political, social, technological, and pop culture developments. Mark Zuckerberg’s Senate hearings, the SpaceX Falcon Heavy rocket launch, and President Trump’s stance on the NFL national anthem protests, for example, were all closely followed on Chinese social media. Local discussions on American internal affairs are buoyed by the overwhelming numbers of haigui (Chinese people who have studied abroad and returned home) living in the country.
One would assume that Silicon Valley, flush with a large Chinese expat community and relatively agile business models, would be the best equipped to adapt to the requirements of the Chinese market. Not so. In a recent conversation, a top American venture capitalist underestimated the number of employees Tencent has by a factor of 10. Another refused a meeting with the CEO of Pinduoduo, saying they had never heard of the $30 billion, Nasdaq-listed e-commerce company. The common refrain among American investors and entrepreneurs is that while China is a massive market with huge opportunity, it has no idea how to even begin to go about tackling it. Few American venture funds have found success in China and there are limited examples of American software and consumer Internet companies finding equivalent success in the market.
Contrary to the commonly held narrative that China is proactively hyper-protectionist and unwelcoming to foreign companies, the history of American consumer tech penetration in China is strewn with unforced errors. Companies attempted launches in China that didn’t grasp the basics of the competitive landscape (including pricing and effective business models) and operations (such as hiring locally, understanding Chinese incentives, and adapting proper management structures).
While pioneering the concept of customer-to-customer marketplaces in China in the early 2000s, eBay faced no major regulatory hurdles. Yet the company ceded its market leadership to Alibaba’s equivalent product, Taobao, because eBay failed to recognize and adapt to the requirements of Chinese customers. Among multiple foreseeable blunders were eBay’s decision to advertise online, rather than television where the vast majority of its target customers were; favor auctions rather than direct sales, which its customers preferred; and not personalize listings for Chinese tastes, instead keeping the U.S. sections in place. In 2003, eBay held over 70% market share in China; yet by 2008, Taobao held over 80% of the same market.
The list goes on: Groupon, which hired foreign managers to lead local Chinese teams and refused to reduce its take rates to match with competitors’, flamed out in China. Uber banded its registrations to email addresses (rarely used in China) rather than WeChat and mobile numbers, chose an ill-equipped local partner in Baidu, and never fully empowered its local team, with former leader Travis Kalanick maintaining the title of CEO of Uber China until the company was acquired by Didi Chuxing. Airbnb took three years to find a local leader and finally settled on an unfortunate choice who boasted a Silicon Valley pedigree, but was unable to manage local teams and grapple with Beijing on regulatory issues. The company also selected a misguided translation of its name in Mandarin. These were all preventable errors, but ones driven by the simple arrogance of a one-size-fits-all approach and lack of knowledge about the local market.
The speed and scale of China’s rise has caught the U.S. academic, political, and business communities off guard. The first step to address this is to ensure American students are more deeply embedded in Chinese language, culture, history, and economics.
China is by no means a user-friendly gateway for U.S. students. But American educational institutions have thrown up their barriers of their own: providing few Mandarin courses for true novices, imposing high language proficiency requirements for students wishing to study abroad in China, and limited student internship opportunities with Chinese firms.
The U.S. academic community should tear down these walls and orient the education system to be more open to Chinese language and historical studies. Such shifts are not impossible. In the four years following 9/11, American student enrollment in Arabic language courses grew by 126.5%. The Cold War years saw a significant rise in the number of Americans studying Russian, growing over 275% between 1958 and 1990.
Why do we respond to negative incentives, but not positive ones? Is not the opportunity of the Chinese market enough to entice future American students and politicians to favor Mandarin courses over French or Italian ones? Would not a year spent abroad in Beijing or Shanghai be far more enriching for a student’s job prospects than time spent in Rome, Sevilla, or Sydney?
It is unclear what manner of wakeup call will jolt Americans into action. Perhaps it’ll be the day that China passes the U.S. as the world’s largest economy. But by then it will be too late.
Ben Harburg is a managing partner at MSA Capital, a Chinese venture fund. He has worked in China for eight years and is a graduate of Tsinghua University’s PBC School of Finance. Follow him on Twitter.
