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China: The new Silicon Valley?

By Lara Farrar, for CNN
Silicon Valley entrepreneurs "Geeks on a Plane" saw one version of the future while in China.
Silicon Valley entrepreneurs "Geeks on a Plane" saw one version of the future while in China.
  • China is becoming hotbed of innovation according to some tech analysts
  • Others believe that it still has a way to go to really rival Silicon Valley
  • Education culture in China not seen as conducive to fostering entrepreneurship
  • Talent pool and appetite for international cooperation in China is growing

(CNN) -- Those living in the sunny innovation capital of the world better up their game or they will be left in Chinese tech dust.

At least, that was the theme of a spate of recent tech conferences held in Beijing.

China is becoming "a hotbed of tech innovation of global impact and also a magnet to attract top tier entrepreneurs coming from all over the world in the same fashion as the Silicon Valley," said Franck Nazikian, president of CHINICT, which bills itself as the largest conference on China tech innovation and entrepreneurship.

Not so fast, say those from Silicon Valley, including Dave McClure, an entrepreneur and angel investor for the San Francisco-based Founders Fund.

"I think that is oversold," McClure said. "Just because China is sexy, Silicon Valley is not? There is $10 billion invested in start-ups [in the Silicon Valley] every year. If that is not sexy, I don't know what is."

Just because China is sexy, Silicon Valley is not? There is $10 billion invested in start-ups in Silicon Valley every year. If that is not sexy, I don't know what is.
--Dave McClure, San Francisco-based entrepreneur

McClure, along with around 40 investors and entrepreneurs from the Silicon Valley and other West Coast tech epicenters, traveled together to Beijing and Shanghai from May 22 to 29.

During their stay, the so-called "Geeks on a Plane" group attended conferences, met with Chinese Internet firms and listened to investors proselytize about how much money can be made from China's ever-growing selection of young and energetic tech entrepreneurs.

"I was simply blown away," said Mark Suster, a partner with GRP Partners, a Los Angeles-based venture capital firm who was on the trip.

"The sheer scale. It is immense. The number of immensely talented entrepreneurs working on opportunities is unbelievably large and also China as a market is something that can't be ignored," he said.

"It is simply not true that all innovation is going to happen in the U.S. going forward."

Forget the future. Many say innovation has already surfaced in China's high-tech sector.

Those on the ground here point to Tencent, Alibaba and Huawei, Chinese Web giants making a big impact domestically and, increasingly, abroad.

Tencent is a Chinese Internet conglomerate with a stock market value of $37 billion (the only Web firms worth more are Google and Amazon). Alibaba is now the leading e-commerce portal for small businesses with more than 50 million registered users in 240 countries.

Huawei Technologies, an equipment maker, has skyrocketed to the forefront of global companies making next-generation mobile infrastructure. Winning contracts with carriers worldwide, the company is now considered the number two telecommunications equipment provider behind Ericsson.

Most recently, a Chinese supercomputer was ranked as the world's second fastest at a supercomputing conference in Hamburg.

It is not true that all innovation is going to happen in the U.S. going forward. The sheer scale of innovation in China is immense.
--Mark Suster, venture capitalist

"If we observe some of the larger companies in China, they all started copying but very quickly innovated once they copied," said Kai-fu Lee, former head of Google China and founder of Innovation Works, a incubation and investment company.

"What these companies have done is what the rest of the Chinese Silicon Valley is doing," Lee told CNN.

"They are learning, and in some cases copying and building local elements, and putting together very cleverly new things to make new models."

But can these Chinese Internet companies, like Tencent, attain a global reach similar to the likes of Apple or Microsoft? Lee has his doubts.

"I think it's difficult to have a fundamental technology paradigm shift breakthrough company in China. The roots are just not quite all there yet," Lee said, citing government regulations and intellectual property rights as ongoing concerns.

"The education culture does not encourage innovation. I don't know when China can change because you can't change a whole cultural mindset about education in one or two generations.

"Another thing that is lacking is a deep technical expertise. If you find the best 500 software architects in Silicon Valley, I don't think you can find one person in China that is at [their] caliber."

Perhaps, yet there are indications the talent pool is improving. With the Chinese government pushing hard to have an innovation-based economy by 2020 and no shortage of cash from domestic and foreign investors, more entrepreneurs and companies are coming to China instead of California.

"Having a mass of people using our product here will make it much easier to go into mature markets," said Adam Gull, an American who co-founded Powwow, a Beijing-based mobile phone application developer.

"If we are successful in China, we can go anywhere."

Chinese companies are also forging more partnerships outside of China.

At recent mobile Internet conference in Beijing, more than 1,000 attendees from 30 countries took part. The Great Wall Club, a mobile Web trade group and organizer of the conference, also takes Chinese CEOs on monthly trips to meet tech companies in Asia, Europe and the U.S.

"We want to people to know what is happening in the mobile Internet industry and that we can compete with Western countries," said David Song, a founder of the Great Wall Club.

"We want people to know we are here, we are powerful, and we want to do business with other countries."

Are those on the "Geeks on a plane" tour from Silicon Valley ready to do business with China?

Maybe someday, but for now, most said, the Valley will still be their home.

"We'll see," McClure said. "I am going to focus on my own backyard for now, but my backyard could change in the future."