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5 China tech stories to watch in 2015

01/04/2015| 2:54:26 PM|

2014 was a big year for China’s tech sector. While domestic players had share offerings, acquisitions, and high valuations, multinational firms encountered obstacles.

On several fronts, 2014 was a particularly eventful year for China’s technology sector. While a handful of domestic players grabbed headlines with blockbuster share offerings, major acquisitions or soaring valuations, some multinational firms encountered major obstacles in their efforts to expand in the vast but increasingly challenging market.

Chief among 2014’s Chinese tech highlights was e-commerce giant Alibaba’s record initial public offering in New York that raised $25 billion and catapulted it onto the international stage. Also raising eyebrows was Lenovo, the No. 1 personal computer maker, with its sizable acquisitions: first a server business from IBM for $2.3 billion, then Motorola Mobility from Google for $2.91 billion. It was also a year that saw Xiaomi, a four-year-old smartphone company, soar to prominence as the world’s most valuable tech startup, surpassing Uber at $46 billion. Still, it was a year of uncertainty and challenges for others in China such as software giant Microsoft and chipmaker Qualcomm, which have been the subjects of antitrust investigations.

Here are five things to keep an eye on in the coming year:

1) When tech titans go shopping: How much is too much?

China’s e-commerce giant Alibaba, social media and games company Tencent and search provider Baidu went on buying sprees in 2014, acquiring stakes and building alliances as they sought to compete against each other in an ever-expanding array of fields. Alibaba, which runs China’s most popular shopping websites, made investments in areas that included television and film production, a video calling app, and online mapping. Tencent’s buying spree included stakes in China’s second-largest e-commerce player JD.com, a South Korean mobile games company, a real estate services provider and exclusive content deals with music and movie companies. Baidu made an investment in the car-hailing app Uber as well as an Israeli video camera startup and a Finnish indoor mapping platform. But as they throw money around, their investments are likely helping to fuel the rise in tech startup valuations which hit record heights last year. The question is whether rising price tags will make deals less tempting – and whether the companies will decide they need to focus on operations.

2) Will Chinese smartphone makers dominate the world?

Chinese smartphone maker Xiaomi is now the world’s most valuable tech startup, fueled by investors’ hopes that its success in selling handsets over the Internet in China can be replicated in other devices and overseas. But its global expansion has encountered hurdles – mainly with patents, a challenge that illustrates what Chinese handset makers must confront as they expand abroad. At home, they are also increasingly challenged by cutthroat competition, and expectations that smartphone growth in China will slow. In Xiaomi’s case, other companies have seized on its model of selling handsets online and using social media. A Chinese government antitrust investigation into Qualcomm might hurt Xiaomi  but could help Huawei and ZTE close the gap.

3) How far will China go in its push for information-technology nationalism?

In 2014, China signaled it would place a new emphasis on cybersecurity issues,creating a new committee on Internet security led by President Xi Jinping and other top Communist Party officials aimed at addressing concerns about cyberspying. Since then, Chinese state media have labeled as security threats the iPhone and Windows 8 – shortly after announcing a ban on government procurements of computers loaded with the operating system. A U.S. indictment of five Chinese military officers for allegedly hacking U.S. companies is expected to continue to hurt U.S. tech firms in an already sour market for foreign players. China has long promoted Chinese technology suppliers at the expense of foreign brands, but the Chinese government may find itself under pressure to show it is actually making progress in its efforts to be independent of foreign technologies. On the flip side, the U.S. and China reached a deal in November to drop tariffs on a wide range of technology products, an agreement that could boost tech companies like Microsoft and Apple.

4) How will China calibrate Internet controls – and promote its vision of a censored web?

The Chinese government made it very clear last year that China will run the Internet based on only one factor: however the Communist Party decides is fit. China’s top Internet regulator Lu Wei reiterated China’s vision that Internet controls are a sovereign issue and that it doesn’t have to justify its rules to anyone. That has major implications both for companies like Facebook and Google that want to get in, and also for domestic companies. While China’s rhetoric and posturing on the issue of “ideological security” has become increasingly confident, it isn’t clear how far its controls on the Internet will reach. That could have an impact on users – witness Google’s Gmail service – and raises the question of how far will multinational Internet companies are willing to go to meet Chinese censorship requests. China also runs the risk of limiting the rise of its own Internet economy with tighter government controls.

5) Where will Chinese innovation go?

Feature China

There are observers who say China is in the midst of a new wave of innovation, one that’s based on free-market growth after decades of following a state-led, top-down innovation model. Some Chinese technology companies have been challenging market leaders and setting trends in telecommunications, mobile devices and online services. They’ve learned to dominate their markets by adapting existing technologies and business models. Commonly cited examples are Tencent’s hit mobile messaging app, WeChat, and Alibaba’s building of a secure payments system and return policy.  But such examples are still ultimately local. Yet last year saw the rise of a Chinese manufacturer that was successful abroad: a drone maker. This could be the year when Chinese innovation takes it to the next level.

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