China's tech scene is thriving

BEIJING - Silicon Valley may be powered by organic kale, but when Chinese tech gurus gather at 3W, a coffee shop-slash-incubator in the Chinese capital, they want sunflower seeds. And they want them fast.

Ahead of a recent meeting, 3W's co-founder, Xu Dandan, used WeChat, a Chinese platform with hundreds of millions of users, to place an order with Beequick, a local start-up that delivers supplies from mom-and-pop shops. Thirty minutes later: Crunch, crunch.

And if Xu and his friends were craving a different crispy snack like, say, crayfish? A business accelerator at nearby Peking University has a start-up just for that. Grab your China-made phone, open WeChat, and, just like that, your crustaceous needs are met.

For those who haven't spent time in China's thriving cities, it can be hard to imagine how digitally connected they are. Many still conjure the China of the 1990s, a nation of shoe factories and fake bags, not cutting-edge apps.

Outsiders tend to know one thing about China's internet: It's blocked - no Facebook, Twitter or Google. They imagine a country languishing behind a digital Iron Curtain, waiting, frozen in time, for the fall of the Web's Berlin Wall.

The United States wants to believe that the scourge of censorship thwarts online innovation, but China is challenging the idea in ways that frighten and confound.

"There's this strange belief that you can't build a mobile app if you don't know the truth about what happened in Tiananmen Square," said Kaiser Kuo, who recently stepped down as head of international communications for Baidu, one of China's leading tech companies, and hosts Sinica, a popular podcast. "Trouble is, it's not true."

The truth is that behind the Great Firewall - the system of censorship designed to block content that could challenge the Chinese Communist Party - China's tech scene is flourishing in a parallel universe.

Most of the country's nearly 700 million users don't have unfettered access to information - including information about the 1989 killings in Tiananmen Square - and are often stuck with painfully slow Web speeds. They are nonetheless powering a Web boom that last year saw four Chinese firms among the world's top 10 by market capitalization, according to data website Statista.

China is now the world leader in e-commerce. Morgan Stanley projects that by 2018 China will be conducting more online transactions than the rest of the world.

Buoyed by that cash, China's tech start-ups are experimenting with new models that have the potential to make real money - and influence people around the globe.

"You go on Facebook and you can't even buy anything, but on Wechat and Weibo you can buy anything you see," said William Bao Bean, a Shanghai-based partner at SOS Ventures and the managing director of Chinaccelerator, a start-up accelerator.

"Facebook's road map looks like a WeChat clone."

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Venture capitalist Terry Zhu understands how China earned a reputation for copying, but he can't get his head around the fact that the "can't innovate" myth persists.

When Zhu entered Beijing's tech scene in the late 1990s, China was a different country, a place with huge ambition but a tiny middle class. Of course that emerging cohort looked to California, he said. Where else was there to look?

China's initial tech offerings certainly felt familiar. Tencent copied ICQ, a 1990s-era chat service, creating the not-so-subtly named OICQ. Baidu looked a lot like Google. Alibaba resembled Amazon.

Zhu, who is now a partner at the Beijing office of Blue Run Ventures, says what's more revealing is how Chinese firms have taken the best tech and adapted it.

Tencent's WeChat, which is censored, is also hugely innovative. It combines some of the most useful parts of chat services, social networks, mobile payment, even online maps. You can use it to read news, send a real-time location to a friend, or pay for a pancake at a streetside stall.

The rapid development of China's mobile market is accelerating the trend toward local innovation, experts said.

Because mass retail is relatively new here, Chinese e-commerce faces less competition from brick-and-mortar shops. And the middle class is exploding, accounting for 4 percent of the population in 2000 and 68 percent in 2012, according to research by McKinsey. By 2022, it will be 75 percent.

While U.S. firms focus on ad revenue, Chinese companies have become pacesetters in e-commerce. A more recent trend: live-streaming sites where people pay real money to reward performers with virtual gifts. (You sang beautifully, here's a digital Lamborghini, dear.)

Bean called the amount of money flowing through these apps "significant." Like their peers in Palo Alto, however, Chinese start-ups need to show they can generate enough revenue to make the model work in the middle term.

They also need to think about the state. Americans imagined the Web as a utopia; China's former Web czar, Lu Wei, once compared the internet to a car with no brakes.

"It doesn't matter how the car is capable of traveling. Once it gets on the highway, you can imagine what the end result will be," he said.

The implication is that China's government is happy to have companies build shiny, fast things as long as regulators can put up roadblocks as they please. So far, they've mostly targeted foreign firms. In April, the U.S. government officially named the Great Firewall a barrier to trade. The American Chamber of Commerce in China says 4 out of 5 of its member companies report that it hurts their business.

Chinese firms have generally been protected, but the government could very well turn on someone, or something, homegrown.

Asked about the Communist Party's vision for a "sovereign" internet - one that is managed and secured by the government - some here expressed concern that edgy ideas would be ignored, that bright minds might go elsewhere, that China could lose out. Some Chinese scientists and scholars have complained that blocking foreign sites hurts their research. But many Beijing-based entrepreneurs and analysts said they are confident that mobile tech will continue to flourish behind the Great Firewall.

First, because the state needs it. Xi Jinping's government may be wildly skeptical about the Web, but it is also struggling to shore up China's economy. Beijing recognizes the commercial power of the internet and wants to get on board.

Premier Li Keqiang last year visited Xu Dandan's 3W cafe. In May, Xi vowed increased support for start-ups and tech. "Our biggest advantage is that we, as a socialist country, can pool resources in a major mission," he said.

Second, because of innovation itself. Zhu, the venture capitalist, said he knows that Chinese companies will find a way to operate under ever-changing rules. China's entrepreneurs have never known a truly "open" Web - who has? - and yet internet use has grown by leaps and bounds.

Politics, like innovation, goes around, he said. And comes around.

"There will be a new cycle."

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Xu Yangjingjing reported from Beijing.