Should Europe get in bed with China?

If you visit ever have the fortune of visiting China, you’ll grasp something fairly quickly: it runs on an immense scale.

China is home to 1.5 billion people, and internet penetration is over 50%: over 770 million Chinese have internet access, and use it every day to communicate, move around or pay for goods.

As a consequence of their scale, they go big on everything.

On the first six months of 2018, Chinese start-ups raised more cash than their Silicon Valley counterparts, notching up $56 billion in six months. As a comparison, European tech companies raised $23 billion during the entire 2018.

A great example is Ant Financial, a Chinese fintech company who raised almost as much money as all US and European fintech firms COMBINED.

Such a scale means there is a huge market. How can Europe tap into the 770 million Chinese internet users? Should Europe get in bed with China?

Europe could leverage China in three ways:

• European startups expand to China
• European startups raise money from China
• European startups import talent from China to EuropeI'll cover all of them below.

Should European startups expand to China?  

Unless you saturated Europe, the US, Africa and South America, the answer is no. You'll have an easier time avoiding Games of Thrones spoilers on Twitter.

The “China barrier” is usually too big to conquer: language and culture are completely different, the ecosystem is hermetic and closed to outsiders, and you have no security as a foreigner that the government will shut you down and build Your Startup v2.0 in 6 months.

Bolt (previously Taxify), the Tallinn-based startup, is thriving by tackling Uber's secondary markets while avoiding China:

"The company struggled until business in Africa began to grow. The continent now makes up about half of Bolt’s business."

The other side of the "China barrier" is a real barrier – the Great Firewall of China.

“The Great Firewall of China (GFW) is the combination of legislative actions and technologies enforced by the People's Republic of China to regulate the Internet domestically. Its role in the Internet censorship in China is to block access to selected foreign websites and to slow down cross-border internet traffic.”

For everyday internet users, this means that most US-based tech companies are blocked from even entering China. They don't have Twitter, but they have Sina Weibo with 445 million users.

For startups, building tech through the Wall can be a catastrophic pain in the ass. Most of Western tech is built by leveraging open source libraries, which you can’t do. Alternatives need to be built from scratch, and localized versions of everything should be spawned.

Yea, say goodbye to React.

The bright side is that the European internet market, although highly fragmented, is incredibly big as well. Internet penetration in the European Union is 90% or 460 million users.

Unless you are Uber, there’s more than enough market back home. And if you are Uber, chances are you'll be outcompeted by a local player like Didi Chuxing.

In the case that you raised a gazillion dollars and want to make investors happy, the jump across the pond is easier – just look at Front dominating the US market.

Should European startups raise money from China?

Unless you are looking for a competitive advantage (think hardware manufacturing) this is another big, big no.

Raising a big round and building a board of directors is almost like getting married.

This means you’ll be exchanging rings with a firm that has different goals, an insanely different culture, and more importantly, a completely different moral playbook of what's accepted and what isn't.

The cash honeymoon will eventually be over and the tough times will come sooner or later.

You don’t want to go to war with a VC firm that publicly states:

“Rule number 10: we usually don’t invest in female CEOs [...] It’s not because of any kind of prejudice. Just think about it carefully […] besides giving birth to children, what can women do better than men? Nothing.”

The Huawei 5G case is an extremely good example of why you shouldn’t get in bed with China. European countries are weighing the risk of Beijing building back doors into the EU 5G networks but telecom firms urge restraint because Huawei is so entrenched in the local infrastructure that is hard to extract.

Again, I'd encourage startups to look around their backyard, because there is more than enough money going around in Europe.

Tech hubs like Paris, London or Amsterdam, and secondary markets like Milan or Malmo are growing at a frantic pace. Last year, European tech companies raised 23 billion dollars, and Q1 2019 has been the second highest quarter ever recorded.

Should European startups import Chinese talent?

Absolutely.  The talent shortage in Europe is real, and China is a perfectly valid market to tap into.

During a speech in Belgium, European Commission (EC) Digital Single Market chief Andrus Ansip said Europe might face a huge deficit in skilled ICT workers.

"Despite rapid growth in the ICT sector, creating some 120,000 new jobs a year, Europe could face a shortage of more than 800,000 skilled ICT workers by 2020"

And most EU countries are doing nothing, or actively discouraging talent (think Brexit, or Sweden's deportations).

For countries looking to grow China can be a fantastic source of talent.

Education in China is strict, free, and ridiculously good. There are some highly ranked Chinese computer science departments that are on the same level as Berkeley, CMU, MIT, and Stanford. China and India supply 46.4 percent of the global 6.4 million Science and Engineering bachelor’s degrees.

On top of that, Chinese developers are globally ranked as some of the best. A HackerRank study looked at 1.4 million coding test submissions during the last few years and concluded that “China and Russia score as the most talented developers. Chinese programmers outscore all other countries in mathematics, functional programming, and data structures challenges.”

People working in tech are usually much more West-facing than the average population and work with many of the same technologies the US and European startups use.

In addition, English is sweeping China. Even though the average current level is disastrous, more people are learning English in China than in Europe.

Wrapping up

Europe is growing at an incredible pace, has an enormous market, and there is a lot more capital being deployed than 5 years ago.

The biggest challenge so far is access to talent. Some countries (like France) are doing something about it but if yours isn't, don't be afraid to look at China.