Some Startups Find The American Dream In China

By Wendy Lee
San Francisco Chronicle

WWR Article Summary (tl;dr) Entrepreneur Mengqiu Wang is part of a group of Chinese nationals known as haigui or sea turtles, who return to the country after gaining knowledge and skills abroad. Last year, 432,500 Chinese who studied abroad returned to China, an increase of 58 percent compared with 2012.


For young Chinese engineers in tech, the American dream once meant landing a job or starting a company in Silicon Valley.

But Mengqiu Wang, who grew up in Hangzhou and graduated from Stanford University, wants to work in China — not the Bay Area.

If his company, Zero Zero Robotics, had started in California, “we probably would have failed,” Wang said.

Building a technology business in China has never been easier. Fearing that the Trump administration is unfriendly to immigrants and eager to court the world’s largest online audience, some Chinese engineers are taking their training at American schools and companies back home, where fast-rising venture capital investments and a surging market protected from competition by American companies like Google and Facebook are fueling the Chinese startup scene.

“When I was studying abroad, the mentality was to stay (in the U.S.) and find a job,” 35-year-old Wang said. “If we fail, we go back to China. Now it’s the other way around in many cases.”

Wang is part of a group of Chinese nationals known as haigui or sea turtles, who return to the country after gaining knowledge and skills abroad. Last year, 432,500 Chinese who studied abroad returned to China, an increase of 58 percent compared with 2012, according to the country’s Ministry of Education.

The boomerang effect is aided by the strength of China’s economy and the promise of its homegrown tech industry, including social networking giant Tencent, e-commerce firm Alibaba and search engine Baidu.

Local governments provide incentives to startups that open offices. Chinese citizens who are frustrated not to have reached managerial roles at U.S. tech firms also feel the pull of China, according to Eric Harwit, professor of Asian studies at the University of Hawaii.

“Many of them said in the United States there is a kind of limit, kind of like a glass ceiling,” Harwit said. “If they can go back to China, they can be head of a company.”

China sends more college students to the U.S. than any other country. While President Trump’s executive order limiting travel to the U.S. by some foreigners did not directly impact Chinese nationals, it still raised fears, said Melanie Gottlieb, deputy director of the American Association of Collegiate Registrars and Admissions Officers.

So have proposed changes to the way foreign students obtain work visas, which are causing some students to consider schools elsewhere.

This fall, the number of Chinese applicants with admission offers to U.S. colleges fell 2 percent compared with a year ago, and 23 percent of Chinese students said they were concerned about getting or keeping a visa, according to the Institute of International Education, a study-abroad advocacy group. Applications from foreigners applying for H-1B work visas plunged 16 percent from 2016.

Students worry that U.S. immigration is “less predictable than it had been in the past,” Gottlieb said.
The Beijing neighborhood of Zhongguancun used to be known as a place where shoppers crowded into clusters of small stores selling electronics.

In the past two decades, the area has transformed into Beijing’s version of Silicon Valley, where large tech giants like Baidu and ride-hailing firm Didi Chuxing are headquartered.

Top schools like Peking University and Tsinghua University, known as the Stanford and MIT of China, are nearby. It’s a 3 1/2 -hour flight from the Chinese manufacturing hub of Shenzhen, allowing entrepreneurs to monitor suppliers to ensure they get parts on time.

Wang’s Zero Zero is just 30 minutes away from Zhongguancun. The company, which has about 140 employees and raised roughly $25 million, has built a flying robot, about the size of a small hardcover book, that allows users to appear in their own photos without a selfie stick. It began selling in Apple stores in China and the U.S. this year for about $500.

“The world we see has everything except ourselves,” said Wang, who started Zero Zero in 2014. “You can’t see yourself the way that I am seeing you.”

Tech news site TechCrunch reported in August that Snap Inc., the parent company of social networking app Snapchat, was interested in buying Zero Zero Robotics for $150 million to $200 million — a subject Wang declined to comment on.

But he said his startup could scale quickly because Beijing’s labor costs are much lower than in the U.S., and he can find more aviation engineers at universities in China than in Silicon Valley. Salaries are also lower: An engineering graduate from a top school like Tsinghua could earn $50,000 a year, much less than in Silicon Valley, where $100,000 is a reasonable starting salary, he said.

“The math works in our favor to be here,” Wang said.
China was once known as a copycat country that took the best services and products abroad and quickly made its own cheap version. That’s still partly true, but the country is increasingly building products and services that U.S. companies want to copy.

Facebook Messenger has mimicked aspects of Tencent’s popular social networking app WeChat, which lets users send money to friends and order items from retailers. Mobile payments have also taken off in China, far more so than in the U.S.

With nearly 1.4 billion people, China has plenty of entrepreneurs and a vast online audience. Capital is also plentiful. Beijing companies drew $20.85 billion in venture capital investment last year, inching closer to the Bay Area’s $31 billion, according to PitchBook Data.

Joker Lai, a 28-year-old Malaysian entrepreneur, sees a large opportunity for his Beijing company, Sport Story, which is building an app to help people make friends. Lai’s school, Tsinghua University, is giving him free office space, and the Beijing government has made it easier to get a business license, he said.

In China, it’s “very, very good timing to start a company,” Lai said.

Many analysts attribute the growth of China’s tech scene to Baidu, Alibaba and Tencent, known together as BAT. The three powerful homegrown Chinese firms are also investors in up-and-coming companies. Tencent is a shareholder in e-commerce firm and Alibaba is a stakeholder in ride-hailing firm Didi Chuxing, which recently took over Uber’s China business.

Partly because of the lack of U.S.-style consumer protection laws, it is easy for those huge companies to share the data they collect with the suite of startups they invest in, according to Minyuan Zhao, an associate professor of management at the Wharton School of the University of Pennsylvania. That data can be invaluable to companies small and large.

But there are risks to doing business in China. Although protection of intellectual property rights has improved over the last decade, some firms may try to copy a great business idea, and entrepreneurs may not want to deal with the hassle of going to court, Zhao said. Also, relationships with suppliers are often based more on “faith” than on legal contracts, she said.

The Chinese government can also remove content online that it perceives as threatening to the Communist Party, which has kept companies like Twitter and Facebook from entering the country. And regulations have impeded some businesses’ efforts to pull money out of the country.

“Sorry, this is our law,” said Wang Xining with China’s Ministry of Foreign Affairs. “We manage the Internet according to our legal framework. The aim is to maintain free flow of information on the condition that there is no harmful elements that would be detrimental to national security and overall welfare of our citizens.”

Not all Chinese nationals want to start businesses in China. Derek Weng co-founded a commerce startup in San Jose called LemonBox, which sells vitamins manufactured in the U.S. to Chinese consumers. The firm plans to use the data on consumers’ buying habits to make recommendations on products related to health care, and Weng thinks the best people for data work like that are in Silicon Valley.

Weng quit his job as a business development manager at Amazon in the Bay Area to focus on LemonBox, but, in a twist, this means he will lose his H-1B visa status and will need to work in China, while his co-founder runs the business in San Jose.

“Everybody comes here knowing that this is the entrepreneur’s dream life,” 31-year-old Weng said. In company cafeterias and neighborhood coffee shops, “everybody is talking about new ideas and the next big thing.”
As China’s tech companies continue to grow, some are encouraging students to return home from the U.S. This spring, Baidu President Ya-Qin Zhang visited U.S. colleges in an effort to recruit employees. Zhang says he has seen Chinese nationals excel when they return, perhaps because of language issues.

Harris Hua, an investment analyst, recently moved back to Beijing after he was denied a U.S. work visa. Hua graduated from Furman University in South Carolina last year and worked at a venture capital firm in the Bay Area. Still, he wasn’t despondent about leaving Silicon Valley.

“I always wanted to go back to just see the country, the market and how people are doing there,” said Hua, who grew up in Zhejiang province. “I don’t think the American dream is as influential as it was in the past few generations from China.”

The younger generation of students from China have lived through the country’s economic growth and grown up in prosperity, which may make their perspective on the U.S. different, said Zhao from the Wharton School.

“They came to the U.S., looked around the infrastructure, the night scene and thought, ‘Well, it’s boring here,'” Zhao said.

At Bay Area tech companies, ethnic Asians are not seen as underrepresented minorities like Latinos or blacks and often represent a sizable chunk of the workforce. But a 2015 study showed that ethnic Asians are rarely placed in executive roles and are often stuck in lower-ranking positions. (That’s notwithstanding former White House adviser Steve Bannon’s inflammatory suggestion last year that Silicon Valley had too many CEOs who were Asian immigrants.)

“The diversity problem of women, blacks and Hispanics are real,” said Buck Gee, a former Cisco vice president who worked on the study. “The thing you are ignoring is the fact that there is an Asian glass ceiling.”
Jeremy Zhou, who spent eight years at Google, most of them in Mountain View, but left to pursue a career in his native China, said he recognizes the challenges non-American employees have to overcome to break into management.

Cultural differences in communication, for example, can be a barrier that affects people’s confidence, Zhou said.
In 2014, Zhou and two other former Googlers started Jide Technology Co., a software business that brings Android’s operating system to PCs. Google’s absence has made it easier to ramp up. For example, the Google Play store is not in China, so Android app stores from competitors have popped up, according to Jide co-founder David Ko.

Jide has 80 employees, and its office design, like many Silicon Valley startups, has an open floor plan and a pool table.

Zhou is happy in China. But he had to work hard to help his older relatives understand his choice.

“They have this mind-set that it is always better over there” — in the U.S., he said. For him, it wasn’t.

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