Breaking China: Tech trend-spotting in a burgeoning economy

In the third - and final - of his interviews with entrepreneurs from overseas making their way in China, silicon.com's Dan Ilett talks to an American with a unique perspective on the biggest trends in the country's burgeoning technology economy. Read more in our ongoing Inside China special report.

Media, technology, games, telecoms - if you want to know how these markets are moving in China, Sage Brennan is your man.

As Pacific Epoch's managing director, Brennan has a bird's-eye view of China's technology economy. Based in Shanghai, his company translates a large amount of Chinese news into English and sells the information packaged with market analysis to financial companies.

Brennan has been a technology analyst in China since 2000, before which he worked in Silicon Valley.

Are government regulations holding back some areas of growth?
Brennan: Like anything in China there's always a way around every rule, like getting around firewalls - if someone wants to do that, they can, in five minutes. But there's so much internet connectivity here compared to five years ago, there's little reason you would need to do that.

To what extent are Chinese businesses afraid of the media?
With earnings announcements, for example, people can be so secretive. The knee-jerk reaction is not to tell anyone anything, which can cause problems later. There's a different concept of how you relate to investors, among Chinese companies.

The old-guard technology companies have trouble getting their messages across because they only make announcements at certain times during the year. The newer companies follow their lead. Most of the larger public companies are still majority-owned by the state.

And how do state-owned companies run?
A lot of the decisions on China's infrastructure were made by the vendors who built it. The state controls the majority of mobile networks, for example. On the flip side, you don't often get delays or static on the line, because the networks are built well. For people who want to offer reliable services on those networks, or people who are building mobile payments [services], for example, there's a lot less to worry about in the network side of things than there would be in the US.

And industry restructuring continues - recently, the government just swapped several of the CEOs of the telecom companies. That kind of thing we can't readily understand.

In the long run it hasn't hurt anyone, though - the operators have created a robust mobile economy. This mobile economy could be managed better, sure, but we're dealing with some huge companies with thousands of employees and a lot at stake.

What's holding the tech economy back?
The big problem that China has is how to innovate. Everyone in the US is talking about innovating ahead of other countries and China, to my mind, has the same challenge.

How long will it take a country like China with a very different tradition to catch up?
With software and media that's going to happen sooner. In software China has a great chance but here the main issue is project management skills. Chinese engineers are great at getting tasks done. But they have few skills in management - they just don't have much experience. Good managers here know that well and leverage their people's strengths.

We're starting to see companies get past the 50-person mark. We're not seeing many 4,000-person software engineering companies, though - not like India, for example. If you can get high-quality managers and middle managers then that's easier but people don't manage teams very well - yet.

How competitive is China for tech?
Overcapacity in China is a rule. Look at any electronics shop or street market. If it's successful there'll be a ton of them in no time. That tends to happen - maybe it's a naturally capitalistic thing. This is one of the most capitalistic markets in the world.

The technology industries are similar [to the street market phenomenon] in China - when people see that something works, competition piles in quickly. And only the fittest survive.

What's changed in the technology world in the last year?
I guess the biggest development is the whole user-contributed content concept, in blogging and BBS [bulletin board systems]. It has to do with the fact that many of the people who blog in China are starting to find some prosperity now. Companies can get feedback directly from their target audience on products or services.

Technology-wise, communication systems are clearly following consumer trends. Mobile networks and applications sprang up six to eight years ago. Now we have BBS and blogs carrying this current wave of growth. It's more customised, personal and more relevant for young people - not unlike anywhere else in the world. And it's finding its way back to the mobile economy too.

How are young people shaping what happens on the internet?
Another thing is that BBS really reflects what young people are interested in. Chinese people are looking around at what things to buy, what to consume. That kind of activity I see reflected online - I find it very interesting.

I'm sure that a lot of the recent growth in China's consumer economy is being driven by this new communication. There's a whole new ballgame which will change the way people buy things.

The fact is the consumer economy is still dominated by a few large companies that produce a lot of stuff. None of these have been very sophisticated in terms of marketing in China. But this is changing fast. We're seeing more advertising and more consumerism, more alliances in media. But the buying focus is still ultimately made by recommendations from friends and family.

The fact you can get recommendations from anyone [on the internet] is a very community-oriented approach and will lead to huge changes in China.

What difficulties have you found doing business here?
To do business in China, like anywhere, you have to take time to listen to people. Doing business in Shanghai - it can be frustrating but it's a good place to be. People respond better if you inspire them with what you are trying to accomplish. And they are very receptive to entrepreneurs. It's that kind of environment. Beijing can often seem more reserved because the huge amount of entrepreneurial activity is overshadowed by the even bigger multinationals and other large companies.

How do you retain staff with such a high level of job mobility among Chinese workers?
Human resources - that's the number one challenge. Recently it's been more difficult for us. It's definitely an employee's market, in certain cases. If you speak English and are a programmer, for example, you can go anywhere you want. The main thing is finding people who see things 'out of the box'. That kind of thinking has not been traditionally valued here.