China 2.0: “China and America Should Cooperate, not Compete, on Tech”

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Mitch Presnick knows the Chinese economy more than most Americans. When he first flew east, in 1988, the country was a decade into seismic fiscal reforms that were, slowly, introducing market principles to communism. China was still, however, an investment backwater–and when Presnick hopped off planes at small Chinese cities, “it was like a UFO had landed,” he tells Red Herring.

Now, not even three decades later, China is a nation transformed. Its economy is ten times what it was in ’88, while its urban population has leapt from 25% to 56%. China will soon creep ahead of the US to become the world’s largest economy, and almost half of its 1.38 billion inhabitants have been lifted from poverty.

China is “no longer a place where hundreds of millions are in abject poverty with no hope of anything better,” says Presnick, whose biggest success in the country has been as the founder of Super 8 Hotels China, bringing American budget accommodation to the world’s biggest domestic population.

Since last September Presnick has been director of Marco Polo Pure China Fund, a Hong Kong-based fund that is looking to invest in a wide range of industries, including technology. In the past decade or so China has risen to become a global leader in tech–from the hardware metropolis of Shenzhen to software innovation and startups in Beijing, Dalian and far beyond.

The country has reached what Presnick calls “China 2.0”; building on its domestic infrastructure to spread capital and influence throughout the world.

But, he adds, American corporations and entrepreneurs are still hung up on competing with their Chinese counterparts. He says, “The main show is not foreigners investing in China: they have plenty of money. The Chinese want to establish markets outside, to start their own businesses. (They want to) use the revenue they generate in their own country and use it to open up business elsewhere.”

The idea that foreign investors can simply walk into China and extract wealth is outdated and wrong, says Presnick. China 2.0 requires business leaders in the US and China to cooperate, not compete: It is only with this “win-win” attitude that American corporations can find success in today’s powerful China.

Presnick, who has worked in PR, hospitality, food logistics, finance and tech in China–and who describes himself as “neither a ‘panda-hugger’ nor a ‘dragon-basher’–is still shocked to see the disconnect between Chinese and Silicon Valley business leaders. That is hampering brands on both sides from making the most of international scale.

“With Super 8 we made sure it was a very relevant version for (the Chinese), because it would eventually have to be a Chinese brand that communicated to them,” he says. “It worked well because we were able to find common ground. When it comes to technology this is very relevant, because in Silicon Valley you have a ton of very experienced and thoughtful VCs and entrepreneurs who don’t know much about China. And their counterparts in China are similar, but they have no experience of interaction. They can be hugely useful to each other, but no side has a mandate to do so.”

This goes beyond language or friendships. For all its success China is still a developing nation, with issues of poverty with which entrepreneurs from the US, Germany or UK may never fully connect. Only with cooperation can these problems be understood and overcome.

Some deals have enthused Presnick, such as Yahoo!’s investment in Alibaba or DiDi Chuxing’s recent acquisition of Uber’s China division. But, he adds, “The best examples will be not where one side owns a part of the other, but works together to acknowledge something that is inevitable.”

Infrastructurally, China has been readying itself for a digital revolution. Its roads and trains are among the world’s best, and its cities have sprung up at a phenomenal rate (when Presnick arrived in 1988 Shenzhen was a small city of just over a million; now it is home to almost 12m). It is skipping straight to 5G mobile networks, and the fast development of e-commerce logistics means its rural population “don’t have to go to a Walmart; they can skip right to Alibaba.”

Clean energy, electric vehicles and the Internet of Things are three areas in which China will excel using this infrastructure and investment as a springboard, says Presnick. Only by teaming up with local unicorns and startups can American investors make the most of China’s unprecedented change.

That goes for Chinese investments abroad too, he adds. Southeast Asia has been a particular area of interest for Chinese firms this year, with big funding being poured into companies in Indonesia and the Philippines, among other nations. China is now the world’s biggest creditor. “When you look at Chinese companies acquiring companies in East or Southeast Asia, they’re reestablishing the ability to offer turnkey solutions: roads, trains, high-speed rail, etc,” Presnick says. “They can do the financing, they can bring the skills over.”

No longer should American players see themselves as the dominant partner in Chinese business. “The Chinese have gotten very sophisticated, and run a very good game in terms of how they run business strategies,” says Presnick. “And it’s so exciting now, because we’re at this time of exponential technology development, and how China sees tech as a key development area.

“I’m probably in the minority camp, but I believe the biggest paucity in the market are people who can play that space in the middle and find common ground,” he adds. “There really isn’t a lot of interaction between leaders in Silicon Valley and their Chinese counterparts.

“It’s not an easy thing to do, and there’s not an established way to do it,” Presnick says. But finding that common ground is key in China 2.0. The world’s biggest country has spent years pivoting itself to take advantage of the global digital revolution. “Now they’ve had four or five years to set everything up for the next stage, it’ll be a stage where the successful foreign companies will be making money with China, rather than in China,” says Presnick.

“Let’s go make money in the world together.”