There is a vigorous debate about innovation in China and U.S.-China competitiveness. It is widely held that China copies and steals U.S. innovation and ideas and is incapable of generating these organically. In this regard,the WSJ interviewed Mike MacNamara, CEO of Flex, the big contract manufacturer formerly known as Flextronics which employs 80,000 people, many of them in China, and Jenny Lee, Managing Director of GGV Capital and one of the leading venture capitalists in the world. To encapsulate the interview comments, China's talent pool has grown measurably with native entrepreneurs who have grown up at Baidu and at tech giant Tencent. China's business model has evolved as has its large mobile Internet sector. Tencent has Tenpay just as Alibaba has Alipay. 

 

There are a billion smartphone users on a global basis. 600 million of these users are in China. There are some 300 million users in the U.S. 

On the back of innovation, Huawei, Tencent, Alibaba, and WeChat have grown apace. According to Jenny Lee, with tens of millions moving to cities, the issues of using the Internet, services, the use of assets, issues of mobility will all spur innovation. 

 

As global consumption grows and becomes more distributed, manufacturing operations will have to move closer to customer marketplaces in India, Southeast Asia, Indonesia and Mexico. 

 

The principal influence on innovation and entrepreneurship in China and the U.S. will be market fluctuation and the manner in which innovation is financed.

Late stage companies, growth stage companies and private companies interested in going public are and will be strongly affected by market fluctuation. The capital markets will have less of an impact on early-stage enterprises but it does affect "how these companies now think about the quality of that capital, the stability of that capital and the investor behind the capital." It is at the entrepreneurial stage that the investor is most relevant. The entrepreneur is closest to the customer. 

 

"You have to work back from the customer experience to the technology, not the other way around." Steve Jobs.

 

Providing guaranties to lenders, insuring the risk of non-payment for political, commercial reasons, are closely related to protecting investors who count on the higher ROI from companies that participate in international trade. These techniques and protections fuel investment and innovation. Moreover bilateral trade offers protection against fx fluctuation, the killer of exporters, as I have pointed out on numerous occasions.

 

Lee Kuan Yew of Singapore when asked which nation will be the most competitive  in the future, replied that China would give the U.S. a run for its money. Ultimately, Yew said, China can depend on the talents of 1.2 billion people. The U.S. can count on the talents of the other 6.4 billion people in the world. 

 

The U.S. will win Yew said. It will win to the extent that the U.S. uses the talents of everyone and imbues everyone with financing. It is crass I know, but without cash flow the most brilliant ideas go nowhere.