One of Silicon Valley’s top venture capitalists has seen the future and it is Chinese.
From Michael Moritz’s China is winning the global tech race in the Financial Times ($):
As 2016 dawned, the top five Chinese companies were worth one-quarter of their US counterparts. By the end of March 2018 this had risen to one-third. Right now, Facebook, the fifth most valuable US tech group, is just ahead of Alibaba, with Tencent not far behind. No wonder that Chinese youngsters looking for role models evoke the names of Jack Ma, Pony Ma, Lei Jun (founders of Alibaba, Tencent and Xiaomi) more than they do Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, or the late Steve Jobs of Apple.
Chinese internet companies also stand out because they are purchasing stakes in many of the more interesting, younger private technology companies. It is somewhat akin to real estate companies snapping up the best beach-front property. Most Chinese activity is outside the US, with Tencent and Alibaba building vast constellations of satellites. Tencent has more than 600 investments, while Alibaba has around 400 — totals that almost make Japan’s SoftBank look like a penny-pinching slowpoke.
Critics of this approach may gripe that it is undisciplined, but the admirers argue that these investments are somewhat akin to Chinese premier Xi Jinping’s ambitious and far-reaching Belt and Road Initiative. The only US company that comes close is Google, which since the start of 2017 has made more than 100 investments, although they are heavily concentrated in the US. It has also purchased more than 80 companies outright since 2014.
Another transpacific difference involves the use of cash. Between 2015 and 2017, the five biggest US tech groups (especially Apple and Microsoft) spent $228bn on stock buybacks and dividends, Bloomberg data shows. During the same period, the top five Chinese tech companies spent just $10.7bn and ploughed the rest of their excess cash into investments that broaden their footprint and influence. It’s hard to escape the view that the Chinese groups are — like all of us — creatures of their heritage. They are using their investments as one way to help fulfil the ancient Chinese definition of the Middle Kingdom — as the centre around which all else revolves.
My take: You have to wonder about Apple’s vision for future growth when the best use it could find for a 12-figure cash windfall was to purchase its own shares.