China needs our know-how, not our money

But, what has changed is that the largest technology businesses in China, like Alibaba (an eBay clone, combined with Amazon but even bigger), Tencent (like Yahoo) and Baidu (think Google) all now need to explicitly build legitimate content businesses. The Chinese technology industry has gone from a standing start a decade ago to now serving the largest digital community in the world of 618m internet users, 80pc of whom are connected via their mobiles. These Chinese digital natives are now looking for more than e-mail, video and social media platforms. Some of this demand will be met by the smart local tech entrepreneurs who I met in Qingdao, but much of it is going to come from international businesses which are prepared to share their insights as much as their IP in return for getting a piece of the Chinese market.

This change is not just about meeting consumer expectations but also reflects the fact that, as Alibaba will soon join Tencent and Baidu as listed public companies, they all need an international growth story to keep polishing their share prices and satisfying the demands of their shareholders.

The industry that has been most “harmed” by the digital revolution in China, the music business, is arguably the one which is now furthest ahead of its industry peers. While Universal Music is technically a French business headquartered in the US it’s senior leadership is all British with a big operation in London. Universal’s international CEO Max Hole pointed out this week that his business makes more profit in New York State (population: 8.4m) than in the whole of China (population 1.4bn). The traditional ownership model of selling music in physical or digital tracks never really existed in China, it has gone straight to a streaming model where consumers prefer to pay a subscription for access than buy a product.

For Universal the answer is to seek to partner (or perhaps get protection) from the largest Chinese digital businesses in helping them build out local music and video platforms.

Universal’s approach will no doubt be followed by the other content businesses on the trip. For those, like me, who are interested in investing in and helping the companies they might partner with our strategy needs to be a little different too.

The Chinese don’t need our money, they have plenty of that and it comes with fewer strings than my investment committee would ever accept. But they need our know-how, networks and relationships. For those wanting to deploy capital to back Chinese businesses they should view their address books as much as their cash as their principle assets. Dr Cable oversaw the signing of a new “alliance” between Chinese and British technology businesses which will provide a platform for building on the progress in Qingdao. If such formal groups can build a set of informal partnerships then the future of British trade delegations to China will be as fruitful as those in the past.

We often assume that alongside exporting our goods to China we should be encouraging them to import our form of liberal democracy. China is not a democracy but it does have checks and balances overseen by the Communist Party which are designed to ensure that the system is efficient and, with some obvious exceptions, fair.

Given the grid-lock in Washington and the messy coalition in Westminster, I can understand how the world’s second largest economy is not intending to offer the kind of political freedoms we enjoy in return for the remarkable economic freedom that they have delivered since “opening up” in the 1970s.

• Jonnie Goodwin is a founding partner of Lepe Partners

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