When I saw the Tokyo subway map during my first trip to Japan in 2008, I was filled with optimism for China’s tech sector. Why?
History has taught us that explosive growth in transportation systems is often followed by periods of economic boom. During the American Civil War, the number of miles of railroad track in the U.S. more than doubled, which ultimately helped to fuel the dramatic expansion of the steel and iron industries. The resultant post-war economic boom helped to transform the U.S. from an agricultural to an industrial society.
Similarly, in Japan, the Meiji era saw the construction of the country's first railways, which further expanded after World War II, culminating in the birth of the Shinkansen in the 1960s. Thanks to the improved flow of goods and people across the country, a "national market" that connected various regions emerged, propelling Japan into Asia's first modernized state.
In China today, we are witnessing a transportation revolution. Since 1999, railway transportation has enjoyed powerful growth thanks to massive infrastructure investments by the government. China now has the world's longest mileage of high-speed rail - 20,000 km (12,500 miles) and counting. In comparison, Japan has around 1,700 miles, and the US has 500 miles. If New York and Boston were Chinese cities, a trip between them would only take an hour and a half (instead of 4-5 hours as it is now). Imagine how much more these two cities could collaborate as a result.
Concurrent with the growth in the intercity railway is the expansion of subway systems within Chinese mega-cities. The graph below shows Beijing's subway map in 2005 and 2015. The dramatic increase in density is remarkable and reminds us of what Tokyo was able to achieve years ago.
When Chinese tourists visit Japan, they often feel like they are experiencing a future version of China. Indeed, Chinese metropolises like Shanghai increasingly resemble Tokyo, with a dense subway system, ubiquitous vending machines and convenience stores, bustling department store basement food halls - a well-oiled urban machine characterized by automation, efficiency, and an enormous amount of commercial activity.
However, Chinese cities need to accommodate a much larger population than its counterparts in Japan and elsewhere. Beijing already has 20 million people, and more are flocking in every day in search of economic opportunities. It is plagued by perennial problems like health-threatening air pollution, exasperating traffic jams, and subway trains bursting at their seams. The city has already done a lot to combat traffic congestion, for example using an odd-even license plate-number based driving limit within the Fifth Ring Road on weekdays. But its traffic jams still put Los Angeles to shame. What will Beijing be like in ten years?
One thing is clear: China cannot follow the American route to urbanization. Beijing already has 5 million private cars on the road, and anyone who has been in a car in Beijing can agree that the city does not have enough bandwidth to support these cars (the average commute in Beijing takes 54 minutes). Around 20% of people living in Beijing own cars, compared to 75% of Americans. If everyone in Beijing consumes like Americans, there will be three times more cars on Beijing's roads – a transportation nightmare.
China would be much better off if it adapts Japan's path and focuses on building smart, public transportation solutions. Beijing's public transportation system has come a long way since a decade ago - its subway system now supports 10 million rides per day - but it will need even more high-speed rail and subway lines. This is why smart, creative transportation companies like Didi Chuxing (a GGV portfolio company), ofo, Mobike, and Hellobike (a GGV portfolio company) can thrive in China.
But the opportunities created by China's transportation revolution are not limited to ride-sharing and bike-sharing. It has also given birth to innovative companies aiming to improve urban logistics. For example, GGV's China-based managing partner Jixun Foo invested in Ymm56.com, which is akin to a Didi for trucks. It is a mobile transportation platform that allows tracking of cargo, trucks and transactions. Chinese people’s enthusiastic adoption of e-commerce has also given rise to immense demand for package delivery services, and all the major logistical companies handling such deliveries - such as SF Express (Shunfeng) and YTO Express (Yuantong) - have gone public in recent years.
In a 2011 report, McKinsey divided China into 22 “city clusters:” groups of cities that are developing around one or two large hub cities. These are economic powerhouses whose GDPs are comparable to entire nations'. Already, the GDP of Guangdong province - home to megacities like Shenzhen and Guangzhou - rivals that of Australia, and is on track to match the state of New York.
Source: McKinsey Quarterly’s Winning the $30 trillion decathlon: Going for gold in emerging markets
Thanks to the ubiquitous high-speed railways, these clusters are no longer isolated markets – we have witnessed the birth of "one national market” as goods, ideas, and talents in one part of the country can quickly spread to the rest of the nation.
At GGV, we actively work with U.S. companies to explore the Chinese market through these clusters, following similar strategies adopted by local e-commerce companies that we invested in, such as Alibaba and Xiaohongshu (Red). We look forward to partnering with global-minded entrepreneurs worldwide to tap into the unprecedented opportunities created by China’s transportation revolution.
Hans Tung is a Managing Partner at GGV Capital. A five-time Forbes Midas Lister, he has been a US/China investor for more than a decade. He was among the first Silicon Valley VCs to move to China full time, betting on the rise of the Chinese consumer internet market with companies like Xiaomi where he was an early investor and board member. His portfolio includes 3 of the top 5 shopping apps in the App Store – Wish, Poshmark and OfferUp – with Ibotta growing fast at #12. Other companies in his geographically diverse portfolio include: Airbnb, Bowery Farming, Bustle, Dirty Lemon, Function of Beauty, Giphy, Lively, musical.ly, Peloton, Slack, Smartmi, Xiaohongshu (aka Red), Yamibuy, and more.