China about to get web innovative

Companies like eBay and Google know that Chinese tech firms are forces to be reckoned with. Both Web giants have tried to push into the Middle Kingdom’s tech industry only to be shoved back by local competitors who were faster to market and better tuned to the tastes of the local audience.

But in each of those cases, the American companies could console themselves that imitation is the best form of flattery. The search engine Baidu may hold 60% of China’s search market, compared with Google’s 26%, according to Chinese Web research firm Analysys, but its site design and search algorithm largely mimic Google’s.

Alibaba’s Taobao.com has maintained dominance over eBay in China, but only by virtue of a few new features aimed at the local audience, like allowing real time bartering on prices–not by coming up with a smart new business model. So far, tech startups have outdone their U.S. counterparts in China through careful mimicry and adaptation–not innovation.

Author Rebecca Fannin, who has been covering China since 1992 and is the international editor of the Hong Kong weekly Asian Venture Capital Journal, says that’s about to change. In her new book Silicon Dragon: How China is Winning the Tech Race, she argues that businesses like Baidu and Alibaba foreshadow another generation of Chinese startups–those with their own highly competitive and homegrown ideas.

Taking a break from her book tour of Asia, Fannin spoke with Forbes.com from Hong Kong about the newest crop of entrepreneurs in China, why they’re poised to outthink and outspend Silicon Valley, and how they deal with local problems like corruption, censorship and piracy.

[Read the Forbes.com interview]

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