International Trade

Understanding China

July, 2021

By: Frank Olsson

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In its May/June 2021 issue, Harvard Business Review has four articles under the heading “Understanding China.” The articles help paint a different and more positive view of what China has achieved and explain some of its more promising prospects.

The magazine’s Editor in Chief states; “The world is a messy place, and you don’t have to be a fan of either the US or the China government to appreciate that the two nations need each other. It will be difficult to solve the world’s biggest problems unless smart people in the United States and China continue to engage.”

Based on my many years of experience I believe the only way to create a better world with peace and prosperity is to constructively work together – avoiding all the name calling and hype. The flaws we see in China and the United States pale in comparison to the positives attached to each country and the cost of an all-out conflict would be cataclysmic.

Democracy and growth are not mutually dependent and many believe that China could not have risen as fast as it had without China’s authoritarian government. China’s aggressive handling of COVID-19, in sharp contrast to many Western countries including Brazil and India, has if anything, reinforced that view. China has also defied predictions that its authoritarianism would inhibit its capacity to innovate. It is a global leader in AI, biotech, and space exploration. Some of its technological successes have been driven by market forces. Whereas the US economy has expended 2.7 times since 1990, the Chinese has expanded 32 times. This may explain why the July 2020 polling data from the Ash Centre at the Harvard’s Kennedy School of Government, revealed 95% satisfaction with the Beijing government among Chinese citizens.

China’s innovation echo system – its hundreds of millions of hyper-adaptive and hyper-adoptive consumers – is what makes China so globally competitive today. In the end, innovations must be judged by people’s willingness to use them and on that front, China has no peer. To have lived in China since 1990 is to have lived in a country that is moving faster and changing more quickly than any other place on earth.

China has also defied predictions around its capacity to innovate. China is not an authoritarian state seeking to become more liberal, it is an authoritarian state seeking to become more successful – politically as well as economically. The truth is that political reform in China hasn’t stalled, it continues at pace and corruption is being addressed and reduced. Political leadership is meritorious and competent.   

Home ownership has grown from 8% to well over 90% in less than 30 years. China is the largest value-added manufacturer in the world, accounting for 28% of all global production in 2018. It has also invested heavily in education to expand its skilled talent pool, increasing the number of college graduates from one million in 2000, to more than 8 million in 2019, 5 million of whom earned degrees in the sciences.

Few companies empower their China teams to help create global strategy. That’s a missed opportunity. Send your best and brightest people to China and expose them to new ideas there to expand their sense of what is possible.

China is among the most open markets in the world: it is the largest recipient of foreign direct investment, surpassing the US in 2020. The major focus of government expenditure is domestic infrastructure. Over the last 15 years China has built the longest high-speed rail system in the world. At 22,000 miles, it is twice as long as the rest of the world’s combined.

One reason China can spend so much on infrastructure is that its defence budget, after years of increases, is still only about a quarter of the US.

China also has no tax on capital gains and in 2020 China had more billionaires than the US, outpacing the US by three to one.

The four articles in HBR May-June 2021 I am referring to are:

  1. What the West Gets Wrong About China – Three fundamental misconceptions. By Rana Mitter and Elsbeth Johnson
  2. China’s new Innovation Advantage by Zak Dychtwald.
  3. The Strategic Challenges of Decoupling – Navigating your company’s future in China by Stewart Black and Allen Morrison
  4. Americans Don’t Know How Capitalist China is – Interviewing Weijian Shan – CEO of Hong Kong based private-equity firm PAG

I encourage you to read them for yourself and I’m sure you will gain a new appreciation and understanding of China.

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