The neglected sources of China’s economic resilience by Zhang Jun
Many observers of China are pessimistic about its outlook, arguing that it remains too dependent on Western technology. But thanks to a huge and interconnected market and an exceptional capacity for learning, the entrepreneurial impulse that drives China’s development remains strong.
SHANGHAI – Over the past 20 years, a number of successful technology companies have emerged in China. This has sparked much speculation about the country’s scientific and technological prowess and its ability to innovate. Some argue that China is already behind America in these areas and has become a world leader in some areas. Others believe that China is not as far advanced as it looks, and the government’s regulatory crackdown on tech companies will hamper its continued progress. Which one is it?
Those who doubt China’s progress point to the country’s dependence on Western technology, pointing out that its local tech companies still do not compete with their American counterparts in the world. But Chinese optimists note that these companies continue their rapid international expansion, a reflection of China’s exceptional learning capacity.
The latter camp is right. In fact, China’s ability to learn is the secret to the country’s economic success, and it says a lot more about China’s prospects than the country’s technological position. After all, technological innovation is less an input than an output of entrepreneur-led economic development. It is by creating successful businesses that entrepreneurs have opportunities to develop new technologies and applications.
To be sure, China has faced growing external challenges in recent years, including crackdowns on technology sharing by developed economies. In addition, the government’s efforts to maintain internal economic order and mitigate financial risks, including through increased regulation of technology companies, have been controversial in the market. And some foreign manufacturing companies are said to have pulled out of China.
But the economy has not stopped. On the contrary, the entrepreneurial impulse that drives China’s development remains strong. This helps China to have a huge domestic market of 1.4 billion people connected by well-developed transportation systems, advanced communication networks, and flexible and efficient supply chains.
While many foreign companies have come and gone, it has always happened, and it is not because foreigners are treated unfairly in the Chinese market. Foreign companies simply find it difficult to compete with local companies, which have a significant advantage, including less red tape and in-depth knowledge of the market. Moreover, while foreign companies can arrive in China with a slight technological advantage, it is usually short-lived, considering how quickly Chinese companies learn.
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Today, there are an impressive number of successful Chinese small and medium enterprises. They may not be household names – in fact, they are called “invisible champions” – but they are constantly innovating in the application of cutting edge technology. And their ranks keep growing.
There are also a large number of Chinese companies serving foreign clients, many of which maintain a much larger presence in Europe and the United States than in China. These companies take advantage of China’s efficient warehousing, distribution and logistics systems, as well as its superior product design and manufacturing capabilities, to strengthen their competitiveness in overseas markets.
Shein, an online fast fashion retailer founded in 2008 in Nanjing, is a prime example of such a business. It started out as a cross-border e-commerce business, selling clothing through platforms like Amazon and eBay. But, in 2014, the company created its own brand and launched a bespoke website and app in markets around the world, from the United States and Europe to the Middle East and India.
By selling inexpensive clothing directly to consumers, Shein prospered. In a short time, it became the second most popular e-commerce site with young Americans, behind Amazon. According to Google Trends, users in the United States – Shein’s leading marketplace – search Shein more than three times as often as they search for Zara.
Despite being estimated to be worth $ 15 billion, Shein was not particularly well known in China until last year, when she was ranked among the top ten Chinese “unicorns” (private companies valued at over $ 1 billion. of dollars). This is because it does not serve the Chinese market. Instead, it leveraged the advantages of China – the result of huge government investments over the past 20 years – to build its own flexible supply chain, concentrated in Guangdong, the world’s most important manufacturing center. developed country.
Through this supply chain, Shein would be able to take a product from design to production in ten days. Its fast fashion competitors – whose products are typically designed in Europe, made in Southeast Asia and China, sent to European headquarters for warehousing, and then shipped to global markets – simply cannot keep up. Shein has also started building warehouses in some key markets.
Shein is not an anomaly. China has a number of other fast fashion cross-border e-commerce platforms and a total of 251 unicorns, last year. The list includes social media apps like TikTok, which has taken the world by storm. The influence of Chinese Internet companies is significant and continues to grow in the European, American and South Asian markets.
The Chinese government is partly to thank. After the SARS outbreak in 2003, he worked to support the expansion of e-commerce. Then, to offset the shock of the 2008 global financial crisis, it continuously invested in internet, communications and transportation networks, mobile payment systems, logistics and warehousing capabilities, and supply chains. , while promoting links between sectors. These efforts have made it possible to strengthen and perpetuate the sources of innovative dynamism in the economy.
To be sure, China’s large and fast-growing economy suffers from its structural problems, which don’t seem to match its underlying dynamism. This apparent gap is reminiscent of the complexity of the economy. For example, because the public sector captures a disproportionate share of financial resources, it is often seen as a source of misallocation. But recent studies show that state-owned enterprises may have served as an informal channel to ease funding constraints for small and medium-sized enterprises.
Those who focus excessively on surface phenomena will continue to underestimate China’s economic resilience. One cannot truly understand the Chinese economy and its prospects without paying attention to the irrepressible dynamism that forms its basis.