There are seven challenges that can hinder the building of a technical advantage. Some of the shortcomings are related to the domestic aspect, while others are on a global scale. In the first category, China must deal with quality issues and create the conditions for true creativity in order to generate breakthrough innovations (not just incremental innovations), increase the productivity of its economy, and not fall into the middle-income trap. In the second category, China builds the capacity of global norms, deals with the problems posed by the negative externalities of its technological development, such as the social credit system, or sells technology in the Belt and Road Initiative. None of these challenges are insurmountable, but domestic problems require the removal of some cultural barriers, while global challenges need to be embraced by the countries facing China. Keywords: Development - Competitive Advantage - Domestic Challenges - Global Challenges China's vision of success in the creation of technology, there are certain challenges that must be overcome in order to successfully achieve its ambitious plans. These challenges threaten to hinder the overall goal of technological self-reliance. I'll cover seven disadvantages:
Lack of quality - Lack of creativity - Disadvantages of productivity - Middle-income trap - Impact on global norms - Social impact of technology - Limitations of the impressive Belt and Road Initiative (New Silk Road). Will China be able to solve its problem of insufficient quality? and its negative impact on quality, historically, "Made in China" has meant craftsmanship, tradition and attention to detail, such as silk, ceramics, porcelain, lacquerware, jade, bronze, wood, and so on. Chinese craftsmen have been using jade since the Neolithic period! (Jade cannot be carved, but it can be processed with abrasives). Jingdezhen (Jiangxi) became the "porcelain capital" in the 17th century. The missionaries stayed there for a while, documenting the know-how of producing porcelain before transferring the technology from China to Europe. The collapse of empires and wars in the nineteenth century destroyed this special city of crafts. Since China's economic recovery over the past 40 years, the country has placed a far greater emphasis on quantity than on quality. This is not a stereotype. There are often quality problems with products made in China,
Like all post-war products from Japan. Building construction has the same flaws. No buildings collapsed because Chinese engineers calculated the structure of the buildings quite large. Defects are more related to renovation work and decoration: design errors, use of materials that do not withstand the ravages of time, sloppy construction, limited maintenance, etc. I remember once having a meeting at the workplace of an expatriate manager of a large European company. The building in which the office is located is under construction. This is surprising because the establishments look new. He explained to me why construction was still ongoing. The building was built only three years ago. And the floor on the first floor collapsed: the builder "forgot" to tie the floor to the pillars of the building. The challenges are well known: unlike engineers in Germany, Switzerland or Japan, who only get a product out of the market with 99.9% certainty, Chinese engineers, under the pressure of their hierarchy, are 90% or 92% sure.
Even if it means making the necessary adjustments later, or even breaking everything and starting over; We know what the cost of this 8% or 10% difference is in terms of time and resources (which thus gives the illusion that you are going faster than others because the product is put to market without in-depth testing).
Foreign companies act as quality teachers
However, there are also some quality guarantees, such as a certain jersey subcontracted in China, or an iPhone and iPad produced by a certain company, or an airplane assembled in Tianjin, or a Mercedes-Benz car produced by an automobile industry company. Foreign companies come to China with their quality management methods. By doing OEM for big foreign brands, quite a few Chinese companies have learned manufacturing quality and launched their own brands. Even more surprising is the fact that since the early 2000s, many Swiss watch manufacturers have been sourcing parts from suppliers in the Shenzhen area (which imports from China to Switzerland are close to CHF 1 billion). These examples prove that it is possible to ensure quality made in China. But Chinese companies still have a lot to learn in this regard. There have also been effective changes in some sectors: Ten years ago, critics of the automotive media had a condescending attitude towards crash tests of Chinese cars, but now no one says so, because there are Chinese cars (a handful, of course) that have received four or five stars.
Even if the concept is not strictly unique to China, it is shared by both China and Israel. As these islands of quality practices proliferate in China's manufacturing structure, we need to constantly revise our judgments. In particular, more and more Chinese consumers are demanding quality, and the success of German automakers illustrates this.
Will China be able to increase its creative potential?
Creativity is not the exclusive domain of culture and the arts, but also affects the technical field and the economy. Recent economic history shows that countries like Japan and South Korea, which in the 70s of the 20th century were considered uncreative and could hardly copy Western products, but later proved to be real creators of technology. This is very much in line with the path that China is likely to take.
China's economic landscape has changed a lot
Some Chinese companies have already pointed the way. This is the case in the field of the Internet and the field of information technology, and in the media. This is also the case in more traditional industries such as automobile manufacturing, household equipment, medical or construction machinery and other heavy equipment. For example, a refrigerator with three compartments was designed for the United States: a standard one, a freezer compartment, and a middle compartment for ice cream, which Americans are the main consumers. As more and more Chinese companies enter the process of internationalization, companies in developed countries are finding that more and more Chinese companies are not simply pursuing cost strategies: when the German company Putzmeister was acquired, it realized that "China has more than 5,000 patents."
Quantity or quality?
China has recently taken the top spot in a number of rankings: especially in terms of the number of scientific publications, the number of patents filed, and the number of unicorns. As in the case of China, scale blurs the perspective. Quantity is not necessarily the right measure, as quality issues remain. Until now, creativity has been embodied more in business models than in scientific breakthroughs or disruptive technologies. As a result, in the automotive, semiconductor, and pharmaceutical sectors, Chinese groups have so far lagged behind in the global innovation race.
China is developing an appetite for start-ups
Chinese startups now raise more capital than U.S. startups. Financing in RMB exceeds financing in US dollars – with the exception of the Internet. The working environment offered by Chinese start-ups is second to none in Silicon Valley. Start-up entrepreneurs may prefer to test new business models, and the results may be observed more quickly than innovations based on basic research – with the exception of a few areas such as quantum computing. Researchers who can quickly and dramatically improve their standard of living through operations closer to industry will not care about basic research.
The favourable conditions for innovation exist
Is China ready for creativity? The state has some advantages. Since ideas are subject to experimentation, China has an advantage because they are pragmatic in the first place. Creativity is also about the network, and on that level, they are outstanding. Another advantage of China is a holistic mindset, which facilitates the understanding of complex and interconnected situations, which are often the hallmarks of innovation. Creativity is also about open-mindedness and curiosity – qualities that can be observed among Chinese foreigners who have traveled in China for a while. However, the number of Chinese trained to dream and doubt is small and concentrated in a few special universities, such as Beijing or Tsinghua. In these more open contexts, creativity is more likely to be expressed. But creativity is also about questioning and observation – qualities that take time and are therefore difficult to develop in a hurried society. The Chinese want everything, right away.
The first obstacle to taking an original stance is culture
Some traditional Chinese activities, such as calligraphy, show a cultural attachment to "doing better"; To improve this gesture, people repeat it endlessly. Do these learning-enhancing values hinder the search for 'doing things differently' – a necessity for innovation? Creativity is also a critique of the dominant principles, in order to shake established paradigms, provoke social transformation, and so on. And this is precisely the pain point for China, because there is nothing in their education that prepares China for these challenges. When you see students lining up perfectly on the school playground, or practicing calligraphy or learning written Chinese, you can see how much Chinese value repetition. Censorship has a curbing effect on China's impressions and creativity, and intervention stifles creativity. The obstacle to creativity lies in the organization itself. Ideology, therefore, is the reality of Chinese universities; China even wants to strengthen ideology. If we admit that innovation destabilizes the environment, we will understand that innovation can be difficult to emerge in a society that seeks harmony and stability.
You must be a madman, a marginal man, a rebel, or, in any case, a maverick invention; Just like many behaviors are hard to catch on in China. One could argue, however, that China can vent its pressure and unleash its creative potential in a rare area where actions contrary to the dominant narrative are permitted. The truth is that Confucian values, while an obstacle to creativity, do not necessarily discourage innovation. Japan is also a society with strong Confucian values, and the country has produced a great deal of innovation over the past half century.
Can China overcome its productivity disadvantage?
This is one of China's Achilles' heels. Industrial processes mobilize a large number of people. During the tour of the factory, hundreds of people obediently and rhythmically carried out the same work for a few seconds, repeating it throughout the day. Productivity in the United States, Europe or Japan – in terms of GDP to working hours – is much higher than in China. OECD research shows that China has narrowed the gap with the United States, but the gap is still wide: China's productivity is 70-80% lower than that of the United States (in manufacturing and services). Many state-owned enterprises and heavy industries are even in decline due to low productivity. China's agriculture has the same problem: farms are often too small; Sanitary controls are not always qualified and are not easily regulated. There are 40 million pig farmers in China, and this activity is also extremely fragmented. That's why China is looking to inject more markets there; For example, the price of wheat was liberalized in 2016. However, the race to increase productivity is at the heart of the strategies of companies such as Foxconn, which have announced massive investments to improve robotization in their factories.
Observers are clearly well aware of this. It has been used as a course of action in the past from 1998 to 2003. In addition to automation, digitalization and scale are supported as ways to increase productivity. China has succeeded in gaining productivity, but Western firms retain an advantage over Chinese firms; They can provide their Chinese subsidiaries with the technology and methods they have developed outside of China to remain competitive.
Will China fall into the middle-income trap? Economists show that when a developing country's per capita income reaches a certain level (around 6,000 euros per year), its growth changes from sustained (7-8%) to normal (1-3%). The term "middle-income trap" is used to describe emerging countries that have experienced very strong growth but have not been able to shift their model, and their development has faltered on the basis of GDP per capita and has never joined the ranks of advanced economies (a GDP per capita of $12,500 is considered the threshold for high-income countries). The World Bank found that only 13 of the 101 middle-income economies in 1960 entered the high-income group in 2008. Rising costs erode the advantages that made it grow and were not offset by rising markets and/or technological advances. Several Latin American countries have fallen into this trap, notably Chile, Mexico, Brazil and Uruguay. On the other hand, countries such as Japan, Singapore, Taiwan, South Korea and Poland have been able to avoid this trap.
In 1953, after a bloody civil war, South Korea started from nothing, then a predominantly agrarian country, and now has developed the best technology and positioned several of its companies on a global level - Samsung and its 320,000 employees in 84 countries, as well as LG, Hyundai, Kia, Hynix Semiconductor, and Hankook Tire, among others. South Korea has raised the average income of its 50 million inhabitants to the level of European countries. By the way, South Korea's trade with China is twice as high as with the United States. Singapore has transformed its economy through significant investment in technology, especially electronics and medicine. But while Singapore is ethnically Chinese, it has nothing to do with China's size (5.4 million people, including 1.3 million foreigners, compared to 14.02 million according to the 2020 decennial census).
Can China get out of the trap?
As the economy has grown, wages have risen and the gap between China and advanced economies has narrowed. China's cost advantage has been eroded, and the cost of producing in China is now much higher than in Mexico or Vietnam. China wants to change the nature of its comparative advantage. According to the Porter diamond model, China has lost its historical advantage of low labor costs based on mass-market commodity production; Factor conditions have changed. However, China has established relevant and supportive industries. Since China has a huge domestic market, China has also benefited from strong demand. The challenge is to move from the advantages associated with low labour costs to those based on innovation and advanced technologies. The question is, will China be able to sustain GDP per capita growth like South Korea, Taiwan, or Singapore, or will it become like Brazil or Mexico? China is hovering between economies that remain competitive in terms of labor prices and technologically advanced economies. 【To be continued】Please stay tuned for the next issue.