This article is missing the key part where China blocked and limited products by major foreign tech giants such as Google, Facebook, Microsoft et al so homegrown Chinese variants could flourish.
Don't you think that by limiting foreign companies' products the local companies would operate less efficiently since there is no competition? I think I was taught about this in my econ 101 class. Why does it work differently this time?
(1) Econ 101 classes mostly sell students an idealized version of economy.
(2) Top-tier countries have used all kinds of techniques (protectionism, tariffs, etc) to get successful, but now that they don't need those anymore, they pay lip service to the Econ 101 "laws" that are against those same techniques.
(3) While clothed in scientific parlance, a lot of what is Econ 101 is just BS to promote the interests of those in power, not what's best for the people in general (that's how an ecomomics professor gets grants, becomes policy advisor, etc).
The scientific part is just using some math while still basing their ideas on idealized unworkable models and unprovable assumptions.
That said, even if all the above was not true, the internal market in China is 1.6 billion people. 4-5 times the US is more than enough to have lots of internal competition.
Heck, there are US-only brands the rest of the world doesn't care at all about -- and that's on a 350 million people market, and they still do just fine.
Yes, but also don't need maths to know that competition can be controlled with 20 ways (and usually is, e.g. US ISPs), or that you can have tariffs AND internal competition.
Or even that you can have a fine quality product at a good price even without competition at all -- e.g. produced by a single vendor, as long as the vendor is so inclined.
If competition is controlled then there's less competition and one can expect efficiency to drop down ceteris paribus. Now you have to explain why controlling competition could lead into better quality or cheaper prices. (The only thing I see is that it could let governments keep more money, thus more power ?)
fine quality product at a good price even without competition at all
Threat of competition is also a form of competition (for example a software product not protected with patents, anyone could compete so the producer offers good prices)
The US is really big, if there's not a mis-configured regulation, adding overseas competition won't really increase efficiency as the perfectly sperical market in a vacuum equation suggests.
Maths have nothing to do with economics. I said efficiency as a way of comparing market offer from the point of view of customers (you can picture the formula "quality/price" if you want but that doesn't mean that it is objectively & mathematically defined), meaning that prices go down and/or quality increases
mis-configured regulation
Do you have examples of good protectionist regulation ?
And no I gave a specific example with software patents so even if the US is big enough it can benefits from outside products
If we're talking about efficiency from the customer point of view, I can pay full price for American goods on Amazon but receive garbage-cheap Chinese knock-offs in the mail.
I don't even understand what you are trying to prove. That some sellers are not trust worthy ? That there will always be an intermediary taking the profit ?
Not necessarily the same things happened also in Russia.
Competition can still happen just locally and while competition is good when the scale is unbalanced it can be just as bad or worse than no competition at all.
Almost no one is developing a Google search competitor because it’s near impossible to do so while people have access to Google the need isn’t there and you can’t compete unless you are actually better there isn’t as much niche to search as people think.
You also have the problem of resource imbalance where Google can just go and buy out the local competition at ease due to their wealth this what has happened with dating and P2P commerce sites all over the world.
You can't develop an industry from nothing without protection. This is how happened in the USA, protecting nascent industries from others (the UK mainly). It seems that the Chinese are very aware of this historic truth.
The corollary being that, if you are already a developed country, and you want to avoid competition, a good way to do it would be to force, other countries, to "open they markets".
> Don't you think that by limiting foreign companies' products the local companies would operate less efficiently since there is no competition?
There is no foreign competition but Chinese companies still have competition from other Chinese companies.
Even if the Chinese market is less efficient because competition is limited to China: The goal is to foster a healthy national economy, create knowledge, and most importantly keep total control over technologies and communication channels.
Google, M$ and Amazon were not successful when they were not blocked in China.. Amazon China is still not blocked but far behind JD, Alibaba, etc. In some areas like fintech, drones, consumer apps and games China is clearly the leader. If FB is unblocked I doubt it can compete with Tencent at all. Tencent has a higher market cap than FB and understands the Chinese so much more..
I don't think this concedes how much a factor Chinese regionalism plays into the dominance of Chinese companies in China. The government has had a much stronger hand in shaping what technologies and companies flourish than in the rest of the developed world. How the market would have looked if the government was less heavy-handed is an open question, but I think it is misleading to omit this factor.
Also, there are things that foreign companies simply will not concede to Beijing. Tencent allows full access to their networks to the government. Ephemeral criticisms of the government can get you a warning from the state. This is unconscionable behavior in a lot of other countries, but it's a concession Chinese companies have made time and again.
> In some areas like fintech, drones, consumer apps and games China is clearly the leader
Maybe vaping/e-cigarette technology too.
> BIS Research estimates that the global electronic cigarette industry will exhibit a growth of over 22.36% (CAGR) from 2015 to 2025, to reach a total market value of $50 Billion by 2025
I am not American, but I think it's fair to say that America brought the world into "modernity". Telephone, computers, software, the internet, smart devices, these had a huge impact on the world.
To me, the real test of China's innovation will be to see if they can have a true and significant impact on the world.
We often talk about innovation in terms of technological advancements, but we need to also talk about innovation as new methods, new way of thinking.
What does the world need today in 2018? The environment is in peril, the resources are diminishing rapidly, the climate is changing, etc...
Going forward, I believe the most impactful innovations will be the ones who will deal with these huge problems. I sure hope both the US and China can unite their efforts here because in the end, we are all sharing this planet.
In that context, I think you need to consider the US' impact on political norms. It was the first modern democratic republic. Its basic political norms and rights form the most important example of what we know as liberal democracy.
I believe US should be credited with being the biggest supporter of modern democracy rather than being the first modern democracy. This seems to be changing though, pure financial interests seem to the new policy. If there is one reason I don't want China to succeed is because of its communist regime.
But, the US' political ideologies were more easy to understand. France's was always more layered and abstract. Also, fewer peopele were looking at revolutionary France with envy, because of all the violence.
It's mostly making real stuff, too. The US suffers from ad-based companies, especially Google and Facebook, dominating "tech". YC recognizes this; most newer YC startups are not ad-funded. But it's going to take a while to turn this around.
It's like that strange period in the 1990s when 40% of US corporate profits came from financial activities, and every big company had to have a finance subsidiary with a trading desk. That's so over.
It's like that strange period in the 1990s when 40% of US corporate profits came from financial activities, and every big company had to have a finance subsidiary with a trading desk. That's so over.
I realize that you're refering finance activities contribution to the profits of perhaps non-financial firms, but the contribution to GDP from financial services firms has been growing steadily since the 50s and shows no sign of slowing [0].
Yea, that ad bubble is one of my favorite topics right now. Part of it is that the US economy has been mostly based on debt (to generate growth) since the 1970s though, with the Japanese being first (after US manufacturing lost dominance). As a side note: https://www.zerohedge.com/sites/default/files/images/user330... Notice the period where debt was not increasing but stocks were going up. I suspect this was not a coincidence.
The examples you chose in particular are strange. Yes, they're ad-supported but they're both still "making real stuff" and both still "tech".
Isn't the turn away from ad funded user-count business models more about attention saturation and the fact that those markets have stabilized around a set of incumbent platforms by now?
It's mostly making real stuff, too. The US suffers from ad-based companies, especially Google and Facebook, dominating "tech".
This is an odd criticism. Newspaper, Cable and TV companies have always been financial giants. It would be more surprising if ad-based companies hadn't remained big players.
The article is missing the real step one: Education.
From "China’s rise as a major contributor to science and technology"[0]:
"China is now the world’s distant leader in bachelor’s degrees in Science and Engineering, with 1.1 million in 2010, more than four times the US figure. This large disparity reflects not only China’s dramatic expansion in higher education since 1999 but also a much higher percentage of students majoring in S/E in China, around 44% in 2010, compared with 16% in the United States."
Many of those CS degrees outside of first and second tier universities are not very good, however. When every foreign language unverisity and teacher’s college (there called normal universities) has a CS department, there is definitely something going on.
> Many of those CS degrees outside of first and second tier universities are not very good, however.
Sure, but even if half the total degrees are substandard that's still twice the output of the United States. It's a wave that will only pay more dividends over time.
> When every foreign language unverisity and teacher’s college (there called normal universities) has a CS department, there is definitely something going on.
The same could be said for every liberal arts college in the United States which suddenly has a brand new science/math/CS center plopped onto campus.
Anyway, I'd recommend giving the study a read. The authors discuss these issues as well as a few others. Problems aside, there's a clear trend developing.
Even the Chinese government admits quality is a problem, I’ll see if I can pull up a CD or GT article I read a few years ago. The CS programs in lower tiered schools are not given many resources, they are often taught programming by teachers who have never programmed before (similar to being taught English by the book by an instructor who can’t speak english, my mother in law did this). It’s not the same as Hoboken liberal arts college teaching CS, it’s more like Scottsdale cooking academy teaching CS (or at least Zhangjiajie Tourism College).
When I was working in china, everyone was complaining about finding programmers that were good enough to hire. You would filter your resume stacks by 1st then 2nd tier universities (throw everything else out), and still had to be very rigorous in interviewing. This was way after the CS education boom happened in the early part of this decade.
Every industrial nation started by copying the British. The European countries and the US did it in the 19th century. In the 1960s/70, everybody joked about the Japanese copying everything. In the 80s, South Korea was known for cheap copies of electronic devices. It is/was only a matter of time for China to move from copying to innovating.
One thing the U.S. (and Europe) still deal very well is branding and messaging. Most of our electronics are designed and made in China, but they are still branded and sold by western countries. The U.S. is still adept at manufacturing brands, lifestyles, identity, and "cool".
While China developing it's own technology was practically inevitable, it will be far more interesting when they begin influencing what people want.
Most of our electronics are made in china, many are definitely not designed there. Anything made for Apple definitely isn’t, most American branded electronics aren’t either. If it is designed in china, it will be obvious by the Chinese brand (e.g. Lenovo); the only big foreign company I can think of that lends its brand to Chinese designs is Nokia.
Well actually a lot of things that say made in China are actually just assembled there. Like the essentially all of the core components of the iPhone are made in Japan/SK/Germany/US and then shipped to China to be put together.
Technological diffusion has been happening since Ogg the caveman invented the wheel. Heck, there is evidence that even writing was diffused from one location in Eurasia, though the Chinese vehemently deny the possibility.
I guess we really taught them how to copy everything by moving all manufacturing there. Once they could do everything without external help, they would innovate.
There is nothing obviously wrong with copying things and nothing obvious right with "inventing" them first. DOS was not first but beat CPM. Microsoft even went on to PROMOTE its "fast follower" modus operandi. VC's seeking exits have very sound reasons for wanting something "first" and preferably "license protected." But those wins do not obviously confer to either nation states or even all industries or companies. Making things over and over for expanding markets is the best source of innovation. Any delusions of "labs" as "heads" and "making things" as "mere hands" are in fact pure delusions. [Edit: sp]
Maybe not pure delusions! But I think you’re otherwise right. It’s slow to penetrate post-modern perspectives, so much that pointing it out seems to only confuse and slow us down. I think it’s sad. At this point, an American with the lab:factory perspective is met with a set of industries and personnel perfectly trained to that model, and scarce resources to undermine it if they choose to go against the grain (See Tesla’s uphill battles in manufacturing, not an isolated or perfect example but fits). We’re also likely to be surrounded with success stories of that model.
But, like you say, there is another way. It’s pretty tough to see the benefit of not looking for it, especially when comparing the pace of the outsourcing model. But, we ironically installed the artisan model in our nation’s individualist “doer” image of itself and spend a lot of effort talking around it. It’s proven time and time again in stories of history, art and innovation but it’s just a matter of a pendulum swing.
It probably depends on industry. It doesn't work so well in today's software, like Microsoft has proved. Also in industries with strong patents or with effective process secrets. And i'm not sure that way of thinking is effective in industries with network effects.
So what's left ? usually industries with low-margins. And afaik, that generally describes China.
First, it would certainly depend on as many sample variations we can find. Second, you are approaching tautological nonsense where patents and copyrights are nothing more than excuses for undeserved "outsized returns." Maybe that is true now or in countries with "first-to-file" patent regimes. There are no guarantees of ANY future outsized returns, no matter how much people might desire them. Low-margin might just equal "useful and fair."
I was recently reviewing front-end frameworks (i.e., React vs. Angular), and part of the review was looking at Google Trends to get an idea of their relative popularity. I was pretty surprised to see that while React has been gaining on Angular for some time worldwide, it's had remarkable growth in China, where it now surpasses Angular by a wide margin.
Certainly seems that China is faster to adopt this technology than others. Unclear if this is an isolated incidence, but was just surprised to see China pick up a new technology faster than most established tech centers.
Reminds me of a story I read a while ago about Russian programmers that didn't speak English at all so all things we recognized as words in the programming language didn't have any meaning to them.
Perhaps React has a syntax / mental model that's easier to grasp for non-English speakers. OO programming is definitely more wordy than functional(ly oriented) programming.
I think expansion of software / tools into non-English markets is mostly driven by the availability of native language documentation, tutorials, blog posts, etc. The more translated documentation exists, the more the software is used, the more is written about it, the more it is used, etc.
honestly, who in their right mind would use the new Angular it's objectively worse in every area. In my experience only Angular development is maintaining Legacy code. Picking the new Angular would be insane it's slow, buggier, less flexible and more expensive to develop and find talent to build it's truly a lose-lose (unless you are a Angular team consultant that is)
The next step in China will be that an important part of their citizens will earn a living above a certain threshold where they will think about non-material problems in their lives, which is the moment the Chinese government has to start dealing with unruly citizens. This happened in the 1960's in Western Europe and the US.
There was an article in the WSJ yesterday that called the last 20 years of GE under CEO under Jeff Immelt “success theater” due to the underlying rot.
China is a country of “business theater”. They sure look like they’re doing business, lots of factories, tons of people in suits, cargo container ships, etc. But it’s all just a lie. It’s nothing but the 21st century planned economy version of the Soviet Union. It’s not even communism as much as simple totalitarianism. The only thing I haven’t figured out yet is if more than 50,000,000 million people are going to die, which was the same amount in 1958-1963 that died in totalitarian China, a number greater than the USSR and the Holocaust combined I would like to add.
Capitalism in the US sucks, but it’s very fixable. Capitalism in the 1910’s was far more horrible, but it was fixed beyond even today with the reforms of the 30’s-50’s, so I don’t want anyone to think my criticism of China is some apologia for capitalism right now.
This I do not believe in / don’t want to, but just so everyone is aware, the theory that really propelled Trump into office was that of the “fourth turning”, which Steve Bannon was a huge believer in. Essentially it’s the belief that every 80-90 years a massive war and change in Western government happens, stretching back to the British defeat of the Armada in 1588. As Christopher Coker wrote in “The Improbable War”, the next World War is most likely with China, a county with the manpower and resources to fight a grinding global battle against the US. We will see.
What does totalitarianism have to do with them doing business? China produces stuff I want. And increasingly, China produces stuff China wants. This is business.
There will never be a world war again, the US cannot sustain a real war against China at all, it will just use nukes (or China will). Why do Americans fantasize about war so much?!
China produces almost nothing I want unless you count foreign-designed products that happen to be manufactured there under contract. Maybe steel and rare earth metals?
I've tried their flagship apps too (WeChat, Alipay, Alibaba, AliExpress) and they are just really awful compared to their Western equivalents. Not just in subjective look-and-feel ways either: the AliExpress signup flow was so broken in their iOS app that I had to switch to a web browser to sign up!
That they're useful and popular in China is something that has occurred in spite of their awful tech. More through great business development and exploiting a total lack of entrenched non-tech competition like credit cards, consumer banking, malls, Wal-Mart, etc.
You seem to think china is one massive block of people all thinking the same. Being there at the present time, i see a society full of very independant, almost libertarian people, very hard to govern, that are thriving to do business, from 1-shop man to big businessmen. And the young generation (<35) is 100% oriented toward the western way of life.
My feeling is that if a war should happen it will be a civil war between China government and chineese people, maybe once the economical boom begins to slow and people stop making fortunes (unless americans start to screw up so massively that they become unattractive as a lifestyle model, that is).
It seems that whenever there's a conflict between a segment of the population in China and the government, the government always wins. The Tiananmen Square protests didn't lead to democracy, Hong Kong protests don't change anything, Tibet and Xinjiang are still suppressed, Taiwan is still bullied, Gui Minhai is still secretly imprisoned and probably tortured, and any foreign web site that reports on any of this is banned in China.
Yes, specific agendas face a nearly immovable object in the CCP in high-profile issues or examples. This is because the CCP cannot afford to appear movable.
But on a local level it's actually surprisingly responsive. Many an industrial project has been shuttered or aborted during construction due to local opposition. This is especially the case for environmental concerns. But local groups have also successfully forced the national party to reform the local chapter to clean up corruption, or lobbied for freedom to do certain kinds of business. (It's not all democratic, it certainly helps to have wealthy backers for these interests)
I think that you're missing the giant change that happened in the 1980s when China allowed people to openly amass wealth and start businesses. All of this led to all of the businesses and factories that you call fake.
If they kept trying to run a Soviet-style command economy they'd be at the same level of development as North Korea, with their fake grocery stores, rolling blackouts, and constant famine.
Everyone points to automation as the savior, but where is the Chinese Caterpillar? The Chinese Bosch? As far as I can tell, they still rely primarily on companies from the US, Japan, and Germany for their automated heavy industry.
China was able to copy Caterpillar very effectively, to the point where they are now eating Caterpillar's lunch. It is much harder for them to copy the precision machinery that German companies wouldn't dare to think of JV-ing in China.
Sure, Hong kong submitted financial documents are opaque (to be generous) on a regular basis.
There could be massive falsehood underlying a lot of China's numbers.
But at the same time, they also are producing vast amounts of goods.
If their numbers are fake, those fake numbers are good enough for them to bully their neighbors, set up billion dollar ports, give billion dollar loans, and create the massive OBOR project.
And no, in the intervening years many of the claims of democracy proponents have failed to come true. China thrived because of its opaque crack down on free speech, the people who rose up did not survive if they rose up at all.
It is also quite likely that China is immune to the kind of issues of foreign funded news articles that western firms are open to.
And China has objectively uplifted one of the largest chunks of human population to a better life than what they had before.
It a life many people would not countenance in the west, but its better than what the options were before.
Unless someone has hard facts, to indicate exactly how deep the rot is - its speculation.
The facts and actions of China which are observable tend to hold more weight
These threads about China are full of passive-agressive comments, many of which are so delusional it's sad. Yes, China might be a threat. I'm not American but I'm in Europe and if the US empire falls I'll be in trouble too. But people need to man up and face the reality. Yes, China is growing strong, but there's nothing wrong with it. 1,350 Million people now live lives that don't feel like literal hell. That's a good thing in my book, and I can't wait for latin america and more asian countries to take off too. People living healthy happy secure lives is ok, even if it makes some of us over here feel a bit uncomfortable. Not to mention that their rising wages will finally stop the financial stagnation of the west, especially Europe, which is suffering with high unemployemnt due to the competition with the Chinese.
It's funny, if an author with a book to peddle repeats the mantra enough times..."China is innovative", it might become true.
And yet, what evidence does she raise?
"the electronics were assembled in China; almost never were they invented in China"
"paying with your smartphone has become the norm"
"bikeshare firms"
"China has the largest number of unicorns outside the US"
Nothing that would define as innovations. Let's ask ourselves. What consumer innovations has China come up with in the last 40 years that is known worldwide. Think hard. Maybe none? one? Now compare that against Japan in its 40 years rise.
Actually, yes. DJI and Yi-Hang. These ones are truly impressive.
But apart from this, KPIs aside, the Chinese landscape is amazingly scarce innovation-wise. If one has to tout bikesharing as innovation, it sounds like there's not much to brag about. I am puzzled at Kai-Fu Lee's claims, he's not just another VC.
I’ve heard from someone who actually met with him at Innovation Works that Kai Fu actually encourages the startups he funds to be derivative. It is much less risky that way, and VCs in china don’t like much risk,
Preferring to transplant proven businesses from elsewhere.
Maybe China is innovative, but regarding Xiaomi, i'm not so sure they have a unique production model, or rather they are willing to sustain low profits, or are even be subsidized by China - because controlling people's phones is a really valuable thing.
Or maybe everyone just loves their products, because of their closely linked sales and manufacture process? And their careful use of flash sales and then incremental releases of the same product lets them profit from dropping bill-of-material prices over time so their overall margin is the same as the industry average, even though they sell high-end phones at close to zero margin.
Xiaomi believes that in markets where consumer preferences are hard to predict and change rapidly, “flash sales” can help determine which products are likely to be big hits, driving future production.
A big contributor to its profitability is its introduction of new products through online pre-order “flash” sales, which is usually a highly anticipated event in the community. At the phone’s introduction, Xiaomi sets a limit to the number of pre-orders possible, which will often sell out in the first hour or even within minutes. After it has taken its initial set of orders, Xiaomi will then work with Foxconn, its ODM, to build phones. This allows the company to receive advance payment from customers while incurring extremely low inventory costs because products are shipped from Foxconn directly to customers. Xiaomi also has very minimal sales and marketing costs because most advertising is done through its social networks.
and
Xiaomi, on the other hand, at launch, sets the consumer price close to the BOM cost, which ensures price competitiveness. At point 2, BOM cost has already declined, Xiaomi limits the availability of devices, and selected device batches are manufactured at the lower BOM cost. At point 3, mass deliveries start when gross margin is high enough, and volume accelerates as BOM cost decreases. At point 4, when consumer price becomes less competitive, they launch an “S” version of the product by upgrading selected components (e.g. engine) and launch at an even lower price. However, at this point, the BOM price has decreased. Overall, the longer product life gives a better lifetime margin.’
I agree that those are not examples of original ideas. But being the first to have an idea isn't actually that important. James Watt is famous for the steam engine, although he "only" improved the existing design.
Similarly, the innovation in many of the domains where China is "ahead" of the rest of the world is not in the original idea, but in actually making it work so that it took off. And that doesn't necessarily mean that those Chinese companies were somehow more innovative than companies that tried the same ideas elsewhere, but that the Chinese market valued those ideas more.
I'm actually not sure how many Japanese innovations weren't "just" incremental improvements of some existing idea that were tried in multiple countries but took off the fastest in Japan.
You're ignoring the fact that China's rise is really in its 17th year, if we count from it joining the WTO (which is arguably too early). At that point if I recall my cultural history correctly Japanese copy products were just about managing quality parity with US and European products. Give it time
