Monday, January 10, 2005

China's world beaters?

The Economist is pessimistic about China's prospects for producing world-class companies, despite their privileged access to domestic markets and capital.

"China has so far failed to build world-class companies. Even the natural monopolies and resources companies are mostly just big rather than particularly efficient. In manufacturing, technology and consumer areas, a few companies are groping towards international competitiveness, but none are there yet. Nor will China necessarily produce a Sony or a Samsung. “People assume it is just a matter of time before China develops world-class brands,” says Mr Gilboy. “But Chinese firms may not develop like Japanese or Korean ones did. China may be building a distinct model of capitalism with distinct firms.” While American firms broadly excel at breakthrough innovations, and Japanese ones at process and incremental innovations, “China capitalism may simply be best at making things a lot cheaper.” If so, China might do well to focus on building no-name component suppliers as Taiwan has, rather than home-grown brands as in Japan and South Korea."

8 comments:

Anonymous said...

The Economist article makes some good points, especially the fact that too much government control is a cause for this (like the comparison with Korea). But I notice some cultural biases in the piece. There is a growing element of R&D going on in China (western multinationals); they don't just make "dollar store" goods. After some inevitable failures, they will have some international presence. Taiwan is much smaller and cannot afford such failures, BTW.

However, the fundamental fact remains: the economy is not going to simply implode anytime soon. Even if a third as productive as current US (which is currently being propped up by Asian Central banks, as pointed out by the Buttonwood piece), it is undoubtedly heading towards being a dominant economy in the world (of course, there will be slowdown in between). The rest of Asia is already seeing that; the rest of the world will soon enough. What they have achieved in the past 25 years has been unprecedented in history.

Note also that most of Chinese economy (95%?) is with internal trade; the foreign investment is NOT the major player, EXCEPT when it comes to IP and technologies (very important, but not critical). Thus, shock (like SARS), which would have devastated economies relying on external trade, hardly made a dent.

Also, the capital controls (so despised by the "free marketers) makes it very unlikely they will suffer shocks like the East Asia crisis, which did not affect India or China.

Their major challenge is equitable growth, bridging the rural/urban divide. Most likely, when the remnibi is inevitably rises, they will move from export-driven growth to internal growth.

Anonymous said...

Simply paying attention to the arts in China tells me the "Economist" is as usual on cultural matters rather limited.

Anonymous said...

Anne :)

Anonymous said...

Stephen Roach has a powerful article questioning the policy approach of Alan Greenspan, in "Foreign Policy." What I have to ask is whether the Fed was actively targetting asset prices from 1998? Similarly the Fed may have done just this from 1990 to 1994, as banking soundness appeared at risk. Then, too, the Fed Chair made what I consider a major mistake in supporting our turn to severe long term tax cutting in 2001.

Anonymous said...

Though I can grumble about Stephen Roach for too much of a propensity to ask for austerity measures to correct economic imbalances, I am increasingly wondering whether monetary policy has been as helpful as it might have been for smoothing our growth patterns since 1999.

Anne

Anonymous said...

The Fed governors may well be preparing us for faster short term interest rate increases, but long term bond investors just do not react. I am astonished at the lowness and quiteness of long term rates. Is growth solid enough that the economy would be little slowed by a sharper pattern of interest rate increases? I worry, and there is a reason I resist the austerity tones of Stephen Roach.

Anne

Anonymous said...

Stephen Roach has often repeated what Arthur Burns told him, "Don't underestimate the American consumer." Roach would repeat this when encouragement was needed, and would likely wish there were no encouragement now. Though I would much prefer more saving, I rather think only higher interest rates will bring this.

Anne

Santos Halford said...

Interested. Keep Blogging!

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