How US trade war and other efforts to thwart China’s rise have actually accelerated its reform and innovation
- Edward Tse says the trade war has made a stronger case for China’s reform and innovation. However, foreign multinationals should also realise they can’t be complacent any more: they should learn to innovate in, and for, the Chinese market
In Davos, Chinese Vice-President Wang Qishan stressed that China would continue to carry out structural reforms and adhere to multilateralism.
Last November, The New York Times wrote in a special report: “The Chinese economy has grown so fast for so long now that it is easy to forget how unlikely its metamorphosis into a global powerhouse was.” In fact, China owes the remarkable resilience of its economy to its own evolving development model of “three-layer duality”.
At the top, the central government sets goals and directions, giving the rest of the country clear targets to follow. At the grass-roots level, private entrepreneurs have re-emerged and become a major force in driving the growth of China’s economy. And in the middle, China’s local governments channel their resources into national and local priorities, often competing but also collaborating within regional clusters. To this end, they work closely with entrepreneurs who bring innovative ideas to bear.
Undoubtedly, the current trade dispute has generated much uncertainty and volatility for China, as well as the rest of the world. It has exposed a fundamental mistrust of China in certain parts of the West, and given some Western businesses an opportunity to amplify their long-standing concerns about China, justifiable or not, through their respective chambers of commerce. This should have woken up the Chinese government to the fact that it needs to adjust its approach. This is why Beijing is reinforcing its commitment to globalisation and accelerating reform.
The short-term issues brought on by the trade dispute would naturally unsettle some foreign multinational companies operating in China, but for many others, especially the larger ones, China has become so strategically important that they must figure out a way to overcome the challenges.
China’s innovation – the fast-evolving consumer demand patterns, rapidly developing government policies and regulations, increasingly prevalent tech-enabled business innovations, and the emergence of bona fide innovative and competitive local companies – has led many foreign multinationals to the realisation that what they have learned in the West won’t give them an advantage in the local market any more. Their success in China is no longer guaranteed if they rely only on what they already know. They will need to learn how to innovate in China, for China, and also in China for the world – and this won’t be easy for many.
China has reached a turning point. The age of single-minded pursuit of growth is over, and there will instead be a focus on refining the country’s economic structure, quality and sustainability. However, many in the West and even some within China are doubtful about whether Beijing will be able to make the necessary changes in a timely manner.
The challenge remains for the Chinese government to demonstrate its commitment and ability to fully implement the changes. Paradoxically, the pressure from outside, intended to thwart progress, is likely to push China into more reform and opening. Expect new waves of developments and new opportunities for companies from all over. The companies who can seize these opportunities will be among the true winners in the trade dispute.
Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in greater China. He is also author of China’s Disruptors