Can China dominate the techno-industrial landscape?
Chinese companies are increasingly taking up global market share for a variety of products. Will this continue? The answer is yes. If China continues on a growth trajectory, as people earn more money, then yes, Chinese companies can continue to use their domestic consumption as a way to compete in global markets. With a huge domestic consumption base, they can win with economies of scale for whatever it might be. For cars, appliances, toys, electronics — across a huge range of products, Chinese companies will end up developing huge comparative advantages and outcompete European, Japanese, American companies. This is the logical end of the straight-line extrapolation.
There is an implicit assumption in the above narrative, and that is that China’s companies can also continuously compete on innovation, that they will spend the money necessary for R&D across a wide range of activities, ranging from consumer research, to technological research. This also assumes of course, broad social and political stability that can continue to provide wealth for ordinary Chinese.
When seen through the latter lens, the picture becomes more interesting. It is these other non-market factors that shape the competitive landscape. The Chinese companies and the Chinese state are not standing still. But no one is standing still. This is a dynamic ecosystem, and the landscape of competition is multi-dimensional. Having a large domestic market is helpful, but insufficient for ‘dominance’.
The rest of the advanced world — US, Europe, Japan — have all built up tremendous scientific intellectual capital over the decades. China is rapidly catching up, as Chinese scientists studying abroad have returned home and built up their own institutions. The Chinese effort in biomedical fields such as genomics is one such example. China also has had a sizeable military that has poured resources in the cyberdomain. The firewall-building project would have created expertise in natural language processing and developed capabilities. The research products can find commercial opportunities through the state-owned companies and used to create competitive edges. It seems to me then, that the question of dominance will require the consideration of the research and innovate capabilities of the Chinese system.
How are good are the research capabilities in Chinese institutions? How do they compare? It is not sufficient to compare the peaks ie., the best institutions in China with the best institutions in America or Europe. A more important point is the breadth of the innovation capabilities. In America and Europe, the research institutes have built up expertise in various fields — there is a division of labour between different institutions, and they represent the scientific and technical frontiers. Are there Chinese institutions that are in a similar position? How well do China-based researchers perform in terms of their scientific and technical research when compared with the rest of the world? In 2012, Scientific American acknowledges the progress of the Chinese system, and summarises the challenges. There is still a long way to go for the overall Chinese system to reach a high level, even if the elite universities have arrived at the top.
The world is not static, and other countries are also moving and making changes to their own system. But there is no doubt that China’s innovation systems are improving, and they will achieve world-topping status in a few areas (as with supercomputers). In the same time period, other countries would also have gone ahead in an attempt to consolidate their advantages or find new areas.
The political-social system remains a concern. The process of selecting a new leadership is still fraught with backroom intrigues in China. There is still extensive state control over the market, which can prevent the deployment of new technologies. It is the same everywhere else, but to different degrees. In other places, the fact that creative destruction does happen with large companies is a sign of how the broader economic landscape allows for upstart competitors, and is an encouragement to insurgent innovators. This is the other major uncertainty that could make or break China’s rise, given the state’s close involvement with the big companies.
So I guess this is the long qualified answer. If political-social factors don’t disrupt society, if China keeps improving on its innovation system, if Chinese companies are managed decently, if they can make the transition to other markets, then there is every chance that Chinese companies can dominate, backed by a domestic market.
For other countries and companies to prove this wrong, they will have to invest more in research, keep their economies open to bright/hunger people to invent and commercialise their products and for entrepreneurs to build compelling businesses.
