The new strength of the Chinese economy

China Strong Economy

In the last 20 years, several very successful technology companies have sprung up in China. This has sparked much speculation about the country’s scientific and technological prowess, as well as its ability to innovate. Some claim that China is already on the heels of the United States in these areas and that it has become a world leader in some sectors. Others assert that China is not as far off as it appears to be, and that its government’s harsh regulatory enforcement of tech companies will impede their continued progress. Which of these statements is correct?

Those who doubt China’s progress emphasize China’s reliance on Western technology, pointing out that its local tech companies are yet to compete with their U.S. counterparts globally. But those who view China with optimism point out that these companies continue their rapid international expansion, and that this is a reflection of the exceptional learning capacity that China has.

The last group mentioned, the optimists, suggest something correctly. In fact, China’s ability to learn is the secret to the country’s economic success, and it says much more about China’s prospects than it does the country’s technological position. After all, technological innovation can be seen to a greater degree as a product of economic development driven by entrepreneurs and to a lesser degree as an input. It is by building successful businesses that entrepreneurs gain opportunities to develop new technologies and applications.

China

It is true that China has faced increasing challenges from abroad in recent years, including the refusal by developed economies to take actions aimed at sharing technologies. Furthermore, the Chinese government’s efforts to maintain domestic economic order and mitigate financial risks, for example with greater regulation of technology companies, have been controversial in the marketThere are even reports that some foreign manufacturing companies have pulled out of China.

However, the economy has not stopped. On the contrary, the entrepreneurial momentum stimulating China’s development remains strong. A positive contribution to this is the fact that it has a huge internal market of 1.4 billion people connected by well-developed transportation systems, advanced communication networks, and supply chains that are flexible and efficient.

While many foreign companies established and left China, that has always been the case, and it is not because foreigners are being treated unfairly in the Chinese market. Foreign companies simply struggle to compete with local companies, which enjoy a significant advantage, including less red tape and a deeper understanding of the market. Furthermore, although foreign companies may come to China with a slight technological advantage, this advantage is often short-lived, given the speed with which Chinese companies learn.

Today, there is an overwhelming number of successful Chinese small and medium-sized enterprises. Their names may not be known (in fact, they are known as the “invisible champion” companies), but they are constantly innovating in the application of advanced technologies. Also, the number of such firms continues to grow.

There are also a large number of Chinese companies serving foreign clients, and many maintain a much larger presence in Europe and the United States compared to their presence in China. These companies take advantage of China’s efficient warehousing, distribution and logistics systems, as well as its superior capabilities in product design and manufacturing, to strengthen their competitiveness in foreign markets.

Shein, an online express fashion retail company that was established in 2008 in Nanjing, is a typical example of such companies. It started as a cross-border and e-commerce company, selling clothes through platforms like Amazon and eBay. However, in 2014, the company created its own brand and launched a custom app and website in markets around the world, ranging from the United States and Europe to the Middle East and India.

By selling cheap clothes directly to consumers, Shein prospered. In no time, it had become the second most popular e-commerce site for young Americans, ranking second only to Amazon. According to Google trends, users in the United States (the main market for Shein) search for Shein more than three times as often compared to how often they search for Zara.

Despite having an estimated value of $15 billion, Shein was not necessarily a well-known company in China until last year, when it was included in the list of the top ten Chinese “unicorn” companies (private companies with a higher valuation to $1 billion). This is because it does not serve the Chinese market. Instead, it has harnessed China’s advantages – the result of massive government investments over the past 20 years – to build its own flexible supply chain, concentrated in Guangdong, the country’s most developed manufacturing hub.

Thanks to this supply chain, Shein is documented capable of propelling a product from design stage to production in ten days. Its competitors in the express fashion arena (whose products are typically designed in Europe, manufactured in Southeast Asia and China, shipped to their European headquarters for storage, and then shipped to world markets) simply cannot keep up. At the same rhythm. Shein has also started building warehouses in some key markets.

Shein is not an anomaly. China has a number of other cross-border e-commerce platforms dedicated to express fashion, as well as a total of 251 unicorn companies, according to data recorded up to last year. The list includes social media apps like TikTok, which have taken the world by storm. The influence of Chinese Internet companies is great and continues to grow in the European, American and South Asian markets.

In part, all of this is due to the Chinese government. Following the SARS outbreak in 2003, the Chinese government worked to support the expansion of electronic commerce. Subsequently, it worked to offset the impact of the 2008 global financial crisis, made continuous investments in the Internet network, communication and transportation networks, mobile payment systems, and logistics and warehousing capabilities, as well as supply chains, while promoting links between sectors. These efforts have contributed to strengthening and sustaining the basic sources of innovative dynamism in the economy.

There is no doubt that China’s large and rapidly growing economy suffers from structural problems, which appear to be uncorrelated with its underlying dynamism. This apparent discrepancy is a reminder of the complexity of the Chinese economy. For example, because state-owned sectors capture a disproportionate share of financial resources, they are often seen as a source of resource misallocation. However, recent studies conclude that state-owned companies could have served as an informal channel to ease financing restrictions for small and medium-sized enterprises.

Those who focus excessively on surface phenomena will continue to underestimate China’s economic resilience. Indeed, you cannot understand the Chinese economy and its prospects without paying attention to the irrepressible dynamism with which its foundations are formed.