China is on its way to becoming a global economic power, and Beijing has set its eyes on becoming a superpower in other domains. Amid this ambitious outlook, the 'Chinese Dream,' the slogan coined by President Xi Jinping, has been quoted repeatedly. It is about pursuing the strength of the country and rejuvenation of the nation; in other words, it shapes the present and reaches far into the future of China.S
On December 10, 2021, at the 'Localization & Globalization' Summit, a part of EqualOcean's World Innovators Meet (WIM2021), Dr. Steven White provided his take on what has contributed to China's success in some industries. He also presented seven significant challenges that may, in his view, stunt further progress.
Dr. Steven White is an Associate Professor in the Department of Innovation, Entrepreneurship and Strategy at Tsinghua University's School of Economics and Management. His current research projects investigate the role of entrepreneurship in the emergence of new industries, competition between ecosystems and China's national innovation and entrepreneurial ecosystem. Recognized as one of the top China-based management scholars, he received his Ph.D. from MIT's Sloan School of Management.
Ingredients to China's success
1| Low-cost structure
Dr. White concluded the success factors of Chinese entrepreneurs so far as "price, speed and scale." He explained that the dominant strategic logic is "about having a lower cost structure or a lower price for the same thing, as well as being very fast to market and being able to scale operations."
2| Limits to cost innovation and price-based competition
"There is a very low end of the value created and captured [in China]." iPhone is a great example. The total cost of components and processing for the iPhone used to be about USD 378, while only USD 14 stayed in China.
3| Increasingly strong calls for innovation from the top
"For the past ten or twenty years, China has been calling for more domestic innovation." Former and actual Chinese top leaders have voiced the importance of innovation and proposed a series of strategies across industries.
4| Targeting globally competitive products and services
"We used to hear about Made in China 2025; officially we don't [have it anymore], but it is still there. The objective is to first catch up, and then become the leading edge of innovation in those strategic and academically critical areas."
"The trend has a lot going for it. China has a lot of people, human capital, research funding going into it; 86% of Chinese going abroad to study will come back after graduating right now, creating huge benefits for human capital."
5| More wealthy and demanding consumers
"As Chinese themselves become wealthier, it is more reward to firms who can provide higher value at products and services." Dr. White referred to it as a "reward for innovation" because wealthier families and households are willing and able to pay for better products and services.
6| Boosted by the private sector
"Most of [China's economic vitality] would be driven by the private sector. We can see that private companies, in terms of the average ROA and average profit margin, are much higher than the state-owned enterprises (SOEs)." Per Dr. White, SOEs provide necessary products and services, but [mostly] don't provide value-creating functions.
The fintech sector completely dominates
Dr. White called China's fintech a success story, adding that the "Chinese fintech firms and sectors are completely outshining [their peers] anywhere else in the world; [...] they are much more dynamic, much more diverse than [those in] the US, Japan or the whole Europe."
The NEV industry: another front-runner
Dr. White referred to China's NEV sector as another emerging success story. He noted that "[although] Tesla is winning now, I would invest in Chinese firms, as their trajectory is clearly so much higher."
China's greatest challenges
1| Low return on human capital
Dr. White mentioned that "the management system which is basically top-down, and the emphasis on the dysfunctional internal competition" stunt the ability and possibility to get the true value from those smart and well-trained people.
2| Low trust level in society
China has a relatively more steep-sloped curve representing trust among different citizens; in Dr. White's words, "when you have low trust, you have fewer opportunities to collaborate, which is actually a very important consideration. That's a big challenge."
3| Education system
"It tries to make changes, but it is dysfunctionally competitive, and there is a lack of critical thinking."
4| The overwhelming power of precedent
"There is also an overwhelming power of the precedent, like Nike to sports manufacturers." China has long been following the legitimate form without any different imagination and Dr. White proposed that it is a kind of 'risk avoidance' in there.
5| Serial entrepreneurs
"They have money and experience, but they tend to emphasize speed and scale more than profitability." It is easy to raise start-up funds, but they didn't invest in deep tech; they focus on pretty simple tech that has already been done or proven. The sharing bicycles in China has been referred to as the example."
6| Innovation/entrepreneurship targeting the 'first-world problems'
Dr. White proposed that the money for entrepreneurship "is not going to the broad part of society, it is going to the part that can pay for."
7| Short-term-oriented investors
"It's hard to find financing that would wait for returns for four, five, six years." Dr. White pointed out for those who have already been in revenue would be taken off, so it is far more than patient investment capital.
Dr. White concluded that to have the 'Chinese Dream' realized, the country should make some transitions from imitative/simple to more deep-tech and integrated business models, more extensive applications, to create true value. He added that requirements on changes in mindsets and attitudes would be hence raised – and that would be a massive challenge.
For Dr. Steven White's slides and presentation recording, please subscribe to our weekly newsletter, we will be sending them out in the following weeks.
About China & The World Summit
As a part of WIM2021, China & The World Summit was hosted on December 9-10, 2021. It was focusing on the world's second-largest economy's global impact and interaction with the rest of the world.
WIM 2021 China & The World Summit is built around two major topics:
Ⅰ. Investing in China: Seeking value amid global turbulence.
Over the past decade, China has been an attractive investment destination. But will it remain one in years to come? WIM 2021 gathered global investors, senior executives, and market participants to discuss this and other questions concerning the world's second-largest economy's past, present and future.
Ⅱ. Localization & Globalization: Global enterprises' 'China story' and Chinese companies' global expansion.
China's role in the global economy has been continuously changing. As the country's market matures, the world's largest enterprises have been venturing into it – with varied success. Meanwhile, Chinese new-economy companies are also expanding their presence in foreign markets. At WIM 2021, a number of eminent experts and industry insiders discussed the most important trends and narratives at the interface of China and the rest of the world.
Follow EqualOcean.com and stay tuned for other WIM recap articles!
About WIM2021
WIM2021 'Digital Reshaping the World' will be hosted offline in Shanghai and New York while broadcasting globally. The event covers 11 topics, including the hottest industries (from automotive to healthcare) and concepts (like Carbon Neutrality and 'Zhuan Jing Te Xin').
World Innovators Meet (WIM) is a yearly flagship event hosted by EqualOcean for the past 6 years. It is a time where international delegates gather to discuss hot button topics in China's key industries.
We see innovation as the biggest driving force to building a better world. Hence, through WIM we seek to create a platform for global innovators to connect. By uniting bright minds, we seek to foster learning, inspiration and wonder – and inspire conversations that matter.
In a short span of 6 years, WIM has grown from a local event in China to a global event that bridges the world and China by bringing together 1,500+ international speakers (including several Nobel laureates), 50,000 global attendees, and 2,000+ media and community partners.