GOOD MORNING FROM LONDON
#1 CHINA – TOP DOWN, BOTTOM UP
#2 ‘FOREIGN AFFAIRS’ ASSAILS CHINA
#3 CHINA MAKES BUSES FOR LONDON, UK
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#1 SO WHY DOES CHINA CONTINUE TO SURGE
SOUTH CHINA MORNING POST
Zhang Jun, Dean of the School of Economics at Fudan University
“Few would dispute that China owes its past economic success largely to technological imitation, enabled and encouraged by trade with – and direct investment from – developed economies, especially during the 1990s and in the first decade of this century. But one cannot pretend that translating technological imitation into rapid economic growth is not an achievement. After all, most low-income countries have not been able to do it.
In this discussion, pointing out that China still lacks a few key technologies, or that it obtained most of the technologies it has thanks to the allure of its huge market, is nitpicking. The true measure of technological success is the ability to convert new technologies into profits, growth and engines of development. And China has done that not only by using Western technologies in their original form, but also by rapidly upgrading and adapting them.
Today, China stands at the forefront of sectors like 5G, renewable energy, lithium batteries and electric vehicles (EVs), and it is a world leader in artificial intelligence. The question we should be asking, as former US Treasury secretary Lawrence H. Summers once noted, is not whether China’s technological prowess began with imitation, but how a country with a quarter of America’s per capita income has managed to produce so many world-beating tech companies.
One explanation might be that, in China’s highly complex political economy, many of the factors that can be regarded as incompatible with innovation are offset or complemented by innovation-enabling policies and structures.
It has often been argued that top-down economic management in China – including the broad implementation of state industrial policy and the perpetuation of large state-owned enterprises (SOEs) in key sectors – is fundamentally incompatible with dynamism and innovation. Critics point out that excessive central government control can lead to economic inefficiencies, capital misallocation and financial distortions.
But even as the central government issues unifying policies and strategic documents, it also gives local governments ample room to encourage private-sector innovation, not least by establishing a nearly perfect pro-business environment. Though the degree of autonomy enjoyed by local governments is not static, policies tailored for the local economy are widely encouraged.
Moreover, China’s leaders understand that, far from hampering competition, subsidies can foster it. For a few tech firms to propel the development of an emerging industry, enormous entry barriers must be overcome. In most Western countries, support from developed financial and capital markets makes this possible but, even then, companies need ample time to achieve scale and competitiveness. Given that this entails high fixed costs, early subsidies are highly valuable – even essential.
In China, many local governments are willing and able to share these fixed costs, not only by providing subsidies, but also by establishing investment funds for emerging industries. This facilitates market entry by more companies, leading to the development of greater production capacity.
Crucially, this capacity is distributed across various locales, with companies operating in highly competitive individual markets, rather than a single market. In this sense, China’s economic segmentation – which critics often cite as a weakness – is a source of strength.
China’s comprehensive industrial ecosystem means that firms gain a competitive edge from network externalities and economies of scale. This helps to explain the rapid rise of China’s EV and lithium-battery sectors – an achievement that critics attribute to China’s industrial subsidies and defenders attribute to a competitive domestic market environment.
For China’s critics, excessive bureaucracy, dominant SOEs, an underdeveloped financial sector and fragmented markets are militating against the emergence of a highly dynamic and competitive economy. And yet, as any long-time observer of China can tell you, the reality is not that simple. China is a vast country, with a long history of a single state, deep cultural traditions and a highly complex governance structure, which looks both centralised and decentralised, both rigid and flexible.
Top-down control coexists with – and even allows for – local-level autonomy and bottom-up innovation. It is this “double-helix” phenomenon that leads to radically contrasting analyses of the economy’s prospects.
Zhang Jun, dean of the School of Economics at Fudan University, is director of the China Center for Economic Studies, a Shanghai-based think tank. Copyright: Project Syndicat.
GRAHAM PERRY COMMENTS;-
The question is posed by former US Secretary of the Treasury, Lawrence Summers – how [has[ a country with a quarter of America’s per capita income managed to produce so many world-beating tech companies. The answer? “Top-Down Control and Bottom-Up Initiative”
This is lost on the Western world who view Communist countries as deadened by the heavy hand of autocratic centralism. All power is at the Centre. Authoritarian countries, critics allege, are governed, controlled and administered by the Party – and the Party at the Centre and not the Party in the Provinces. The Centre is Everything.
This is how the text books are written and the educational materials are developed. The idea takes a firm hold and in this way the critics make their significant mistake as the approach to Communist countries is that they must fail because they rely exclusively on the thinking of a narrow number of decision makers at the core of government who issues edicts and instructions to the rest of the country. The West’s mindset is wrong because their analysis is wrong.
Back to history briefly. The failure of the USSR prompted a massive investigation by the Chinese Communist Party into the reasons for its failure. What had gone wrong? Many Chinese think-tanks went to work. Two conclusions were reached;-
First, the Communist Party had allowed itself to become marginalised by key groups in Soviet Society – the Oligarchs, the Provincial Party leaders and the Military. The conclusion was reached by the Chinese Party that it must never step back. It was the pinnacle of decision making and must remain so. The Party must always be on the front foot – it must always lead.
Second, the Party must delegate initiative and development to the Provinces and in that way bring into play the imagination, creativity and exploratory spirit of the people. The people of China are the engine of growth and progress, and the Party must give the people their heads to promote the long term and create the development of the country. The people must be free to investigate, experiment and, of course, free to make mistakes in the search for new formulae and new systems amidst the cross-fertilisation of ideas.
China succeeds because it is – at one and the same time – centralised and decentralised. It is a dichotomy that the West cannot understand because their mind set is “Big Brother” and George Orwell’s “1984”. China has changed the narrative but the West is a prisoner of its own flawed prejudices.
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#2 LEADING US PUBLICATION ASSAILS CHINA
FOREIGN AFFAIRS
FOREIGN AFFAIRS is a leading US publication which hosts articles by opinion politicians and academics in the US. It is an influential publication with a strong anti-China impetus.
Here follows an extract from the current issue.
“In the early morning of January 2, Russian forces launched a massive missile attack on the Ukrainian cities of Kyiv and Kharkiv that killed at least five civilians, injured more than 100, and damaged infrastructure. The incident was notable not just for the harm it caused but also because it showed that Russia was not alone in its fight. The Russian attack that day was carried out with weapons fitted with technology from China, missiles from North Korea, and drones from Iran. Over the past two years, all three countries have become critical enablers of Moscow’s war machine in Ukraine.
Since Russia’s invasion in February 2022, Moscow has deployed more than 3,700 Iranian-designed drones. Russia now produces at least 330 on its own each month and is collaborating with Iran on plans to build a new drone factory inside Russia that will boost these numbers. North Korea has sent Russia ballistic missiles and more than 2.5 million rounds of ammunition, just as Ukrainian stockpiles have dwindled. China, for its part, has become Russia’s most important lifeline. Beijing has ramped up its purchase of Russian oil and gas, putting billions of dollars into Moscow’s coffers. Just as significantly, China provides vast amounts of warfighting technology, from semiconductors and electronic devices to radar- and communications-jamming equipment and jet-fighter parts. Customs records show that despite Western trade sanctions, Russia’s imports of computer chips and chip components have been steadily rising toward prewar levels. More than half of these goods come from China.
The support from China, Iran, and North Korea has strengthened Russia’s position on the battlefield, undermined Western attempts to isolate Moscow, and harmed Ukraine…
The group is not an exclusive bloc and certainly not an alliance. It is, instead, a collection of dissatisfied states converging on a shared purpose of overturning the principles, rules, and institutions that underlie the prevailing international system. When these four countries cooperate, their actions have far greater effect than the sum of their individual efforts. Working together, they enhance one another’s military capabilities; dilute the efficacy of U.S. foreign policy tools, including sanctions; and hinder the ability of Washington and its partners to enforce global rules. Their collective aim is to create an alternative to the current order, which they consider to be dominated by the United States.”
GRAHAM PERRY COMMENTS;-
‘FOREIGN AFFAIRS’ is the opinion leader of the non-Communist world. It is an important publication because its articles are written by leading political and academic figures united in the view that the ‘rules-based Western World’ must prevail over its ‘authoritarian challengers’ led by China and Russia.
The two countries – together with North Korea and Iran – share, say ‘FOREIGN AFFAIRS’ a common purpose of overturning the principles, rules, and institutions that underlie the prevailing international system. They come together, the Western argument continues, for two reasons; – first, to bring about the defeat of Ukraine in its war with Russia, and second, to undermine the US-led global international system. And by working together, the quartet of countries – the new “Axis of Evil” – strengthen their joint military power and diminish the effectiveness of the US to enforce its “rules-based” system.
On Ukraine, briefly, this has always been a quite avoidable war. Russia has good historical reasons for fearing a NATO invasion. A glance back at history shows that Napoleon tried to invade Russia and failed. In 1918 Winston Churchill was among leading Westerners who tried to organise – in league with the White Cossacks – the invasion and overthrow of the new USSR. It failed. And more recently Hitler organised an unsuccessful invasion of the USSR which contributed significantly to the figure of 20m Soviet citizens who died in World War II.
Soviet and, later, Russian historical syllabus has focused significantly on the attempts by France, the UK and Germany to invade the USSR. The Moscow mindset – whether the USSR of yesterday or the Russia of today – has always focused on the threat from the West and it is in this context and against this background that Putin noted with alarm the NATO creep from a membership of 7 countries at the time of the dissolution of the USSR 1991 to the current membership of 23 countries. Attempts by the West – Merkel in particular – to effect a a pro-Western coup-d’etat in Kyiv in 2014 put Russia on military alert and led eventually to hostilities.
NATO sees matters differently and operates on the basis that Russia is an imperial power with land grab intentions and needs to be put in its place. It was the same flawed thinking that led to the Cold War with the US imposing its power over Western Europe by pointing to an alleged threat of invasion of France, Italy and the UK by the imperialist USSR.
The fault line in US 1945 analysis is clearly identified by Andrew Alexander in his book – America and Imperialism of Ignorance. In Chapter 1 Alexander, now deceased but for many years the leading journalist of the right wing UK newspaper – the Daily Mail – writes “this orthodoxy is based on the premise that the Soviet threat at the end of the Second World War was a real one.
But Alexander quotes Britain’s leading military commentator, Sir Michael Howard, who observed during the last days of the Soviet Union “No serious historian any longer argues that Stalin ever had any intention of moving his forces outside the area he occupied in Eastern Europe” Alexander continues “A proper military analysis of the situation in 1945 would have shown that the prospect of Russian armies invading Western Europe was a fantasy like Saddam Hussein’s Weapons of Mass Destruction ready for launch in forty-five minutes”
The NATO alliance is fighting to the last Ukrainian in pursuit of a mistaken belief that Putin threatens Western Europe. It is repeating the mistake of 1945 and taking action against a threat that does not exist. Russia like the USSR in 1945 seeks the comfort of a buffer state and Western attempts to convert Eastern European countries into new NATO members stirs the historical fears of Moscow that attempts will be made to succeed where Napoleon and Hitler failed.
The real challenge to the US comes not from Russia but from the growing economic and political influence of China. Three examples suffice;
First, China’s Belt and Road Initiative has established infrastructure investment links with 150 countries.
Second, a poll carried by the South China Morning Post in Hong Kong found that for the first time a majority of opinion makers polled by the paper expressed a preference for China over the US.
Third, the China led BRICS (Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates) has given a significant international voice to the Global South.
The international geo-political balance is changing. The world is moving on. New structures and alliances are coming into play and the US has to adjust. Like all Imperialisms, the US does not want to step back. It does not want embrace new institutions, new economic structures and new political agendas. This is the setting for current conflicts. War may result if the US political elite remains inflexible. It can be avoided if wise counsels prevail but only time will tell – but the clock is ticking.
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#3 CHINA MAKES BUSES FOR LONDON
THE SUNDAY TIMES – UK
“First, the Chinese Electric Vehicle giant BYD launched into the UK car market, now it’s taking on our traditional London bus-makers. The Go-Ahead Group is set to award the company a contract to build more than 100 all-electric double-deckers at £400,000 each – £100,000 cheaper than UK rivals such as Alexander Dennis, sources said.
The decision comes with the blessing of Transport for London (TfL), chaired by London Mayor, Sadiq Khan. He has pledged to use Greater London Authority spending power to “make the capital greener and fairer for all Londoners”.
In 2022, Khan said that new contracts from 2025 would require zero-emission deliveries and suppliers to be willing to have trade union recognition agreements.
In 2021, a United Nations working group on human rights wrote to BYD to say it “had received information that your company may be involved through your supply chain in alleged forced labour , arbitrary detention and trafficking of …Uighur (Muslims and other minority workers”
It is unclear whether BYD responded to such allegations. It did not respond to requests for comment on the claims and its prospective London Bus award.
Tom Cunnington, TfL’s head of bus business development, said “We have been assured by the manufacturer that no unethical practices have taken place and would act immediately if provided with evidence to the contrary.”
GRAHAM PERRY COMMENTS;
In the previous issue reference was made to the encouragement by Oliver Gill in the Sunday Times Business Section to the import of Chinese manufactured EV’s. He follows this with confirmation that China is manufacturing buses for London Transport. Two points emerge;-
First, regardless of the UK Government agenda re the UK, there are sound commercial reasons why China is increasingly appearing in business initiatives in the UK. As this Column has stated previously – Government have one set of priorities and Business has another set of priorities. And they are not the same. The UK Government comes strongly under the de-risking/de-coupling mentality of Washington whereas UK Business is driven by sound commercial judgment. And in terms of EVs and London Buses the wind is blowing strongly in favour of more, not less, business with China.
Second, a familiar refrain of those groups opposed to closer links with China is that allegations of genocide and forced labour should bring about less, and not more, trade with China. There was no genocide in China and there is no forced labour but these allegations are repeated by opponents of China in an attempt to obstruct and restrain the growing links between China and the rest of the world. Professor Marubeni – former Chair of the UN Security Council – correctly contends that only a dynamic country with an enthusiastic population could succeed in lifting one billion people out of poverty as China has done.
China faces problems – the property crisis; the alienation of up to 150m citizens who missed out on the basics of education; and the future employment patterns of an increasingly computerised society.
But China does not face problems of genocide or forced labour. Notwithstanding, the allegations will continue to be aired in an attempt to damage China’s growing stature in the world
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GRAHAM PERRY
