This annual meeting of the IMF and the World Bank held this week will be overshadowed by an allegation: The head of the World Bank is accused of having manipulated a country ranking in Beijing’s favor. Whether Kristalina Georgieva is truly guilty of manipulation is still open. But her case is part of a larger trend, as Felix Lee reports: China is resorting to illicit means to exert its influence in international institutions such as the United Nations. For example, African nations are frequently granted debt relief or a loan in exchange for a vote in Beijing’s favor.
China’s president has offered Taiwan a “peaceful reunification”. Aggression and hegemony are not in the blood of the Chinese people, Xi also added. But one should closely listen to the president’s speech from this weekend. Because his supposedly peaceful offer quickly turns out to be a kind of wolf in sheep’s clothing, as Finn Mayer-Kuckuk analyses. The divide between Beijing and Taipei has never been greater. How did this come about? And what does it mean for the future? Find out in our report.
Be it semiconductors or vaccines – the Covid pandemic has shown us how remarkably fragile global supply chains are. A new study from Vienna now warns of the impacts of a trade conflict between Europe and China. Germany in particular could be hit hard. Therefore, Europe urgently needs to bring back the production of medications or essential components of pioneering technologies.
I hope our latest issue grants new insights!
The accusations are grave: China’s leadership is said to be systematically exerting power in international organizations to advance its interests. For example, the World Health Organization (WHO) apparently played down the risk of the spread of COVID-19 for weeks – to Beijing’s advantage. And at the United Nations, too, diplomats have repeatedly complained about China’s sometimes audacious influence. Now, IMF chief Kristalina Georgieva is also under fire. The Bulgarian economist allegedly distorted the results of several studies for China’s benefit while working for the World Bank.
The current director of the International Monetary Fund had led the World Bank on a transitional basis in 2019. She is accused of having manipulated an important country ranking in favor of China during this time. This was the result of an investigative report by the US law firm WilmerHale. Georgieva and other senior World Bank officials are alleged to have exerted “undue pressure” on staff to improve China’s score in the 2018 “Doing Business” report ranking. The People’s Republic ultimately ranked 78th after being ranked 85th in an initial draft. WilmerHale’s report suggests that Georgieva, as then managing director of the World Bank, used fraudulent measures to bring about this result.
The World Bank itself has since ordered a commission to review the report’s methodology. Experts have uncovered considerable flaws. In fact, its method of evaluation is susceptible to interpretation and different evaluation. As a consequence, the institution has since discontinued the report. However, these events do not confirm the accusations made against Georgieva.
In the Doing Business Report, the World Bank annually rates all countries based on their investment climate. It focuses on how well-suited the respective regulatory conditions are for companies. The report has served as an important compass for both private investors and government funders. This further feeds suspicions of data manipulation: In 2019, the World Bank sought support from Beijing’s leadership for a major capital increase.
For this reason, US members of Congress questioned whether the 68-year-old economist was suited for the IMF position. American economists, including Nobel memorial prize winner Paul Romer, who also briefly held the position of chief economist at the World Bank, are also expressing severe accusations against Georgieva. The Economist magazine has even called for her resignation.
The IMF chief has repeatedly rejected these accusations. Her lawyers called the allegations of manipulation “erroneous”. According to Reuters, several European governments are likely to back Georgieva and support her despite the accusations. Insiders claimed that in addition to France, the UK, Germany, and Italy also back Georgieva. The EU had nominated the Bulgarian for the IMF post at the time. But other supporters are coming to her aid, for example, the renowned development economist Jeffrey Sachs. In his article published in the Financial Times, he said that these accusations were based on “anti-Chinese hysteria”.
After a first crisis meeting last Friday, the 24-member IMF board had postponed a decision over Georgieva. Finance ministers, central bankers as well as representatives from financial sectors, and development cooperations have been gathering since this Monday for the annual conference of the World Bank and the IMF. A final decision on Georgieva’s future career is expected over the next few days.
Is China’s communist leadership trying to use its growing influence over international organizations for its own purposes? If the deliberate manipulation of a renowned report by the world’s most influential development bank turns out to be true, this would further back this theory.
However, there are other examples of how Beijing is exerting more and more influence on the international stage. China becomes active when it comes to Taiwan or any sort of criticism, for example by the UN Human Rights Council, of China’s ongoing human rights violations in Xinjiang and Hong Kong. The communist leadership has already obstructed the cooperation of many UN sub-organizations with Taiwan on several occasions. It even managed to halt some cooperations altogether. Beijing also succeeded in excluding a representative of the oppressed Uighur minority from a UN meeting.
Four of the 15 UN specialized agencies are now headed by Beijing representatives. While the People’s Republic has been the second-largest provider of assessed contributions to the United Nations since 2019, accounting for 12 percent of UN funding, the United States is the undisputed leader with 22 percent of total funding. Nevertheless, China is heading a disproportionately large number of the sub-organizations.
So it is no wonder that Beijing uses improper means when it comes to filling positions. According to the Wall Street Journal, China waived $18 million in debt for the African country Cameroon in exchange for the presidency of the Food and Agriculture Organization. Cameroon promptly withdrew its run for the presidency. Within the same election, Beijing also promised Uganda $25 million in investments for its vote. Uganda subsequently voted for the Chinese candidate. In addition, China’s delegates had also filmed and photographed the election, which was actually a secret ballot. Through this, they wanted to ensure that the nation indeed voted in favor of the Communist Party leadership in Beijing.
The contradiction between the two messages in Chinese President Xi Jinping’s speech last weekend was obvious:
But it is clear to anyone in the Chinese world who has not spent the past seven decades under a rock: Taiwan does not want to join the People’s Republic.
Xi’s offer can therefore only be about peaceful military reunification. Taiwan’s President Tsai Ing-wen immediately made this clear. She interprets Xi’s statements as a threat of “annexation”, which Taiwan will resist at all costs. But such responses to China are purely routine and are repeated regularly.
If you look at Xi’s announcements towards Taiwan, you won’t see a new sharpening of tone, even in this weekend’s pithy words. The phrases and words already represented the Communist Party’s view back in January of this year. Back then, they were even accompanied by threats that formal independence meant war. But by reiterating China’s “determination” to solve the Taiwan problem once and for all, Xi is also not retracting any of his previous threats.
There are also non-verbal messages. China had sent the largest squadron of fighter jets to date into Taiwanese airspace earlier this month. The overall picture is therefore an increase in the level of threat to Taiwan – and this is in line with Xi Jinping’s agenda to present China as stronger and more confident on the international stage.
At the beginning of the CCP’s statements against the island was the “Message to our compatriots in Taiwan” in 1958 under Mao. Taipei was accused of being instrumentalized by America against its own country. The signatory was a highly decorated general of the People’s Liberation Army, Peng Dehuai. Shortly before, Mao himself had issued the formula of “peaceful liberation of Taiwan”. Since then, the slogan has seen frequent use: “We must and will liberate Taiwan!” (一定要解放台湾) The phrase even became a song lyric. The narrative was set and read: Taiwan has been annexed by America and is in need of liberation. It was also during this time that the People’s Republic developed the habit of bombing Taiwan’s offshore islands.
Since then, there have been two major revisions of the letter to Taiwan: one in 1979 under reformer Deng Xiaoping and one in 2019 by Xi. The message under Deng was emphatically emotional. Its core theme was the “longing” for mutual communication and national unity that bound the two sides. At the time, however, it already said, “the reunification of our fatherland is a task that no one can avoid.” The authors, however, were lured with a “bright common future.” Both the economy and the international reputation were on the upswing at the time.
Twenty years after the original Taiwan letter, the tone under Deng thus turned positive. The message sounded respectful, the offer of reunification on an equal footing seemed downright sincere. There was no talk of “liberation” at the time; instead, Deng had used the term “reunification”.
Another 30 years later, however, Xi changed the tone again – and not for the friendlier. Even the few remaining respectful elements now sound like threats. The key points of the Xi Doctrine of 2019, still in force today, are:
Both peaceful reunification 和平统一 and one country, two systems 一国两制 are among the “basic principles” of the CCP’s political thinking here. However, the formulas have long congealed and are only routinely repeated. While the idea of “one country, two systems” may had some shred of credibility back in 2019, the formula was originally meant for Hong Kong. However, since the enforcement of the Security Law in Hong Kong (China.Table reported), little has remained of these two systems: Hong Kong has since seen almost as much arbitrariness and suppression of free speech as the rest of the People’s Republic.
Meanwhile, the pompous appeals to China’s greatness and the messages to the “people’s comrades” or “compatriots” on the island completely miss the local lifestyle. Its youth identifies as “Taiwanese”, not as “Taiwanese-Chinese” and certainly not as “Chinese”.
They also don’t see themselves culturally in continuity with the mainland. That is why they also elected President Tsai to office: She has promised a more assertive course towards Beijing.
In fact, Tsai is explicitly distancing herself from the Xi doctrine. This is also shown by her unequivocal reaction to Xi’s speech over the weekend. She held a military parade and underlined her nation’s will to defend itself. But this eliminates all chances to find a way to unite both positions. The only certain thing is that in Taiwan’s case, “peaceful reunification” remains a contradiction in terms.
Under Tsai’s predecessor Guomindang (KMT) governments, a rapprochement scenario had at least a chance of success. This was especially true when Hu Jintao’s generation of leaders was in charge in Beijing. Under it, the realization of “one country, two systems” was believable at its core. Under Xi and Tsai, however, the ideas now diverge to such an extent that there is only one way forward: maintaining the status quo. Those who listened closely actually found this expression in Tsai’s rebuttal speech as well. Taiwan wants to fight to preserve the status quo, she said on Sunday.
Over the last 20 years, a number of thriving technology companies have emerged in China. This has invited much speculation about the country’s scientific and technological prowess, and about its ability to innovate. Some argue that China is already nipping at America’s heels in these domains, and has become a world leader in some sectors. Others believe that China is not quite as far along as it may appear, and the government’s regulatory clampdown on tech companies will impede its continued progress. Which is it?
Those who doubt China’s progress emphasize the country’s reliance on Western technology, pointing out that its homegrown tech companies still do not compete with their American counterparts globally. But China optimists note that those companies continue their rapid international expansion, a reflection of China’s exceptional capacity for learning.
The latter camp has a point. In fact, China’s capacity for learning is the secret to the country’s economic success, and it says much more about China’s prospects than where the country stands technologically. After all, technological innovation is less an input than an output of entrepreneur-led economic development. It is by building thriving businesses that entrepreneurs gain opportunities to develop new technologies and applications.
True, China has faced growing external challenges in recent years, including clampdowns on technology sharing by developed economies. Furthermore, the government’s efforts to maintain internal economic order and mitigate financial risks, such as through increased regulation of tech companies, have been controversial in the market. And some foreign manufacturing firms have reportedly withdrawn from China.
But the economy has not ground to a halt. On the contrary, the entrepreneurial impulse driving China’s development remains strong. It helps that China has a huge internal market of 1.4 billion people connected by well-developed transportation systems, advanced communication networks, and flexible and efficient supply chains.
While many foreign firms have come and gone, this has always happened, and it is not because outsiders are treated unfairly in the Chinese market. Foreign companies simply struggle to compete with local companies, which enjoy a significant advantage, including less bureaucratic red tape and deeper market knowledge. Moreover, while foreign firms might arrive in China with a slight technological advantage, it is usually short-lived, given how fast Chinese companies learn.
Today, there is a staggering number of successful small and medium-sized Chinese companies. They might not be household names – in fact, they’re referred to as “invisible champions” – but they are constantly innovating in applying advanced technologies. And their ranks continue to grow.
There is also a large number of Chinese companies serving overseas customers, with many maintaining a far larger presence in Europe and the United States than in China. These firms leverage China’s efficient warehousing, distribution, and logistics systems, as well as its superior capabilities in product design and manufacturing, to bolster their competitiveness in overseas markets.
Shein, an online fast-fashion retailer that was founded in 2008 in Nanjing, is a typical example of such a firm. It began as a cross-border e-commerce company, selling clothing via platforms like Amazon and eBay. But, in 2014, the company created its own brand and launched a bespoke website and app in markets around the world, from the US and Europe to the Middle East and India.
By selling inexpensive clothing directly to consumers, Shein thrived. Before long, it had become the second-most-popular e-commerce site for young Americans, behind only Amazon. According to Google trends, users in the US – Shein’s leading market – search for Shein more than three times as often as they search for Zara.
Despite being worth an estimated $15 billion, Shein was not particularly well-known in China until last year, when it was listed as one of China’s top ten “unicorns” (private companies with a valuation over $1 billion). That is because it does not serve the Chinese market. Instead, it has leveraged China’s advantages – the result of huge amounts of government investment over the last 20 years – to build its own flexible supply chain, concentrated in Guangdong, the country’s most developed manufacturing center.
Thanks to this supply chain, Shein is reportedly able to take a product from design to production in ten days. Its fast-fashion competitors – whose products are typically designed in Europe, manufactured in Southeast Asia and China, sent to European headquarters for warehousing, and then shipped to global markets – simply cannot keep up. Shein has also started to build warehouses in some key markets.
Shein is no anomaly. China boasts a number of other fast-fashion cross-border e-commerce platforms, and a total of 251 unicorns, as of last year. The list includes social-media apps such as TikTok, which has taken the world by storm. The influence of Chinese internet companies is large and still growing in the European, American, and South Asian markets.
China’s government is partly to thank. After the SARS outbreak of 2003, it worked to support the expansion of e-commerce. Then, to offset the shock of the 2008 global financial crisis, it made continuous investments in internet, communication, and transportation networks, mobile payment systems, logistics and warehousing capabilities, and supply chains, while promoting linkages among sectors. These efforts have helped strengthen and sustain the economy’s base-level sources of innovative dynamism.
To be sure, China’s super-size, fast-growing economy suffers from its structural problems, which seem not to correspond with its underlying dynamism. This apparent discrepancy is a reminder of the economy’s complexity. For example, because the state-owned sector captures a disproportionate share of financial resources, it is often regarded as a source of misallocation. But recent studies find that state-owned enterprises might have served as an informal channel for alleviating the financing constraints of small and medium-sized enterprises.
Those who focus excessively on surface-level phenomena will continue to underestimate China’s economic resilience. One cannot truly understand the Chinese economy and its prospects without paying attention to the irrepressible dynamism that forms its base.
Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai think-tank.
Copyright: Project Syndicate, 2021.
www.project-syndicate.org
Vegetables with a Prada-look are the latest sales hit among young shoppers in Shanghai. The fashion company had offered the precious wrapping paper to the vendors at the traditional Wuzhong market. But market owners remained unhappy: The hipsters only came to take a selfie. They didn’t want to buy Prada pig feet in the end.
This annual meeting of the IMF and the World Bank held this week will be overshadowed by an allegation: The head of the World Bank is accused of having manipulated a country ranking in Beijing’s favor. Whether Kristalina Georgieva is truly guilty of manipulation is still open. But her case is part of a larger trend, as Felix Lee reports: China is resorting to illicit means to exert its influence in international institutions such as the United Nations. For example, African nations are frequently granted debt relief or a loan in exchange for a vote in Beijing’s favor.
China’s president has offered Taiwan a “peaceful reunification”. Aggression and hegemony are not in the blood of the Chinese people, Xi also added. But one should closely listen to the president’s speech from this weekend. Because his supposedly peaceful offer quickly turns out to be a kind of wolf in sheep’s clothing, as Finn Mayer-Kuckuk analyses. The divide between Beijing and Taipei has never been greater. How did this come about? And what does it mean for the future? Find out in our report.
Be it semiconductors or vaccines – the Covid pandemic has shown us how remarkably fragile global supply chains are. A new study from Vienna now warns of the impacts of a trade conflict between Europe and China. Germany in particular could be hit hard. Therefore, Europe urgently needs to bring back the production of medications or essential components of pioneering technologies.
I hope our latest issue grants new insights!
The accusations are grave: China’s leadership is said to be systematically exerting power in international organizations to advance its interests. For example, the World Health Organization (WHO) apparently played down the risk of the spread of COVID-19 for weeks – to Beijing’s advantage. And at the United Nations, too, diplomats have repeatedly complained about China’s sometimes audacious influence. Now, IMF chief Kristalina Georgieva is also under fire. The Bulgarian economist allegedly distorted the results of several studies for China’s benefit while working for the World Bank.
The current director of the International Monetary Fund had led the World Bank on a transitional basis in 2019. She is accused of having manipulated an important country ranking in favor of China during this time. This was the result of an investigative report by the US law firm WilmerHale. Georgieva and other senior World Bank officials are alleged to have exerted “undue pressure” on staff to improve China’s score in the 2018 “Doing Business” report ranking. The People’s Republic ultimately ranked 78th after being ranked 85th in an initial draft. WilmerHale’s report suggests that Georgieva, as then managing director of the World Bank, used fraudulent measures to bring about this result.
The World Bank itself has since ordered a commission to review the report’s methodology. Experts have uncovered considerable flaws. In fact, its method of evaluation is susceptible to interpretation and different evaluation. As a consequence, the institution has since discontinued the report. However, these events do not confirm the accusations made against Georgieva.
In the Doing Business Report, the World Bank annually rates all countries based on their investment climate. It focuses on how well-suited the respective regulatory conditions are for companies. The report has served as an important compass for both private investors and government funders. This further feeds suspicions of data manipulation: In 2019, the World Bank sought support from Beijing’s leadership for a major capital increase.
For this reason, US members of Congress questioned whether the 68-year-old economist was suited for the IMF position. American economists, including Nobel memorial prize winner Paul Romer, who also briefly held the position of chief economist at the World Bank, are also expressing severe accusations against Georgieva. The Economist magazine has even called for her resignation.
The IMF chief has repeatedly rejected these accusations. Her lawyers called the allegations of manipulation “erroneous”. According to Reuters, several European governments are likely to back Georgieva and support her despite the accusations. Insiders claimed that in addition to France, the UK, Germany, and Italy also back Georgieva. The EU had nominated the Bulgarian for the IMF post at the time. But other supporters are coming to her aid, for example, the renowned development economist Jeffrey Sachs. In his article published in the Financial Times, he said that these accusations were based on “anti-Chinese hysteria”.
After a first crisis meeting last Friday, the 24-member IMF board had postponed a decision over Georgieva. Finance ministers, central bankers as well as representatives from financial sectors, and development cooperations have been gathering since this Monday for the annual conference of the World Bank and the IMF. A final decision on Georgieva’s future career is expected over the next few days.
Is China’s communist leadership trying to use its growing influence over international organizations for its own purposes? If the deliberate manipulation of a renowned report by the world’s most influential development bank turns out to be true, this would further back this theory.
However, there are other examples of how Beijing is exerting more and more influence on the international stage. China becomes active when it comes to Taiwan or any sort of criticism, for example by the UN Human Rights Council, of China’s ongoing human rights violations in Xinjiang and Hong Kong. The communist leadership has already obstructed the cooperation of many UN sub-organizations with Taiwan on several occasions. It even managed to halt some cooperations altogether. Beijing also succeeded in excluding a representative of the oppressed Uighur minority from a UN meeting.
Four of the 15 UN specialized agencies are now headed by Beijing representatives. While the People’s Republic has been the second-largest provider of assessed contributions to the United Nations since 2019, accounting for 12 percent of UN funding, the United States is the undisputed leader with 22 percent of total funding. Nevertheless, China is heading a disproportionately large number of the sub-organizations.
So it is no wonder that Beijing uses improper means when it comes to filling positions. According to the Wall Street Journal, China waived $18 million in debt for the African country Cameroon in exchange for the presidency of the Food and Agriculture Organization. Cameroon promptly withdrew its run for the presidency. Within the same election, Beijing also promised Uganda $25 million in investments for its vote. Uganda subsequently voted for the Chinese candidate. In addition, China’s delegates had also filmed and photographed the election, which was actually a secret ballot. Through this, they wanted to ensure that the nation indeed voted in favor of the Communist Party leadership in Beijing.
The contradiction between the two messages in Chinese President Xi Jinping’s speech last weekend was obvious:
But it is clear to anyone in the Chinese world who has not spent the past seven decades under a rock: Taiwan does not want to join the People’s Republic.
Xi’s offer can therefore only be about peaceful military reunification. Taiwan’s President Tsai Ing-wen immediately made this clear. She interprets Xi’s statements as a threat of “annexation”, which Taiwan will resist at all costs. But such responses to China are purely routine and are repeated regularly.
If you look at Xi’s announcements towards Taiwan, you won’t see a new sharpening of tone, even in this weekend’s pithy words. The phrases and words already represented the Communist Party’s view back in January of this year. Back then, they were even accompanied by threats that formal independence meant war. But by reiterating China’s “determination” to solve the Taiwan problem once and for all, Xi is also not retracting any of his previous threats.
There are also non-verbal messages. China had sent the largest squadron of fighter jets to date into Taiwanese airspace earlier this month. The overall picture is therefore an increase in the level of threat to Taiwan – and this is in line with Xi Jinping’s agenda to present China as stronger and more confident on the international stage.
At the beginning of the CCP’s statements against the island was the “Message to our compatriots in Taiwan” in 1958 under Mao. Taipei was accused of being instrumentalized by America against its own country. The signatory was a highly decorated general of the People’s Liberation Army, Peng Dehuai. Shortly before, Mao himself had issued the formula of “peaceful liberation of Taiwan”. Since then, the slogan has seen frequent use: “We must and will liberate Taiwan!” (一定要解放台湾) The phrase even became a song lyric. The narrative was set and read: Taiwan has been annexed by America and is in need of liberation. It was also during this time that the People’s Republic developed the habit of bombing Taiwan’s offshore islands.
Since then, there have been two major revisions of the letter to Taiwan: one in 1979 under reformer Deng Xiaoping and one in 2019 by Xi. The message under Deng was emphatically emotional. Its core theme was the “longing” for mutual communication and national unity that bound the two sides. At the time, however, it already said, “the reunification of our fatherland is a task that no one can avoid.” The authors, however, were lured with a “bright common future.” Both the economy and the international reputation were on the upswing at the time.
Twenty years after the original Taiwan letter, the tone under Deng thus turned positive. The message sounded respectful, the offer of reunification on an equal footing seemed downright sincere. There was no talk of “liberation” at the time; instead, Deng had used the term “reunification”.
Another 30 years later, however, Xi changed the tone again – and not for the friendlier. Even the few remaining respectful elements now sound like threats. The key points of the Xi Doctrine of 2019, still in force today, are:
Both peaceful reunification 和平统一 and one country, two systems 一国两制 are among the “basic principles” of the CCP’s political thinking here. However, the formulas have long congealed and are only routinely repeated. While the idea of “one country, two systems” may had some shred of credibility back in 2019, the formula was originally meant for Hong Kong. However, since the enforcement of the Security Law in Hong Kong (China.Table reported), little has remained of these two systems: Hong Kong has since seen almost as much arbitrariness and suppression of free speech as the rest of the People’s Republic.
Meanwhile, the pompous appeals to China’s greatness and the messages to the “people’s comrades” or “compatriots” on the island completely miss the local lifestyle. Its youth identifies as “Taiwanese”, not as “Taiwanese-Chinese” and certainly not as “Chinese”.
They also don’t see themselves culturally in continuity with the mainland. That is why they also elected President Tsai to office: She has promised a more assertive course towards Beijing.
In fact, Tsai is explicitly distancing herself from the Xi doctrine. This is also shown by her unequivocal reaction to Xi’s speech over the weekend. She held a military parade and underlined her nation’s will to defend itself. But this eliminates all chances to find a way to unite both positions. The only certain thing is that in Taiwan’s case, “peaceful reunification” remains a contradiction in terms.
Under Tsai’s predecessor Guomindang (KMT) governments, a rapprochement scenario had at least a chance of success. This was especially true when Hu Jintao’s generation of leaders was in charge in Beijing. Under it, the realization of “one country, two systems” was believable at its core. Under Xi and Tsai, however, the ideas now diverge to such an extent that there is only one way forward: maintaining the status quo. Those who listened closely actually found this expression in Tsai’s rebuttal speech as well. Taiwan wants to fight to preserve the status quo, she said on Sunday.
Over the last 20 years, a number of thriving technology companies have emerged in China. This has invited much speculation about the country’s scientific and technological prowess, and about its ability to innovate. Some argue that China is already nipping at America’s heels in these domains, and has become a world leader in some sectors. Others believe that China is not quite as far along as it may appear, and the government’s regulatory clampdown on tech companies will impede its continued progress. Which is it?
Those who doubt China’s progress emphasize the country’s reliance on Western technology, pointing out that its homegrown tech companies still do not compete with their American counterparts globally. But China optimists note that those companies continue their rapid international expansion, a reflection of China’s exceptional capacity for learning.
The latter camp has a point. In fact, China’s capacity for learning is the secret to the country’s economic success, and it says much more about China’s prospects than where the country stands technologically. After all, technological innovation is less an input than an output of entrepreneur-led economic development. It is by building thriving businesses that entrepreneurs gain opportunities to develop new technologies and applications.
True, China has faced growing external challenges in recent years, including clampdowns on technology sharing by developed economies. Furthermore, the government’s efforts to maintain internal economic order and mitigate financial risks, such as through increased regulation of tech companies, have been controversial in the market. And some foreign manufacturing firms have reportedly withdrawn from China.
But the economy has not ground to a halt. On the contrary, the entrepreneurial impulse driving China’s development remains strong. It helps that China has a huge internal market of 1.4 billion people connected by well-developed transportation systems, advanced communication networks, and flexible and efficient supply chains.
While many foreign firms have come and gone, this has always happened, and it is not because outsiders are treated unfairly in the Chinese market. Foreign companies simply struggle to compete with local companies, which enjoy a significant advantage, including less bureaucratic red tape and deeper market knowledge. Moreover, while foreign firms might arrive in China with a slight technological advantage, it is usually short-lived, given how fast Chinese companies learn.
Today, there is a staggering number of successful small and medium-sized Chinese companies. They might not be household names – in fact, they’re referred to as “invisible champions” – but they are constantly innovating in applying advanced technologies. And their ranks continue to grow.
There is also a large number of Chinese companies serving overseas customers, with many maintaining a far larger presence in Europe and the United States than in China. These firms leverage China’s efficient warehousing, distribution, and logistics systems, as well as its superior capabilities in product design and manufacturing, to bolster their competitiveness in overseas markets.
Shein, an online fast-fashion retailer that was founded in 2008 in Nanjing, is a typical example of such a firm. It began as a cross-border e-commerce company, selling clothing via platforms like Amazon and eBay. But, in 2014, the company created its own brand and launched a bespoke website and app in markets around the world, from the US and Europe to the Middle East and India.
By selling inexpensive clothing directly to consumers, Shein thrived. Before long, it had become the second-most-popular e-commerce site for young Americans, behind only Amazon. According to Google trends, users in the US – Shein’s leading market – search for Shein more than three times as often as they search for Zara.
Despite being worth an estimated $15 billion, Shein was not particularly well-known in China until last year, when it was listed as one of China’s top ten “unicorns” (private companies with a valuation over $1 billion). That is because it does not serve the Chinese market. Instead, it has leveraged China’s advantages – the result of huge amounts of government investment over the last 20 years – to build its own flexible supply chain, concentrated in Guangdong, the country’s most developed manufacturing center.
Thanks to this supply chain, Shein is reportedly able to take a product from design to production in ten days. Its fast-fashion competitors – whose products are typically designed in Europe, manufactured in Southeast Asia and China, sent to European headquarters for warehousing, and then shipped to global markets – simply cannot keep up. Shein has also started to build warehouses in some key markets.
Shein is no anomaly. China boasts a number of other fast-fashion cross-border e-commerce platforms, and a total of 251 unicorns, as of last year. The list includes social-media apps such as TikTok, which has taken the world by storm. The influence of Chinese internet companies is large and still growing in the European, American, and South Asian markets.
China’s government is partly to thank. After the SARS outbreak of 2003, it worked to support the expansion of e-commerce. Then, to offset the shock of the 2008 global financial crisis, it made continuous investments in internet, communication, and transportation networks, mobile payment systems, logistics and warehousing capabilities, and supply chains, while promoting linkages among sectors. These efforts have helped strengthen and sustain the economy’s base-level sources of innovative dynamism.
To be sure, China’s super-size, fast-growing economy suffers from its structural problems, which seem not to correspond with its underlying dynamism. This apparent discrepancy is a reminder of the economy’s complexity. For example, because the state-owned sector captures a disproportionate share of financial resources, it is often regarded as a source of misallocation. But recent studies find that state-owned enterprises might have served as an informal channel for alleviating the financing constraints of small and medium-sized enterprises.
Those who focus excessively on surface-level phenomena will continue to underestimate China’s economic resilience. One cannot truly understand the Chinese economy and its prospects without paying attention to the irrepressible dynamism that forms its base.
Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai think-tank.
Copyright: Project Syndicate, 2021.
www.project-syndicate.org
Vegetables with a Prada-look are the latest sales hit among young shoppers in Shanghai. The fashion company had offered the precious wrapping paper to the vendors at the traditional Wuzhong market. But market owners remained unhappy: The hipsters only came to take a selfie. They didn’t want to buy Prada pig feet in the end.
