05/01/2015
Recently, China has been stepping up and making impressive moves. Its GDP, adjusted for purchasing power, is now bigger than the United States. It has been willing to step in and bail out countries on the outs, like Russia. And it has been capable of solving complex geopolitical problems through pure innovation and resourcefulness: Witness its approach to the cold war over the oil-rich Spratly Islands in the South China Sea. After spending 15 years facing off with the Philippines, which staked its claim by running a WW2-era landing craft aground on the disputed Second Thomas Shoal and garrisoning the rusting wreck with a dozen starving Philippine Marines, China has done an end run and started building islands.
So what does this mean for manufacturing and innovation?
China will continue increasing domestic consumption and economic output, and here’s why:
1. After building up its industrial base and a skilled, disciplined workforce through low-end mass manufacturing, China is focussing on higher-end, higher-margin advanced manufacturing. “Made in China” no longer means cheap and low-quality. There is a whole spectrum of capacity, quality and price.
2. China is continuing its neocolonialist policies in Africa. As hinted by Dr. Steve Hsu (Vice President for Research at Michigan State, entrepreneur and scientist), this is a good thing. A stable supply of raw resources is the golden grail of manufacturing. At the same time, increased employment and political stability for China’s new client states in Africa will increase their purchasing power, turning them into lucrative markets for Chinese manufactured products.
3. Falling oil prices mean cheaper transoceanic shipping for Chinese goods to Europe and the Americas. This will slow the reshoring trend, to the extent that it is real and driven by shipping costs.
4. Chinese STEM students have been studying in the US in mass for decades, making up the largest group of international students in American universities. Then, after completing their studies and sometimes gaining experience in US industry and academia, they would go home and put their skills and experience to work for them. Between the continuation of this trend and the increasing quality of Chinese higher education, Chinese industry won’t lack experts and leaders to take advantage of workforce, resources and markets.
5. China’s regulatory climate is favourable to manufacturers. This is in sharp contrast to the situation in the US, where manufacturers operate at the mercy of unaccountable bureaucracies using opaque procedures and standards. This can destroy not only individual businesses, but whole industries. For instance, when Clark Foam was hounded out of business by the EPA, the entire surfboard industry suffered. Manufacturers will continue to take the opportunity to reduce uncertainty by setting up operations in China.
What does this mean for startups?
Expect a big boom in China over the next 20 years. China’s wealth is going to venture capital. A startup, with its intellectual demands, high risk and high reward, is a luxury of the highly educated upper-middle class, which is exactly what we see emerging in China.
I think a Chinese Silicon Valley is on the horizon. From the perspective of a non-Chinese entrepreneur, this is great. Chinese innovation will create value which the rest of us will be able to use. Chinese venture capital is already being invested in non-Chinese startups. And China’s increasing wealth will make it a more attractive market for outside startups’ products.
Source: e27
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