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Chinese Economy: Two Paths Ahead

Sep 19-2020   



The Chinese economy and private firms are under structural pressures, being sandwiched between rising costs on one hand and a very limited number of unique products on the other, said Prof. Zhou Qiren of the NSD during a recent summit for the country’s top 500 private firms.

 

Companies from developed countries, despite facing some daunting issues, still offer a large assortment of unique products that the world cannot go without. In 2008 when the financial crisis raged, consumers the world over lined up to buy iPhones. In spite of the pandemic and trade frictions, Tesla is selling briskly. Both compete and win on unique products. In contrast, Chinese firms lag far behind.

 

The other pressure for Chinese companies is costs, which have shot up over the years and are now higher than Vietnamese and Indian ones. Paradoxically, China’s successful experiences in reform and opening up have inspired these countries in ways of building their cost advantages.

 

Accordingly, two paths can be identified for getting out of the quandary. The first one is to initiate a new cost curve and create long-term downward cost advantage. This is possible because Chinese firms and governments still have huge potential for cost optimization. The other is to move in the direction where higher costs are justified by even higher value-added products. Cost management and optimization will stay eternally relevant, yet what’s even more critical for Chinese companies is to up their game through unique products.

 

But how to? Prof. Zhou said that Chinese firms must undergo an enormous transformation. Up to now, many companies have made products by benchmarking with those in the world market; To create uniqueness, they must switch to ‘thinking’ before production. In other words, they must tap fundamental research for truly breakthrough ideas and turn them into products. Huawai is a prime example in its development of 5G technology. Prof. Zhou advised Chinese firms to work with global talents and take advantage of the latest and most solid research.

 

Chinese Economy: Two Paths Ahead

Sep 19-2020   



The Chinese economy and private firms are under structural pressures, being sandwiched between rising costs on one hand and a very limited number of unique products on the other, said Prof. Zhou Qiren of the NSD during a recent summit for the country’s top 500 private firms.

 

Companies from developed countries, despite facing some daunting issues, still offer a large assortment of unique products that the world cannot go without. In 2008 when the financial crisis raged, consumers the world over lined up to buy iPhones. In spite of the pandemic and trade frictions, Tesla is selling briskly. Both compete and win on unique products. In contrast, Chinese firms lag far behind.

 

The other pressure for Chinese companies is costs, which have shot up over the years and are now higher than Vietnamese and Indian ones. Paradoxically, China’s successful experiences in reform and opening up have inspired these countries in ways of building their cost advantages.

 

Accordingly, two paths can be identified for getting out of the quandary. The first one is to initiate a new cost curve and create long-term downward cost advantage. This is possible because Chinese firms and governments still have huge potential for cost optimization. The other is to move in the direction where higher costs are justified by even higher value-added products. Cost management and optimization will stay eternally relevant, yet what’s even more critical for Chinese companies is to up their game through unique products.

 

But how to? Prof. Zhou said that Chinese firms must undergo an enormous transformation. Up to now, many companies have made products by benchmarking with those in the world market; To create uniqueness, they must switch to ‘thinking’ before production. In other words, they must tap fundamental research for truly breakthrough ideas and turn them into products. Huawai is a prime example in its development of 5G technology. Prof. Zhou advised Chinese firms to work with global talents and take advantage of the latest and most solid research.