How the world can profit from China's development rather than feel threatened

By Harald Buchmann 

The Shanghai Import Expo is a national priority event for the Chinese government, and a stark signal in times of growing protectionism. The US have started a trade war against China, with the goal to force open Chinese markets, to change the rules for market access without giving up technology and IP in exchange, as they find the market-access-for-technology an unfair deal. A typical European perspective is: the demands of the US are reasonable, but the coercive and aggressive means are the wrong way. But let's also consider a Chinese perspective: The last time a foreign power forced Chinese markets open, was in the Opium War, where England and France attacked and occupied parts of China as a "punishment" for not buying drugs. Even though this war happened more than 150 years ago, the notion of a foreign power coercing China into opening markets must ring alarm bells in all historically aware Chinese.

File photo shows the National Exhibition and Convention Center, the venue of the 2018 China International Import Expo (CIIE), in Shanghai, east China.[Photo: Xinhua]

On the other hand, there is the economic logic that open markets benefit both trading partners. This economic theory has been endorsed by the Chinese government, and the import expo is a clear double message in this respect: we do want to further open our markets and balance our trade, but we do it on our terms.

I've argued many times before that the market-access-for-technology deal may seem unfair to Western companies, but has benefitted hundreds of millions of Chinese people who came from abject poverty and thanks to the imported technology (irrespective if this import was theft, buy-out, JV or any other method). Again, think about the meaning of this sentence: Our (Western) technology has helped hundreds of millions of people out of poverty! Who cares about the nationality of these people? They are humans. Has the sharing of our technology decreased the short-term profits of Western companies? Yes, probably to some extent. Has it created competitors which otherwise wouldn't emerge in decades? Possibly. Looking at India they had the same level of technology as China some 20 years ago, and until now very few Indian companies pose the same competitive challenge as Chinese companies to Western high-tech.

But: While the lower end of Western high-tech companies face fierce Chinese competition, or even are driven out of the market into bankruptcy, the upper end of the value chain profits tremendously from the Chinese competitiveness. Those (let's call them "mid-tech") Chinese companies that are producing lower-priced cars, not-so-luxury fashion lines, low-tech or mid-tech machines and relatively-cheap production robots, those companies are the foundation for the hundreds of millions of new middle class Chinese. The customers who buy super expensive Chanel bags, Mercedes, Porsche, Lamborghini, travel to our five-star hotels in Europe, or buy super high-tech production streets for their factories, they all have the money to buy these things from the very fact that China is not a low-wage country any more. And this fact is a result of technology imports. So, I won't deny in early stages technology import was to some extent illegitimate – IP rights simply didn't exist and weren't enforced in the 1980's in China, priorities understandably laid elsewhere. Later the technology import has changed to market-access-for-technology deals, which some Western people find unjust, and to M&A with Western high-tech companies and acquisition of branding and IP rights. While these latter methods were undisputed until recently, now even these methods are criticized, once China is employing them large scale. So whatever ways China uses to upgrade the available technology of their economy, some people will always criticize it. If they would try to reinvent everything, instead of importing technology, I would actually be one of the first to criticize it, as that would just be so inefficient.

So, after a short defense of the Chinese way to develop their economy, back to the main topic. The above-mentioned middle class (and a rapidly growing number of Dollar-millionaires and -billionaires) demand foreign goods. Countries like Switzerland are living proof, that also first-world countries can indeed maintain a positive trade balance with China. Switzerland produces non-substitutional high-tech and well-targeted luxury which fits the demand of Chinese customers. Switzerland invests heavily in research, education, infrastructure and public services, which helps Swiss companies to stay ahead of the curve of the markets. The US have neglected education outside some elite-schools serving mainly the rich and the few, the US have a desolate infrastructure, public services vary dramatically between states, and research is done mainly by private companies, elite schools, and – foreigners. This has allowed the US to maintain some world-leading IT companies, as well as investment banking and some selected industries. But it is by far not enough to remain economically competitive. If it weren't Chinese companies, I am sure Eastern Europeans, Turkish, Indonesian and other companies would export their goods to supply the US consumers.

The trade war comes at a very inconvenient moment for US companies, as it will hurt their image, even if they participate in the import expo this year. Other countries can use this opportunity, knowing that the import expo is a top national priority. And history teaches us, that the Chinese government doesn't allow for top national priorities to fail easily. Whatever the outcome, we shouldn't forget it is only the first Chinese import expo. I am sure the Chinese will revisit the event afterwards and improve on the experiences they make.

Most nations in the world are participating and hope to increase their exports to China. Especially interesting for economists and development scientists will also be to research, whether some of the least developed countries (LDC) can make profits from the free booths China offers them at the import expo. It may be nothing more than a marketing feat, but I surely hope that some LDC get substantial and sustainable economic profits from it. Who knows, maybe the concept will even be copied by other countries with similar or higher per-capita GDP than China in the future?

Note: Harald Buchmann is a Swiss economic analyst and business advisor based in Beijing. The article reflects the author's own views.