Long read: Prejudice and China

China is no longer just a source of cheap manufacturing for the rest of the world. In industry after industry, China is now setting global standards. Most remarkably in automobiles, as a recent quote from the Ford CEO in this piece goes “Freshly returned from a visit to China, Farley told The Wall Street Journal that the growth of the Chinese auto sector poses an existential threat to his company, and that “executing to a Chinese standard is now going to be the most important priority.”

Why has this come as a sudden realisation to the Ford CEO? He isn’t alone in this much underappreciated reality about China’s industrial progress, says Louis-Vincent Gave in this piece, explaining the reasons for this western prejudice against China. First, the Covid induced hiatus:

“…the simplest, most obvious, and likeliest explanation why most CEOs and investors missed how China leapfrogged the West in industry after industry over the last five years: during that time, no one from the West bothered to visit China. Consequently—and perhaps more by accident than design—China followed Deng Xiaoping’s advice to “secure our position; cope with affairs calmly; hide our capacities and bide our time; keep a low profile and never claim leadership.”

It wasn’t just China’s zero-Covid travel restrictions but Gave also highlights how western CEOs were busy figuring out how to run their businesses amid Covid restrictions and supply chain disruptions themselves than focus on the rising competition from China.

“A second possible reason the West failed to spot how it was being leapfrogged by Chinese industry could simply be good old-fashioned ingrained cultural prejudice. It may be unkind to highlight it, but history has shown that Western leaders repeatedly underestimate their Asian competitors.”

He goes on to give several examples in history from the Russians, Brits to Americans underestimating the Japanese, Korean and Vietnamese strength or indeed American automakers laughing off Japanese rivals. In China’s case, the west’s dim view of communism adds to this underestimation:

“To any self-respecting Western capitalist, the word “communist” implies inefficiencies, poor products, and technological backwardness.

This belief was amply demonstrated by the fall of the Berlin Wall and the collapse of the Soviet Union. By now, the PRC has survived longer than the USSR’s 74 years. Nevertheless, most Westerners still believe that at some point in the not-so-distant future, the Chinese Communist Party will lose its grip on power, just like the Communist Party of the Soviet Union. How could it be otherwise? It’s all in the name. Communism is bound to fail.

This assumes, of course, that China really is communist; a notion that could be debated. It also ignores the old adage that the tragedy of Asia is that Japan is a profoundly socialist country on which capitalism was imposed, while China is a profoundly capitalist country on which socialism was imposed. But each will naturally drift back to its natural state.””

And the third explanation he gives is the unjustified comparison with Japan of the 90s:

“This is because China resembles Japan 20 or 30 years ago, with (i) terrible demographics and (ii) widespread large losses across the real estate sector.
However, this is probably where the similarities end. Unlike Japan in the 1990s, China has not seen its banking system go bust and lose its ability to fund new projects. On the contrary, the surge in loans to industry over the past few years lies at the heart of China’s booming industrial productivity.

This is another key difference between China today and Japan in the 1990s. China today is not only more efficient and more productive than a decade ago, it is probably more efficient and more productive than most other major industrial economies. And it boasts a very attractive cost structure.”

Gave may be an unabashed China bull but his views do help give balance to the usually one sided negative narrative about China in the western press. He goes on to give his reasons for the western media’s bias.

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