Global industry chain integration China’s best choice

Source:Global Times Published: 2018/11/4 20:38:40

Illustration: Luo Xuan/GT

The Trump administration has struck another blow against China's technology sector as the US Commerce Department on October 29 announced it will restrict Chinese chipmaker Fujian Jinhua Integrated Circuit Co from buying components, software and technology goods from US companies.

The embargo against Jinhua escalates the tension between China and the US, moving from the realm of a trade conflict to a battle for technological development. The supply cut-off reflects US anxiety that China's high-technology industries that may pose risks to, or add pressure on, US technology companies.

In its December 2017 national security strategy report, the US identified China and Russia as its strategic rivals.

Since Jinhua is part of the "Made in China 2025" program for the high-technology development, the export ban is also a blockade against China's national development strategy. If anything, the moves against the Chinese chipmaker will only boost the country's determination to develop its own technology sector. China is still a developing country, and its most fundamental driving force for sustainable development lies in the real economy, particularly the global competitiveness of its manufacturing sector.

It is now clear that the US is blocking Chinese companies and investment from entering or buying technology goods from its high-technology sector. To break the blockade, China needs to be more deeply integrated in the global innovation community. In spite of the US export restrictions, Chinese companies may still be able to acquire the needed components from other developed markets like the EU and Japan. Considering the appeal of China's huge consumer market, it is impossible for all these countries to impose technological blockades on Chinese companies.

It is also necessary for China to deepen market reform and opening-up, which will prompt the industrial upgrading of Chinese companies. It is known to all that China has huge consumption potential, and it's crucial to make good use of this potential to give a boost to the economy. A country's exports can lift its economy, and so can its imports. By stimulating consumption and enabling consumers to enjoy products of higher quality, imports can promote consumption upgrading and in turn the industrial modernization of Chinese companies.

Under the competitive pressure of imported goods, Chinese industrial innovation will be stimulated, with industries moving from low-end to the middle and high ends to achieve high-quality growth. But there are two things to keep in mind.

First, China shouldn't lurch from one extreme to the other. In the future, Chinese exports will not be as prosperous as they used to be, and the country's economic growth model will have to focus more on exploring domestic demand through market opening-up and stimulating innovation. That doesn't mean China will completely open up its market and become the demand side of other countries' exports. In short, China needs to shift from a pure export-oriented model to a comprehensive model that combines its advantages in both exports and the consumer market, with the aim of promoting its own upgrading of consumption and industries.

China currently runs considerable trade surpluses with some of its major trading partners. But giving up on our own industries and attaching too much importance to stimulating consumption for the purpose of easing trade pressure will not do us any good in the long term.

The strategy of shifting from export-oriented to consumption-oriented is actually flawed. From an economic point of view, no country has its potential growth momentum powered by consumption, as the real economy is what drives healthy economic development. This is why the US, the EU and Japan are paying so much attention to their exports and the competitiveness of their high-technology industries. Fundamentally, manufacturing or export advantages represent the potential of a country's long-term development.

Second, concerns over the protection of intellectual property rights are justified for foreign companies when it comes to entering the Chinese market, but on the other side, innovation needs industrialization and markets to generate economic value. That is why so many multinationals set up research and development centers in China. They need the vast consumer pool to accelerate the process of commercializing their technology and generating returns as soon as possible.

Multinationals are not nationalists but globalists, and they aim to integrate global resources. While they have made suggestions for China to improve its business environment, their goal is to be more integrated in the Chinese market and to gain more dividends from China's economic development. While safeguarding its overall core interests, China needs to accelerate its pace of joining the globalized innovative industrial chain through reform and opening-up.

The article was compiled by Global Times reporter Wang Jiamei based on an interview with Zhang Monan, a research fellow at the China Center for International Economic Exchanges.


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