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'China Wants Manufacturing—Not the Internet—to Lead the Economy'

The Wall Street Journal

Malcolm Riddell

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CHINADebate

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Greg Ip | The Wall Street Journal

'China Wants Manufacturing—Not the Internet—to Lead the Economy'
'China Wants Manufacturing—Not the Internet—to Lead the Economy'
Well, isn't that a kick in the pants?
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BIG IDEA | ‘In Xi Jinping’s estimation, technology comes in two varieties: nice to have, and need to have.’
‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’
‘By contrast, Mr. Xi thinks the country needs to have state-of-the-art semiconductors, electric-car batteries, commercial aircraft and telecommunications equipment to retain China’s manufacturing prowess, avoid deindustrialization and achieve autonomy from foreign suppliers.’

‘To Western investors, China’s regulatory crackdown on superstar companies such as Alibaba Group Holding Ltd. , Tencent Holdings Ltd. and Didi Global Inc. must seem suicidal.’

‘President Xi Jinping would beg to differ.’

  • ‘In his estimation, technology comes in two varieties: nice to have, and need to have.’

‘Social media, e-commerce and other consumer internet companies are nice to have.’

  • ‘But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’

‘By contrast, Mr. Xi thinks the country needs to have state-of-the-art semiconductors, electric-car batteries, commercial aircraft and telecommunications equipment to retain China’s manufacturing prowess, avoid deindustrialization and achieve autonomy from foreign suppliers.’

  • ‘So even as the Chinese Communist Party unleashes a multifront regulatory assault against consumer internet companies, it continues to shower subsidies, protection and “buy-Chinese” mandates on manufacturers.’

‘Mr. Xi described these differential priorities in a speech published by the party journal Qiushi last year.’

  • ‘He acknowledged the online economy was flourishing, and said China “must accelerate construction of the digital economy, digital society and digital government,” according to a translation by Georgetown University-affiliated researchers.’
  • ‘ “At the same time, it must be recognized that the real economy is the foundation, and the various manufacturing industries cannot be abandoned.” ’

‘While manufacturing’s share of Chinese GDP has declined, at 26% it remains the highest of any major economy, and the Chinese government wants it to stay there—'

  • ‘In effect insisting that China not follow others down the path of deindustrialization.’

‘Politicians world-wide tend to fetishize manufacturing; investors don’t.’

  • ‘Most manufacturing is fiercely competitive and requires enormous amounts of capital and labor, all of which weighs on profits.’
  • ‘By contrast, a consumer internet company with a dominant platform can generate boatloads of cash with minimal incremental investment.’

‘But in the view of Chinese leaders, consumer internet companies inflict costs on society that aren’t reflected in private market values.’

‘Conversely, Chinese leaders think manufacturing confers social benefits that market values don’t reflect.’

  • ‘For decades, it has been how the country created jobs, raised productivity and disseminated essential skills and know-how.’
  • ‘Now, to achieve parity with the West, they think China must be able to make the most advanced technology, and will use subsidies, protectionism and forced technology transfers to achieve that.’

‘Yet whether the Communist Party’s priorities make sense in the long run, the recent turmoil in Chinese shares shows they can make or break a company’s future in the short run.’

  • ‘ “The state runs capitalism to serve the interests of most people,” Ray Dalio, founder of the hedge fund Bridgewater Associates, wrote last week.’
  • ‘ “Capitalists have to understand their subordinate places in the system or they will suffer the consequences of their mistakes.” ’
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