Source: Bloomberg, Aug 2020
the biggest obstacle to China’s rise as a global technology superpower may well be its own government.
As long as countries around the world mistrust China’s Communist regime, they will worry about Beijing using mainland companies to gather data on users, shape media content and interfere with critical infrastructure. If those companies in turn aren’t allowed to expand globally, China could find itself stuck in an increasingly uncompetitive bubble.
Other emerging economies that graduated to rich-world status all benefited immensely from having their companies compete abroad.
The need for a global presence is as important in the digital age as in the industrial. Reaching an international audience provides apps with opportunities to amass users, advertising and, most critically, data — the lifeblood of new tech.
China’s domestic market is so huge that it can sustain large-scale tech businesses that smaller economies can’t. ByteDance will probably survive quite nicely on the 400 million users of TikTok’s Chinese sister app, Douyin. Nor will all countries be offended enough by China’s authoritarian political system to ban its technology. Fifty-three United Nations members supported the controversial national security law Beijing recently imposed on Hong Kong.
Yet, as research firm Capital Economics noted in a recent report, those 53 nations together account for a feeble 4% of world gross domestic product.
One reason the U.S. has retained its dominance even as its share of global economic activity has shrunk is because the world is still running American apps on gadgets powered by U.S. operating systems and chips. If Chinese companies are locked out of major foreign markets, China could get stuck as a second-class technological power, unable to set standards for the rest of the world.
Worse still, China could fall into its own version of the Galapagos Syndrome, often associated with Japan’s famously insular mobile phone industry, whose products were so localized they couldn’t survive anywhere else. China might well become its own technological island, in which Chinese use chips, operating systems and smartphones that most of the world’s consumers don’t. These industries could become so embedded in the local market and disconnected from outside trends that they simply become uncompetitive.
Already, given the Great Firewall and Beijing’s strict censorship rules, China has its own version of the internet, with popular services at home having almost no influence abroad. The government’s goal of achieving self-sufficiency in technology will only add more pressure on Chinese companies to buy local, even over more cutting-edge foreign products.
Without foreign markets, companies would also face more burdensome research and development costs. Truly global enterprises can amortize R&D costs over a worldwide business. Bottled up at home, Chinese firms would have to absorb similar expenses without the international payoff. Or they might not be able to afford the costs of innovation to catch up or keep up with foreign rivals.
China might then fall further and further behind the U.S. and Europe, subsisting at an overall lower level of technology. That’s hardly the glorious future Chinese leaders are promising. They should remember that, in this new digital age, a state striving to maximize its power could easily erode it instead.