Logo of Phnom Penh Post newspaper Phnom Penh Post - The neglected sources of China’s economic resilience

The neglected sources of China’s economic resilience

Content image - Phnom Penh Post
The logo of the Chinese-run online e-commerce website ‘Shein’. Wish, Joom, Shein, AliExpress: These new marketplaces, highly appreciated by young people for promising broken prices on popular brands, are shaking up the online commerce sector to the point of competing with Amazon. AFP

The neglected sources of China’s economic resilience

Over the last 20 years, a number of thriving technology companies have emerged in China. This has invited much speculation about the country’s scientific and technological prowess, and about its ability to innovate. Some argue that China is already nipping at the US’ heels in these domains, and has become a world leader in some sectors. Others believe that China is not quite as far along as it may appear, and the government’s regulatory clampdown on tech companies will impede its continued progress. Which is it?

Those who doubt China’s progress emphasise the country’s reliance on Western technology, pointing out that its homegrown tech companies still do not compete with their US counterparts globally. But China optimists note that those companies continue their rapid international expansion, a reflection of China’s exceptional capacity for learning.

The latter camp has a point. In fact, China’s capacity for learning is the secret to the country’s economic success, and it says much more about China’s prospects than where the country stands technologically. After all, technological innovation is less an input than an output of entrepreneur-led economic development. It is by building thriving businesses that entrepreneurs gain opportunities to develop new technologies and applications.

True, China has faced growing external challenges in recent years, including clampdowns on technology sharing by developed economies. Furthermore, the government’s efforts to maintain internal economic order and mitigate financial risks, such as through increased regulation of tech companies, has been controversial in the market. And some foreign manufacturing companies have reportedly withdrawn from China.

But the economy has not ground to a halt. On the contrary, the entrepreneurial impulse driving China’s development remains strong. It helps that China has a huge internal market of 1.4 billion people connected by well-developed transportation systems, advanced communication networks and flexible and efficient supply chains.

Foreign companies have come and gone, this has always happened, and it is not because outsiders are treated unfairly in the Chinese market. Foreign companies simply struggle to compete with local firms, which enjoy a significant advantage, including less bureaucratic red tape and deeper market knowledge. Moreover, while foreign companies might arrive in China with a slight technological advantage, it is usually short-lived, given how fast Chinese companies learn.

Today, there is a staggering number of successful small and medium-size Chinese companies. They might not be household names – in fact, they’re referred to as “invisible champions” – but they are constantly innovating in applying advanced technologies. And their ranks continue to grow.

There is also a large number of Chinese companies serving overseas customers, with many maintaining a far larger presence in Europe and the US than in China. These companies leverage China’s efficient warehousing, distribution, and logistics systems, as well as its superior capabilities in product design and manufacturing, to bolster their competitiveness in overseas markets.

Shein, an online fast-fashion retailer that was founded in 2008 in Nanjing, is a typical example of such a company. It began as a cross-border e-commerce company, selling clothing via platforms like Amazon and eBay. But, in 2014, the company created its own brand and launched a bespoke website and app in markets around the world, from the US and Europe to the Middle East and India.

By selling inexpensive clothing directly to consumers, Shein thrived. Before long, it had become the second-most-popular e-commerce site for young Americans, behind only Amazon. According to Google trends, users in the US­ – Shein’s leading market – search for Shein more than three times as often as they search for Zara.

Despite being worth an estimated $15 billion, Shein was not particularly well-known in China until last year, when it was listed as one of China’s top 10 “unicorns” (private companies with a valuation over $1 billion). That is because it does not serve the Chinese market. Instead, it has leveraged China’s advantages – the result of huge amounts of government investment over the last 20 years – to build its own flexible supply chain, concentrated in Guangdong, the country’s most developed manufacturing centre.

Thanks to this supply chain, Shein is reportedly able to take a product from design to production in 10 days. Its fast-fashion competitors – whose products are typically designed in Europe, manufactured in Southeast Asia and China, sent to European headquarters for warehousing, and then shipped to global markets – simply cannot keep up. Shein has also started to build warehouses in some key markets.

Shein is no anomaly. China boasts a number of other fast-fashion cross-border e-commerce platforms, and a total of 251 unicorns, as of last year. The list includes social-media apps such as TikTok, which has taken the world by storm. The influence of Chinese internet companies is large and still growing in the European, American and South Asian markets.

China’s government is partly to thank. After the SARS outbreak of 2003, it worked to support the expansion of e-commerce. Then, to offset the shock of the 2008 global financial crisis, it made continuous investments in the internet and communication and transportation networks, mobile-payment systems, logistics and warehousing capabilities, and supply chains, while promoting linkages among sectors. These efforts have helped strengthen and sustain the economy’s base-level sources of innovative dynamism.

To be sure, China’s super-size, fast-growing economy suffers from its structural problems, which seem not to correspond with its underlying dynamism. This apparent discrepancy is a reminder of the economy’s complexity. For example, because the State-owned sector captures a disproportionate share of financial resources, it is often regarded as a source of misallocation. But recent studies find that state-owned enterprises might have served as an informal channel for alleviating the financing constraints of small and medium-size enterprises.

Those who focus excessively on surface-level phenomena will continue to underestimate China’s economic resilience. One cannot truly understand the Chinese economy and its prospects without paying attention to the irrepressible dynamism that forms its base.

Zhang Jun is dean of the School of Economics at Fudan University, and director of the China Centre for Economic Studies, a Shanghai-based think tank. The views don’t necessarily represent those of China Daily.



  • Omicron patients can stay home: PM

    The Ministry of Health has issued a directive on the treatment of people who have tested positive for the highly transmissible Omicron coronavirus variant, following a suggestion from Prime Minister Hun Sen on the night of January 21. The directive permits home quarantine for those who

  • Cambodia’s first ever anime festival kicks off Jan 22 at capital’s F3 centre

    Phnom Penh's first ever Anime Festival will bring together fans, artists, shops and other local businesses with ties to the Japanese animation style for cosplay competitions, online games, pop-up shops and more on January 22, with Friends Futures Factory (F3) hosting. F3 is a project that

  • Mr Pancake or M Crepe? Tasty by any title

    Crowds of people gather around a lone man with a mobile food cart every day at around 2pm in front of the Institut Francais du Cambodge to order what many say are the best crepes in Phnom Penh. To some – even to the man making

  • Fourth dose Covid booster drive jabs 43K in two days

    In the first two days of the fourth-dose Covid-19 vaccination campaign, more than 43,000 people volunteered to get the jabs, while over 4.6 million people have received a third shot. Health ministry spokeswoman Or Vandine said that fourth-dose vaccinations, which began on January 14 exclusively with the Pfizer

  • Singapore backs Cambodia's efforts on Myanmar

    Singaporean Prime Minister Lee Hsien Loong supports Cambodia in its efforts to seek a solution to the ongoing Myanmar crisis as the chair of ASEAN. Lee expressed his support during a meeting with Prime Minister Hun Sen via videoconference on January 14, with the talks focused

  • PM sets tourism reopening as centrepiece of ATF 2022

    Prime Minister Hun Sen urged ASEAN to reopen tourism and trade now that many of the bloc’s member countries have vaccinated their populations. Speaking at the 40th ASEAN Tourism Forum 2022 (ATF 2022) in Preah Sihanouk province on January 18, the premier also said ASEAN has a