Chen Jing: How strong is the bottom of China’s future development?

How can China develop in order to cross the middle-income trap? What should China think in the face of the global industrial chain shift? What are the key core technologies and how can they be mastered in its own hands? Let’s go to the “Youth Network Open Class” and let Chen Jing, Vice President of the Institute of Science and Technology and Strategy, lead us to discuss: How strong is the bottom of China’s future development?

Chen Jing: How strong is the bottom of China's future development?

This article is from WeChat public number: Communist Youth League Central Committee (ID: gqtzy2014), author: Chen Jing

Today, we will talk about three areas of issues. First, what is the significance of China’s GDP per capita exceeding $10,000 in 2019, and what does it mean for China as well as the world? This is about the middle-income trap. Second, the U.S. has launched a trade war against China and many industrial chains are said to be relocated to India and Vietnam. This is the problem of industrial chain migration. Third, the U.S. has also launched an embargo against Chinese high-tech companies, and ZTE and Huawei have lost a lot of money. In this regard, what is the specific situation of China and the United States in the whole high-tech field?

Which countries are suitable for comparison with China?

In 2019, China’s GDP per capita is US$10,276. If we compare it with other countries, such as Mauritius, Equatorial Guinea, Dominica, Grenada, which also have a GDP per capita of $10,000, but have a population of only a few million, or even a few hundred thousand, it is not suitable for comparison with China.

Among the G20 countries, Russia, Brazil, Mexico, and Turkey, these four countries have a large population and their per capita GDP income is around $10,000, so they are suitable for comparison with China. Malaysia, a country outside the G20, also has a per capita GDP of $10,000 and can also be compared.

So, what would be the economic comparison with China using these five countries as examples?

China’s High Speed Rail Sector

As you can see from the high-speed rail sector, China has built 12,000 km of high-speed rail in three years, while other countries have built only a few hundred kilometers of high-speed rail.

China’s population is ten times the order of magnitude of these countries, and it can be said that high-speed rail is one of the areas where China has the largest gap between its capabilities and those of other countries. Not only does it exceed developing countries, but it also exceeds developed countries.

Highway networks require long-term investment

To build a dense network of highways like those in China and the United States would require not only massive amounts of money, but also a strong determination to invest for the long term.

Developed countries generally do well in this matter, they may not be able to build high-speed rail, but the highway can be built into a dense network.

It can be said that to judge whether a country is a developed country or not, generally speaking, look at the highway is a better standard, developing countries generally do not have highway network, only China is the exception.

On top of these more difficult infrastructure, the middle-income trap issue is very important. If we need to invest in a country, we will find that its infrastructure is very important. But it costs a lot of money to build a high-speed rail network, a highway network, and sometimes it enters a dilemma, there is no money to fix it, but to invest and must be fixed. So the lack of investment in infrastructure has become the cause and effect of the middle-income trap.

What about in urban infrastructure? Perhaps China is now at a similar level with Russia, Brazil, Mexico, Turkey, and Malaysia, countries with a GDP per capita of more than 10,000, with a slight advantage.

But after a period of development, China will also be ahead of these countries in all aspects. Therefore, when analyzing the middle-income trap, we will find that China has a very strong ability to invest in infrastructure, which can avoid the problem of insufficient infrastructure caused by insufficient investment in these countries.

One of China’s strong infrastructure capabilities is that China’s online shopping express is very developed, one because we have a 4G network, cell phone orders convenient. Furthermore, China’s high-speed rail highway network is very well developed and convenient for transportation. This is the level of China’s infrastructure complex now on daily life.

What is the core secret of China’s industrial development?

The biggest difference between China and Russia, Pakistan, Mexico, Turkey and Malaysia is in industrial development. Industrial development is the most crucial point to escape from the middle-income trap. Look at the import and export trade data of China and Brazil and Russia, Russia for ten consecutive years, the largest trading partner is China, the annual trade volume is about 110 billion U.S. dollars, Russia still has a surplus, about 60 billion exports to China, 50 billion imports from China level, Brazil in 2018 exported 66 billion U.S. dollars to China, imports from China is about 35 billion U.S. dollars. Then Brazil also has a surplus of $20 billion. But, Brazil or Russia it is not satisfied with the current state of trade? At least Brazil is not very satisfied. Brazil has felt the impact of Chinese products on its manufacturing sector. Now the biggest difference between China and several other developing countries is that China is exchanging resources with other countries through manufacturing.

China has a great advantage in terms of infrastructure. China’s advantage is particularly strong in high-speed rail, which requires strong national mobilization. Highways, which also require intensive capital investment, are also a big advantage for China. China’s income and consumption are not significantly stronger than those of Russia, Brazil, Mexico, Turkey, and Malaysia, but the most important point is that China is far stronger than these countries in terms of diversification of companies represented by the Global 500. This is the biggest reason why China will not fall into the middle-income trap like other countries.

Why has the industrial chain shift become a hot concern?

Since the U.S. launched a trade war against China in 2018, the U.S. has a goal that requires global companies to shift their industrial chains out of China, preferably to the United States. But what if it can’t be transferred to the United States? It’s not bad to transfer to Southeast Asia and India.

Global restructuring of the industrial chain, Vietnam will create economic myths?

In 1990, Vietnam’s GDP per capita was only 96 USD, and China’s GDP per capita was 310 USD, but in the 30 years from 1990 to now, China and Vietnam are the two countries in the world with the greatest growth in GDP per capita in USD. Because both Vietnam and China had a serious problem in the early 1990s that GDP per capita was underestimated, when housing, food, and schooling were cheap and cost nothing. Once these were converted into money, GDP per capita soared.

In 2019, Vietnam’s GDP per capita is $2,800, which looks relatively low, but it has actually developed very well in recent years. Vietnam’s best performing area is the import and export area, and Vietnam’s trade per capita is what surpassed China’s in 2015, and from 2015 to 2019, its annual trade growth rate is 12%, and China’s is 4%. So by 2019, Vietnam’s trade per capita is already 1.6 times higher than China’s.

How to see “Made in Vietnam” instead of “Made in China”?

There are two types of opinions on the competition between China and Vietnam, one is that China is not as good as Vietnam, because the labor cost is very high, so the industrial chain has to move to Vietnam, and Vietnam is a very stable country, and the manpower is only 1/3 or 1/4 of China’s. The other opinion is that China is in a good situation, so don’t be afraid of Vietnam, China’s industrial chain is complete, so it has moved to Vietnam, and will come back. But these two types of opinions, basically it makes a big mistake, is to compare China and Vietnam. In fact we should change the perspective, why China should go to compare with Vietnam, this is a big problem.

For example, let’s take cell phones, Samsung is the world’s number one cell phone manufacturer, so does it have a cell phone manufacturing plant in China?In October 2019, Samsung’s last cell phone manufacturing plant moved away from Huizhou and moved to Vietnam. So does it mean that the competition between China and Vietnam has failed? Because the developed country’s company it chose Vietnam not China. In fact, if you look at the cell phone manufacturing industry, China’s Huawei, Xiaomi, Oppo, Vivo, and Samsung have been competing around the world. In China and Samsung’s internal competition has basically ended, Samsung’s share from 19% down to 1% of this level, by China’s domestic cell phones basically occupied.

It can be said that China’s industrial chain migration will not face so big a problem, mainly a matter of observation perspective. The right direction of development is to go to the development of science and technology, and other countries to compete, and those developed countries to compete.

Why chip manufacturing has become the main battlefield?

China’s high technology was hit hard by the U.S. sanctions against China’s ZTE in 2018 and the U.S. sanctions against Huawei in 2019.

There is one main battlefield in the US-China technology war, and that is the chip industry. The chip industry is of great concern because Huawei is very much affected by the ban on TSMC processing chips for it. The chip industry is currently one of the areas where the U.S. has stuck China’s neck the most, and other areas are not as powerful.

In 2018, the Science and Technology Daily listed 35 technologies that stuck China’s neck between April and July. Among them are six items related to the chip, these six items are the core of the technological struggle between China and the United States, it has a great impact, the industry with the chip is particularly large and difficult, and these areas are dominated by the United States.

China can break through the chip manufacturing barrier?

Can China break through the chip manufacturing barrier? Chen Jing believes that hope is relatively large. For example, China’s chip manufacturing is not without foundation. Now SMIC, has been able to produce manufacturing process 14 nanometers, a relatively high precision chips, if further research and development, 10 nanometers, 7 nanometers of chips are able to manufacture. But the difficulty is relatively high, SMIC with these chip manufacturing industry line is used in the United States technology. China’s current development trend is to do to beautify to be able to prevent the United States to our country further technological suppression. So the difficulty of this for the chip manufacturing has risen another level. So the chip manufacturing is the most central link in the technological struggle between China and the United States, as long as this hurdle to break through, there is no technical difficulty can be stuck in China.

So what advantage does China have in this area? Before saying that many companies have given up on the chip manufacturing efforts, China will not? Will not give up. Others give up because they can’t afford to lose money, because it may take 10 billion dollars to build a chip factory. Then China has absolutely no problem in funding, and it is not that all chips are needed so high precision process. The real civilian chip 28 nanometers is enough. If China can get a 28-nanometer production line, and remove the U.S. technology, then it can be said that China has achieved a very significant victory in the struggle for chip manufacturing, a fundamental breakthrough in China’s technological confidence.

Then China can be very confident that it will not fall into the middle-income trap that other countries fall into when their GDP per capita is at the $10,000 level, by comparing it with Russia, Brazil, Mexico, Turkey, and Malaysia.

And in terms of the industrial chain migrating out of China? To relax, do not always and Vietnam India for low-level comparison, they these countries will be stuck in the complexity of research and development above, will not be able to do a very high level of research and development, the industrial chain there is no way to break through, will only be in some supporting the realization of some simple process, will not be like China to achieve the full industrial chain, so do not worry so much.

China really faces a bigger test is the field of Sino-US technology war, in the field of chip manufacturing, China faces a big challenge to focus on breaking through this last barrier, the formation of the field of chip manufacturing to embellish the technology. And in addition to the chip manufacturing field to China’s test is relatively large, other areas we are in a relatively good posture. So in the field of Sino-US technology war, you can also relax and focus on the development of chip manufacturing, you will certainly be able to achieve very good development in the future.

China’s bottom line is so full!

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