The astounding  Global Market Power of Chinese Firms

The world may never again see the days of barefaced colonialism, where there is little or no resistance as people and goods are tapped out of countries that lack the governance structures and political will to prevent such. But there sure will continue to be efforts by developed nations to secure supremacy over other nations within the third world regions.

These efforts are often masked in activities that affect the lifestyles and finances of people within the jurisdictions of interest.

For the most part, political quest for world dominance is best executed through expansion efforts by corporations within the country seeking supremacy. For this reason, it is helpful in at least one example that, any economy seeking self-sufficiency and the muscle to compete for ascendency, closes up to build resilience as China demonstrated to the admiration of many and I must say to my admiration as I search documents of relevant information on China’s history.

How china built it’s astounding global market power

Let’s briefly discuss China and how their decision to close and then open up their markets to the world, gave them enough mileage to begin to chart a path of economic dominance.

Nearly 40 years ago, China began economic reforms and trade liberalisation. Until then, the country’s policies according to critics, kept the economy “stagnant, highly inefficient, centralised, and mostly cut off from the rest of the world economy”.  Cut off from the rest of the world, yes, but I would argue differently with regards to the high inefficiency observed of this historical documentation by the Congressional Research Services Report published in June 2019 as relative.

I would argue that in their process of building self-sufficiency and taking control of what happens to their economic destiny, the perception may have been created by economic researchers who did not have accurate data to inform their arguments about China.

With real annual gross domestic product (GDP) growth averaging 9.5% through 2018, the world witnessed China’s economy grow at one of the fastest rates ever, since opening up to foreign trade and investment and enacting free-market reforms in 1979. With this fact, whatever may have been happening behind all that ‘highly inefficient’ closed- doors era has paid off.

You may be wondering where I’m headed. Let’s give this a few more minutes read, shall we?

At the time they were a closed oyster; what was going on within their borders?

Under former leader Chairman Mao Zedong’s guidance, China had what was known as a centrally planned, or command, economy up until 1979. A large amount of the country’s economic output was directed and managed by the state, which also set production goals, controlled prices, and distributed resources to the majority of the economy. All of China’s individual household farms were consolidated into big communes throughout the 1950s. To encourage fast industrialization, the central government invested a large amount of money in both human and material capital in the 1960s and 1970s. By 1978, state-owned companies (SOEs) under central supervision produced around three-fourths of industrial production, according to output objectives that were centrally planned. Generally, private companies and companies with foreign investments were forbidden.

The Chinese government considered achieving relative economic self-sufficiency as one of its main objectives. They were running sheltered industries.

With Sheltered industries, only native businesses provide services to sheltered industries. They are protected from imports and FDI by laws, tariffs, or the fact that the products and services they provide are provincial in scope.

Services are the main segment of the sheltered industries. (car repair, dry cleaning, hair styling), a few small-scale manufacturing sectors (handicraft, building homes), and sectors making non-tradable goods (fresh milk, bread) due to their perishability or difficulty in transportation (Garden sheds, beds). In other words, these sectors increase your level of efficiency at home, but they won’t help you reach new heights in corporate profits or strengthen the national economy.

Typically, trading with other countries was restricted to acquiring items that were either unavailable or unfeasible in China.

The West called this a distortion. Of course, it would be if you had the upper hand and were unable to see what any nation with enormous potential was genuinely attempting to accomplish behind closed doors. It would also be a distortion if you were unable to influence emerging markets and control outcomes. And then also, it will be a distortion because projections on what the world’s economic outlook could be over a period of decades would be inaccurate because it lacked relevant data from a potential disruptor.

There are arguments that suggest that, due to government control over most parts of the Chinese economy and the setting of production objectives, there were little incentives for enterprises, labour unions, and farmers to improve productivity or care about the quality of their output. This was because there were no market mechanisms in place to allocate resources efficiently.

China’s real GDP increased at an average yearly rate of 6.7% between 1953 and 1978, according to official government statistics, however the veracity of these figures is debatable, according to the CRS June 2018 report.

It is claimed that, for a number of political motives, Chinese government officials—particularly those at the subnational levels—frequently overstated production figures.

Economist Angus Maddison estimates that over this period, China’s real GDP increased by an average of 4.4% year.

Furthermore, under Chairman Mao Zedong’s leadership, China’s economy experienced severe downturns, such as those that occurred during the Great Leap Forward (1958–1962), which resulted in a severe famine and the reported deaths of up to 45 million people, and the Cultural Revolution (1966–1976), which caused widespread political unrest and severely disrupted the economy. Using purchasing power parity (PPP), a traditional measure of a country’s standard of living, China’s per capita GDP doubled between 1950 and 1978. Conversely, between 1958 and 1962, Chinese living standards fell by 20.3%, and between 1966 and 1968, they fell by 9.6%.

However, as their markets have become more accessible to international investors, and as the government gave support to companies within the jurisdictions to expand into new geographic areas, they are seeing have seen growth at a rate that the World Bank referred to as “the fastest sustained expansion by a major economy in history”.

They opened their doors at a time they were ready, at a time they had leverage and at a time they were prepared for the great opportunities to be explored.

Because of China’s sizable market at the time, businesses began to expand there, and those in the country made care to strengthen their competitive positions in order to pursue opportunities elsewhere. Changes were brought about not just by China’s entry into the World Trade Organization [WTO] but also by the industries and businesses around the globe.

They significantly altered the global economic landscape. Despite the significant risks they faced, they remained aware of their desires and did not abandon themselves to the whims of Big Brother. They built ties with partners, suppliers, and customers when they started doing business in foreign countries, and they learned from these relationships.

Advancing their manufacturing capabilities and building their own branded products and services, Chinese firms like Huawei and ZTE, progressively developed copious transnational strategies that received government support. Both companies then retained access to large credit lines from China’s state -owned banks. This access to credit has over the years been extended to any Chinese company with a viable big plan to undercut competitors. As such, the global market power of Chinese firms is astounding.

This concept was once conceived in Africa. Osagyefo Dr. Kwame Nkrumah believed it could succeed, if all of the African nations were “liberated” from colonialism and united to establish a strong front that would guarantee that resources were used efficiently everywhere. An idea that would see African firms’ capacities grown to the point of creating robust industries in their home markets and, as a result, start interacting with those who first came to plunder, albeit from a position of advantage.

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