A New Theory on China's Rise: Michael Sekora of the Socrates Project

 

Is China’s Global Rise a Result of Their Technology Strategy?

I watched a video (Part 1)from a China expert, Michael Sekora, who described the rise of China as a strategic move to leverage technology. He explained, since World War II the United States has pursued a Finance based strategy. China has pursued a Technology based strategy. I’m sure these are his terms because I’ve never heard them used like this. Both terms refer to how the government and its business interests grow. Finance based strategy is concerned with efficient investments and rates of returns.

Finance or Technology

In other words, making money is the primary objective when considering what to manufacture and subsidize. Other considerations like competitiveness and market domination are secondary. In technology based strategies, the country exploits technology to gain market advantage and dominate the industry. The best example Mr. Sekora gives is in the auto industry. China could never compete with the United States’ automotive industry, but they did offer cheap labor. GM took advantage of that cheap labor and sent some low end car manufacturing over to China, let’s say the seats or the dashboard.

China got 2 things from this trade, work for their 1 billion strong labor force and technology from GM. Sure, it was easy to replicate. It’s not like GM sent them engine materials to machine or electronics to wire up. But China now had some low tier capabilities for car manufacturing. Add to this low tier a mid tier, once GM sent higher level manufacturing the next time around. Maybe in the next decade it was the exhaust or the drive train. GM is still not sending electronic components at this point. But China is taking the technology they do have, and figuring out how to build a car for their domestic market. How long until they’re competitive? They don’t need to sell in the United States or Europe. They can sell to countries around the world (Brazil, Russia) that might have bought from us before.

His point is that we, the United States, allowed this to happen because we obsess over financial concerns. The accountants are running the country and so on. China focused on using what we considered, low grade to build a first world country that always saw us as a competitor. They want to dominate markets, so they play small ball until they can dictate terms. Remember how difficult it was to get PPE (personal protective equipment) at the start of Covid? Latex gloves, masks and even a lot of medicines were all tied up in containers because it’s where all of it was made. That’s was a real example of what it means to not have necessary goods. Our supply chains are still a mess.

The era of consequence-free open markets is over.

Two Systems

Michael Sekora makes a convincing argument that the US doesn’t think enough about long term competitiveness. Mostly though it’s a function of our very different systems. Our businesses think about profit and loss because it’s what businesses are supposed to do. Governments consider things like global competitiveness and long term sustainability. At a certain level though, energy companies are a good example, industry is crucial to national security. They’re also large enough to steer national conversations on where the country is headed. It’s in the interest of the national business and the government to work toward healthy, dominant industries.

In a communist country like China, the only choice available is government planning. In this case, Mr. Sekora calls it technology planning. But it’s really just the top down way the government makes all decisions.

The Chinese didn’t have much of any industry before Chairmen Deng Xiaoping and the rise of factory towns around large cities. They had a lot of catching up to do with the West. But they knew how to do it; it had been done already by nearly everyone else. And yes, the US helped them get there quicker through tariff reductions and an onslaught of manufacturing jobs. But according to Mr. Sekora the goodies the Chinese received from the West in the early nineties were just boosters. The main thruster was always the technology strategy they employed.

They didn’t lose focus on developing their competitive edge at our expense.

It's also no secret that the Chinese steal IP (Intellectual Property) from foreign owned businesses that open up shop over there. It’s part of doing business. They don’t respect property rights and they never have. In the early stages of their reform and opening period (1991-2000) there was hope among American businesses that this would change. No one would make that mistake today.

I’m curious how he sees the next decade playing out for China.