Asia House interview with Dean Xiang

Sep 22, 2021

Dr. Xiang Bing, our Founding Dean and Professor of China Business and Globalization, speaks with the Chief Executive of Asia House, Michael Lawrence, on China’s digital transformation, its business landscape and the future of US-China relations. Dean Xiang is a leading authority on China business innovations and the globalization of Chinese companies, trade and Sino-US relations. He’s also a member of the advisory board at Asia House, a global think tank on Asia, the Middle East and Europe.

 

Michael Lawrence

What will be the next major development in China’s digital transformation?

Dean Xiang

Digital transformation will be the key to transform the economy broadly for decades to come. Globally, I think maybe US and China are going to be the leading ones, especially the unicorn companies in the US, definitely driven by innovations. In China, there are more and more innovations, but also, there’s an imitation as well—something coming up in the US today, China then may imitate and adapt. E.g. When you have Uber in the US, we have DiDi in China. China does have that advantage in some time, being a follower.

Also because China has a large population and contributed about 30% of global economy. This does give the Chinese companies unique advantage in terms of supplying the market. China also has a very advantaged local market—just leveraging Chinese market itself, you can become the largest the company globally in this regard. That’s one reason why many of the Chinese company choose not to go abroad. They are so happy at home and making serious money. That’s the case in China, I think, China and the US will continue to lead this digitalization for decades to come. At least that’s the case for the past 10 years, that could be the case for next decade as well.

 

Michael Lawrence

Is this digital transformation, and imitation, going to continue to push China ahead economically at the sort of rate we’ve seen in the past 30-40 years?

Dean Xiang  

Looking forward, there’s plenty of reasons to be optimistic. Firstly, Chinese ability, the company’s ability to innovate, have improved substantively for many sectors. For example, China has by far the largest automobile market. The units of car sold in China is bigger than the total of the US, Germany and Japan. So, for those kinds of factors, if you don’t innovate in China, you die. Innovation will be a key for companies from different sectors to become globally competitive.

Another positive side is we have many, many sectors yet to be deregulated. For example, the financial sector, automobile, the media, sports, education, oil and gas, and etc. China can still grow its economy by a new round of deregulations. Deregulation has been a key element in Ms. Thatcher’s neo-liberalism. This neo-liberalism has been a spent force in the US, in UK, but definitely we have many miles left. The Chinese government can leverage on this new round of deregulation to grow its economy on top of this innovation-driven digitalization-driven. That’s one reason why we need to be optimistic about an economic prospect.

 

Michael Lawrence 

Is China leading the world in digitalization? Every country we talked to, especially because of COVID has a digital strategy of digital program. Is China, the number one digital transformation? And if so, will it remain so?

Dean Xiang 

The Americans are still dominating the B2B side, but China definitely has some edge in the B2C side because of the market itself. Before, our infrastructure was not in place, but now [in fields like] mobile payments, we are far ahead of any other country. In any of the major cities in China, you can go out without cash. Just one phone takes care of all the payments. We have some advantages, but definitely American companies have a lot of core capabilities in the groundbreaking innovations, the core technology, core patents. On average, US is definitely still leading, but China has become a key driver now.

 

Michael Lawrence 

The tensions between the US and China are well documented. Is the digital transformation of China and the rest of the world, likely to escalate those tensions, since a lot of it has been around technology, technology transfer? As China goes down the path of this rapid digital transformation, is that positive or negative for the relationship with us?

Dean Xiang 

After some of the companies in China performed well [locally], there will be a globalization drive. These Chinese companies, whether it’s Alibaba, Tencent, or DiDi, or Tiktok, they will have the globalization drive.  Tiktok is a really beautiful example in a sense that its impact is far more global, than, for example, Alibaba, or Tencent with regards to its popularity, its ability to penetrate in many global markets. In that regard Tiktok is a very unique Chinese company. Chinese companies will need to leverage resources globally, not only to compete in China, but to compete in global market, that’s the basic human right that any Chinese companies have, just like American companies who [tend to develop globally].

Giving today’s geopolitical situation, especially the decoupling between China-US, the bifurcated of the market for technologies, for data could be a huge hindrance for this experiment. [This is no good to the global market for the following reasons: 1] it’s no good for innovations 2) it does no good for the broader market to enjoy the benefits of innovations. [As a result], the price and the cost of all kinds of products and services globally will be increased. I hope, the US and China can work together. Not only for the benefits of the Chinese and Americans, but also for humanities as well.

In the future, I believe the cross-border data issue will be a key issue of sensitivity, and debate and controversy. I think we need an international global standard in that regard, rather than just letting the countries arguing with each other.

 

Michael Lawrence 

Now onto China’s digital currency, the central bank digital currency. China is well ahead compared with other nations in terms of piloting digital currencies, what impact will a central bank digital currency have on business in China? And does China have that first mover advantage?

Dean Xiang

I’m not an expert on digital currency, but definitely from the business I’m talking to, they definitely can bring down the transaction costs, or improve the security issue, while improving or enhancing this transparency issue of all kinds of transactions, which could be a concern as well.

 

Michael Lawrence  

You’ve spoken much about China’s economic disruptions and their impact on China. What’s the next disruption that we should be looking for?

Dean Xiang 

Let me define “economic disruption” first because it’s a new terminology. People often talk about innovation, but innovation and disruption are two different things. China, for the past two decades is unrivaled in terms of sustained and continued disruptions, unmatched in scale. If you look at newly emerged large-scale companies, as measured by Fortune Global, Chinese increased from 11 (2000) to 117 (2020). Last year, China’s contribution to new billionaire was about 40% globally. Also, the 10 richest people in China chances every 5 or 10 years. This kind of disruption is good in the sense that it provides a chance for young people to move up. You don’t see that in Europe—when you look at 30 richest people in Europe, you don’t see much change over the years. And you don’t see that much in Japan. For India, a similar sized population, China far exceeds that of India in terms of disruptions. [What China was able to achieve was not just because of] the size of population, we started with a similar GDP in 1978 but now far exceeds India’s GDP.

Coming down to disruption, it is one element in the Chinese way in developing its economy, which should be shared globally. Because if you don’t provide economic disruption, young people may not have much of a chance to move up socially and economically. If that’s the case, whether you are a liberal democracy, or authoritarian, a developing economy, a developed economy, like France, Chile, you could have serious challenges for social mobility.

I see this continued ability to generate economic disruption as the key to the future. In the case of China, I think:

  • a new round of deregulations will provide flood of opportunity for Chinese entrepreneur to use imitation strategy. Since you have the sector in the US in Europe there have been doing well for decades. why don’t you imitate first?  This imitation strategy will be the key for these newly deregulated sectors, and there may be 20 or 30 sectors that are subject to this new round of deregulation.
  • And of course, for the sectors that are already globally competitive, they need to be driven by innovation.

 

[My theory about approaches to be disruptive for enterprises] depends on the sectors. I’m positive that China will continue to lead for the coming decades in terms of generating new rounds of economic disruptions. Look at dominating companies that emerged over the past decades, such as Meituan, Pingduoduo, Alibaba, Baidu, Douyin (Tik Tok). [Their accomplishment and power in today’s global market] are really beautiful. Give young people a chance to say, “he can make it, I can make it. I don’t have to rock the boat; I have a chance. My father didn’t have a chance, I may have a shot.”

 

Michael Lawrence 

Before we wrap up to geopolitics, as we mentioned earlier, huge amount of tension between the US and China, well documented talks going on the way which seems to have started off on a on a fairly tense note. Are China and the US on a collision course?

Dean Xiang

Definitely, we don’t have to, I don’t think the Thucydides trap can capture today’s relation between China and the US, for a number of reasons:

  • The US will be dominating military power for decades to come. Any emerging power, including China, India, African nations – it is suicidal to think about rising in power through non-peaceful means.
  • With the mutual assurance of nuclear weapons, it’s simply not wise to destruct.
  • Looking at the US experience in the past decades, using his superior military power to realize its geopolitical interest or objective in Afghanistan, in Iraq? Even American friends said, “We won the battle, we lost the war.”

 

[In conclusion] any country in the future who wants to use military instrument to settle your geopolitical issues, you got to think twice. The emergence of any rising power, including China must be a peaceful one. To me personally, I see Japan as a beautiful example integrating Confucian value and Western culture, merging its Confucian tradition with Western values.

Singapore is another example where different values are peacefully merged together through rule of law. Its rule of law is not considered as a liberal democracy, nor is it considered authoritarian. It has rule of law and state capitalism while the People’s Action Party has been the ruling party since 1959. This rule of law and the one-party rule, is not necessarily in conflict with each other.

If China and US can agree on terms for a rule of law and if President Xi Jinping set this as his top priority, I think there’s a way forward towards a positive and constructive relationship between China and the US. Such a relations is critical and necessary for global governance, for reconfiguration global trade, for climate change, for the rejuvenation of the global economy after COVID. The construction of such a relationship is absolutely a must. There is no plan B. This can only be forged by siting down and exchanging ideas. This is in your interest and in my interest. We need to find more common grounds, and we shall find common ground to work together.

WATCH THE FULL INTERVIEW HERE ON THE ASIAHOUSE WEBSITE.

Stay up-to-date with CKGSB!

Subscribe to CKGSB Newsletter