China is no longer resting on its ‘Made in China’ laurels. These days, China’s main economic driver is the ICT industry, including smartphone manufacturers and gaming firms, as well as the e-commerce and internet search market sectors.
CKGSB Professor Li Wei, a world-class scholar who has been researching emerging markets and serving as an advisor for the World Bank, said, “To highlight Chinese ICT companies’ common reasons for success, their customer-oriented businesses have correctly anticipated what a good portion of Chinese customers want and have strived to serve them. A significant percentage of Chinese customers are well-educated, but their income is not as high as their western counterparts. They want smartphones that have high-end specs, incorporate the latest designs and best implement software elements. Some of them have the technical skills to redesign or tinker with a phone's hardware and software. This has given rise to Xiaomi, whose business model is fundamentally different from global brands such as Samsung and Apple.”
Professor Li said Chinese companies certainly have market potential outside China, but the problems associated with IP should be resolved. For example, since Xiaomi’s OS is based on Google’s Android system and its interface looks similar to that of the iPhone, they need to work out any IP implications before expanding globally, in particular, into the U.S. market. In contrast, for global companies to succeed in China, localization is the priority. Li said, “The reason why global online shopping malls have been beaten by Taobao is that they did not hire a local manager who knows the Chinese market well. In other words, global companies have ‘global standards’, and they tend to think this can be applied to the Chinese market as well, which is an imprudent thought.”
With regards to the possibility of a Chinese economic crisis, Professor Li explained that, “China is still digesting the glut of loans that were doled out by banks during the global financial crisis in 2008. A good portion of the loans will be due this year and in the next couple of years. China is thus experiencing a problem with deleveraging. Banks will surely see their asset quality deteriorate and will become more cautious in lending. Much of new lending in China has recently come from shadow banks, which face less regulatory oversight.”
Prof. Li said the issue has been made much more complicated by the recent slowdown in the housing market. Chinese housing prices have risen sharply in the last decade and many economists worry that the great Chinese housing bubble may be running out of steam. Li said the Chinese economy will experience stability problems over the next five years. However, he explained that if the Chinese government takes the opportunity to undertake more growth-oriented structural reforms that further liberalize the productive forces of markets and private entrepreneurs, China will have at least a decade of high growth to achieve before it naturally slows down.
Read [Interview] CKGSB Professor Li Wei: “Educated Chinese Consumers Driving the ICT Industry Forward” on MK Economy website.