The irresistible magnetism of China’s economy
Not only is China’s economy big and growing quickly, but the development of its tertiary economy, and in particular the knowledge economy, is another powerful force compelling more foreign countries and companies to increase their investments there.
Apple is a good example. As has been recently reported, it committed to investing $275 billion over a five-year period
which includes shifting from suppliers like Foxconn in Taiwan to those on the mainland, building relationships with Chinese software companies, partnering with Chinese universities such as Tsinghua in research and development and investing directly in Chinese tech firms such as Didi. These initiatives have played a key role in powering Apple’s rise in market capitalization to more than $2 trillion. But there is more going on here than just increased sales. The development of China’s tertiary sector has created a deep pool of app developers and other technical talents
that have played a key role in creating apps used around the world that Apple distributes on its App Store and make important contributions to the company’s profits and market capitalization. Apple, like many other foreign companies, is increasing investment in China not just to take advantage of market opportunities but also increasingly vital resources provided by China’s tertiary sector.
Tesla is another example. According to Elon Musk, Tesla CEO, speaking at this year’s World Internet Conference organized by CAC, “My frank observation is that China spends a lot of resources and efforts applying the latest digital technologies in different industries, including the automobile industry, making China a global leader in digitalization. Tesla will continue to expand our investment and R&D efforts in China.” Like Apple, the rise of the tertiary sector in China provides Tesla with not just an enormous market powered by rising incomes and consumer expectations but also access to critical resources that only a world-class knowledge economy can provide. The most important component for electric vehicles is the battery with Fujian-based CATL (Contemporary Amperex Technology Co., Limited), Chinese: 宁德时代, the global leader in lithium-ion battery development and manufacturing. CATL has been compared to Huawei because of the high percentage of revenue it invests in R&D. As a result, it is a global technology leader and one of Tesla’s most important suppliers and partners.
Blackrock is the third and final example. China represents an enormous opportunity for foreign financial service firms, especially in investment management, which was started twenty years ago and has experienced meteoric growth. According to KPMG, AUM (assets under management) grew from RMB10.4 billion (US$1.27 billion) in 1998 to RMB12.6 trillion (US$2.0 trillion) in 2018 and is expected to hit RMB36.3 trillion (US$5.6 trillion) by 2025, which would make it the second-largest asset management market in the world
. Reasons for this growth include China’s rising wealth as well as recognition of the need to provide pensions for its aging population and the growing financial sophistication of retail and institutional investors. With US$9.5 trillion in assets under management, BlackRock is the world's largest asset manager and has made China a top priority, especially as China has accelerated opening its financial services market to foreign competition.
On Aug. 30 Blackrock raised $1 billion from Chinese consumers while also recommending that foreign investors triple their allocations in Chinese assets. “The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally,”
BlackRock Chairman Larry Fink wrote in a letter to shareholders.
As can be seen from these examples, many of the most globally significant companies are increasing their exposure to and investment in China, especially in technology-based and data-based industries. Given the size of China’s market and the discipline and coherence with which China’s government is formulating and implementing relevant policies and regulations, the Chinese regulatory regime will likely affect countries around the world and CAC will be at the center.
CAC is poised to be one of the most important and influential government agencies in the world. It resides at the highest echelons of political power in China and it has consolidated its authority as a single super dragon where once there were several. Moreover, its founding under a charismatic policy entrepreneur has provided it with momentum and a clear sense of mission.
To realize the Chinese dream requires more than just governmental efficiency but theoretical and conceptual breakthroughs. One of the most important ones is treating data as a factor of production. This vastly expands the scope of CAC’s mandate.
Finally, the most impactful companies around the world, from Apple and Tesla to Blackrock and others, are increasing their exposure to and investment in China in ways that will act as a channel for promulgating CAC-based standards around the world.
And so, CAC is rapidly becoming the super dragon taming the flood of data not just for China but for the world.