Preface

Over the years, perspectives on China have run the gamut from predicting “the coming collapse of China” to expecting that “the twenty-first century will be the Chinese Century.”  And we’ve heard every perspective in between.

Despite its many ups and downs, the Chinese economy has grown significantly over the past several decades. While at any given point in time one could point to China’s many problems and risks, China has, as a whole, exhibited an extraordinary level of resilience. Why is that and how does China do it?

In this article, I take my best shot at summarizing the three primary reasons for China’s resilience: A composite “three-layered duality” structure; a pragmatic approach of experimentation, learning and adaptation; and a set of highly sophisticated large-scale coordination and organizational capabilities.

These three approaches are the direct result of the way modern China has evolved and developed over the past two hundred years.  As Chinese intellectuals reflected on how China could modernize itself, they would often draw upon China’s vast reservoir of history, culture, and civilization. At the same time, they would take into account newer concepts – which often originated from the West – as well as the realities of our changing world, in their search for Chinese-style modernization and modernity with Chinese characteristics.

I hope that my perspective will be helpful and instructive for executives of global companies who are now evaluating what role China will play in their businesses in the coming years. Developing a company’s global strategy – which, by definition, includes a China strategy – requires a deep understanding of China’s evolving role in the new world, a basic knowledge of the fundamental reasons why and how China works, and a clear-eyed view of the implications of the new dynamics of competition and collaboration given China’s role in the world.

THE FUNDAMENTAL FACTORS ARE CLEAR AND CONSISTENT, BUT ARTICULATING THEM REQUIRES SOPHISTICATION

Ever since China’s reform and opening up began, the nation’s growth has impressed and surprised a lot of people. Many of them have tried to explain why China has been able to grow so fast and how it has been able to exhibit such a high level of resilience. Some commentators have suggested that the Chinese government controlled everything in the country, including each and every single step of the various enterprises and their people. These commentators typically – and falsely – equated today’s China with the former Soviet Union. Among these critics, some would chatter on about, “the coming collapse of China” or say “China has peaked.” At the same time, others would say that China would ultimately fully embrace capitalism and that the Chinese would become “just like us.”

I cannot say whether these narratives are entirely right or wrong. However, they certainly do not explain the real fundamentals of why China has been able to achieve so much within such a short span of time. Even in this “Era of Mega Changes” China has continued to exhibit high levels of resilience. Let’s explore some of the actual reasons for China’s sustained growth.

“THREE-LAYERED DUALITY”

Since 1840, generations of Chinese intellectuals have been searching for ways that China could revitalize itself. This soul-searching process has accelerated since the country’s reform and opening up in the early 1980s. This process included many cycles of experimentation, learning and adaptation during which the Chinese repeatedly absorbed new ideas against the backdrop of the country’s ancient and long history, culture, and civilization. While the Chinese leaders embraced fundamental beliefs such as socialism and traditional Chinese culture, they also accepted new ideas such as a market economy and globalization. This type of inclusive and adaptive approach against a specific historical backdrop created a development mechanism that underwent repeated adjustments and, along the way, led to optimization. As a result, “socialism with Chinese characteristics” emerged, evolved, and continues to evolve to this day.

More specifically, China’s governance system features a “three-layered duality” structure. The central government provides the overall development direction for the country, as well as specific strategies and policies. Unlike the former Soviet Union, the Chinese government – post-reform and opening up – would not specifically dictate goals for Chinese enterprises but would merely provide broad direction and suggestions for the development of the entire nation. Of course, the government would have expectations for their state-owned enterprises (SOEs) whose role is to (at least partially) fulfill certain social responsibilities. However, for the privately-owned enterprises (POEs), the government would not and, in fact, cannot dictate operating targets.

Exhibit 1: China’s “Three-Layered Duality” Structure

Source: Gao Feng analysis

One of the most dramatic developments in China since its reform and opening up has been the rapid development of the private sector. Today, many of the most successful companies in China are private-sector enterprises. On the other hand, SOEs play a critical and dominant role in industries such as banking, telecommunications, aviation, railways, and energy. Enterprises, especially POEs, often get cues from the central government’s policies. They react quickly and are often able to take advantage of the opportunities brought about by the new government policies.

Resourceful and capable local governments would often play an important role in serving as a connection between the central government’s policies and the enterprises, both those that are state-owned (SOEs) and those that are privately-owned (POEs). These local governments would provide funding and other forms of support to qualified and interested companies. Local governments would help to incubate start-ups and help connect them with players both upstream and downstream of the companies’ value chains, including potential customers.  For more mature companies, local governments would provide even broader support through the government’s ecosystem.

China’s dual economic structure of SOEs and POEs provides both benefits and downsides. In addition to their financial responsibilities, SOEs must often fulfill social obligations. For example, they provide most of China’s essential public goods.

The most classic case is China’s high-speed railways or HSR. Within slightly over a decade, China went from having no HSR to having the world’s most extensive (and high-quality) 42,000-kilometer HSR system. Without the SOEs, one would be hard-pressed to imagine how this system could be built at such speed and magnitude. If an HSR project were to be undertaken by POEs, its financial feasibility would not likely pass the typical financial hurdles. However, from an SOE standpoint, it would view such a project from a more macro and long-term perspective. In addition to considerations of short-term financial returns, SOEs would also need to consider social contributions and financial benefits at a broader level.

Exhibit 2: China’sHigh-speed Railways Network, 2010 vs. 2023

Source: Internet

Another notable example is China’s metro (urban rail transit) system. As of the end of 2022,urban rail transit systems are operational in 52 cities throughout the Chinese mainland, comprising a total length of 10,288 kilometers of operating lines. This achievement makes China’s urban rail transit network the largest in the world [1]. While it took China 38 years to reach the first 1,000 kilometers of operational urban rail transit, the second 1,000 kilometers was achieved in less than five years. Measured by the annual growth rate of the total length, China is also significantly ahead of the rest of the world with a double-digit growth rate. In comparison, the rest of the world’s urban rail transit grew at a rate of 2.5%-4.5% over the same period.

The rapid expansion of the metro system in China is primarily due to the government’s decision to prioritize the development of the urban transportation network. SOEs participate in the metro system’s investment, construction, operation, and management. It is part of the social responsibility of the SOEs which actively assist the local governments in delivering public goods to their residents.

The construction of 5G base stations is another good example. As early as in 2015, just one year after the commercialization of 4G in China, the government announced a plan of “striving to commercialize 5G by 2020.” On the one hand, major Chinese telecom SOEs – China Mobile, China Unicom, and China Telecom – were actively prepared to build the 5G base stations. On the other hand, private sector companies like Huawei and Zhongxing Telecommunication Equipment Company (ZTE) made significant investments in the research and development (R&D) of 5G infrastructure equipment such as antennas and radio frequency devices. As of the end of March 2023, 2.384 million 5G base stations were built in China – accounting for over 60% of the world’s total – serving over 590 million subscribers in China, with many base stations located in remote areas. While building out so many base stations may not make sense in the short-term financially, SOEs would nonetheless build them as part of their social responsibility.

In other words, the development of China’s 5G network, from the R&D of fundamental components to the nationwide deployment of base stations, relied heavily on the backing of both SOEs and POEs along with the government. Together, they proactively addressed the current national development requirements and fulfilled their social responsibilities while generating long-term financial benefits.

Of course, there is often friction between SOEs and POEs, especially when they compete in the same sector. Ensuring fair competition in these cases is critical. All along, some commentators would say, “state advances while the private sector retreats,” while others would say “POEs do a much better job than SOEs in sectors such as the internet.” While some of these narratives are not necessarily untrue, China’s “dual economic structure” as a whole is extremely effective, particularly when one considers China’s development from an overall, long-term perspective.

The three-layered structure consisting of the central government, local governments, and businesses, in combination with a dual economic structure comprised of both SOEs and POEs, creates a multi-dimensional “three-layered duality” structure. While this structure may sound complicated at first, it is actually quite simple and effective. Governance of such a large and multi-faceted polity requires coordination and dynamic, real-time adjustments. To accomplish this, strong leadership-driven large-scale cooperation and organizational capabilities are essential. At the beginning of the reform and opening up period, Chinese leaders did not have a clear and complete blueprint for development. Hence, an approach that involved rounds of experimentation, learning and adaptation became the underlying mechanism for continuous adjustment and optimization.

EXPERIMENTATION, LEARNING AND ADAPTATION

Since 1842, generations of Chinese intellectuals have undertaken rounds of study and reflection to determine how to rejuvenate the Chinese nation. They drew inspiration from Chinese history, culture, civilization, and ideas from the West. These elites studied, collectively reflected, and discussed and, ultimately, they came up with their own new and innovative ideas.

Since its reform and opening up, Chinese leaders have likewise adopted an approach of cycles of experimentation, learning, and adaptation to search for ways in which China could most effectively develop.

Four cities – Shenzhen, Zhuhai, Shantou, and Xiamen – were assigned Special Economic Zone (SEZ) status in the early stages of the reform and opening up. These cities could offer more open policies to attract foreign capital and talent than the rest of the country. These cities were allowed and encouraged “to be bold” in experimenting with new ideas and policies that the rest of China could not.

Many favorable policies were implemented in the SEZs. For instance, companies in an SEZ could benefit from preferential tax rates on corporate income, equipment, raw material imports, and product exports. Other policies included foreign exchange settlement and remittance, land access, as well as entry and exit procedures. Serving as gateways for international exchange, SEZs leveraged their policy and location advantages to achieve significantly higher growth rates than other regions in China.

Exhibit 3: Portrait of Deng Xiaoping on Shennan Avenue in Shenzhen (left), First Five Special Economic Zones in China (right)

Source: Internet, Gao Feng analysis

In fact, whenever there were any major new initiatives, China would conduct pilots before launching the initiatives at full scale. The SEZ initiative, launched by Deng Xiaoping, is one of the most well-known examples. After the first successful batch of pilot cities provided valuable experiences and insights, the Chinese government designated Hainan province as another SEZ in 1988. This designation followed the establishment of 12 “Comprehensive Reform Pilot Zones,” also known as “New Special Economic Zones,” which included the Shanghai Pudong and Tianjin Binhai areas. Additionally, five “Financial Pilot Zones” were established, including Wenzhou City in Zhejiang Province, the Pearl River Delta Region in Guangdong Province, Quanzhou City in Fujian Province, Guangxi Province, and Qingdao City in Shandong Province.

During the 1990s and early 2000s, the most talked-about phrase in China was probably “(How China could) align with international practices.” This summarized China’s desire to understand and follow international rules and best practices. “Aligning with international practices” pertained to a wide range of areas, such as development models, policies, and regulations. It reflects China’s desire to integrate into the rest of the world.

The Chinese would benchmark practices and experiences from other countries or jurisdictions. China’s learning targets began with Hong Kong, then moved on to Singapore and Taiwan, followed by Japan and Korea, and finally extended to the West and the rest of the world.  Before implementing important policies in areas such as finance, healthcare, social welfare, and industry development, the Chinese government would study the practices and experiences of a range of countries and jurisdictions, comparing and contrasting these approaches. Based on their analysis, the Chinese government would decide on the best strategies for China.

As a reform mechanism, pilot programs are still being undertaken today. The Chinese government (and enterprises) can gain insights and make appropriate adjustments through pilots. For example, in May 2023, Zhejiang Province held its first Pilot Promotion Conference for Common Prosperity. The conference reviewed how Zhejiang Province progressively implemented pilots in stages for achieving common prosperity, using the central government’s “pilot within a pilot” approach. Although there are no similar precedents that Zhejiang can follow, this approach could become very effective and have a nationwide impact.

Today, the implementation of China’s central bank digital currency (e-CNY) is progressing across China. Tailored e-CNY payment solutions are being developed and tested within some pilot regions, such as Jiangsu Province, Shenzhen City in Guangdong Province, and Yiwu City in Zhejiang Province, for various application scenarios. China aims to integrate the e-CNY into people’s daily lives step by step by piloting it under various scenarios, such as digital red packets for shopping incentives, purchasing and redeeming sports lotteries, digital wallets that offer a new payment experience to expatriates, and cross-border transactions under the consensus of different countries’ central banks.

Pilot programs have played a significant role in many respects as an essential approach to China’s reform and opening up. First, they can test the effectiveness of new systems or policies within a limited range and provide invaluable experience to guide full-scale rollouts. Second, they can reduce potential resistance to changes and increase acceptability and flexibility. Third, they can take full advantage of the spirit of innovation at the local and grassroots levels, ensuring that reform aligns with local conditions. Fourth, they can avoid a one-size-fits-all approach and reduce the risks and costs of reform. Finally, they can improve the efficiency and quality of reform, further driving improvements and development.

LARGE-SCALE ORGANIZATIONAL CAPABILITIES

The execution of the “three-layered duality” approach requires significant coordination and organizational capabilities. Although Dr. Sun Yat-sen, the chief architect of modern China’s efforts to overthrow the Qing dynasty in the early 1900s, once said, “The Chinese are like a batch of loose sand,” (meaning the Chinese did not work together). Although not perfect, China’s several millennia-long governance systems – a mix of Confucianism and Legalism – were quite effective in governing a vast territory which included a large, complex and diverse population.

Since the foundation of the People’s Republic of China (PRC) in 1949, the Chinese government has initiated a strong overall organizational structure across the entire nation. Managing this tight and vast structure requires strong organizational capabilities. According to the PRC’s constitution, the country is organized into three levels of administrative divisions: provinces (which include autonomous regions and municipalities), counties (comprising cities and autonomous counties), and towns (including villages and streets). These undertaking-specific management divisions form the basic units of governance in China. The central government leads all these units while the local governments provide day-to-day administration.

The Chinese government uses a Hukou system, also known as a household registration system. Through this system, the Chinese government maintains data on where people’s primary residence is located and this data is used to administer social services and government benefits based on the official Hukou location. As a centrally-controlled hierarchy with a broad and detailed administrative structure across all of China, the Chinese government’s ability to organize and mobilize resources at a large scale has become a standout feature of the PRC.

China’s massive poverty alleviation endeavor exemplifies its strong large-scale organizational capabilities, as evidenced by the remarkable transformation of Jinzhai County, Anhui Province. In 2014, approximately 40,000 households with 130,000 individuals were registered as impoverished families in Jinzhai, accounting for 22.1% of the total population. Since the poverty alleviation campaign started in 2016, all 130,000 individuals across 71 poverty-stricken villages in Jinzhai were lifted out of poverty within just four years [2]. Consequently, Jinzhai was taken off of China’s list of poverty-stricken counties. Such extraordinary success didn’t happen by luck.

This remarkable feat required meticulous planning and execution. It began by conducting a nationwide census to identify and register all impoverished citizens, establishing clear targets and safeguarding against corruption. Grassroots poverty alleviation teams were mobilized by provincial and local governments, with each village that had a poverty household receiving assigned secretaries and resident working groups. By 2020, over 255,000 resident teams and 3 million officials had been dispatched across China. Aside from sending permanent officials, the government instituted a “Paired-up Assistance System,” assigning designated poverty alleviation helpers to each household with personalized and targeted intervention plans, strictly implemented in accordance with poverty alleviation manuals from the State Council (Leading Group Office of Poverty Alleviation and Development). These paired-up helpers were rotated annually and evaluated after each term to ensure accountability. In addition, the government also mobilized SOEs, POEs, and local PLA (military) to contribute through donations, purchasing agricultural goods from impoverished families, and providing job opportunities if needed.

Since China’s reform and opening up, over 770 million people have been lifted from poverty. Rhetoric alone cannot achieve such a massive and effective decades-long program. Rather, it is China’s large-scale organizational capabilities and institutional strength that enabled this historical achievement which has earned China respect around the world.

Exhibit 4: China’sPoverty Reduction in Rural Areas, 1978-2020

*Note: Defined as annual income below RMB 2,300 per capita in a household (Set by the National Bureau of Statistics of PRC in 2010)

Source: Xinhua News Agency, Gao Feng analysis

Such a large-scale organizational capability is often called a “whole-of-nation approach.” This means that when the Chinese government aims to achieve something of scale and significance, it can and will mobilize large-scale, nationwide resources and capabilities to get the job done. The poverty alleviation initiative is just one of many examples. Other major initiatives, such as the South-to-North Water Diversion Project, the anti-desertification effort, and the goal of carbon neutrality by 2060, also require the sustained mobilization of large-scale resources.

In the podcast China Corner Office produced by The China Project, Apple University Professor Doug Guthrie stated, “Apple has a significant market in China, as does Tesla and other companies. But what makes these companies so powerful is their management of the supply chain.” [3] However, as Doug pointed out, the capability of supply chain management relies on the advantageous features of China and its government (both central and local) and SOEs. First, China has access to a massive migrant labor force of 350 million workers that can rapidly scale up or down through the government-controlled labor dispatch system. Second, extensive integrated transportation infrastructure efficiently connects raw material suppliers, component manufacturers, assembly factories, and logistics networks, enabling responsive and nimble manufacturing ecosystems. Finally, China has strategically created industry clusters in certain cities and regions, such as the automotive manufacturing cluster in Guangzhou, which promote specialization, knowledge sharing, and tight supplier integration.

The combination of a flexible labor force, integrated infrastructure, and industry clustering provides China with a unique manufacturing process that underpins the success of many foreign firms operating there, including Apple.

A large number of suppliers, including those from China and other countries and regions, rely on the supply chain ecosystem and infrastructure that have been developed over time. The Chinese government and SOEs played a significant role in providing the necessary public goods. Additionally, the local governments were particularly instrumental in working with the suppliers and manufacturers to mobilize labor to work in these ecosystems. The efficient and dynamic management and coordination of this supply chain ecosystem and infrastructure enables the highly efficient nature of Apple’s supply chain.

In simple terms, China also adopts a “whole-of-nation approach” to support Apple’s supply chain development. As it builds out its supply chain in China, Apple is looking not only for low labor costs but also other benefits that are generated from the coordination and organization that the Chinese government, particularly local governments, can drive and deliver. In addition, the numerous suppliers, primarily Chinese, involved in these complex supplier ecosystems would naturally find ways to synchronize with the orchestration by Apple and the leading manufacturers and local governments.

Professor Guthrie also emphasized that “no intellectual property theft” occurred at Apple in China: “In today’s era…the real IP is around manufacturing processes… Apple will never set up a factory in China. What they did was they took their employees, who are brilliant people in operation supply chain management, and they embedded them in the factories of China’s suppliers. They teach, and everybody learns together. And so, it’s hard for me to think about this as some commentators think about this as stealing IP – I don’t think it’s stealing IP. These are collaborative relationships in which people learn together.” [3]

Professor Guthrie believed Apple and its Chinese suppliers developed the necessary intellectual property in a collaborative manner. Guided by a spirit of collective cooperation, suppliers, regardless of their origin, can consistently assist Apple’s highly efficient supply chain with innovations facilitated through the provision of public goods by the Chinese government and SOEs. This is made possible through meticulous and extensive coordination at all times.

A COMPOSITE PUBLIC-PRIVATE PARTNERSHIP

China’s economy is neither a market economy nor a planned economy but, rather, it is a combination of both. SOEs, POEs (both local and foreign), local governments and central government, all play critical roles in China’s unique economy. For Chinese companies, particularly the POEs, the government does not allocate planned resources and performance targets. Instead, enterprises drive their own business based on the central government’s policies, entrepreneurship, equity reform, market competition and innovation, often with support from their local governments. The diverse stakeholders in China’s mixed economic model leverage their respective strengths while aligning with national priorities through a collaborative approach.

The Chinese local governments play a crucial role in driving public-private partnerships. Many local governments are well-positioned to support businesses today as they have come a long way economically over the last several decades. Cities such as Shenzhen, Guangzhou, Beijing, Shanghai, Hangzhou, Suzhou, Wuxi, Nanjing, Tianjin, and Chongqing, among many others, are all well-known for supporting businesses. Among these, Hefei City in Anhui Province stands out as a notable example.

Hefei’s Experience

Situated strategically between the Yangtze and Huai Rivers, Hefei, the capital of Anhui province in Eastern China, has long played a pivotal role in regional administration, economy, and military affairs throughout history. With its advantageous geography, Hefei emerged as a critical hub for trade and transport. Today, the city is recognized as a thriving technology and economic center in China’s central and eastern regions.

Often called the “Hefei Model,” the city’s developmental approach leverages state-owned enterprises and academic institutions to establish industry-focused investment funds. Through direct investments and active participation in various funds, the government drives the infusion of private capital to foster business expansion. This model, predicated on judiciously directing investments into priority sectors, has proven effective in driving Hefei’s economic development and has benefited many businesses along the way.

Exhibit 5: Geographic location of Hefei, BOE, Lenovo and Compal Future Center (LCFC), and NIO Parks in Hefei

Source: Internet, Gao Feng analysis

A key factor in Hefei’s success is how the region work’s with business. Despite government shareholding, companies maintain a degree of autonomy and managerial control. This allows the companies to run their business in their own way but, at the same time, they can also leverage support that the government provides. Through this approach, Hefei has excelled in strategic sectors, including new-generation display devices, integrated circuits, artificial intelligence, and new energy vehicles.

Furthermore, Hefei embraces the mindset of venture capital and investment banks. Their investment funds would recruit industry experts and seasoned advisors for meticulous evaluation of opportunities. Investments are rigorously assessed for technology, supply chains and market potential. The ability to generate ecosystem synergies is also critical. Ongoing support provided by various governmental departments ensures these synergies can be materialized. As a result, Hefei attracts both established players and emerging innovators and, along the way, they form a robust ecosystem.

To ensure a proper focus and capability boundaries for selected sectors, Hefei pioneered the “Chain Chief” notion, designating senior government officials who are responsible for optimizing industrial chain development plans and policies. This initiative includes cultivating key companies, facilitating pivotal projects, and establishing service platforms and mechanisms for regular services. Coordinating resources across industrial chains through these “Chain Chief” positions supports accountability for value chain integrity and progression.

Moreover, Hefei propagates a business-friendly environment underscored by innovation and service. Augmented by robust industry support and technological incentives, this milieu has magnetized numerous companies. Notable illustrations include BOE, a leading Chinese semiconductor and display device manufacturer; Lenovo, a global information and computer technology (ICT) player, and; NIO, a well-known Chinese electric vehicle brand.

The first case is BOE. In 2008, BOE, a leading Chinese semiconductor and display device manufacturer, planned a landmark US$2.5 billion investment to construct a 6th generation Liquid-crystal display (LCD) production line in Hefei. At the time, Hefei’s entire fiscal revenue was only around US$2.3 billion [4]. Despite substantial economic and political risks, Hefei decided to support this ambitious project.

Per their agreement, Hefei committed US$900 million in direct investment along with US$1.2 billion in conditional loan guarantees, contingent upon attracting co-investors. This public-private collaboration aimed to catalyze industrial upgrading. BOE has since invested over US$15 billion in Hefei, creating 20,000 jobs and US$6 billion in annual revenue. BOE built an integrated, efficient R&D and manufacturing base by leveraging Hefei’s strategic location and talent pipeline. This has enhanced BOE’s overall competitiveness and innovative capacity, cementing Hefei as a global display production hub.

The second case is Lenovo, one of the world’s largest ICT giants. In 2011, Lenovo partnered to construct a Hefei laptop factory, Compal, increasing annual production capacity forty-fold to 40 million units in six years [5], and it is presently the world’s largest laptop plant.

Following the initiation of production, Lenovo contributed up to 40% of BOE’s display screen capacity in the initial years while sustaining BOE’s development by incorporating 5% of its laptops with BOE’s new-generation display screens. To cultivate an integrated value chain, Hefei attracted over 300 suppliers, including 20 public firms, thereby incubating an innovative ICT cluster. The government provides incentives, such as tax relief, to facilitate Lenovo’s continuous expansion. Furthermore, Hefei’s partnership with Lenovo exemplifies a sophisticated orchestration of synergies across companies and sectors. Through proactive supplier recruitment, Hefei has nurtured an integrated ICT ecosystem. Continued support, including incentives and talent programs, further fortifies Lenovo’s position as an anchor tenant, underscoring Hefei’s adept capacity to incubate industrial champions and clusters.

The third example is NIO, a Chinese electric vehicle (EV) brand, one of China’s “New Force in EVs.” In 2016, NIO partnered with Jianghuai Automobile (JAC Motors) to utilize JAC’s Hefei production facilities, establishing an initial manufacturing base. In 2020, recognizing NIO’s economic potential, Hefei provided over US$1 billion in strategic investment to make NIO’s China headquarters and EV cluster in Hefei [6]. This collaboration had a real economic and social impact, further catalyzing other industry investments for NIO and Hefei. It supports the development of NIO and a smart EV industry cluster on the ground. Hefei’s investment and policy incentives turbo-charged NIO’s growth, transforming it from a nascent entity on the brink of bankruptcy into a prominent player in China’s electric vehicle industry. Examples like this demonstrate Hefei’s capacity to nurture emerging champions even amid periods of uncertainty. The ensuing cluster development and synergy exemplify the potential of the “Hefei Model”.

These three instances underscore Hefei’s adeptness at orchestrating synergies across sectors. Lenovo’s expansion spurred demand for BOE’s displays, thereby catalyzing the broader electronics cluster. With Lenovo and Compal Future Center (LCFC) contributing 10% of its GDP, Hefei could incubate emerging champions like NIO, revealing a significant capacity to leverage synergies.

Consequently, Hefei has cultivated advanced integrated circuits, new-generation displays, new energy vehicles, safety and emergency, smart devices, life science and health, and artificial intelligence sectors. Their nimble marshaling of resources has earned Hefei recognition as a highly-skilled quasi-venture investor.

BOE, Lenovo and NIO showcase Hefei’s sophistication in seizing opportunities to attract and build strategic industries. Hefei adeptly evolved sector clusters into fully-fledged industrial bases by attracting anchor companies and upgrading key industrial chains.

Additionally, effective administrative services and favorable policies are essential to Hefei’s business environment. This helps companies overcome capital, land and talent barriers and enables accelerated growth. Encouraged by the success of BOE,  Lenovo, and NIO, Hefei upholds an “industrial value chain-oriented” investment mindset for guiding the development of its portfolio of investments. Furthermore, driven by a philosophy of investing and building up industrial value chains, Hefei sets up market-oriented funds to invest across supply networks, further catalyzing its development.

For example, leveraging extensive high-tech expertise, Hefei incubated ChangXin Memory Technologies (CXMT), an advanced semiconductor firm. Established in 2017 by GigaDevice and Hefei’s state-owned capital, CXMT announced mass production of DDR4 memory chips in 2019. In 2020, they raised RMB 15.6 billion [6] from strategic investors, including the National Integrated Circuit Industry Fund, making them a competitive leader in the domestic semiconductor and wafer manufacturing sectors, competing against the monopolies of international giants.

Hefei has achieved win-win scenarios with social and economic benefits through its investments along various industry chains, cross-industry-chain synergies, and the associated technological innovation and application of these areas.

The scope of the local government’s support is not limited to Chinese companies only. The Hefei municipal government also prioritized the attraction of leading global players for craving its key industrial chains. By attracting a substantial number of foreign companies, such as Volkswagen and Corning Glass, Hefei has effectively enhanced the international competitiveness of its industrial clusters. This showcases Hefei’s adept capacity to nurture national as well as international champions in critical technology arenas.

Leveraging its robust New Energy Vehicle (NEV) industry ecosystem and efficient governance, Hefei was able to attract Volkswagen, resulting in an investment of US$1.1 billion to build the company’s largest China R&D center in Hefei [7]. Moreover, Volkswagen has planned an additional investment of US$3.4 billion in Hefei’s NEV production and R&D. By choosing the NEV sector as one of its priorities, Hefei identified potential company targets, proactively reached out to them and aligned plans of investment on the ground. The access of its first investment would lead to others and would soon fill out the target sector’s industry chain and industry clusters.

Hefei demonstrates how a local government can effectively support businesses and help them to succeed, particularly those in the target strategic sectors. In addition to the anchor companies, clusters of suppliers can also help create stickiness of manufacturing in the locality.

Local Government’s Industrial Guidance Funds

The key role that local governments played, in particular, channeled through the government’s Industrial Guidance Fund, is vital for many businesses who moved their operations towards localization, which is also core to the “Hefei Model”.

The Venture Capital Guidance Fund (VCGF) is a type of Industrial Guidance Fund representing government-backed venture capital investors who typically strategically target specific industries, stages of development, and geographic regions. These entities, propelled by limited public funds, aim to attract private capital to bridge the financing needs of early-stage technology firms. By the end of 2022, Chinese governments had established over 1,500 VCGFs [8], with a total size of US$400 billion.

The significance of industrial guidance funds to local industries can be prominently exemplified by the VCGF of Shanghai, orchestrated by Shanghai Science and Technology Venture Capital. This fund strategically aligns with burgeoning sectors like new energy vehicles, biotechnology, and next-generation information technology. It boasts of investments in noteworthy enterprises such as Cmsemicon, a pioneer in mixed-signal chip design; Endovastec, a frontrunner in vascular interventional devices, and; Qihoo 360, a Chinese cybersecurity firm celebrated for its antivirus solutions.

In a similar vein, Guangzhou’s industrial guidance fund, with a capital of US$7 billion, champions high-tech arenas, including semiconductors and integrated circuits. This fund has been instrumental in fostering growth in companies like DarkMatter AI, creators of cognitive AI tools for education and health; GAC AION, a prominent EV subsidiary of Guangzhou Automobile Group (GAC), and; GRGBanking, a leading solution provider for the intelligent finance industry.

Shenzhen’s industrial guidance funds, oriented toward angel investments, emerged as the preeminent fund of its kind, directing its focus toward strategic sectors like semiconductors, new materials, and biopharmaceuticals. Its enviable achievements encompass the incubation of over 200 enterprises, including stalwarts like Contemporary Amperex Technology Co. Limited (CATL) and Mindray, a global giant in medical equipment headquartered in Shenzhen.

In parallel, the industrial guidance fund of Suzhou has significantly propelled the growth trajectories of leading players like Bloomage Biotech, renowned for its specialization in aesthetic biotechnological solutions; Novosense Microelectronics, a premier producer of advanced semiconductors and integrated circuits, and; Gstarsoft, an expert in Computer-Aided Design (CAD) software development.

Industrial guidance funds exemplify how targeted government venture capital can effectively catalyze development in emerging strategic industries. By attracting private capital and addressing financing gaps, industrial guidance funds accelerate technology commercialization and cluster growth, fostering China’s industrial growth.

Unsuccessful Cases

While the general experience of local government support for businesses has been positive, instances of unsuccessful cases have also emerged.

Suntech, a prominent solar firm backed by the Wuxi government, was an illustrative case. Established in 2001 through a government partnership, Suntech experienced rapid growth, culminating in an IPO on the New York Stock Exchange (NYSE) in 2005. That was an impressive milestone and testimony to Suntech’s technological prowess, robust supply chain, and support from the government. However, a mere eight years later, this erstwhile high-performer found itself undergoing bankruptcy restructuring [9].

Upon a retrospective examination, the demise of Suntech can be attributed to two pivotal factors. First, inadequate management practices resulted in poor investment decisions. Second, the company’s liquidity risks were exacerbated by an expansion of overcapacity funded by the government. The downfall of Suntech underscores the potential pitfalls of relying too much on governmental financial guidance and support, which may not only fail to foster sustainable development but can also inadvertently encourage a disregard for thorough examinations, leading to flawed decision-making.

Another example is Jiangxi LDK Solar. In 2007, LDK Solar had the largest IPO on the NYSE among all Chinese companies at the time. However, in its ambition to become the global leader in photovoltaic technology [10], LDK suffered a precipitous decline after the financial crisis. With a staggering debt-to-equity ratio of 102.7%, well beyond the 40% maximum allowed typically for Chinese photovoltaic companies as per prevailing policies, LDK began to run into problems. Its predicament continued despite the injection of RMB 3 billion in bailout funds from the Municipal Government of Xinyu City in Jiangxi province as well as the commitment of additional local state-owned capital.

An even more dramatic case unfolded in Wuhan’s investment in Hongxin Semiconductor in 2017. Despite receiving considerable funding amounting to RMB 128 billion and seemingly making strategic moves such as hiring experienced executives and acquiring a lithographic machine from ASML, a leading Dutch supplier for the semiconductor industry, Hongxin mortgaged the idle lithographic machine just two years later. Per a Tencent report [11], an investigation found executives had partnered with Wuhan officials to establish a shell company called Beijing Light Blueprint, which then created Hongxin. Hongxin had borrowed money from local banks in the name of Torch Construction Group, their primary contractor, and had been granting new loans to pay off previous debts. Through Torch Construction Group, they offloaded debts and risks onto banks, subcontractors, and suppliers while accruing substantial profits under the camouflage of being a semiconductor enterprise benefiting from government support. As this fraud was exposed, the Wuhan government took over the company and sought opportunities to sell it off.

These cases offer valuable lessons, underscoring the need for diligent oversight of the government’s industrial guidance funds and the implementation of robust accountability mechanisms to prevent the misuse of funds or overzealous strategies and mismanagement. However, the nature of “experimentation, learning and adaptation” implies that imperfections and failures will occasionally happen, but it also means that the mechanism allows for self-correction and has so far been proven quite effective.

LEARNING FROM THE PAST AND LOOKING TO THE FUTURE

Leveraging its large-scale organizational capabilities, China continues to refine its development model through experimentation, learning and adaptation while, at the same time, embracing key concepts such as “the great rejuvenation of the Chinese nation,” “building a community with a shared future for mankind”, and “Chinese modernization”. This development model and its concepts will continue to drive China forward, enabling it to play an increasingly more critical role globally.

These concepts were developed in the context of China’s history,  culture, and civilization.

Cultural and Civilizational Origins of the Development Model

China has a long and illustrious history, culture, and civilization. It has absorbed philosophies ranging from locally-born “Hundred Schools of Thought” during the Spring and Autumn and Warring States Period (around 770 – 221 BC) to the adoption of Buddhism from India since the Han Dynasty (around 206 BC–220 AD). While Confucianism and Legalism have been China’s governance for millennia, different thoughts, such as Daoism and Buddhism, have also significantly impacted Chinese thought. Moreover, other schools of thought, such as the Strategists, Militarists, Mohism, Yin-Yang, Logicians and others, have left their mark on Chinese philosophy and culture as evidenced by the common usage of many of their concepts in Chinese idioms which are still practiced today.

During the Han Dynasty, the imperial court decided to take on Confucianism as the only guiding school of thought and abandoned all others. Despite that shift, many other schools of thought still continued to linger on. As a result, Chinese culture has always been characterized by diversity and inclusivity, even while Confucianism, as the major guiding philosophy, did profoundly influence Chinese culture. In modern times, the Chinese also embraced modern science and Marxism. Of course, Marxism itself was Sinicized to some degree to fit the Chinese context better. Further, since its reform and opening up, China has also embraced core market economy principles.

This process involved repeated cycles of experimentation, learning, and adaptation, forging a development path toward “Chinese modernization” that combines tradition and modernity. President Xi Jinping underscores, “learning from the past, looking to the future,” which means that as it develops and evolves its path forward, China also looks to its past and leverages its vast reservoir of experiences, knowledge and synthesis for inspiration in the development of its future.

In the early 1990s, Chinese leaders began to talk about the concept of a “socialist market economy”, which may have appeared contradictory to many people. However, as Bob Ching, the founder of Boston Consulting Group’s China practice, noted, Chinese leaders recognized that this seemingly conflicting concept was internally coherent. Decades later, China’s extraordinary economic development

has demonstrated that this once-seemingly contradictory concept could not only work and but could work exceptionally well. In other words, Bob was right.

The notion of “veering between two apparently opposite forces” is crucial to Chinese culture. In Daoism, Buddhism, and the Yin-Yang school of thought, everything in the world is made up of two opposing factors, which may appear to be opposite to each other, but work as one.

As stated by Philip P. Pan in his article, “The Land that Failed to Fail” in The New York Times in 2018, “China has veered between these competing impulses ever since, between opening up and clamping down, between experimenting with change and resisting it, always pulling back before going too far in either direction for fear of running aground.” [12] Although Pan did not say why China was able to do this, he was perhaps the first person from the West to explain why China has shown such resilience in its development. Personally, I agree with Pan’s perspective that China has been “veering between two competing sides” and then will typically “pull back before going too far in either direction.”

Exhibit 6: The Cover of The New York Times article, The Land that Failed to Fail, by Philip P. Pan

Source: The New York Times

In fact, the concept that “two opposing forces can co-exist” is not limited to China but is also prevalent in other civilizations. In business, I have found striking analogies in the realm of corporate strategy, organization, and leadership.

Contrary to hitherto static theories on business strategies, the 1998 book “Competing on the Edge”, co-authored by Kathleen Eisenhardt, a professor at the Stanford Graduate School of Business, and Shona Brown, her Ph.D. student at that time, point out that the context of business strategy is the environment in which the company operates. That context, by nature, evolves, requiring businesses to continuously adapt and adjust their strategy to stay relevant.

Exhibit 7: Core Ideasof Competing on the Edge 

Source: Harvard Business School Press, Internet, Gao Feng analysis

As the book’s subtitle, “Strategy as Structured Chaos” suggests, the competitive landscape and business environment in which a company operates will inevitably veer between “structure” and “chaos”. It is neither entirely ordered nor entirely chaotic (disorderly), and the boundary between the two can constantly shift over time and space. In a highly complex and rapidly changing business environment, a corporate strategist should understand the implications of the two seemingly opposing forces and then make judgments about what necessary actions need to be taken — in a timely manner — to adjust and balance. Eisenhardt and Brown suggested that finding a suitable balance between control and autonomy, centralization and decentralization, as well as stability and change, is crucial. Any management approach that only considers one side of the picture is often vulnerable amid rapid changes in the business world. According to Eisenhardt and Brown, formulating an effective corporate strategy in an ever-changing environment requires striking a balance between control and chaos — on a continued and dynamic basis.

Jon R. Katzenbach, my former colleague at Booz & Company, is an expert specializing in organizations. According to him, there is often a coexistence of “formal organizations” and “informal organizations” within an organization, and it is crucial to maintain a balance between the two. They coexist in a company’s operating model. A formal organization is the management structure that develops as a company grows, and it is the combination of rational elements such as rules, hierarchy, and performance metrics. In this kind of organization, most executives are trained with “hard courses” in finance, technology, and operation, and they are equipped with the skills to use tangible tools like organizational charts, process charts, and balanced scorecards to support their work.

On the other hand, the informal organization comprises emotional elements that hide beyond the boundaries of the formal, including values, emotions, behaviors, anecdotes, cultural norms, and peer relationships. This collection of “soft power” can have a subtle yet profound impact on every business. Even the most rational manager must admit that the informal organization, particularly during the journey of transformation, can lead to significant impacts, such as the rise of unforeseen grassroots leaders and the quick self-revamping and iteration of business units. However, the informal organization can also have adverse impacts, such as hidden dissenters, anxiety, and fear that can hinder progress.

The formal organization represents the organization’s consciousness, while the informal organization represents its subconsciousness. A skilled leader would know how to maintain and improve the formal organization while actively mobilizing the informal organization so that both can be developed in tandem. For any organization, the capability to lead outside the lines by balancing “soft power” and “hard power” to achieve top-notch performance is often the most critical leadership skill.

The concept of embracing opposing forces within an organization resonated with Huawei’s Ren Zhengfei. A feature from the May 2015 issue of Sino-Foreign Management reported that when Huawei topped the big league of global telecom equipment players in 2014, this is when its transformation journey also commenced. Corporate success resembles balancing on a tightrope, emerging not from established patterns but by navigating change and chaos through experience and periodic setbacks. As Ren stated, the optimal path materializes through a compromise between “shades of gray” – reconciling and tolerating complex, contradictory poles. This temporary harmony enables progress.

Such “shades of gray” solutions capture the essence of “competing the thought on the edge” – integrating yin-yang style opposing forces. It suggests that growth arises from the interaction between countervailing tensions. Huawei’s ascent showcases how synthesizing multiplicity and encouraging diversity propels organizations forward. At the edge of chaos lies order; at the edge of discord lies equilibrium. By mastering the art of paradox, visionary leaders transform struggle into strength.

In his 2019 book, “The Opposable Mind” [13], Roger L. Martin, former Dean of the Rotman School of Management at the University of Toronto, states that an excellent leader must have “the ability to hold two opposing ideas in mind at the same time and still retain the ability to function,” and “instead of choosing one at the expense of the other, generate a creative resolution of the tension in the form of a new idea that contains elements of the opposing ideas but is superior to each.”

Martin argues in his book for the significance of imaginative leaders with minds that embrace opposition. Leaders must recognize that although the existing model may have enough information, it still needs improvement. Leaders with flexible minds frequently seek multiple hypotheses when making decisions and tolerate and encourage opposing ideas. When faced with opposing ideas, they do not simply choose one over the other but, instead, they develop an innovative new solution that integrates and goes beyond the existing ideas. This is also one of the development models that China’s leaders have been practicing.

Let us bring our attention from the West back to China.

China’s large-scale organizational capabilities have their origins in the Confucian tradition. The Chinese literati class would follow a philosophy of “Self-cultivation, family management, state governance, and bringing peace to all under heaven (修身，齐家，治国，平天下).”The idea of serving the world and the people was gradually extended from the individual to the wider community, demonstrating that Chinese literati not only considered themselves and their families but also the country and the world as a whole. This way of thinking embraced both the individual and the collective. The Chinese call this the “Literati Spirit (士大夫精神).”

Indeed, many historians have criticized Confucianism. According to them, Confucianism hindered the development of modern science and technology in China, leading to China falling behind Europe in the 18th and 19th centuries. Kenneth Pomeranz also discusses this phenomenon in his book, “The Great Divergence”. Nevertheless, Chinese intellectuals persisted in their efforts to revitalize China with their distinctive “Literati Spirit”. Their primary reference points were key aspects of Western thought and history, specifically the Renaissance, the Enlightenment Period, and the First Industrial Revolution.

Today, we can still observe that the Literati Spirit still exists in many Chinese people, but it has taken on a new form. This spirit is manifested not only in government officials but also in entrepreneurs. The book “Class of 1992: The Business Principles and Aspirations of the ‘New Literati’ Entrepreneurs,” by Mr. Chen Hai in 2012, revisits the emergence and development of the “Class of 1992” of entrepreneurs, documenting their lives before and after 1992.

Exhibit 8: Cover of The Class of 1992: The Business Principles and Aspirations of the “New Literati” Entrepreneurs

Source: CITIC Press Group

The year 1992 marked a milestone in China’s economic reform. Following Deng Xiaoping’s visit to the South and the 14th Party Congress, the notion of a “socialist market economy” was introduced. After several decades of development, China has created an economic miracle that still surprises the world. This period also gave rise to a group of ambitious and self-driven entrepreneurs, many of whom are commonly known as the “Class of 1992.”

China’s traditional education has upheld the notion of “elites governing the country” and “those who excel in education should serve in government”. However, since 1992, a growing number of elite government officials, intellectuals, and other members have gradually departed from the system, hoping to explore new opportunities in the market.

They are the “New Literati” referred to in the book, who were previously part of the public sector but have now emerged as successful figures in the business world. Prior to reform and opening up in the PRC – and the new opportunities that reform and opening up brought to the Chinese elite – the elite basically had only one (primary) career choice, which was a career in the public sector. With the reform and opening up, the best Chinese had another choice: to become entrepreneurs. Many Chinese would see this phenomenon and would migrate from a “single track” system to a “dual track” system.

As noted by Mr. Chen Hai, when one examines the resilience and vitality of an economy, one needs to find out how entrepreneurs are split.

China’s large-scale organizational capabilities have been a crucial part of the country’s DNA since the formation of the PRC. This allows effective nationwide mobilization of resources, now augmented by modern management approaches and technology.

Traditional Chinese philosophy has also influenced President Xi Jinping, his vision of “Build a Community with a Shared Future for Mankind” draws its origins from ancient China, dating back over 2,000 years ago during the Zhou Dynasty (1046 BCE – 256 BCE) when the Chinese referred to their ideal world as “tianxia” (天下) or “all under heaven”. Professor Zhao Dingyang at the Chinese Academy of Social Sciences conducted extensive research on this concept. Tianxia implies a world system that makes the world a political entity, a coexistent order with the world as an integrated political unit. To understand tianxia is to take the whole world as the unit of thinking to analyze issues, thereby transcending the modern mindset of nation-states. Tianxia is a world system founded on the ontology of coexistence.

To fully understand tianxia, we must examine issues from a global perspective and transcend the limitations of a modern nation-state mindset. Though an ideal, it remains a pillar of Chinese civilization.

At the 20th National Congress of the Communist Party of China in 2022, President Xi Jinping announced that Chinese modernization would be a crucial development concept to promote the rejuvenation of the Chinese nation. This concept encompasses the modernization of “a huge population, common prosperity for all, material and cultural-ethical advancement, harmony between humanity and nature, as well as peaceful development.” Notably, many of the core concepts are propositions derived from Chinese history, culture, and civilization, both traditional and modern.

The notion of “adhering to harmony between humanity and nature” emphasizes a sense of responsibility to form an interconnected community of life for humankind and nature. Humanity must respect, adapt to, and protect the natural world. As a traditional agricultural society, the Chinese have long understood and appreciated the importance of coexisting harmoniously with nature. This profound philosophy of “unity between humanity and nature” was summarized by Wang Yangming in the Ming Dynasty (early 15th century), encapsulating the Chinese perspective on peaceful coexistence with nature. This concept is similar to the notion of “sustainability” in the Western world today.

Exhibit 9: Highlights of Chinese Modernization

Source: Ministry of Foreign Affairs of China, Gao Feng analysis

Despite China’s rich history, culture, and civilization, it is not reasonable to expect that the Chinese people have the solutions to all global challenges. Chinese society has gradually improved as it has experienced a diverse range of events, encompassing both successes and failures, unity and separation, and positive and negative developments.

In times of separation and division, when different powers competed for control, strategic thinking was crucial and required a comprehensive approach. Additionally, promoting an efficient governing structure across a vast territory during times of unity requires strong organizational capabilities and a well-designed governance system. Under such a situation, a mechanism for enabling capable individuals to serve society would be essential.

With its long history and vast territory, China has witnessed frequent military conflicts and power struggles that often led to power transfers between rulers. However, Chinese culture and civilization have always been intact; along the way, they have absorbed many new ideas. Its inclusiveness and diversity have become the key to its effectiveness.

Dynamism Continues

Like any system, China’s development model is subject to economic cycles. Since China’s reform began 40 years ago, its economy has sometimes experienced volatility due to external and internal factors. For instance, inflation hit 24.1% in the 1990s [14], and the 2008 global financial crisis triggered a RMB 4 trillion stimulus package. More recently, COVID-19 led to declines in consumer spending, real estate debt issues, and high unemployment.

Yet despite fluctuations, China has shown remarkable resilience – what New York Times’ Philip P. Pan described as a “Land That Failed to Fail”. Having worked in China for 30 years, I had first-hand experience with this vitality. BCG’s founding partner in China, Bob Ching, noted long ago that China’s “socialist market economy” was not a contradiction but a viable model. Although initially I did not quite understand what he meant, his point drove me to keep observing China’s progress. Over time, and with years of deep business experience, I began to understand what he meant.

No system is perfect, but the ability to self-correct against a set of principles, and a sound underlying structure, has helped China create a development model that can address myriad issues efficiently. This model has helped to generate fast growth, reducing economic and social volatility, and has created an overall and durable resilience.

Despite its overuse, the term “dynamism” more or less captures the essence of the Chinese way. The Chinese way is certainly not perfect but it has successfully driven China’s experiments, economic growth, and development over the last four decades. It is a unique capability that has arisen from the Chinese people’s collective will and strategic goals generated throughout history and complemented by China’s agile mechanisms in the global environment. And it’s worth noting that China did not start with a detailed blueprint. Still, China’s long and extensive history, culture and civilization have created a capacity for multiple streams of thought and a willingness to learn, adapt, and synthesize. The Chinese recognition that the world’s phenomena often consist of two apparently opposite forces, and being able to manage the interacting relationship properly, is often the key to finding a solution. This is what underlies China’s resilience and has been one of the keys to its success.

Epilogue

While writing this article, I was of course closely following the news about China’s current economic challenges including the property market issues and unemployment in the youth sector. Like any large economy, it’s quite natural that China should face such a wide range of problems. In fact, these issues should be expected given China’s size and complexity, and the very complicated and fluid geopolitical and economic situation that China now finds itself in.

There is no doubt that China will need to – and is well-prepared to – address these challenges. Some of them will be resolved rather easily with minor policy adjustments, while others may require deep and extensive changes and reforms. Needless to say, they will take some time.

What I describe in this article are the fundamental reasons how and why China works. Why has China proven time and time again to be so resilient? How has China overcome challenge upon challenge and remained strong, optimistic and open for business? Drawing upon my decades of experience in international business, I answer these complex questions.

Needless to say, there is doubt that China’s current economic challenges will provide yet another opportunity for China to demonstrate its great resilience. And, of course, new and unexpected challenges (and opportunities) will invariably pop up along the way. That’s just life.

My hope in writing this article is that I might provide insights and guidance to leaders of global businesses as they develop their corporate strategies with China playing an essential role. I believe that sharing my knowledge and experience regarding the underlying logic of how and why China works can, in some small way, contribute to the success of all businesses. This is good for China and good for the world.

References

1. 10287.45 kilometers, Urban Rail Transportation Statistics and Analysis Report 2022, Sohu News (2023.04.01).https://www.sohu.com/a/661817139_121123909
2. Recognition ceremony held for national poverty alleviation, Gov.cn (2021.02.05).https://www.gov.cn/xinwen/2021-02/25/content_5588866.htm#1
3.   The China story behind Apple’s $3 trillion valuation with Doug Guthrie, The China Project. https://thechinaproject.com/2022/01/07/the-china-story-behind-apples-3-trillion-valuation-with-doug-guthrie/
4. This industry has reached a value of hundreds of billions. What has Hefei done correctly? STCN (2023.02.21).http://www.stcn.com/article/detail/798940.html
5. How does Lenovo’s premium laptop assembly factory help Hefei’s economy take off, 163.com (2022.07.27).https://m.163.com/dy/article/HD93LDDN0553AZLI.html
6. The finalized RMB 7 billion strategic investment agreement: why NIO relocates its HQ to Hefei, 21st Century Business Herald (2020.04.30).http://www.chinatopbrands.net/s/1450-5731-17124.html
7. VW Anhui aims to keep on investing in Hefei with a total planned investment of RMB 23.1 billion, EVinChina (2023.06.01).http://www.evinchina.com/newsshow-3405.html
8. VCGF: evolution and case study, Zhihu (2023.04.25).https://zhuanlan.zhihu.com/p/624703525
9. Lessons Learned on Government-Market Relationship, CNCnews (2016.08.02).http://theory.people.com.cn/n1/2016/0802/c401815-28604378.html
10. The former PV giant’s chairman during the bankruptcy and restructuring period is behind bars, The Paper (2018.07.10). https://www.thepaper.cn/newsDetail_forward_2251702
11. The dramatic story of Hongxin Semiconductor: a scam against government and banks by shareholders from a shell company, Tencent
12. The Land That Failed to Fail by Philip P. Pan, The New York Times (nytimes.com) (2018.11.18). https://www.nytimes.com/interactive/2018/11/18/world/asia/china-rules.html
13. The Opposable Mind: How Successful Leaders Win Through Integrative Thinking by Roger L. Martin, Harvard Business Review Press (2009.7.13)
14. Historical inflation and outlook, Yingda Securities (2021.05.11).https://pdf.dfcfw.com/pdf/H3_AP202105121491224021_1.pdf?1620815825000.pdf

Opinion: Data Security Becomes a Core Issue for Doing Business in China

By Edward Tse

2021-11-03

Originally published by Caixin Global on November 3, 2021.

As many people know, China is now a major digital economy. By the end of 2020, almost a billion people had access to the internet in China. WeChat, China’s largest social media platform, surpassed 1.2 billion monthly active users in 2020, and Douyin, the Chinese twin of TikTok, now has over 600 million daily active users.

Meanwhile, over 700 million monthly users now visit e-commerce platform Pinduoduo. Alibaba-affiliated Alipay and Tencent’s WeChat Pay — the domestic e-payments giants that pioneered new payment technologies using QR codes — currently process about 95% of the digital payments market in China.

Data is being generated in China at a whirlwind pace. According to the China Academy of Information and Communications Technology, the total amount of data generated in the country went up from 2.3 zettabytes in 2017 to 3.9 zettabytes in 2019, and it is continuing to grow.

Back in 2015, Jack Ma, co-founder and then-executive chairman of Alibaba proclaimed: “We are entering a new energy era. In this era, the core resource is no longer oil, but data.” Since the wireless internet was first introduced in China, entrepreneurs have been quick to leverage it to build business models that rest on the gathering and usage of data. To this end, quite a number of successful tech platforms have emerged. Some like Alibaba Group Holding Ltd., Tencent Holding Ltd. and Bytedance Inc. have made it to the big league on a global basis.

These companies typically build their business models on a number of pillars enabled by data. The first is their ubiquity in connecting to their users through vast amounts of data. Apps such as the ones mentioned above have very large numbers of frequent users. Second is their ability to focus on each user on the data set on a “segment-of-one” basis using their algorithms. Many of these companies were able to expand very fast mainly because China didn’t have many regulations on data gathering and usage. The ingenuity of the entrepreneurs coupled with the prevalence of pain points in Chinese society allowed many of these companies to grow. Some of them were able to become “exponential organizations.”

Over time, issues related to data security began to surface in several areas. One typical question regulators and companies are asking is related to the ownership of the data. Usually, there are multiple stakeholders involved in the data value cycle, all of which might attempt to claim ownership of the data because, for instance, they created or generated data, or because they use, compile, select, structure, re-format, enrich, analyze, purchase, or add value to the data.

The second is data privacy. Keeping private data and sensitive information safe is paramount. But it is difficult to identify what data is considered private, what data can be shared and what data cannot be shared. And the third is data monopoly. Internet companies possess the personal data of millions of users, but to what extent they can actually manipulate the data by using sophisticated algorithms for their benefit is still a grey area.

Along the way, several events have exemplified the severity of these issues. In August 2020, the China Banking and Insurance Regulatory Commission (CBIRC) fined two of the country’s biggest state-owned banks, China Merchants Bank Co. Ltd. and Bank of Communications Co. Ltd., for failing to protect the personal data of their credit card customers. In order to prevent risks regarding national data security, China’s internet regulator has also ordered Didi Chuxing Technology Co. Ltd., a leading ride-hailing company in China, to stop signing up new users. Didi’s apps were forced off major app stores for two days after its IPO in July 2021. With China’s continuing cybersecurity reviews, rules for overseas listings have been tightened, and companies like the ones behind Keep, a Chinese sports-oriented social platform, and Ximalaya FM, the largest podcast platform in China, have recently canceled plans for U.S. IPOs.

Three major pieces of legislation in China have set the cornerstones for addressing issues related to data security. In June 2017, China implemented the Cybersecurity Law (CSL), which acts as the baseline for maintaining network security. The law requires that data be stored within China and that organizations and network operators submit to government-conducted security checks. In order to further protect national data security and the public interest, the Data Security Law (DSL), which took effect on Sept. 1, requires all companies in China to classify the data they handle into different categories and prescribes how such data is to be stored and transferred to other parties. On Aug. 20, China also passed the Personal Information Protection Law (PIPL), which took effect on Nov. 1. This new law imposes restraints on data collection and the transfer of personal information, and has an extraterritorial effect for companies both inside and outside of China. Once effective, the PIPL will work together with the CSL and the DSL to establish a broader regulatory architecture governing cybersecurity and data privacy protection in China.

Against this backdrop, companies are concerned about a number of key questions. Foreign-owned multinational corporations (MNC) are concerned about how to manage data across different regions, both in their home countries and in China, as well as cross-border data transfers, in compliance with the new data laws. For domestic companies planning to list overseas, strategic plans need to be put in place to comply with data security regulations. Both need to figure out how to use data to generate competitive advantages while staying away from the “red lines.”

These regulations are driving MNCs to set up research and development or innovation centers at their headquarters, increasingly in China. For MNCs, the way to operate in China has evolved quite a bit, particularly since global geopolitics started to undergo a significant shift. Data security has become a key issue that they are often not well prepared for. China has become not only a market or supply chain hub, but also a source of knowledge and inspiration because of intensive innovation. A key enabler of this is the increasing divergence in the speed, intensity and degree of sophistication of the digital infrastructure that China is building compared with other parts of the world.

Looking from a strategic standpoint, what could happen in the next few years? The big questions are where the data should be stored and secured, and where and with whom can they be shared with for the benefit of the company? Where do you draw the line? The DSL and PIPL will change how companies think about running a business in China. A lot of changes for management systems and processes as well as organizational structure will likely take place.

Looking forward, humanity expects to be even more connected. At the same time, local requirements for data sovereignty will also come to the fore. Business models will become more complicated. Those who can figure out the new game faster and better than others will likely generate new sources of competitive advantages along the way. These realities are challenging the minds of corporate executives and strategists the world over.

By Edward Tse

2021-9-7

A recent article authored by Gao Feng Advisory CEO Dr. Edward Tse was published by Caixin Global on September 7.

On August 17, 2021, President Xi Jinping explained the concept of “common prosperity” at the Central Finance Committee Meeting. He said, “common prosperity is a key requirement of socialism and a major feature of Chinese-style modernization.”

This is a clear signal that policies are in for a sea of changes, from reforming income distribution and providing more equal opportunities in education, healthcare, pension and housing to addressing monopolistic behaviors and extending boundaries of prosperity from material needs to spiritual satisfaction. The immediate focus might be put on reducing income inequality through the so-called “primary, secondary and tertiary wealth distribution.”

Many have commented on the implications of the new policy, especially for new areas of investment.

A report by China Securities says new investment opportunities will emerge in the following areas:

1) More resources for infrastructure building and upgrading in underdeveloped areas, with focus on hardware and software for the digital economy;

2) Enhanced growth opportunities for manufacturing and disruptive small and midsize enterprises in information technology, new energy and biomedical industries;

3) Better education, medical and elderly care services;

4) Expansion of channels for citizens to earn higher incomes, including “tertiary distribution” of wealth, promotion of charity foundations, and more long-term wealth management methods. This means additional capital flows into the securities market benefitting brokerages and insurance sectors;

5) Consumption upgrade to enhance growth opportunities in consumer goods, as well as services such as cultural, media, sports and entertainment.

The new policy will obviously change the operating environment, requiring local and foreign companies to evaluate if and how they should develop new strategies to address these changes.

The key objective of common prosperity is to reshape the societal structure from a pyramid-shaped structure to an oval-shaped one with the widest part representing the middle class. It also means that average income should continue to increase. One can expect continued growth in demand for a wide range of products and services leading to better healthcare and an improved lifestyle.

The importance of collective interests will heighten, though it may not outweigh legitimate individual interests. So, while companies will continue to pursue individual interests, they will have to be mindful of the redrawn “red lines” that will define excessive monopolistic market behavior, violation of data security law, distortion of certain societal values, a more balanced developmental environment for the younger generation, fulfillment of basic welfare for employees, and the like.

The pursuit of common prosperity means that at the most fundamental level, all businesses would be expected to take better care of their employees, with more benefits and more reasonable working hours. To this end, automaker Geely has already proposed a program to offer 350 million new shares (3.56% of total equity) to employees.

Societal impact and contributions will have to be increasingly important considerations for companies. “ESG” (environment, society and governance) and corporate social responsibilities will have to be assigned greater importance by companies and investors.

Focus of growth will also shift. While the consumer internet (and the mega-platforms) has generated much buzz in China over the last decade, focus will likely shift to areas such as “hard tech,” manufacturing, life sciences, new energy, environment, sustainability, industrial internet, agriculture and others. Also, services for the burgeoning middle class will become more prevalent. More innovations can be expected in these areas in due course.

Additionally, the practice of some internet companies using sophisticated algorithms to track individuals ubiquitously will be subject to restraints, at least to ensure it isn’t blatant. Fulfilling the new data security law will be essential going forward.

The common prosperity policy must be viewed as part and parcel of other key policy initiatives including pursuing “dual circulation” economic policy, targeting technological self-sufficiency, adopting the dual approach of building major regional city clusters while revitalizing rural areas, launching central bank digital currency, achieving carbon neutrality by 2060 and others. Together, they form China’s pursuit of its own “modernity with Chinese characteristics.”

In this vein, companies across many sectors will need to address some fundamental questions. For instance, global manufacturing companies need to decide how much of their manufacturing and supply chain they should shift into, or out of, China. To what extent should China remain the hub of their supply chains? Industries such as the semiconductor industry are being disrupted by changing geopolitics and individual country policies, and need to decide how to reposition themselves in the new global industrial structure. Foreign companies that generate and capture data in China must find ways to satisfy China’s data security law while also meeting their home country’s data security requirements.

More profoundly, the fundamental nature of some of the businesses will change to some extent. As smart cities which serve the public agenda come up all over China, business models of a range of industries will need to integrate significantly with public infrastructure. In these cases, private sector businesses will no longer be able to define strategic and operational parameters simply by themselves. Close coordination and collaboration with the public sector will become necessary. Sectors such as intelligent and connected vehicles, mobility-as-a-service, digital health, smart energy and modern agriculture are areas that come to mind.

We will likely see more new ventures take the form of public-private partnerships (PPP) and new ecosystems of government, state-owned enterprises and private sector companies will be formed. Companies will have to critically examine the continued vitality of their partnerships in China.

China’s pursuit of common prosperity is a huge social undertaking and this will be a game changer in many ways. When done right, it will mean setting a foundation for more balanced and sustainable growth over time, and creating change that may have major impact on the rest of the world. It will have implications for all kinds of businesses operating in China. At the minimum, companies will need to comply with new policies and regulations. At the maximum, even the fundamental nature of some businesses will be re-defined. As such, companies need to fundamentally re-think their strategies, and for those who have global presence, this may have severe implications for their operations in the rest of the world, too.

By Edward Tse

2021-8-24

On August 24, a recent article authored by Dr. Tse was published on Dialogue Review, a leading publication associated with Duke Executive Education, USA.

Few countries demand the attention of global companies’ senior executives quite like China. Its market size, its continued growth and its importance to global supply chains make it hard to ignore. Its GDP growth of 2.3% in 2020 (as reported by the International Monetary Fund, April 2021) indicates a strong post-pandemic recovery – a performance which is all the more remarkable when compared with the negative growth experienced by the rest of the world in 2020. In the first quarter of 2021, China’s GDP grew by a record 18.3% in comparison to the same period the year before.

China has come a long way since the start of its reform and ‘opening up’ policies some four decades ago; in fact, its GDP has grown over 200 times across this period. It is set to overtake the US as the largest economy in the world before the end of this decade. Despite this, many people over the years have cast doubts on whether China’s growth is sustainable. Perhaps the most quoted narrative has been that of a 2001 book, The Coming Collapse of China, which predicted that China would collapse in the “near future.”

Yet China has delivered continued economic growth without showing any signs of imminent collapse, despite a rather challenging geopolitical environment and a pandemic. Why has this been possible? The answer lies in a three-layered system of economic development which has guided government and enterprise over many years. It’s time for global businesses to truly understand why China works – and to assess how geopolitical developments may shape its future role in the global economy.

China’s development approach

After a rather tumultuous first three decades, the People’s Republic of China (PRC) began its reform under Deng Xiaoping at the end of the 1970s. While retaining key aspects of the state planning system, Deng began to experiment with elements of a market economy to create “capitalism with Chinese characteristics”. This included allowing the return of entrepreneurship, which has become a key component of China’s economy and the most important source of commercially applied innovation. The central government continues to play a significant role in steering the economy and helping the country to develop at a sustainable pace, but China is no longer just a state economy: the private sector has become increasingly significant.

That is especially true in today’s digital economy. For instance, the government has allowed two private companies – Tencent and Alibaba – to create and dominate the country’s online payment system. China’s third-party payment transactions have reached ¥280 trillion (about US$44 trillion), of which over 80% are paid through Alipay and Tenpay. It is an example of the central government’s willingness to coordinate with private businesses to put much-needed innovations to work for the country. Collaboration with private enterprises will continue to be essential as the government prepares to launch its central bank digital currency (CBDC).

Local governments also play an important role in the Chinese system. They often function as a bridge between central government and entrepreneurs: they frequently provide funding for businesses, and select strategic positions commensurate with the directions set by the central government. Many have built their digital and smart infrastructure to support ‘smart cities’ initiatives driven by the central government.

The interaction of central government, local governments and the private sector amounts to a three-layered model for China’s economic development

In addition to this three-layered structure, China has a unique dual economic structure, comprising state-owned enterprises (SOEs) and privately-owned enterprises (POEs). While there are sometimes conflicts between companies from these two sectors, they also co-exist in symbiotic relationships, with SOEs providing public goods, such as infrastructure and environment-improvement measures. A good example is the development of the world’s most extensive high-speed railway network, built from practically nothing, in just over a decade. Such achievements are possible because these enterprises do not evaluate mission-critical infrastructure projects only on narrow economic viability. Both Chinese people and businesses, including foreign companies, benefit from such infrastructure.

We call this system a ‘three-layered duality’. It is an approach which requires constant juggling of various components to make it work. It is experimental by nature and therefore requires a strong degree of overall orchestration, plus shared vision and values from those who participate. As a result, it has an innate ability to self-adjust over time – as seen in the emergence of China’s innovative private sector.

Key achievements

China has developed a strong reputation for innovation. Broadly speaking, there are two strands of innovation. One is technological innovation which is primarily driven by the government. This includes programmes such as space missions (including lunar and Mars probes), deep sea exploration, developments in quantum computing and many others. The other strand is tech-enabled innovation in commercial applications. Prime examples are found in e-commerce, online payment and smart logistics, as well as in the automotive and mobility sectors. Private businesses play a major role in this sort of innovation, often in collaboration with local governments.

The three-layered interplay between central and local governments and both SOEs and POEs is evident in many fields. For instance, with the US government’s sanctions on high-end semiconductor chips hitting Chinese manufacturers, China has launched a major initiative to develop self-sufficiency in high-end chip supplies. The central government, many local governments, and various SOEs and POEs are involved in various ventures aiming at creating breakthroughs.

The Covid-19 response provided another very visible example. During the lockdown of Wuhan city in early 2020, two emergency hospitals were built in as little as ten days. China was able to achieve this because as soon as the central and local governments decided that the hospitals were necessary, a large number of SOEs – together with POEs and even foreign companies – quickly collaborated. The commitment to a common goal and sharing of a vision were key motivators. To simply equate this with a simplistic ‘authoritarian’ narrative does not assign enough credit to all those who participated.

This is sometimes termed a ‘whole-of-nation approach’ – one that can mobilize resources across the entire country against a certain objective and purpose. It is based on a pragmatic balance between a sense of collective responsibility and individualism by all involved. It is a balance that has driven the unprecedented intensity and pace of China’s innovation and development, as well as its resilience. Small wonder, perhaps, that a recent survey carried out by Canada’s York University found an overwhelming 98% of Chinese citizens indicated that their trust in the national government had increased since the pandemic. The notion of the “coming collapse of China” has little chance of materializing any time soon.

Global businesses in China

Global businesses who have operated in China for some time may understand the reasons for the country’s success, although many multinationals are yet to fully grasp the impact of Chinese innovation. Some, though, are beginning to recognize what they can learn from China. One large US client told me their board of directors instructed the China team to think about how to leverage Chinese knowledge to help businesses in other parts of the world. BMW has taken its Munich-based Startup Garage programme to China to gain exposure to innovative new technologies, while Herbert Diess, chairman and chief executive of Volkswagen, said at the 2021 Davos online summit that China was “moving in the right direction” – with it now being easier for foreign multinationals to invest in China than for Chinese businesses to invest in countries such as Germany.

As Diess also noted, there is a strong relationship of dependency: “they are depending on the West, we are depending on China”. Indeed, China’s role in the world is becoming ever more important. Its internally driven development approach is moving the country towards a new era of high-quality growth that will be epitomized by more innovation and greater sustainability. However, the external environment is becoming more complicated – and it doesn’t look like this will get better anytime soon.

Three geopolitical scenarios

In determining their strategic approach to China, global companies must evaluate how the evolution of geopolitics could affect their positions. As a global power, China’s relationship with many parts of the world will be critical in the years ahead – but its most important geopolitical relationship is likely to remain that with the US.

We believe there are three potential scenarios related to geopolitics and macroeconomics which will affect global businesses, especially US businesses. The first is ‘regionalized isolation’. In this scenario, Chinese companies will be forced out of the US market, with the Chinese government retaliating by virtually blocking US investment in China. The Chinese tech industry becomes self-sufficient and there is a widespread economic decoupling, with Chinese consumers becoming increasingly hostile towards US brands, shifting instead to local products.

The second scenario is ‘one world, two systems’. The US and China will remain geopolitical rivals with occasional flare-ups on specific issues, but will find agreement on common interests. Intense competition in high-tech areas will continue, though stakeholders will learn to solve disputes through dialogue. Export controls and other policy measures, as well as differences in the sophistication of digital infrastructure, will see China and the US evolve into two distinct tech systems. China will expand market access to foreign firms, but with stringent data and security policies. As intelligence and connectivity become increasingly embedded in Chinese society, consumers will gravitate towards brands that can give them the desired digital experiences, tailored to local tastes, regardless of origin.

The third scenario is one of ‘co-opetition’. The US and China remain geopolitical rivals while collaborating in certain areas of global governance. They both compete and collaborate in high-tech areas. As it grows, China will increase market access for foreign players, while exercising data sovereignty based on recognized principles of global data governance. Again, consumers seek out the brands that can tailor experiences to local tastes, irrespective of origin. In this scenario, companies’ products, services and business models have a better chance of transcending national borders – perhaps with the exception of core technology concerns.

We don’t believe a complete decoupling is likely or even possible. The ‘one world, two systems’ scenario will probably manifest under some specific conditions, while the third scenario of ‘co-opetition’ is probably more likely over the medium term – perhaps with more competition initially, moving towards greater collaboration over time.

Engaging with China

Today, a global company’s China strategy is largely dependent on which of these geopolitical and macroeconomic scenarios it expects to pan out. China’s importance to global companies’ finances and competitive positioning will become more critical going forward, despite the uncertain US-China relationship.

However the geopolitical context develops, China will continue to generate much of its own economic momentum. Its unique and still-evolving three-layered duality development framework – the whole-of-nation approach – will provide it with significant resilience. The country should be able to continue to make major progress.

Making the right bets now on how the world will look in the coming years, and what to do in China, will define the long-term competitiveness of many companies around the world – perhaps even their survival.

China’s Overhaul of Regulations in Private Education Part of Strategy

By Edward Tse

2021-7-30

A recent article authored by Dr. Tse was published by CGTN on July 30, 2021.

Editor’s note: Edward Tse is the founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. The article reflects the author’s opinions and not necessarily the views of CGTN.

The recent overhaul of the regulations governing private education sector by the Chinese government has come as a surprise to many. Under the “Double Reduction” policy announced on July 24, the burden of homework and after-school excessive study hours is to be reduced.

The new regulations prohibit private education firms from offering for-profit tutoring in core school subjects on recess time. Private education firms are also not allowed to raise capital and get listed.

Online or in-person classes in core subjects to children under the age of six is also prohibited because children are increasingly pushed to start cramming for exams at a very young age.

After announcement of the new regulations, share prices of all Chinese private education companies fell within a matter of days, listed in the U.S., Chinese mainland and the Hong Kong Special Administrative Region.

China’s education industry sub-index dropped as much as 14 percent on July 26. Hong Kong-listed education companies, including New Oriental Education and Technology and Scholar Education Group fell by 40.6 percent and 28.5 percent respectively, along with the U.S.-listed companies Gaotu Techedu and TAL Education Group, both of which plunged by about 50 percent at the end of the day.

The new regulations for the education sector came soon after Chinese regulators took major actions scrutinizing Didi Chuxing, the leading ride hailing company which had recently listed in New York City for data security issues.

At around the same time, regulators banned the proposed merger between two leading games companies, one of which is owned by internet giant Tencent, because of anti-monopoly concerns. Food delivery app Meituan has been asked to pay the required benefits to its delivery people.

Earlier, Chinese regulators also put a stop to Ant Group’s IPO due to concerns on its business model, while Alibaba, Meituan and retailer Suning were all fined for anti-competition behavior.

In addition, the Chinese government has taken a number of other steps along the way. These cover areas such as relaxation of the hukou system (a household registration system), eradication of poverty, easing of child birth restriction policy, and increasing access for foreign companies’ participation in the Chinese market especially for the financial services sector.

The overhaul of the private education sector is believed to be a key step towards reducing the workload for students and also a way to reduce the costs of bringing up children in China.

One key reason why Chinese couples are reluctant to have more children is the exorbitant costs of bringing up children. This in turn has contributed to the skew of China’s demographic profile over time.

So what do these policy measures really mean? And how should investors, both foreign and local, and other observers interpret these policy adjustments? Is this series of policy changes an outlier event or does it indicate something more significant?

On top of these significant policy measures, the Chinese government has also announced its 14th Five-Year Plan in which technological innovation is the key area of focus. While technological innovation has been at the core of China’s development for the last decade and more, the need for it has been exacerbated by the U.S. government’s sanctions on transfer of core technology to China.

On top, the U.S.-China trade war and pandemic outbreak required China to take decisive decisions in addressing these challenges. China’s experience henceforth has increased the confidence in its own governance.

These are being undertaken while China searches for its own brand of modernity. In the centenary speech on July 1, Chinese President Xi Jinping mentioned nine times that ” … put conscious effort into learning from history, to create a bright future.” This epitomizes how China is searching for its own brand of modernity for which the “whole nation system” is deployed.

When thinking of the future, China often reflects at its rich past. In parallel to respecting and following traditional ways, China is open to imported ideas like Marxism as well as a reasonable degree of capitalism.

It adheres to the principles of socialism, but also embraces the dynamism of a market economy. Focusing on the “great rejuvenation of the Chinese nation,” its leader also advocates “a community with a shared future for humankind.”

The absorption of foreign thoughts into multiple strands of traditional Chinese thinking such as Buddhism, Confucianism, the long held belief of “yin and yang” into taoism, combined with the “oneness” in Chinese culture, has shaped Chinese civilization for thousands of years. The modern China has somehow created an approach that effectively addresses the multiple dimensions encountered in the search for its own brand of modernity.

This context reassures that China will continue to navigate its way forward in an inclusive manner and grow socially, economically and politically, frequently experimenting with its unique approaches.

In the context of improving the well-being of Chinese people and playing a larger role in advancing overall well-being to the entire world, China’s leaders take decisive actions on issues that matter.

While investors of the affected companies may not like these moves, the general public in China, as the beneficiary, are in general supportive. In the search for its envisioned modernity, the Chinese government is trying to promote collective interests while continuing to allow individual’s pursuit of financial well-being. The Chinese is calling this a pursuit of “common prosperity.”

At this heart of it is an institutional approach to reduction of costs of living for the country’s people, including those of giving birth, nurturing children, education and housing.

These corrective measures are expected to put future growth on a sound footing. Going forward, opportunities will come from areas such as hard tech, manufacturing, life sciences, new energy, environmental sustainability agriculture and the like.

Moreover, a large number of start-ups will emerge in these areas and many investors will benefit. But going forward, picking the right lane to invest will be the key. From the investment standpoint, this short-term turbulence redefines the foundation for longer term growth.

As China continues to search for its own brand of modernity with Chinese characteristics, the rest of the world will increasingly get to know of the impact of what China does. People need to deepening the understanding of what China’s approach is, and how it works for the world.