The US Should Consider China’s Economic Model

There is something to be said about the way China’s government runs its country economically. With dedicated government committees assigned for investing in optimizing and comprehensively connecting local supply chains, as well as expanding production capacity for segments like the panel industry, not to mention unprecedented investments in recruiting the best IT talent from all over the world, China has made it a point to dictate the way its free market works. And what has the end results led to? The nation is now leading the world in most divisions ranging from 3D printing output to LED production to pretty much everything the world economy either relies on or wants to compete against.

 

China saw long ago that there needed to be a precise strategy in leadings its sectors to compete against the rest of the world. Rather than leaving industries to compete solely on their own in the free market, China took another step and produced incentives economically for certain industries to grow and flourish. Ranging from active investments, subsidies, policies geared toward dropping tariffs on certain goods while rising them in other sectors to compete against outside influence, such moves have dictated the way the free market has succeeded and has also shaped the way industries continue to grow.

 

The panel industry is but one, yet extremely important factor when it comes to such methods. Since 2010 the China government has issued more than US$30 billion in subsidies as well as government backed funding to help local makers expand capacity, build new facilities and invest in new talent in order to meet growing demand for supply in the local economy. Not only did this create jobs for construction workers and employ thousands of more employees, it also sank competition from abroad, as Chinese supply chains no longer need to rely on supply from Korea, Japan and Taiwan like they did in the past.

 

Such outside panel makers have been fretting as to how they can readjust their business models and compete. The reality is that many makers are closing shop and at the very best are resulting to very niche based products with higher profits while accepting major revenue declines. This example is happening in China within every sector imaginable, including chips, LEDs and packaging. For every product needed the nation can simply return to local makers and have quicker turn around times and cheaper pricing as well as a result of this trend. The end result is increased profits for China vendors and supply chains, faster products to the market and quite frankly domination in the supply chain segment.

 

This active approach was taken by Taiwan in the 1980s into the 1990s and helped Taiwan become the major manufacturing hub throughout the time period. However as the government backed down on investments as it saw its local industries rising it did so perhaps too soon. Throughout most of the 2000s there has been very little government support for cultivating industries through direct investments and local makers have seen their business models decline, which has only amplified with China’s rise.

 

The US and other western nations are shooting themselves in the foot by not following similar models. This so-called socialist model is not a dictatorship that controls what the free market does; rather, it helps protect the free market and cultivate it in China so that it can continue succeeding. Industries constantly rise and fall no doubt but an active government approach dedicated with the best business personnel and planners for helping industries survive has proven extremely efficient in China. The US arguably takes this position in many ways by offering tax incentives but the approach is always passive. There is a fear that if the government has any say in a local industry that the free market will simply not be free at all, and under those so-called scary confines of a “Communist” government in China. The reality is that this couldn’t be any farther from the truth.

 

Billions upon billions of dollars are being spent to make sure China is on top of technology and production rather than leaving the companies up to deciding it themselves. At some point the US needs to consider what its economic policies reflect and whether in can incorporate similar measures. The foundation upon which industries flourish are now being dictated by strong government support in a direct investment way while the notion that local free markets and businesses will thrive without help is simply an antiquated ideology. The method may not be the number one choice for Americans but it is one being adopted by other countries that are showing strong signs of growth, such as the case in China.