Policies

Policy aid spurs excellence in China's private sector

2020-8-31 14:28:43

Economists still debate about the factors behind China's unmatched economic growth over the last 40-plus years. My view is that the key factors have been a very hardworking and entrepreneurial people combined with government policies, especially targeted market-based reforms, that improve efficiency.

Large investments in infrastructure and education plus high savings rates that allowed capital accumulation were also important factors.

Along with a group of China Daily reporters, I recently had the opportunity to visit businesses in areas around Huzhou, Zhejiang province. The city is on the south shore of Taihu Lake, about an hour's drive from Hangzhou, the provincial capital. Even in a relatively small city in the Yangtze River Delta, the dynamism of China's real entrepreneurial economy is amazing. Factories are seemingly everywhere, the infrastructure is excellent, and the cities look new, high-tech and shining clean.

During his Aug 18-21 inspection tour of the flood-hit Anhui province, President Xi Jinping said the Yangtze River Delta region needs to "make faster progress in developing the region to a new height of reform and opening-up. Efforts should be made to improve the business environment in line with world-class standards and attract talent and enterprises from home and abroad with a development environment which has a high level of openness, services, innovation and efficiency".

Conversations with businesspersons in Huzhou convinced me that the Yangtze River Delta region is well along the path toward becoming a very advanced, world-class business and manufacturing center. The leaders of the companies we visited said that short-term government policies have helped them weather the COVID-19 crisis. Longer-term policies created a good business environment, excellent infrastructure and industrial clusters of producers and suppliers. The business leaders also believed that the large domestic consumer base, made possible by decades of economic upgrading and rising wages, is transforming their companies.

A key lesson from our discussions with Pu Xinquan, president of Jintongwang Dress Company, maker of K-Boy and K-Girl brand children's clothing, is that the domestic market is so large that he sees no need to export. He said that some companies made easy money from exports since they did not have to worry about design or marketing, but his company has always concentrated on the "blue sky" domestic market.

The company makes it a principle to spend a lot on research and development, not cutting that budget even during the pandemic, because it recognizes the need to rapidly adapt to customers' needs and to provide higher value-added products.

Pu said that the company had difficulty during the early part of the COVID-19 pandemic. During February and March, the company had to pay employees even though the stores were closed. However, sales started to recover from April. He said that the support of local government policies was critical to the company during the pandemic. "The government has done a lot, now it is up to us."

Jintongwang is also investing in robotics in specialized processes, such as making pockets where it makes sense, and is also using the Toyota Production System to achieve continuous improvements in productivity.

Shen Xinhua, general manager of DTIOT fiber optic cable factory in Nanxun district of Huzhou, also said that his company relies mainly on the domestic market. In the Chinese market, it competes on an equal footing with lots of international competitors and has to compete on cost in commodity-like markets.

The company spends heavily on R&D to develop specialized products with higher profit margins. Shen sees future infrastructure programs, such as 5G and smart cities, as key to the company's future.

He pointed out that the fiber optic cable market is highly integrated internationally, with supply chains so complex that it is hard to say that a company is purely Chinese or purely foreign.

He said that DTIOT does rely on the United States for some key raw materials, such as helium, but they are developing replacement materials to try to reduce their dependence on US suppliers. "We hope in the future we can completely shut off our reliance on the US and are concentrating on developing our own patents," he said.

Three more high-tech firms illustrate the viability of high value-added companies in the Yangtze River Delta, even away from the major cities.

Zhang Yang, president and founder of Zhejiang Zhengxi Biopharmaceuticals Company in Deqing, returned to his home province after a highly specialized education in the US－including a PhD in immunology from the University of California, San Francisco, and an MBA from Yale. The company produces products used in diagnostic testing in hospitals. Zhang said that support from the local government, such as tax policies and the creation of industrial parks, has been essential to his company. Also, the local area has concentrated on providing technical education, so he is able to find qualified workers.

Zhejiang TopRS Technology Company, the only State-owned company we visited, produces highly detailed aerial and satellite-based maps that are used in agriculture, ecological protection, and urban planning. The company employs many skilled young people, mostly locally educated, who have developed the specialized skills needed in the industry.

Zhejiang Jiuli High-Tech Metals Company, in the Wuxing district of Huzhou, produces specialized stainless steel pipes, enameled wire, steel structures and industrial parts, mostly for the energy industry. Its major customers are the large Chinese energy companies China National Petroleum Corp and Sinopec, along with international oil companies such as ExxonMobil, BP, Total, Shell, and Saudi Aramco. Like other companies in the region, Jiuli is concentrating on R&D needed to move to high-end products and uses the Toyota Production System to push continuous innovation and productivity improvements.

So, what lessons were learned from the companies in Huzhou?

First, there are many dynamic private companies in the region pushing the region into higher value-added production.

Second, support policies and a good business environment developed both by the central government and local governments are instrumental in allowing these companies to develop and prosper.

Third, most of the companies depend primarily on the domestic sales. However, they are immersed in international supply chains while working to reduce dependence on suppliers subject to sanctions or trade barriers.

Finally, all these companies are part of wider industrial clusters that depend on excellent infrastructure and education systems.