Copying the growth model set by Taiwanese electronics manufacturers, China’s Luxshare Precision Industry has become the first Chinese company to make iPhones for Apple by acquiring a China-based iPhone plant from Taiwanese supplier Wistron. In so doing, it has broken a monopoly long held by Taiwanese-owned companies.
The background to this involves Apple’s plan to cultivate Chinese suppliers, to undercut Taiwanese suppliers’ price offers and prepare for the decoupling of the US and Chinese economies. Apple’s strategy is to split its supply lines by creating a localized production line to serve the Chinese market.
The Chinese government is speeding up its development of autonomous production by providing a wide range of measures, such as cheap land, factory-building subsidies and export incentives, to help Chinese suppliers keep their production costs low and beat the prices offered by Taiwanese suppliers.
Taiwanese-owned companies are thus caught in a pincer attack from major upstream customers and Chinese competitors.
In his 2012 book No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism, former Wall Street Journal Beijing bureau chief James McGregor compared the state-owned enterprises (SOEs) operating under China’s authoritarian capitalist system to the eldest sons in traditional families, calling them the “eldest sons of the republic” because of the plentiful resources and advantages they enjoy.
With their unfair competitive advantage arising from intertwined political and economic factors, these SOEs have grown into giant corporations cultivated by the Chinese Communist Party (CCP).
Major SOEs, such as the China Communications Construction Co and China Railway Construction Corp, which call themselves “national business cards,” act as the vanguard of China’s economic colonialist Belt and Road Initiative by building railways, roads and seaports in many developing countries.
The Chinese government has pushed the SOEs’ advantages even further by using subsidy policies to energetically cultivate technological industries, while local governments compete with one another to provide still more investment.
This has driven the growth of excess productive capacity, leading to serious imbalances between market supply and demand. These policies have cultivated a crowd of price predators and caused outstanding newly emerged enterprises with bright prospects ahead of them to nosedive under the burden of huge debts. Many Taiwanese manufacturers have suffered such a fate.
The three Chinese Internet giants Baidu, Alibaba and Tencent — known collectively as BAT — are clear-cut examples of “winners defined and picked by the state.” By means of non-tariff trade barriers, the state has kept multinational rivals, such as Google and Facebook, out of China, while BAT depend on government protection to expand their territories.
Tech companies such as these have joined hands with Beijing to become links in the “social credit” system the state uses to maintain stability, to which they contribute by collecting surveillance data.
Fortune magazine’s recently published Global 500 list of companies for the first time includes more Chinese firms than US ones. Among the 124 Chinese corporations listed, 80 of them are state-owned. They are headed by centrally managed enterprises whose company titles generally start with the words “China” or “national.”
Then there are numerous SOE affiliates in which local governments hold a controlling interest.
Also on the list are some newly emerged tech giants that have the communist party DNA, showing how the “red-blooded” corporate kingdom is branching out in all directions.
The ongoing trend for private companies to retreat as state-owned corporations advance is boosting the Chinese state’s overall controlling power.
Luxshare, in which the state has been gaining more and more of a controlling stake, is the latest member of the CCP’s capitalist empire.
Previously, Taiwanese-owned suppliers competed and cooperated with the “red supply chain.”
However, as their Chinese competitors advance, the Taiwanese companies’ transitional value in terms of creating employment and driving exports has greatly diminished. They find themselves hemmed in and battered by a US-China trade dispute.
In contrast to the “elder sons,” Taiwanese entrepreneurs in China are finally realizing they do not even have the status of concubines’ children. Indeed, China has never counted them as family members.
Chen Yung-chang is a manager of a private company.
Translated by Julian Clegg
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