China is already a giant.
This country is the largest trading power in the world
They lead the world with hundreds of products and have one of the largest foreign currency
reserves on the entire planet.
Not even the “petromonachies” in the Persian Gulf can compete with this giant.
And with all of this, it isn't surprising to find some analysts who state that China
will pass the United States as the leading economic power…
But with a lot more inhabitants!
However, we usually forget a very important thing, and this is that GDP is not everything,
and economic power, the real power, is closely related to corporate power and, when it comes
to that, China is still far from reaching the level of the United States.
If we look at the top 100 largest companies in the world, 56 are American, and only 11
are Chinese.
And this is something to really bear in mind because multinationals are in control of foreign
investment and of 80% of the world’s exports.
Now, the big question is what is going to happen to these Chinese companies in the future?
How are things changing?
And what can we expect?
These are some of the questions we are going to answer in today’s video!
The Chinese Giant’s Development
The Chinese economy has had an impressive growth rate in the last three decades, and
the key was the concept of: “The World’s Factory”.
That is what China is known for.
They are known as a country that has become a world power and has lifted hundreds of thousands
people from poverty with a relatively simple premise: producing everything, and produce
it at a low cost.
Toys, electronics, tools, clothing…
when you enter a store you are going to find hundreds of products with something in common:
they are all manufactured in massive industrial areas located all over China.
However, in order for a country to really be the leading economic power, these companies
need to start producing much more complex products, and they will have to stop competing
on cost and start looking for higher added value.
This can include the production of things like capital assets, planes, medical devices,
and computer processors.
And today, all these sectors are dominated by the large multinationals of the United
States, South Korea, Europe, and Japan.
It is true, that many leading products are manufactured in China, like the iPhone for
example, but… this is not exactly true, because what China actually does is just the
assembly.
What this means is that the more complex parts are bought from other countries and then they
are simply put together in China.
To better illustrate this consider that:
Each year, China imports more than 200 billion dollars in semiconductors, which are essential
in the manufacturing of mobile devices.
Just as a comparison, that is more money than what the country spends on petrol!
However, Chinese companies have made many advances…
Today, a fourth of all exports are of capital assets, such as machines, for example, or
high tech products.
In some sectors like telecommunications, wind turbines, or high speed trains, Chinese companies
are the world leaders.
And it is not just that, Chinese companies are learning how to make it in the international
market.
The Great Chinese Conquest
2016 was the 40th anniversary of the end of the cultural revolution: this was a terrifying
campaign which Mao organized in order to purify the revolution and finish off all remnants
of capitalism in Chinese society.
Well, since then, things have changed a lot…
So much that China is only behind the United States in terms of numbers of multinational
companies.
Companies in this country are starting to make it to global markets… and, well, they
are doing it really well!
In 2016, Chinese companies spent the amazing amount of 225 billion dollars in the purchase
of foreign companies.
In Europe and the United States alone they bought out more than 450 companies.
These Chinese companies are buying all kinds of businesses: mining companies, banks, oil
companies, pharmaceutical companies, agricultural companies, even luxury hotel chains, jewelry
companies and football clubs.
Yep, you heard it right, the Chinese, dear viewer, have even bought Inter Milan, and
that is just one example.
“Manchester City gets $400 million Chinese investment deal”
But, if there is one thing in particular that the Chinese like to invest in, well that would
be developing countries.
Even though Australia and the United States are the two main countries where the Chinese
money is invested, more than half of all Chinese investment is made in emerging countries in
Asia, Africa, Latin America and the Middle East.
So, we could almost say that, the more risky the country, the more willing the Chinese
are to invest.
Now this might surprise you, but this isn’t the end of the story…
Chinese companies are also starting to compete hard.
Want some proof of this?
Well, if there was only one Chinese company in the top 100 most valuable companies in
2006, there were 14 by the year 2015.
Take a look at the smartphone industry alone.
Up until recently, having a Chinese phone was a bit…
weird...
right?
Well, today, the four main Chinese manufacturers: Oppo, Huawei, Vivo and Xiaomi aren't just
more famous than they were a few years ago, they also take more than 10% of the world’s
profits in this industry... and this is a figure that is growing more and more every
year.
How about another example?
Lenovo, a Chinese multinational that was born just a few years ago, bought the laptop division
of IBM, and is now the largest computer company in the world, and they even supply equipment
to the Pentagon!
And want even more examples?
There’s Haier, the biggest manufacturer of household appliances; or Cofco, a company
that’s acquiring land all over the world, like sugar cane plantations in Australia,
French vineyards or soy plantations in Brazil.
There is also Geely, a car company which became of international note when it bought out Volvo
in 2010.
Yep, Volvo, that legendary Swedish car brand is now property of the Chinese…
But, if there is a sector where China is really getting ahead, it is , against all odds, the
internet.
And I say against all odds because, as you all know, the Chinese net is subject to complete
control and censorship by the Chinese government with something known as “The Great Firewall”,
which blocks access to Facebook, Google, and the Economist, to name just three.
However, in China it’s pretty normal to do everything through apps.
For example, when you visit China you rarely pay with credit cards, the most common thing
is to pay with a mobile phone using the app Wechat - this is a “super-app” that is
like an all-in-one: Facebook, Paypal, Gmail, Twitter etc…
By the way, Wechat is property of Tencent, one of the top 15 most valuable companies
in the world, which is also the world’s largest supplier of online games, and one
of the majority shareholders of Tesla.
So, by now, you are probably realising that, yep, the Chinese are everywhere.
As for another example of their success, consider Alibaba, an e-commerce company that
brings in $450 billion every year.
Not bad right?
And in China alone they have 400 million clients.
As Napoleon said: “Let China sleep, for when she wakes she
will shake the world”
But before we all get scared, think about what it all means: more competition, better
prices, better products, and faster technological development…
As consumers we can benefit a great deal from this transition.
Now, it obviously has plenty of risks too…or at least this is what US intelligence agencies
are warning.
“According to the House Permanent Select Committee on Intelligence’s report, Chinese
companies cannot be trusted to be free of foreign state influence and thus pose a security
threat to the United States and to our systems”
And then there is the risk for companies, they will have even much more competition…
although many more opportunities too, which we previously discussed in the video we are
linking to on the screen now!
But, let’s not get too ahead of ourselves…
Chinese companies are still far behind in technological terms, and they are in debt,
and a lot of it…
“China's corporate debt levels are too high but it will take time to bring them down to
more manageable levels” Zhou Xiaochuan, Head of the Central Bank of China.
And that is not the end of it, don’t forget that China is a dictatorship, and this means
that the government has too much power when it comes to corporate decisions.
Further the government is rather arbitrary and unpredictable.
For example, a few years ago the government encouraged Chinese companies to try the
international market and they would loan them as much money as they needed to do so, but
now they have decided they want the opposite…
If a Chinese company wants to buy out a foreign company, they need the approval of the Chinese
Communist Party and there are new tough limitations on money leaving the country.
Further to that we have to add censorship, legal uncertainty, trade obstacles, the bad
reputation of Chinese products… and so on and so forth.
So, we can say that right now the United States’ position as leader is not in particular danger,
unless something changes that is more dramatic than what we are currently seeing.
Long term though…
well who knows…
So I really hope you enjoyed this video, please hit like if you did, and don’t forget to
subscribe if you haven’t already, brand new videos every Monday and Thursday.
And don’t forget to check out the Reconsider Media podcasts - they provided the vocals
in this episode that aren’t mine.
And as always, I’ll see you in the next video.