Chinese innovation with US characteristics? Maybe China and the West aren’t that far apart, in business at least

The looming trade war between the US and China is front-page news around the world. On the surface, it looks like US President Donald Trump following up on his campaign rhetoric of “America first” and part of his strategy to treat China as a “strategic competitor”.

However, it’s possible to trace the roots of the current impasse to a fundamental mistrust between the West, in particular the US, and China. The cover story on the March 3, 2018 issue of The Economist, “How the West Got China Wrong”, epitomises that point of view. According to this theory, the West was hoping that, by helping China integrate into the global trading system, it would help turn it into a capitalist economy. Or simply, “they would be just like us”. 

However, China has not gone the way the West anticipated. Instead, it has found its own development model. It continues to be a one-party state while embracing some aspects of the Western-defined market economy and maintaining a strong government role. 

While the West continues to believe there is one – and only one – proper way to govern, it is fair to say that the path that suits a certain country at a certain stage of development is likely to differ from other countries’, depending on the context. It would be rather egotistical for Western politicians and pundits to expect every country to fully embrace the Western system, given the major disruptive events over the past decade, such as the 2008 financial crisis, the election of Donald Trump as US president, and sluggish economic growth for well over a decade.

On the other hand, Beijing was able to lift China from basic subsistence to a situation where many people now enjoy a reasonable livelihood. Ideology apart, it is difficult to argue that there is only one way to govern, no matter what the context of the country. US historian Francis Fukuyama pointed this out in his 2014 book, Political Order and Political Decay. 

One of the most impressive developments in China in the past 40 years has been the rise of the private sector. Entrepreneurship wasn’t part of the economy of the People’s Republic until the end of the Cultural Revolution when Deng Xiaoping decided to allow entrepreneurship to return on an experimental basis. 

These past four decades have brought immense changes to China. At the end of the 1990s, both the total revenue and total profit of the industrial state sector and the non-state sector in China were about the same whereas, today, the non-state industrial sector is already about four times larger than the state sector in terms of both total revenue and total profit.