An equally fascinating and bizarre topic to me is the monopolistic market for technology companies, fostered by China’s Communist Party. The recent acquisition of Uber’s Chinese business by Didi Chuxing is dismally symbolic that Silicon Valley firms don’t enjoy the prosperity throughout the globe in China. For example, dominant tech firms like Facebook, Google, Twitter and Amazon have essentially no foothold in the worlds second largest consumer market, which is utterly bizarre. This in turn questions the fundamental dynamics of the worlds second largest market.

A large part of the reason for this can be attributed to the governments negligible attitude towards business.Ever since the 1980’s, China’s authoritative Communist Party has allowed capitalism to flourish – but with catch. Foreign investment is allowed and encouraged, some private ownership is allowed, while however, the economy is heavily scrutinized and influenced by the government. For example, the nationalistic tendencies of the government have urged them to enact regulation (high taxes) that protect local firms, to bolster the reputation of China. This inevitably causes Chinese businesses that emerge with a business model identical to those of Western firms. For example, Renren is an absolute imitation and knock-off of Facebook faces no competition. Although all is well right now, these interventions are troubling and foreshadow a dire future.

So what are the effects of China’s government intervening in markets? In my opinion, it is an impediment to the confidence of the private-sector; in the short run, local Chinese firms may prosper, but in the long-term it may deter foreign investment. Why would foreign firms invest in China if the government is actively working in favour of local firms? Without a doubt, foreign investment is essential to emerging ‘tiger economies‘, like China (A tiger economy is term attributed Asian economies with large populations that prosper exponentially with the injection of foreign capital). In addition, the absence of competition markets is vital for a firm to innovate; with the absence of competitors, firms aren’t constantly striving to improve, rather innovation stagnates. Although it is an inevitable challenge for all businesses, competition is the driving force behind innovation and strategy. Without competition, the market is unable to facilitate persistent innovation.  Furthermore, China imitating Western companies is by all means unethical, and will be damaging to their international reputation. In essence, this situation reflects government policy intervention that is justified by political rather than economic means. This is a dangerous precedent. From my perspective, if China wants to embrace free-market capitalism, they must embrace it wholly; let competition flourish, attract foreign investment and enact fair policy. This will be an interesting situation to watch unfold.

 

Words: 446

Photo Credit: http://www.o2-v2.com/en/blog/topic/business-in-china

Photo Credit: http://www.channelweb.co.uk/crn-uk/news/2266543/emc-to-competitors-we-are-after-the-whole-storage-market

Sources

http://www.economist.com/news/leaders/21703371-western-caricature-chinese-internet-firms-needs-reboot-chinau2019s-tech-trailblazers

http://www.investopedia.com/terms/t/tigereconomy.asp