While China was mainly a beneficiary rather than a participant of previous industrial revolutions, it now believes it can lead the next one, according to Damien Ma, director of the research centre Carnegie China. And the US will have to work hard to catch up to its extraordinary capacity and speed for development.
“It’s hard to believe, but the 21st century is about a quarter of the way over and we still don’t have flying cars,” Ma told the Top1000funds.com Fiduciary Investors Symposium in Singapore. “But the country that is working the hardest to make sure that flying cars do happen is not the United States; it is China.”
Ma said China is developing a “low altitude economy” with vertical take-off and landing vehicles – essentially giant drones. But the future “being shaped and made in China” is much more profound than that.
Ma says that while China essentially “rode the coattails” of the third industrial revolution – the shift from mechanical electronic technology to digital electronic technology that took place largely as a result of developments in the US – it now believes it is poised to lead the next industrial revolution, which he says will revolve around power generation.
“Chinese electricity generation capacity is just out of this world,” Ma said. “It’s more than twice the United States and EU combined today.”
The inflection point for that increase in electricity generation was the global financial crisis, Ma said, where China unleashed a “stealth green stimulus” which mostly flowed to renewables. In product terms, the results are “absolutely staggering”; two out of three EVs globally are made in China, along with four out of five solar panels, three out of five wind turbines, 90 per cent of permanent magnets and four in 10 nuclear reactors.
But its power is not “all sunshine and rainbows”.
“A lot of its companies are not that profitable,” Ma said. “Margins are really thin. When you’re commoditising these products, you have 2000 solar firms competing fiercely with each other and the margins are being squeezed in price wars.
“China is exporting all this stuff to the developing world because it had to get rid of its excess capacity. In the US, it’s the inverse. Our companies tend to be very profitable but we lack a lot of the capacity that China currently has.”
Ma said that the US needs to figure out a “new equilibrium” where there’s a balance between profitability and capacity – but private capital is usually more interested in the former than the latter.
“So what is the role for private capital versus public capital when it comes to making sure that the United States does invest in its industrial base? That’s a big, big touch question.”
Answering it requires the US, Europe and other countries to solve their energy transition problem – and a cheap transition is not necessarily one that will be achievable under the US’ current national security posture.
“There is not a silver bullet; I think the US probably has to revive some form of industrial policy with American characteristics and it’s going to have to figure out how to get Chinese investment into its industrial base, because we simply don’t have all the technology and we don’t have the speed and some of the extra expertise anymore when it comes to things like batteries and magnets.”
The US could also look to adopt some of China’s supply chain and manufacturing ecosystems which it calls special economic zones that have a “clustering effect”. The midwestern US, which has a legacy automobile sector, “great universities”, and tons of battery metals around the Lake Superior region, could be one such area.
Then there is the question of how the US gets to “Chinese speed” – though Ma thinks it will never be fully replicated.
“One hundred years ago, we were able to build big infrastructure projects like the Hoover Dam, which was built in under five years and under budget. That doesn’t happen anymore in the United States, so we need to learn how to get back to being able to build those big projects with speed.”
