25. Innovation and Consumption

Photograph courtesy of Helene Minot

As the Chinese economy moves away from manufacturing and export, it is bound to slow, leading to predicted growth rates of 3-4 percent. If it is to keep up even this much momentum, it will need to shift toward new forms of commerce and business, toward technological innovation and creative solutions, as well as toward a massive increase in consumer spending.

Both are fraught with certain difficulties. While there is bound to be an increase in consumer spending as the next hundreds of millions of people move up into the middle, their incomes expected to rise by 15-20 percent annually, the Chinese traditionally have tended to be frugal and personal savings rates are high, 30 percent of income for those with full employment, up to 50 percent among migrant workers.

In today’s China, this is mainly due to the lack of a reliable social network. It has no unemployment insurance, no pension scheme, no social security, no senior care, no assisted living, no hospice, and no fully reliably health care system. NGOs, which take care of many of these aspects in Western countries, and especially the U. S., are minimal and have to work semi-underground, since the government officially prohibits them in its drive toward total control. In other words, people use their disposable income to keep themselves save rather than increasing consumption.

Innovation, too, suffers from government control, especially internet and media censorship, hindering key axioms of science, such as skepticism, freedom of inquiry, respect for evidence, the equality of inquiring minds, and the universality of truth. Masking this, the state heavily invests in research, spending close to $50 billion annually, which is a lot in absolute terms but only about 2 percent of GDP, compared with 3.5 percent in Japan and 4.3 percent in South Korea.

The state directs where the investment goes, focusing mainly on large-scale engineering projects, such as transgenic crops, nuclear power, and lunar exploration. It tends to encourage quick successes and short-term gains that can show the Party in a positive light rather than long-term basic development. Being part of the government, moreover, this research suffers from bureaucratic oversight and a low work quality as well as from ubiquitous corruption. Some estimates suggest that as much as half of all allotted funds end up in private hands and do not actually support intended projects.

Private companies, in contrast, are more efficient and much more effective, leading to powerful instances of innovation. One area is environmentally friendly construction, first models of which appeared in the wake of the Sichuan earthquake: using cheaper and more renewable materials, they produced easily assembled houses, well insulated, with built-in solar cells and power-saving devices.

Public transportation is another sore point for many Chinese. Thus, a company in Guangdong pioneered a fully self-driving streetcar system that runs on batteries fed by the friction of the rails, which themselves are not built into the tarmac but easily screwed on top.

Since going outside is becoming more of a hardship, given traffic density and pollution, many consumers are increasingly shopping online. In China the also extends to groceries, a feature that never took off in the West and requires a whole new set of programming. In addition, they are now working on cell phone apps that track the provenance of each food item to its source to providing assurance about food safety. Another side effect is that delivery drivers and motor cycle riders are now among the best-paid low-skilled workers in the country.

Other internet companies with strong innovative power include Ali-baba, the Chinese answer to Amazon, who developed an entirely new way of online payment processing that keeps customers free from the clutches of state-owned banks and avoids credit cards, which the debt-shy Chinese tend to eschew; Xiaomi, a smartphone giant ironically called “Little Rice,” who comes out with new ideas and app improvements every week, testing them live through immediate customer feedback, and thus creating systems that people really want; and Tencent, the largest online gaming company in the world that also focuses on instant messaging, e-commerce, web browsers, and antivirus protection, and has been praised as the most innovative company on the planet.

Others include Apricot Forest with apps that help navigate the health care system; Baidu, the Chinese answer to Google, with increasingly efficient search engines, maps, and social media apps; Wanda, a real estate giant that also invests in public buildings like theaters, favoring unconventional forms of architecture; as well as a number of delivery companies that make online shopping more efficient.

Watch: https://www.youtube.com/watch?v=zLZNvCDgfUA


Read: Shirky, Clay. 2015. Little Rice: Smartphones, Xiaomi, and the Chinese Dream. New York: Columbia Global Reports.

Tse, Edward. 2015. Chinas Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business. London: Portfolio Penguin.