It's fascinating to observe that many large countries have implemented "technology transfer for market access" strategies, yet the outcomes have been quite varied. This strategy is working really well for China in industries like EVs as you described, but in other countries they do the same strategy with worse implementation.
Take India, for instance, during the License Raj era. The government required foreign companies to form joint ventures with Indian firms as a prerequisite for operating in the country. These partnerships often included technology transfer clauses, as seen in the automotive industry where Japanese companies like Suzuki shared their technology with Indian partners. This led to the growth of India’s domestic automotive sector. However, Indian cars have yet to achieve significant international competitiveness.
Similarly, Brazil applied technology transfer conditions in its automotive industry. The government mandated that foreign automakers partner with local companies and share their technology in exchange for market access. Fiat’s involvement is a notable example. Despite these efforts, Brazil has not emerged as a global leader in the automotive industry.
In Indonesia, the aerospace industry has seen partnerships with major players like Airbus and Boeing through IPTN/PT Dirgantara Indonesia. While the industry exists and continues to develop, it remains heavily subsidized and struggles to achieve greater competitiveness. Nonetheless, Indonesia's commitment to pursuing this strategy is commendable!
On the other hand, this approach has been more successful in Japan and South Korea. Japan’s partnerships, such as GM with Isuzu and IBM with Fujitsu, have greatly contributed to its technological advancement. In South Korea, Ford’s collaboration with Hyundai and the partnership between Japanese Sanyo and Samsung are prime examples of successful technology transfer leading to global competitiveness.
I guess this goes back to your point about Size, positioning, and state capacity mattering as well though!
It doesn’t go back to “size”, as the rise of S Korea and Singapore can attest. I would argue it goes back to culture. China invented centralized bureaucracy and created the first modern state. S Korea and Japan were culturally influenced by China and have strong collective vs individual cultures. Such cultures can effectively execute and dev tech extraction. Brazil and India are very diff cultures with relatively weak bureaucratic traditions.
1) An EV is just a smartphone on wheels. The majority of smartphone manufacturing had been outsourced to China prior to the EV boom. Additionally all of the top ten battery manufacturers were also located in East Asia. Even without government support, China would have always played a role in the development of electric vehicles.
2) Even though global shipping costs have been falling for over a century, cars are still too heavy for a globalised supply chain. Hence, car manufacturers prefer to set up local manufacturing hubs close to big consumer markets (assuming the host country is stable and has some prior manufacturing expertise). Even without government tariffs foreign car manufacturers would have tried to make cars in China. They might have been partnered with local firms since by the 2000s China had a formidable manufacturing sector.
3) China of the late 2000s didn't have a massive footprint in ICE manufacturing unlike the West, Japan and Korea. China's oil industry is also much smaller compared to its electronics industry. Hence the politics happened to be in their favour.
4) China's success in manufacturing isn't driven by centralised top down control but by decentralised dynamic decision making at the local and provincial level. That's why India can't pull of something like this because they would just doubled down in their "enlightened national leader" belief. Ideally this type of industrial strategy can be done by medium sized countries like Thailand and Vietnam.
5) One also look the failure of China's semiconductor industry to show that Chinese policy making isn't all that it's cracked up to be. China had been trying to get into semiconductor fabrication before Taiwan got into the industry. However despite decades of government support China still only manufacturers trailing edge chips at best. Taiwan, on the other hand, only gave some start-up capital to TSMC and some other firms and privatised them soon afterwards. TSMC surpassed China within 5 years and surpassed the rest of the world in 15 years.
6) I would like to also remind people that China is the poorest majority Chinese country. China would have done much better if they were ruled by pro business rulers like the KMT and not communists.
7) If you look at various tests for intelligence like IQ and/or the PISA score, East Asia always ranks the highest. This has been true for decades. You can attribute this to culture and/or genes, I'm not here to debate that. However, it's just interesting that despite having lower cognitive ability America is much richer than China. This, imo, makes America's institutions to be of greater quality than China's.
Japan's demographics flipped deeply negative in about 1989, right about the time its stock market peaked, the worldwide exuberance and fear of Japanese economic power peaked, Japanese real estate peaked, Japanese capital purchasing foreign businesses and real estate peaked. It's been mostly downhill since for Japan. I had a high school classmate / friend who learned Japanese in (I can't remember if it was her major). She told me that "Japanese" would be the international language of business within 10 years (we graduated high school in 89). Everybody was wrong about Japan in the late 80s. It is difficult to overstate the importance of demographics changes and trends. China, I believe has had one of the fastest demographic changes in history. There's lots of debate about when China crossed the 2.1 threshold because nobody believes the published numbers. But more important is how fast the fertility rate is falling, collapsing even. This affects consumption (and GDP) immediately. It affects the labor force in only 18 years. It affects mood and culture immediately (less optimism about the present and future). I believe we are seeing peak China, and peak lots of countries with terrible demographics and little or no in-migration.
“they might double down and insist that ‘good institutions’ are necessary to develop technological innovations, which China subsequently extracted”
China does in fact have “good institutions” (despite their foundation being undemocratic) which is precisely why Chinese innovations in the EV sector (in addition to subsidies) have made Chinese EVs cheaper and more advanced than western EVs. This is a direct result of institutionally directed industrial policy, namely the cultivation of a “modernized industrial system” to facilitate the creation of “new quality productive forces.” Xiaomi’s SU7 is an example of Chinese industrial policy in practice. Read more here: https://open.substack.com/pub/thestupideconomy/p/how-xiaomi-did-what-apple-couldnt?r=i7v1h&utm_medium=ios
“by leveraging the appeal of its ginormous consumer market, a strong and strategic state successfully persuaded buyers to share their technology”
In many cases China did not need to “persuade” western firms to enter the Chinese market in Western-controlled joint ventures — western firms jumped at the opportunity themselves while thinking they would be able to safeguard their intellectual property from Chinese partners; they were obviously wrong. The development of the C919 is one example of this exact phenomenon. Read more here: https://open.substack.com/pub/thestupideconomy/p/the-c919-a-masterclass-in-technology?r=i7v1h&utm_medium=ios
omg such great work !! India should definitely read this post! I didn't know that the "technology extraction" was as baked into the proposition of western companies moving into the Chinese market. The way it is presented usually is that a fair deal of stealing was going around. I didn't know they just gave all that stuff away and got china cycled - the fools ! It also often said that electric vehicles are much much easier to master than shaky one million parts exploding internal combustion vehicles. But certainly this does show what a huge population all pulling in the same direction with no free inputs can achieve. I remember reading that during the sixties and seventies people were fawning over the achievements of the Soviet Union much like we are now with China. Could it be that we just haven't witnessed the gaffe yet ? Could it be that a future all in bet by an enlightened leader could prove disastrous without the institutions to reign his powers in ?
The new book looks amazing. If I could suggest a little research topic which I would love to hear your thoughts about is the relationship between Freie Korpen Kultur (the nudiste penchant in ex- DDR) and the Muslim population. My sister who lives in Berlin tells me about topless FKK ladies swimming amongst Honour culture lads if Turkish heritage and Burkini toting honour culture gals of Turkish descent in Berlin swimming pools ! Where I am from, Brussels, the idea that you could have topless ladies in the pool alongside Moroccan guys is just absolutely impossible to fathom even by more than six fathoms, I assume ! Maybe the German have stumbled upon a way to overcome the modesty issue. Everybody naked !
Great article!
It's fascinating to observe that many large countries have implemented "technology transfer for market access" strategies, yet the outcomes have been quite varied. This strategy is working really well for China in industries like EVs as you described, but in other countries they do the same strategy with worse implementation.
Take India, for instance, during the License Raj era. The government required foreign companies to form joint ventures with Indian firms as a prerequisite for operating in the country. These partnerships often included technology transfer clauses, as seen in the automotive industry where Japanese companies like Suzuki shared their technology with Indian partners. This led to the growth of India’s domestic automotive sector. However, Indian cars have yet to achieve significant international competitiveness.
Similarly, Brazil applied technology transfer conditions in its automotive industry. The government mandated that foreign automakers partner with local companies and share their technology in exchange for market access. Fiat’s involvement is a notable example. Despite these efforts, Brazil has not emerged as a global leader in the automotive industry.
In Indonesia, the aerospace industry has seen partnerships with major players like Airbus and Boeing through IPTN/PT Dirgantara Indonesia. While the industry exists and continues to develop, it remains heavily subsidized and struggles to achieve greater competitiveness. Nonetheless, Indonesia's commitment to pursuing this strategy is commendable!
On the other hand, this approach has been more successful in Japan and South Korea. Japan’s partnerships, such as GM with Isuzu and IBM with Fujitsu, have greatly contributed to its technological advancement. In South Korea, Ford’s collaboration with Hyundai and the partnership between Japanese Sanyo and Samsung are prime examples of successful technology transfer leading to global competitiveness.
I guess this goes back to your point about Size, positioning, and state capacity mattering as well though!
It doesn’t go back to “size”, as the rise of S Korea and Singapore can attest. I would argue it goes back to culture. China invented centralized bureaucracy and created the first modern state. S Korea and Japan were culturally influenced by China and have strong collective vs individual cultures. Such cultures can effectively execute and dev tech extraction. Brazil and India are very diff cultures with relatively weak bureaucratic traditions.
I would like to propose some counter arguments.
1) An EV is just a smartphone on wheels. The majority of smartphone manufacturing had been outsourced to China prior to the EV boom. Additionally all of the top ten battery manufacturers were also located in East Asia. Even without government support, China would have always played a role in the development of electric vehicles.
2) Even though global shipping costs have been falling for over a century, cars are still too heavy for a globalised supply chain. Hence, car manufacturers prefer to set up local manufacturing hubs close to big consumer markets (assuming the host country is stable and has some prior manufacturing expertise). Even without government tariffs foreign car manufacturers would have tried to make cars in China. They might have been partnered with local firms since by the 2000s China had a formidable manufacturing sector.
3) China of the late 2000s didn't have a massive footprint in ICE manufacturing unlike the West, Japan and Korea. China's oil industry is also much smaller compared to its electronics industry. Hence the politics happened to be in their favour.
4) China's success in manufacturing isn't driven by centralised top down control but by decentralised dynamic decision making at the local and provincial level. That's why India can't pull of something like this because they would just doubled down in their "enlightened national leader" belief. Ideally this type of industrial strategy can be done by medium sized countries like Thailand and Vietnam.
5) One also look the failure of China's semiconductor industry to show that Chinese policy making isn't all that it's cracked up to be. China had been trying to get into semiconductor fabrication before Taiwan got into the industry. However despite decades of government support China still only manufacturers trailing edge chips at best. Taiwan, on the other hand, only gave some start-up capital to TSMC and some other firms and privatised them soon afterwards. TSMC surpassed China within 5 years and surpassed the rest of the world in 15 years.
6) I would like to also remind people that China is the poorest majority Chinese country. China would have done much better if they were ruled by pro business rulers like the KMT and not communists.
7) If you look at various tests for intelligence like IQ and/or the PISA score, East Asia always ranks the highest. This has been true for decades. You can attribute this to culture and/or genes, I'm not here to debate that. However, it's just interesting that despite having lower cognitive ability America is much richer than China. This, imo, makes America's institutions to be of greater quality than China's.
Japan's demographics flipped deeply negative in about 1989, right about the time its stock market peaked, the worldwide exuberance and fear of Japanese economic power peaked, Japanese real estate peaked, Japanese capital purchasing foreign businesses and real estate peaked. It's been mostly downhill since for Japan. I had a high school classmate / friend who learned Japanese in (I can't remember if it was her major). She told me that "Japanese" would be the international language of business within 10 years (we graduated high school in 89). Everybody was wrong about Japan in the late 80s. It is difficult to overstate the importance of demographics changes and trends. China, I believe has had one of the fastest demographic changes in history. There's lots of debate about when China crossed the 2.1 threshold because nobody believes the published numbers. But more important is how fast the fertility rate is falling, collapsing even. This affects consumption (and GDP) immediately. It affects the labor force in only 18 years. It affects mood and culture immediately (less optimism about the present and future). I believe we are seeing peak China, and peak lots of countries with terrible demographics and little or no in-migration.
“they might double down and insist that ‘good institutions’ are necessary to develop technological innovations, which China subsequently extracted”
China does in fact have “good institutions” (despite their foundation being undemocratic) which is precisely why Chinese innovations in the EV sector (in addition to subsidies) have made Chinese EVs cheaper and more advanced than western EVs. This is a direct result of institutionally directed industrial policy, namely the cultivation of a “modernized industrial system” to facilitate the creation of “new quality productive forces.” Xiaomi’s SU7 is an example of Chinese industrial policy in practice. Read more here: https://open.substack.com/pub/thestupideconomy/p/how-xiaomi-did-what-apple-couldnt?r=i7v1h&utm_medium=ios
“by leveraging the appeal of its ginormous consumer market, a strong and strategic state successfully persuaded buyers to share their technology”
In many cases China did not need to “persuade” western firms to enter the Chinese market in Western-controlled joint ventures — western firms jumped at the opportunity themselves while thinking they would be able to safeguard their intellectual property from Chinese partners; they were obviously wrong. The development of the C919 is one example of this exact phenomenon. Read more here: https://open.substack.com/pub/thestupideconomy/p/the-c919-a-masterclass-in-technology?r=i7v1h&utm_medium=ios
omg such great work !! India should definitely read this post! I didn't know that the "technology extraction" was as baked into the proposition of western companies moving into the Chinese market. The way it is presented usually is that a fair deal of stealing was going around. I didn't know they just gave all that stuff away and got china cycled - the fools ! It also often said that electric vehicles are much much easier to master than shaky one million parts exploding internal combustion vehicles. But certainly this does show what a huge population all pulling in the same direction with no free inputs can achieve. I remember reading that during the sixties and seventies people were fawning over the achievements of the Soviet Union much like we are now with China. Could it be that we just haven't witnessed the gaffe yet ? Could it be that a future all in bet by an enlightened leader could prove disastrous without the institutions to reign his powers in ?
The new book looks amazing. If I could suggest a little research topic which I would love to hear your thoughts about is the relationship between Freie Korpen Kultur (the nudiste penchant in ex- DDR) and the Muslim population. My sister who lives in Berlin tells me about topless FKK ladies swimming amongst Honour culture lads if Turkish heritage and Burkini toting honour culture gals of Turkish descent in Berlin swimming pools ! Where I am from, Brussels, the idea that you could have topless ladies in the pool alongside Moroccan guys is just absolutely impossible to fathom even by more than six fathoms, I assume ! Maybe the German have stumbled upon a way to overcome the modesty issue. Everybody naked !
Anyway. Great work as always. A gem you are.
Will be very excited to read! When will it come out?