The Political Economy of China’s Technological Development

China’s economy has been the subject of much media attention since the 2016 election in the United States. President Trump has accused the Chinese of economic espionage, meanwhile other reports claim that China is entering a period of economic slowdown as the state takes greater control of key sectors like technology and communications. The Chinese business environment for the technological sector can be risky: market institutions are incomplete and state intervention is rampant despite unrealized success. How do firms in China generate greater technological output?

Douglas B. Fuller, Associate Professor of International Studies at the City University of Hong Kong, argues that firm structure and operations strategy allow for greater technological upgrading within China. His argument examines particular high-technology industries, often with high clock speeds or fragmented value chains. He argues that what he called “hybrid firms” are the most successful in developing technology within China. Hybrid firms are formed by ethnic Chinese, but run on foreign investment and use offshore financial channels to circumvent China’s ambiguous judicial system for the tech industry. Fuller’s primary assertion is thus that when the firm embraces a “China-based operation strategy,” it allows for greater technological upgrading.

Technological upgrading is comprised of technological learning and technological innovation, examining how consumer goods or local personnel or suppliers capture the knowledge of the Chinese economy. By pursuing a China-based operations strategy, Fuller argues that technological upgrading within China becomes more fruitful and solidifies a firm’s internal technology. He contrasts Huawei and ZTE, two major players in China’s telecommunications industry, claiming that Huawei relied less on the state and internationalized earlier while still maintaining technology operations in China, which allowed for development and consolidation of internal technology.

Fuller’s talk today is based on his new book, Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development, which you can purchase here. If you are interested in learning more about his other work, please click here.

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