China uses foreign firms selectively to bring in technology and know-how, to build up its domestic suppliers, and to ultimately sow the seeds for home

How China uses foreign firms to turbocharge its industry

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2024-03-29 19:30:03

China uses foreign firms selectively to bring in technology and know-how, to build up its domestic suppliers, and to ultimately sow the seeds for homegrown Chinese companies to compete on the world stage.

China has long been very deliberate in using the allure of the lucrative “China market” to entice foreign firms to set up shop there.

Take the case of high-speed trains, for example. When China was gearing up to build its first high-speed rail line from Beijing to Tianjin in 2004, China’s Ministry of Railways (now called China Railway) solicited bids from foreign train manufacturers, like Siemens and Alstom. These foreign trainmakers were facing mature markets at home with little potential for future growth. China’s pitch was simple: we’re about to pour unimaginable sums of money into building a national high-speed rail system—the foreign firms who help at this early stage will be well-positioned to get a piece of this potentially massive market.

The catch was that each foreign trainmaker had to form a joint venture with a Chinese firm and jointly produce trainsets in China. In the process, each foreign trainmaker agreed to transfer certain technology and manufacturing know-how to their Chinese partners. Of course, the Germans will say they never gave away their core technology, like the train control software. But it was the whole range of production-related knowledge that mattered, down to even the smallest technical skills like how to weld properly.