What Makes Chinese Companies So Competitive?

**Alison Beard** (0:10)
I'm Alison Beard.

**Adi Ignatius** (0:11)
And I'm Adi Ignatius, and this is the HBR IdeaCast.

**Alison Beard** (0:21)
Adi, today's show is about China and Chinese company competitiveness, which I know is a topic of perpetual interest to you.

**Adi Ignatius** (0:28)
It is. I lived in China for many years. I followed its economic development closely. There's so much happening in China, and I think it's fair to say the West does not understand most of what's happening.

**Alison Beard** (0:40)
Yes. And that's why I wanted to talk to Stanford research fellow Dan Wang.
He spent years living in and traveling around China to better understand its economy and businesses. And his central argument is that while the US is dominated by lawyers who protect rights and procedures, China is an engineering state that prioritizes building, especially manufacturing, technology, and infrastructure.

**Adi Ignatius** (1:03)
Yeah, that's an interesting phrase. I think often the debate is, it caricatures the US as completely free market, China as completely centrally controlled. It's obviously very nuanced, and this sounds like an interesting take on it all.

**Alison Beard** (1:17)
And I think that because Chinese companies have grown so big and so dominant in their sectors, you know, I'm talking about BYD, the world's largest EV car maker, DJI, the world's largest consumer drone maker, Huawei, the world's largest telecoms company, not to mention ByteDance, which is the owner of TikTok. Business leaders everywhere have a lot to learn from how they innovate and how they stay competitive. Wang is the author of the book Breakneck, China's Quest to Engineer the Future. And here's our conversation.
Let's dig into this distinction that you make between a lawyerly society and one led by engineers. What does that look like in practical terms for organizations doing business in each country?

**Dan Wang** (2:05)
For anyone doing business in China, folks will tell you that there are all sorts of pretty remarkable efficiencies that one can see on the ground. And when I was living in China between 2017 to 2023, spending substantial amounts of time talking to businesses, not just Chinese, but also American, European, coming from all over the world, they would tell you that there are all sorts of ways in which China is pretty rational to do business with. All sorts of engineering projects are very easily planned. The leadership often understands future business planning.
Infrastructure is amazing. And there are all sorts of ways in which the government is super responsive to some of the needs of businesses.
But they might also tell you that dealing with a bunch of engineers in a highly intransparent political system also brings all sorts of headaches that they may not expect. So although the infrastructure might be planned in very nice ways, there will be some issues with, let's say, tax administration or environmental reviews in which it is terribly unclear how the government has arrived at certain decisions. And there is often no real way to appeal. And this is all operating in a background of Beijing central politics, which are purely a black box in which no one really has any keen sense of what's going on. And so it is a mix of both technocratic decisions as well as incomprehensible politics.

**Alison Beard** (3:44)
And the contrast with the US is the opposite. Sort of there's a lot of transparency and legal procedure, but things don't move quickly at all.

**Dan Wang** (3:53)
Yes. So in the US., let's say you are a major business leader that is going to planning to build a big factory. Let's say that you are a major financial institution that is planning to make investments.
When you chat with some of these people, they might be able to say that if they try hard enough, they are going to be able to call President Trump on his personal cell phone.
That is completely impossible to imagine for almost anyone high level in Beijing. In China, the politics are very difficult to influence, but the infrastructure is amazing. In the United States, the politics are influenceable, and the infrastructure is what the infrastructure is.

**Alison Beard** (4:39)
Okay, so let's talk about things that companies perhaps can control.
You know, first, manufacturing. Chinese companies are excellent at this. I think there might be a perception, at least initially, that this was all about cheap labor, but it's much more than that now, right?

**Dan Wang** (4:57)
Cheap labor was pretty important for China at the start of its boom throughout the 1990s and the early 2000s. And I think that no longer explains very much of what makes China excellent at manufacturing. When I am speaking to political folks in the United States, I think there's a narrative among the right that China has gotten to where it has mostly through IP theft. And among the left, there is more of a narrative that China has gotten to where it has through industrial subsidies. So it's cheating on the one hand, or it's stealing on the other. And I would say, you know, we have, yes, the phenomenon of cheap labor, there is definitely some degree of IP theft. Industrial subsidies are indeed pervasive throughout the Chinese system. But I would also point to many other advantages that China has, that has used to build up this manufacturing system that is now about one third of the world's total manufacturing capacity. So these other factors include a government that is sometimes supportive and sometimes hurts the operations of Chinese companies. It is supportive when it is building enormous amounts of infrastructure, like solar as well as nuclear throughout the country.