The Interview: Real World
W: The consensus among our readers seems to be that monopolies are bad, however some take a contrary view and think that monopolies are good, citing China as a country that has experienced explosive growth due to having a lot of state backed monopolies. Is that a fair assessment?
JI: Not fair, no. Although China has a lot of government backed monopolies, that’s not the source of growth. The source of growth in China is actually private enterprise like manufacturing. If you look at the statistics coming out of China you will find what are called the State Owned Enterprise (SOE’s) share of the economy has been diminishing during the fast growth period over decades getting smaller and smaller all the time.
W: Is that why they’re now starting to struggle do you think with the markets recently being in turmoil because of alleged slowing growth in China, if someone said “Ah well, Chinese growth is slowing because SOE’s are now a smaller share of the market?”
JI: NOOOOO! Slow growth has many many factors, it’s not so easily pigeonholed. A lot of China’s growth originated by urbanisation, you take someone who works at a farm earning next to nothing and move them into industry earning a wage and exporting, there’s a lot of these productivity improvements going on with workers moving from a low productive sector into a higher productive sector and suddenly you will have this sort of growth and that by its nature is finite, you can’t just keep moving people from a rural area to an urban area and also China is now no longer the cheap source of labour, originally everyone turned to China because their wages were very low, China’s wages are not so low these days and there are all these other countries now where wages are lower like Vietnam for example, companies are moving to Vietnam now. There are always many factors.
W: Ok, so would you say that cheap labor was a large part of the driver historically for decades of growth in China moving farmers from rice paddy fields into factories to make iPhones etc?
JI: Yes, that has been a very key driver of growth in China and also don’t forget partly it’s because they relaxed communist rule and people can now have private enterprise. That transition must not be underestimated from people who have not a lot of say in what they produce and how much they keep to having absolute say about how much effort they put out and how much of the fruits of their labors they can keep. That incentive is quite powerful.
W: Ok, so cheap labor contributed a lot, but other countries have cheap labor too. So what you’re saying is that China’s long growth period as a result of cheap labor is now slowing down?
JI: Yes which is why the Chinese currency weakened a little bit, they’re trying to keep it going because if you are getting more and more expensive, how do you make yourself competitive again? Well, if you can manipulate your currency, you can do that!
W: Ok, so just so we’re clear, China’s growth over decades is not down to government backed monopolies and telling businesses that they can only use certain state backed monopolies, banks, industries etc?
JI: That's right. There is one area that is still important which is the Chinese control of the finance industry, they allow foreign banks now but through their control of credit creation, they have managed to either provide a stimulus or slow down an overheated economy so if going too fast they can tell the banks stop lending so much now, this is still centrally controlled.
W: So if I want to start a business in China and build a factory, the Chinese government won’t say to me you must use company XYZ which is a state owned company otherwise you can’t?
JI: By and large, no, although there are also many levels of bureaucracy in China and corruption is a major problem, there are stories, none of which can be definitively verified of course where some of these corrupt officials need payments etc. This is a problem, but of course information from China is not that easy to come by.
W: But even though there is state control over lending, that’s not the cause of the explosive growth in China has seen?
JI: Not initially, but I do think that after 2008, there is evidence to suggest that the government's relaxation of credit and stimulating the economy much like the West has helped, but because the accounting isn’t as transparent as in the West, there are suspicions of a big black hole there that can blow up at any time, we basically don’t know if it’s there or not.
W: So looking at the technology market. In CPU’s we have 2 main players in Intel and AMD, in the GPU market we also have 2 main players in nVidia and AMD. AMD is the less dominant player in both areas by a significant margin. Given this scenario, is it likely that Intel and nVidia have some degree of monopolistic power over their relative industries?
JI: Yes they do and there is reason to support AMD so that they can keep the other two in check. If we lose AMD as a business, I think the innovation that we see from Intel and nVidia may start to slow down.
Contents
Follow Wccftech on Google to get more of our news coverage in your feeds.
