Summary of the Analysis
This article goes beyond the conventional perspective of "Chinese companies going global" and examines the phenomenon where Chinese manufacturing firms such as CATL and BYD are establishing factories in countries like Hungary, Mexico, and Indonesia, along with the accompanying establishment of Sichuan restaurants, bubble tea shops, and Chinese language tutoring classes. It draws a comparison to China's thousands of years of history, identifying this as the third major wave of overseas expansion. This is different from the first wave, which focused on exporting goods like silk and porcelain while keeping production domestically, and the second wave, which involved sending laborers abroad without integrating local lifestyles. For the first time, both the manufacturing systems and the way of life are being established on a large scale overseas. The article points out that the biggest challenge China faces in this process is not a lack of advanced technologies like chips, but rather an inability to effectively communicate and promote its cultural lifestyle. China is still far from being able to recreate a significant portion of its domestic economy overseas, as Japan did, and it must also be cautious of potential risks such as the hollowing out of domestic industries and unregulated overseas expansion.
Detailed Interpretation
1. This wave of overseas expansion is fundamentally different from previous ones
Many people might wonder: Didn't China's entry into the WTO in 2001 mean that its products were already being sold globally? Didn't the older generation of Chinese workers going to Southeast Asia count as part of this process? According to the article, these can only be considered partial forms of overseas expansion:
- During the Song, Yuan, and Ming dynasties, China's goods were exported, but the production remained in places like Jingdezhen and the Jiangnan region. The merchants who sold these goods were merely intermediaries, and the government even imposed trade restrictions, limiting the expansion of Chinese business.
- In the late Qing Dynasty and early Republic of China, Chinese workers were sent abroad to work in mines and railways, sending all their earnings back to China. Their lives were confined to Chinese communities, and they did not contribute to local economies.
- Only with the current wave of overseas expansion are all the key elements of a business—owners, technicians, suppliers, and even the people who provide daily services—moving abroad together, truly becoming part of the local economy.
2. The collective move of entire industries overseas is not a sign of cultural subservience but a result of external pressures and internal competition
Companies are moving overseas to earn foreign profits, driven by two forces:
- External pressures include tariffs, origin rules, and anti-dumping measures. For example, electric vehicles produced in China face high taxes when exported to Europe, but if they are manufactured in Hungary, they can be sold freely within the EU without any tariffs, bypassing these barriers.
- Internal competition has led to market saturation in sectors like new energy and home appliances, leaving little profit. Moving production overseas is a way to find new opportunities.
- This wave of expansion is also different from previous acquisitions, such as Lenovo buying IBM or Haier buying GE, where technology and brands were brought back to China. Now, China is transferring entire production capabilities overseas, reversing the traditional model.
3. The unique aspect of this expansion is the integration of local lifestyles
Chinese companies not only set up factories but also bring along their cultural practices. For instance, when CATL establishes a factory in Debrecen, Hungary, thousands of Chinese engineers eat Sichuan cuisine, their families drink bubble tea, and their children receive Chinese language and math education. These cultural elements create new business opportunities. Chinese companies like Mixue Ice City have successfully established thousands of stores abroad, leveraging their domestic supply chains and efficient ordering systems. Even Chinese habits like food delivery, watching short videos, and watching dramas are being exported. However, China faces a challenge in communicating the value of its lifestyle, which may not be recognized as having cultural significance.
4. Is China on its way to recreating a significant portion of its economy overseas like Japan did?
Some compare China's current overseas expansion to Japan's after the Plaza Accord in the 1980s, when Japan's overseas output accounted for half of its GDP. However, the gap between China and Japan is still significant. China's overseas assets are mainly in low-yielding forms such as US Treasury bonds, and it is still in the early stages of developing a sustainable overseas presence. China's overseas investments are more diverse, with a focus on countries like Mexico, Hungary, and Indonesia, rather than concentrated regions. Additionally, the new Chinese expats are different from the old workers; they are skilled professionals and entrepreneurs, actively bringing Chinese culture and competition to these countries.
5. There are two pitfalls to avoid in this expansion
China must be cautious of two common issues:
- The risk of hollowing out domestic industries, as seen in Japan, where overseas factories have increased profits while domestic manufacturing has declined, leading to economic stagnation.
- The potential for irrational overseas investment, where companies may rush to invest without considering local risks, leading to losses.
- China must also adapt its management practices to local labor laws and cultural norms to avoid unnecessary conflicts.