China’s playbook for global industrial dominance

By Nnanda Kizito Sseruwagi

China's Qinghai Province hosts the world's largest solar power plant, Gonghe Talatan Solar Park. Experts claim that at full capacity, it can power a country such as Norway.

Sprawling across China’s deserts is not just sand but also vast solar and wind projects. Both the world’s largest solar plants and wind farms are all located in China.

China invests an average of $940 billion in clean energy technology per year. In comparison, China invests almost as much in renewable energy as the rest of the world invests in fossil fuels.

The benefits of China’s investments will, in the short and long term, not only benefit the country but also fundamentally transform the global economy. We are increasingly entering an era where Chinese domestic policy is effectively global policy.

When Chairman Mao died in 1976, he was succeeded by one of the most transformational leaders of the 20th century, Deng Xiaoping. Upon assuming power, Deng saw the need for profound economic reform through market pragmatism.

Under the slogan “Reform and opening up”, Deng began a process of gradual economic liberalisation throughout the 80s. As his reforms took hold in the 90s, China's economic growth started quintupling, stimulated by surging exports from Chinese factories to foreign markets.

China also started testing out the opening up of domestic markets to foreign direct investments through special economic zones.

As recently as 1995, China's GDP per capita was just over $600, much lower than South Korea’s, which was at more than 12,000 and Japan’s at 44,000.

At the dawn of the 21st Century, China's rapid economic rise continued to soar under the leadership of Jiang Zemin and Hu Jintao. A defining moment in modern economic history was in 2001, when China joined the World Trade Organisation.

It was defining because it opened up access for Chinese goods to global markets.

Experts observe that China's GDP per capita surged by another fivefold in the ten years following its accession to the WTO, and merchandise exports jumped to account for around 60% of GDP by 2007 as a result of the economic liberalisation along international principles.

This was the commencement of an age where more affordable Chinese goods started saturating foreign markets, and China started to build up large trade surpluses with most of the world’s previously leading exporters.

By 2010, China had overtaken Japan as the world's second-largest economy. Nevertheless, China's export economy remained largely focused on lower-end, labour-intensive manufacturing.

President Xi Jinping came to power in 2012, and three years later, in 2015, announced a new economic strategy: “Made in China 2025.” It was a blueprint for the next stage of China's economic development. It outlined the weaknesses of China's economy and set out goals to eliminate them.

It said that China's manufacturing industry was large but not strong, lacked innovation, and was dependent on foreign countries for core technologies and high-end equipment.

The strategy was a clear directive for the state to back key modern industries that had begun emerging in the early 2010s, on which the country’s future as a manufacturing powerhouse depended.

These included robotics, aerospace, biotech, electric vehicles, and renewable energy technology.

Is it still surprising that by 2026, China will be the global leader in the clean energy supply chain?

It the recent years, China installs on average 244GW of new solar and wind energy capacity. Chinese green technology companies are the most cost-effective and innovative you can find in the world. Chinese EV brands are rapidly becoming the largest automakers in the world.

China accounts for 80% of global solar panel production capacity.

It represents 60% of global wind turbine production and up to 90% of global lithium battery production. If there is an industrial race of our time, China is winning it. Chinese technology companies are likely to be competing against themselves in the near future.

It’s not like how Chinese companies became so competitive is a secret for the rest of our countries to borrow a leaf from. The Chinese government provides them with tax incentives and credits to help them grow and operate, and to enable their R&D.

Sometimes, it provides them with cheap land and manages the prices of other input costs like electricity. The largest way, perhaps, it supports these companies is by offering cheap loans.

However, that is only possible because China has a highly centralised banking sector, with state-owned banks owning 60% of all assets in the sector. This implies they can lend extensively to help favoured industries grow, calculated not by risk and return, but by the government's own priorities.

Ugandan factories and industries need the same support; unfortunately, most banks in Uganda are commercially owned by multinational capital, whose interest is in profit repatriation, not long-term development of our country.

Ugandan companies cannot operate and produce more cheaply without state subsidies and banking support. They need to have lower rent costs, lower tax burden, lower borrowing costs, and subsidised demand in our domestic market.

The writer is a senior research fellow at the Development Watch Centre.