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Paul Ormerod: China at the Cutting Edge

Thursday, September 19, 2013
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In the whole of the 20th century, only a few countries managed to transform themselves and join the club of rich economies. Japan is the most prominent example. The key question for the first half of the 21st century is whether or not China will manage to do the same. It is a difficult and elusive feat, and the number of failures, of countries who nearly made it but then fell back, is as great as the successes.

It is only a few decades ago that there were serious doubts about Japan’s capacity. They were stereotyped as producing cheap, shoddy manufactured products, and at best managing to copy in an inferior way goods made in the West.

Last week, I was in Hangzhou, a Chinese city of millions of people which most people have never heard of. There was prolific evidence of poor copying in the many slogans translated into English which adorned massive development sites, billboards and shops. The graphic phrases were somehow not quite right. The undoubted winner was a clothes shop which proudly styled itself ‘Fashion Fuck All’.

I had been invited to speak at a conference celebrating the launch of the Alibaba Complex Systems Research Center.

Alibaba, I hear many people ask. It is an internet company which does both business to business and business to consumer transactions. When Facebook was floated, it was valued at $16 billion. There is terrific excitement and speculation about the public offering of Twitter at a possible $20 billion. Alibaba is in the final stages of negotiations over its own IPO. The current estimate is that this will be valued at $70 – seventy! – billion.

Japan rose to economic prominence by making complex and sophisticated products at least as well as, and often better than, the West. Now, the Western economies are dominated by the services sector.

The key point about Alibaba is that it is not just in the services sector, but in the fastest growing, cutting-edge technology part of the whole sector. In a city which most people in the West could not place on a map, a company unknown to many is planning a public offering which will make it worth twice that of Facebook and Twitter combined. The company in terms of revenue is already easily the number one in e-commerce in the world, and the IPO will give it the appropriate capital value.

Retaining the top spot in any businesses based on the internet is far from easy. As recently as 2008, MySpace, a precursor of Facebook, was the world's most visited website, and until 2009, America's, pulling in 70 million unique US users a month.

And then all of a sudden, it died. Alibaba may find challenges in replicating in America and Europe its stupendous success in East Asia if Western consumers take time to trust what is for them a relatively unknown offering. But even so, the company shows that China is able to leapfrog the process of development and compete effectively in the leading sectors of the world economy.

Paul Ormerod is an economist at Volterra Partners LLP, a director of the think-tank Synthesis and author of Positive Linking: How Networks Can Revolutionise the World

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