Thread by @TheDailyMao

I'm really surprised that Taisu (of all people) would end up with such a reductionist, zero-sum view of the EU-China #CAI

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https://twitter.com/ZhangTaisu/status/1344330040008433666

Basically, I really don't get why he thinks that opening up trade with Europe (and giving EU firms opportunities to scale in the Chinese market) means China loses something

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EU MNCs growing in China's mkt is good for both the EU and China, for two reasons:

A) Relative to US MNCs, EU MNCs are more complementary to Chinese firms
B) Localized EU MNCs compete for Chinese workers and customers, upgrading productivity and the 'standard of demand'

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Also China *gains* bargaining power when EU firms scale in China, it doesn't lose it. If EU cos have a lot of value tied up in real assets (stores, warehouses, human capital, China-specific SW, etc) in China they will be loathe to lose it

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https://twitter.com/Jkyleass/status/1344380223803031557

On point B above, as much as we should praise Chinese firms for growing rapidly in scale and quality over the last 40 years, they still have a ways to go in terms of per-hour productivity relative to Western ones. More competition for Chinese labor can help fix that

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On point A above, the largest EU MNCs (excluding energy and financial services) are mainly concentrated in traditional industries that do not have a marginal cost advantage to Chinese competitors, which means they will upgrade the market by entering

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en.wikipedia.org/wiki/List_of_l…

Furthermore, these firms are complementary to the tech platforms that China is trying to nurture. For example, in autos, due to US tech bans, EU carmakers in the China mkt will almost assuredly partner with Chinese tech vendors

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And the fixed nature of investments covered by the CAI means they become powerful levers by which China can nudge EU companies to adopt Chinese tech platforms via standards, safety regs, consumer preference, data localization, etc.

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For example, in electric/driverless vehicles, China can use safety regs to subtly advantage CATL's batteries and Beidou and data localization or technical standards to advantage HarmonyOS as the default software kernel

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In this example, since batteries and AI software are the biggest value-add components in EV/driverless, China wins more from BMW or VW scaling its presence in China even if there is no JV requirement

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then, bc China's is world's largest market for many of these goods, China can internationalize its domestic platforms and standards via these companies.

Imagine a world German car cos + Airbus build their next gen of driverless SW and avionics on top of Huawei's OS 🔥🔥🔥

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...or co-develop their next gen of driverless SW and avionics with Chinese startups, using Huawei's OS, and optimized to run on Alicloud 😍

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Lastly, on consumer, there's a lot of partnering that can be done as well, between traditional EU retailers and Chinese ecommerce/social media platforms. As on the enterprise side, Chinese and EU firms can cross-pollinate and help each other scale

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Zooming out a bit, this logical frame requires moving beyond a view of local MNC profits as axiomatically equivalent to exploitation. It is possible to secure gains for both the people and the domestic economy if you make the right deals at the right times.

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It also requires moving beyond a view of the home market as a captive base for national champions to scale into export powerhouses. China is simply too big to evolve into mega-Korea or mega-Japan, so it needs a different path towards upgrading its domestic economy

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In this respect, China's dual circulation strategy makes sense (even if the name could be better). And the EU-China #CAI is highly synergistic with both that strategy and China's geopolitical goal of increasing leverage via asymmetric interdependency.

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