China jealous of ChatGPT is lagging behind to become the world champion of innovation

The benefits of Chinese protectionism and the disadvantages of a unified Chinese market for Foreign enterprises in China.

In recent weeks in China, a wind of anger has been blowing online, fueled by the Chinese authorities. Evoking the prowess of ChatGPT as proof that China is lagging behind in its ambition to become the world champion of innovation, China calls on its own so-called innovative companies to do their introspection.

In an article published in the official outlet People’s Daily, Zhu Dantao, Director of the Economic Department of the Central Commission for Financial Affairs of the CCP, urges the local authorities to comply with the directives of the Center and not to go it alone in their development strategy which only leads to undermining the potential for innovation in the country.

Protectionism is gaining ground in China’s provinces

Zhu sounds the alarm on the obvious inefficiency of China’s innovation system which is becoming the country’s main Achilles heel in the face of the new US containment policy.

Washington’s introduction of a series of bills and control measures is putting more pressure on this system. Local actors, companies, universities and local governments alike have not fully grasped the process at work.

According to Zhu, innovations are stuck in a closed circuit, contrary to Beijing’s national strategy of “internal and external circulation”, which must lead to the emergence of a vast unified domestic market, without which companies will not be able to compete internationally and will be overwhelmed.

However, “many are still engaged in closed-door politics (…). We must prevent regional blockades and unnecessary segmentations, promote the free movement of all factors of production, and gain market depth”, Zhu stresses.

Are “China for China” and “China for Global” strategies still relevant?

This denunciation of rampant protectionism in the provinces, municipalities and districts comes from the regime’s economic top policy-making body: the Central Commission for Financial and Economic Affairs, chaired by VPM Liu He, Xi Jinping’s right-hand man for international economic strategy.

Despite all efforts made, the country’s economic policy still comes up against the reality of its local ecosystems and baronies. We are still a long way from the vast unified market that Beijing is calling for, and that’s fortunate enough for foreign companies as they will soon face a united front of local companies aligned on the same roadmap once the junctions made at the province level.

Moreover, the desired unification does not only concern capital, but also human resources and data, which is not without consequences for the protection of foreign assets on Chinese soil.

As far as foreign enterprises in China are concerned, whereas in the 2010s the strategic options on the table were to choose between “China for China” and “China for global”, today foreign manufacturers are seriously thinking of replicating the same old “China for China” strategy. There is, however, one fly in the ointment here. Another score has actually been playing since then, called “China for “Global China (Inc.)”, a rescued “made in China 2025 “ in disguise, where local companies have been instructed to go massively international, taking with them the innovations and know-how produced on its soil. Welcome to the dual circulation with Chinese characteristics.