China’s President Holds Meeting with Top Tech Companies

What Happened?

China’s President Xi Jinping held a pro-business rally in Beijing this week with leading Chinese technology companies including tech giant Alibaba. 

In a speech to the gathering Mr. Jinping advised Chinese technology companies to “show their talent” and to have confidence in the China’s market. The meeting took place in the ceremonial Great Hall of the People, where Mr. Jinping also tried to rally China’s tech sector during the first Trump administration in 2018.

According to China’s state media, President Jinping’s comments focused on China’s economic development strategy, but he also said the private sector in China has “broad prospects and great promise.” 

Why it Matters

The relatively welcoming tone of Mr. Jinping’s address to China’s tech sector stands in marked contrast to past regulatory crackdowns he has implemented. This week Mr. Jinping told leading executives of China’s tech sector that “It is the right time for the majority of private business and entrepreneurs to show their talent.” 

While state owned companies are common in China, the private sector generates roughly 60% of all economic output nationwide and closer to three quarters of innovation in the tech sector, according to China’s government. 

Mr. Jinping’s move away from harsher regulations and towards a more inclusive tone could be the result of the challenges posed by the United States.

China and the United States are both tech superpowers, and the contest between them for global technological dominance is likely to continue over the next decade. The two nations have taken different approaches to spurring innovation. 

While state owned enterprises in China have the advantage of being able to utilize government revenue, their ties to the bureaucracy can often inhibit innovation. Having a reliable source of revenue while experimenting with a new product or researching a new concept is a major advantage.

Private sector entities trying to do the same thing must spend considerable time and effort to first secure the necessary financial backing.

Meanwhile in the United States, private companies exist apart from the government, and though they often cooperate with government officials there are no state-owned enterprises in America. 

There are plenty of companies and universities that use government funding to conduct research, but they must compete for those funds through an open and transparent bidding process. No equivalent for that exists in China, where the state simply chooses who they will fund.

How it Affects You

Whether American style innovation produces dominant technology or the Chinese model of state-owned enterprises triumphs will have repercussions beyond the tech sector. 

If either model becomes dominant over the other, that country can credibly claim their system is the superior one.