Doug Fuller Discusses His Book “Paper Tigers, Hidden Dragons”

Doug Fuller Discusses His Book “Paper Tigers, Hidden Dragons”


Because of my past research on Taiwan
and Korea when I looked at China at first, I expected to find a similar sort
of state-lead successful industrial development path. What is interesting is
that I did not find that. I spent a fair amount of time looking for that and I
could not really find strong success cases. But the central puzzle then, of
this book, is there’s lots of state intervention, it didn’t work and yet
China’s still been somewhat successful in developing its technologies in
high-tech sectors and I try to answer how they went about that in a way that
really doesn’t have to do much with a good governance market-led explanation
or a state-led explanation of development. I’m Doug Fuller and my book
is “Paper Tigers, Hidden Dragons: Firms and the Political Economy of Technological
Development in China”. the title of the book, “Paper Tigers, Hidden Dragons” basically is meant to convey the solution to this puzzle. So the Paper
Tigers are these national champions the Chinese state has tried to promote, that
basically haven’t gone anywhere. The hidden dragons are these firms that
have been neglected by the Chinese state, these hybrid firms that combine foreign
finance with China based operations that are really driving development. Sometimes
its development that the state even is forced to recognize and other times
maybe because they want to defend their policies they tried to ignore these
successful hybrid firms as much as possible. The problem with these paper
tigers are several fold. First of all, the Chinese state tends to prefer to promote
and support state-owned firms and those state-owned firms have the problem of
too much capital. They received too much support from the state-owned banking
system so they don’t really have the strong motivation that
private firms do to build their internal capacities and also because they are
vehicles for state policy they often have many other objectives assigned to
them other than improving the capabilities of the firm itself. With state procurement, basically these firms are turning further and further away
from the competitive marketplace to focus on feeding at the state trough of
procurement so it undermines any initial motivation they had for being
competitive than marketplace and this is why I also point out that it’s not only
purely state owned firms but firms that are private but become state favored
that have problems. Firms such as Lenovo because the draw of the state
procurement and state favor is so strong that it undermines their
market-based incentives. In contrast the one standout that has stayed favored and
somehow has still done well as Huawei and I would argue that’s due to their
own very peculiar strategy. They actively bucked the incentives the state gave
them to just focus on procurement and from a very early stage sought out
competition abroad. Did not really try to engage the state in these big state
sponsored projects such as td-scdma for telecommunications standards and instead
tried to compete on their own even while enjoying some state support. In contrast to these state favored firms that not only had state protected markets but
access to very cheap capital that padded their bottom lines essentially, the
hybrid firms had to do it all on their own. If they had access to capital it was
from foreign venture capital firms that were looking to make a return, they were
on much stricter terms and they had to find competitive market places to
compete in. They weren’t typically able to enter the
state procurement chains. In fact a lot of the hybrids ultimately were very
foreign market oriented precisely because that’s where the market
opportunities were. The market in China was so skewed by state favoritism
towards the state-owned firms and a few others. Why do these hybrids matter at
all for China or for how we think about the world? Well first of all these
hybrids matter because when you are assessing the performance of Chinese
firms you have to really figure out how they fit within China itself. If these
firms are very close to the state probably they’re under an incentive
structure that won’t work very well in these rapid high-tech industries. You’re
much better off finding successful firms who adopt this hybrid structure. Second
of all there are a lot of implications here for what type of policies China
should embark upon. Thus far unfortunately China seems to be doubling
down on focusing most of its industrial policy efforts on these favored firms,
particularly state-owned firms and not incorporating hybrid or even just small
private enterprises into a lot of their policymaking.
This suggests that China’s industrial policy will continue to remain
ineffective.

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