A Toast to the Capitalist Republic of China

China's turn to dominate Asia, economically and politically, has come. It may take years, possibly more than a decade, for this to play out, but eventually China is bound to become the leading force in Asia. The signs of China's growing clout are evident already in the little tidbits of economic and business news coming out of the region, and I came to two conclusions after reviewing another such news item concerning Lenovo and NEC.

First, not only has China — once the playground of Japan's military, which savaged the country during the first half of the last century — surpassed the former colonial master as the world's second-biggest economy, it has also been making the kind of deals capitalist societies supposedly do best.

Secondly, if what China practices as an economist system can still be described as a socialist/communist system, I would suggest we immediately start redefining capitalism. If the West hasn't formally done this already, I would on behalf of everyone like to welcome the People's Capitalist Republic of China to the exclusive club of the world's biggest power and business brokers.

By accepting China's transformation into a capitalist system (albeit with a faulty political twist), we can openly embrace and celebrate the completion of China's conversion; throw out our (and their) pretentions about the country's role, position, and influence in the global economy; and encourage governments and companies to conduct trade relations with the country on the following basis: equality of access; common international commerce laws; internationally-accepted labor practices; and, very importantly, free movement of goods, capital, and a freely convertible currency.

All right, this outburst didn't just come out of nowhere. I woke up to an interesting piece of news from {complink 9284|Lenovo Group Ltd.} and {complink 3638|NEC Corp.} today and realized the world has arrived at a tipping point in the position of China as a global economic power. The report stated that Lenovo, the Chinese PC and consumer electronics company that years ago acquired the personal computer business of {complink 2470|IBM Corp.}, has finally completed similar steps initiated earlier this year to acquire a similar operation from NEC.

The new business, packaged as a joint venture between Lenovo and NEC, will become Japan's number one PC manufacturer and control “nearly 25 percent of Japan's PC market, with a strong presence in both the commercial/government sector and in consumer sales,” according to the press statement. Kudos to Lenovo, which will own 51 percent of the business named NEC Lenovo Japan. The company will be headed by Roderick Lappin, president of Lenovo Japan Ltd., as executive chairman, while the NEC group will contribute Nobuhiro Endo, currently president and representative director of NEC Personal Computers Ltd., as president and CEO.

That's only one part of the story. The more interesting element comes from a statement credited to Endo. The two companies, he said, have the following wish list:

    With this alliance, both companies will continue to progress and be committed to Japanese PC users as well as contributing more to the growth of the PC market in Japan. We will also strengthen our efforts to achieve the No.1 customer satisfaction for our quality, function and service. Furthermore, based on this strategic partnership, we will continue to discuss and assess new opportunities with this global partnership.

Could the “new opportunities” referred to possibly include tighter collaboration, additional joint ventures in other business segments in Japan, and alliances beyond the Japanese shores? It should. In fact, I suggest we will one day see a Chinese company acquire full control of a major Japanese electronics manufacturer.

The Lenovo-NEC joint venture is a step in the right direction for both companies, their respective headquarter countries, and the global business community. Breaking into Japan's tightly knit high-tech community is tough, as many North American and European OEM executives can attest. Analysts and other industry observers will insist that NEC partnered with Lenovo in a commodity PC business and will not, now or in future, give up its crown jewels.

I say: Keep dreaming. The armories of China's leading companies are filled with cash, and they aren't afraid to use it. Plus, having tasted success at home with their quasi-communist economic system, they are eager for the real thing abroad. Heck, even NEC itself is fair game.

10 comments on “A Toast to the Capitalist Republic of China

  1. Nemos
    July 5, 2011

    China is a “hardcore” capitalist country, and the term “communist” make sense only in souvenirs. China it is growing too fast and the move that Levono did confirm this.

    However, before do a toast to the Capitalist republic of China, I want to mention the followings:

    China has and uses a huge labor force and most of the times get paid  with low salaries.

    Some Products from china still have the rumor of “bad quality” products.


    July 5, 2011

    I believe it is inevitable that China will grow in economic strength by first forging links with external companies and then going it alone to dominate key markets. One interesting question relates to what will happen when the Chinese labor force awakens to the realization that they should expect the same standard of living and work environment as the more developed nations.  How then will this affect Chinese productivity and global competitiveness?  I do believe the Chinese people are very entrepreneureal and eager to succeed so this will serve them well in future.

  3. HM
    July 5, 2011

    sure why not.

    That is a title nobody will miss!

    I am hoping Japanese quality and Chinese price come together. I have seen that Lenovo has already released low priced laptops in the market compared to their older $1000 laptops. Is this a result of Chin-Japan tie up! Let us wait for reasonably priced quality products in the market.


  4. Jay_Bond
    July 6, 2011

    China's growth and moving up the rankings was bound to happen sometime. Like we've said in previous articles, it's just a matter of time before China overtakes the U.S. Hopefully the M&A's of the companies will help create a better more affordable product.

  5. prabhakar_deosthali
    July 6, 2011

    China has become the economical super power of Asia today.  With a very stable political system ( communism it may be)  it is able to focus on long term growth and economical prosperity. With its huge labor force which is willing to put in hard work day in and day out is the real power of China . In the last decade this long term stability and vision has also made China a leading nation even in Sports – Olympics and Tennis where earlier you could hardly see china's participation.

    Compare this with the politically not very stable democratic system of India, which is lagging much behind China and other Asian nations like Korea and Taiwan. Democracy is giving the freddom of expression to every one alright. But many times it has been counterproductive when working on long term goals for a nation.

  6. Ariella
    July 6, 2011

    Back in the late 19080s, I took a class taught by aneconomics professor who was convinced Japan would take over the US. There was no way to foresee the events that made that prevented his prediction from being realized. There are so many factors involved ina global economy that it is impossible to make such prediction with any real certainty. 

  7. HM
    July 6, 2011

    Even though we are talking about how China is growing… the other important matter is how Japan is recovering. I think right now is a time when Japan and China can really shake hands.

    A huge portion of Japan's politcians and population who stayed back from shaking hands with China can now come forward. They are still recovering from the major natural disaster they had three months ago and collaboration with China will be a great help. On the other side this will also help China build a good image in front of its own people and rest of the world.


  8. SemiMike
    July 7, 2011

    To prabhakar_deosthali:  Re: The “India lagging” comment, my personal feeling is that this is due to the agricultural and service base in India, with almost no manufacturing compared to China.  All great countries used their manufacturing strength to teach discipline in productivity growth, and train several generations of hard working people while creating a middle class (see Economist debate this week online over these issues).   I also see that India has finally decided it needs some manufacturing.  Russia found out that it could not really support manufacturing without capitalist-style competition, learning cycles, and now they are on a roll.  So the combination of capitalist competitiveness and hardware as well as service products could drive India to eliminate corruption and stabilize the infrastructure needed for manufacturing AND high tech services.   Similarly, all great countries used protective tariffs to get rich, protecting their manufacturing base as long as they could.  But now they do not allow emergy nations to do at they did long ago, and ban protectionism.  Sorry, but that is part of the process.   And China knows this, just as Japan knew it.  India has wasted too many years on islands of services as only source of GDP…in my opinion.  And China, like Russia, is learning that competition works.  And a free global press will help them migrate to more democratic processes, while it suggests to India how to get more competitive in manufacturing.

    Democracy is not the problem in India.  It is corruption and too many Western advisors tell them that they can build a nation on services alone, just as their earlier Russian advisors mis-quided them, and like the British divided them and kept them “in their place.”  They must get beyond all that bad advice, and modernize the infrastructure, stop agonizing over Pakistan and China, and move on.  Just my opinion.

  9. Anand
    July 8, 2011

    “Democracy is not the problem in India”

    @MClayton200, I totally agree with you opinion. Democracy is never a problem. For that matter even USA is democratic country. Its the attitude and willingness of the people that matters. Things are changing in India slowly but steadily. People are forcing the government to implement tougher anti-corruption laws. Supreme court is sending senior ministers to Jail. I am sure system cleaning up will take some time. Lets hope by next decade we will see new resurgent India.




  10. SemiMike
    July 8, 2011

    Quality problems are common with new manufacturing capabilties.

    In the 1970's, the US TV makers had terrible quality.

    Motorola in its production line near Chicago had to rework every TV coming down the line, testing until they seemed OK.  They sold out to Japanese, and in SAME plant with SAME workers, new owners eliminated the rework and after a few years, TV's made by Japanese companies were not even turned on until the final customer got them. Any bad ones (very few) they replaced.  That new quality level was Six Sigma and is now days Seven Sigma.  

    That compares with 2 sigma level at old Motorola plant. That was one of the reasons that Motorola Mgmt kicked off the reach reach-out quality goal of 6 sigma capability, a huge success.  But even that ran out of steam without parallel efforts in cycle time reduction, and eventual globalization of supply chain.

    China, like Korea before them, and Japan before them, will improve quality. They just have to focus on building in the quality instead of only testing it in.  The trick is to pass on some benefits to the workers, so you have customers!   But also innovate new products with new knowledge of “design for manufacturability, reliabilty and performance” as they move along the learning curve.  It will happen.  

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