Can China create the next Apple or Nvidia?

Can China succeed in developing world-leading producer services?

In some sectors, this is already occurring.

Manufacturers such as BYD (electric vehicles), Huawei (telecommunications, semiconductors, and self-driving vehicles), Xiaomi (smartphones, electric vehicles, and appliances), and WuXi AppTec (contract R&D, and manufacturing for life sciences) have globally competitive R&D, design, and software capabilities.

Companies providing research, tech, and software services have recently recorded the fastest growth of any sector among entrants to China’s so-called “Little Giants (Opens in new window)” program – which aims to develop SMEs with world-leading capabilities in niche markets. Chinese exports of knowledge-intensive activities – such as those needed to service overseas infrastructure projects, or increasingly “smart” goods such as wind turbines – have also grown (Opens in new window) appreciably.

However, while American companies were very happy to hand over production to China, they have every incentive to retain the producer services that comprise the most profitable part of the value chain.

Furthermore, China’s usual industrial policy playbook of heavy subsidies, currency manipulation, preferential procurement, and tech transfer is not particularly well-suited (Opens in new window) to producer services.

Companies such as Apple, Nvidia, and Google are undeniably jewels in the crown of US capitalism. Their origin stories are distinctively American, including their roots (Opens in new window) in Silicon Valley’s freewheeling venture capital scene. However, they are also inherently global companies, characterised by a largely unfettered openness to talent, technology, capital, and ideas.

This raises a deeper question: can companies like this arise in a country whose economic culture is based on security and self-sufficiency?

An offshoot of this ethos is an obsession with hardware and vertical integration. It’s incredibly difficult to imagine many companies in China adopting Apple’s model – designing everything in-house but outsourcing the manufacturing to whichever supplier does it best.

Even those that are trying, such as the Chinese companies aspiring to compete with Nvidia, face a cocktail of export control restrictions (Opens in new window) and political pressure to use domestic suppliers.

While China will continue to produce cutting-edge producer services, replicating the success of companies like Apple and Nvidia may test the limits of Chinese economic exceptionalism.