Who takes away American jobs? Some foreign scholars say that China's photovoltaic and LCD TV industries enjoy the results of basic innovations in the United States, but do not leave manufacturing opportunities in North America.

Who is taking away American jobs?

Lin Xueping: It’s not that the United States doesn’t want to keep industries like photovoltaics or LCD TVs in its home country, but it’s just that it can’t. Take the photovoltaic industry as an example. Photovoltaics was first used in aerospace vehicles in the United States. After government subsidies from Germany and roof applications in Japan, the photovoltaic industry passed its infancy. The fourth step was handed over to China. China invested a lot of capital to form a complex supply chain in power stations, photovoltaic modules, cells, processing equipment and other links, and then gradually formed large-scale manufacturing and finally realized the commercialization of photovoltaics.

There is actually a huge gap from technology in the laboratory to real commercialization. In many industrial fields, even if American entrepreneurs are willing to fill the gap, the structure of the American manufacturing industry cannot support it, making it difficult to quickly industrialize emerging industries. For a long time, the climbing efficiency of emerging industries or the iterative efficiency of mature industries has not been a path that the United States is good at. Therefore, it is not that industries like the United States have been taken away, but that they themselves cannot retain them.

Rather than saying that someone is taking American jobs, it is better to say that it is the result of the active design of Wall Street in the United States. Wall Street, which values ​​the efficiency of the capital market, believes that bulky factories and large numbers of workers will drag down profit margins, and strongly advocates asset-light operations that are divorced from manufacturing. Beginning in the 1970s, multinational companies became the pioneers and divested factories that represented heavy assets. Since then, manufacturing and design have been separated. This is an active design process and is the result of the United States' own choice of industrial structure, rather than who is going to steal American jobs.

In fact, in the 1970s, Americans also believed that Japan and South Korea were taking away their jobs. Japanese cars have experienced a very fierce boycott in the United States. Americans drove Japanese Toyota cars into the streets and smashed them and burned them in public. Now, American politicians have used the technique of time and space displacement to forcibly insert TV scenes from the past into today's live broadcasts, making the outside world feel as if the Chinese have taken American jobs. This is a man-made historical illusion.

Global Times: The Biden administration in the United States has adopted a series of measures including the "Chip and Science Act" to try to cut off the supply chain of products to Chinese technology companies in many fields. How should China respond?

Lin Xueping: Chips were originally integrated from design to manufacturing, but starting in the 1980s, chip design and manufacturing began to be separated. For example, Qualcomm only did chip design and handed over manufacturing to companies like TSMC, which promoted the great prosperity of the chip industry. Now, a chip needs to travel repeatedly between the United States, Japan, Germany, Malaysia, and China, starting from architecture design, to raw materials, manufacturing, packaging and testing, and traveling 50,000 kilometers around the world. The United States is destroying the already formed global division of labor and hopes to keep more chip manufacturing at home. I think this is a "stress response" or even an "overreaction" by the United States.

What the United States calls "hollowing out" is actually the loss of low-tech manufacturing, leading to problems in the connection between high-end manufacturing and low-tech manufacturing. In the early stage of bringing innovative products to the market, a lot of supply chain cooperation is required. Industries such as circuit boards and metal structural parts also need to operate at high speed to truly realize the intentions of R&D engineers. The absence of low-tech manufacturing will affect the speed of innovation. But on the other hand, the United States itself does not lack high-end manufacturing. Its manufacturing capabilities in biomedicine, aerospace, high-end instruments and other fields have always been strong, and its chip manufacturing capacity accounts for 12% of the world's total. The current approach of the United States actually undermines the stable order established by chips and blocks the free flow pipeline.

But I think that the United States’ “re-industrialization” ambition is not the most difficult problem that China needs to deal with. Our real rivals are "near-shoring" and "friendly-shoring" cultivated by the United States. This includes developments in Mexico and Canada, as well as value-based supply chain fencing. The large number of newly developed parallel supply chains in India, Mexico, and Vietnam require more attention.

India's mobile phone manufacturing industry is developing rapidly

Global Times: What are the main threats to China’s supply chain from India?

Lin Xueping: It is not easy to observe the substitution of China's supply chain by different countries and regions. But overall, India poses the greatest threat to China. On the one hand, India’s large population means it has a sizable single market. Indian automobiles have surpassed Japan and become the third largest market after China and the United States. This is a market condition that other countries, such as Vietnam with a population of 100 million and Mexico with a population of 130 million, do not have.

On the other hand, the Indian government’s manufacturing ambitions are also taking root step by step. In the past two years, the fastest growing industry in India has actually been the mobile phone manufacturing industry. India was also an importer of smartphones in 2018, with imports exceeding US$2 billion. In 2022, India's total mobile phone exports will exceed US$11 billion.

This huge reversal shows that the growth of the mobile phone industry does not actually require a long cycle. In 2014, only 19% of Indian mobile phones were made locally. In 2022, this proportion increased to 98%. This shows that India has made a very big breakthrough in the mobile phone industry, which is the most typical global division of labor. Apple's supporting role behind this is very obvious.

Adjustments to Apple’s supply chain have huge impact

Global Times: At a time when the supply chain is being diverted, some people think that Apple is not that important. From a supply chain perspective, what impact will it have if Apple leaves?

Lin Xueping: Apple is a successful chain builder. It has taught and trained a large number of suppliers "step by step". It is like a jack that pushes up the manufacturing capacity of the entire industry. We cannot bear the pain of Apple leaving. Good brand manufacturers will pose countless manufacturing problems to the upstream supply chain, and Apple's design engineers will also pose countless problems to China's electronics manufacturing supply chain. Apple has strict requirements on various technical parameters such as power consumption, aesthetics, communication, speed, etc. It can be said that each generation of Apple's product updates is like a river scouring its bed, constantly refreshing manufacturing limits, and China's manufacturing capabilities benefit from this.

If Apple leaves China, it looks like Huawei, Xiaomi, etc. can fill this capacity. However, this kind of production capacity can only meet the Chinese market share, but cannot participate in the global market of Apple products. Of course, Apple has 25% market share in China and currently has no plans to leave China entirely.

But Apple is indeed making big plans and hopes that its production and manufacturing will not be too dependent on China, and India is a good alternative. This is a huge game, and this game will continue in the future.

Global Times: Can China cultivate chain builders like Apple?

Lin Xueping: China also has very powerful chain owners. Take the air suspension system in the automotive industry as an example. This system can greatly reduce car bumps. It used to be standard equipment for luxury cars worth 600,000 yuan or even 800,000 yuan. For a long time, air suspension suppliers were basically monopolized by companies like Continental. However, the rise of the new electric vehicle force "Nio" (Nio, Xpeng, Li Auto) has changed this situation. These new forces have entered the high-value area of ​​automobiles from the beginning, and the launched vehicles are all priced around 400,000 yuan. The air suspension system that was only available on luxury cars in the past has become a domestic car configuration. Around this demand, the automobile industry has established a domestic supply chain. Zhejiang Konghui Automotive Technology has only been established for five years, but it already accounts for 40% of China's air suspension system share. The air suspension system has also driven the key solenoid valve industry, and domestic solenoid valve manufacturers have also grown up.

The rise of "Wei Xiaoli" has improved China's manufacturing capabilities in a deeper sense and changed the pattern of Chinese auto parts being locked in the low-end market. The contribution of these chain builders to improving supply chain capabilities has actually been far underestimated. With the help of upstream and downstream automotive suppliers, the technological content of China's electric vehicle industry has been significantly improved. Electric vehicles have entered a window period of rapid growth, catching established Western automobile companies off guard. This is the power of chain owners to reshape the supply chain, which brings good development opportunities to Chinese enterprises.