America Needs a Smart Industrial Policy in Asia
While the United States hates the concept of government intervention in the marketplace, the European Union is much more sanguine and once again toying with the prospect of industrial nurturing and protected markets.
This month, Germany has proposed European industrial policy and collaboration to protect the crown jewels of Europe’s economy from growing Chinese acquisition. China’s policy of enforcing intellectual property controls and fencing off domestic markets to prevent leakages, while utilizing its immense consumption power to influence corporate decisions on a global scale, is spooking the West into action.
While the United States dithered on the 737-Max grounding, the Civil Aviation Authority of China (CAAC) instituted an immediate shutdown. As the world’s second largest aviation market, this gave the justification for the rest of the OECD to suspend the Boeing aircraft. It was also a singular act that bolstered Beijing’s reputation for global safety standards. At a time when the United States is known more for policy paralysis and growing isolationism, the contrast in reactions couldn’t have been sharper. In less than a week, Xi Jinping obtained Italy’s entry into the Belt and Road initiative and signed $45 billion in deals with Paris, despite Macron’s public misgivings about Chinese geo-economics. This is a move straight out of the Art of War. The U.S. must take heed.
China’s merger of international diplomacy with corporate investment and strategic market penetration is not alien to America’s Asian allies. Seoul and Tokyo practice quieter variants of this with success. Even tiny Singapore has several international sovereign wealth funds that extend industrial advantages, nurture technology and engage in market competitive practices abroad. The practice does not have to mean moribund bureaucracy or preferential treatment of industrial champions. It’s time to leave the image of steel and automobile tariffs behind.
Japan’s Softbank Vision Fund, privately run but quietly supported by Tokyo, is the New Economy’s biggest winner in terms of absorbing industrial 4.0 technology and placing bets on the rising tide of 5G. Softbank has quietly placed bets on equipment makers and major startups from across Eurasia and Silicon Valley. Getting the Saudi Crown Prince to join a fund that has Ant Financial and Uber under its umbrella, is no easy feat in this era of rising geo-economic tension.
Silicon Valley’s lead in venture capital activity has halved in the last two decades, as global technology activity has accelerated in the Indo-Pacific past U.S. domestic markets. The blossoming of new tech in China’s Greater Bay area has spilled across Southeast Asia, onto the boomtowns of Manila, Ho Chi Minh City, and Jakarta. The European Union and Israel are leaping into action for fear of being left behind. Every month, more Israeli VC and tech investment flowers in Shenzhen while mainland Chinese investors divert online activity and financial flows to the Philippines.
ASEAN is a result of active American involvement and its industrial markets have been a mainstay of U.S. corporate investment for almost five decades. But the fresh round of growth, led by real estate, financial offshoring, and the coming 5G revolution, is elusive to Silicon Valley as the nature of the global economic center of gravity has shifted rapidly to the Asian heartland. The Japanese, having never lifted their finger from the pulse, are actively ensuring that Beijing is not the only beneficiary from this new round. But there is a dearth of market-friendly response from Washington.
Fintech and its promise of subverting the global financial order is something on every investment banker’s radar. Keenly aware of this, Beijing has quietly assented to the offshoring of Chinese funds and online activity in ASEAN. While the average size of each economy is small, collectively they constitute the most exciting innovation showcase for China’s techno-nationalist aspirations. Having already led the way in cashless and online payments, both Tencent and Ant Financial have made landfall in the Philippines since 2016. The Philippine press is warning of the sharp uptick in Chinese online gaming investment and its association with local triad activity. That trilateral association between online gaming, moving of financial assets abroad as assurances against a slowing economy and possible criminal activity, is something that should be raising eyebrows in Washington.
Relying on the American private sector is simply too slow and waiting for Silicon Valley to charge into this brave new world is also taking forever. As there are growing calls for a 21st-century interpretation of the New Deal in the U.S., perhaps it’s time to look at industrial policy with a fresh perspective.