Yuanpu Huang: The Great Opportunity for Chinese Brands to Go Global under Bipolar Pattern

Communication Author: 黄渊普 Editor: Mingmin Zhang May 17, 2023 06:26 PM (GMT+8)

On May 17, the "Sixth Overseas Warehouses Congress" hosted by ECCANG was successfully held in Ningbo. Huang Yuanpu, the founder of EqualOcean, was invited to deliver a speech on the theme of "Long China from a Global Perspective" and here we present the edited transcript.

Huang Yuanpu

Thanks for the invitation from the organizer, ECCANG. Today, I come to the city of Ningbo with a mindset of learning. I was born in Shaoyang, Hunan, and pursued my undergraduate and master's degrees in Beijing. After working for a period of time, I founded the scientific and technological innovation think tank, EO Intelligence. We have conducted one-on-one interviews and reported on almost all Chinese startups that have received VC funding. In 2018, I established EqualOcean, a think tank that focuses on global expansion, to help Chinese companies go global. In order to better engage in globalization, a few years ago, I pursued an MBA in New York, USA, and also established a branch office there. After returning to China in 2022, I relocated to Shanghai and became a resident of this vibrant city.

My hometown, Shaoyang, is home to two remarkable figures worth mentioning. One is Zhang Xiaolong, the "Father of WeChat," and the other is Wei Yuan. I won't delve too much into Zhang Xiaolong as I'm sure everyone has heard of him. However, I'd like to introduce Wei Yuan, who is acclaimed as the "first person in modern China to open eyes to the world." In 1843, 180 years ago, Wei Yuan published a book called "Illustrated Treatise on the Maritime Kingdoms" (Hai Guo Tu Zhi), in which he formally advocated the slogan "Learn from the West to surpass the West," enlightening an era.

In the same year, 1843, Shanghai officially became a treaty port in accordance with the Nanjing Treaty and the Regulations of the Five Ports. One of the effects of Shanghai's opening as a treaty port was the gradual shift of the center of Sino-foreign trade from Guangzhou to Shanghai. Against this backdrop, while other major business groups, known as the "Ten Great Merchant Families," generally declined during modern times, the Ningbo Merchant Family, benefiting from its development in Shanghai, stood out and created numerous firsts in the history of Chinese commerce and industry.

Later on, the influence of the Ningbo Merchant Family extended from Shanghai to Wuhan, Tianjin, Hong Kong, Southeast Asia, and eventually to various parts of the world. They achieved one glorious success after another. The adventurous, innovative, trustworthy, and pragmatic spirit of the people from Ningbo is truly admirable.

I particularly appreciate a characteristic shared by many people from Ningbo: "Love for their hometown without being attached to their native soil," and I count myself among those who possess this trait. Due to my professional background in international relations and my role in a business think tank, I frequently travel to different countries. Since January of this year, I have already visited over 10 countries, and I have plans to visit another 10 countries for research purposes. Today, the organizer, ECCANG, has given me the topic of "Long China from a Global Perspective." In the following discussion, I will share my observations, experiences, and insights, combining them with the knowledge gained from my readings. I welcome your corrections and the opportunity to engage in dialogue with all of you.

Firstly, I would like to discuss a major question: What significant changes are happening in the world?

Let's take four time points—1992, 2002, 2012, and 2022—as references to examine the share of the global economy held by the United States and China. We will notice that since 1992, the proportion of the U.S. economy has remained relatively stable, at around 25%. On the other hand, China's share has experienced rapid growth, rising from 4.4% to 18.5%. Behind these numbers, we see a significant decline in the share of countries such as Japan, Germany, and the United Kingdom.

We can predict that for a considerable period of time in the future, there will be two superpowers with GDP exceeding $20 trillion. However, there will be a long-term absence of countries in the GDP range of $10 trillion to $20 trillion. If the Japanese economy continues to decline, there may also be a lack of countries with GDP in the range of $5 trillion to $10 trillion for a certain period of time.

What does this imply? It indicates that the current world has entered a typical "bipolar structure." There are several common types used to describe the world order: unipolar, bipolar, and multipolar. From the end of World War II until the dissolution of the Soviet Union in 1991 and the end of the Cold War, the prevailing view was that the world was in a bipolar structure. In the following two decades, many believed the world had transitioned into a multipolar structure. However, a more accurate description would be a unipolar structure with one superpower and several strong powers. During this period, the world experienced relative peace and stability.

Indeed, a true multipolar structure can be harsh, resembling the Spring and Autumn Period and the Warring States period in China's history or the prolonged conflicts between European countries in modern times. Surprisingly, the most stable structure is the unipolar one, where there is a clear dominant power and overall adherence to rules. The bipolar structure, on the other hand, can be precarious. If well managed, it can lead to a Cold War scenario, but if mishandled, it can escalate into a hot war.

That is the so-called "Thucydides Trap," which refers to the notion that a rising power will inevitably challenge the status of an established power, and the established power will in turn take measures to contain and suppress the rising power. The conflict between the two, and even war, becomes almost unavoidable. The Thucydides Trap is considered a "iron law" of international relations because it has been repeatedly validated throughout history.

One potential counterexample to the Thucydides Trap is the transfer of world hegemony from the United Kingdom to the United States. During this process, there were no major conflicts between the two countries. However, upon closer examination of history, we find that the transition from Britain to the United States was also a fiercely ruthless process, despite sharing the same language and culture. The transfer of hegemony was accompanied by two world wars, causing unprecedented calamities for humanity.

Therefore, it is crucial to have an objective understanding of two points: Firstly, the current state of China-US relations, though regrettable, cannot be attributed to either side's initial subjective intention, nor does it depend heavily on who the leaders are. Secondly, the conflicts between China and the United States are likely to persist for a long time, and it is important not to harbor illusions. There is still significant room for further deterioration in the relationship between the two sides.

Allow me to clarify further. The "Thucydides Trap" suggests that the situation can only be resolved once there is a clear winner and loser among the parties involved. A fundamental judgment is that both China and the United States possess their unique strengths, making it unlikely for either side to easily defeat the other. Several years ago, when discussing within EqualOcean, I shared the viewpoint that it would be difficult for a clear winner or loser to emerge between China and the United States before the year 2049.

It is important for those who are overly confident in China and overly pessimistic about the United States to avoid being blindly self-assured. Even in its decline, the United States will undergo a protracted process. Similarly, those who underestimate China and overly praise the United States should not underestimate themselves. China continues to develop towards approaching and surpassing the overall strength of the United States. In the coming decade, we can expect China's GDP to surpass that of the United States, with technological and military capabilities following suit, albeit at a later stage. Soft power elements such as education may take even longer to catch up.

In April of this year, I initiated a top-tier industry organization and community called the "GoGlobal Committee of 100". In the WeChat group, an expert on China-US relations shared an interesting perspective: the China-US relations would not improve until Taiwan is reintegrated, and even within five years after the reunification of Taiwan, the relations would still be strained. Therefore, he believes that it would be difficult to see any significant improvement in the relationship for at least 15 years. Compared to my own views, this expert is relatively more optimistic.

In this world, which is expected to remain in a bipolar pattern of conflict between China and the United States for a long time, the question arises: who has a better chance of prevailing?

Returning to the earlier discussion of the glorious rise of the "Ningbo Business Guild" with the establishment of the Shanghai port in 1843, we can draw a valuable lesson: while individual efforts are important, historical opportunities have a greater impact on individual success. The evolution of the bipolar pattern between China and the United States will result in two possibilities: firstly, China will significantly surpass the United States in overall strength (such as having a GDP twice that of the United States and matching or exceeding the United States in technological and military capabilities); secondly, China will ultimately fall behind the United States under the pressure exerted by the United States (such as having a GDP less than half of the United States).

For the vast majority of Chinese entrepreneurs and overseas Chinese, the occurrence of the first scenario is the historical opportunity they aspire to. If the second scenario were to unfold, most Chinese people and overseas Chinese would be on the losing side. Having a positive outlook on China is not only politically correct but also in our best interest. Personally, I unconditionally have a positive view of China based on my emotional attachment, and from my observations, I also believe that China has a greater chance of prevailing.

China and the United States operate on two different systems, each with its own advantages. China, with its collectivist approach, excels at "mobilizing resources for major undertakings," while the individualistic nature of the United States fosters individual creativity. Therefore, it is important not to mock the United States for its perceived lack of capability in infrastructure development, nor should one be overly disappointed with criticisms of China's originality and innovative spirit. The key question is: Which country can better learn from and draw upon the strengths of the other?

I believe many of you here may know some American friends. You can ask them: Who has a better understanding of the other country, China's understanding of the United States or the United States' understanding of China? Who is more proactive in learning, China learning from the United States or the United States learning from China? When I was studying for my MBA in the United States, I was the only Chinese student in my class. Personally, I would say that China's elites have a strong understanding of the advantages of the United States and are eager to actively learn from them. On the other hand, the elites in the United States have limited understanding of China's advantages and are unwilling to make changes.

I and many others hold a different viewpoint: I believe that the current Chinese system is still open and actively seeks to absorb advanced experiences from the outside world. On the other hand, due to its long-standing position as the world's leading power, the United States' system has become too closed off to effectively embrace external good practices. There is a great book called "The Innovator's Dilemma" that highlights an interesting point: the more successful a company or entity is in one era, the more difficult it often becomes for them to change and seize new opportunities in the next era.

In the feudal era, China was once a world leader for an extended period, but it had a slow perception of the drastic changes in the outside world and was reluctant to change itself. As for the United States today, when faced with significant changes in the external world, the focus seems to be on changing others rather than quickly adapting themselves. Success is built upon the ability to adapt and change.

While a minority of elite individuals in the United States have recognized the problem, the cost of self-innovation is often high. Many times, it is not a lack of willingness but rather the difficulty of bearing the costs. Additionally, with the rotation of power between two political parties, it becomes challenging to implement long-term strategies consistently. When Biden came into office, he overturned almost all of Trump's policies, and if Trump were to return to power, he would likely overturn all of Biden's policies.

Of course, it can also be argued that this is precisely the strength of the United States. Regardless of who the president is, or even if the president is eccentric, the fundamentals of the United States do not undergo significant changes. However, everything has two sides, and we should not only focus on the positive aspects but also acknowledge the negative ones. Thus, while we see that the United States is highly free, we also see the challenges it faces in terms of public safety and its difficulties in effecting change. We recognize the diversity in the United States but also witness the escalating conflicts based on racial tensions.

The greatest risk for the United States lies in the next 20 to 30 years when the proportion of white people in the total population will fall below 50%. The increasing diversity may further exacerbate contradictions and conflicts within the country.

What historical opportunities will arise when China returns to the top of the world?

China also faces many issues, such as the challenges posed by an aging population that are difficult to resolve. Today, we will not discuss the problems that China is facing. Instead, I will share an observation: throughout Chinese history, dynasties have experienced a period of prosperity or greatness around their 100th anniversary.

During the Han Dynasty, the reign of Emperor Wu occurred around the 100th anniversary of its founding. Around the 100th anniversary of the Tang Dynasty, the early years of Emperor Xuanzong's Kaiyuan era witnessed a flourishing period. In the Ming Dynasty, around its 100th anniversary, the reign of Chenghua was controversial but marked a period of overall strength, particularly with almost undefeated military achievements. And during the Qing Dynasty, around its 100th anniversary, the early years of Emperor Qianlong's reign were notable. The concept of "Great Again" or the "Great Rejuvenation" may not be familiar to most countries, but for China, it is seen as a regular return to its historical position.

Therefore, China's return to the top of the world is not based on blind confidence. Instead of questioning this judgment excessively, it is perhaps more pertinent to ask: What comes after China's return to the top? Today's topic is not to answer this question but to explore another: What historical opportunities will arise during China's process of reclaiming the top position in the world?

Without delving into other aspects, in terms of globalization, China's advantages in digitization, intelligence, and new energy will inevitably foster a multitude of world-class brands. China's history of "closing its doors to the world" and enduring a century of humiliation has provided profound lessons: the importance of adhering to a high level of openness to the outside world.

This year marks the tenth anniversary of the Belt and Road Initiative, and events such as the 3rd CHINA-CEEC EXPO & International Consumer Goods Fair being held in Ningbo showcase the comprehensive strategic importance of China. Many people may spot some shortcomings and thus underestimate the significance of China's national grand strategy. However, it is worth noting that currently, China is the largest trading partner for approximately 70% of countries or regions worldwide. During the Cold War, the Soviet Union, despite its military strength, lacked sufficient economic and trade connections with the world, which put it at a disadvantage compared to the United States. Today, China's relative strength is far greater than that of the former Soviet Union, while the relative strength of the United States today is significantly weaker than during the Cold War.

EqualOcean believes that for Chinese companies, GoGlobal will be the biggest trend in the next 20 years. From product expansion to brand and capital expansion, and further to model and standard expansion, China and Chinese enterprises will define a new era of globalization that is distinct from the previous era. In the backdrop of the conflict between the two superpowers, China and the United States, opportunities in the new era of globalization for Chinese entrepreneurs and businesspeople possess the following characteristics:

The new era of globalization is characterized by a parallel regionalization and globalization, necessitating a reshaping of the global perspective. In terms of regions, currently, North America and Europe account for about 60% of the business of many Chinese foreign trade and global companies. However, as cooperation between China and countries along the Belt and Road deepens, non-Western regions such as Southeast Asia, the Middle East, Latin America, and Central Asia will account for more than 60%. This requires us to reshape our perspective on the new era of globalization: we must break free from the "Western-centric" viewpoint and give equal importance to the countries along the Belt and Road. As you may have already noticed, the historic reconciliation between Saudi Arabia and Iran and the China-Central Asia Summit to be held in Xi'an on May 18 are both noteworthy events.

The importance of maritime power and ports will decline in the new era, leading to a redistribution of power and interests. After the accelerated connection of the Chinese railway network with countries in Europe and Asia, it will gradually drive the revival of the land-based Silk Road. Hub cities such as Xi'an and Nanning will benefit from this development. Additionally, airports will erode some advantages of seaports, and hub cities such as Chengdu and Zhengzhou will reap the dividends of their airport infrastructure. The reduced significance of maritime power and ports will not only affect the global distribution of power on a larger scale but also result in the transformation of industrial belts. Previously, the disadvantages of inland cities compared to coastal cities will be relatively mitigated.

The structural changes occurring in the field of global expansion will further accelerate. China's previous overseas expansion heavily relied on the "old three" industries of furniture, household appliances, and clothing. However, the "new three" industries represented by electric vehicles, new energy batteries, and photovoltaic solar power have now become the new driving force. Overall, the irreversible shift of China's low-end supply chain to overseas markets means that domestic industries must continuously move towards higher value-added and high-tech sectors. The new generation of global entrepreneurs is rapidly replacing traditional foreign trade professionals and becoming the trendsetters of the new era. As the tide rises, some companies that fail to keep up will be submerged, while those that seize new opportunities will be more successful than ever before. Even with technological barriers, it will become increasingly difficult to secure foreign OEM business, making the development of independent brands a necessary path for companies to pursue.

In the new era of becoming stronger, only brands with global competitiveness will be favored. The competition between China and the United States is not only reflected in the military realm but, more importantly, in the economic interests and soft power struggle on a global scale. Especially in terms of soft power, China still lags behind the United States, and it requires Chinese brands to fill this gap. The export of low-quality and low-priced goods has harmed China's soft power and will not be a friend of time. On the other hand, the globalization expansion of companies focusing on "specialization, sophistication, and innovation" and advanced manufacturing is the right path from a historical perspective.

180 years ago, China's foreign trade center shifted from Guangzhou to Shanghai, greatly benefiting the entire Yangtze River Delta region. Today, both the Pearl River Delta and the Yangtze River Delta have their respective advantages. Personally, I live in Shanghai but frequently travel to Shenzhen. In the direction of global expansion, companies in Shanghai tend to be more stable, while those in Shenzhen are more inclined to be disruptive.

Overall, Shenzhen has a stronger entrepreneurial and innovative spirit. In the past, China was a follower, and it was reasonable to prioritize foreign investment and provide services to foreign companies. However, as China moves towards a leadership role, it must pursue both ends of the "smiling curve" and be willing to invest in research and development and build brands. As a city with a deep historical background, Ningbo should encourage those who dare to be the first to take risks and innovate.

In the historical process of the new globalization, EqualOcean, as a top-level think tank in the field of global expansion, is committed to providing global strategic planning, international brand positioning, overseas industry and market research, and building high-end resource networks for leading companies in various industries. EqualOcean believes that discussing globalization today is as evident as discussing e-commerce and the internet ten years ago. In the context of China's resurgence as a global leader, global expansion presents both a historical opportunity and a necessary path for enterprise upgrading.

Let's seize this opportunity of the era and embrace globalization with a positive outlook on China. Finally, from June 1st to 2nd, we will hold the 2023 EqualOcean Summit for Globalization(ESG2023) in Shenzhen. Everyone is welcome to sign up and participate.

Thank you all for listening!