In the above graph (University of Alberta, 2018), we can see that private industries make more value for China than state-owned enterprises (S.O.E.’s). Private companies also tend to be more environmentally friendly than S.O.E’s. Higher value will create higher wages and more jobs; the problem is that S.O.E’s are more stable, can be directed, and are an integral part of both Made in China 2025 and One Belt, One Road (CIA, 2019b).

S.O.E.’s have another advantage; they will be more willing to bear costs that won’t return financially, but will benefit China as a whole; they provide 45% of investment into mining (all of China benefits from more coal, oil, and gas), and 66% into utilities (such as water, which the people of China naturally benefit from).

How much better do Chinese private firms perform? One example is this; when the industrial market collapsed in 2015, private firms gained 2.3% profit. But S.O.E.’s lost 21.9% (Lardy, 2016). However, S.O.E.’s are more stable; they have been exporting 11% of China’s goods since 2013 (Lardy, 2016).

Private firms also provide around two-thirds of employment in urban areas in China (Lardy, 2016). Focusing on S.O.E.’s rather than private firms will lead to greater unemployment.

The Legitimacy of the Communist Party

One of the main reasons for supporting S.O.E.’s is for employment (University of Alberta, 2018). The Chinese dislike instability; people who are working, making money, these people do not have any reason to revolt or cause trouble. This keeps China stable. S.O.E.’s also provide far more for social security payments than private companies (University of Alberta, 2018). At the risk of sounding like a Chinese apologist, let me explain the mindset of the Chinese.

To help you keep this in mind; every single time the government in China changes, there is usually a massive civil war, with mass famine, death, disease, unemployment, and millions of Chinese citizens die. As long as people are fed, and getting money, obey the government, and otherwise left alone, they are left as free as they want to be, generally. Pew Research Polls show that the Chinese are satisfied (Jacques, 2019).

Another reason is this; almost every single Chinese person has at least one living grandparent who was alive during the Great Leap Forward and the Cultural Revolution. They hear stories of growing up without food, eating tree bark soap, unable to attend school to work. I have heard stories of mothers who simply sit and watch as their beautiful baby cries of hunger, unable to feed him even breast milk, because they themselves haven’t eaten and so cannot produce any. To read any of the literature, or speak to any of the people, is to bring tears to your eyes if you have a heart in your chest.

So the Chinese people today have cars; phones; jobs; go to university; get a salary; usually are not in any kind of danger; safe, stable homes; electricity turns on, gas turns on, they can eat in restaurants. In the West, we are taught they are living in an oppressive hell. To the Chinese, they are living in the most wealthy, most stable, and more prosperous time in Chinese history. Their grandparents didn’t eat; today, they have an obesity problem creeping in. This is the legitimacy of the Chinese Communist Party. To the Chinese, for whom all of the society and state are family, the government are elders who have given them prosperity and fortune; look at the nicknames. Xi-Dada (Father Xi), Mao-Yeye (Granfather Mao), etc. The state is seen as the guardian of society, as the father of society; from Confucian tradition, a good ruler was like a good father (Jacques, 2019). When one businessman who employed 29,000 people went into massive debt, he wrote a letter begging to be relieved of his debts from the local government to keep those jobs viable; it worked. The government answered (Leng, 2018). As long as China continues to improve the lives of the Chinese, the Chinese genuinely do not have much if any dislike to the government. To quote Clinton, “it’s the economy, stupid”. Money in your pocket is all that matters. A Chinese worker shrugged when confronted with potential issues over credit and government debt; “all I know is they still pay me”, he replied (Leng, 2018).

China is extremely dependant on the U.S. economy. China relies on over 40% of GDP from trade in 2017 (Zeihan, 2019a). According to one analyst, America controls the global finance and global energy markets; two markets that the Chinese must have access to, and only at the permission of the Americans (Zeihan, 2019a). Should the trade war become a traditional war, almost all exports and imports to China would cease, including 3/4 of their oil requirements, and food supplies (Zeihan, 2019c). This will cause massive problems to the stability of the Chinese government, and bring chaos, death, and worse if the state were to fall. The Chinese people by and large dislike Trump and the Americans for this; they are threatening the very way of life for China. Who wouldn’t hate such people?

The Issue of IP Theft

We must understand the Chinese perspective. They believe it is a fair deal; you want access to the Chinese market, we want access to your technology. Many of the Chinese see no problem with this law; as such, there is very little internal pressure within China to change it.

Allow to explain why technology growth matters the most out of everything else. It matters so much that one of President Xi’s main proposals, Made in China 2025, is based on this technological growth.

Firstly, try to consider this; your population is limited by your population. There is a limit to how many people can immigrate to your country. There is also a limit to how productive these people can be. A man can only farm so much land, or fill out so many pieces of paper. This is the limit of labour.

Secondly, there is a limit to capital. If you print more capital than your country is producing, the value of money will reduce, leading to inflation. You can borrow and borrow and borrow it (Keynesian economics, basically), but eventually, it has a limit it will reach and inflation becomes hyperinflation and wrecks the economy. This is the limit of capital.

Not only that, but opportunity always strikes. As such, people will always be looking for work, and people will always be looking to have more money; this means that countries in the long term will always be using all of their available resources; let’s call this full employment.

There is a third factor to growth; technology. One man can do the work of one man naturally. Give him a tractor, and he can do the work of a thousand men. One man can fill out the papers of one man. Give him a computer, and some training, and he can make an AI that will fill out all of the papers, doing the work of limitless men. Labour and capital are limited; technology provides the boundary of that limit. The more technology, the further out the limit. We call this additional factor Solow’s Residual (Schilirò, 2017).

When China joined the WTO, they did so with the condition that they would stop forced technology transfer (Clinton, 2000). However, the technology transfer, intellectual property theft happens under the Joint Venture Law (McMaster, 2019). The U.S. just want a level playing field, according to them (Economist, 2019c).

In response by the U.S., visas have become harder to obtain for Chinese students, and harder to stay in U.S. in post-graduation. Senator Rubio has said that Chinese students are sent to the United States to steal technology from the U.S. He says the motivations may range from financial to nationalistic to duress. (Economist, 2019c). The U.S. has begun to restrict these types of student visas (Kihara, 2019).

Why does this matter? China’s plan to create 10 high-tech companies to conquer these industries in the world, from robotics to AI, called Made in China 2025. Senator Marco Rubio (Republican, Florida) has called Made in China 2025 a road-map to a Chinese dominated 21st Century (Economist, 2019c).

Critics say that the U.S. is having a crisis of confidence seeing high quality goods coming from China; it has been conventional wisdom that only free societies can produce such goods and having such creativity (Economist, 2019c). China is no longer the country of copiers; it is now an innovative country which has reached this height based on already stolen technology , according to Senator Rubio (Economist, 2019c). China has been building its’ innovation for a long time, and now it is challenging the U.S.’s monopoly on innovation. Firms like TenCent, Huawei, and Alibaba are on equal footing to U.S. firms (Jacques, 2019). It certainly is spending on R&D (Duffin, 2019):