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China's "Double Whammy for Prospective Entrepreneurs"



(p. B12) China's past attempts to stoke indigenous innovation have a checkered history. A flood of cheap capital and high, state-set solar power rates in the mid-2000s secured China's place as the world's number one solar cell manufacturer. But it also led to enormous overcapacity, which sank prices and pushed debt burdens higher, making investment in real R&D more difficult. For investors, China's solar champions have been a losing proposition--American depositary receipts of top firms such as JinkoSolar are worth less than half of their peak in 2010. Robotics, a key element of Beijing's "Made in China 2025" plan to dominate high-tech manufacturing, is exhibiting similar tendencies.

The state-centric nature of China's financial system--and its weak intellectual property protection--represents a double whammy for prospective entrepreneurs. Small private-sector firms often only have access to capital through expensive shadow banking channels, and face the risk that some better connected, state-backed firm will make off with their designs--with very little recourse.



For the full story, see:

Nour Malas and Paul Overberg. "'Chinese Innovation Won't Come Easily Without U.S. Tech." The Wall Street Journal (Tuesday, March 23, 2018): B12.

(Note: the online version of the story has the date March 22, 2018, and has the title "Can China's Red Capital Really Innovate?")






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