It’s McDonald’s One, China Zero

Those who wish for a new “Chinese model of capitalism” fail to appreciate that Beijing already has an economic system that its leadership likes quite well. It is a mixture of the classic command system developed by the Soviet Union and the collaborative public-private approach employed by authoritarian states such as Nazi Germany. It works to an extent providing a basis for developing basic industrial capabilities and traditional manufacturing sectors. With access to almost unlimited amounts of government-provided capital, state-owned enterprises (SOEs) can increase their production capacity almost without thought to the excess capacity they create. This enables China to soak up excess labor and its companies to undercut foreign rivals resulting, at least potentially, in the demise of the latter and an eventual monopoly position for the former. Beijing uses the lure of access to its markets as a means of enticing, one might even say coercing, foreign high technology companies to provide access to their advanced processes and even R&D. Both SOEs and private firms also seek to buy their way into world class positions through acquisitions.

But where are the innovative, best of breed or world-leading Chinese companies? It is difficult to think of even a single example. Some forty years after economic reforms were initiated Chinese companies are still reliant on brute force techniques, outside assistance and even outright theft of intellectual property to muscle their way onto the world’s economic stage. There are no Chinese companies that approach the global integrated capabilities of India’s Accelor Mittal or the advanced software integration skills of Bangalore-headquartered Wipro.

Domestically, no Chinese company can compare in popularity, responsiveness, agility and service with McDonald’s. As I traveled the breadth of China I was struck by the universal popularity of this company’s outlets. Everywhere McDonald’s had the largest facilities, some literally cavernous. Yet they were always full. Many had long lines morning, noon and night. They appear to be extremely popular with Chinese of all ages and most income brackets. And why not? Its offerings are uniform and the quality is high even in remoter regions of southern and western China. McDonald’s dominates China the way it does most of the world.

Beijing’s economic model isn’t good for China and it won’t be good for the world. It also will not produce agile, world-beating companies like McDonalds. Today, the score in the global game for economic preeminence is McDonald’s one and China zero.