Xi Jinping's belief that innovation can be directed by the government may hinder China's drive to reach world supremacy
China’s Imperial growth has been impressive under Xi Jinping. With investments in military technology, and an economy that continues to strengthen, Jinping must feel that he is close to realizing his ultimate vision of being the world’s super power. While I agree with this undeniable growth, there is one weakness to Jinping’s plan for world dominance: His belief that cutting edge innovation can be directed by the government.
In order to dethrone the US as the world superpower, China must have an economy that boasts the same level of capitalist innovation. To accomplish this, Jinping uses a Communist approach, lending him the authority to allocate financial support to certain companies and markets that he considers to have innovative potential. This complete control goes all the way to the most minute details where Jinping forces the hand of various companies.
This Communist approach implies that Jinping has a special intuition into what companies and technologies will prove successful. The belief that innovation can be controlled and directed conflicts with the basic nature of innovation, which is a rocky road of doubt, uncertainty and guessing.
The uncertain nature of innovation is highlighted by the low success rate of Venture Capital investing. According to The Corporate Finance Institute, 4,000 startups apply for funding every year, 200 are selected and only 15 will generate a significant profit. This equates to a 7.5% success rate.
Combined with this uncertainty, even the most successful companies in the world struggle for years before they prove to be titans of the future. Tesla made its first full year profit 18 years after it was founded, where at one point the company was a month away from bankruptcy. In 2000, Netflix had 300,000 subscribers with an annual loss of $58 Million, hardly the look of a company that would eventually disrupt the entire entertainment industry.
Upon their inception, Apple, Microsoft and Netflix were one of several thousand indistinguishable hatchlings in a nest. The most insightful investor would rummage through them like he was searching for a ripe avocado in the grocery store. While Jinping has led China to international prominence, his unrelenting control may also be China's biggest weakness.
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