The West must rediscover its ruthless streak in business

Telegraph

7 hours ago

The competition is brutal. Lots of companies are getting eliminated. And even the biggest players are struggling to make any money.
It might sound like a description of a ruthlessly capitalist economy. But in fact, it is a pretty accurate summary of China's booming electric vehicle (EV) industry.
In truth, the UK, along with the rest of the struggling developed economies, should learn a lesson from an unlikely place.
What China shows us is that competition is what drives economic growth, and picking 'national champions' and propping up failing industries only destroys it.
Sure, in almost every other respect we would not want to be run like China – but the West needs to rediscover its ruthless streak, because that is what works.
The Chinese EV industry is the most intensely competitive market in the world.
We may only be familiar with a handful of the big names such as BYD in this country, but there are now an estimated 130 different brands fighting it out for every sale in China.
With a mixture of regional players and companies moving into the market from other industries – such as the phone manufacturer Xiaomi – China has more domestic carmakers than anywhere else in the world.
The result? EVs are very cheap in China, with popular models such as BYD's Seagull selling for just 58,000 yuan (£6,000), an incredibly low price for a well-made new car.
The overall market has boomed, with more than six million EVs sold last year. And it is characterised by rapid innovation, with companies constantly adding new features, and making huge breakthroughs in battery technology, such as BYD's five-minute charger.
Lots of people are still kidding themselves that Chinese EVs are taking a larger and larger share of the Western market because they are being 'dumped' by the state.
Actually it is because they make good cars at very competitive prices, and, not very surprisingly, customers like that.
True, the Chinese government may be worried that the market is getting out of control.
Last week, it issued a warning to 16 of the biggest companies, including BYD, Nio and SAIC (which owns the British brand MG) not to let price competition become so ferocious that they all end up destroying each other.
No one really thinks that 100-plus car companies will survive, or that it would be healthy for them to do so.
Plenty of them will go bust, and many more will be steered into mergers by government officials before they drown in red ink.
Three or four giant conglomerates will emerge, much as they did in the emerging auto industries in the United States and Europe a hundred years ago.
The important point, however, is this. China is allowing a Darwinian struggle for survival to decide who will be the winners and losers.
We see that most dramatically in the emerging auto industry, which has emerged from nowhere to take on the giants of Japan, the US and Europe in little more than a decade.
And yet we see much the same process in phone manufacturing where dozens of brands such as Huawei, Xiaomi, Oppo and Vivo have emerged in a very short space of time; in airlines, where there are now dozens of domestic carriers, and the likes of China Eastern are emerging as major international players; or in televisions, where brands such as Hisense and Skyworth dominate the industry. The list goes on.
At the macro level, China may be dominated by top-down state planning, with soft loans dished out to favoured entrepreneurs, and targets set for chosen industries. But at the micro level, it is also characterised by intense competition, with companies slugging it out ferociously for every sale.
Sure, it will be a messy and ugly process. But we can be sure of one thing. The handful of auto companies that survive will be making great cars at rock bottom prices, and will be virtually impossible to compete with.
The same will be true for phones, or consumer electronics, or almost any other industry. China may be notionally a Communist state. But it also believes that competition is what gets results.
The contrast with the West is painful. Our political and industrial leaders are obsessed with endless rounds of consolidation, with creating 'national champions' and with forging partnerships with the government to 'pick the winners' in the 'industries of the future'.
And we are spending more time and money on propping up declining industries, such as the recently renationalised British Steel, than we are on creating new industries.
But with the sole exception of Airbus, just about every national champion that has been created in Europe over the past 50 years has turned into an expensive failure, while the record in the US since Joe Biden, the then president, launched his massively expensive programme of industrial subsidies is unlikely to prove any better.
In almost every respect, we would not want to be like China. We would not want to copy its dominant one-party state; nor its lack of democracy; nor is mass surveillance of the population; nor its appalling record on human rights. And yet it does get one big thing right. As its booming, yet also brutally competitive EV industry has shown, it also believes in competition, and in forcing companies to compete for every sale.
It is the only way to make sure that better products are made at a lower price, and in the end that is what succeeds. The West knew that 100 years ago, but has largely forgotten it since then.
In reality, if the UK, the rest of Europe and the US are to have any chance of standing up to the growing economic might of China we need to rediscover the streak of ruthlessness that drives business. If we don't, EVs will just be the start – and we will keep on losing the lead in more major industries.