SINGAPORE (April 22): As China’s economic growth slows to 6% this year, it is worth noting that the size of its economy, at US$13.6 trillion ($18.4 trillion), is second only to the US, although GDP per capita, at around US$10,000, is still far behind.
In 1997, when a young science professor, Guo Hong Xin, decided to venture out on his own, China’s GDP was US$961 billion and GDP per capita US$781.70. Following the handover of Hong Kong in 1997 and China’s entry into the World Trade Organization in December 2001, the Middle Kingdom was well on its way to becoming an economic powerhouse. In 2014, China’s economy actually overtook the US’ in terms of size on a purchasing power parity basis. China’s economy is expected to overtake that of the US’ on a nominal basis by 2026.
In 1997, as Guo huddled in his research laboratory, he was approached by companies looking to build insulation pipes, which, at the time, were produced in the West. Guo requested for permission from his university to establish a company so that it could build and supply these pipes.
“I was a research professor in Jiangsu, a booming business hub, before starting Sunpower,” Guo recalls. “By chance, COFCO was looking to build an insulation pipe, as it was too costly to procure it from overseas.” COFCO, or China National Cereals, Oils and Foodstuffs Corp, is a stateowned food processing holding company.
Guo is Sunpower’s executive chairman.
“We set up the company with only around US$10,000. Our first project for COFCO was prepaid upon initiation and that formed the financial foundation of the company,” Guo continues. He claims that the heat transfer technology used by the nascent Sunpower was a pioneering technology. Undoubtedly, Guo and Sunpower are benefiting from China’s rise as an economic power. And as China cleans up its air and starts to impose emission standards, Guo reckons there will be room for Sunpower to grow.
Guo believes China will be the dominant global power in the next 10 years. “There is a high possibility that China will dominate the world economy because of how our government is structured and the gradual integration of capitalism into our country,” he says.
Top-down government gets things done
Although President Xi Jinping and the Chinese administration are perceived by the West to be less democratic than previous governments, the Chinese people approve of this style of government. The “topdown” approach, with its centralised power model, is able to channel resources to fuel development and economic progress, Guo explains. It also enables the government to continue its battle against corruption. And the less corruption there is, the stronger China will be, Guo believes. The ability to undertake projects and see to their completion is a lot more likely with the top-down approach, Guo says, giving the example of China’s high-speed train network.
Another example is the super power grid that China is in the process of building. The 1.1 million-volt transmission line will stretch from Xinjiang to Anhui when completed this year, connecting power plants deep in the interior of the country to cities near the coast.
The transmission line can deliver the output of 12 large power plants over 3,200km. Since high-voltage lines can carry electricity over longer distances with less transmission loss, China’s super grid will be capable of sending 50% more electricity over increasingly longer distances.
The network could slash carbon emissions by enabling renewable energy sources such as wind and solar to generate a far larger share of electricity. The longer, higher- capacity lines make it possible to supplement solar power with wind, hydroelectric or geothermal energy in different time zones. The super grid is another example of the efficiency of the top-down approach. Yet, despite heading a one-party system at home, Xi has to perform a balancing act with maverick US President Donald Trump.
Upside of trade war is IP protection
On the one hand, the trade war is good for China, as it is likely to strengthen intellectual property rights. “The trade war has implications for the central government and could prompt the protection of both local and foreign companies’ IP rights,” Guo says.
This will benefit his own company. “Sunpower is a highly technical company that benefits from our specialised and differentiated expertise. With the enforcement of IP regulations and respect for IP rights, Sunpower will be better protected and our unique competitive advantage will be enhanced, preventing the imitation of our unique rights,” he says.
Similarly, Huawei Technologies is likely to benefit from the protection of IP rights, as it is the world leader in 5G technology. “We certainly hope more companies like ourselves will be better protected by law and viewed more favourably in the world. Of course, tensions between China and the US go beyond the protection of IP rights. This is a tussle between the established and rising dominant global power. China wants to be recognised by the world as a major economic power,” says Guo.
On a more micro level, there is an impact on Sunpower itself as the trade war continues. Its manufacturing and services segment is affected because the company imports certain precious metals such as zirconium from the US. The tariff imposed by the Trump administration has had a US$2 million negative impact.
“In the grand scheme of things, the trade war actually benefits our GI [green initiative] segment,” Guo says. Many of Sunpower’s customers are exporters of industrial and manufactured goods. With the import cost increases, factory owners who are Sunpower’s customers are likely to adopt more cost-efficient methods to produce their goods, including energy use. “With our steam energy supply being much more efficient than conventional coal burning, our customers’ energy cost will be reduced, thus enabling them to better adapt to the increased cost from tariffs,” Guo explains.
Another global uncertainty is Brexit. BP is a key Sunpower customer. “With Brexit materialising, we expect more UK global companies to look elsewhere for materials and technology,” Guo says. Sunpower supplies BP with specialised products. BP is likely to continue to source products from Sunpower if Brexit takes place. BASF, a German company, also sources specialised equipment from Sunpower. Overall, though, Sunpower derives less than RMB3 million ($605,277) of its revenue from Europe. As the Xi administration moves ahead with poverty reduction and clean air, Guo believes China’s development will be sustainable and the gap between the rich and poor will narrow. As a result, China is less likely to have to grapple with the wave of populism that has engulfed the West.
