What is the most profound new development impacting photonics (and everything else) in the past 20 years? I think it’s the rise of China, with its highly developed market for industrial lasers and vast supply chain that exports photonics components to the world.
The emergence of China in photonics is especially evident if you look at the International Photonics Stock Index created by John Dexheimer of LightWave Advisors. At the recent Lasers & Photonics Marketplace Seminar, he showed that many of the top companies in the photonics ecosystem are Chinese, and that fact doesn’t capture the impact of many more, smaller Chinese photonics companies that are suppliers of components and systems. And, as we know, international laser makers such as Coherent, IPG Photonics, nLight, and Trumpf have a very large percentage of their sales in China. But the business and political environments are changing.
In his Marketplace Seminar talk, consultant Bo Gu described the decoupling or new multimodal model of globalization that is underway as the Chinese economy rebounds strongly from the pandemic and establishes itself more assertively on the global political, technological, and economic stage. The resulting changes are creating many uncertainties for economic relationships and presenting very substantial challenges. Bo is a strong advocate for international businesses to address these challenges by having production operations located inside China.
He says that a decoupling will impact U.S. laser manufacturers much more than the Chinese. To a large extent, the Chinese laser industry is quite complete except for a few key components from abroad. While to many U.S. and European companies, the Chinese market represents one of the most important markets and perhaps the biggest potential for revenue growth in the near future. You can read much more about Chinese government policy and laser markets in Bo’s January 2021 article in Industrial Laser Solutions: “Will the U.S. and China decouple?”.
The new Biden Administration is reconsidering every aspect of the U.S.-China relationship. The potential economic impacts of decoupling or at least serious divergence are the subject of a report from the consulting firm Rhodium Group and the U.S. Chamber of Commerce China Center: Understanding US-China Decoupling: Macro Trends and Industry Impacts. The costs could include a $190 billion annual loss in American economic output by 2025 if all U.S.-China trade was subject to the type of 25% tariff imposed by the previous administration on $250 billion of Chinese goods.
I believe very strongly that we must observe and be prepared to react to the new relationship between the Chinese government and what are sometimes termed LMDs (liberal-minded democracies, which include not only Europe and the U.S., but Japan, India, Australia, and other countries). An excellent long read on this subject and on the internal politics of China driving many foreign and domestic actions is: China – A Look Ahead to 2021 and Beyond, by Charles Parton of the Royal United Services Institute, a think-tank in London.
Given rising tensions with the Chinese government, the governments of the LMDs may react with measures that will strain relations. As a result, foreign companies may have to reexamine their supply chains and markets if they are to avoid damage to their business interests. So, fair warning: business and politics are always intertwined, and the coming years will see a new version of this relationship between international photonics companies and Chinese businesses.
