Podcast Summary
China's Economic and Technological Shift: China's economic growth slowed and technological advancements faced challenges, shifting the narrative on China's global standing.
The narrative on China's economic and technological prowess has undergone a significant shift in the past year. Prior to 2022, China was seen as a model worth emulating due to its manufacturing prowess, ambitious projects, and ability to weather crises. However, this perception changed dramatically as China's property sector melted down, its 0 COVID policy strained the economy, and foreign investors grew wary. China's economic growth slowed, and its autocratic governance raised concerns. Dan Wong, a technology analyst and visiting scholar, provides a unique perspective on these changes, having lived and worked in China during this period. In his recent letters, Wong describes a sharp turn in China's technological capabilities and the core vector of competition between the US and China - technology and how it's made. Previously, Wong's letters from China painted a picture of impressive technological advancements and a vibrant culture. However, his most recent letter reveals a different reality, one of challenges and setbacks. The shift in the narrative on China underscores the importance of staying informed about this global powerhouse.
China's successful response to COVID-19: China pivoted to producing PPE, becoming a global hub, bolstered confidence, and asserted authority through regulatory measures.
China's response to the COVID-19 pandemic showcased its unique blend of a competent government and entrepreneurial spirit. In the early stages of the pandemic, Chinese manufacturers quickly pivoted to producing personal protective equipment, making China a global manufacturing hub. This successful response bolstered China's confidence and assertiveness, leading to regulatory crackdowns on industries like tech, which were perceived as authoritarian measures in the West but viewed by some as necessary for societal and economic guidance. The pandemic and China's response highlighted the country's ability to adapt and tackle challenges, solidifying its position on the world stage.
Chinese government's push towards advanced manufacturing industries: China aims to shift focus from finance and consumer internet to advanced manufacturing industries, viewing talent as the most valuable resource in an advanced economy, and encouraging it to go into areas like semiconductors, metrology, and chemical engineering to become world leaders in niche technologies.
The Chinese government's crackdown on cryptocurrency mining and tech companies in 2021 was part of a larger effort to shift the country's economic focus away from American-style capitalism and towards a more regulated, manufacturing-driven growth model. This perspective is based on the observation that over the last 20 years, the US and UK economies have been heavily influenced by Silicon Valley and Wall Street, leading to concerns about the role of capitalism in society. The Chinese government, in contrast, appears to be encouraging talent to go into areas like semiconductors, metrology, and chemical engineering, as part of a push to become world leaders in niche technologies. The idea here is that talent is the most valuable resource in an advanced economy, and there is a public interest in where that talent goes. The Chinese government's stance is a critique of the US and UK's emphasis on finance and consumer internet, and a call for more excitement around advanced manufacturing industries. The analogy is drawn to Germany, which has a larger manufacturing workforce and a more regulated market system. The ultimate goal is to create a strong, self-sufficient economy that is less reliant on external influences.
China's industrial civilization focus and acceptance of failed investments: China's approach to economic development involves taking risks and accepting losses to build infrastructure, leading to significant overcapacity and lower returns on equity, but also contributing to their industrial dominance.
China's focus on building the basics of an industrial civilization, even if it means accepting many failed investments, has led to significant overcapacity and lower returns on equity. This approach is different from the incentives of governments in other countries, like the United States, which may prefer to avoid failures to protect investors' returns. An example of this can be seen in China's success in the solar industry, where massive government subsidies led to a strategic industry designation and a dominance of the global value chain, despite the potential for many failed investments along the way. This willingness to take risks and build infrastructure, even if it means accepting losses, has been a significant factor in China's economic development over the past few decades.
China's dominance in solar manufacturing: China's dominance in solar manufacturing has led to cost savings for consumers and strategic advantages for the Chinese government, but has negatively impacted investors and corporations in the sector. The US, a major contributor to solar technology and subsidies, has struggled to regain control of the manufacturing chain.
The solar photovoltaic industry is dominated by Chinese companies, leading to significant cost reductions for consumers and strategic advantages for the Chinese government. However, this dominance has come at the expense of investors and corporations in the solar manufacturing sector. The US, a major contributor to solar technology and subsidies, has struggled to regain control of the manufacturing chain despite attempts to impose tariffs and regulatory instruments due to concerns over forced labor. This situation highlights China's success in leveraging existing knowledge and outcompeting the US in certain industries. Despite efforts to onshore solar manufacturing, the US faces challenges in regaining control of a sector it substantially contributed to creating.
China's Shift from Technocracy to Autocracy: China's focus on manufacturing and scaling up technologies has given it a competitive edge, but its autocratic nature and ideological goals can lead to both strengths and weaknesses, as seen in the decapitation of the online education sector.
China's ability to focus on manufacturing and scaling up technologies, such as solar, after the science has matured, has given it a significant competitive edge. However, the events of 2022, including the harsh enforcement of COVID-19 lockdowns, the centralization of power under Xi Jinping, and China's declaration of a limitless friendship with Russia, shifted the narrative on China. While the Communist Party remains interested in economic growth, it is important to view China as less of a technocracy and more of an autocracy with ideological goals. The 2022 analysis reveals that the same dynamics of China as in previous years can lead to both strengths and weaknesses, and the decapitation of sectors like online education demonstrates the government's willingness to cause catastrophe.
China's excessive state control with negative consequences: China's strong state control in COVID-19 response led to strict regulations, overreach, and negative consequences, including food shortages during the Shanghai lockdown.
China's excessive state capacity, which has been effective in controlling the COVID-19 pandemic, can also lead to overreach and negative consequences. In 2020 and 2021, China's strict regulations on various sectors, including online education and tech, demonstrated its strong state control. However, this approach reached an extreme during the Shanghai lockdown, where millions of people were confined to their homes, leading to food shortages and other hardships. This incident highlights the potential danger of a state with too much power and the possibility of misuse. The Chinese government's success in controlling the pandemic up until the omicron variant is noteworthy, but its history also shows instances where excessive state capacity has led to negative outcomes. The question remains whether China's recent authoritarian measures mark a turning point towards a less pragmatic and more controlling government under Xi Jinping.
China's State Capacity: Achievements and Concerns: China's state capacity leads to impressive achievements but also restricts individual freedoms, causing distress and limiting human flourishing globally.
While China's impressive state capacity has allowed for remarkable achievements, such as treasure fleets and infrastructure projects, it can also lead to devastating policies, like the one child policy, and restrict individual freedoms, as seen in travel restrictions and crackdowns on opposition. This excessive state control may not be conducive to human flourishing, both in China and globally. The psychological effect on the population, particularly the young, is a cause for concern. The Chinese government's actions, like restricting travel and limiting free expression, have created distress and a sense of being stuck for many young people, who feel they have less freedom to pursue their interests. The Communist Party's ability to implement seemingly impossible policies, like the one child policy, has come at a great cost to individuals and families. This highlights the importance of balancing state capacity with individual freedoms for the overall well-being of a society.
Shifting Attitudes of Foreign Businesses Towards China: Foreign businesses are reconsidering their reliance on China due to political tensions, data control, and a focus on Chinese brands. Many are diversifying production bases and moving export-bound manufacturing to other countries.
The attitude of foreign businesses towards China has shifted due to various political and economic events. China, once seen as a reliable manufacturing base and a lucrative market, is now viewed as more risky and uncertain. The Chinese government's tightening control over data and its geopolitical tensions with the US are making businesses uncomfortable. Additionally, the Chinese government's rejection of liberal values and its focus on creating Chinese major brands instead of global ones is making companies reconsider their reliance on China. As a result, many companies are diversifying their production bases and moving their export-bound manufacturing out of China to countries like Vietnam and India. Furthermore, a posting to China, which used to be a crucial step for executives aiming for the highest corporate ranks, is now seen as a quagmire due to the market's complexities and uncertainties.
China's Economic Shift: From High Growth to Prioritizing Stability: China's government is focusing less on maintaining high GDP growth and more on stability, demonstrated by their attempts to address the real estate bubble and prioritize rural revitalization, poverty alleviation, and environmental focus.
China's approach to economic growth and stability has shifted significantly over the past decade, with a decreasing emphasis on maintaining high GDP growth rates at all costs. This change in perspective, as discussed in the podcast, was evident in the Chinese government's decision to try and pop the real estate bubble, which unfortunately led to a different financial crisis. This willingness to entertain hard reversals and prioritize other areas like rural revitalization, poverty alleviation, and environmental focus, while positive, also demonstrates the Chinese government's capability to create new problems despite having a good read on existing issues. This shift in priorities and approach to economic management could have major implications for the future of the Chinese economy and its relationship with the global economy.
China's Unexpected Shift in COVID Strategy Raises Concerns About Government's Ability to Execute Policies: Unexpected shift in China's COVID strategy has raised doubts about the government's commitment to supporting economic growth and private enterprise, leading to uncertainty and skepticism among entrepreneurs, foreign businesses, and young Chinese.
China's sudden shift from a zero-COVID strategy to a let-it-all-rip approach was unexpected and lacked coordination across sectors, raising concerns about the government's ability to execute its policies effectively. This inconsistency has led to uncertainty and skepticism among entrepreneurs, foreign businesses, and young Chinese regarding the Chinese government's commitment to supporting economic growth and private enterprise. This reassessment has also brought up doubts about the authenticity of China's economic success, with some questioning whether it is built on illusions such as property bubbles and excessive government subsidies. Critics argue that Chinese industrial policies, including in sectors like AI, semiconductors, and aviation, have largely failed to produce competitive global players. These concerns highlight the need for China to address the perception of inconsistency and instability in its economic policies to maintain confidence and trust in its economic system.
China's Tech Progress: Mixed Results and US Concerns: China's tech progress includes setbacks in semiconductors and wide-body aircraft, but advancements in renewable tech, batteries, and manufacturing. US concerns over economic interdependence and security vulnerabilities may limit China's tech advancements, but China continues to rise.
China's economic progress in technology is a mixed record with notable failures in advanced semiconductors and wide-body aircraft, but significant triumphs in renewable technologies, batteries, and manufacturing. The US-China relationship is shifting, with the US becoming increasingly concerned about economic interdependence and national security vulnerabilities, particularly in the area of semiconductors. The US administration aims to restrict China's technological advancements in this field to prevent parity with the US. Despite some challenges, China has made significant strides from a low base of technological achievement and is expected to continue rising.
US-China semiconductor tensions: The US is limiting China's access to semiconductor production equipment and software tools, but these actions may unintentionally accelerate China's progress in advanced chip design, as domestic alternatives become more attractive.
Semiconductors have become a focal point in the US-China relationship due to their central role in modern technology and the US's historical dominance in the industry. The US government is concerned about China's ambitions to increase its market share and advancement in semiconductor technology, particularly in advanced chips. The US has attempted to constrain China's abilities by controlling access to semiconductor production equipment and EDA software tools. However, these actions may have inadvertently accelerated China's progress in advanced chip design, as previously uninterested Chinese companies are now forced to rely on domestic alternatives. Another concern is the long-term implications of the US's efforts to decouple the economies, as China is already producing the bulk of mature semiconductors and has the potential to figure out many technologies over time.
US-China tech competition and export controls: The US-China tech competition and export controls have complex implications, potentially hindering Chinese companies in the short term but accelerating their capabilities in the long run, while also complicating geopolitical tensions.
The US-China relationship, particularly in the context of technological and economic competition, is a complex issue with significant long-term implications. The US has imposed export controls to limit China's access to advanced chips, a localized industry dominated by Taiwan. While these measures may hinder Chinese companies in the short term, they could potentially accelerate China's chip manufacturing capabilities in the long run. The situation is further complicated by the geopolitical tensions surrounding Taiwan, where US technology controls serve as a deterrent against Chinese aggression but could also escalate tensions. The US's focus on technology competition with China is driven by the belief that it will determine future economic and national security, but it's unclear if this is the only factor at play. The US and China's actions in this area may have been driven more by political considerations than careful planning, potentially leading to unintended consequences. Ultimately, the US-China relationship is a complex and evolving issue that requires thoughtful consideration and a long-term perspective.
The importance of good global relations: Maintaining good relations with other countries can lead to significant benefits, including advancements in technology and shared progress on important issues. Decoupling or escalating tensions could result in missed opportunities for cooperation.
While technological advancements are important, a holistic view of global relations is necessary. The production capacity and manufacturing workforce in countries like China have significantly contributed to advancements in areas such as renewable energy and protective equipment during the pandemic. Decoupling or escalating tensions between countries could lead to missed opportunities for cooperation and shared progress on important issues. It's crucial to remember that good relations have led to significant benefits in the past and could continue to do so in the future. However, it's also important to acknowledge the challenges and complexities in these relationships and work towards finding a balance between competition and cooperation.
The US-China competition is making both countries internally worse: The US-China competition is negatively impacting both countries, making them less attractive to each other's students, entrepreneurs, and workers, and leading to less friendly rhetoric and actions.
That the intensifying competition between the US and China is making both countries internally worse versions of each other. The US government's actions, such as constraining sales of American companies to China and prosecuting Chinese scientists, are not making the US more attractive to Chinese students, entrepreneurs, and workers. Instead, the rhetoric towards Chinese people is not always friendly, and this is reciprocated by China's disciplining of private sector firms and reaction to perceived hostility from the US. This competition is making both countries less of their best selves, and it's important to consider the long-term implications. As for books that have influenced me, I recommend "The Jesuits" by Marcus Friedrich, which provides insight into the successful Society of Jesus and its impact on scholarship and church affairs. "Last and First Men" by Olaf Stapledon is a novel that imagines what the human race might look like a million years from now, and it's a mind-expanding read. Lastly, "Disturbing the Universe" by Freeman Dyson is a collection of essays about Dyson's experiences in space travel and his involvement in the civil rights movement. These books offer perspectives that span long stretches of time and space.
