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Comment by roenxi | Hacker News Reader

There are a lot of things here that I don't understand:

- The issues around semiconductor manufacturing.

- How Chinese politics work.

- How the big Chinese manufacturing hubs like Shenzhen work. The exports are spectacular, so I suspect they're incubating capitalists.

But what I do know is China is ~1 billion people, is moving in to being a country with some savings and is really getting the hang of high technology (eg, Huawei is the cutting edge of telecoms and it is going to shock everyone in a decade that they are at the cutting edge of nuclear tech as their reactor program keeps chugging along).

If they are seriously challenged to a tech war, we are relying on the Chinese government to defeat the Chinese people. It isn't possible to intellectually starve out a country that big, especially not in the age of the internet. They can achieve miracles in 20 years.

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> But what I do know is China is ~1 billion people

China built its massive manufacturing industry on vast quantities of cheap labor and a massive global consumer base. However, Chinese labor costs have been rising sharply for the past decade for many reasons but one major factor is that the one child policy was very successful and lead to a drastic hollowing out of their younger workforce and consumer base. Meanwhile the older experienced generation are aging out and China is entering a demographic winter which will lead to a 50-60% decline in population by mid to late century depending on whose numbers you trust. There is a similar hollowing out of the consumer base occurring all over the world with few exceptions. So it is highly improbable that China can fill in the most complex high tech supply chains by itself quickly enough to be useful while its workforce dwindles, it’s losing markets to sell to, and while its major trading partners are actively trying to thwart its progress.

Very well said.

And it doesn’t have to be this way. America would take a much different stance if the Chinese system were less “malignant”. Live and let live. Like the Japanese, Australia, UK etc.

> if the Chinese system were less “malignant”

China is a country with so much racial, linguistic, and geographical diversity that it would likely break up if it were less draconian. Historically this has occurred repeatedly. This is likely to happen anyway sometime over the next few decades given the geopolitical and demographic headwinds and in a much more devastating manner than it otherwise would, but it shouldn’t be surprising that the CCP won’t lie down and accept it.

Can't speak for ianai but when he said "malignant" that should certainly include its policies towards its neighbors and the rest of the world. "Wolf Warrior" diplomacy is pretty iconic in representing that, but note how the CCP has managed to get so many of its neighbors to ally with Japan of all nations. After the horrors of occupation by Imperial Japan which are still an issue in South Korea for example. Where Japan's replies including a licencing regime for several classes of specialty chemicals used in IC fabrication.

The world also cares very much what happens with Taiwan if that results in one way or another it no longer exporting chips. That island also makes quite a bit of higher end stuff for many nations' and companies' supply chains, as well as finished goods.

>one major factor is that the one child policy was very successful and lead to a drastic hollowing out of their younger workforce and consumer base

IMO just the opposite. One child policy was also "very successful" in concentrating wealth and is largely responsible for why PRC is spitting out 11M STEM graduates a year, around all OECD combined. There will be generation wealth transfers once old folks start dying (many in tier1/2 own homes + have enough savings) and analysts are predicting increasing consumption when multiple inheritances get concentrated in the one-child gen households.

> improbable

11M STEM grads per year = PRC has the LARGEST demographic divident of SKILLED LABOUR in human history trying to capture high tech supply chains by itself. They just started moving up Academic + S+T + R&D over last few years, will take another 5-10 years to filter way through industry. The chances are not only good PRC will succeed but it's likely PRC will eclipse west in medium term. As for internal market share, the point of moving up value chain is to produce wealthier consumers. Shedding 600M lower income who buys $1000 rmb phones while gaining 60M upper income who buys 10000rmb will increase the value of the consumer base. Meanwhile we're still looking at PRC with ~700M until 2100s, which is still a stupid large market to serve. It's the kind of scale that enables PRC to drive down costs in any industry state decides to focus on.

> thwart its progress.

Once PRC starts reaching parity, it will start to thwart back. Not only will western high tech lose 1/3 of PRC revenue, they'll start losing market share from emerging economies, meanwhile PRC could turn on that industrial policy valve to ensure western high-tech become permenantly loss making unless supported by huge industrial policy.

> 11M STEM graduates a year, around all OECD combined. There will be generation wealth transfers once old folks start dying (many in tier1/2 own homes + have enough savings) and analysts are predicting increasing consumption

If STEM graduates alone could increase a country’s wealth then India would be the global superpower. You need a consumer base in proportion to your production which China lacks, and your production needs to be focused on high value add production which China’s is not. Wealth transfer between generations only works if there is a large enough number of people to buy or at least value the assets being transferred. When your population is going down sharply then there are too few people chasing too many assets which leads to an asset price crash so that wealth will go up in smoke to a significant degree. Similarly, a surge in spending based on concentration of inheritance is inflationary which leads to a loss of wealth. This is not a recipe for economic strength.

Good thing PRC isn't India and has the infra and institutions to move up value chain, which it has consistently over the past decade, from capturing 8$ in iphone assembing fees to 25%/~100$ by iPhoneX to YMTC and other suppliers chasing after rest of BOM, which triggered current US efforts to contain. PRC export data over couple few years reflect PRC exporting much less low-end goods and more intermediate/high end (i.e. passing Germany in car exports), and trend is only continuing specifically because PRC is focused and succeeding in transitioning into high value add production. So PRC not only has talent but also the base to support it, she's is demonstrably moving up various innovation/S&T indexes and value chain. Unlike India, PRC is by all acounts a super power.

>economic strength.

Hence the huge savings rate. Yes, a lot of housing wealth will (hopefully) get inflated away / go up in smoke. There still is significant amounts of general savings currently locked away will naturally be released into consumption, particularly by T1/T2 consumers which is enough to drive demand to sustain competitive indigenous industries. Like the shit tier consumption right now from small % of high-income PRC markets is still enough to make PRC significant market for many global companies, that share is set to increase as population mix shift away from poor migrant workers in informal economy to high income, high skilled workers. Overall the share of consumers who sustains transition into advanced economy will be growing, which is a recipe for economic / comprehensive national strength. The wealth transfer release won't be a surge (deaths spread out over time) but over decades along the predictable demographic pyramid slope that is also relatively easy to plan for. Also historically, countries moved up value chain fine without the recent absurd financialization of "wealth", which is arguably a social detriment. IMO PRC that address issues relating to wealth is one that will be "stronger" than societies that can't.

> If STEM graduates alone could increase a country’s wealth then India would be the global superpower.

India is plausibly on the way to being a global superpower [0]. Unless something changes that they can outdo the US in the next 20 years.

If the Chinese government goes dictatorial and predictably suicides their own economy, and the US government keeps committing to the print-money-no-worries "strategy" it isn't out of the question that India could be the global superpower by 2040.

[0] https://www.weforum.org/agenda/2019/01/india-will-overtake-t...

Global semiconductor industry has the deepest and widest value chain compared to any other industry. China must replicate very specialized industries spread across the US, Europe, Japan, South Korea.

>How the big Chinese manufacturing hubs like Shenzhen work.

99.9% of Shenzhen is relatively low value added on top of core technologies. They bring high value added tooling from South Korea, Japan, Taiwan, buy chips from Taiwan and assemble them into products.

Huawei stole its telecom tech from Nortel. I wouldn't call them innovative, more like great at industrial espionage.

That has been debunked on a HN a few times already.

I do not doubt that Huawei would not have hesitated to steal from Nortel, given an opportunity, but everything that I have read about the alleged theft from Nortel did not seem to indicate that Nortel really had something valuable to be stolen and there is little doubt that Nortel's doom was caused by their management and not by thieves.

On the other hand, I know for a fact that Huawei has entered the mobile phone market by buying, and not by stealing, all the required technology and know-how from various companies, e.g. from Siemens.

Like other Chinese companies activating in various domains, after being taught well how to duplicate Western designs, Huawei was able to make them both better and cheaper, so the companies which have foolishly sold their smartphone technologies to Huawei have exited the market, while Huawei would have become the dominant producer, had it not been sabotaged by USA in order to prevent that.

Those who believe that the only reason that explains the commercial successes of the Chinese is IP theft are delusional.

Obviously they have started by copying whenever they could do that, but in recent years the Chinese companies have been much more innovative than most US companies, which are too risk-averse and too much oriented only towards corporate customers or towards very rich customers, to be able to launch any really innovative product.

I'd call this post a lot of wishful thinking that doesn't look at where the economy in China is heading nor the attitude of countries around the world to China.

There are uncertainties, but it is hardly wishful thinking to theorise that the world's premier manufacturing superpower could figure out how to manufacture something new.

If anything it speaks volumes about their 2nd rate governance strategies that the outcome is in question.

Russia was the premier manufacturing superpower yet rapidly fell behind the west in many areas of manufacturing.

Just because you make a lot of widgets doesn't automatically mean you can climb the value chain.

> They can achieve miracles in 20 years.

Why they didn't do so already?

There hardly been a single regime in history so eager to slaughter hens laying golden eggs.

China is extremely anti-business, and anti-development (unless it's real estate development.) I first understood it when I seen block, and blocks of factories being bulldozed to make space for luxury hotels, and hooker parlours. Tells of priorities of people in power.

"China is extremely anti-business, and anti-development". Really? Are you absolutely sure about that?

Certainly Xi doesn't think that he's anti-business, and much that he's done mirrors the EU's actions vs monopolies. But Xi also has no understanding of business, and wants to micromanage everywhere. I think he's already had a large chilling effect without wanting to do that. He could easily, clumsily, kill off most of the geese laying golden eggs for him by instilling more terror of the government than hope of profit. I'm not sure that'll happen, but reading his speeches to this new PRC congress I suspect so.

> Why didn't they do so already?

China's GDP has increased 8x since the year 2000.

It has an enormous and well educated population. Thousands of universities. Their research and development output is soaring.

It's become a manufacturing hub like nothing the world has ever seen before.

There are lots of challenges with respect to the ideology of the government.

But the development in China the last couple of decades has been miraculous already.

> China's GDP has increased 8x since the year 2000.

China was a 3rd world nation which experienced an industrial revolution, which like all industrial revolutions beforehand was faster and more prosperous because they could just buy the relevant technology and expertise, which was now even cheaper then it was for the previous industrial revolution.

Their GDP growth tells us nothing about whether their government is good at running a modern economy (evidence says no): because you have to pretty much be actively trying to fail to not have "miraculous" GDP growth when industrializing up from subsistence level farming.

> China was a 3rd world nation which experienced an industrial revolution

Why did that happen? Why isn't it happening so rapidly for other "3rd world" nations? I mean it wasn't luck. Economists will point to specific policies of the Chinese government that made it happen so quickly.

  > Economists will point to specific policies of the Chinese government that made it happen so quickly.

and those policies are not some special secret; they are the same "industrial policies" that japan, south korea, and the u.s (and many other advanced countries) used to develop rapidly and fully...

> they are the same "industrial policies" that japan, south korea, and the u.s (and many other advanced countries) used to develop rapidly and fully

At a very high level yes. But when you look closer, not at all. Abenomics for example, can be contrasted with Reagonimics [1]. Because while there are some similarities, there are also important differences.

But more importantly, why does this matter? No one said the Chinese government used "special secrets" for the wildly successful past two decades. The original question was "when will China start".

You seem to be of the same view as everyone else here: they already did start.

You also avoided the question I asked. Can you answer it?

Why didn't China's rapid rise out of poverty happen to other "3rd world" nations? Some poor countries have the same industrial policies as the US but aren't quickly rising out of poverty. You need to explain why China is different.

[1] https://www.wsj.com/articles/BL-JRTB-18051

  > Abenomics for example, can be contrasted with Reagonimics [1]

oh definitely

what i was referring specifically to was the period of dramatic growth and improvement in quality of life, so japan up until the 90s, the us until around the end of the 60s etc

in those periods, they had real honest-to-god industrial policies how they wanted to direct research and development, improve technology and investment etc

abenomics and regonomics are basically the opposite and signal the neoliberal turn in thinking

  >  The original question was "when will China start".
     You seem to be of the same view as everyone else here: they already did start.

sorry, maybe i missed that, but anyways i agree with you 100%

  > You also avoided the question I asked. Can you answer it?
    Why didn't China's rapid rise out of poverty happen to other "3rd world" nations?

i didn't know i avoided it, but im happy to try and answer ^^

  > Some poor countries have the same industrial policies as the US but aren't quickly rising out of poverty. 
    You need to explain why China is different.

as i alluded to earlier, the us and many other "1st world" countries had mostly given up on what is called "industrial policy" and directed investments that gave them so much growth and prosperity in the early days.

following neoliberal economic thinking (mainstreamed in the 70s) that austerity and free-market economics (including allowing vast monopolies) and privatization of public services would somehow bring everlasting high growth (supply-side economics) but instead results in lower growth, higher costs (just look at cost of healthcare in the us) and bigger wealth-gap causing all kinds of issues

many "3rd world" countries followed those neoliberal economic policies and quickly found out that austerity and privatization of too many public services (to name just a few things) just caused collapse and chaos, and then they cant pay off their imf loans meaning... more privatization and austerity as part of the condition to extend payments (this just causes a downward spiral and locks many countries in and almost "debt peonage" type of situation)

---

actually this is really a long discussion hard to do in hn, but probably we are more in agreement than disagreement i am guessing

but if you have a different perspective im very curious to see your explanation as well, so please by all means ^^

"block, and blocks of factories being bulldozed to make space for luxury hotels, and hooker parlours"

Where did you see this?

> Why didn't they do so already.

They did. The Chinese economy has pulled more people out of poverty in the past few decades than any economy in human history. By far.

"In 1990 there were more than 750 million people in China living below the international poverty line - about two-thirds of the population.

By 2012, that had fallen to fewer than 90 million, and by 2016 - the most recent year for which World Bank figures are available - it had fallen to 7.2 million people"

Mistaking the China of today for the China of 50 years ago would be naive and dangerous. Fortunately most world leaders are savvy enough to be taking action to compete.

This is not an endorsement of the Chinese government. It's just a factual observation of recent history.

I never quite understood that line since they pretty much purged themselves in the first place and were "lifting themselves" after sinking themselves in the cultural revolution. They opened up after visiting Asian Tiger economies and realizing they were far behind Singapore, South Korea, et al.

If you want to blame them for the bad you need to give them credit for recent accomplishments.

Unless you think it's a line that Americans sunk themselves in The Great Depression and therefore American leaders should get no credit for the following recovery.

Leaders change. Economic policy changes. China changed direction and lifted a huge number of people out of poverty. It's as simple as that.

> They opened up after visiting Asian Tiger economies and realizing they were far behind Singapore, South Korea, et al.

And? What's the point? That they learned by observing? Is that bad?

The Great Depression was not a deliberate purge, markets follow boom and bust cycles.

>And? What's the point? That they learned by observing? Is that bad?

It's a self-serving bias to attribute their economic development to their leadership. They would've developed sooner and are simply taking credit for getting out of their own way. Sure, you can point to specific projects and say "the government bankrolled this therefore it exists" but it's not like in their absence nothing would have developed. Hong Kong, Singapore, Taipei, Seoul, Tokyo et al have pretty skylines and good public transportation too.

> The Great Depression was not a deliberate purge, markets follow boom and bust cycles.

Right. You're doing exactly what I pointed out before: making excuses for US economic policy when it fails but giving it the credit when it succeeds.

> They would've developed sooner and are simply taking credit for getting out of their own way.

Who is "they"? You do realize China has had more than one leader in the past 50 years?

> They would've developed sooner

Uh sure. So what? The point is that they are wildly succeeded the past couple of decades. The original claim that started this was they haven't done anything remarkable yet. Which as a matter of historical record, is wrong. The past 20 years have been remarkable for wiping out poverty in China. Regardless of whether or not that poverty could have been wiped out earlier, it was wiped out. And this happened under the current Chinese government. So the claim that the current Chinese government can "achieve miracles" in 20 years -- while exaggerated -- is far closer to the counter claim that they have achieved nothing yet.

> taking credit for getting out of their own way.

That would not be how most economists would describe Chinese economic policy. It doesn't even describe the relatively less controlled US economic policy.

>first understood it when I seen block, and blocks of factories being bulldozed to make space for luxury hotels, and hooker parlours

The US did this on a national scale.

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