Comment by nyokodo | Hacker News Reader

Comment by nyokodo | Hacker News Reader

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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.

>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...

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.

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