The U.S. wanted to knock down Huawei. It's only getting stronger
wsj.com
wsj.com
Then in the _very next_ paragraphs:
> State money was critical. [...] billions of dollars flowed from the Chinese government to Huawei through preferential buying contracts and subsidies
So what does the "age old adage" have to do with anything? It doesn't matter what US policy is if China has decided to make you a defacto state run company.
This is a bizarre and meandering analysis that doesn't convey anything useful.
Cutting China and particularly Huawei off from access to our tech has forced them to develop capacity domestically, at a state and corporate level. Good for tech in an abstract space race kind of way, but pretty debatable as a geopolitical move.
China is succeeding at securing their industry and supply chains despite (or because of) our Cold War II efforts.
Meanwhile, if Intel is any indication we are consistently failing to secure our industry and supply chains and China hasn't even had to do anything besides just exist.
Are they really? Are they giving more than what state subsidies Silicon Valley companies received from the WW2 radar/radio era, from Shockley semiconductors, to the Traitorous eight[1], to the present day?
To me it seems China is only spending so much because they need to speedrun in a couple of decades what the US achieved in 3 times that, but it also did that with a lot of state subsidies, let's not kid ourselves.
For example, EUV lithography exists because the US state sponsored Sandia Labs for the research, but we're supposed to think "China bad" when the CCP does the same? Same with other SV tech that came out of defense or state sponsored projects.
Also, the way the financial system is set up in the US and they way the VC sector works, is also somewhat of form of state subsidies in disguise since the US gov just prints loads of cheap money, investors would dump it on 100 companies, one would boom to become the world dominator, the other 99 would flop, and get written as a tax write-off, and presto, you have a VC sector that no other country can replicate because they don't own the money printer to the world's reserve currency.
That's a stretch. EUV lithography was developed by multiple private companies over about two decades. The idea of using EUV for lithography was straightforward, but technical implementation was anything but.
This is really the crux. I don't think any hightech company from any other country could have survived Huawei tier sanctions US imposed, much less come back from it within a few years. Apart from sacrificing some of mobile/honor/consumer global footprint, HW's telco/ICT still has global market share except in a few countries US is pressing hard to get HW ban. Even then I wonder for how long/durable, half the reason countries including FVEY conceded to banning HW (after fairly prolonged negotiation/hesitation) was because US made decision for them via sanctions that made HW's ability to build gear/honor long term contract uncertain. While no US partners going to reverse position to piss off US, but they may just take sweet time/find excuses not to stripout./replace HW gear scheduled for next few years. Would not be surprised if they start asking for exemptions now that HW increasingly able to service gear without US inputs. Even US still has 20k+ pieces of HW + ZTE kit in domestic networks.
Not if you get shot for fraud. If that’s the case, government money can get you very far indeed.
> It is tempting to assume that Huawei’s survival is solely attributable to massive state subsidies. However, the reality is more nuanced with fiscal policy complemented by research, development, and diversification, as well as the indecisive application of US sanctions.. US export controls affected the device business – which is an unprofitable side business – rather than its core business in carrier equipment..
With limited access to Taiwanese and Korean foundries, Huawei has retained the same baseband card for nearly four years – a design built around Balong 5000 chipset, a 7 nm [2019] ASIC.. Huawei is packing more chips onto each card to keep pace on mMIMOs. Its power performance is suffering, but Huawei offset these gaps by adjusting its prices to compensate for the higher electricity bills for its customers, thereby keeping [TCO] constant..
The shift in US strategy – from promoting “trusted vendors” to trying to spawn a US alternative – only resulted in eroded profitability.. or market shares swapping hands among Western vendors.. in December 2023, AT&T took the decision to replace its brand-new Nokia 5G equipment with an O-RAN-compliant network delivered by Ericsson.
It's not a complete non sequitur if China's additional support of Huawei can be attributed to the US's campaign against the company.
Put the shoe on the other foot: Imagine China sanctions Intel with the intent of driving them out of key markets. Hostile foreign government action. It would surprise nobody if, in response, the US government then took steps to shore up Intel's position. Domestic government reaction.
...US consumers would also be drawn to Intel, in this scenario, as an icon of American industry bravely resisting foreign interference.
So the situation with Huawei is by no means surprising.
I take it you aren't following the latest news. Intel of today is more like Boeing. Uncle Sam will keep it afloat due to nationals security, but its performance is weaning enough that consumers are voting with their wallets against it.
China increasingly is in the consumer market (where the 28nm nodes Chinese players can domestically produce are competitive).
Chinese state agencies are phasing out Intel processors for domestic processors [0] and amendments to the CHIPS act increasingly restrict Intel and other grantees from purchasing Chinese intermediate parts [1], and Intel anyhow has export controls placed on it to prevent sales to Huawei and other controlled organizations [2]
In return, the US is helping subsidize Intel in building our High NA EUV capabilities (a major reason for the Intel layoffs this week) as well as Secure Enclave related R&D
The whole idea of the Sullivan Principle is to force Chinese players to spend more and more money but remaining the same distance apart (2 gen) [3]. The idea is Chinese players keep burning money building capacity, yet lagging behind relatively speaking, and that money could have been used for better applications by China.
Already China's GDP per Capita has remained stagnant since COVID began [4] and those tens of billions spent on building capacity could have been better applied building a more robust domestic economy, yet median per capita household incomes are stuck at around $4.6k/yr with a massive urban-rural gap (approx $7k urban, $2.9k rural) [5].
Without a robust domestic economy, and increased limits on export markets, this only leads to overproduction and deflation.
[0] - https://www.ft.com/content/7bf0f79b-dea7-49fa-8253-f678d5acd...
[1] - https://www.bloomberg.com/news/articles/2024-06-18/lawmakers...
[2] - https://www.reuters.com/technology/us-revoked-some-export-li...
[3] - https://www.belfercenter.org/event/competition-without-catas...
[4] - https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
[5] - https://www.stats.gov.cn/english/PressRelease/202402/t202402...
This sounds like a perspective from a finance/law person who doesn't understand how engineering works. Technological and engineering expertise ultimately come from human capital. That human capital is built through learning and practicing. Money plays a role, yes, but it's not everything, and is sort of an abstraction.
On the one hand, China "wastes" money by having to build everything themselves. On the other hand, importing foreign technology has always been the cheap way out (that many Chinese company voluntarily signed up for, until they no longer could). You don't own the technology in the sense that you don't (need to) truly understand it. This is different if you have to build everything yourself: you own it and understand every little part of it. This "waste" results in a ton of spillover effect: it builds a huge domestic supply chain and human capital basis that's not at the mercy of foreign IP demands. You can see this spillover effect in the renewable energy and EV market, for example. They spent decades learning how to build batteries, solar panels, electric engines, etc. and now the whole is bigger than the sum of the parts: expertise in building solar panels has positive spillover effects on the semiconductor industry because some of the technology is shared; expertise in building batteries is synergetic with expertise in building electric engines; etc.
This is one reason why for example India has more trouble with developing than China. Often times, India imports foreign technology but stops there, being mere users of said technology. China imports foreign technology, but considers it merely as a first step towards learning the underlying technology. They will try to modify or rebuild some part of it, learn from the successes and failures, and iterate until they've modified/replaced everything and understand the whole machine. And from there they would try to improve it. Some call this "stealing technology". Okay. But don't forget that the Europeans during the Renaissance had this philosophy that in order to become excellent, you first have to copy the classics (Romans), then create something equally valuable to the classics, then surpass the classics. This is China doing the same, but I understand it if people don't like it.
China had been trying for decades to incentivize its own semiconductor companies to develop, but failed to do because all the Chinese semiconductor companies chose the cheap way out, and imported foreign technology, instead of buying from domestic tool makers. As a result, domestic tool makers lacked practice, which is why they didn't develop in quality very quickly. This created a chicken and egg problem that was hard to get out. Until the sanctions did what the Chinese government failed to do. Yes, they hurt in the short term. But they provided an important opportunity in the long term.
All of this is "wasteful" from a globalist, financial perspective. But it's absolutely godsent from the perspective of China being a developing country that 1) still needs to lift up a lot of people, not only out of monetary poverty, but also out of educational and skill poverty, and 2) wants to improve their sovereignty, in the sense of becoming more resilient to foreign sanctions and being able to walk their own path without interference from others.
Truly, money is not everything. The real economy is not all about money. GDP is but a proxy for real value.
Chip Design and Manufacturing only generates so many jobs.
These are highly specialized and automated industries that don't employ that many people.
A subset of the younger generation of Chinese absolutely can upskill into this, yet what about the rest of the workforce who wasn't born before the 2000s or didn't studying EECS in university?
And the rural-urban divide still remains as Chinese govt stats show.
> You can see this spillover effect in the renewable energy and EV market, for example. They spent decades learning how to build batteries, solar panels, electric engines, etc. and now the whole is bigger than the sum of the parts: expertise in building solar panels has positive spillover effects on the semiconductor industry because some of the technology is shared; expertise in building batteries is synergetic with expertise in building electric engines; etc
Absolutely! And that's why most trade parters have begun either revoking MFN status and/or adding export controls.
What's the point of building all this if several large markets increasingly close off access or require Chinese players to build JVs with local players? That excess capacity is increasingly difficult to export.
> Truly, money is not everything. The real economy is not all about money. GDP is but a proxy for real value
Agreed, yet the median Chinese person remains poor by global standards (median household income is 33k yuan/yr as Stats CN has announced).
What do you do with the vast majority of the workforce who does not have the skills to work in high skilled manufacturing or services jobs?
It's not like the social safety net has been expanded significantly anyhow.
Which is the whole point of this arms race from the American PoV - forcing relative stagnation/isolation unless you return to the negotiating table [0]
Already Xi's economic advisor Zhou Qiren (invited to the Third Plenum) has been advocating this for years now [1] because the current system is bordering on State Capitalism leading to inefficiencies and unnecessary domestic competition.
Edit: cannot reply so replying here
> It seems to me if Huawei ban had any deterimental effect on China's GDP per capita then it would be more like a rounding error.
Yet the tens of billions of dollars spent propping up Huawei and similar firms could have been spent shoring up domestic consumption so that it could subsidize these champions.
Instead it's basically being burnt as this leads to overproduction, as household incomes and consumption show. If you keep spending such exorbitant amounts on production but not on consumption, you end up with overcapacity - which itself is damaging long term as this makes maintaince significantly more expensive, as well as undercuts the domestic market by making an entire industry dependent on government dole.
[0] - https://www.tandfonline.com/doi/pdf/10.1080/0163660X.2018.15...
[1] - https://link.springer.com/book/10.1007/978-981-15-9885-2
Surely the likes of COVID as well as the housing crisis had at least 10x more impact than the US' Huawei ban. Housing sector crisis alone affected an estimated 500k people losing their job and between 1-2 trillion USD losses.
It seems to me if Huawei ban had any deterimental effect on China's GDP per capita then it would be more like a rounding error.
E: Also I don't know what OPs talking about Zhou being Xi's economic advisor, he gave like 10m speech at a symposium before 3rd plenum with a bunch of other economists. The PRC economic left commentators (not in power) thought it was a big deal, then picked up western Chinese watching circles who decided to jerk off to notion he has pull when PRC domestic media largely ignored him. If had any influence, he'd be amplified all over PRC news sphere before, during, and after plenum. You can search up 周其仁 (his name) and half the relevant results (i.e. past 6 months) is from RFA and epochtimes lol.
First, most production of Chinese cars is meant for Chinese consumption. Foreign exports is but a tiny part of their sales. Some EV companies sell to foreign countries less because there's insufficient demand domestically, but more because they have trouble competing domestically.
Second, we don't have overcapacity, we have undercapacity. We're nowhere near 90% of all cars on the road being electric. It's crazy that on the one hand pepple can recognize that climate change is a mortal threat to humanity, yet on the other hand say that we have an EV overcapacity when we're nowhere near the end of electrification.
Third, the world is not just the west. There is huge demand for Chinese EVs in ASEAN, the Middle East, Africa and South America. They don't have domestic car production anyway so they don't care whether Chinese cars displace western cars.
> Yet the tens of billions of dollars spent propping up Huawei and similar firms could have been spent shoring up domestic consumption so that it could subsidize these champions.
They follow an entirely different paradigm than what the west typically understands as consumption. They shore up domestic consumption by developing the supply side w.r.t. quantity, quality and costs, not by giving households more money. Check out this thread: https://twitter.com/GlennLuk/status/1819755453179715635
> What do you do with the vast majority of the workforce who does not have the skills to work in high skilled manufacturing or services jobs?
The Chinese economy is intentionally undergoing a shift away from the traditional pillars of construction and low-end manufacturing, towards high-end manufacturing and services. Eric Li described this best in his talk last year. Yes, this shift is bound to be painful in the short term. A lot of people need to be reskilled. The old winners have been handicapped and the new winners aren't there yet. It can't be helped. All this is necessary, short-term pain for long-term gain. https://youtu.be/Vb835NzfzFw
In this sense, China’s population decline is necessarily bad. Do you think China will run out of people first or out of jobs first?
I would go even further than that: the Chinese state run system is not one system. It differs per province, per company, and they constantly iterate the system based on what works and what doesn't. If more market orientation turns out to work, then they do more of that, while keeping the communist label. Today's state run system is a strong cooperation between public and private entities, different from the sensationalist stuff you read jn mainstream media. They're not the mindless static dogmatists that you seem to imply they are.
Pretty much. And that's the point from the US side (http://industrialpolicy.us/resources/SpecificIndustries/IT/f...)
The whole idea of the Sullivan Principle is to force Chinese players to spend more and more money but remaining the same distance apart (2 gen) [0]. The idea is Chinese players keep burning money building capacity, yet lagging behind relatively speaking, and that money could have been used for better applications by China.
Already China's GDP per Capita has remained stagnant since COVID began [1] and those tens of billions spent on building capacity could have been better applied building a more robust domestic economy, yet median per capita household incomes are stuck at around $4.6k/yr with a massive urban-rural gap (approx $7k urban, $2.9k rural) [2]. Without a robust domestic economy, and increased limits on export markets, this only leads to overproduction and deflation.
Edit: can't reply, so replying in here.
Const 2015 dollars is still an approximation of production, and even then absolute household disposable income is low. It doesn't matter what GDP per Capita you have if the delta between that and median household income remains so large. All this implies is that the majority of revenue from production is captured by a minority. This is extremely rickety, and leads to long term economic malaise.
And it's not like you are paying in 2015 dollars in 2024 - absolute cost of inputs still change, and these kinds of transformations don't mean much when looked at holistically with other metrics like median household disposable income and nominal GDP per Capita.
Reply 2: Yet 50% of Chinese households still have a disposable income of well below $5k/yr. You can argue PPP all you want (it isn't even the correct application when discussing median incomes) yet inputs and all trade abroad continues to be executed at nominal rates. Only 13% of per capita household income per quarter is spent on transportation and telecom (ie. ~$50/mo per Chinese household), and much of that is spent on existing products not new products. Sure you have overproduction today, but what about 5 years from now? With absolute growth decreasing how are median household incomes expected to increase? And even the Chinese government has a finite amount of money - and instead of giving it to consumers to allow them to build a domestic economy it's only going to a handful of businesses that themselves are heavily automated and gatekept due to skilling requirements
[0] - https://www.belfercenter.org/event/competition-without-catas...
[1] - https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?location...
[2] - https://www.stats.gov.cn/english/PressRelease/202402/t202402...
Because China has lost the massive buffer that the rest of The world was giving it by investing in it for free, transferring technology to China for free, building its industries for it for free, and in return being kicked out the moment the Chinese did not need them anymore.
If you're overproducing yet there is limited ability for domestic consumers to put these products, this means you are dependent on foreign trade partners.
Yet even these trade partners are forcing Chinese players to manufacture in those markets or face high tariffs and revocation of MFN guaruntees.
There just isn't enough spend on a quarterly basis to subsidize industries like EVs, Chips, etc industry without export - and most markets are only increasing the barrier of entry, or requiring domestic JVs.
Every EV, PV, Construction, etc JV that a Chinese manufacturer creates in countries like Mexico, Brazil, Indonesia, India, etc is an equivalent amount of jobs and domestic investment lost.
What's the point of being ahead if you're spending tens of billions yet most domestic consumers cannot afford them. This only kills domestic capacity long term (and is what Zhou Qiren has argued for years and why he was so prominent at the third plenum).
Edit: cannot reply below so replying here
Yet even with low prices, products are still relatively expensive. For example, auto loans tend to be limited to 36 months by banks to non-high income consumers. Assuming you get a 3.85% loan (as the current Chinese LPR is) to purchase the BYD Seagull (cheapest EV), even with a 50% down you are looking at half of the median monthly disposable household income (~$150/mo). The per capita Chinese household spends no more than $50/mo on transportation AND telecom according to govt stats [0].
And this is the crux of the issue - if most Chinese cannot afford most products, and foreign markets are increasingly adding tariffs where does all this stuff go?
[0] - https://www.stats.gov.cn/english/PressRelease/202404/t202404...
To take your argument further: Californians spend way more on housing than people anywhere else in the world. They must all live in palaces.
This is just an unfalsifiable claim, devoid of empirical content. If you cite any of the numerous American companies with significant presence and revenue in China, say Starbucks, the reply will be that they are still there only because "China still needs them." But in what sense does China actually need Starbucks?
If the answer is "in the sense that Starbucks creates NNNN jobs and contributes to the Chinese economy", the exact same reasoning can be used to conclude that Chinese companies operating in the US are there only because "the Americans still need them." TikTok for example employs 11k Americans! Likewise, if the answer is "in the sense that Starbucks has something special to offer", the exact same thing can be used to conclude that Chinese companies (you can again use TikTok as an example) operating in the US are there only because "the Americans still need them."
In other words: 'need' can be taken either in a stricter or in a looser, watered-down sense. In the stricter sense, it's simply false that American companies are kicked out the moment China no longer needs them. Case in point: Starbucks, which is not strictly needed, but not kicked out either. Conversely if you take 'need' in the looser sense, foreign companies in any country still operate there only because "the locals still need them," and there's nothing unique about China's situation.
That is the "current dollar" value, which is not adjusted for inflation. If you look at the inflation-adjusted data https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?location... the stagnation disappears.
Per capital _disposable_ income 31k->39k rmb since 2019 using local currency with minimal inflation. Measured in USD, most global players stagnent relative to strong USD last few years. Measure in PPP etc PRC growth exceed other major economies with increasing lead in GDP PPP gap, i.e. worldbank 2019 PRC 24T vs US 21T, 2023 PRC 34T vs US 27T. By useful competitive metric, PRC is speeding past vs stagnating.
Core inflation mostly normal 1-2%, there's only statistical near deflation because pork prices (big part of basket) collapsed now that stock has recovered from ASF. A few 10s of billions spend on semi industrial policy per year is drop in bucket, especially if it pays back in reducing 300B+ annual semi imports. Western FDI in general low single % of PRC aggregate investments. Overall PRC growth fine, most of slow down (~2% of GDP) can be attributed to restraining domestic RE. Meanwhile PRC exports increasing thanks to strong USD, much of which moving up value chain in intermediate goods and high tech, including mature semi.
Driving down cost of goods with low inflation, high competition (and involution) is the strategy for increasing domestic QoL and exports. It's not just about bumping GDP #s maximally, the point is to modelT things like EV to reasonable costs i.e. 5-10k usd for no frills value models. Higher % of production which are absorbed domestically relative other major car producers, i.e. most other producers have more excess capacity relative to PRC, with excess capacity itself just dogwhistle for competitive exports. Domestic consumption with proper accounting (i.e. including social transfer in kind), PRC about OECD average, US is simply anomalously high due to financialization of services like education.
Such as?
Don't just stand there posturing, argue your point like the rest of us or get off the stage.
Sure!
- Private healthcare in the US driving up the cost of labor.
- Landlordism driving up the cost of labor.
- Inability to automate away labor due to unions.
- High CEO pay.
- Inability to fire poor-performing workers due to unions.
- Poor engineering due to lack of US investment in education.
- Short-term-ism where executives and shareholders are motivated by quarterly profits rather than long-term growth (in contrast with i.e. Toyota).
- Higher cost of labor caused by needing to attract workers to places with poor urban upkeep, like Detroit or Flint.
> cause you asked for a list
I did not.
> we gave a list (of which this is one item)
Where? I don't see it.
Why do you think this is caused by subsidies, and not by execs cutting costs to fund their stock buyback program?
See this NY Fed analysis of how export controls have worked out so far: https://www.newyorkfed.org/research/staff_reports/sr1096
That looks like a strawman, especially the "foreign" part.
Sanctions often boil down to the goal of incurring costs. Huawei went from a money making to a money losing machine. China may very well cover the bill in this case, but that money will be missed elsewhere.
The US wanted China dependent on the west for high end smart phones and chips. The way it’s turned out, China would have been more dependent if the US just left Huawei alone to begin with
Hurting Huawei financially also hurts China's economy, since the government faces a difficult choice of letting it fall or footing the bill (incurring opportunity cost).
> The US wanted China dependent on the west for high end smart phones and chips.
That again seems like a strawman. What US appears to be doing is it tries to stifle China's development geopolitically, economically, militarily. That's the high-level goal. Reducing access to high-end chips is just a mean to do it, not the goal itself.
2. Huawei has gotten stronger in China and weaker elsewhere.
https://archive.ph/JgNQg/d40b9dd122f4675c47c29c9a4528bb60734...
Edit: Flagged? What rule does this comment break?
2. "that it barely dropped after the sanctions" - good point.
I wonder if that is the point of the chart's design... WSJ?
I'd speculate someone somewhere at these Chinese companies has to be thinking like Dr. Evil's henchmen after turning his empire into legit successful businesses worth more than the evil schemes he cooks up.
"ugh do we have to put backdoors in, they're gonna figure it out eventually and we're already making money, what's the point of this again? Down with our enemies or something?"
Most of Murdoch's media have been designated as 'Entertainment, and not obliged to be truthful'.(Florida ruling: early 1990s)
If you're expecting the truth from Murdoch's rags, I have a lovely new bridge to sell you.
https://www.lightreading.com/security/the-us-is-moving-very-...
The Chinese government isn't using wiretap information to gain no-knock warrants which are a thinly-veiled excuse to kill US citizens. That's the US (local) government(s) doing that.