Comment by simonh | Hacker News Reader

Comment by simonh | Hacker News Reader

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It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore.

For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers? As many advanced state of the art stealth bombers, fighters, tanks, spy satelites and naval bases? No, it doesn't, all it realy means is it can afford as many roads and bags of rice as the US.

As soon as China starts investing in, developing or buying international standard technology and eqipment it has to start investing or spending international standard capital to do so, and PPP doesn't help anymore. Even in the case of 'soft power' such as financial support and investment in other countries, that has to be done in foreign currency. Suddenly the domestic purchasing power advantage of the Yuan becomes an equal and opposite disadvantage.

>It's not at all about real global power, it's about domestic economic capacity. As soon as China tries to start exerting it's economic muscle abroad, it has to compete on international terms which means adjusting costs to take advantage of domestic costs doesn't matter anymore.

The entire reason the GDP and PPP GDP is so out of whack in China is because it intentionally suppresses the value of its currency to subsidize its exports.

>For example, does China's GDP at PPP 'equality' with the US mean it can fford as many nuclear submarines as the US, as many aircraft carriers? As many advanced state of the art stealth bombers, fighters, tanks, spy satelites and naval bases? No, it doesn't

Yes it does because all of these things require domestic manufacturing capacity. It's doubly true for military hardware in fact - just as the US doesn't want its submarine parts made in China (especially chips), China doesn't want its submarine parts made in the US.

>As soon as China starts investing in, developing or buying international standard technology

China is becoming international standard technology. Its mercantilist strategy has paid off since it has become the manufacturing hub of the world.

>Even in the case of 'soft power' such as financial support and investment in other countries, that has to be done in foreign currency.

Only if the foreign country doesn't want your currency. China just started buying $400 billion in gas from Russia in RMB though, so...

> Yes it does because all of these things require domestic manufacturing capacity.

But that's manufacturing capacity it doesn't have for technology is also doesn't have. To get it will either take buying it in at international prices (in $), or take take world class investment in technology, training, manufacturing capacity etc. Having cheap rice and roads will help a bit, but it won't come close to closing the gap with the US. To do that they would need to effectively become the US, or something like it and as a result their domestic cost advantage would evaporate. You don't get to move from being a third world country with a third world cost base to being a first world country and keep your third world cost base. The two go hand in hand. That's why Chinese manufacturing is beginning to lose it's price advantages over places like Vietnam and Mexico.

> China is becoming international standard technology. Its mercantilist strategy has paid off since it has become the manufacturing hub of the world.

China has a very long way to go before it becomes a technological rather than manufacturing powerhouse. Assembling high tech iPhone components made in the USA, Japan, Taiwan and South Korea will only get you so far. The value added to an iPhone from assembly in China is only about $10. The same goes for many other high tech goods 'manufactured' in China.

They are moving up the value chain of course, that's why their cost base is rising and hence actualy their PPP advantage is beginning to erode. Japan, South Korea and Taiwan did the same thing, but China are still a very long way from the top.

> China just started buying $400 billion in gas from Russia in RMB though

Russia is desperate. They gave in to humiliating terms from China because the post-Crimea sanctions are bleeding their economy out.

>But that's manufacturing capacity it doesn't have for technology is also doesn't have.

Says who? Chinese technology is converging at US levels.

>You don't get to move from being a third world country with a third world cost base to being a first world country and keep your third world cost base. The two go hand in hand. That's why Chinese manufacturing is beginning to lose it's price advantages over places like Vietnam and Mexico.

Chinese manufacturing has been moving up the value chain since it began its mercantile strategy. It isn't particularly concerned about losing, say, shoe or t shirt manufacturing to Vietnam - because they are strategically pretty useless. It is keeping key industries at home and keeping their cost advantage through a combination of subsidies and suppressing the value of the Yuan. There is NO end in sight for this policy.

>China has a very long way to go before it becomes a technological rather than manufacturing powerhouse.

It's already there.

>Assembling high tech iPhone components

My Xiaomi is pretty much every bit as good as an iPhone and 1/4 the cost.

>Russia is desperate.

Russia is not desperate. This is a story spun by the Obama administration to make it look like Obama isn't weak and ineffectual and that his sanctions actually achieved something meaningful (they didn't).

That was at the root of all those silly stories about Putin sitting alone for lunch at those G20 meetings. It's the most ridiculous, transparent PR ploy I've ever seen, and weirdly it's working.

>>Assembling high tech iPhone components

>My Xiaomi is pretty much every bit as good as an iPhone and 1/4 the cost.

Without taking Simonh's "side" here, you are missing his point, which is that the high-quality screens and advanced ICs are overwhelmingly designed and manufactured outside of China, especially in the countries he listed.

Even a low-end Xiaomi model uses a MediaTek (Taiwanese) SoC fabbed by TSMC (Taiwanese).

China may be moving toward more domestic production of such components, e.g., with modems and SoCs by Spreadtrum; SoCs by AllWinner, RockChip, AmLogic, etc.; or fabbing by SMIC. (On the other hand, I'm not aware of a major Chinese manufacturer of DRAM, NAND, or smartphone displays, for instance. I'd be interested in hearing about them if anybody knows of some.)

In other words, to counter him, it's not sufficient simply to show a Xiaomi phone; you must also show a BOM for one with primarily Chinese parts. As far as I know, one does not exist.

Well, Taiwan is arguably China.

Taiwan de facto is its own government and has laws against fabbing in china, as do most countries in that region.

It is getting much closer to falling under the Chinese sphere of influence as American military dominance in the Pacific wanes and China's increases. I expect it to be gradually swallowed up Hong Kong style in the next couple of decades.

America's 'promise' to protect it will likely be quietly withdrawn.

Either that or we will go to war.

China's bullying of their neighbors has been the best thing for American dominance in the region since winning the Spanish American war. Even Vietnam likes them now. .

Vietnam has liked America more for decades. However, being liked more by Vietnam does not translate to military dominance over the Pacific.

Chinese fleet is increasing in size and the US pacific fleet is shrinking.

Also: what did the US have to say about China claiming most of the South China sea as its own? Virtually nothing. That wouldn't have been the case even a decade ago.

China still doesn't have much of a navy, they definitely don't have a blue seas navy yet anywhere compared to the USA or even the Japanese sdf. Ya, the us is going from 100 to 90 while china is going from 1 to 2.

And that's not even the point: they don't want to go against china directly, there is too much integration. But they definitely want to sell some boats to Vietnam. So the next time china wants to go at it with Vietnam, they will be on a more equal footing.

>And that's not even the point: they don't want to go against china directly, there is too much integration.

Yet another reason why China's regional dominance is increasing and the US is shrinking. It's not just their navy. The US is too inextricably tied to the Chinese economy.

In the last 5 years it's been looking like the US would lose out more if China pulled the trading plug (suddenly cut off exports / let the yuan appreciate) than China would.

Cut off Chinese exports now and the US would suffer a wave of cost push inflation like it did in the 70s with the oil shock. It would not be pleasant. US military planner are aware of this and restrict their chest thumping accordingly.

Cut off Chinese exports and the Chinese would hurt also. They still have nothing near to a consumer Economy. The inflation would really suck for all the money they have stored in U.S. bonds.

Integration cuts both ways.

Samsung: mostly Korea, TMSC: mostly Taiwan, Intel: Israel, U.S., etc...

Globalfoundries: Dresden, Singapore, U.S...

The only company I see with a lot of fabs in China is SMIC, and they're at 40nm, so they sure aren't making the Xiamo's CPU. http://en.wikipedia.org/wiki/List_of_semiconductor_fabricati...

> But that's manufacturing capacity it doesn't have for technology is also doesn't have.

You just moved the goalposts. It's pretty obvious a Chinese shipyard could build a frigate vastly cheaper than a US shipyard. PPP GDP probably doesn't even touch this ratio.

It's true that China high tech is behind the US, Japan, Korea, and Taiwan. For now. That will last a decade, maybe. There are thousands of products that used to be designed outside of China that are now fully Chinese.

pPP moves the goalposts on to each nation's home turf so they get a home player advantage. International influence and power requires playing against the same goalposts as everyone else.

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