A huge number of ex-pats in China have left. I've got family there and a huge portion of his expat friend group left as Xi has cracked down (plus their handling of Covid was bad).
+1 to #2 on research. There’s a ton of papers coming out of China but I brace myself whenever I open a review request. I know profs who won’t even accept an all Chinese author submission because the quality is so low so often. Bad incentives must be the explination - the papers are often split in 3 short papers that are unparsable individually, contain non-sequitur references to machine learning, cite everything ever published by the group, and too often are written in a way that makes you think they invented standard techniques. I’m sick and tired of reading a submission just to report “the results are indistinguishable from white noise”.
1. I don't want the US and China to spar. I don't like Americans (including at least one other comment) cheering China's demise. I don't view them in the negative light I view Russia, Iran or other states that I find truly bad actors.
2. Despite the statistics you site, I hear so much about how China is absolutely killing it in many sectors. I just listened to a WSJ interview, for example, that walked through how China is "generations" ahead in their EV production, technology and manufacturing techniques. It sounded like they are truly light years ahead of the US, which was, in his opinion, in large part driven by the tenacity of the workforce and fierce competitive nature and creativity of their leadership. While many will argue that China has massive subsidies and IP theft that led to this success, it seems clear to me that much of it was legitimate as well. China also has made huge strides with its AI and is not far behind the US
This is where "productivity" in economics differ from "productivity" in technology. China has a genuine 2-3 generations' lead in EV production tech, but the investment flood has caused such fierce price war that none of that tech has translated to profits for anyone, and tariffs along with market slow downs have diminished profit chances via exports. Same with AI.
Good Post.... I expect things will only get worse as long as the CCP is in charge. On the side of the west, the key is to maintain capability around key industries which can be ramped up in the likely event of a collapse (solar, ev batteries, mature semi, etc).
Stalin proved you can build tanks but he also proved you cannot grow food. Xi is making the mistakes that all dictators do. Believe themselves to be infallible. Hubris and fear of jail or death are poor substitutes for the freedom of invention.
This should be a lesson that industrial planning is crap. Sadly, it will end up the same way with the same refrain we hear about socialism. “Real Socialism has never been tried.”
From FDR to Stalin to Mao to Xi....Industrial planning has never worked. That is very different from freeing up regulation and taxes on a new industry to allow it to flourish.
Love your articles on the Chinese economy. They are just the right combination of explanation and technical detail to help non-economists understand this very important topic.
You talk like these problems for China are a Bad Thing. They are our enemy. Chinese economic troubles are good for us. We should think about how to make them worse.
It is a good thing if the government is having trouble imposing its power on the world. But economics is about people more than governments. An economic slowdown in China means that a billion people are experiencing worse lives than they might have otherwise, and that is inherently a bad thing, even if it has some good side effects in limiting government power.
Not to mention Noah's view is that China doing worse makes it more, rather than less, likely that they will try and invade Taiwan as a way for the CCP to shore up its legitimacy in the face of economic stagnation.
Would like to hear your opinion on DeepSeek the new AI LLM from China, that is claimed to be better than the latest OpenAI and Anthropic models but developed at a tiny fraction of the cost.
Is this a breakthrough in new techniques or did they steal something, or is it not what it claims to be? Or maybe they want to use it to tempt people outside to freely give it information they want to steal.
If they can actually do this, then our restrictions on advanced semiconductors and equipment will cease to be a barrier.
Lawrence Harrison wrote a book after a lifetime of trying to help countries develop. He noted that only countries immersed in Protestantism, Confucianism, and Judaism could consistently generate high incomes. There are cultural practises/attitudes embedded in each social system that are either friendly or unfriendly to economic growth. This seems to bear out when considering the GDP per capita in different countries. I am surprised that this has not translated to investment strategies. Something to consider, although I have never seen this discussed, possibly because it is politically incorrect to do so.
Recently when I was teaching in a custom exec ed program with a group of senior Chinese bankers I was asked, by them, to give my opinion on whether interest rates or politics were more important for the volume of VC funding available in China. Nervous because I assumed there was a PC response, I decided to say what I thought, that politics played a far bigger role in driving entrepreneurship in China, and the contrary. There was a moment of silence, but then came nods of agreement across the room.
This ones touches on an interesting point that confuses me a bit. While we understand the Construction industry achieves low productivity overall, I would love to learn more about the reasons why that is the case.
I've worked for a long time for a global leader of construction equipment and while the machinery technology evolves, albeit at lower pace than , for example, automotive, I assume that the utilization of equipment, that typically idles a lot, might be related to it. An Ubber of machines might drive less capital requirements for equivalent output, but that is a puzzle that us hard to solve , since it involves high logistics costs. We've see some modest advancements in pre-fabricated housing and construction technologies, but they are not widely being used. So why is it that construction peoductivity is lower than others?
Very interesting article. Of course one potential solution Xi has could be to “acquire productivity” e.g. invade Taiwan to expropriate their semiconductor and other technical knowledge. Of course that technical knowledge is composed of human and physical capital. I sure hope that Taiwan and the US have strategies to import the human capital and destroy whatever critical physical capital it can in the event of such an action by Xi and the CCP
Yeah, the US would probably have to bomb the TSMC foundries if China was about to successfully take control of Taiwan. Even if they didn't, though, TSMC doesn't design chips, it only manufactures them. Companies that do design integrated circuits have to trust that TSMC won't leak their proprietary designs to competitors, and a TSMC under the thumb of the Chinese government would be forced to tell the Chinese Communist Party anything it wanted to know about what TSMC was making, which would, in many cases, be an unacceptable risk.
I find the "lack of consumption" idea as stated odd. Digging deeper it appears that the real complaint is that the "investment" undertaken instead of consumption has had very low returns (except as a means of increasing CPP power). So say THAT; spending such that deficits = Σ(expenditures with NPV>0) woud have resulted in more consumption and less investment.
One interesting stat is the decline in flights to China from Europe and the USA. It has really dropped off a cliff, and it makes getting there and back very expensive: https://www.cnbc.com/2024/10/25/china-sees-global-airlines-cut-flights-or-quit-totally-amid-weak-demand.html
A huge number of ex-pats in China have left. I've got family there and a huge portion of his expat friend group left as Xi has cracked down (plus their handling of Covid was bad).
+1 to #2 on research. There’s a ton of papers coming out of China but I brace myself whenever I open a review request. I know profs who won’t even accept an all Chinese author submission because the quality is so low so often. Bad incentives must be the explination - the papers are often split in 3 short papers that are unparsable individually, contain non-sequitur references to machine learning, cite everything ever published by the group, and too often are written in a way that makes you think they invented standard techniques. I’m sick and tired of reading a submission just to report “the results are indistinguishable from white noise”.
Two things:
1. I don't want the US and China to spar. I don't like Americans (including at least one other comment) cheering China's demise. I don't view them in the negative light I view Russia, Iran or other states that I find truly bad actors.
2. Despite the statistics you site, I hear so much about how China is absolutely killing it in many sectors. I just listened to a WSJ interview, for example, that walked through how China is "generations" ahead in their EV production, technology and manufacturing techniques. It sounded like they are truly light years ahead of the US, which was, in his opinion, in large part driven by the tenacity of the workforce and fierce competitive nature and creativity of their leadership. While many will argue that China has massive subsidies and IP theft that led to this success, it seems clear to me that much of it was legitimate as well. China also has made huge strides with its AI and is not far behind the US
"I don't view them in the negative light I view Russia, Iran or other states that I find truly bad actors."
You really, really should.
This is where "productivity" in economics differ from "productivity" in technology. China has a genuine 2-3 generations' lead in EV production tech, but the investment flood has caused such fierce price war that none of that tech has translated to profits for anyone, and tariffs along with market slow downs have diminished profit chances via exports. Same with AI.
Good Post.... I expect things will only get worse as long as the CCP is in charge. On the side of the west, the key is to maintain capability around key industries which can be ramped up in the likely event of a collapse (solar, ev batteries, mature semi, etc).
Stalin proved you can build tanks but he also proved you cannot grow food. Xi is making the mistakes that all dictators do. Believe themselves to be infallible. Hubris and fear of jail or death are poor substitutes for the freedom of invention.
This should be a lesson that industrial planning is crap. Sadly, it will end up the same way with the same refrain we hear about socialism. “Real Socialism has never been tried.”
From FDR to Stalin to Mao to Xi....Industrial planning has never worked. That is very different from freeing up regulation and taxes on a new industry to allow it to flourish.
Love your articles on the Chinese economy. They are just the right combination of explanation and technical detail to help non-economists understand this very important topic.
You talk like these problems for China are a Bad Thing. They are our enemy. Chinese economic troubles are good for us. We should think about how to make them worse.
It is a good thing if the government is having trouble imposing its power on the world. But economics is about people more than governments. An economic slowdown in China means that a billion people are experiencing worse lives than they might have otherwise, and that is inherently a bad thing, even if it has some good side effects in limiting government power.
Not to mention Noah's view is that China doing worse makes it more, rather than less, likely that they will try and invade Taiwan as a way for the CCP to shore up its legitimacy in the face of economic stagnation.
Would like to hear your opinion on DeepSeek the new AI LLM from China, that is claimed to be better than the latest OpenAI and Anthropic models but developed at a tiny fraction of the cost.
Is this a breakthrough in new techniques or did they steal something, or is it not what it claims to be? Or maybe they want to use it to tempt people outside to freely give it information they want to steal.
If they can actually do this, then our restrictions on advanced semiconductors and equipment will cease to be a barrier.
https://x.com/rnaudbertrand/status/1872495508473946199?s=61
If you are brave and don’t mind them getting your info, it is at deepseek.com. I didn’t try it myself.
Lawrence Harrison wrote a book after a lifetime of trying to help countries develop. He noted that only countries immersed in Protestantism, Confucianism, and Judaism could consistently generate high incomes. There are cultural practises/attitudes embedded in each social system that are either friendly or unfriendly to economic growth. This seems to bear out when considering the GDP per capita in different countries. I am surprised that this has not translated to investment strategies. Something to consider, although I have never seen this discussed, possibly because it is politically incorrect to do so.
Recently when I was teaching in a custom exec ed program with a group of senior Chinese bankers I was asked, by them, to give my opinion on whether interest rates or politics were more important for the volume of VC funding available in China. Nervous because I assumed there was a PC response, I decided to say what I thought, that politics played a far bigger role in driving entrepreneurship in China, and the contrary. There was a moment of silence, but then came nods of agreement across the room.
Of course, this session did not happen IN China.
This is the correct link to the LingLing Wei article.
https://www.wsj.com/world/china/china-xi-debt-economic-plan-13aaeec1?st=FB4YGR&reflink=article_copyURL_share
Great post.
This ones touches on an interesting point that confuses me a bit. While we understand the Construction industry achieves low productivity overall, I would love to learn more about the reasons why that is the case.
I've worked for a long time for a global leader of construction equipment and while the machinery technology evolves, albeit at lower pace than , for example, automotive, I assume that the utilization of equipment, that typically idles a lot, might be related to it. An Ubber of machines might drive less capital requirements for equivalent output, but that is a puzzle that us hard to solve , since it involves high logistics costs. We've see some modest advancements in pre-fabricated housing and construction technologies, but they are not widely being used. So why is it that construction peoductivity is lower than others?
I'd love to learn more.
Read Brian Potter’s substack Construction Physics, he dives into these issues regularly.
https://open.substack.com/pub/constructionphysics/p/is-land-use-regulation-holding-back
https://open.substack.com/pub/constructionphysics/p/does-construction-ever-get-cheaper
Very interesting article. Of course one potential solution Xi has could be to “acquire productivity” e.g. invade Taiwan to expropriate their semiconductor and other technical knowledge. Of course that technical knowledge is composed of human and physical capital. I sure hope that Taiwan and the US have strategies to import the human capital and destroy whatever critical physical capital it can in the event of such an action by Xi and the CCP
Yeah, the US would probably have to bomb the TSMC foundries if China was about to successfully take control of Taiwan. Even if they didn't, though, TSMC doesn't design chips, it only manufactures them. Companies that do design integrated circuits have to trust that TSMC won't leak their proprietary designs to competitors, and a TSMC under the thumb of the Chinese government would be forced to tell the Chinese Communist Party anything it wanted to know about what TSMC was making, which would, in many cases, be an unacceptable risk.
To be fair cracking down on the finance industry is usually a good idea.
Great post. Note the link to the Lingling Wei article seems to go to the Campbell article instead.
I find the "lack of consumption" idea as stated odd. Digging deeper it appears that the real complaint is that the "investment" undertaken instead of consumption has had very low returns (except as a means of increasing CPP power). So say THAT; spending such that deficits = Σ(expenditures with NPV>0) woud have resulted in more consumption and less investment.