We talk about China's economy, decoupling, export controls, industrial policy, state control, and lots more.
That was a very good article. Very insightful.
He is also an especially effective communicator. In both audible and written discussion, a tendency today is hold too many ideas at one time and use an abundance of commas. Appreciated Mr. Wang's ability to pick up one item and finish with a period. And then go to the next item. I didn't have to re-read paragraphs as is too often the case. Just a side-note that became obvious early in the interview.
Truly excellent of course (Dan is excellent, your questions the right ones). One key theme emerges: that growth in both inventions and ideas that come from the 'fringes' ("its scientific establishment is unused to puttering around the fringes of new fields," "It would be good, I think, if the Chinese state can one day learn to leave people alone") won't happen when the idea of being 'left alone' is not a state or cultural value. I once met a philosophy grad student in Hangzhou working on Rawls who said his research was frowned upon because the very idea of the single individual standing behind the veil of ignorance looking out at his possible life was anathema to the Party. It is very good to consider, as you both are doing here, the economic and social trajectory of a nation that does not particularly value puttering around the edges of things.
I do wonder, as successful as China has been at catching up and even surpassing the West, if they are about to do their own version of 90s Japan bubble bursting followed by stagnation.
Excellent interview, Dan Wang is consistently insightful & much needed voice in the conversation about China, tech/politics and economics.
Dan’s point about how “the US has not gone out of its way to rhetorically welcome Chinese entrepreneurs” is worth considering further.
The US used to welcome the best and brightest from around the world, and immigrants to the US have founded a huge share of Fortune 500 companies.
Dan’s anecdotal point about Singapore attracting wealthy Chinese immigrants echoes my own anecdotal experiences in speaking to dozens of successful Chinese entrepreneurs and investor friends who are no fans of China’s new direction & stifling of entrepreneurship, and who would love to immigrate to the US. Our broken immigration system, country quotas and green card/O-1 visa caps makes this extremely difficult.
Now countries like Singapore and Canada seem to be doing much better in attracting disaffected Chinese entrepreneurs and talented/wealthy folks to immigrate while the US’s rhetorical excesses and growing xenophobia towards China seems to tell these potential Chinese immigrants they are not wanted in the US. In some US states, recent laws passed would not allow most Chinese immigrants to even purchase property, and echo the worst periods of past US xenophobic excess like the Chinese Exclusion act of 1882.
Can you blame a talented Chinese entrepreneur or engineer tired of living in China for wanting to look to other places to immigrate?
Seems to me that attracting these disaffected and successful Chinese entrepreneurs, engineers & investors to the US would serve multiple purposes - filling important STEM-field jobs fast, weakening the progress of Chinese innovation by welcoming their top talents to our shores & industries, and demonstrating once again that America attracts the best & brightest to stay here to contribute to our country’s success and enjoy its freedoms.
Oh also big fan of dan wang’s work too^ super excited to see this piece!
Love the reference to taisu’s paper on neighbourhood level local government structures, w the balance between central ideology and grassroot governance being key still in the power they have. Also very interested to see how this plays out in urban and rural areas
Also enjoying the emphasis on the scale up aspect in manufacturing. In certain intersections btw material engineering + pharmaceuticals you can also see this at play in china. Stability is so key (@high intricacy + high volume!) when you move from the lab into commercial manufacturing. Cool to see it pointed out!
I'm not an economist, and this interview seems to focus more on economics, but I do feel that demographic decline is more serious than was talked about. China is losing 1-2% of its working age population every year, and the fertility rate is falling extremely fast. What kind of timeline are we focused on here? Extrapolate out 20 years and you have only half the current number of 20 year olds. Huge drag on future consumption and innovation if your youth population is halved.
Dan Wang needs to write a postcard deciphering which of Bar, Modern, Sally's or Pepe's shines supreme over the New Haven culinary firmament.
This is a great interview.
> And yes, a still-greater share of younger people are upset... It's worth pointing out, however, that there are many pro-regime young people. In surveys, young Chinese report being more patriotic than the previous generation. So I feel that their views are polarized: both more young people are happy and more young people are upset.
It's worth appreciating when a commentator avoids painting an entire generation (or two) with a single trend.
>I think that one of China's essential problem is one of state overcapacity. Since imperial times, state officials would rarely hesitate to entirely restructure a peasant's relationship to her land.
Japanese, Korean, and Vietnamese governments were all influenced by the Chinese example. Did any of them show this level of state overcapacity?
American tech companies willingly sold-out their futures to China, et alia in exchange for cheap labor. That works for the short term but not the long term. Just one example, Texas Instruments fails to promote a certain executive, who then goes to Taiwan to start TSMC. Intel’s culture was we’re the sophisticated chip designers and the chip-fab business is low margin, not sexy, etc. Intel invented a lot of EUV technology, but again it wasn’t interested in anything related to the chip-fab sector. ASML took over the pursuit and development of EUV chip lithography. I think these will rank as two of the worst business decisions in the new Millennium.
Intel can build a 3nm or 5nm chip fab with government money, but it can buy the corporate culture it takes to manufacture chips 24/7 with 99.9% success. TSMC has the culture and the know-how to work with their client’s new chip designs (e.g., Apple’s M1 and M2 chips) and solve the inevitable bugs when production begins. Already, TSMC is flying over its engineers from Taiwan because the U.S. workers in its new Arizona fab are so disappointing in re work ethic, expertise, etc.
China threw $200 billion at the chip-fab sector and ended up with hundreds of small fabs that can’t produce at world-class scale. As Qualcomm’s CEO stated last week: “Computer chip production will need to double some time in the next 5-10 years. It isn’t going to happen in China. I think the money will flow into the proven high-tech economies of South Korea, Malaysia, Mexico, Poland, etc. Qualcomm’s CEO also stressed that chip production needs to become more geographically distributed, if for no other reason than the potential of natural disasters. I think this will also be the pattern in other high-tech manufacturing products. I think long-term stability trumps price in the long term.
As for China leading the world in Li-ion battery design and production, I think they will get serious competition coming from Li-ion batteries with 100% more energy density via a silicon anode and 3D architecture, half the charge time, and longer battery life. And most important: leading-edge technology that mitigates thermal runway (short-circuit fires). These batteries have begun production in California, will begin production in Malaysia in another 18 month to two years. If a corporation such as Samsung decides to ink a co-manufacturing agreement, the speed at which it can retro-fit and scale-up production in its existing battery manufacturing plants would be impressive. Elon Musk has stated that the “silicon anodes is the way to go forward with lithium-ion batteries.
A lot is going to change in the coming 5-10 years: more diversification of high-end technology facilities and geographic locations. This is the West’s response to China 2025.
Dan Wang is awesome. That is all.
Wonderful interview with comparison and contrast between China’s vs. USA approach and ability to control and implement industrial policies, especially considering each country’s respective strengths and weaknesses. In my mind these two countries given those industrial factors are more complementary, rather than substitutive. It would be sad to have a global conflict between the two.
Very good interview!
1) The demographic effect will be significant imho. Both absolute population numbers and dependency ratio's matter, and the latter will raise soon. China has one of its biggest generation's crossing the 60 year mark now: https://en.wikipedia.org/wiki/Demographics_of_China#/media/File:China_population_sex_by_age_on_Nov,_1st,_2020.png
2) The last years saw increased state control and reduction of liberty and free speech, together with sudden crackdowns on economic sectors. This should reduce China's ability to innovate. It looks like the government is afraid of sudden change->can't allow too much creative destruction and creative chaos.
The pace of technological development in China is truly impressive. It's clear to see that the Chinese are deeply committed to learning and are incredibly diligent and intelligent. This has allowed them to make rapid strides in various fields of technology, illustrating the remarkable capacity and potential of the nation.
However, despite these advances in technology, the realm of scientific development in China still faces significant hurdles. One major obstacle is the pressure of daily life, which can often be overwhelming and distracting. This makes it challenging to dedicate the necessary time and effort into scientific research, particularly when the fruits of labor are not immediately apparent.
Science, by nature, requires sustained and long-term commitment, often in the face of uncertain outcomes. This can be a hard path to tread when societal and personal pressures take precedence. Thus, the difficulty lies not in the lack of intelligence or diligence, but in the ability to balance life's pressures while maintaining the perseverance required in scientific endeavors.
Nevertheless, China's remarkable progress thus far gives us reason to be optimistic about the future. With supportive policies and frameworks that alleviate some of these pressures, there's no doubt that the country can overcome these challenges and continue to grow in both the technological and scientific domains.
Sad to see DW joining the horde.
>catastrophes that did not seem to be necessary
>problem is one of state overcapacity
State overcapacity is a symptom of the solution of maximizing state capacity. Sure, it’s a problem, but better than the alternative, at least for now. For catchup development and now near peer competition, state overcapacity is better than state none/under capacity. GLF left PRC significantly more industrialized relative to developing peers in immediate years following (see national production share stats of era, PRC had relatively high share of industry vs service & agri compared to states with comparable starting points), meanwhile PRC life expectancy in 70s reached middle income levels. CR and OCP (broadly family planning) is why PRC had a mass of largely fungible bodies to exploit manufacturing led growth as resources get directed to 1-2 offsprings to build up cohorts of high skilled talent that's moving up the value chain now. Not too different from other East Asian Tigers, except PRC still has about 3-5 Japan’s worth of growth productivity left to squeeze as it moves from 25% skilled talent to the 60-85% of advanced countries in the next few decades, aka the greatest skilled demographic dividend in recorded history. Decline TFR due to overzealous state overcapacity, yes, 20% youth unemployment because state over capacity pumping out talent, also yes, but also closer to PRC demographers best lightcone projections.
PRC's success is precisely because state overreach wasn't afraid to treat human (resources) like capital, because the state did not leave "people alone". Neighbouring India unable to launch "famine policies" is why they suffered 100s of millions of avoidable infant deaths over decades, and still have food security stats comparable to North Korea. India is still a fragmented shitshow because their red guards didn't denounce caste away, while traditional values now absurdly squeezing women workforce participation rates down. Their lack of family planning (which they’ve tried and failed), is how India is going to end up with 1B+ stuck in subsistence agriculture and informal economy vs PRC’s 600M. They’re basically trending towards the PRC demographers nightmare scenario. State overcapacity in the PRC front loaded 10s of millions of deaths ("catastrophes that did not seem to be necessary") to avoid 100s of millions. Of course better to… not over overreach with millions of death, but the alternative of under capacity is darkest timeline material.
TLDR the temporary shambles of PRC state over capacity was vastly more performant than lack of meaningful state capacity over medium/long term. Youth unemployment is the fallout of state overproduction roughly OECD combined in STEM talent. It’s not good, but there are worse problems to have, like not having enough talent at all. Just like PRC indy policy, where DW acknowledged PRC has caught up in most regards except the… checks note, two most complex and difficult integration industries. If progress in PRC military aviation is a sign, it’s more a matter of institution coordination problems than raw engineering, software stuff that’s harder to spam but comes with time. It’s not about indy policy resembling failure vs success, but success through failure. In many ways, PRC industrial policy has close to 100% success rate because alternatives to inefficiently pursuing indigenization is simply ceding to incumbents as they build moats higher on critical tech. Being 1-2 gen, 5/10 years behind is better than being dependent or without. CCP/state will eventually need to slow down, but probably not short medium term. System still working well while risk of instability/upheaval manageable.
> D.W.: The first is that there have been a lot of failures. China is achingly aware of its deficiencies in two strategic sectors in particular: semiconductors and aviation. So it has showered these sectors with bountiful money and stern policy attention. Where has that gotten them? Not far.
Calling these sectors a failure is not very fair. Although Chinese semi and aviation hasn't caught up to the leaders, they have made huge advances in the past 30 years from basically nothing. China industrial policy is very patient and are willing to be misunderstood by western critics like EVs 5-10 years ago.
For aviation, China has figured out jet engines with the latest WS-15 and developing one for commercial usage. China made much more progress than Japan in producing commercial jets.
Semi is also impressive in that China needs to build the entire supply chain by itself to avoid sanctions, and has achieved that in mature nodes, something no other country can claim.