[A_D_E_P_T]

> 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.

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.

[Rinzler89]

>...US consumers would also be drawn to Intel

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.

[A_D_E_P_T]

It's a thought experiment. They would be drawn to Intel under that set of circumstances. (Intel being singled out by a China for punitive sanctions.)

[alephnerd]

> Imagine China sanctions Intel with the intent of driving them out of key markets

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...

[FooBarWidget]

> 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.

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.

[selimthegrim]

OK wonderful and why did East Germany need the West to come in and pick up and use their human capital effectively in the semiconductor industry?

[FooBarWidget]

What does that have to do with anything?

[selimthegrim]

I’m saying the argument has its limits in a state run/dirigiste/Communist system

[FooBarWidget]

This is a lazy argument that put very different groups in the same bucket based merely on labeling. The only similarities between East Germany and China is that they've both had Soviet influences, but the commonalities end there. Everything else is different. The Chinese state run system is not at all comparable to the East Germany one.

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.

[dragonelite]

The joke is that President Xi will build a statue for President Trump for finally unleashing the fire under the Chinese domestic semiconductor industry.

[alephnerd]

> 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

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

[FooBarWidget]

> 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.

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?

[FooBarWidget]

Urgh, typo but I can't edit anymore. I meant: is not necessarily bad.

[fspeech]

You kept on talking about the median, yet the Chinese median age is now 40. What was China like in 1984？ And the population bulge happened in the 60s and 70s. In the 80s the one child policy was already in full swing. A typical 50 year old isn't going to learn to drive if they haven't learnt by now. Using the median to try to understand what is going on in such a fast changing economy borders on futility. Maybe in 30 years median would really mean something for China.

[melasadra]

>Agreed, yet the median Chinese person remains poor by global standards (median household income is 33k yuan/yr as Stats CN has announced).

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.

[maxglute]

PRC semi investments probably <500B USD since first big fund 10 years ago. It's not nothing but it's not detriment to PRC growth especially if it chips away at 300B+ annual semi imports. In terms of opportunity cost and geopolitical exposure, it's about as no shit investment as there can be. Especially since every $ saved on imports is not going into US/western semi, forcing US/west to do their own semi industrial policy which given how Intel is doing, maybe far more wasteful. The TLDR is PRC has more to gain from increasing domestic semi vs west because west already market encumbants/dominant and net position is PRC only has market share to gain, often at expense of west. For reference US spent 750B last year on fossil fuel subsidies/incentives, maybe it's wasteful, but most would say it's geopolitically prudent.

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.