The absolute dependence on China is something I'm surprised more companies haven't tried to combat. There's so many efforts to try and diversify to reduce risk, yet almost every hardware company remains at the whims of the Chinese government due to their dependency on Chinese manufacturers.
The idea that the Chinese government could present a material international threat to your business is really a relatively new one[1]. Immediately after PNTR in 2000 and before the installation of the current regime, it was a a more-or-less stable environment.
Today's uncertainty really only started to creep in around 2014[2], and in those 14 years the global supply chain concentrated so heavily in and around China that you need to overcome a lot of inertia to move elsewhere. Most attempts to do so until now have been either for low-value mfg - t-shirts or bicycles - or focused on relatively less complicated finishing and assembly stages.
1. What I mean here is that in earlier days, you were more likely to be concerned about access to the PRC market and making sure you had strong internal IP protections in place with your contract partners.
2. In addition to the politics, this is also around the time it became clear that the Chinese economy in general needed to change, because they were starting to lose out on low-margin products to lower-wage countries.
It was kind of inevitable that this would happen as China moved up the value chain and ever more of the American industrial supply chain came to rely upon it - especially hi tech.
In a way, it's better that this decoupling (which will not be a quick process) happens sooner rather than later, before that reliance can be used as an effective weapon against the US (turning off the industrial goods tap/sanctions could be pretty devastating).
It would be best that there be no decoupling. The decoupling is driven by a belief by some in the American government that they can somehow blunt the economic development of China and maintain American geopolitical hegemony into the foreseeable future. That's a very dangerous thing to attempt to do, because it sets the two countries on a definite path towards conflict. The question is really whether the United States is willing to accept its probable status as the #2 power in the world in a few decades, or whether it will make a serious attempt to retain its current position. Certain people who are influential with the current occupant of the White House, including Peter Navarro and Steve Bannon, truly believe that the latter option is possible, and are willing to enter into a major conflict with China.
> The decoupling is driven by a belief by some in the American government that they can somehow blunt the economic development of China and maintain American geopolitical hegemony into the foreseeable future.
You don't come out and say it, but your implication is that this is not possible.
It is not obvious to me that that is the case.
1. China is a low trust country. There is a deep culture of fraud and deceit. This will be a difficult thing to change, which I believe is a precondition to being a tier 1 super power.
2. People like to extend trends into the indefinite future, but macroeconomics is superstition at best. The stagnation of Japan caught just about everyone by surprise. I think there's at least a 30% chance this happens to China, based on some of the reports I've seen coming about of China related to debt and real estate.
I think there is a good chance for China to reach tier 1 status, but it doesn't seem like a foregone conclusion to me. Given this level of uncertainty, it seems reasonable that some powerful Americans might not want the US to go gentle into that good night.
> People like to extend trends into the indefinite future, but macroeconomics is superstition at best. The stagnation of Japan caught just about everyone by surprise.
Japan stagnated after reaching approximate parity with the US in GDP/capita. China only has to reach one quarter the productivity of the United States in order to surpass the US in nominal GDP. If China reaches half the productivity of the US, its economy will be twice as large as that of the US. These are relatively low bars.
> Given this level of uncertainty, it seems reasonable that some powerful Americans might not want the US to go gentle into that good night.
I wouldn't call it "reasonable," but I might call it "predictable." A policy of trying to sabotage China's economic development would put the US and China on a definite collision course, and I don't want to see what the world looks like after that. The most concerning aspect of this is the apparent widespread support for this course of action among both Democrats and Republicans. A lot of people don't know what they're careening into.
>1. China is a low trust country. There is a deep culture of fraud and deceit. This will be a difficult thing to change, which I believe is a precondition to being a tier 1 super power.
That's a low grade racism. China has issues, but is the #1 global manufacturer, and the biggest global companies (from Apple and BMW to Dell and Armani) rely on it for their production. That takes a lot of trust, not "fraud and deceit".
Sure there's "fraud and deceit" from small-timers, but then again the US cities also used to be full of small time crooks and hustlers in the better part of the 20th century, as people were getting out of poverty. In the case of China it's internal, not foreign immigrants, but the dynamics are the same.
>2. People like to extend trends into the indefinite future, but macroeconomics is superstition at best.
Well, the same argument could be said for the hegemony of the USA. Why would it extend to the "indefinite future" (especially since trends show the opposite)?
"A low trust country" is maybe not the most elegant way of phrasing it. But China does not have the rule of law and long-term stability in politics, policies and enforcing contractual agreements, established historically or by implication, to nearly the same degree as most Western countries. The trend of rich Chinese investing in property in the West demonstrates that Chinese citizens are also well aware of this, and are hedging their bets.
This is an often underappreciated point regarding the industrial and innovative ability of Western society. It remains to be seen whether it's a precondition to being the most powerful nation in the world in terms of technological development and industrial capability. (In the same way as the question of democracy/freedom of speech in general being such a precondition).
>The trend of rich Chinese investing in property in the West demonstrates that Chinese citizens are also well aware of this, and are hedging their bets.
Or they might be simply diversifying because they've too much? It was not uncommon for Americans back in 80s to have a Holliday home in Europe for same reason.
We never say Apple manufacturing in China implies that Apple do not trust American government?
>....rule of law and long-term stability in politics, policies and enforcing contractual agreements, established historically or by implication, to nearly the same degree as most Western countries.
May be it is time to stop using the word Western, which is a word China likes to use. Both I don't see Japan, South Korea, Australia being in the West.
May be we should start using the world "International".
The original comment did not say that China is distrustful because they are of a different race or that their race makes them inherently distrustful. I think shutting down any argument with "that's racist" is disingenuous. If we go by your logic you can say "that's racist" to any criticism of China.
But China is mostly Chinese people, or you are suggesting he blames immigrants in china for fraud? I think he's justified on his part to take an offence when his country his mentioned with fraud, I've been duped more by New Yorkers than I've been duped in Beijing but I don't go around saying, all America is scam and built on blood and plundering.
>The original comment did not say that China is distrustful because they are of a different race or that their race makes them inherently distrustful.
It can still be racist if its counter-factual and driven by a dismissal of China itself. In fact it can be racist even if the same person accepts e.g. Japan, as Japan and Korea faced the same dismissals in the 60s to 80s (as copiers, second rate quality places, corrupt states, etc) before being accepted.
The fact is that China has been trusted by almost all major global companies for their manufacturing, so China can't be said to be a "low trust country" as a blanket statement.
Of course China can have low trust businessmen or low trust state officials, or they might be losing trust now (with the trade war and co).
But for decades they have had the trust of almost all western companies. Enough trust that they have been doing their manufacturing there (even exclusively there) for 2+ decades.
Trust has nothing to do with westerners reliance on China.
It’s the low cost of human capital, and now the realization of lost non-Chinese suppliers, that continues to keep China thriving.
One does business in China because it’s the only way (currently) to stay afloat.
And yes, corruption is inevitable in China because of its inconsistent rule of law and inability of dedicated journalists and grassroots movements to expose, uproot, and punish said corruption.
Edit: China is at a crossroads, but whether those in power will step-up to greatness and allow its greatest resource (its people) be more than puppets and slaves remains to be seen.
>In fact it can be racist even if the same person accepts e.g. Japan, as Japan and Korea faced the same dismissals in the 60s to 80s (as copiers, second rate quality places, corrupt states, etc) before being accepted.
They also had a democratic process, a lawful system ( bias or not ) in place where many of these issues can be solved diplomatically.
Not the same of China, everything is tangled together. CCP.
#1 global manufacturer for whom? If China manufactures products for America and the Americans are making sure the products pass quality control under American standards and you're buying the American product, not the Chinese one then clearly China can still lack trust despite being a #1 global manufacturer. The Chinese are absolutely awful at establishing brands and exporting their products directly under that Chinese brand but at the same time they are widely successful within their own country.
>#1 global manufacturer for whom? If China manufactures products for America and the Americans are making sure the products pass quality control under American standards and you're buying the American product, not the Chinese one then clearly China can still lack trust despite being a #1 global manufacturer
Not sure I follow. It's still China making those products, and American companies trust Chinese companies to make it under their (American) standards...
I think your point 2 is very true. And there are other things to worry about China: the prevalence of corruption, an aging population.
I think most of the growth from the 90s to 2008 was generated by the continuous flow of western companies outsourcing to China, investing in the economy and opening factories. That flow dried in 2008 because anything there was to outsource has been moved already and if anything automation will rather repatriate production. Then to compensate that and the collapse in global trade caused with the financial crisis, China embarked in a massive debt bubble. In less than 10 years the size of Chinese banks balance sheets went from nowhere to become the largest in the world, well over US giant banks. This fueled a real estate bubble. But this debt bubble is coming to an end, and what will fuel the growth for the next 15 years? The past 30 years are not reproducible.
Trust is a two way street, you have to be willing to trust to find trust.
HN is not the forum for these types of discussions, there is a moral panic going on though and even the better educated are not immune to it. The same tropes get recycled until things we would never say about most countries are able to be said without supporting facts.
As per the comment guidelines some things just need to be flagged rather than flame-discussed. We went through the same phases with Japan, Korea and plenty other places. It is best to see the funny side of it and also tune in to the other side of the story.
>HN is not the forum for these types of discussions, there is a moral panic going on though and even the better educated are not immune to it.
It could even be said that the better educated have it worse. At least the less educated are fed some crappy fake news that are easy enough to see through.
The better educated are convinced they know the truth because they read fluff pieces in "trusted" newspapers and magazines (e.g. NYT, The Economist) promoting the financial and corporate interests du jour.
It's easier to trust this "high end" version of fake news (where the lies are told with nuance, and the pundits have been shown to be worse in predictions than random coin tosses).
Here's a study, "The Blue Book of Social Mentality", sponsored by the Chinese Academy of Social Sciences, replicating this finding that China is a low-trust society:
Taiwanese and Hongkongers agree & enjoy their freedom.
This "Western..." thing is something that is used often in Chinese PRC propaganda, to discredit free press and the rule of law as "Western" ideas. Yet, China has no problems following the "Western" idea of communism ;-)
>Yet, China has no problems following the "Western" idea of communism ;-)
Well, I couldn't care less what China does. Not to mention that their "idea of communism" has little to do with the indeed western ideas of Marx.
As for the "Taiwanese and Hongkongers", those are not the best examples of freedom one could find. One was a dictatorship up until the 90s (under martial law and everything), and the other was under British occupation (with full blown riots against that rule during the 60s and 70s)...
My understanding is that it is driven by belief that the pie has been unevenly divided, with China benefiting far more than the USA (I am not saying I agree with this) . China is investing its extra pie into expanding is global power (military power and soft power),while simultaneously becoming more aggressive (South China Sea).
The dragon is awake and it is natural for its competitors for resources to react.
The USA is not going to be #2 in 30 years. And to suggest the USA should sit back and passively accept that is will be is as crazy as suggesting China should stop expanding its economic power base and global influence because the USA doesn't like it.
These two behemoths will vye for power until an equilibrium is reached. If one wins its because the equilibrium was not in their favor, such as the USSR.
How and by what metric? China already has a larger GDP (PPP) than the US. And their economy has approximately doubled every decade for the past 3 decades.
There were worries that Japan would surpass the US and that didn't pan out. But Japan has 1/2 the US population. China has 4x the US population. This is also a big difference vs Russia.
I am sure the US does not want to "accept" a 4x bigger country ever having comparable influence. But does the US really have the power to keep China, another nuclear power, at 1/4 US GDP level forever?
You say accepting this is crazy, but escalating a conflict between two world powers in an attempt to permanently repress one of them seems a bit crazy to me (negotiating for a better trade deal is another matter).
There are plenty of countries that enjoy a high standard of living without being the undisputed #1 economic power. I'm skeptical that the US actually looking out for its own interests necessarily involves a big conflict with China, although I could easily imagine that outcome.
I think the pie between the US and China is fairly divided. However, greedy US cooperates get most of the US share whereas Chinese government at least spent a fraction of the trade profit to lift hundreds of millions people out of property. When US middle class look at their newly enriched Chinese counterpart, they feel they are raped off.
Well, it is true that globalization hurts the US middle class. Basically the argument in favor of globalization that economists use is that basically it is beneficial at a national level for the USA to exploit Chinese labor. The cost savings obviously go into the pocket of the executives. The people who lost their jobs get nothing. Obviously the same thing happens to every industry to varying degrees. Those who don't lose their jobs can still see their wages stagnate also known as deflation. The central bank then tries to combat the deflation by injecting money into the economy. It doesn't work: Inflation doesn't go up for anything other than housing, education or health insurance. That can only mean one thing. Prices that do not go up are not dictated by the local economy. If inflation would happen in the US and increase widget prices from $4 to $5 then production simply shifts to a country that can indeed produce the widget for $4.
If what I explained above is true, then it's time to rejoice. It means that the problems the middle class suffers from are temporary until every other country has been lifted out of extreme poverty. All we have to do is wait until the race to the bottom is over.
However if what I said is wrong, then it's time to be sad. There is no easy solution and the middle class might never get back on track.
Deflation and wage stagnation are not the same thing, indeed sometimes they are opposite. And I don't think their is a clear way to measure what potentially low percentage of the cost savings go to executives' pockets.
But certainly true that American workers are being squeezed, having to compete against more and poorer workers because of globalization and free trade policies.
> Chinese government at least spent a fraction of the trade profit to lift hundreds of millions people out of property
I was under the impression that those people were lifted out of poverty due to working higher-wage jobs in manufacturing rather than due to explicit wealth redistribution by the government.
While direct wealth redistribution isn't significant, huge spending on infrastructure on roads, railways, telecoms and education certainly helped. Without these infrastructure, people won't be able to build factories and work on higher-wage jobs.
Yes and he'd be right. Making the transition violent is... unwise. China isn't Germany, this conflict will become hot only after China is convinced it can win. Sun Tzu was Chinese, after all :)
I think China underestimated the readiness of Western companies to move out. The notion has been that these big companies are locked into these big Chinese factories and can't leave.
But the reality is that these factories, often as the insistence of the Chinese government, are merely contract manufacturers. If another factory can be located somewhere else at a competitive price, moving production isn't as big a deal as if the company actually owned the factory.
It's my understanding that the combined capabilities in China's major manufacturing cities is unique in the world, and no other place can so readily spin up a new factory.
It's my understanding that the combined capabilities in China's major manufacturing cities is unique in the world
Unique today. But what about tomorrow? It's not like another country can't do the same thing. There's nothing inherently Chinese about opening a factory quickly. Another country or two will learn how to do it, just as the Chinese did.
>There's nothing inherently Chinese about opening a factory quickly.
I'd say there is one, the available population to work. India is really the only country that could come close just based on pure population and I don't see there being a drive to do that.
Rather anything that came close would have to be a combination of Indonesia, Malaysia, Vietnam, Cambodia, etc. all working to grow their manufacturing bases to come anywhere close to what China can do when it comes to setting up factories in the near future. Longer term maybe some African countries will industrialize that way, but I don't see a place meeting the scale of Shenzhen/Dongguan manufacturing ever again.
I recently got back from visiting a factory in SEA, and spoke quite a bit with the people there about how the area is growing from a manufacturing standpoint. They have definitely taken notice of what is going on with China at the moment and are trying their best to take advantage of it, but it isn't even close to what I've seen in China.
> I'd say there is one, the available population to work.
There's also the infrastructure. In china it's very easy, fast and cheap to get anything you need for a factory, and get it quickly, be it specialized CNC machines, parts for a mechanical crane, a truckload of leds, - or really anything in the whole chain of running and operating a factory - including expertise people at every level.
According to [1] about 80 million Chinese are employed in the manufacturing sector. That is not an insurmountable amount of employment for many countries, especially when you consider that Chinese production largely is based on cheap labor rather than heavy automation.
Exactly, Thailand and Vietnam are already on the ramp up phase and they've gotten sophisticated enough for companies like Intel to establish a manufacturing facility in Vietnam. Evidently, training the labor and building infrastructure is possible, albeit not as competitive as China, and it is only a matter of time for others to follow.
Lower cost manufacturers are already migrating away from SE Asia because of rising labor costs, driven in large part by competitors expanding into the area for the local market (e.g., auto manufacturers) or moving away from China.
The climb up the value ladder is very real, and it's only partially being driven by the political climate in China.
Thailand and Vietnam are not replacements for China, though. They're simply too small. There are provinces in China with a larger population than Vietnam, and there are about 25 Chinese provinces with a larger GDP than Vietnam.
Thailand and Vietnam together are larger than France and Germany combined.
They're not a replacement for China, obviously, but they don't have to be. A large part of China's role in global high-tech manufacturing is final assembly, which can and increasingly is being done everywhere.
Plus if you add India and Indonesia to the mix, there is a very large pool of reasonable stable, cheap labour countries that could provide a more suitable alternative if their government apply their mind to it.
Nothing says all this factory capacity needs to move to the same country. There would be a lot to be said for splitting these factories across 25 countries rather than settling on "the next China"
It would be but just how a tiny country such as Switzerland can dominate the watch manufacturing industry, smaller countries can specialize in a particular industry and excel at it. China still would have a competitive advantage but as the middle class in China rises, labor is getting more expensive and asia-pacific region is ready to accelerate manufacturing capacity. If these countries play their cards right, allow seamless trade and promote a strong supply chain; they can be serious contenders.
That would shield American companies from the geopolitical risks posed by an erratic/belligerent American government of the type currently in office, but it doesn't necessarily make sense from a purely economic point of view. There is a lot of electronics manufacturing know-how and infrastructure concentrated in China, and we all know about the theory of comparative advantage.
>Unique today. But what about tomorrow? It's not like another country can't do the same thing.
It requires the willingness to throw public money at it and depreciate the currency, decades of patience and favourable trade conditions. Technically other countries could do it but most have neither the patience, capital, time or goodwill. This may well include the US.
>There's nothing inherently Chinese about opening a factory quickly.
It's the ecosystem of factories in close quarters that creates their non-replicable competitive advantage. That includes soft capital (lots of people with experience) with hard (container shipping).
For the time being (and at least for the next decade), that is uniquely Chinese, and only the US or EU are even capable of duplicating that (and it's unclear whether they have the will).
> and no other place can so readily spin up a new factory.
No other place to spin up a new factory within the current cost structure and logistics time line. It is not that the capabilities are hard to replicate, it is expensive to replicate. No to mention some of those component can still be exported if necessary.
Once you added traffic, ( If the company is US focused or have US as large customers ) you start doing calculation whether moving make sense in the long term. ( And of course it does )
That could have been said about many countries in the last 100 years. England, Germany, United States, Japan and now China. Capitalism seeks to reduce risk and maximize profit. We are in a cycle to reduce risk and preserve profit. How long it will last is up to the political landscape.
Also many of these factories are in fact Taiwanese and it's the Taiwanese companies who have the know-how. Nothing stopping them from opening new factories in, say, Vietnam or Bangladesh.
As soon as someone else can actually compete, those companies would consider it. In my startup's case the same thing cost $20K made in US vs. $1K made in China, if a VC will foot the difference without taking equity I'd be happy to manufacture in USA.
It doesn't even have to be the USA. My favorite MacBook Pro was made in Ireland. I believe at one time Apple moved, or was thinking about moving, some production to Brazil.
Good point! The Huawei case should put the rest of the world on notice about the threat of US technological dominance along with the use of the financial and judicial system as a weapon to crush the competing countries.
"absolute" dependence is a bit of a stretch... I'm sure all nations are careful about "putting all their eggs in one basket".
China has a number of advantages:
* Highly developed manufacturing/shipping coordination
* Well trained assembly line workers
* Government supplied infrastructure and subsidies (effectively an internal "Marshall Plan")
* Large population that is more than big enough to support its own internal middle class market development in the same way as the US/EU/"West" did after WW2
* Relaxed IPR environment in the same way as the US (and most other countries) did when developing (the US blatantly stole IP from the UK in the late 19th/early 20th centuries)
China also has a number of disadvantages:
* Lack of rule of law
* Central government planning lacking the flexibility to react to rapidly changing events
* Inhibited creative class by the nature of a communist/totalitarian ruling class.
But saying that China "absolutely depends" on the US is untrue. The nature of international trade is that both countries are suffering due to the current US administrations trade "policies". Tariffs are inherently a tax on the consuming nation, not the producer. China has already found a) alternative suppliers for US products (eg soybeans) and b) alternative markets (SEA, APAC, EU, ME).
No one else has workers that work for a pittance and have an average IQ of 100... and are willing to work very long hours. It will cost money and probably quality to move this anywhere else without paying a lot more for the same thing. Apple has put over a hundred billion into its pocket on the back of these works, now let's cut them loose and pay someone else the money you "saved" to do the same thing for more.
I've been to China and lived there for 5 years and now living in India for 3 years.
The infrastructure scale in China is huge. Even in small towns electricity is offered 24/7.
In India even in the largest cities there is constant load shedding, power cuts often 1 or 2 hours daily.
Internet is slower in India, heck you can't find screws for sales on Amazon India and in china even in the smallest towns, I saw speciality stores at every few kilometres who stocked every kind of screws.
India might be able to compete in terms of population but it's decades behind china in infrastructure.
No disrespect to India but I am afraid till India has insane custom duties on foreign imported products, Indian talent will have a self imposed ceiling.
In Chinese market, you can find quality German tools but in Indian market, even tools are hard to find, I've no idea how makers deal with this shit here.
If I had to tweak one policy in India, I'd remove all custom duties so that youth is able to import quality tools and inputs from abroad and is able to produce quality output from that.
India limits what you can import and puts tariff on that, this results in using shoddy input for manufacturing resulting in shoddy output.
Garbage in garbage out.
Talent is crushed before kt gets a chance to blossom.
And whatever companies product in India do not sell buy export their stuff to other rich countries and domestic market is kinda empty.
I think it's mostly investment in education. Certain cultures value education more than others. Certain states enforce more challenging and advanced curricula than others.
IQ is influenced by education. An illiterate farmer is likely to score worse on an IQ test than someone with a high-school education. If you do transnational IQ studies, you can still calibrate the test to give an average of 100, but countries where the population consists mostly of illiterate farmers are going to have a lower average than countries where almost everyone went to school.
That does mean that 100 is a somewhat arbitrary cutoff to require. A better criterion would be what percentage of the population has the education necessary to retrain for a manufacturing job quickly.
By definition, IQ averages 100 across a population. What you are talking about is how people respond to IQ testing which is inherently culturally biased.
For any particular IQ test, there can only be one population for which it is perfectly calibrated to yield an average of 100. Other populations e.g. in different countries will have different averages.
And of course the whole point of IQ tests is to be culturally biased, since it's about performing well on a particular set of tasks at the exclusion of others. If the illiterate farmer wanted to find out how smart someone is, they'd probably use completely different criteria.
105-107 is probably a little high, but the real number is likely above 100. If mainland China is fudging the numbers, then Macau & Hong Kong are as well. Their PISA scores are all pretty close.[1]
PISA scores are controversial to use as a comparison between countries. And yes China, Macau, and Hong Kong are likely using some creative strategies to boost their scores.
"This year, Chinese administrators chose their students from a group of cities and regions aptly named B-S-J-G, after Beijing, a province-level municipality, Jiangsu, a province on the eastern coast of the country, Guangdong, a southern coastal province, and Shanghai, a province-level municipality. Previously, Chinese authorities had chosen Shanghai as mainland China’s sole representative, whose students finished at the top of all three subject areas in both the previous two PISA studies in 2012 and 2009.
Now, if all countries were to take this approach, we would see London selected to be the sole representative of Britain, or Boston and its suburbs representing the U.S. This year, in fact, saw a separate score calculated for Massachusetts, which if taken as the nation’s results, would grab the top spot in reading with eight other nations, 2nd place in science with ten other nations, and 12th in math.
If we dig deeper into the sampling, we come across another potential problem with the PISA testing: that the sampling done on mainland China (Beijing, Jiangsu, Guangdong and Shanghai) and other cities was not taken from a wide variety of schools. Rather, the very best schools were chosen and the very best students were cherry-picked from those schools."
I think it's proven that South East Asians have highest IQ second to only Askenazi Jews.
I read various paper mentioning that. South East Asia was never poor even if you go back to historical accounts of travelers from Italy or Arab world, you'll never find poor and south asians cities mentioned in the same line.
Nonetheless all counties there were dirt poor at some point in the last hundred years. North Korea still is.
IQ is largely a measure of education, which itself is largely related to how developed your country is. Large groups of relatively uneducated rural dwellers will drag the average down.
It's well known Asians are smarter, whether for cultural or genetic reasons, but the devil is in the details. If you look at average populations I would expect the inverse for counties like China that only developed recently.
