China rejects US financialization and internet frivolity, prefers real life and manufacturing. By Dan Wang.
While Beijing has restrained internet companies, it has done nothing to hurt more science-based industries like semiconductors and renewables. In fact, it has offered these industries tax breaks and other forms of political support. … The leadership continues to talk tirelessly about the value of science and technology.
I’ve [often] lamented the idea that consumer internet companies have taken over the idea of technological progress: It’s entirely plausible that Facebook and Tencent might be net negative for technological developments. The apps they develop offer fun, productivity-dragging distractions; and the companies pull smart kids from R&D-intensive fields like materials science or semiconductor manufacturing, into ad optimization and game development. …
But there is also an ideological element that rejects consumer internet as the peak of technology. Beijing recognizes that internet platforms make not only a great deal of money, but also many social problems. Consider online tutoring. … In the government’s view, education companies have become adept at monetizing the status anxieties of parents: the Zhang family keeps feeling outspent by the Li family, and vice versa. In a similar theme, the leadership considers the peer-to-peer lending industry as well as Ant Financial to be sources of financial risks; and video games to be a source of social harm. These companies may be profitable, but entrepreneurial dynamism here is not a good thing.
Where does Beijing prefer dynamism? Science-based industries that serve strategic needs. Beijing, in other words, is trying to make semiconductors sexy again. …
If venture capitalists are mostly funding social networking companies, then they would be able to hire the best talent while denying them to chipmakers. That has arguably been the story in Silicon Valley over the last decade: Intel and Cisco were not quite able to compete for the best engineering talent with Facebook and Google. …
Beijing is also falling out of love with finance. It looks unwilling to let the vagaries of the financial markets dictate the pace of technological investment, which in the US has favored the internet over chips. … The attitude of business-school types is to arbitrage everything that can be arbitraged no matter whether it serves social goals. That was directly Chen Yun’s fear that opportunists care only about money. …
Over the last two decades, the major American growth stories have been Silicon Valley (consumer internet and software) on one coast and Wall Street (financialization) on the other. …
With its emphasis on manufacturing, (China) cannot be like the UK, which is so successful in the sounding-clever industries — television, journalism, finance, and universities — while seeing a falling share of R&D intensity and a global loss of standing among its largest firms.
The Chinese leadership looks more longingly at Germany, with its high level of manufacturing backed by industry-leading Mittelstand firms. Thus Beijing prefers that the best talent in the country work in manufacturing sectors rather than consumer internet and finance. Personally, I think it has been a tragedy for the US that so many physics PhDs have gone to work in hedge funds and Silicon Valley. The problem is not that these opportunities pay so well, rather it is because manufacturing has offered dismal career prospects. I see the Chinese leadership as … trying to fashion an economy in which the physics PhD can do physics, the marine biology student can do marine biology, and so on. …
China’s cultural desert under communism:
Even if we wave nuances aside, China’s cultural offering to the world has been meager. Never has any economy grown so much while producing so few cultural exports. Contrast that with Japan, South Korea, and Taiwan, which have made new forms of art, music, movies, and TV shows that the rest of the world loves.
The reason for China’s cultural stunting is simple: the deadening hand of the state has ground down the country’s creative capacity. …
China the bully:
Foreign agitation against the regime used to be contained to Chinese dissidents and niche groups on the political spectrum; today, it is a generalized phenomenon.
Beijing worsens the situation with its need to answer every insult with insult. … Like clockwork, every time China decides to push back against claims that it is too brutal, the government can’t help but undertake an act of extraordinary pettiness to bully a critic.
This year, Beijing proved that there is no country, company, or individual too unimportant to be the subject of state-media tirades or state-sponsored economic punishment.
Everybody dislikes China:
Thus China today faces a global surge of dislike. That’s due to the operation of detention camps for ethno-religious minorities, a political crackdown in Hong Kong, abusive threats against other countries, as well as other issues. …
The party-state really seems to believe that the rest of the world must love China because of its economic growth. The joke is on them, because Americans and Europeans do not admire economic growth and have dreamed up a thousand reasons to avoid it for themselves. They care instead more about cultural issues, which is why people have fond views of Japan, South Korea, and Taiwan, which have combined economic growth with cultural creation. …
There’s little way for Xi to achieve his exhortation this year for China to make its image more “lovable and respectable.”
Instead, the country is more likely to be seen as a land of censorious commies. In the developed world, China’s unfavorability ratings have reached an average of 60%, according to Pew Research. …
China is avoiding the worst of America:
The Metaverse, which represents yet another escape of American elites from the physical world, can only exacerbate social differences. It is too much of a fun game — like cryptocurrencies — played by a small segment of the population, while the middle class dwells on more material concerns like paying for energy bills. It might make sense for San Franciscans to retreat even further into a digital phantasm, given how grim it is to go outside there. But Xi will want Chinese to live in the physical world to make babies, make steel, and make semiconductors. …
Since the US government is incapable of structural reform, companies now employ algorithm geniuses to help people navigate the healthcare system. This sort of seventh-best solution is typical of a vetocracy. I don’t see that the US government is trying hard to reform institutions; its response is usually to make things more complex (like its healthcare legislation) or throw money at the problem. The proposed bill to increase domestic competitiveness against China, for example, doesn’t substantially fix the science funding agencies that are more concerned with style guides than science; and the infrastructure bill doesn’t seem to address root causes that make American infrastructure the most costly in the world. Congress is sending more money through bad channels. That’s better than nothing, but the government should attempt to make some bureaucratic tune-ups. …
The US has demonstrated a superb capacity for self-harm. … Entrepreneurial firms in China previously had no time for domestic technologies, preferring instead to buy the best, which is usually American. Then the US government designated them to various blacklists, giving them for the first time ever a business case for building up the domestic ecosystem. The result is that the US has turbo-charged Chinese competition by aligning the country’s most dynamic firms more firmly with Beijing’s self-sufficiency agenda.
American firms need the Chinese market:
The rule of thumb for US businesses is that China makes up half of global demand for most products, from wind turbines to structural steel; and China will account for a third to a half of expected growth over the next decade. These aren’t the figures of the Chinese government, but company projections. Of course these projections might be wrong, but US businesses feel that it’s mathematically impossible to lead the future without being active in the Chinese market.
None of them are keen to be pieces on a geopolitical chessboard. For the most part, American firms are unwilling to think too hard about the moral issues of doing business in China, choosing instead to say that Beijing’s actions are outside their scope of control. Their strategy is to keep out of the headlines while figuring out how to make more sales.
One of the smart things that Beijing has done is not to retaliate against American companies for the actions of the US government; for the most part, Beijing has hugged them even closer by loosening restrictions in manufacturing and finance. Thus American companies are quietly localizing more of their Chinese production to remove their products from the jurisdiction of US controls. The response by Congress to this perverse consequence is to introduce yet more complex restrictions, like a possible national-security review mechanism for US outbound investments.
Financialization is fatal for both an economy and a society. It is fundamentally parasitical; it does not fertilize the growth of healthy productive companies, but rather, preys ruthlessly upon them and prevents them from growing to maturity.
The fact that the Chinese have consciously rejected the false promises of financialization and free trade is potentially one of the most important historic developments of the past 100 years.
