Why China’s great technology plunge will smash Australia

Ever since Xi Jinping came to power in China, its economic narrative has shifted. What was considered an endless miracle of growth before his rise, transformed afterward into an endless critique of unbalanced growth. Xi launched major reforms from 2012 to 2015 that aimed for structural transformation in the Chinese economy from investment to consumption. And from industry to services. It has had some halting success as the services share of output rises faster than industry falls:

China growth by sector

China growth by sector

And the investment share has diminished:

China investment share of output

China investment share of output

But, of course, this means much slower growth:

China slowing GDP

China slowing GDP

After 2015, and a few times since, growth slowed so sharply as a result of these reforms that the CCP was forced to juice investment again, lest the masses get restive. But the trend to lower growth and higher-quality growth is still intact.

Now, as we head onto the latest National Congress, Bloomberg has an essential report on what comes next:

  • The National Congrees will prioritise investment into 30 “chokehold technologies”.
  • This is given greater urgency by US-led moves to contain China.
  • It includes everything from chips to EVs.
  • Investment is set to rise 40% to $1.4tr over five years.
  • State-directed investment may fail.

This is all well understood by development economists as a part of catch-up growth. The story begins with cheap labour exports and abundant investment into sub-development infrastructure. As labour is exhausted and costs rise, plus investment options dwindle, the economy needs to keep moving up the value chain to lift exports and productivity or it will slump into the middle-income trap and bog down for good.

China knows all of this. Its problem is twofold:

  • Controlling vested interests that rose through the first phase of growth.
  • Not slowing too quickly will jeopardise an autocratic political system that relies upon growth for legitimacy.

So, we’ve had nearly ten years of China with its foot on both the growth pedal and the brake which has meant its great transition is over ever half-arsed. More lately, we’ve seen the rise of Angry China as the CCP shifts the basis of its legitimacy to nationalism.

But, that Cold War must also change CCP priorities. It must accelerate the rebalancing lest it gets choked off. Hence we see this huge investment in tech.

The more that happens, the less will need to go into the traditional investment areas of infrastructure and realty.  The urbanisation pulse won’t stop but it will steadily fade:

For those currently spruiking a new “commodity supercycle”, especially for bulk commodities, there is a China-sized fly in their soup.

David Llewellyn-Smith
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Comments

  1. Frank DrebinMEMBER

    What world leading technology has China developed in and of itself out of curiosity ?. This innovation piece seems to be a major missing element, and possibly even harder now the ability to suck the IP out of foreign research institutions is reducing.

    I also find it interesting that there are so many Indians who lead dynamic global tech MNC’s and yet there really aren’t that many Chinese by comparison. Is English the main advantage here or are Indians just better at dealing with uncertainty and change given the chaos of their home country ?.

    You would think India would be an amazing source of global innovation but perhaps the market is just too hard……

      • Without the benefits of Chinese discoveries and invention the histories of ancient Greece and Rome and on may not have arisen at all.

        Driving a battered Chev some 40k miles Dr Joseph Needham followed significant stretches of the Long March and passed the time in conversations with Mao there and then and later. China paid their highest honours to Dr Needham for uncovering their forgotten (suppressed) past, and upon his death erected monuments to him in both China and England.

        There are 17 volumes to Dr Needham’s monumental encyclopedia “Science and Civilisation in China”. He also wrote similar though necessarily shorter tomes on Science in… India, Islam, society, etc.

        https://www.abc.net.au/radionational/programs/scienceshow/the-astonishing-dr-joseph-needham—part-1-of-3/3158240
        https://www.abc.net.au/radionational/programs/scienceshow/the-astonishing-dr-joseph-needham—part-2-of-3/3158106
        https://www.abc.net.au/radionational/programs/scienceshow/the-astonishing-dr-joseph-needham—part-3-of-3/3158042
        https://www.abc.net.au/radionational/programs/archived/inconversation/simon-winchester/3181478#transcript

        • The man who loved China : the fantastic story of the eccentric scientist who unlocked the mysteries of the Middle Kingdom
          by Winchester, Simon
          https://archive.org/details/manwholovedchina00simo_0
          The extraordinary story of Joseph Needham, the brilliant Cambridge scientist who unlocked the most closely held secrets of China–long the world’s most technologically advanced country. This married Englishman, a freethinking intellectual, while working at Cambridge University in 1937, fell in love with a visiting Chinese student, with whom he began a lifelong affair. He became fascinated with China, and embarked on a series of extraordinary expeditions to the farthest frontiers of this ancient empire. He searched everywhere for evidence to bolster his conviction that the Chinese were responsible for hundreds of mankind’s most familiar innovations–including printing, the compass, explosives, suspension bridges, even toilet paper–often centuries before the rest of the world. His dangerous journeys took him across war-torn China to far-flung outposts, consolidating his deep admiration for the Chinese people. After the war, Needham began writing what became a seventeen-volume encyclopedia Science and Civilisation in China.

          (…) Robyn Williams: he arrived there as a kind of diplomat during the war and just slightly after and one thing I don’t quite understand he began to behave like Indiana Jones, you know someone who had been Morris dancing and quaffing a port at Keys College was zooming all over China up to his neck in mud sometimes in torrents, surrounded by stuff that many young men couldn’t survive. How did he manage to do this?

          Simon Winchester: He just has irrepressible enthusiasm, endless curiosity and this imbued with a sense of wonder. I mean he loved it, he travelled 30,000, 40,000 miles he once joked with Mao that he had travelled far longer than the long march, I think Mao was a bit put out about that but he didn’t walk, he travelled in a broken down old Chevrolet ambulance, when right up from Chong Chin where he was based because that was the capital at the time in Sichuan province. He went up to the caves of Dunhuang which was a 7 month journey through the Gobi Desert. He went to Fujo in the east and Shanghai, but of course Shanghai was occupied by the Japanese, he went down to the Burmese border and then he went up to Sian and Beijing in the north once the Japanese had been kicked out in 1945.

          And done all of these adventures, you were absolutely right, there were car crashes, and floods, and disasters with the engine, I will never buy a Chevrolet after reading this. And he met the most extraordinary people and as well as performing his official British government duties which was to help keep alive the refugee universities that had assembled in the west of China to get away from the depredations of the Japanese he collected all this information about what China had achieved first. People when he came back to Keys College in 1948 the people he had met so liked him that they sent unimaginable quantities of material to him including two copies of the longest encyclopedia ever written which one of the emperors commissioned during the middle Ching about 1900 or 1820 I think it was in which the edict from the emperor to his scribes was simply write down everything that is known.

          Robyn Williams: And they did, the big question which we’ll foreshadow and which you don’t quite answer in the book is given all that brilliance over those hundreds of years when China produced virtually everything, a few hundred years ago something stopped and Europe invented the enlightenment and the industrial revolution and the scientific revolution. Why didn’t the Chinese, at what point did Needham know that that was the big question?

          Simon Winchester: Which is eponymously the Needham question and it underpins the writing of the book. Well before he left actually he had already discussed these matters with Gwei Djen who by this time 1943 was teaching at Columbia University in New York and there’s an indication I found on a piece of paper, a letter of invitation he had from the BBC, it says Chinese science why not develop. So he was thinking why did Chinese science never develop beyond about the 16th century. Why – he was able to establish that there was when he looked at early Chinese mathematical treatises for instance that there had clearly been a Chinese Euclid and there had clearly been a Chinese Archimedes but there was never to have been a Chinese Galileo, there was never to be a Chinese Einstein. Why he kept wondering, what stopped China and why did the engine of creativity pass to the west? Why is all modern science a creation of the west and not of the country that had this vast tradition?

          He never really answered it, in Volume 7 Part 2 which he wrote in 1994 he had a stab at it. He said really it is easier to answer why there was so much creativity in the west rather than why there was less creativity in the east. He said well it’s self evident that Europe at the time was hundreds of competing fiefdoms and all at war with each other and that kind of business spurs technological innovation. The Dutch were at war with the Spaniards and the sword makers of Toledo make a particularly fine blade then it behoves that the sword makers of Amsterdam to make an even better one. And similarly mercantile competition spurs technological innovation as well.

          There was no intramural competition in a China that under the late Ming was essentially one monolithic country. There was that but at the same time he realised that the system of governance in China was such that it was the ambition of even the cleverest of Chinese, and this is Chinese men, not to become a doctor or an engineer or a ceramicist or anything like that but to become a bureaucrat so that he could run China with a mandarin’s cap along the same lines that it had always been run. So that kind of an ambition meant that there was a sort of ossification, a stability within China that produced no, as you say, no industrial revolution, no capitalism, it just stayed utterly stable while Europe suddenly with all this fierce competition became a great hotbed of innovation…

    • Not sure if you are actually interested, but generally speaking posting China’s achievements on this forum will get you immediately and permanently IP banned – so its understandable how people don’t have any idea about China with a state media like Australia.

      AS to your first point regarding MNC’s – China is leading India on this by a factor of probably 100:1 – Indians are just more visible in Google – thats about it. China has the worlds largest device manufacturer overtaking Samsung last year, then 4 and 5. They have the worlds largest wholesale and retail online stores (ali baba, ali express), worlds largest online clearing bank clearing, etc – in fact most of the largest apps, websites, stores etc are Chinese.

      As for their tech the worlds leading expert in Quantum Computing was for years Chinese – he eventually returned home and for the last two decades has led China to totally dominate global super computing and at least a decade ahead in quantum computing. China now has a company putting desktop quantum computers in high schools, quantum encrypted apps, quantum military comms, satellites, ground networks, quantum radar capable of detecting stealth out to 300km and some early reports of quantum sonar.

      They have the worlds only functional TOMAKAK fusion reactor.

      They lead in hypersonic missiles.

      AI chip development and are the world leaders in graphene / carbon based chip research (leap frogging silicone limitations).

      They are literally miles ahead in most areas of telecommunications to the point they have already launched their first 6G satellite.

      They are leading the world in cancer therapy having developed DNA NANOBOTS for cancer treatment.

      Atomic force microscopy for visualising hydrated ions.

  2. MountainGuinMEMBER

    The Jack Ma matter may also be a factor. He sort of disappeared after criticising the financial sector, his IPO was canned and I recall there were stories he may be subject to an anticompetitive investigation.
    So while there is huge opportunities for entrepreneurs to drive the outcome the CCP is seeking, pushing and growing powerful or influential comes with risks.

    • He only disappeared according to reddit neckbeards.

      Jack MA was pushing ahead with his account holding facilities which (ali pay etc) which held transactions between processing – the amount he was holding was greater than some of the major state banks and was causing instability in the system.

      China wants to move to a digital currency (an issue in itself) and this specifically entirely negates all of Jack Ma’s ali-pay positions as users can transfer payment between each other without the need for a third party – this entirely negates vast amounts of his wealth and empire.

      Jack was at home deal with fecal bricks on this account alone.

      The real issue here is the states ability to monitor transactions through digital currencies – as much a China issue as a US / EU one threat to privacy.

  3. Reus's largeMEMBER

    Whinnie the Poo should just man up and admit that it was the CCP’s fault that the virus got out and wrecked the world