Will China's growth slow? Overrated-Underrated on SOEs, industrial policy, the China Card, and Wolf Warrior diplomacy. Plus, how should US academia relate to a changing China?
1. His comments vis-a-vis China and Europe in tech shows he doesn't understand technology. The main reason why Europe lags behind is because it isn't a unified market. As an economist, he should know this. Most IT services are just that -- services. And trade in services across European borders (even within the Schengen alone) is far more restrictive than in goods. There are good political economy reasons for this; Germany is much stronger in goods exports than in services.
Spotify's CEO noted that it was easier to expand to the US than to Spain from Sweden when they were a smaller company, despite Spain and Sweden both being in the EU. That should tell you much. So China's tech performance is simply a function of a completely unified market, and has nothing to do with their financial sector per se.
2. I agree that China's GDP prospects are likely exaggerated, but I think the biggest threat is not Chinese overperformance but rather internal dysfunction and disunity within the US. From someone who is neither American nor Chinese, it is the USA which looks far shakier internally. This isn't just a function of the US being a pseudo-democracy; public polls by American organisations like Gallup has consistently shown a much greater percentage of Chinese being happy with the direction of the country, while the opposite is true for Americans.
(1) Worth bringing up a more nuanced view of China's GDP per capita than the average of 18-25% that of the United States cited. Urban centers and coastal provinces may be around half the GDP per capita and have quite high technological proliferation, while poorer in-land provinces and rural areas bring down the average. In some ways it hearkens back the U.S. 100 years ago with vibrant Northern industry & poorer Southern states. The distinction is important because it helps explain why so many sophisticated tech companies are coming out of the more technologically advanced regions. It is also easier for a region to “catch up” when it is within the same country and speaks the same language - a la East Germany after reunification.
(2) China has certain industries in which it is already ahead of the West - e.g., e-commerce / logistics, payments (where the tax from WeChat / Alipay is a fraction the tax set by the duopoly Visa / Mastercard). The U.S. still wins in B2B software (for now) given a higher cost of labor and the benefits from automation, but I would expect this to change as the cost of labor increases in China and hungry Chinese entrepreneurs work 6 days a week building software businesses.
(3) Interesting to consider the role that American-trained VCs and investors have played in the rise of the Chinese tech sector. American universities have also played a major role. For example, Hillhouse Capital is named after a street of Jordan's alma mater Yale, and the founder received his training from the great Peter Swensen of the Yale Endowment. I would expect the U.S. to be more restrictive in the transfer of intellectual know-how on U.S.-trained tech firms & tech investors as the U.S. - China relationship evolves to become more rivalrous.
(4) Loved the narrative about the submarines. Let's not forget that Xi sent his daughter to Harvard. Hopefully personal relationships & respect can prevent a catastrophic "The Guns of August" WW1 scenario and keep both countries focused on working together on areas of mutual benefit.
>I do think that it’s probably the case that there are many continuing instances of financial repression in China, and that does lead to a fair amount of investment channeled into relatively efficient uses.
A few points.
1. His comments vis-a-vis China and Europe in tech shows he doesn't understand technology. The main reason why Europe lags behind is because it isn't a unified market. As an economist, he should know this. Most IT services are just that -- services. And trade in services across European borders (even within the Schengen alone) is far more restrictive than in goods. There are good political economy reasons for this; Germany is much stronger in goods exports than in services.
Spotify's CEO noted that it was easier to expand to the US than to Spain from Sweden when they were a smaller company, despite Spain and Sweden both being in the EU. That should tell you much. So China's tech performance is simply a function of a completely unified market, and has nothing to do with their financial sector per se.
2. I agree that China's GDP prospects are likely exaggerated, but I think the biggest threat is not Chinese overperformance but rather internal dysfunction and disunity within the US. From someone who is neither American nor Chinese, it is the USA which looks far shakier internally. This isn't just a function of the US being a pseudo-democracy; public polls by American organisations like Gallup has consistently shown a much greater percentage of Chinese being happy with the direction of the country, while the opposite is true for Americans.
Excellent interview Jordan!
(1) Worth bringing up a more nuanced view of China's GDP per capita than the average of 18-25% that of the United States cited. Urban centers and coastal provinces may be around half the GDP per capita and have quite high technological proliferation, while poorer in-land provinces and rural areas bring down the average. In some ways it hearkens back the U.S. 100 years ago with vibrant Northern industry & poorer Southern states. The distinction is important because it helps explain why so many sophisticated tech companies are coming out of the more technologically advanced regions. It is also easier for a region to “catch up” when it is within the same country and speaks the same language - a la East Germany after reunification.
(2) China has certain industries in which it is already ahead of the West - e.g., e-commerce / logistics, payments (where the tax from WeChat / Alipay is a fraction the tax set by the duopoly Visa / Mastercard). The U.S. still wins in B2B software (for now) given a higher cost of labor and the benefits from automation, but I would expect this to change as the cost of labor increases in China and hungry Chinese entrepreneurs work 6 days a week building software businesses.
(3) Interesting to consider the role that American-trained VCs and investors have played in the rise of the Chinese tech sector. American universities have also played a major role. For example, Hillhouse Capital is named after a street of Jordan's alma mater Yale, and the founder received his training from the great Peter Swensen of the Yale Endowment. I would expect the U.S. to be more restrictive in the transfer of intellectual know-how on U.S.-trained tech firms & tech investors as the U.S. - China relationship evolves to become more rivalrous.
(4) Loved the narrative about the submarines. Let's not forget that Xi sent his daughter to Harvard. Hopefully personal relationships & respect can prevent a catastrophic "The Guns of August" WW1 scenario and keep both countries focused on working together on areas of mutual benefit.
Can't extra savings be invested in R & D, infrastructure, "buying allies", and reducing work hours?
This is a blog that is silently hoping that China will collapse one day and America will win the race of the 21st century.
>I do think that it’s probably the case that there are many continuing instances of financial repression in China, and that does lead to a fair amount of investment channeled into relatively efficient uses.
should this read *in*efficient?