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Zeihan is an American analyst with several best-sellers to his name. In the vid above he makes the case that the Biden administration’s policies to throttle China's semiconductor industry are working, swiftly and dramatically.
I don’t know if this is true. If it is, it ought to be big news, but none of the media is talking about it, save for Zeihan.
On the other side of this issue is David Goldman who I posted the other day. His “China Myth no.2” is that China relies in America for high tech. No, it doesn’t, says a Goldman. It used to, but not anymore. They are now ahead of the US in important areas. They have 21 of the top 50 engineering colleges in the world. Semiconductors are a subset of high tech so I guess it’s possible they can’t match the US in that one area. That’s Zeihan’s point. But that would not have been my thought before watching Zeihan.
I’m interested in views on this.
ADDED: I have some reader comments, which I’ll add below. Meantime, The Spectator TV discusses the issue, on YouTube, starting at 09:06.
A. READER RESPONSE, 18 October:
Peter Zeihan has predicted the end of China many times for a few decades. It is expected that he is so excited again this time about this tech iron curtain…
My comments:
The tech embargo has serious implications, not only for China but also for America because of following reasons:
1. R&D is the key for innovation, all US chip makers and equipment suppliers are losing their biggest market (= revenue) and it has already reflected in their market value:
- Intel (INTC) was down 56%;
- Micron (MU) was down 50%;
- Nvidia (NVDA) was down 69% (its products having been directly targeted by the Biden administration); and
- AMD (AMD) (also directly targeted) was down 67%.
2. China imports more than US$500 billion semiconductors (mostly low end mature technology due to restrictions) to produce low margin products for export, eg China industrial capacity output is about US$5 trillion-> US$10 trillion (p.a.) at market end, but value added is below 20%, and the growth margin is around 12-15%. It is too low. China has been trying to change it but the transitioning had been difficult because of its large private sector (about 75%)‘s habits- easy to buy and assemble so to make a quick profit (at low margin) than R&D associated investment risks.
3.The latest tech embargo has a knock-on effect, adding more risks while accelerating the transition, the private sector is forced to go through the pain. The situation has already been changing in the recent few years, domestic VC investment in R&D has already taken much larger share than government funding. Now, the policy makers are doubling down, and the private sector has left with no choice (some, including many outside China are already closed down)… the result is to be seen in the next two or five years…
4. China critical sectors eg space, military, navigation etc run on separate systems, it is due to decades of US tech embargoes, eg US law prohibited Chinese participation in space programs - so China has developed its own space station, and as a result of 1996 missiles’ accuracy failures (due to GPS), China has developed BeiDou… and it is worth noting that China’s top supercomputers don’t rely on US technology imports (and these that use imported chips are stagnant). It is interesting that SCMP reported in June this year that China is absent from Top500 supercomputer ranking (“we understand their competent performance, but nothing has been officially submitted”).. so we don’t know the gap (if any)..
5. The “China initiative” under Trump (targeting Chinese American scientists) triggered more than 1200 top overseas Chinese scientists returning to China. Today, there are 42 American citizens (mostly ethnic Chinese) in management positions in China’s semiconductor industry. Should we believe that taking them out of their jobs via the latest tech embargo (including the personal restrictions) would stop China? The air in tech sector in the US is tense, even Thomas Friedman looked nervous on CNN.
Lee Yuan Yew’s view on China’s rise is worth noting - the Chinese civilization has existed for 5,000 years, and during much of that time, China was the world’s most powerful nation. Only in the past two hundred years or so have Europe and the US surpassed China. The Chinese leadership takes into consideration this perspective of centuries, and is willing to work patiently for an extended period and playing the long game to enable China’s “peaceful rise” as a global power.
Lee Kuan Yew argued that the US should come to terms with it and give China a “seat in the boardroom” rather than trying to contain it. If the US tries to slow down or stall China’s inevitable rise, China would view the US as an active enemy.
However, the US has now taken the gloves off; further escalation is expected. Peter Zeihan and co believe that China would go back to the Stone Age because of it.
The great power rivalry in the coming decade is going to be unprecedented. What are the odds? A Stone Age for China or a powerful enemy for America? Who should we believe? Peter Zeihan or Lee Yuan Yew?
B. MY RESPONSE, 18 October:
Thanks. All very interesting. And thanks for the detail and long answer. (I hadn’t known about Zeihan until today, tbf)
I’m not sure it was the US that “took off the gloves” but rather Xi’s China that did.Things were going along pretty swimmingly until 2012.
China had and still has “a seat at the table”. It didn’t need to, but it did, due to America's policy to include it (back to Nixon). But you can’t join a club and then try to change (or ignore, or bend) the rules of that club. Big room for debate here, but I’d argue they did. Try. And succeed.
Still… All valid: your points about where China is in semi-conductors, etc, are more what I would’ve thought. Namely, that Zeihan is stretching it to make his claims…. And maybe they’re flat out wrong.
Maybe if someone like Lee Kwan Yew were running China, and not Xi. But in either case, I don’t buy the “China was the dominant power in the world for 5,000 years, therefore... long game...etc…” narrative. That’s irrelevant to today’s world. One could argue the same for Egypt. Or the Mayans…. Or the Greeks. Or Mycenaeans. The past is not prelude.
If it’s a choice between the West’s way and the Chinese way — which Xi Jinping specifically stated the other day in his speech to the 20th Congress, it is — I still, for all its messiness, choose the West. I just don’t like authoritarianism, not matter how (allegedly) efficient. … No matter how good its semiconductors. Or how fast its supercomputers.
p
C. READER RESPONSE to me, 18 October:
Fully understand your preference.
My comments on Zeihan’s video are not about preference but are based on the data available and Lee Kuan Yew’s advice (by the way, Zeihan makes a living on predicting the end of China for his audience… in my opinion, he is just a salesman without doing proper research.)
"Take the gloves off" refers to the unprecedented and far-reaching tech embargo -- a full-blown tech war .. therefore, the risk is high not only for China but also for America…
Long story short, China is the largest chip market for the semiconductor industry. Large revenue generated from it has supported US companies’ R&D while China is at the bottom of the value chain (as explained in my previous email). China has been trying to change it, and it is catching up. The US tech embargos are intended to disrupt and stall this transitioning. It will certainly cause delay but Biden’s gov policy interventions (eg the Chip 4 and funding for semiconductor foundries relocation etc) go against natural evolution of the supply chain that has been driven by market force for decades. It is a gamble because it will spur China’s technology self sufficiency while it may not be able to compensate for significant revenue losses for major U.S. companies, therefore may jeopardize their R&D resources…
Lee Kuan Yew summed up Chinese history I referred here is not for debate but simply his explanation on China’s rise and why it’s leadership takes a long view. The term “a seat in the boardroom” was used by Lee Kuan Yew - I think that he was referring to the World Bank, IMF or ICC etc.. China’s voting shares are disproportionately lower compared to its GDP (18% of the world GDP), eg the World bank- China has 6.01% votes while Japan has 7.75%, US 16.48% (but China’s GDP is three times bigger than Japan’s), and the US via Japan controls the ADB (68 members). After years of failed attempt to have greater participation in these institutions, China established AIIB (104 members)… the same story in the space station and Beidou navigation…
The coming decade is going to be stressful for all parties involved…
Personally, I respect Lee Kuan Yew’s wisdom, he created a glorious city state from the swamp of a small fishing village, and Biden doesn’t seem to be a smart man. His foreign policy records are full of failures…
