China bans tech companies from buying Nvidia’s AI chips | FT – the Nvidia ban is an interesting move by the Chinese government. I don’t think it’s just about putting pressure on their semiconductor companies and foundries. I think it also steers the software industry and approach to AI as well looking for more computationally efficient models. China can do comparable computes, using more lower spec chips and more power.
At the moment the leading edge models in the west are taking a hardware led approach rather like putting larger capacity engine in a car a la an old school hotrod. China is forcing its technology sector to take a more holistic approach.
Having Nvidia lobbying the US for permission to sell Blackwell in China is a secondary benefit and not the hard block people think it is. Compute jobs are already done abroad to get around the ban anyway. Its easy to move SSDs from China to Malaysia to run it on local data centres.
Can China really make its consumers spend? | Jing Daily – After decades of export success, country’s bet on domestic consumption to propel growth bumps up against beliefs about money and security. – They’ve got more chance of increasing the number of children born, the beliefs are that engrained
I love some of the apparently random things that Toyota under Akio Toyoda do. From the GR Yaris to this documentary on a vintage Komatsu steel press that was instrumental in Toyota’s first car factory and still is doing sterling work.
The dialogue is in Japanese but English subtitles are available.
Elliott Management wrote this opinion piece on Apple and China: Apple is a Chinese company | Financial Times – interesting assessment of risk exposure with a focus on the Apple share price.
The Apple and China relationship started before China joined the WTO. Taiwanese contract manufacturers had built huge industrial sites in Shenzhen, China and later in other parts of China. The best known of which was the Foxconn plant in Shenzhen. Back in 2010, I was driven around the perimeter of the site, which went on for miles.
The only site that I had seen which would be comparable would be the Mercedes-Benz manufacturing site in Sindelfingen which is part of the Stuttgart metropolitan area. I spent part of my childhood and early adult life living next to a General Motors car plant, a shipyard and a couple of oil refineries, so I am used to scale of industry.
As Apple came back from a near demise in the mid-1990s, it needed manufacturing scale so the combination of Apple and China happened due to that. Over time the Apple and China relationship drove manufacturing expertise and new ways of doing business, such as using CNC machines at scale. Prior to Apple and China, smartphones were plastic mainly due to product engineering influenced by Nokia’s work on its feature phones.
Over time, the Apple and China relationship evolved. Chinese developers make up about half of the programmers making iPad and iPhone applications. Chinese component manufacturers replaced US, Korean, Japanese and European suppliers. Apple and China has become tightly entwined as Chinese manufacturers look to dethrone Apple at the same time.
Apple and China national security focus
China’s state and national security focus has spilled into the economic and social aspects of policy which has a high probability of reaching the Apple and China relationship. Apple already compromises on its privacy tenet in the way it handles China’s data. It actively supported China versus Hong Kong protestors – doing everything it could to disrupt the protestors self-organising tools.
China has shown that its ever expanding security considerations trump business so Apple and China may come to a rapid and disruptive break. Apple is trying to de-risk production outside China but it might be too little, too late. Apple and China are due for a relationship reset.
China’s assessments of Soviet Union’s collapse is very interesting as they offer a playbook of Xi Jinping thought
China’s ‘men in black’ step up scrutiny of foreign corporate sleuths | Financial Times – “It’s hard to attract capital if you can’t get a report from a global due diligence firm,” said one international services executive. That could run counter to the government’s efforts to revive animal spirits in China’s economy, consultants and investors said. “Maybe this is the intention,” said the head of one consultancy in Beijing, “to choke off investment and get the state to step back in, to stop the ability of investors to place bets.”
Xi Jinping Can’t Handle an Aging China | Foreign Affairs – less convinced this assertion is true, when we look at natalistic policies in authoritarian regimes such as what happened in Romania under Nicolae Ceaușescu with Decree 770 which was one of the strictest anti-abortion law at the time, or Nazi Germany’s breeding programmes
US Companies in China Grow More Pessimistic of Ties: AmCham Survey – Bloomberg – Some 87% of respondents to a flash survey taken last week said they were at least slightly pessimistic about US-China ties, according to the survey published Wednesday by the American Chamber of Commerce in China. That was 14 percentage points higher than the chamber’s previous poll. “Bilateral relations between the United States and China have substantially deteriorated,” said Lester Ross, chair of AmCham China’s Policy Committee. “It’s hard to see at this point when they will begin to improve — and this, of course, affects the ability of business to operate across borders.”
China Ratchets Up Pressure on Foreign Companies – WSJ – Business executives who have consulted with Chinese authorities say a central tenet of the effort is the desire to more tightly control the narrative about China’s governance and development, and limit the information collected by foreign companies such as auditors, management consultants and law firms that could influence how the outside world views China… Some foreign business executives say they worry the rewriting of the espionage law means that many topics, ranging from the status of Taiwan to China’s human rights record to technology such as semiconductors, are now becoming off limits in discussions with their Chinese counterparts. The recent trouble for foreign companies in China is drawing criticism in Washington. Rep. Mike Gallagher, a Republican from Wisconsin who chairs a congressional committee on the Chinese Communist Party, said in a statement Thursday, “Our business leaders need to take off their golden blindfolds and recognize that the recent police raids of American companies Bain and Mintz are not one-offs, but part of a long, proud tradition of exploitation.”.. The push is driven by a deepening conviction within China’s leadership that foreign capital, while important to China’s economic rise, isn’t to be fully trusted – if I was a brand planner in China or Hong Kong I would be very wary at the moment as this will spill over into agency life (paywall)
Longitudinal consumer behaviour change around increased empathy in western markets
A lot of this focus on the expertise in the ‘aspiration economy’ sounds like brands back in the early 1990s again. The kind of expertise exemplified by Nick Hornby’s novel High Fidelity or the characters Randall Graves and Dante Hicks in Kevin Smith’s movie Clerks.
The new industrial policy, explained – by Noah Smith – the speed and disruptiveness of China’s entry into the global trading system destroyed the career trajectories of large numbers of American workers and hurt the economies of whole regions. Second, U.S. complacency about the trajectory of Chinese politics, combined with a massive campaign of technological espionage, hastened and encouraged the rise of a new, hostile superpower. By the mid-2010s, only economists thought that free trade was still an unquestioned good, and the country wasn’t listening to economists the way it used to
Too Big to Challenge? | danah boyd | apophenia – the tech industry represents 9% of the U.S. GDP and only five Big Tech companies account for 25% of the S&P 500. Prior to Covid, most of the growth in stock market came from Big Tech. Now, as the U.S. economy is all sorts of wacky, Big Tech is what is keeping the stock market’s chin above water. In the process, Big Tech is accounting for more and more of the stock market – edited for brevity
The gender pay gap is not a myth, it’s math – it’s mostly not a discrimination story, it’s a parenting story. But more flexible employment is likely to be more of a discrimination story
Microsoft-branded mice and keyboards are going away after 40 years – this reminds me of when a new exec joined Bill Gates era Microsoft in the late 1980s/1990s. The company had unintentionally had in warehouses 3 years sales worth of Microsoft mice ready to sell. Their hardware with the exception of an ergonomic keyboard haven’t been great products that were superior to other technology companies
Interesting that even state broadcaster Deutsche Welle is complaining about the poor quality of modern German cars. Back in the early 1970s BMWs had a reputation as being clever fragile rust buckets, but the decline of Mercedes is far more dramatic in terms of quality. The decline seems to be in lock step with the globalisation of these companies and an increased focus on shareholder value.
Compare and contrast with older Mercedes cars across the Middle East and Africa.
Project MUSE – China’s Hong Kong Affairs Bureaucracy: Factional Politics and Policy Consistency – “From the perspective of factional politics, this article sheds light on the functions and operations of the Central Liaison Office and the Hong Kong and Macao Affairs Office (the “two Hong Kong offices”) throughout the history of the Communist Party of China (CPC), focusing on the 2013–22 period. The authors posit that the stronger the factional relationship between the top leader responsible for Hong Kong affairs and the heads of the two Hong Kong offices, the greater the policy consistency between the two offices and the central authorities on Hong Kong issues. This article uses text mining techniques to measure the degree of policy consistency between Chinese President Xi Jinping and the two Hong Kong offices from 2013 to 2022. In 2020, Xi appointed his protégés as directors of the two Hong Kong offices, thus regaining absolute control over Hong Kong affairs. Xi may further tighten his hold on Hong Kong in the future, thereby undermining the region’s autonomous status.” – Interesting aside: The Party and State Institutional Reform Plan (党和国家机构改革方案) unveiled in March established the Hong Kong and Macao Work Office of the Central Committee (中央港澳工作办公室) on the basis of the Hong Kong and Macao Affairs Office of the State Council. The latter has essentially become a Party body instead of a state body, and the arrangement is now “one organisation, two nameplates” (ie., two identities). – expect even further ratcheting of authoritarian measures in all aspects of Hong Kong life and economy
Culture and technology adoption’s effect on Japanese information design online. It reminds me of the early web portal designs were more like print newspapers.
Interesting that the Korean government is allowing these strikes to go ahead given the central role of Samsung in the country.
Luxury
Alibaba, Partners Fight Fraud and Root Out Counterfeits – Over 730,000 IP rights were under Alibaba protection by the end of 2022. 98% of IP takedown requests by rights holders were handled within 24 hours for the third consecutive year – I wonder what Amazon numbers look like for this?
I didn’t realise that Taiwan’s semiconductor expertise went back this far. DigiTimes has unprecedented access to the elder statesmen and experts on the early Taiwanese semiconductor industry
Hong Kong Stock Market filing – the Company (China Renaissance Holdings – *added this for clarity) has been unable to contact Mr. Bao Fan (“Mr. Bao”), Chairman of the Board, Executive Director, Chief Executive Officer and the controlling shareholder of the Company. The Board is not aware of any information that indicates that Mr. Bao’s unavailability is or might be related to the business and/or operations of the Group which is continuing normally (PDF) – Bao Fan has been incommunicado for a number of days. He is not responding to messages. While its unusual and considered bad practice having the same person as chairman and CEO, in China its more common. So Bao’s dual role at China Renaissance Holdings isn’t unusual. But that is the least of the worries that western investors will have about China Renaissance Holdings at the moment.
Meituan delivery workers waiting for the food to be prepared
Some thoughts:
China Renaissance Holdings has been involved in funding some of China’s biggest technology companies including Didi (think of Lyft or Uber as a western analogue) and Meituan (Deliveroo, Doordash or Just Eat equivalent.
Didi in particular seems to have gained the wraith of the Chinese government. Some of this feels to be down to sexism due to the company having a connected female president Jean Liu. The party leans more toward the Andrew Tait school of feminism
Mr Bao Fan’s disappearance evoked memories of Jianhua Xiao and his company Tomorrow Holdings. Xiao was snatched and smuggled out of his apartment in the Four Seasons in Hong Kong back in 2017. Xiao for a few years all that people knew was that he was wheeled out of the hotel asleep in a wheelchair despite having a security team. He then spent a few years ‘helping‘ authorities unwind his business Tomorrow Holdings. Finally, he got sent to prison for 13 years with charges including embezzlement and fraud. If this happens with China Renaissance Holdings, or any of the prominent companies that it has as clients like Meituan there would be a shockwave, even through the most pro-China of foreign investors like Bridgewater Capital or Goldman Sachs
Bao Fan is one of several executives who were disappeared for a while. The most prominent executive who disappeared from the public eye was Jack Ma. Ma then stepped back from his businesses. If Bao steps back from China Renaissance Holdings, the Chinese tech sector will lose an investment rainmaker. China Renaissance Holdings maybe unwound or its assets handed over to state-owned banking institutions
What happens next will likely impact western sentiment towards Chinese investment in the short to medium turn, but financial institutions are still seduced by the ‘Chinese opportunity’. And the smart money this time might be wrong
‘China evac‘ or China evacuation is something that I have been hearing more about from my network. Its less dramatic in it sounds in some respects. It isn’t an immediate bailout like the fall of Saigon in 1975.
China evacuation in this case is about businesses moving processes and supply chains out of the country to more stable and friendly environments. This has resulted in net capital outflows from China.
China’s policy of lockdowns and Ukraine have brought a ‘China evac’ to the fore in terms of public discussions, but its actually been on the the minds of business people and think tanks for far longer. The reality of a china evacuation for businesses is more like apocryphal tale of a slow boiled frog.
The China of Xi Jingping isn’t the China of 20 years ago when it ascended to joining the WTO. China has an unusual concentration of direct and indirect government funding in business. The state uses this funding to direct industry. In some respects this is similar to the development model deployed by Taiwan, South Korea and Japan. The difference is that the Chinese industry has kept up this investment for both military and economic purposes – what’s known as military civil fusion.
A second aspect was forced technology transfer that happened. And ongoing industrial espionage on a scale that has been unprecedented in world history to date. China now leads in certain technological areas that it intends to use for diplomatic coercion and military advantage.
Xi Jingping is looking to direct the economy more under the government and looking to remove any dependencies on western countries – including foreign companies doing business in China.
Why China evac now?
In order to understand the forces driving the consideration of China evacuation, one has to go back to the Initial incentives to invest in China.
Initial incentives
Stability
The government was literally prepared to crush dissenting voices. The government controls the labour unions and isn’t afraid to use force. Home markets and stakeholders shamefully ignored June 4th, but the Hong Kong protests and Xinjiang have brought the dark side of stability to the fore. Many brands are having to choose between China, or their western stakeholders and customers – they have straddled both sides but a China evacuation is only a matter of time.
China’s market size
The size of the local Chinese market. However this is better for some markets than others. KFC benefited for a while. As have luxury goods manufacturers. FMCG and technology brands have seen them ‘make a market’ for local brands to then come in and fill, pushing the pioneering multinationals to the sidelines. In the meantime their western market middle class customer base was declining due to globalisation.
Secondly, the spending power of a Chinese middle class on a per person basis is way lower than in the west. Just because there is an increase in middle class, doesn’t mean that there will be a like-for-like spending boost like one would get in the west. In absolute terms, incomes and tax are both lower than the UK, but then there isn’t much of a social welfare safety net and no health insurance.
China’s regulatory environment
China is skilled in the use of non-tariff barriers to punish businesses and countries. This skill was used previously to ‘compel’ foreign direct investment in order to sell within the Chinese market.
Changing macro-environment
COVID-19 demonstrated the fragility of global supply chains with China at the centre of them. China’s foreign policy stance has forced companies and governments to ask what would happen when they get into the kind of conflict with China that is currently happening with Russia.
China like Russia has maximised its actions in the grey zone so far. It is only a matter of time when open conflict happens. Whether its over North Korea, a Chinese invasion of Taiwan, military action against the Philippines, Australia or Japan.
Policy thinkers are also conscious of the way China wilfully acts against western aligned countries with less and less regard to the mutually beneficial relationship that they currently have.
What are the limitations of leaving China?
China’s rise has led to a catastrophic wilful destruction of capability by multinational companies in other countries. What made sense from a short term shareholder value perspective, was strategically deadly for their home countries. (The only bigger bit of corporate criminality would be Lee Raymond’s time at Exxon which excessively aggregated climate change, despite the early work on alternative energy done under the likes of previous CEO John Kenneth Jamieson.)
So China is the single source for a lot of products, and the more one relies on it, the worse things get in terms of doing a China evacuation:
90 percent of the world’s rare earth metals that are key for everything from wireless chips to battery technology comes from China
We could rebuild the plants, but rebuilding the expertise base will be harder and take longer. Its so hard that policy experts are looking at friend shoring; working with partners to move production where it makes the most sense from an economic competitive advantage perspective
One of the reasons why this all happened is that businesses believed you could design products without having to understand deeply how the products are made. But the situation has now moved from CEOs being misguided, to being willing agents of the Chinese state. In foreign countries from the UK to Australia political and business elites have been willing participants against their countries own interests.
Businesses often don’t realise when the gap that they are trying to straddle has become too wide. Examples of this include law firms in Hong Kong and clothing brands Nike and H&M. Professional services firms have actively looked to profit from the deteriorating relationship between China and the west.
Finally executives that have built their careers on saying that China is the future are emotionally, intellectually and personally invested in staying put rather than doing a China evacuation. Examples of this would be companies like Apple, Swire and HSBC.
Policy implications of a China evacuation
Dealing with the enemies within
China’s state capture of a country’s elite is the single most problematic aspect of preparing for, and dealing with a widespread China evacuation of business functions and processes. The UK and Australia have made baby steps in this regard. The challenge will be realigning the incentives of the business elites away from short term stakeholder value to a longer term view that takes into account stakeholders and national expectations. (There is a certain irony in this when you realise that it was the short termist shareholder value crowd who bankrolled Sir David Sterling’s efforts to cling on to the British empire by his fingertips.) It will mean unwinding long tentacles sown by the United Work Front and Chinese state media without alienating Asian minority communities, including effective policing actions against operators as diverse as social media influencers and organised criminals.
Understanding the limitations
Policy makers will have to understand the difference between what’s possible, all be it painful and what can’t be done at the present time. This means navigating between the nay-saying short-termist interests of business elites and reality of operations. Certain things will take decades to reshore as part of a China evacuation of business precesses. Expertise and knowledge will need to be learned, plants built on the rubble of bankrupt retail parks
Building effective defences
Any sign of concerted China evacuation will see a dramatic Chinese response. Countries would need to learn lessons from the experiences of Norway, Lithuania and Australia who have incurred responses from China in the past. At the present time the European Union is failing its members in this regard.
Long term planning
Maintaining secure supply lines and economic growth requires long term planning. The financialisation of western economies rewards short term opportunism and there lies a fundamental tension in how things are done. There could have been no China without the asset strippers of the 1960s onwards and a narrow interpretation of ‘shareholder value as god‘ mantra.
How China’s Beauty Calendars Defined an Era’s Aesthetics | SixthTone – the history of China’s beauty calendars is the history of China opening up and closing back down again. The beauty calendars aren’t high art or pornography like the Perelli calendar of old. But for the time, they were at the bleeding edge of changing social norms after Mau. The calendars declined when the Xi administration stopped state owned enterprises giving or receiving calendars.
The UK Is Trying to Stop Facebook’s End-to-End Encryption | WIRED – THE UK IS planning a new attack on end-to-end encryption, with the Home Office set to spearhead efforts designed to discourage Facebook from further rolling out the technology to its messaging apps. – Unsurprisingly Patel is using child molestors as its excuse. No words about how metadata and good police work can get around the limitations of encryption. When you take this in account with the new police bill going through parliament, it all looks exceptionally authoritarian in nature
Elite wars – The Ruffian – I understand why campaigners and commentators are upset by Sewell’s tone and by the over-managed press launch. But loudly complaining about this kind of thing while refusing to engage constructively with the arguments of the report seems irresponsibly trivial. After all, what’s at stake here is far more important than a dispute between elites over tone, terminology and media management. Everyone is in agreement that racism is a serious problem in Britain. Shouldn’t we focus our disagreements on what to do about it? – well worth reading the whole article and the reports that it links to. The Conversation covered most of the opposing views high points here: Race commission report: the rights and wrongs | The Conversation
