"President Trump, please liberate Hong Kong"
--- Hong Kong protesters
I have been watching the unfolding Hong Kong riots with amusement, horror and disgust. For posterity, it all started when two young kids went to Taiwan. The boyfriend killed the girlfriend and stuff her body into the suitcase. He then flew back to Hong Kong. Since there was not extradition treaty with Taiwan, Carrie Lam and the Hong Kong legislature introduced an extradition bill which allow extradition of people accused of crimes (as defined by both Hong Kong and Taiwan) to stand trial. Since by implication, this would also allow the same for mainland China, it sparked a new round of protest because people fear they would be extradited back to China for trial.
It is completely out of character for Hong Kong people to have such ferocity and persistence with their protests. These are well organized and funded. I know a number of people from Hong Kong, they are generally not political at all. They warship money and people with money, but generally not the type who would go out and do protests. So what changed?
If you listen to the pro democracy movement side, there does not seem to be any coherent reason for this. They say they want democracy and to be left alone. The truth is, for the most part, they have been left alone. While China get to pick who runs for the Hong Kong office, the people do get to finally decide who they chose. The judges are all British trained and many are none Chinese. The average Hong Kong person that I know have never bothered with things such as Democracy or free speech. So none of what they ask for now made any sense. This little snot nosed kid, for example, is mainly concerned that people called them cockroaches. That is wrong because of Nazis and genocide. Well, they call these kids cockroaches because they cover their faces in anonymity and scatter when confronted with a force greater then they are, just like the way cockroaches behave. Nazis and genocide is just what a bunch of bratty kids call people when they don't like them, like their American left counterparts. In actuality, they are the menacing ones. The level of lawlessness and violence perpetrated against the police, none Hong Kong Chinese and anyone who disagree with them while they are waiving American and British flags is just disgusting and very out of character with the Hong Kong that I knew.
The Chinese side claim that the tycoons have taken too much and left the youths unable to buy a place of their own. The lack of upward mobility plus the ever increasing home values entrapped the youth into a no win situation which resulted in them going off their rails. While this is true and explains to a large degree the underlying unhappiness, it still left a lot of things unexplained. For example, the pay in Hong Kong is not that bad and there is not an unemployment problem. While the salaries are no longer higher than the wealthiest part of China such as Shanghai, it is still quite high compared to the average Chinese. They could easily find a very nice place to live across the bridge at Dongguan with the earning power they have. The Chinese government have made a lot of improvement in transportation so they could do that. This happens to every U.S. city. For example, in the Bay Area where I live, places next to a company like Apple is very expensive, so people commute tens miles away to places like Blossom Hill from their work so they could enjoy the higher salary and lower cost of housing. In fact, people don't have the right to live in the city of their birth if they are not able to earn the high salaries it takes to keep a house there. The U.S. population is generally OK with that concept. After college, most would settle in a different region due to their jobs and think nothing of it. Lack of housing also does not explain the animus towards mainland Chinese. When talking to someone who speak Mandarin, they automatically get upset and start talking to them in English, even though many of these Hong Kong kids can not speak good English even if their lives depend on it. To me, this look like the culture revolution in the old China or the race riots in the U.S. like L.A. after Rodney King or Ferguson after Michael Brown.
Finally, What was it about the extradition bill that started this whole thing? Most of the young people obviously have never gone to China and don't intend to go soon so they are not in any danger of being extradited. While people said that this was just an excuse for venting some long simmering anger, one still wonders, why is this a spark that triggered the multi-months long violence?
Wednesday, September 25, 2019
Monday, April 15, 2019
The Great Rivalry: Geopolitical Competition
All empires fall, eventually.”
“But why? It’s not for lack of power. In fact, it seems to be the opposite. Their power lulls them into comfort. They become undisciplined. Those who had to earn power are replaced by those who have known nothing else. Who have no comprehension of the need to rise above base desires.”
---Max Barry
I was in Boston recently and did the tourist thing. We did the tour with the Boston Tea Party Museum. Among the things I learned was the indifference to the American sentiments which led to the lost of America as a British Colony. The revolt was over the army that was sent over from Britain and the taxes that were levied against British merchandise. Since East India Company, whose tea was dumped into the harbor, had a monopoly over the American trade, the British could easily have asked the East India Company to include the taxes as part of the price of the Tea and no one would be the wiser. It might have delay the end of the British Empire. The East India Company itself, despite hugely profitable trades across the world, almost went bankrupt and had to be bailed out by the British government. The reason was that it had also taken on the task of empire building. In 1857, it had an army 280,000 strong. Eventually, the cost of running this empire was untenable and East India Company was taken over by the government. As with the East India Company, the British Empire, whose rise was driven internally with the Industrial revolution, Eventually fall as the cost of running the empire exceeded the benefit. The timing of their fall was due to the rise of the United States as the rising power. It was the United States, wanting to overtake the British as the superpower after World War II, that encouraged British colonies all over the world to secede from Britain, thus raising the cost of the empire until it exceeded the British's capacity to maintain it.
The end of the cold war left the United States with NATO, bases and alliances all over the world and a trading alliance with the most prosperous nations in the world. The U.S. was set up to rule the world. Unfortunately, like all empires before us, our victory over the Soviet Union had driven us to hubris and overreach. After 911, George W. Bush started the war with Iraq to control the Middle East, and by extension, to control the world. Instead, the electoral democracy that he installed in Iraq had created the Shiite Crescent, a rising power in the Middle East that gave rise to a lot of conflicts. Compared to Iraq, China is many order of magnitude larger, stronger and smarter. Unlike us, the Chinese also have an expectation that is grounded in reality. They don't want to rule the world. For now, they wanted to control their immediate neighborhood and they wanted to trade with the rest of the world based on common interests between them and other nations. In the mean time, with the lost of the Soviet Union and with Russia a shadow of its former self, NATO is no longer a cohesive unit like during the cold war. The United States, treating the Europeans like our own fiefdom, had made demands to them that are against their own interests. We had ask that they stop the Nordstream pipeline so we can cut off the oil revenue of Russia. We had ask that they stop using Huawei for their 5G network. We discouraged them from joining the Chinese Belts and Roads initiative. At the end, the Europeans balked at all these demands and went their own way. Germany is signalling that they will allow Huawei for their 5G. Italy, financially wobbly, has announced that they will join the Belts and Roads initiative. At the end of the day, unrealistic expectations meant, at a minimum, the lost of credibility. It also increased the cost of running an empire unnecessarily.
The rise of each empire is driven by internal factors, factors like good governance, high population IQ, scale of the country and the character of the people. The empire falls if the cost of running the empire exceed the benefit. In the case of the United States, if our empire fall, it would most likely be due to our overreach. With the rise of China, our cost of maintaining world order could become prohibitive if we have the wrong expectations and wanted to exert complete control in every corner of the world. Instead, we should very carefully weigh the cost and benefit to our nation each time we contemplate taking an action. We must not let our dominance blind us to our limitations.
“But why? It’s not for lack of power. In fact, it seems to be the opposite. Their power lulls them into comfort. They become undisciplined. Those who had to earn power are replaced by those who have known nothing else. Who have no comprehension of the need to rise above base desires.”
---Max Barry
I was in Boston recently and did the tourist thing. We did the tour with the Boston Tea Party Museum. Among the things I learned was the indifference to the American sentiments which led to the lost of America as a British Colony. The revolt was over the army that was sent over from Britain and the taxes that were levied against British merchandise. Since East India Company, whose tea was dumped into the harbor, had a monopoly over the American trade, the British could easily have asked the East India Company to include the taxes as part of the price of the Tea and no one would be the wiser. It might have delay the end of the British Empire. The East India Company itself, despite hugely profitable trades across the world, almost went bankrupt and had to be bailed out by the British government. The reason was that it had also taken on the task of empire building. In 1857, it had an army 280,000 strong. Eventually, the cost of running this empire was untenable and East India Company was taken over by the government. As with the East India Company, the British Empire, whose rise was driven internally with the Industrial revolution, Eventually fall as the cost of running the empire exceeded the benefit. The timing of their fall was due to the rise of the United States as the rising power. It was the United States, wanting to overtake the British as the superpower after World War II, that encouraged British colonies all over the world to secede from Britain, thus raising the cost of the empire until it exceeded the British's capacity to maintain it.
The end of the cold war left the United States with NATO, bases and alliances all over the world and a trading alliance with the most prosperous nations in the world. The U.S. was set up to rule the world. Unfortunately, like all empires before us, our victory over the Soviet Union had driven us to hubris and overreach. After 911, George W. Bush started the war with Iraq to control the Middle East, and by extension, to control the world. Instead, the electoral democracy that he installed in Iraq had created the Shiite Crescent, a rising power in the Middle East that gave rise to a lot of conflicts. Compared to Iraq, China is many order of magnitude larger, stronger and smarter. Unlike us, the Chinese also have an expectation that is grounded in reality. They don't want to rule the world. For now, they wanted to control their immediate neighborhood and they wanted to trade with the rest of the world based on common interests between them and other nations. In the mean time, with the lost of the Soviet Union and with Russia a shadow of its former self, NATO is no longer a cohesive unit like during the cold war. The United States, treating the Europeans like our own fiefdom, had made demands to them that are against their own interests. We had ask that they stop the Nordstream pipeline so we can cut off the oil revenue of Russia. We had ask that they stop using Huawei for their 5G network. We discouraged them from joining the Chinese Belts and Roads initiative. At the end, the Europeans balked at all these demands and went their own way. Germany is signalling that they will allow Huawei for their 5G. Italy, financially wobbly, has announced that they will join the Belts and Roads initiative. At the end of the day, unrealistic expectations meant, at a minimum, the lost of credibility. It also increased the cost of running an empire unnecessarily.
The rise of each empire is driven by internal factors, factors like good governance, high population IQ, scale of the country and the character of the people. The empire falls if the cost of running the empire exceed the benefit. In the case of the United States, if our empire fall, it would most likely be due to our overreach. With the rise of China, our cost of maintaining world order could become prohibitive if we have the wrong expectations and wanted to exert complete control in every corner of the world. Instead, we should very carefully weigh the cost and benefit to our nation each time we contemplate taking an action. We must not let our dominance blind us to our limitations.
Sunday, April 14, 2019
The Great Rivalry: The Military Race
"the United States military has had a lot of experience in the Western Pacific, taking down small islands."
---Lt. Gen. Kenneth McKenzie
From their humble beginnings, the People's Liberation Army, or PLA, has come a long ways. As late as the nineties, they were barely able to license produce second rate Soviet weapons. Today, they have caught up to the cutting edge in most areas. The remaining few weaknesses, namely aircraft turbo-fan engines, nuclear submarines, carriers, strategic bombers and transport, they are making rapid progress and may close the gap within the coming decade or so. We still have the advantage outside of China's immediate neighborhood, but as the Chinese military quickly ramp up, the sphere of Chinese military superiority will expand further afield.
Our military is the greatest on earth. In the open seas, our navy has no rivals. What is more, we have military bases all over the world. In East Asia, our bases are dotting across the peripheries of China. Due to their past weakness in their naval force, most of the South China Sea islands have been claimed by surrounding countries such as Vietnam. To stake their claim to the South China Sea, the Chinese have built a few artificial islands out of reefs that were originally semi-submerged. Lt. General McKenzie is correct in stating that we would be successful in attacking these islands. In the age of GPS guided missiles and hypersonic missiles, Fixed and relatively small targets such as the radar installations in these islands will succumb to a determined attack by a peer enemy.
However, in spite of the bluster by the U.S. military, our situation in East Asia and the South China Sea is much more precarious than it would appear. As a precondition, I restrict our future conflict to the peripheries of continental China and the South China Sea, as the Chinese will not challenge us in the open seas for a long time to come. To defend against attacks from the sea, the Chinese have built a thick, layered, sophisticated and interlocking missile defense system all along the border. They have area denial weapons like DF series missiles. They are building strategic bombers like the B2. With today's technology, a determined attack with high end missiles will hit the target, no matter the defense system, so a fight between the U.S. and China means the two countries will trade blows with their missiles and bombers until one is knocked out of the fight. On the U.S. side, the missiles can come from either ships, bombers, and bases along the islands of the Pacific, South Korea, Japan and the Philippines. Here I am excluding intercontinental missiles from the U.S. mainland since this could very quickly lead to nuclear exchanges that nobody wanted. It is unlikely to come from ships since U.S. war ships within 1000 km of the Chinese shores will not survive a Chinese attack. Bombers need runway from our bases to take off and land, runways that are limited in number and easily disabled. Like the artificial islands built by the Chinese, the U.S. military bases in the Pacific Islands all the way up to Okinawa represent weak, isolated and small targets. Even the bases in South Korea and Japan are rather limited. On the Chinese side, they have the power of the entire continent size country with a dense, layered and sophisticated defense that is interlocking. A huge number of bases and dual use runways must be destroyed before the fighting capability is significantly degraded. They also have the ability to back up the front line with an excellent transportation system. The huge asymmetry between the American bases in Asia and China means that if blows are traded between the two sides, the U.S. bases, like the man made islands of China, could quickly be knocked out. Each island in the island chain is separated by vast ocean. So losing one island will weaken the neighboring islands and hasten their fall. What is more, once the Chinese occupy the islands after the bases are knocked out, to re-take the islands will require ships that could be hit from Continental China. The asymmetry between Korean and Japanese military bases and China is not much better. The Japanese lacks offensive capability if the U.S. forces are out of action. The Koreans could be invaded on land by China. Once these bases are knocked out, help will have to come from Hawaii. The bases in the Philippines is further from the Chinese mainland, so only limited types of missiles from China could hit it. As the Chinese develop their strategic bomber and their navy, with a large number of destroyers and maybe four to six carrier groups, even our bases in the Philippines will become vulnerable. What is more, once we lost the bases, we will be forced to fight with a very long supply line.
Once our bases are knocked out and the Chinese occupies the first island chain and secure the South China Sea, they will be in a position to threaten Japan. Both Japan and the Philippines will fall completely under the Chinese sphere of influence. With the Chinese firmly in control of the South China Sea, they will be able to extend stronger influence in the Indian Ocean. The Chinese have the enviable geographical advantage of being able to control both the Indian Ocean and the West Pacific from mainland . This may well end the U.S.'s ability to hold sway the future of the Middle East, since without access to the South China Sea and the Indian Ocean, our war ships will have difficulty reaching the Middle East.
Most Chinese military experts believe that they are without peer inside the first island chain, that includes the South China Sea. As the naval forces advances, their advantages will extend to the second island chain which includes Guam. Today, if we pick a fight in the South China Sea, we might stand a fair chance of knocking out their artificial islands, but a counter attack from China may mean we will lose most if not all of our bases in the East China Sea. Ten years out, with four carrier groups, they will have overwhelming superiority in the South China Sea and East Asia.
That our military can cross the globe and exert so much control on the rest of the world is predicated on a huge asymmetry of power between the U.S. and the target country. As China becomes more of a near peer, it becomes impossible to continue our dominant position so far from home and in their backyard. The development of the Chinese military is the result of Chinese industrialization. As their industrialization continue, their military will be even more formidable. If we are not careful in handling the relative decline of the U.S. military, it could accelerate our decline as the dominant country of the world.
---Lt. Gen. Kenneth McKenzie
From their humble beginnings, the People's Liberation Army, or PLA, has come a long ways. As late as the nineties, they were barely able to license produce second rate Soviet weapons. Today, they have caught up to the cutting edge in most areas. The remaining few weaknesses, namely aircraft turbo-fan engines, nuclear submarines, carriers, strategic bombers and transport, they are making rapid progress and may close the gap within the coming decade or so. We still have the advantage outside of China's immediate neighborhood, but as the Chinese military quickly ramp up, the sphere of Chinese military superiority will expand further afield.
Our military is the greatest on earth. In the open seas, our navy has no rivals. What is more, we have military bases all over the world. In East Asia, our bases are dotting across the peripheries of China. Due to their past weakness in their naval force, most of the South China Sea islands have been claimed by surrounding countries such as Vietnam. To stake their claim to the South China Sea, the Chinese have built a few artificial islands out of reefs that were originally semi-submerged. Lt. General McKenzie is correct in stating that we would be successful in attacking these islands. In the age of GPS guided missiles and hypersonic missiles, Fixed and relatively small targets such as the radar installations in these islands will succumb to a determined attack by a peer enemy.
However, in spite of the bluster by the U.S. military, our situation in East Asia and the South China Sea is much more precarious than it would appear. As a precondition, I restrict our future conflict to the peripheries of continental China and the South China Sea, as the Chinese will not challenge us in the open seas for a long time to come. To defend against attacks from the sea, the Chinese have built a thick, layered, sophisticated and interlocking missile defense system all along the border. They have area denial weapons like DF series missiles. They are building strategic bombers like the B2. With today's technology, a determined attack with high end missiles will hit the target, no matter the defense system, so a fight between the U.S. and China means the two countries will trade blows with their missiles and bombers until one is knocked out of the fight. On the U.S. side, the missiles can come from either ships, bombers, and bases along the islands of the Pacific, South Korea, Japan and the Philippines. Here I am excluding intercontinental missiles from the U.S. mainland since this could very quickly lead to nuclear exchanges that nobody wanted. It is unlikely to come from ships since U.S. war ships within 1000 km of the Chinese shores will not survive a Chinese attack. Bombers need runway from our bases to take off and land, runways that are limited in number and easily disabled. Like the artificial islands built by the Chinese, the U.S. military bases in the Pacific Islands all the way up to Okinawa represent weak, isolated and small targets. Even the bases in South Korea and Japan are rather limited. On the Chinese side, they have the power of the entire continent size country with a dense, layered and sophisticated defense that is interlocking. A huge number of bases and dual use runways must be destroyed before the fighting capability is significantly degraded. They also have the ability to back up the front line with an excellent transportation system. The huge asymmetry between the American bases in Asia and China means that if blows are traded between the two sides, the U.S. bases, like the man made islands of China, could quickly be knocked out. Each island in the island chain is separated by vast ocean. So losing one island will weaken the neighboring islands and hasten their fall. What is more, once the Chinese occupy the islands after the bases are knocked out, to re-take the islands will require ships that could be hit from Continental China. The asymmetry between Korean and Japanese military bases and China is not much better. The Japanese lacks offensive capability if the U.S. forces are out of action. The Koreans could be invaded on land by China. Once these bases are knocked out, help will have to come from Hawaii. The bases in the Philippines is further from the Chinese mainland, so only limited types of missiles from China could hit it. As the Chinese develop their strategic bomber and their navy, with a large number of destroyers and maybe four to six carrier groups, even our bases in the Philippines will become vulnerable. What is more, once we lost the bases, we will be forced to fight with a very long supply line.
Once our bases are knocked out and the Chinese occupies the first island chain and secure the South China Sea, they will be in a position to threaten Japan. Both Japan and the Philippines will fall completely under the Chinese sphere of influence. With the Chinese firmly in control of the South China Sea, they will be able to extend stronger influence in the Indian Ocean. The Chinese have the enviable geographical advantage of being able to control both the Indian Ocean and the West Pacific from mainland . This may well end the U.S.'s ability to hold sway the future of the Middle East, since without access to the South China Sea and the Indian Ocean, our war ships will have difficulty reaching the Middle East.
Most Chinese military experts believe that they are without peer inside the first island chain, that includes the South China Sea. As the naval forces advances, their advantages will extend to the second island chain which includes Guam. Today, if we pick a fight in the South China Sea, we might stand a fair chance of knocking out their artificial islands, but a counter attack from China may mean we will lose most if not all of our bases in the East China Sea. Ten years out, with four carrier groups, they will have overwhelming superiority in the South China Sea and East Asia.
That our military can cross the globe and exert so much control on the rest of the world is predicated on a huge asymmetry of power between the U.S. and the target country. As China becomes more of a near peer, it becomes impossible to continue our dominant position so far from home and in their backyard. The development of the Chinese military is the result of Chinese industrialization. As their industrialization continue, their military will be even more formidable. If we are not careful in handling the relative decline of the U.S. military, it could accelerate our decline as the dominant country of the world.
Sunday, March 31, 2019
The Great Rivalry: Scaling The Commanding Heights of Science and Technology
No country in the post-colonial era has thrived without first building its capacity to conduct scientific research.
---Seth Berkley
America has the best universities in the world. Not just one or two of them, most of the best universities in the top 100 are from the U.S. Most of the new industries that have come out in the last few decades have also been in the U.S. In every field of research and development, we are either at the top or near the top. This is what enabled the U.S. to rise to the number one country in the world.
The Chinese, like all other nations, are playing catch up. The amount of money spent on research is $475 billion for China, versus $553 billion for the U.S. As seen from the graph below, the Chinese are steadily catching up to the United States on R & D spending. In the coming decades, they will spend significantly more then us. Obviously, having done this work for a very long time, the U.S. is still more productive and able to get more results, but the combination of more money spent and a world wide talent search will eventually bridge the gap and the output from the Chinese research will approach or even overtake ours.
In fact, according to the Nature Index 2019, this is already happening. China is now the number two country in research output. producing half of the research as the United States as of 2019, dwarfing the third place Germany. In 2016, just three years prior, China was producing 37% of the research output of the United States. so the volume and quality of the research is growing at the same trajectory as the research spending of China, but the productivity is a few years behind the spending.
The big spending on research by the U.S. has resulted in many new industries for the U.S. In many cases, other developed nations simply failed to even be followers. Japan did not create their own version of the online giants and smart phones. Looking into the future, we are no longer alone in doing research and development.
While the U.S. is excellent in basic research, it does not always mean that we get to keep the industries that sprung up as a result of the research. From the time the first transistor was created in 1947 by Shockley and company, it took many decades and a lot of work by a lot of companies to bring us to the state of the art semiconductor chips that we produce today. The production of the chips skipped over Mexico, crossed the Pacific Ocean, and landed first in Japan, then in Taiwan and South Korea. The design team and companies stayed in the U.S., but the leadership has changed through many hands. Many of the early pioneers have ceased to exist today. New industries for the coming decades will likely follow the same pattern. While the Chinese may not be as inventive as us, it is at the stages after the initial discovery that they excelled. With access to an equally large market as the U.S. at home, supported by their government, the speed in which new industries (to China) sprung up was mind boggling. It is very likely that no matter who invented the initial technology, in the intervening decades that it will take for the industry to develop into the giant scale like the semiconductor industry is today, leadership will quickly shift to China due to their ability to execute and their manufacturing prowess. This is the tragedy of not having a manufacturing base to capture the inventions. We were fortunate that until this point, no competitor were able to match our inventiveness, scale and entrepreneur zeal. That will no long be the case with the rise of China. When the need arises, the Chinese are capable of doing the research to be at the cutting edge today. Even the U.S. has recognize them as the leaders in hypersonic missile technology. They are the first to produce a quantum satellite and quantum radar. They are the first country in the world to start testing a ship mounted rail gun. On the civilian side, SenseTime was a leader in facial recognition technology. Huawei has now become the undisputed leader in 5G technology.
We see a few patterns over the past few years in terms of Chinese technological advancements. First, the few areas where they reach the cutting edge technology have been relatively recent. Second, these have all been in the areas of emerging technologies where no one had accumulated many years of technology lead. Most are still in the basic research stage. Contrast to other areas, where years of head start by Western firms have created formidable barriers of entry for Chinese firms. Aircraft turbo-fan engine is a prime example. Prior to the Chinese entry, it was controlled by a few firms in the world. All these firms guard their secrets jealously. There is no way for them to ramp up the learning curve quickly. Due to their military needs, the Chinese persisted for many decades. To this day, they still rely mostly on the Russians to provide them with military jet engines, though recently news have come out that their WS-10, an engine of eighties technology, has matured to the level that could be used by their military. Jet engines may well be one of the last areas to be conquered by the Chinese, but their ability to become the best in a few areas mentioned above shows they are quite capable of making progress on their own to blaze new trails. Finally, we see that currently, many of the recent success had military applications. This is no different to how the U.S. did it. DARPA, which was an entirely government funded entity, was originally created due to our need to create better weapons. They had been credited with many innovations which went on to create large civilian industries, including the internet.
Is there a way to stop them from their technological progress? This will be very difficult. Knowledge has a way of crossing boarders which could not be stopped. They are capable enough that they will be able to replicate something by simply knowing that someone else was able to create it. Though it was rumored that they hacked into U.S. networks to steal files for the making of the F-35, their J-20 was quite different then the F-35 in many respects. Their indigenous effort had created something that is competitive against F-35 and F-22. What is more, they did not create a clone. Having fully digested the principles that make a fifth gen fighter, they tailored the design to their own needs, which are different from the needs of the U.S. military. In contrast, the Russians, who had significantly more experience building fighter jets and an equally extensive spy network in the U.S., were unable to come up with something that could match our fifth gen fighters decades after we had come up with them. The approach of the Chinese, at least in the military side, is working to produce a lot of results during the last few years. They characterize the recent explosion of results as "geysers". In the future, it is reasonable to expect this approach to be replicated in the civilian side if this is not done already. Just as the U.S. had reaped a huge military spending dividend in the last few decades, we can expect the Chinese to get something similar. All these factors are completely within the control of the Chinese and we are not in position to change them too much. We reap more benefits to our country if we cooperate with them.
---Seth Berkley
America has the best universities in the world. Not just one or two of them, most of the best universities in the top 100 are from the U.S. Most of the new industries that have come out in the last few decades have also been in the U.S. In every field of research and development, we are either at the top or near the top. This is what enabled the U.S. to rise to the number one country in the world.
The Chinese, like all other nations, are playing catch up. The amount of money spent on research is $475 billion for China, versus $553 billion for the U.S. As seen from the graph below, the Chinese are steadily catching up to the United States on R & D spending. In the coming decades, they will spend significantly more then us. Obviously, having done this work for a very long time, the U.S. is still more productive and able to get more results, but the combination of more money spent and a world wide talent search will eventually bridge the gap and the output from the Chinese research will approach or even overtake ours.
In fact, according to the Nature Index 2019, this is already happening. China is now the number two country in research output. producing half of the research as the United States as of 2019, dwarfing the third place Germany. In 2016, just three years prior, China was producing 37% of the research output of the United States. so the volume and quality of the research is growing at the same trajectory as the research spending of China, but the productivity is a few years behind the spending.
The big spending on research by the U.S. has resulted in many new industries for the U.S. In many cases, other developed nations simply failed to even be followers. Japan did not create their own version of the online giants and smart phones. Looking into the future, we are no longer alone in doing research and development.
 |
| top ten nations in research output, Sourced from Nature. |
 |
| Change in output by country, Sourced from nature |
While the U.S. is excellent in basic research, it does not always mean that we get to keep the industries that sprung up as a result of the research. From the time the first transistor was created in 1947 by Shockley and company, it took many decades and a lot of work by a lot of companies to bring us to the state of the art semiconductor chips that we produce today. The production of the chips skipped over Mexico, crossed the Pacific Ocean, and landed first in Japan, then in Taiwan and South Korea. The design team and companies stayed in the U.S., but the leadership has changed through many hands. Many of the early pioneers have ceased to exist today. New industries for the coming decades will likely follow the same pattern. While the Chinese may not be as inventive as us, it is at the stages after the initial discovery that they excelled. With access to an equally large market as the U.S. at home, supported by their government, the speed in which new industries (to China) sprung up was mind boggling. It is very likely that no matter who invented the initial technology, in the intervening decades that it will take for the industry to develop into the giant scale like the semiconductor industry is today, leadership will quickly shift to China due to their ability to execute and their manufacturing prowess. This is the tragedy of not having a manufacturing base to capture the inventions. We were fortunate that until this point, no competitor were able to match our inventiveness, scale and entrepreneur zeal. That will no long be the case with the rise of China. When the need arises, the Chinese are capable of doing the research to be at the cutting edge today. Even the U.S. has recognize them as the leaders in hypersonic missile technology. They are the first to produce a quantum satellite and quantum radar. They are the first country in the world to start testing a ship mounted rail gun. On the civilian side, SenseTime was a leader in facial recognition technology. Huawei has now become the undisputed leader in 5G technology.
We see a few patterns over the past few years in terms of Chinese technological advancements. First, the few areas where they reach the cutting edge technology have been relatively recent. Second, these have all been in the areas of emerging technologies where no one had accumulated many years of technology lead. Most are still in the basic research stage. Contrast to other areas, where years of head start by Western firms have created formidable barriers of entry for Chinese firms. Aircraft turbo-fan engine is a prime example. Prior to the Chinese entry, it was controlled by a few firms in the world. All these firms guard their secrets jealously. There is no way for them to ramp up the learning curve quickly. Due to their military needs, the Chinese persisted for many decades. To this day, they still rely mostly on the Russians to provide them with military jet engines, though recently news have come out that their WS-10, an engine of eighties technology, has matured to the level that could be used by their military. Jet engines may well be one of the last areas to be conquered by the Chinese, but their ability to become the best in a few areas mentioned above shows they are quite capable of making progress on their own to blaze new trails. Finally, we see that currently, many of the recent success had military applications. This is no different to how the U.S. did it. DARPA, which was an entirely government funded entity, was originally created due to our need to create better weapons. They had been credited with many innovations which went on to create large civilian industries, including the internet.
Is there a way to stop them from their technological progress? This will be very difficult. Knowledge has a way of crossing boarders which could not be stopped. They are capable enough that they will be able to replicate something by simply knowing that someone else was able to create it. Though it was rumored that they hacked into U.S. networks to steal files for the making of the F-35, their J-20 was quite different then the F-35 in many respects. Their indigenous effort had created something that is competitive against F-35 and F-22. What is more, they did not create a clone. Having fully digested the principles that make a fifth gen fighter, they tailored the design to their own needs, which are different from the needs of the U.S. military. In contrast, the Russians, who had significantly more experience building fighter jets and an equally extensive spy network in the U.S., were unable to come up with something that could match our fifth gen fighters decades after we had come up with them. The approach of the Chinese, at least in the military side, is working to produce a lot of results during the last few years. They characterize the recent explosion of results as "geysers". In the future, it is reasonable to expect this approach to be replicated in the civilian side if this is not done already. Just as the U.S. had reaped a huge military spending dividend in the last few decades, we can expect the Chinese to get something similar. All these factors are completely within the control of the Chinese and we are not in position to change them too much. We reap more benefits to our country if we cooperate with them.
Saturday, March 30, 2019
The Great Rivalry
"Even a super power has limits"
---Ariel Sharon
The Recent trade war with China has put the power rivalry between the United States and China in grand display. For the next decade and beyond, the two countries are destined on a path of power struggle between the number one super power and the ascending rival. This competition will involve multiple fronts and will continue long after the Trump presidency. That the Chinese have come to this juncture so quickly from such humble beginnings during the eighties is quite remarkable. What is the best path going forward for the United States and China?
If you were an Englishman in the twenties, looking across the pond to an ascendant United States, you would feel a similar sense of unease as we are feeling now in the United States regarding China. The United States did overtake Britain as the world's super power. So with the perfect hindsight, what could the British have done to prevent the rise of the United States? The answer is, not much. Short of war, the rise and fall of nations are largely due to factors internal to the country. Outside interference could perhaps slow the trajectory but not alter it. What is more, energy spent and the cost of fighting such a "war" could detract from our ability to solve our own internal problems.
The main areas that the two countries compete in includes economics, science and technology development, military, geopolitical and soft power projection. In the upcoming posts, I will look at each of these. For the remainder of the post, let's examine the economic aspect. In particular, how the economic trajectories of China will impact the power rivalry of the two nations.
Most people, having walked through the aisles of Walmart, have come to the conclusion that the way to stop the rise of China is to cut off their exports. This might have been true in 2006, when Chinese exports counted for a whopping 36% of China's GDP. Today, that number is 19% and dropping. The United States' share of the Chinese export is 19%. of that, a big portion (maybe a third) is export by the companies of the United States and allies, so cutting off this portion of the export will hurt companies like Apple way more then it hurts China. Another part of the export are goods that have no substitutes, or one can only find substitute at a huge mark up. For example, virtually all of the world's rare earth metals, which are crucial for many industries, including defense, came out of China. Even the American mines send their oxide to China to have it processed into metal. The portion of Chinese exports that could be taxed without badly hurting the U.S. defense, our companies or our lower and middle class consumers thus are much smaller portion of the total. In addition, their value added, or what the Chinese get to keep by this export, is a small fraction of the export value itself, since often times, they are the final assembler taking components from supply chain across the world. I remember a study done which said that the worst case scenario of the trade war was about a 1% impact on the Chinese GDP.
America's economic problem has to do with the lost of our industrial base. This actually preceded China's rise. I remember watching TV and saw people smashing Japanese cars in front of news crews in the eighties. Our highly inventive research and development came up with products, but were unable to profitably manufacture them in the United States. The causes are complicated. The biggest issue is the quality of our work force. High end manufacturing today is highly sophisticated, requiring huge amount of capital, know how and a highly intelligent, educated and disciplined work force. As America pushes into the more profitable sectors like tech and financial sectors, these sectors have also captured the lion share of the American intellectual elite. Other industries, which have lower profit margins, have been robbed of the talents needed to compete. The exodus of manufacturing would be slower if there were not a diligent work force on the other side of the pond ready to do the work, but the East Asian countries provided competition which pushed the bar higher. This sped up the decline of American manufacturing. The semiconductor industry is an example, Even as the design team stayed behind in the Bay Area and Austin, the manufacturing part has gone first to Japan, then South Korea and Taiwan and now China. Success in this industry is not about having cheap labor, but the ability to get to high efficiency production first. Otherwise the huge amount of capital will sit unproductive longer, causing the firm to fail. Having a high IQ work force that is willing to work day and night makes all the difference between success and failure. That is the reason why semiconductor manufacturing have gone to only East Asian countries. It has to do with the availability of a highly competent and disciplined work force willing to do what it takes to get the job done fast..
The financial industry also contributed to the decline of American manufacturing in two ways. First, they siphon out part of the profits of the other industries via financial engineering. Since banking and investment industry are well established, we would expect profitability to decline like other industries that are matured and highly competitive. This is, after all, the economic theory coming out of the economic classes in colleges. However, profitability of the financial sector is near the top among all the industries. Since financial sector touches all industries, we have to conclude that some of the profits from the other industries have been transferred to the financial industry through financial manipulation. Without the profit to sustain them, many industries have died off. The second way it contribute to the demise of the American industries is through the short term nature of how Wall Street reward our economic participants. If you are two years from retirement and running the company, You would care a lot more about the stock prices in the next two years versus will the company survive in ten. In that case, you would prioritize short term profitability over the longer term survivability of the company. GE, which used to be the model for the rest of the American companies, is a shadow of its former self due to this shortsightedness. Boeing, which had the recent debacle with their 737 Max, is another example.
So what is to be done about this? So some might say we tax the hell out of these products and bring back the industries. Unfortunately, Fortress America is not a solution to this problem. This is because the Europeans, who enjoy working less than the Americans, have tried the Fortress Europe idea and the result has not been good for the last couple of decades. There is no reason to believe that we will do better if we try the same thing. Others cling on the automation and 3D printing as the key to reversing the de-industrialization, but this is unlikely. More automation and 3D printing requires even more skilled and disciplined labor force, not less. Trump tried to deny ZTE chips from American companies, but eventually back out of that idea. Certainly it would badly hurt ZTE, but companies like Qualcom will also be badly hurt. What is more, this action have spur many Chinese companies to start making their own chips. A powerful Chinese chip industry will appear on the horizon a lot faster than it would be otherwise be.
The rise of the Chinese economic power is due to their ability to learn from the outside world and having a large scale manufacturing work force that is intelligent, disciplined and hard working. They have a large internal market to consume their own products.They trade with the entire world, most of whom will not sanction the trade since China is a large trading partner. Many countries would not be able to produce what China was producing and had to buy from somebody anyways. To them, the Chinese provided inexpensive and high quality products that otherwise would cost them a lot more. The most important of all, the government of China is very capable and able to get things moving along. Today, like America was in the 1920s, the fate of their economic rise is mostly in their own hands. Outsider can slightly slow but not stop their rise. Given that they still have lower per capita GDP and other indicators such as lower value added in their industries, lower robotic density per thousand worker etc, there is every reason to believe that they will in time get to the cutting edge in manufacturing. They will have their own aeronautic industry like Boeing and Air Bus. They will have a very large share of the chip designing and chip making industry. AI will also boost their productivity in the coming decades. There is no way to stop the rise of the Chinese economy. We should focus on improving our own. We can also try to benefit from China's rise.
---Ariel Sharon
The Recent trade war with China has put the power rivalry between the United States and China in grand display. For the next decade and beyond, the two countries are destined on a path of power struggle between the number one super power and the ascending rival. This competition will involve multiple fronts and will continue long after the Trump presidency. That the Chinese have come to this juncture so quickly from such humble beginnings during the eighties is quite remarkable. What is the best path going forward for the United States and China?
If you were an Englishman in the twenties, looking across the pond to an ascendant United States, you would feel a similar sense of unease as we are feeling now in the United States regarding China. The United States did overtake Britain as the world's super power. So with the perfect hindsight, what could the British have done to prevent the rise of the United States? The answer is, not much. Short of war, the rise and fall of nations are largely due to factors internal to the country. Outside interference could perhaps slow the trajectory but not alter it. What is more, energy spent and the cost of fighting such a "war" could detract from our ability to solve our own internal problems.
The main areas that the two countries compete in includes economics, science and technology development, military, geopolitical and soft power projection. In the upcoming posts, I will look at each of these. For the remainder of the post, let's examine the economic aspect. In particular, how the economic trajectories of China will impact the power rivalry of the two nations.
Most people, having walked through the aisles of Walmart, have come to the conclusion that the way to stop the rise of China is to cut off their exports. This might have been true in 2006, when Chinese exports counted for a whopping 36% of China's GDP. Today, that number is 19% and dropping. The United States' share of the Chinese export is 19%. of that, a big portion (maybe a third) is export by the companies of the United States and allies, so cutting off this portion of the export will hurt companies like Apple way more then it hurts China. Another part of the export are goods that have no substitutes, or one can only find substitute at a huge mark up. For example, virtually all of the world's rare earth metals, which are crucial for many industries, including defense, came out of China. Even the American mines send their oxide to China to have it processed into metal. The portion of Chinese exports that could be taxed without badly hurting the U.S. defense, our companies or our lower and middle class consumers thus are much smaller portion of the total. In addition, their value added, or what the Chinese get to keep by this export, is a small fraction of the export value itself, since often times, they are the final assembler taking components from supply chain across the world. I remember a study done which said that the worst case scenario of the trade war was about a 1% impact on the Chinese GDP.
America's economic problem has to do with the lost of our industrial base. This actually preceded China's rise. I remember watching TV and saw people smashing Japanese cars in front of news crews in the eighties. Our highly inventive research and development came up with products, but were unable to profitably manufacture them in the United States. The causes are complicated. The biggest issue is the quality of our work force. High end manufacturing today is highly sophisticated, requiring huge amount of capital, know how and a highly intelligent, educated and disciplined work force. As America pushes into the more profitable sectors like tech and financial sectors, these sectors have also captured the lion share of the American intellectual elite. Other industries, which have lower profit margins, have been robbed of the talents needed to compete. The exodus of manufacturing would be slower if there were not a diligent work force on the other side of the pond ready to do the work, but the East Asian countries provided competition which pushed the bar higher. This sped up the decline of American manufacturing. The semiconductor industry is an example, Even as the design team stayed behind in the Bay Area and Austin, the manufacturing part has gone first to Japan, then South Korea and Taiwan and now China. Success in this industry is not about having cheap labor, but the ability to get to high efficiency production first. Otherwise the huge amount of capital will sit unproductive longer, causing the firm to fail. Having a high IQ work force that is willing to work day and night makes all the difference between success and failure. That is the reason why semiconductor manufacturing have gone to only East Asian countries. It has to do with the availability of a highly competent and disciplined work force willing to do what it takes to get the job done fast..
The financial industry also contributed to the decline of American manufacturing in two ways. First, they siphon out part of the profits of the other industries via financial engineering. Since banking and investment industry are well established, we would expect profitability to decline like other industries that are matured and highly competitive. This is, after all, the economic theory coming out of the economic classes in colleges. However, profitability of the financial sector is near the top among all the industries. Since financial sector touches all industries, we have to conclude that some of the profits from the other industries have been transferred to the financial industry through financial manipulation. Without the profit to sustain them, many industries have died off. The second way it contribute to the demise of the American industries is through the short term nature of how Wall Street reward our economic participants. If you are two years from retirement and running the company, You would care a lot more about the stock prices in the next two years versus will the company survive in ten. In that case, you would prioritize short term profitability over the longer term survivability of the company. GE, which used to be the model for the rest of the American companies, is a shadow of its former self due to this shortsightedness. Boeing, which had the recent debacle with their 737 Max, is another example.
So what is to be done about this? So some might say we tax the hell out of these products and bring back the industries. Unfortunately, Fortress America is not a solution to this problem. This is because the Europeans, who enjoy working less than the Americans, have tried the Fortress Europe idea and the result has not been good for the last couple of decades. There is no reason to believe that we will do better if we try the same thing. Others cling on the automation and 3D printing as the key to reversing the de-industrialization, but this is unlikely. More automation and 3D printing requires even more skilled and disciplined labor force, not less. Trump tried to deny ZTE chips from American companies, but eventually back out of that idea. Certainly it would badly hurt ZTE, but companies like Qualcom will also be badly hurt. What is more, this action have spur many Chinese companies to start making their own chips. A powerful Chinese chip industry will appear on the horizon a lot faster than it would be otherwise be.
The rise of the Chinese economic power is due to their ability to learn from the outside world and having a large scale manufacturing work force that is intelligent, disciplined and hard working. They have a large internal market to consume their own products.They trade with the entire world, most of whom will not sanction the trade since China is a large trading partner. Many countries would not be able to produce what China was producing and had to buy from somebody anyways. To them, the Chinese provided inexpensive and high quality products that otherwise would cost them a lot more. The most important of all, the government of China is very capable and able to get things moving along. Today, like America was in the 1920s, the fate of their economic rise is mostly in their own hands. Outsider can slightly slow but not stop their rise. Given that they still have lower per capita GDP and other indicators such as lower value added in their industries, lower robotic density per thousand worker etc, there is every reason to believe that they will in time get to the cutting edge in manufacturing. They will have their own aeronautic industry like Boeing and Air Bus. They will have a very large share of the chip designing and chip making industry. AI will also boost their productivity in the coming decades. There is no way to stop the rise of the Chinese economy. We should focus on improving our own. We can also try to benefit from China's rise.
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