(Roughly) Daily

After skipping last year (presumably to finish his best-seller Breakneck: China’s Quest to Engineer the Future), Dan Wang is back with his “annual letter.” An excerpt…

… I think the US continues to systematically underrate China’s industrial progress for several reasons.

First, too many western elites retain hope that China’s efforts will run out of fuel by its own accord. Industrial progress will be weighed down by demographic drag, the growing debt load, maybe even a political collapse. I won’t rule these out, but I don’t think they are likely to break China’s humming tech engine. Demographics in particular don’t matter for advanced technology — you don’t need a workforce of many millions to have robust production of semiconductors or EVs. South Korea, for example, has one of the world’s fastest shrinking populations while retaining its success in electronics production. And though China suffers broader economic headwinds, technology firms like Xiaomi continue to develop new products and enjoy rising revenues. Technology breakthroughs can occur even in a suffering society. Especially if the state continues to lavish resources on chips or anything that could represent an American chokepoint. 

Second, western elites keep citing the wrong reasons for China’s success. When members of Congress get around to acknowledging China’s tech advancements, they do not fail to attribute causes to either industrial subsidies (also known as cheating) or IP theft (that is, stealing). These are legitimate claims, but China’s advantages extend far beyond them. That’s the creation of deep infrastructure as well as extensive industrial ecosystems that I describe above.

Probably the most underrated part of the Chinese system is the ferocity of market competition. It’s excusable not to see that, given that the party espouses so much Marxism. I would argue that China embodies both greater capitalist competition and greater capitalist excess than America does today. Part of the reason that China’s stock market trends sideways is that everyone’s profits are competed away. Big Tech might enjoy the monopolistic success smiled upon by Peter Thiel, coming almost to genteel agreements not to tread too hard upon each other’s business lines. Chinese firms have to fight it out in a rough-and-tumble environment, expanding all the time into each other’s core businesses, taking Jeff “your margin is my opportunity” Bezos with seriousness.

Third, western elites keep holding on to a distinction between “innovation,” which is mostly the remit of the west, and “scaling,” which they accept that China can do. I want to dissolve that distinction. Chinese workers innovate every day on the factory floor. By being the site of production, they have a keen sense of how to make technical improvements all the time. American scientists may be world leaders in dreaming up new ideas. But American manufacturers have been poor at building industries around these ideas. The history books point out that Bell Labs invented the first solar cell in 1957; today, the lab no longer exists while the solar industry moved to Germany and then to China. While Chinese universities have grown more capable at producing new ideas, it’s not clear that the American manufacturing base has grown stronger at commercializing new inventions…

Eminently worth reading in full: “2025 letter.”

Pair with “U.S.-China Economic Competition” (from Rand) and “The Outlook for China-US Strategic Competition in 2026” (an interview with Sarah M. Beran in The Diplomat)

* Lao Tzu

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As we grapple with geoeconomics and geopolitics, we might remind ourselves just how fast China’s rise has been: on this date in 1967, in the midst of the Cultural Revolution, the Shanghai People’s Commune was established following the seizure of power from local city officials by revolutionaries. Shenzen was, at the time, a sleepy backwater, just off what was then the British colony of Hong Kong.