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Why is China smashing its tech industry?

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SubscribeSign inShare this postWhy is China smashing its tech industry?noahpinion.substack.comCopy linkTwitterFacebookEmailJul 25, 2021Share this postWhy is China smashing its tech industry?noahpinion.substack.comCopy linkTwitterFacebookEmailcompaniessectorgoodI find it bizarre that the world has decided that consumer internet is the highest form of technology. It’s not obvious to me that apps like WeChat, Facebook, or Snap are doing the most important work pushing forward our technologically-accelerating civilization. To me, it’s entirely plausible that Facebook and Tencent might be net-negative for technological developments. The apps they develop offer fun, productivity-dragging distractions; and the companies pull smart kids from R&amp;D-intensive fields like materials science or semiconductor manufacturing, into ad optimization and game development.The internet companies in San Francisco and Beijing are highly skilled at business model innovation and leveraging network effects, not necessarily R&amp;D and the creation of new IP….I wish we would drop the notion that China is leading in technology because it has a vibrant consumer internet. A large population of people who play games, buy household goods online, and order food delivery does not make a country a technological or scientific leader…These are fine companies, but in my view, the milestones of our technological civilization ought to be found in scientific and industrial achievements instead. It’s become apparent in the last few months that the Chinese leadership has moved towards the view that hard tech is more valuable than products that take us more deeply into the digital world. Xi declared this year that while digitization is important, “we must recognize the fundamental importance of the real economy… and never deindustrialize.”&nbsp;This expression preceded the passage of securities and antitrust regulations, thus also pummeling finance, which along with tech make up the most glamorous sectors today. PowerIf you’re going to fight a cold war or a hot war against the U.S. or Japan or India or whoever, you need a bunch of military hardware. That means you need materials, engines, fuel, engineering and design, and so on. You also need chips to run that hardware, because military tech is increasingly software-driven. And of course you need firmware as well. You’ll also need surveillance capability, for keeping an eye on your opponents, for any attempts you make to destabilize them, and for maintaining social control in case they try to destabilize you. After the Cold War, our priorities shifted from survival to enjoyment. Technologies like Facebook and Amazon.com, which are fundamentally about leisure and consumption, went from being fun and profitable spinoffs of defense efforts to the center of what Americans thought of as “tech”.And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash.UpdatesAnother factor some have suggested (see the comment section) is that the consumer internet companies that China is penalizing have large degrees of foreign ownership. So it could also partially be about denying foreigners a toehold in Chinese tech. Meanwhile, shares of China’s semiconductor champion, SMIC, are surging, as my theory would predict:The immediate impetus for the surge was apparently a rumor of a big order from Huawei, a company that some believe is deeply intertwined with the Chinese military. Meanwhile, at least a few more knowledgeable observers than myself seem to be thinking along the same lines as I did:A lot of people are telling the same story here.The widely distributed commentary, laden with Cold War jargon, calls for a “profound transformation” to make China strong enough to fight against the United States, a process some have dubbed Cultural Revolution 2.0.Like this postShare this postWhy is China smashing its tech industry?noahpinion.substack.comCopy linkTwitterFacebookEmail173 CommentsFor your security, we need to re-authenticate you.Click the link we sent to , or .Expand full commentExpand full commentNo posts© 2022 Noah Smith ∙ ∙ &nbsp;is the home for great writingThis site requires JavaScript to run correctly. Please or unblock scripts

SubscribeSign inShare this postWhy is China smashing its tech industry?noahpinion.substack.comCopy linkTwitterFacebookEmailJul 25, 2021Share this postWhy is China smashing its tech industry?noahpinion.substack.comCopy linkTwitterFacebookEmailcompaniessectorgoodI find it bizarre that the world has decided that consumer internet is the highest form of technology. It’s not obvious to me that apps like WeChat, Facebook, or Snap are doing the most important work pushing forward our technologically-accelerating civilization. To me, it’s entirely plausible that Facebook and Tencent might be...

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Bloomberg Opinion writer. Writes about economics, tweets about rabbits. Newsletter: http://noahpinion.substack.com Opinions my own, not Bloomberg's.

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Why is China smashing its tech industry?

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