Comment by Workaccount2
5 hours ago
China, being a planned economy at heart, has a "VC" system that is essentially just the government deciding what needs to be developed, and then Chinese banks lending without any practical strings to those developers.
Profit and loss, ROI, business plan, aren't really factored in. China wants to develop AI? You have some experience and want to start an AI business? Great! Here is a few million go make AI.
This is the system that led to those infamous ghost cities and billion dollar high speed trains to nowhere. China puts the carts before the horse, and hopes at at least a few of them get to the destination. They're not unfamiliar with burning tens of billions to get a few hundred million of value.
It also means that if you are competing against one of these chosen industries, you are not competing, because they are just burning daddies money, whereas you need to make interest payments.
People love to point out the ghost cities and high speed trains to "nowhere". But, for every ghost city, there are hundreds of thriving actual cities full of people. Shenzhen itself was a planned special economic zone that went from an impoverished fishing village to a thriving megalopolis and the worldwide center of electronics within decades.
And despite some high speed train stations being underutilized in the off season, the majority of Chinese cities are connected with blazing fast high speed trains that depart every 15 minutes. Even third tier cities have high speed trains and they are amazing. Now, despite using some underhanded tactics to get Siemens and others to hand over their IP initially, the Chinese high speed rail system is the envy of the world, with orders of magnitude greater coverage, track length, and ridership than Japan. At the same time, domestic innovations allow the newer trains to be a more comfortable, faster, and smoother ride than the Shinkansen, TGV, and ICE. I would take that any day over, say, California High Speed Rail dilly-dallying for decades with nothing to show for it.
The Chinese electric car industry is another one of those that are famously subsidized. People love to point out that some shady companies that have large lots of unsold new vehicles sitting there but written off as being sold via some accounting tricks. While that does happen and is deplorable, the fact is that Chinese EVs have basically leapfrogged the rest of the world in quality, capabilities, and innovation. The Xiaomi SU7 is amazing, for example. But don't despair, some Western companies like Tesla are still able to keep up with the pace of innovation.
Also, all this talk of the Chinese government subsidizing this, and subsidizing that being unfair competition, as though China had a magic money tree to fund everything. In contrast, it is sad that the US government, while having vastly greater tax revenue, fails to fund basically any sort of technological development, and instead wastes all of its enormous amounts of money on inefficiencies (e.g. our spending per capita on healthcare being the highest in the world, but most of it is going to bureaucracy, and we languish with poor life expectancy) while being saddled in debt.
> Great! Here is a few million go make AI.
So how is this different from the US? It’s VC’s making the choices not the gov - seems little different. Maybe scale?
> They're not unfamiliar with burning tens of billions to get a few hundred million of value.
The chinese economy seems like proof this is a valid strategy that pays off in aggregate. Yet when gov here attempts any kind of economic development policy it seems largely unpopular.
> you are not competing, because they are just burning daddies money
So like the american defense industry then?
VC's gauge what the market wants, the Chinese government is one person who decides what he wants.
One of these is grossly inefficient compared to the other, despite the final outcome looking similar from some angles.
"Capitalism good, but state capitalism bad".
Not only are US VCs dumping billions in shitty Bluetooth connected dog collars and other kinds of crap, apparently according to you because that's "what the market wants", it's also an incredibly stupid reading of how the Chinese government works.
They target specific industries that are important, according to them, like solar panels, batteries, cars, etc. They then dump billions into a bunch of companies, and see which ones come out alive and on top.
As it stands, it's been pretty accurate for many things, and has made them market leaders on many, many things. But sure, jerk off the VC model, after all YC thinks the market wants... AIs and ERPs. Woo.
Can't tell if this post is against VC system or just China?
Yes
I mean they are 2nd largest GDP economy with "world factory" title
some words you said can be true of course but its clearly working out for them
There are some pretty big cracks underneath the surface. But yes they certainly have been successful at drawing in the manufacturing at the very least, even if it's ultimately not very sustainable.
"There are some pretty big cracks underneath the surface"
they are just as vulnerable as western counterpart has, I can assure you that just media narrative that make it overblown. Yes western can sanction them and hurt them but they also hurt western economy in the process
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I don't see how that could be considered a planned economy, you're describing individuals creating startups of their own free choice and the government backing them with no strings. Individual choices are driving economic progress.
A planned economy would be some government committee deciding what specific startups and how many of them should be started up in any give year, and no one else can create a startup.
> don't see how that could be considered a planned economy, you're describing individuals creating startups of their own free choice and the government backing them with no strings. Individual choices are driving economic progress.
You have it backwards, the government decides which startups (by industry) will be funded and the individuals get drawn to those industries. There is a private VC market in China, but it's a rounding error compared to state investment.
The AI boom in China is directly from Xi himself setting it as a national priority. That means you will keep getting money to develop AI and AI adjacent tech regardless of how inefficient you are. There are no investors nagging for a return or wanting a path to profit.
This is why there are solar panel factories in China pumping out panels without slowing down, even though the market is saturated and they are losing money on each panel. You don't stop or slow until the leader says to.
Money (subsidies) and laws are exactly how economies are planned. When you've got scale like China, USA, EU, you can throw money at things you want to exist and there will be citizens who will just do those things because of the incentive.
I'm not sure "economic incentives" are what most people classify as a "planned economy", unless you want to take the broadest, most expansive possible understanding of that term. All Western nations would have planned economies under such a definition given the existence of tax incentives and such.
"A planned economy would be some government committee deciding what specific startups and how many of them should be started up in any give year, and no one else can create a startup."
no it would not be...where is this definition from?
That's how planned economies worked under "proper" communism in the Soviet Union or pre-Deng and how we ended up with stories about factories only baking giant screws to meet weight quotas to the switch to tiny screws to meet quantity quotas while no medium-sized screws people actually needed for produced.
Two distinct words night be useful to distinguish between planned without any market feedback and heavy industrial policy like we see in China now. In fact the CCP recently voiced their impatience with Cuba refusing to introduce market-oriented reforms.
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