Revisiting China: Inflection Points, Semiconductors and Fascism
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As we, hopefully, emerge out the other side of the pandemic, it’s obvious that the U.S. still faces numerous challenges. Most of the immediate focus has been on the challenge of a citizenry that’s increasingly divided by culture and ideology. But this is certainly not the only challenge the U.S. faces, and it may not even be the most pressing. For many people that award would go to the challenge posed by an increasingly aggressive China. The cover of the May 1st edition of The Economist had the phrase “The most dangerous place on Earth” over a picture of Taiwan. And somewhat to my surprise Biden appears to largely be continuing Trump’s policies towards China. Additionally many of the podcasts I’ve been listening to have also been discussing this challenge and not only China’s aggression, but their potential desperation. (More on that in a bit.) Finally I just finished another book about China, Stein Ringen’s, The Perfect Dictatorship. Taken together it seemed like it might be time for another post on China.
The last time I talked about China, I ended up posting a link to it in a Whatsapp group populated by Nassim Nicholas Taleb acolytes. Someone read it and praised it, and in response one of Taleb’s closest associates came along and basically said that you couldn’t listen to what anyone in the West said about China. For several reasons I took umbrage at this. First I wasn’t dogmatically putting forward what I claimed to be the one true gospel of China. I actually took pains to include a broad array of opinions about its current state and future path — some pro and some con. Second, I certainly appreciate that cultural differences can lead external observers to misjudge China, while at the same time making it difficult for internal observers to explain things in a way that’s easy to understand. However, despite these obstacles I don’t think that China knowledge is so impossible to acquire that we shouldn’t even try, particularly given how important such knowledge is.
I agree that the country is complicated both politically and culturally, but can we not even take stabs identifying important bits of the China path? A general sense of the course it’s taking? Some inflection points we might look for? Some guidance for how best to deal with the problem even if it’s only at a very high level? I would assert not only that we can, but that we must.
My goal in taking on this task is not to divine when and how they’re going to invade Taiwan, or whether they will be able to continue to maintain an annual growth rate of 6% or higher, or even whether the economic statistics underlying that growth rate are themselves hopelessly flawed and unreliable. My focus, which was illustrated at some length in that last post, has always been to determine whether China, at its core, is fundamentally strong or fundamentally weak. And I’m still not sure I know the answer to that question, but I think that makes the pursuit of it more important rather than less.
Being able to pin down the fundamentals would be immensely valuable. There is a huge difference between a powerful and globally aggressive China initiating another proxy driven Cold War (perhaps in partnership with Russia) and a China who only wants control of nearby territory (the South China Sea and Taiwan) but who otherwise finds it necessary to spend most of their attention on internal stability. Between it becoming a hyper-power supplanting Pax Americana with Pax Sinica or it only desiring the legitimacy, position and territory it once had. There are also large differences between a productive Chinese population unified under a strong sense of nationalism and supportive of a strong central government on the one hand, or on the other a population that is undermined by demographic, ideological or geographic factors, and other factors as yet unforeseen.
In other words my initial ambition in discussing China was to get some sense of which way the trends are pointed. Are they mostly going up? Or have they already plateaued and are starting to head back down? Bringing up the possibility of a change in direction opens up the possibility that there has been or will be an inflection point. And while I’m still interested in getting a sense of the strength of the Chinese foundation, and which way the arrows are pointing, I wonder if a discussion of potential inflection points might yield even greater insight into the questions we’re concerned about.
Inflection Point #1 - Technological Audacity
The initial impetus to revisit China came while I was reading Where Is My Flying Car? By: J. Storrs Hall. Hall describes a future of abundance and plenty if we can just get rid of the entrenched interests protecting the status quo, and with it our unreasonable fixation on safety. His key example (after the titular flying car) is nuclear power. As I was reading the book, and since then as I’ve discussed it with other people, China is continually offered up as a counter example. If safety concerns are the key impediment, what’s keeping China from pursuing this “flying car”, nuclear powered future? While, as I said, there is a lot of disagreement about what’s actually going on with China, all the experts agree that China cares far less about safety than we do. Accordingly if nuclear power is clearly the superior option in the absence of safety regulations then China should be building lots of reactors. If they’re not then perhaps they really are just too expensive.
The first result on google, a report from the World Nuclear Association seemed to basically have all the answers I was looking for. With the normal caveats to beware the man of one study, the report indicates that China is building a lot of reactors and that the energy available from nuclear is growing in what looks a lot like an exponential curve. While it is true that currently only 4% of Chinese power is coming from nuclear, looking at the graph of power generation it appears they really only started bringing reactors online in earnest around 2010. And in the 10 years from 2010 to 2019 (the last year data is available) generation grew at 19% per year, for a total increase of over 500%. Additionally while new plant construction has stalled in the west, according to the report China has 17 plants under construction which will increase their power generation by an additional 33%. Any bets on whether those plants will be constructed more quickly and cheaply than the few plants currently under construction in the West?
The question then is not whether China has embraced nuclear, clearly they have. The question is why did it take them so long? Why did they only really start in 2010? Is it reasonable to make inferences on their dedication based on only a decade of data? The U.S. had a couple of decades when nuclear power also grew swiftly. Might renewables like wind and solar still eventually turn out to be the more attractive options in China just like here? With most of these questions I can only guess, but to the more general question of why they didn’t start sooner, the answer there doesn’t require any guessing. They couldn’t. These days we have become so used to thinking of China as this technological powerhouse that we forget how recently they were essentially a 3rd world country. One of the points that The Perfect Dictatorship makes repeatedly is that Mao caused so much damage, that when he finally died their progress and technology had essentially been reset to zero. And recall that he didn’t die until 1976.
All of this takes us to our first potential inflection point: China passing us technologically. I think most assessments of potential conflict are based on the idea of us being even or slightly ahead of them technologically, but what if China's technological velocity is both pointed in the right direction, and greater than ours? What if the only reason it looks like we’re staying ahead of them is that they didn’t even start the race until 7 years after we had already landed on the moon? Most importantly, what if Hall is correct and the only thing preventing technological utopia is audacity, which China has?
If all these things are true then China won’t merely pass us, they might do so in a fairly spectacular fashion. If transhumanists and futurists like Hall are to be believed there is a huge technological harvest just waiting for the country that masters things like modular nuclear power and nanotechnology. It certainly couldn’t help but change the dynamic in China’s favor if they pass us and get to this harvest first.
In its most benign form this might involve things like China constructing nuclear powered jets and convincing the rest of the world to allow them to land at their airports. In its most malevolent it could mean China doing to us what Britain did to them during the First Opium War: imposing terms on us from a position of vastly greater technological strength. Of course, we’ll still have plenty of nuclear weapons, but if you’re considering that, you’ve already lost.
Inflection Point #2 - Peak China
The technological arms race between China and the West takes us directly into our next inflection point. But in order to understand it some historical background might be helpful.
One of the reasons that World War II (and for that matter World War I) happened the way it did is that certain countries felt that if they let any more time pass that their odds of winning a war would just continue to decrease. That, though they hadn’t reached the peak of their strength, they were as strong as they were ever going to be relative to their enemies. While this applies to Germany in both wars, the example of Japan in World War II is the one I want to draw your attention to.
On August 1, 1941 the U.S. instituted an oil embargo against Japan. This had the effect of eliminating over 80% of Japan’s oil supply. Given that oil was the lifeblood of the world in 1941 and certainly the lifeblood of Japan’s navy, the Japanese leaders decided they had no other recourse than to go to war. There were lots of reasons to declare war, but one of the biggest was seizing the oil of Borneo. And the first step in that process happened to be attacking Pearl Harbor.
Turning to our own day, in the same fashion that oil was the lifeblood of the 1940’s, semiconductors are the lifeblood of our current world. They’re involved in every aspect of the modern world. Now as you might imagine China does have a domestic semiconductor industry, it’s just 10 years behind the current state of the art, and it can only supply about 8% of China’s current needs.
This would all be okay if they could import technology, but as it turns out, under Trump, and continuing under Biden, the U.S. has effectively clamped down on Chinese importation of semiconductors along with the technology and machines necessary to build semiconductors. This not only includes stuff that was built in the U.S. but anything that was built using U.S. derived technology, which is just about everything. So pre-Pearl Harbor the U.S. put an embargo on oil wiping out 80% of Japan’s supply. This time around we’re putting an embargo on something equally important which affects up to 92% of the supply. Obviously it’s important to not take this parallel too far. Japan in late 1941 looked a lot different than China in early 2021, but not all of the differences are positive.
For example, in one of those coincidences you might dismiss as being too convenient or implausible if it happened in a movie or a book, the most advanced semiconductors in the world are made in Taiwan. Yep! We’ve drastically restricted Chinese supply of one the most important modern commodities and in the process given them even more incentive to invade Taiwan.
This situation was brought to my attention by an episode of the podcast Hexapodia (and Hexapodia was brought to my attention by frequent commenter Boonton). Having only listened to a single podcast episode on the topic means my knowledge is not as deep as it would be if I had read a book on the topic, but I think it’s important to include because the situation would appear to contribute to at least three possible inflection points.
First, desperation could easily create an inflection point. People do things when they’re desperate that they wouldn’t do otherwise, and the same goes for countries. It’s possible, even likely that if China can just be patient that the chip technology imbalance will eventually rectify itself, but if there’s one other thing all the experts can agree on, it’s China’s impatience. In this situation it’s evidenced by China throwing money at anyone with the words business plan and semiconductor on the same sheet of paper. But as the podcast points out industrial policy is hard and prone to inefficiencies, particularly as that policy gets closer to resembling a command economy. It’s not inconceivable that Chinese desperation around domestic chip manufacturing will make the problem worse. History is full of stories where the unfettered market out-competed government-backed endeavors, and as the Chinese government backs more and more companies the unfettered market becomes smaller and smaller. Should this result in China falling even farther behind in semiconductor technology it will only increase their desperation.
Second, the united front we’re seeing with respect to semiconductors could be an inflection point in the attitudes of the rest of the world towards China. Whereas once most of the nations of the world were neutral towards China, increasingly it appears that the majority of countries, particularly in the West, are taking a harder and more unified stand. At a minimum numerous countries are assisting the U.S. with their export restrictions. But I’m also seeing things like trade deals stalling over human rights concerns, pushback on exploitative practices, and of course the recent attention being given to the lab-release theory of COVID. This attitudinal inflection probably translates into a greater willingness to confront China militarily. In which case we’re back to looking at parallels between now and the World Wars, with China in the position of seeing the number and power of its enemies increasing faster than it’s own power.
Moving into the realm of military might takes us to the third inflection point touched on by the semiconductor situation, but it’s also a big enough issue to get it’s own section.
Inflection Point #3 - Taiwan
Whatever else may be said about the situation, it is becoming increasingly difficult to imagine that China won’t eventually invade Taiwan. There was a time when you could imagine reunification without shedding any blood, but I think the Taiwanese have decisively rejected that possibility after seeing what happened to Hong Kong.
Even as the Taiwanese are rejecting peaceful reunification, the Chinese leadership have become ever more insistent that reunification will happen one way or the other, and it seems clear that they have painted themselves into a corner. They have been so insistent that Taiwan is part of China that backing down now would entail possibly fatal damage to their reputation and by extension the reputation of the Communist Party. Now I don’t think that the Chinese people expect the attack to come tomorrow, but the leadership has done everything they can to ensure that they expect it to come eventually. Furthermore “eventually” is increasingly turning into “soon”. (See the discussion of the semiconductor situation above.)
In other words a Chinese invasion of Taiwan is increasingly not a question of if, but when. And it should go without saying that when it does happen it will represent perhaps the biggest inflection point of all.
I opened this post by talking about the difficulties of commenting on China and predicting what they were going to do. But in addition to the small things I mentioned: disregard for safety and impatience, this is another big thing that nearly everyone agrees on. China will not rest until they have reabsorbed Taiwan. But despite what appears to be the virtual certainty of this happening neither the U.S. nor Taiwan seems as worried as one might expect. I understand that because of the nature of our government we often end up taking positions which end up being compromises combining the worst of both worlds. In this case we neither get the benefits of not being entangled with Taiwan, but nor is it clear that we’re committed enough to prevent China from taking Taiwan, and thereby reap those benefits. We may end up failing while maximizing the money we’ve spent to do so.
That’s the U.S. excuse, but what about Taiwan? This is an existential issue and yet their defense spending continues to hover around 2% of GDP. One would expect, given how obvious the threat is, that their military spending would be among the highest in the world and certainly higher than the U.S.’s but that’s not the case.
Perhaps China will suffer some internal catastrophe which will remove its fixation with Taiwan, but absent that it appears that Taiwan’s doom is sealed, and we’re merely waiting for it to play out.
Inflection Point #4 - Moving From a Trivial State to a Power State
In The Perfect Dictatorship Ringen has a lot to say about China, and some of it will have to wait for my review, but he does make a very interesting case for yet another potential inflection point, the transition of China from a trivial state to a power state. What’s a trivial state? From the book:
Some facts are given. The Chinese state is constituted as a party-state. It is dedicated to two absolute priorities: the perpetuation of the regime itself and the protection of the country’s territorial integrity.
The question then is: what more is there to it? My first hypothesis is that there is nothing more. The Chinese state is strong but does not possess any purpose beyond itself for the use of its strength. There is no ideology, no socialism, no vision for the well-being of the Chinese people, no idea about quality or glory...The leaders always speak about ‘stability’, and this hypothesis says that is all they finally have in mind.
I call this hypothesis trivial not because it would make the Chinese state insignificant or unimpressive. It is and will be a powerful state. But it would be trivial in the sense that it would have nothing to its name but force and nothing to present itself to others with than bigness.
Ringen asserts that up until Xi Jinping, this was the state of China. They were powerful and big, but had no animating ideology. That mostly they were trying to recover from the destruction wrought by Mao, while also avoiding collapsing, like the Soviet Union. But now that it appears both have been accomplished, they are transitioning from a trivial state to a power state. Once again from the book:
Power states are strong states in which the state and its strength are for a higher purpose. They are different from strong trivial states where the state is its own purpose and there is nothing more to it… In power states the purpose is given by an official ideology, and citizens are subordinate to the advancement of the ideologically defined purpose.
...The state is the instrument of the party, and state institutions have a duty to serve the party by force of the ideology that is embodied in it, and citizens by the same logic have a duty of obedience and service to state and party. This is what generates and justifies the ruthlessness which is endemic in power states: when ideology rules any action that is ideologically correct or productive is justified. It is not strength alone that makes a state a power state but the way strength is constituted and used.
While trivial...states may or may not be aggressive in international relations, power states are likely to be aggressive.
One way of looking at this is to examine the way the Soviet Union behaved. By Ringen’s definition it was clearly a power state, and it used that power in an ostensibly ideological fashion. One would think that this is the obvious connection the book would make, since China is still nominally communist, but Ringen predicts that China is more likely to become the perfect fascist state.
[A] power state needs ideological in addition to administrative grounding. Totalitarian use of state power needs more than the excuse of stability; it needs the justification that comes from higher ideas and principles. A resurrection of classical communist ideology would not be credible. A new power state in China would need a new ideology. That ideology may be in the making in Xi Jinping’s China Dream.
It is possible that the China Dream will turn out to be a hot air of little substance as have previous ideology-like signals. Perhaps that is all it is—but it could also become the new narrative for a revived China, a narrative that draws on Chinese history more than on Marxist theory and that goes to nation, nationalism, strength, unity and patriotism. When Mao declared the People's Republic in 1949, his message was that China had risen again. He slotted the revolution into a tradition of nation and greatness. He got himself lost in a fantasy of revolution, but those who have followed him have reverted to nation building. The unifying idea has been China the great. This may now be in the process of finding its ideological articulation.
The narrative of national greatness has the resonance in Chinese imagination and tradition to make that possible, the resonance that ‘harmonious society’ failed to find.
If things stopped there, China would be a power state, but not necessarily a fascist one, but Ringer goes on to claim that the party wants to go even farther with the idea. In support of this he quotes from the April 5, 2013 cover story of the Beijing Daily:
Extensively promulgate that patriotism is the nucleus of the national spirit… Promote patriotism as the soul of a powerful and invigorated country which joins minds and gathers strength, and as the spiritual force which strengthens and unites the Chineses people… Extensively promulgate that realizing the China Dream requires the consolidation of Chinese power. Extensively promulgate that the China Dream is the dream of the nation, and is also the dream of every Chinese person.
Ringer goes on to point out that:
This is not just a celebration of national greatness. It is in addition an idea that national greatness and individual happiness are one and the same and inseparable, and conversely that there is no individual happiness without national greatness.
…
At its core, the idea of unity between nation and person is a fascist idea, the fascist idea.
Asserting that China is transitioning into a fascist state is a huge claim, and deserves far more discussion than I’ve been able to give it. But if this is in fact what’s happening, if China is transitioning from a country mostly worried about survival into an aggressive, ideological state, then this would be the biggest inflection point of all, even bigger than an invasion of Taiwan.
It would turn China from a nation which can be negotiated with or managed into a nation which can only be destroyed.
It might be worth pointing out that at the same time China is experiencing one or more inflection points so is the U.S. Obviously it would take someone of masterful intellect and understanding to explore the interaction between the changes both countries are experiencing. If you don’t think that’s me, consider reading someone else, but if you do, or at least think it might be worth me taking a stab at it, consider donating.