The Fallacy of Vertical Integration (A Question of Rational Economics).

MrCrazyBoyRavi

Junior Member
Registered Member
Points 2 and 3 are good. Gadgetcool's however doesn't understand that Americas "diverse" culture is because it's cheaper to import a foreign slave caste than it is to pay heritage Americans for their labor.

How many tech startups are ran by Mexicans? Exactly.

And allowing mass Indian immigration is like injecting poison into ur body. They quickly take over HR and start hiring fellow Indians only. No need for that predatory diversity.
on top of that a lot of Indian IT contractors are scammers, hired by Indian IT consultancies. They trains basic of different kind of softwares and skills to people who aren't even related to computer science. Make fake resumes and giving fake interview. I have first hand experience of this. So there is a huge number of contractors hired by Big Tech companies in US, who are ill capable consultants.
 

SPOOPYSKELETON

Junior Member
Registered Member
I wonder how much China can overcome the network effects problem by using Open Source technologies?

If the opponent has a superior network, then you should make it easier to join your own network, achieving faster growth. Open source can circumvent the global IP regime that America is using.

Open source usually stagnated because if no institutional funding. That should change now.

But the real problem is that America still has the leverage to dictate other people's trade. That is the ultimate problem here.
 

SPOOPYSKELETON

Junior Member
Registered Member
Also, what is stopping China from enlisting Russia in this tech fight? Tech transfer a portion of the needed semicon chain to Rus and let them start working on it.

Great way to solidify relationships and provide economic growth to a needed ally.

Same for Iran.
 

horse

Major
Registered Member
I wonder how much China can overcome the network effects problem by using Open Source technologies?
China leads the world in quantum communications.

Mr. Pan went to Austria as a student, learned a lot from his professor, went back to China and the government gave him money to do stuff, and he still collaborated with his old professor, China is leader in quantum communications.

When the Americans do it, collaboration, it is called the network effect. When the Chinese do it, collaboration, it is called stealing their IP.

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Also, having an economy growing at twice the rate of the other country is an incalculable advantage. That's huge.

That is why they do not talk about the growth rate of China normally in the media, it is always about how it is going to derail. They only say things that people want to hear. Comrade Chang figured that out a long time ago, that is why is career is going strong still even being completely wrong for decades.

:D
 

Intrepid

Major
Networking isn't an issue. The language and the Chinese writing is a bigger problem. Nonetheless, western managers like to move to China for a few years after they retire. Not to reveal technology, they have been out of the development offices for too long for that. Because they have networks and can forge contacts.
 

AndrewS

Brigadier
Registered Member
Look this post has valid points. But it doesn't address the immediate problems we are facing right now. Maybe in the long term we can peel South Korea or ASEAN from the US, but that means we still have to own domestic IP, provide military assurance, and also internationalize the RMB to displace this the USD. These are pretty Herculean tasks to do.


ASEAN is already leaning towards China over the USA.
Just check the surveys from the thinktanks in Singapore and Washington DC.
And the future trajectory in 10 years time is very clear.

South Korea is already defacto neutral in a US-Korea competition.
That is because China has more economic influence AND can project more military power onto the Korean Peninsula.
 

KenC

Junior Member
Registered Member
It is just ludicrous to put the blame on China for the decoupling or new cold war. I would say it is the results of Western neo-liberalism policies aka globalization that caused considerable portion of the middle class in the West /Japan to been wiped out. Hence, the rise of populist politicians and it is far easier to blame China as the culprit than to reflect on their situation.

China on its part will never accept the status of being a slave or client states of the West, and will always find ways to be an equal.
 

horse

Major
Registered Member
In short, the question is (1) Will China simply vertically integrate, and waste many efforts creating an inefficient economy, or (2) can it move up the value chain, thus achieving a major success?

The answer is that if China wants to move up the value chain, it needs to nurture (1) An open culture that rewards risk-taking and welcomes outsiders, (2) Increasing basic research spending x4-x5 over what it currently is today, and (3) improve its foreign relations, and bring more countries into its orbit.
Regarding foreign relations, it seems to me China has targeted the Anglo-Saxon world except for the U.K. and New Zealand who they are holding back on doing any drastic on them. The other three, it is going lower the relationship, seems like China has no intention of turning it around. It is best described by the Chinese diplomat to Sweden, Gui Congyou, “We treat our friends with fine wine, but we have shotguns for our enemies.” The anglo world is weak right now, it is right to go after them.
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China is doing a lot of basic research. Sterotypes from the 1970's, 1980's & 1990's, do not cut it anymore.

An old article from last year.
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Weaasel

Senior Member
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With the recent US-China tech war and sanctions on Chinese companies such as Huawei, vertical integration is now all the rage in China. Everyone is talking about how "China must develop X technology and Y technology" that is further up the supply chain. I have also participated in these discussions as well. Huawei comes under criticism for not anticipating problems earlier and relying so much on US tech.

However, there is something missing from all this. Its absurdity can be seen in the case of Huawei. Its specializations and advantages are 5G and handset design. It only makes sense to do what it does best: Just as, a bus driver should drive the bus, because that is what he is good at. He should not build the bus, nor engineer the bus, nor sell the bus. If you ask the bus driver to build the bus he will naturally waste a lot of time because that is not what he is good at. Sure, after a very amount of great effort, you might be able to teach some bus drivers to make buses, but the end product will still be inferior to what some other company that specializes in making buses from the start can do.

In reality, asking bus drivers to learn to make buses is just an exercise in wasteful duplication. It is a matter of spending a great deal of effort to figure out how to do what someone else has already learned to do better.

In the case of Huawei, it would have not only had to be Huawei, but to be TSMC, ASML, KLA-Tencor, Applied Materials, Tokyo Electron, Lam Labs, Synopsys, Cadence, and not only those companies but their suppliers such as Carl Zeiss, Cymer, 3M, DuPont, Corning, and also Google (with its Play Store) and god knows what else. It is ridiculous to expect one company to do all that, to become an entire industry. It is impossible. Therefore no, Huawei did not make a mistake in not integrating vertically years ago.

That is why the trend away from vertical integration has been the norm in the business world for decades. Vertical integration tends to promote closed, proprietary systems that stifle innovation. A misguided reliance on vertical integration is a big part of the decline of Japan, Inc.

Therefore, the entire effort to make China vertically integrated economy also makes no sense from a purely business perspective. China is about to invest billions, and perhaps even trillions in the long term, investing in trying to duplicate a bunch of technologies that other people have already learned to do better. This is called waste.

The trend, as Xi Jinping has said, is towards globalization and integration in the world economy. That means that Country X can do A,B,C,D, and E whereas Country Y can do F,G, and the two countries together can trade to integrate A,B,C,D,E,F,G together to create a final product. China is a big country so it will be the best at many things, but inevitably it cannot be the best at everything. No country in the world is the best at everything, not even the US.

Thus why is China in a rush to vertically integrate?

Purely for politics, no other reason. It is solely because the US has put Chinese companies on the entity list for political reasons. It is not because Huawei or any Chinese private companies did the wrong thing or made a mistake by not vertically integrating. It is because the relation between the US and China broke down.

Now the question is, why did it break down? Was it for a justified reason? It can simply be put to the following factors: A) China's refusal to liberalize, B) China's Senkaku dispute, C) China's SCS dispute, D) China's Hong Kong dispute, E) China's Xinjiang dispute, F) China's India border dispute. Every single one of these solely involves the oppression of Chinese people, or China's oppression of its smaller Asian nations. Not a single one of them is necessary or justified. That is my opinion.

In short, the trend towards integration in the global economy will continue, but China is being cut out of it. It is going to waste billions of dollars on vertical integration (a.k.a. duplication) while the rest of the world moves on. This will be damaging to China and for no good reason at all. Unfortunately, this is the reality we have to live with today.

One company does not have to do it, but a country such as China MUST HAVE THE CAPABILITY of producing anything that is worth producing well. And when it comes to semiconductor and semiconductor related industries, China must be an active producer.

Pure free market economic rationality is not the purpose of doing so, and the theory of comparative advantage does not make sense when one is faced with such things as a present or any future embargo, or when an underdeveloped country - China is past that stage - is trying to move from agrarianism and mineral resource extraction into comprehensive industrialization. One can never know how foreign entities for which one is reliant for important supplies will act in the future, as such one has to have CAPABILITY of producing goods domestically to replace what is lost from such a supplier with urgency.

Huawei doesn't have to do everything, but China should if it does not have it already, it's own TSMC, ASML, KLA-Tencor, Applied Materials, Tokyo Electron, Lam Labs, Synopsys, Cadence etc. China must have its own Carl Zeiss, Cymer, 3M, DuPont, Corning, and also Google. Obviously, China already has companies such as SMIC, SMEE, AMEC, Naura, Changxin, and Yangzte Memory that make products similar to those foreign ones listed, but where it is lacking in quality, China has to ramp up its efforts to match, surpass, or at least come very close to them in quality.
 

Weaasel

Senior Member
Registered Member
But dude ...

That is exactly what we are talking about.

If China is restricted from US tech, the only solution is to vertically integrate everything.

For example, Huawei - their primary business used to be network equipment. But they expanded into cell phones, and data center servers, along with maybe washing machines like Samsung?

The point is this, I guess there are various points, it is the 5G network that will allow the Internet of Things to make life more automated.

The cell phone is the remote control. It connects to the 5G network. They will track user data on a server. Then that connects to the IoT which could be your washing machine.

See the vertical integration there? Huawei builds it all. That is the vertical integration.

The US politicians want to stop this. This is like trying to stop the future. It will not work. Best they could hope for is to delay that, but does not seem that is possible either.

Huawei building out the 5G network in Shenzhen is proof. That is the world's first stand alone 5G network. I read America has it too with one of their telecom companies, but that sounds like a misleading ad, lol.

:)

They cannot stop it from happening in China, even though they might be capable of stopping it from happening in the rest of the world.

One does not need 7nm or finer chips made using EUV machines for 5G Base Stations and one does not need 7nm or finer chips made using EUV chips for smartphones and will be used to to access the 5G base stations. China possess the indigenous capability to produce the types of chips necessary for that.
 
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