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It is right. US public companies are judged by the efficiency and timeframe of their returns on capital, which means that big long-term projects have to be car

It is right. US public companies are judged by the efficiency and timeframe of their returns on capital, which means that big long-term projects have to be carefully planned and justified. That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... Additionally, Chinese companies operate in an environment where it's OK to steal foreign IP as long as the Chinese government approves of your business activity. So it's not just capital that the government uses to fertilize growth in its corporate nursery.

vkou 6y ago
> That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... China urbanized 550 million people in the last 30 years. They aren't building cities and highways to stand empty. They are building them in advance of demand. Sometimes the demand arrives a few months, or a few years after the infrastructure is in place. [1] All those ghost cities you read about last decade? Most of them are now brimming with people. In contrast, here in the US, we don't build housing until a decade after we need it (and when we do, the supply is anemic), so we have a crippling housing shortage in all major metro areas, which leads to sky-high rents. And through all that, we still have the occasional real estate bubble exploding, in a way that takes the entire world's economy down with it. [1] https://en.wikipedia.org/wiki/Under-occupied_developments_in_China#Criticism https://en.wikipedia.org/wiki/Under-occupied_developments_in...
- totalZero 6y ago
  No corporation would finish construction of a factory ten years prior to the existence of demand. Companies like to lay out capex as close to income generation as possible. That comes from a shareholder-driven pressure for operational efficiency. It looks bad if Samsung (for example) spends $30B on a fab for which there is little demand. Fab utilization needs to be as close to 100% as possible; even at high utilization, the company doesn't break even on the fab for several years. Even if you assume 100% utilization, a fab may take a decade or more (from the time ground is broken on the facility) to break even on the investment. In contrast, governments can leg out risk on big capital-intensive projects. Read the citations in the wikipedia article you referenced (avoid the blog post and the China-based publication) and you will see what I am talking about. A government's ability to build infrastructure without knowing whether there will be demand upon completion is how we end up with projects like HZMB that don't serve an existing commercial or private purpose.
  - vkou 6y ago
    The thing is, in China, government can create that demand, by moving government jobs to that city (thus bootstrapping the employment market as a primary employer), or having a state-owned enterprise open a branch office there (again, bootstrapping the employment market.) Once there's a reason for people to live there, other services and businesses organically move in, to serve those people's market needs. It's not just a matter of risk tolerance - it's also the ability to coordinate between employers and landlords, to optimize city planning.
    - totalZero 6y ago
      That's a good argument for a different conversation. No sarcasm. It's a fair point but it takes a bit of a detour from the topic of semiconductors. My point vis a vis semiconductors is that firms don't leap before they look. Governments can and do. You say they do it because they can guarantee demand. I say they can do it because they are more patient and risk tolerant. Either way, the logical conclusion is the same: Firms can't lay out capex the way that governments can. Firms are held accountable for ROI, their shareholders have little patience for delayed gratification, and their ability to spend is very small relative to that of governments.

vkou 6y ago

> That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers... China urbanized 550 million people in the last 30 years. They aren't building cities and highways to stand empty. They are building them in advance of demand. Sometimes the demand arrives a few months, or a few years after the infrastructure is in place. [1] All those ghost cities you read about last decade? Most of them are now brimming with people. In contrast, here in the US, we don't build housing until a decade after we need it (and when we do, the supply is anemic), so we have a crippling housing shortage in all major metro areas, which leads to sky-high rents. And through all that, we still have the occasional real estate bubble exploding, in a way that takes the entire world's economy down with it. [1] https://en.wikipedia.org/wiki/Under-occupied_developments_in_China#Criticism https://en.wikipedia.org/wiki/Under-occupied_developments_in...

totalZero 6y ago
No corporation would finish construction of a factory ten years prior to the existence of demand. Companies like to lay out capex as close to income generation as possible. That comes from a shareholder-driven pressure for operational efficiency. It looks bad if Samsung (for example) spends $30B on a fab for which there is little demand. Fab utilization needs to be as close to 100% as possible; even at high utilization, the company doesn't break even on the fab for several years. Even if you assume 100% utilization, a fab may take a decade or more (from the time ground is broken on the facility) to break even on the investment. In contrast, governments can leg out risk on big capital-intensive projects. Read the citations in the wikipedia article you referenced (avoid the blog post and the China-based publication) and you will see what I am talking about. A government's ability to build infrastructure without knowing whether there will be demand upon completion is how we end up with projects like HZMB that don't serve an existing commercial or private purpose.
- vkou 6y ago
  The thing is, in China, government can create that demand, by moving government jobs to that city (thus bootstrapping the employment market as a primary employer), or having a state-owned enterprise open a branch office there (again, bootstrapping the employment market.) Once there's a reason for people to live there, other services and businesses organically move in, to serve those people's market needs. It's not just a matter of risk tolerance - it's also the ability to coordinate between employers and landlords, to optimize city planning.
  - totalZero 6y ago
    That's a good argument for a different conversation. No sarcasm. It's a fair point but it takes a bit of a detour from the topic of semiconductors. My point vis a vis semiconductors is that firms don't leap before they look. Governments can and do. You say they do it because they can guarantee demand. I say they can do it because they are more patient and risk tolerant. Either way, the logical conclusion is the same: Firms can't lay out capex the way that governments can. Firms are held accountable for ROI, their shareholders have little patience for delayed gratification, and their ability to spend is very small relative to that of governments.