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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

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

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.