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The games played with currency and private debt that fueled the massive export boom are not sustainable indefinitely. There are already signs it may be tipping,

The games played with currency and private debt that fueled the massive export boom are not sustainable indefinitely. There are already signs it may be tipping, and the world raising interest rates to combat inflation will worsen the situation. Combine that with their exports to the US falling due to sanctions and a new interest in US manufacturing. And as their population and the population of their other trading partners all shrink... They are still growing, they are still getting stronger, but for how long? Meanwhile 70% of Taiwanese residents now identify as Taiwanese rather than Chinese? If they wait for that percentage to climb, and for TSMC to diversify fabs to other places? The cost to take Taiwan is going up, and the prize for taking it is falling with no reason to expect inflections in either. If they don't take it now, there is really no point taking it at all. Rationally speaking, there probably already isn't any point in taking it. It would tank exports and speed the adoption of local manufacturing elsewhere. All to get a temporary stranglehold on chip supply? What would they do with those chips? They are already far too export dominated. They need consumers to reduce their exports. If they want to win the long game, let their 1% give half their wealth to educating knowledge workers to buy their manufacturing rather than exporting it.

kragen 4y ago
I agree with many of these points. The future is unpredictable, whoever is on top today will not be on top forever, and the idea of being governed by the PRC is very unpopular in Taiwan. And nothing you have said supports our more ignorant interlocutor's point that Xi's policies have "killed China's economy". Still, other points I disagree with. PRC's exports to the US are not falling; they fell in 02019 due to sanctions and in 02020 due to covid, but they're already back above their 02018 level, which was the highest in history. See https://www.census.gov/foreign-trade/balance/c5700.html https://www.census.gov/foreign-trade/balance/c5700.html. They probably will not fall within the next decade or two. If US manufacturing becomes stronger, that will increase PRC exports to the US, not decrease them. (If the US doesn't have anything to trade for Chinese products, it will not get them, which may cause them to be sold to different customers or may cause their production to be reduced.) I think increased interest rates abroad would tend to increase PRC's exports, not decrease them. As far as I know, PRC isn't borrowing money from abroad to finance expansion of production capacity; it's lending money abroad to finance consumption of its exports. PRC's population is not shrinking, though it's barely growing and may start shrinking soon. Most of their trading partners have growing populations. TSMC cannot be taken, even today; it can only be destroyed. Today, doing that would be counterproductive to PRC because so much of their domestic industry depends on TSMC, but the US has forced TSMC to impose sanctions on PRC's military. This is an existential threat to the PRC. If the sanctions continue, or are removed but could plausibly be reimposed, and TSMC remains strategically important, at some point PRC leadership will act to remove the military advantage this gives the US and its satellites over them, even if that means paving Taiwan with Trinitite. The alternative is to be unable to respond to military attacks from the US. Reducing exports only improves your economy if the exports are stolen, for example in the Congo Free State or the Irish Potato Famine. Weaker forms of this are known as "Dutch disease" or "the resource curse". This is very much not the case in PRC. Historically, export-led industrialization has been by far the most important cause of economic growth. By contrast, your prescription of import-substitution industrialization has failed everywhere it was tried, including, for decades, in PRC. Increased exports leads to increased specialization and increased capitalization, which increase productivity. Unless, again, we're talking about enslaved laborers who are not in a position to capture any value from their increased productivity, this increased productivity leads to increased earnings, which increases domestic consumption. This has been known for centuries and is agreed on by virtually all economists. Your implications that Chinese people do not value education, and that lack of education causes low consumption in China, could hardly be more false. Chinese culture has prized education highly for thousands of years. It's one of the key distinguishing features of Chinese culture. Expensive private tutoring companies were a hot startup sector until the government crackdown.
- cromwellian 4y ago
  > Expensive private tutoring companies were a hot startup sector until the government crackdown. This is almost entirely due to the Gaokao. Also, there's a difference between prizing education as a means to make money, and prizing education as a means to make a well-rounded person. The concept of a 'liberal arts' education in China barely exists, from the standpoint that education isn't about vocational skills to enrich yourself monetarily, but to enrich oneself as a person. Fundamentally, I don't think an authoritarian state that constricts intellectual, academic, and political freedom, combined with an educational system that acts largely as a vocational gatekeeper, is conducive to the free questioning that is at the heart of innovation. Western education tends to teach rebellion. Rebellion against your parents, against the government, against the status quo. The way you get a Steve Jobs or an Elon Musk is to have someone, who is told no over and over again, "you can't do this", to say "f*ck it, I'm doing it anyway, no matter how stupid or impossible you say it is." It's this rebellion that's at the heart of innovation. And I don't think Confucian or CCP values rebellion very much.
  - kragen 4y ago
    galangalalgol's assertion, as I read it, was that China was domestically consuming only 81% of its production because the populace was insufficiently educated because not enough money was being spent on education, and maybe that the cause of this was economic inequality. Are you supporting that assertion, or are you making an unrelated point about educational models? Because the connection isn't clear to me. To the question of vocational training vs. liberal arts education, I think you're exaggerating subtle differences in cultural attitudes toward education that really do exist. Schools in China have compulsory classes in physics, chemistry, biology, geography, and history, among other things — vocational training for a few percent of the population, but liberal arts for the rest. The most respected form of education is still calligraphy. And, despite paying lip service to free questioning and rebellion, Western schooling consists almost entirely of intensive training in obedience and conformism: https://www.cantrip.org/gatto.html https://www.cantrip.org/gatto.html Steve Jobs wasn't the product of the Western education system; he was the product of LSD, his machinist father, a neighborhood full of engineers, working at Hewlett Packard at 13, Hare Krishna prasad, Zen Buddhism, a pilgrimage to India, Transcendental Meditation, and Primal Scream Therapy, but especially LSD. Elon Musk isn't the product of the Western education system; he's the product of his emerald-tycoon engineer father, his supermodel mother who spent her childhood seeking the Lost City of the Kalahari, and his Commodore VIC-20. Maybe if they'd been schooled in China they would have had the independence conditioned out of them, I suppose. But I think that's more a matter of the surrounding society than the school system.
hunglee2 4y ago
I think people overrate TSMC are the primary motivator for the PRC, who have basically maintained the same posture toward the 'renegade province' since 1949. This is unfinished business from a civil war which never officially ended.
- kragen 4y ago
  I agree, but I think TSMC has also assumed a geopolitical importance it didn't have previously.
  - hunglee2 4y ago
    for sure, but most opinion from the west inflates TSMC as primary motivator, its a complicating factor yes, but the PRC has been on about taking Taiwan for the past 70 years, before semi-conductors were even invented. look at the top voted comment in this thread - the narrative is some sort of escalation from Xi Jinping when unification with Taiwan is boilerplate rhetoric which every leader since Deng says at Party Congress. PRC position has not changed - commitment to unification by peaceful means, but war never off the table.
    - kragen 4y ago
      Agreed! I think there was maybe some real escalation around the time of Pelosi's visit (where Morris Chang was in attendance in her photo-op with Tsai), though, and it's hard not to see the moves in HK as threatening.
      - hunglee2 4y ago
        Chang is the leader Taiwan really needs, unfortunately he is unable to moderate Tsai. TSMC will eventually be a loser in the story that is currently being written
        kragen 4y ago
        Yeah, I can't imagine he was happy with TSMC having to cancel all its sales to Huawei. But that wasn't really Tsai's fault; nobody is able to moderate the US, and the sanctions weren't a Taiwanese policy. I was thinking reunification was really the only path to saving TSMC, but if Chang agreed, he probably would've declined the invitation to the photo op; and obviously he knows more than I do about the issues. Instead he says reunification would destroy TSMC because of how dependent it is on overseas suppliers.

kragen 4y ago

I agree with many of these points. The future is unpredictable, whoever is on top today will not be on top forever, and the idea of being governed by the PRC is very unpopular in Taiwan. And nothing you have said supports our more ignorant interlocutor's point that Xi's policies have "killed China's economy". Still, other points I disagree with. PRC's exports to the US are not falling; they fell in 02019 due to sanctions and in 02020 due to covid, but they're already back above their 02018 level, which was the highest in history. See https://www.census.gov/foreign-trade/balance/c5700.html https://www.census.gov/foreign-trade/balance/c5700.html. They probably will not fall within the next decade or two. If US manufacturing becomes stronger, that will increase PRC exports to the US, not decrease them. (If the US doesn't have anything to trade for Chinese products, it will not get them, which may cause them to be sold to different customers or may cause their production to be reduced.) I think increased interest rates abroad would tend to increase PRC's exports, not decrease them. As far as I know, PRC isn't borrowing money from abroad to finance expansion of production capacity; it's lending money abroad to finance consumption of its exports. PRC's population is not shrinking, though it's barely growing and may start shrinking soon. Most of their trading partners have growing populations. TSMC cannot be taken, even today; it can only be destroyed. Today, doing that would be counterproductive to PRC because so much of their domestic industry depends on TSMC, but the US has forced TSMC to impose sanctions on PRC's military. This is an existential threat to the PRC. If the sanctions continue, or are removed but could plausibly be reimposed, and TSMC remains strategically important, at some point PRC leadership will act to remove the military advantage this gives the US and its satellites over them, even if that means paving Taiwan with Trinitite. The alternative is to be unable to respond to military attacks from the US. Reducing exports only improves your economy if the exports are stolen, for example in the Congo Free State or the Irish Potato Famine. Weaker forms of this are known as "Dutch disease" or "the resource curse". This is very much not the case in PRC. Historically, export-led industrialization has been by far the most important cause of economic growth. By contrast, your prescription of import-substitution industrialization has failed everywhere it was tried, including, for decades, in PRC. Increased exports leads to increased specialization and increased capitalization, which increase productivity. Unless, again, we're talking about enslaved laborers who are not in a position to capture any value from their increased productivity, this increased productivity leads to increased earnings, which increases domestic consumption. This has been known for centuries and is agreed on by virtually all economists. Your implications that Chinese people do not value education, and that lack of education causes low consumption in China, could hardly be more false. Chinese culture has prized education highly for thousands of years. It's one of the key distinguishing features of Chinese culture. Expensive private tutoring companies were a hot startup sector until the government crackdown.

cromwellian 4y ago
> Expensive private tutoring companies were a hot startup sector until the government crackdown. This is almost entirely due to the Gaokao. Also, there's a difference between prizing education as a means to make money, and prizing education as a means to make a well-rounded person. The concept of a 'liberal arts' education in China barely exists, from the standpoint that education isn't about vocational skills to enrich yourself monetarily, but to enrich oneself as a person. Fundamentally, I don't think an authoritarian state that constricts intellectual, academic, and political freedom, combined with an educational system that acts largely as a vocational gatekeeper, is conducive to the free questioning that is at the heart of innovation. Western education tends to teach rebellion. Rebellion against your parents, against the government, against the status quo. The way you get a Steve Jobs or an Elon Musk is to have someone, who is told no over and over again, "you can't do this", to say "f*ck it, I'm doing it anyway, no matter how stupid or impossible you say it is." It's this rebellion that's at the heart of innovation. And I don't think Confucian or CCP values rebellion very much.
- kragen 4y ago
  galangalalgol's assertion, as I read it, was that China was domestically consuming only 81% of its production because the populace was insufficiently educated because not enough money was being spent on education, and maybe that the cause of this was economic inequality. Are you supporting that assertion, or are you making an unrelated point about educational models? Because the connection isn't clear to me. To the question of vocational training vs. liberal arts education, I think you're exaggerating subtle differences in cultural attitudes toward education that really do exist. Schools in China have compulsory classes in physics, chemistry, biology, geography, and history, among other things — vocational training for a few percent of the population, but liberal arts for the rest. The most respected form of education is still calligraphy. And, despite paying lip service to free questioning and rebellion, Western schooling consists almost entirely of intensive training in obedience and conformism: https://www.cantrip.org/gatto.html https://www.cantrip.org/gatto.html Steve Jobs wasn't the product of the Western education system; he was the product of LSD, his machinist father, a neighborhood full of engineers, working at Hewlett Packard at 13, Hare Krishna prasad, Zen Buddhism, a pilgrimage to India, Transcendental Meditation, and Primal Scream Therapy, but especially LSD. Elon Musk isn't the product of the Western education system; he's the product of his emerald-tycoon engineer father, his supermodel mother who spent her childhood seeking the Lost City of the Kalahari, and his Commodore VIC-20. Maybe if they'd been schooled in China they would have had the independence conditioned out of them, I suppose. But I think that's more a matter of the surrounding society than the school system.

hunglee2 4y ago

I think people overrate TSMC are the primary motivator for the PRC, who have basically maintained the same posture toward the 'renegade province' since 1949. This is unfinished business from a civil war which never officially ended.

kragen 4y ago
I agree, but I think TSMC has also assumed a geopolitical importance it didn't have previously.
- hunglee2 4y ago
  for sure, but most opinion from the west inflates TSMC as primary motivator, its a complicating factor yes, but the PRC has been on about taking Taiwan for the past 70 years, before semi-conductors were even invented. look at the top voted comment in this thread - the narrative is some sort of escalation from Xi Jinping when unification with Taiwan is boilerplate rhetoric which every leader since Deng says at Party Congress. PRC position has not changed - commitment to unification by peaceful means, but war never off the table.
  - kragen 4y ago
    Agreed! I think there was maybe some real escalation around the time of Pelosi's visit (where Morris Chang was in attendance in her photo-op with Tsai), though, and it's hard not to see the moves in HK as threatening.
    - hunglee2 4y ago
      Chang is the leader Taiwan really needs, unfortunately he is unable to moderate Tsai. TSMC will eventually be a loser in the story that is currently being written
      - kragen 4y ago
        Yeah, I can't imagine he was happy with TSMC having to cancel all its sales to Huawei. But that wasn't really Tsai's fault; nobody is able to moderate the US, and the sanctions weren't a Taiwanese policy. I was thinking reunification was really the only path to saving TSMC, but if Chang agreed, he probably would've declined the invitation to the photo op; and obviously he knows more than I do about the issues. Instead he says reunification would destroy TSMC because of how dependent it is on overseas suppliers.