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> Not exactly. The problem you are describing is fundamentally different from that in the US. The problem in the US is that in many cases the money is literal

> Not exactly. The problem you are describing is fundamentally different from that in the US. The problem in the US is that in many cases the money is literally just pocketed and returned to shareholders. The problem with funding of groups who are likely to fail due to connections is significant of course, but at least even in that failure mode money is spent on R&D and infrastructure, which at least has a chance of some success and even in failure will develop talent. Tsinghua Unigroup is a good example. Yes it failed and defaulted, but from it's failure there is YMTC which is a huge strategic success and UNISOC which is a moderate success. The issue you're describing is also present in the US, by the way, with local governments using tax rebates or direct incentives to lure corporations, and lobbying for subsidies to unsuccessful businesses due their locality/connections.

alephnerd 2y ago
> with local governments using tax rebates or direct incentives to lure corporations But local governments do not have a controlling stake and actual CapEx investments in those ventures in the US. If Tsinghua Unigroup goes belly-up again or can't meet it's targets as part of the reorg, the Anhui Province is on the hook, as they have the controlling stake in it after the cleanup. This is a risk that a lot of people on HN seem to ignore (I think because of the complexity of the Chinese federal system). In most cases, it's provinces that are on the hook for these ventures, and if they fail, it's a significant chunk of cash that is lost. Unlike the Central Government, Local and Provincial Governments have weak financials because they traditionally couldn't raise bonds in the financial sector directly plus they have the added welfare and pension liabilities as part of the Deng-era financial reforms where welfare and pensions were devolved to Provincial and Local Governments. > but from it's failure there is YMTC Rewrite of history. YMTC was always a success as a BU, and that's why it was split off from Tsinghua Unigroup because the overall structure of Tsinghua Unigroup was inherently unstable and put Hubei's CapEx at risk as they gave the capital to Tsinghua Unigroup to create YMTC.
- sudosysgen 2y ago
  > But local governments do not have a controlling stake and actual CapEx investments in those ventures in the US. The impact is not very different as they grant billions in subsidies which they hope to recoup in tax revenues later. I don't see how this provides incentives that are significantly different except that there is no ownership, which is objectively a worse deal for the local government. > If Tsinghua Unigroup goes belly-up again or can't meet it's targets as part of the reorg, the Anhui Province is on the hook, as they have the controlling stake in it after the cleanup. Anhui Province will lose at most the ~5 billion it put into buying a stake of Unigroup. It will not be on hook for outstanding debts as far as I can tell, so I don't understand how this arrangement is any worse for Anhui than giving 5 billion in subsidies and tax credits as a US state would - for example Ohio provided an additional 2 billion in funding for the TSMC fab, NY around 10 billion, etc... > Rewrite of history. YMTC was always a success as a BU, and that's why it was split off from Tsinghua Unigroup because the overall structure of Tsinghua Unigroup was inherently unstable and put Hubei's CapEx at risk as they gave the capital to Tsinghua Unigroup to create YMTC. This doesn't change my point that the investment into Unigroup directly led to YMTC which is a massive success. I'm not saying that Unigroup is responsible for YMTC's success, I'm saying that investments into Unigroup - in this case including Hubei's investment - had good outcomes even if Unigroup as an entity failed.
  - alephnerd 2y ago
    > The impact is not very different as they grant billions in subsidies which they hope to recoup in tax revenues later Yes, but it's not a CapEx investment (as in upfront capital taken out of a treasury and invested), and is subject to public notices so there at least is an auditable trail. And unlike China, municipalities and States in the US can directly raise capital via bonds. > so I don't understand how this arrangement is any worse for Anhui than giving 5 billion in subsidies and tax credits as a US state would Because that stake in one venture is 10% of Anhui Province's entire Revenue in 2022 - Anhui's total revenue was only $49B in 2022 but it's expenditures were $115B in 2022 [0]. And that's just one venture. A provincial government like Anhui has invested in dozens (if not hundreds) of large scale ventures such as the legacy automaker JAC Group and Volkswagen China. While these amounts might not necessarily at the same amount as SMIC (excluding JAC Group and Volkswagen China), they are still fairly significant. And Anhui is a middle of the pack government in China - all provinces (as well as the local governments within provinces) themselves have actual CapEx on the line in ventures. This is a significant risk, as local and provincial governments also have a duty and requirement to provide public services, and ventures not doing well can have an impact on the financial health of provincial and local governments, yet they still have the developmental indicators of Ecuador or Cuba. Spend those billions actually alleviating the urban-rural gap instead of acting as a wealth creation mechanism for much richer Beijing, Tianjin, and Shanghai, where most of Tsinghua Unigroup's CapEx is spent. > This doesn't change my point that the investment into Unigroup directly led to YMTC which is a massive success It does though. Even though YMTC was under the Tsinghua Unigroup umbrella, it's primary capital came from a separate government and remained autonomous of Tsinghua Unigroup, and Unigroup's larger failures impacted actual deliveries and roadmap items for YMTC [1] [0] - https://data.stats.gov.cn/english/easyquery.htm?cn=E0103 https://data.stats.gov.cn/english/easyquery.htm?cn=E0103 [1] - https://asia.nikkei.com/Business/China-tech/China-s-Tsinghua-Unigroup-axes-major-memory-chip-projects https://asia.nikkei.com/Business/China-tech/China-s-Tsinghua...

alephnerd 2y ago

> with local governments using tax rebates or direct incentives to lure corporations But local governments do not have a controlling stake and actual CapEx investments in those ventures in the US. If Tsinghua Unigroup goes belly-up again or can't meet it's targets as part of the reorg, the Anhui Province is on the hook, as they have the controlling stake in it after the cleanup. This is a risk that a lot of people on HN seem to ignore (I think because of the complexity of the Chinese federal system). In most cases, it's provinces that are on the hook for these ventures, and if they fail, it's a significant chunk of cash that is lost. Unlike the Central Government, Local and Provincial Governments have weak financials because they traditionally couldn't raise bonds in the financial sector directly plus they have the added welfare and pension liabilities as part of the Deng-era financial reforms where welfare and pensions were devolved to Provincial and Local Governments. > but from it's failure there is YMTC Rewrite of history. YMTC was always a success as a BU, and that's why it was split off from Tsinghua Unigroup because the overall structure of Tsinghua Unigroup was inherently unstable and put Hubei's CapEx at risk as they gave the capital to Tsinghua Unigroup to create YMTC.

sudosysgen 2y ago
> But local governments do not have a controlling stake and actual CapEx investments in those ventures in the US. The impact is not very different as they grant billions in subsidies which they hope to recoup in tax revenues later. I don't see how this provides incentives that are significantly different except that there is no ownership, which is objectively a worse deal for the local government. > If Tsinghua Unigroup goes belly-up again or can't meet it's targets as part of the reorg, the Anhui Province is on the hook, as they have the controlling stake in it after the cleanup. Anhui Province will lose at most the ~5 billion it put into buying a stake of Unigroup. It will not be on hook for outstanding debts as far as I can tell, so I don't understand how this arrangement is any worse for Anhui than giving 5 billion in subsidies and tax credits as a US state would - for example Ohio provided an additional 2 billion in funding for the TSMC fab, NY around 10 billion, etc... > Rewrite of history. YMTC was always a success as a BU, and that's why it was split off from Tsinghua Unigroup because the overall structure of Tsinghua Unigroup was inherently unstable and put Hubei's CapEx at risk as they gave the capital to Tsinghua Unigroup to create YMTC. This doesn't change my point that the investment into Unigroup directly led to YMTC which is a massive success. I'm not saying that Unigroup is responsible for YMTC's success, I'm saying that investments into Unigroup - in this case including Hubei's investment - had good outcomes even if Unigroup as an entity failed.
- alephnerd 2y ago
  > The impact is not very different as they grant billions in subsidies which they hope to recoup in tax revenues later Yes, but it's not a CapEx investment (as in upfront capital taken out of a treasury and invested), and is subject to public notices so there at least is an auditable trail. And unlike China, municipalities and States in the US can directly raise capital via bonds. > so I don't understand how this arrangement is any worse for Anhui than giving 5 billion in subsidies and tax credits as a US state would Because that stake in one venture is 10% of Anhui Province's entire Revenue in 2022 - Anhui's total revenue was only $49B in 2022 but it's expenditures were $115B in 2022 [0]. And that's just one venture. A provincial government like Anhui has invested in dozens (if not hundreds) of large scale ventures such as the legacy automaker JAC Group and Volkswagen China. While these amounts might not necessarily at the same amount as SMIC (excluding JAC Group and Volkswagen China), they are still fairly significant. And Anhui is a middle of the pack government in China - all provinces (as well as the local governments within provinces) themselves have actual CapEx on the line in ventures. This is a significant risk, as local and provincial governments also have a duty and requirement to provide public services, and ventures not doing well can have an impact on the financial health of provincial and local governments, yet they still have the developmental indicators of Ecuador or Cuba. Spend those billions actually alleviating the urban-rural gap instead of acting as a wealth creation mechanism for much richer Beijing, Tianjin, and Shanghai, where most of Tsinghua Unigroup's CapEx is spent. > This doesn't change my point that the investment into Unigroup directly led to YMTC which is a massive success It does though. Even though YMTC was under the Tsinghua Unigroup umbrella, it's primary capital came from a separate government and remained autonomous of Tsinghua Unigroup, and Unigroup's larger failures impacted actual deliveries and roadmap items for YMTC [1] [0] - https://data.stats.gov.cn/english/easyquery.htm?cn=E0103 https://data.stats.gov.cn/english/easyquery.htm?cn=E0103 [1] - https://asia.nikkei.com/Business/China-tech/China-s-Tsinghua-Unigroup-axes-major-memory-chip-projects https://asia.nikkei.com/Business/China-tech/China-s-Tsinghua...