The U.S. wanted to knock down Huawei. It's only getting stronger

> The whole idea of the Sullivan Principle is to force Chinese players to spend more and more money but remaining the same distance apart (2 gen) [3]. The idea is Chinese players keep burning money building capacity, yet lagging behind relatively speaking, and that money could have been used for better applications by China.

This sounds like a perspective from a finance/law person who doesn't understand how engineering works. Technological and engineering expertise ultimately come from human capital. That human capital is built through learning and practicing. Money plays a role, yes, but it's not everything, and is sort of an abstraction.

On the one hand, China "wastes" money by having to build everything themselves. On the other hand, importing foreign technology has always been the cheap way out (that many Chinese company voluntarily signed up for, until they no longer could). You don't own the technology in the sense that you don't (need to) truly understand it. This is different if you have to build everything yourself: you own it and understand every little part of it. This "waste" results in a ton of spillover effect: it builds a huge domestic supply chain and human capital basis that's not at the mercy of foreign IP demands. You can see this spillover effect in the renewable energy and EV market, for example. They spent decades learning how to build batteries, solar panels, electric engines, etc. and now the whole is bigger than the sum of the parts: expertise in building solar panels has positive spillover effects on the semiconductor industry because some of the technology is shared; expertise in building batteries is synergetic with expertise in building electric engines; etc.

This is one reason why for example India has more trouble with developing than China. Often times, India imports foreign technology but stops there, being mere users of said technology. China imports foreign technology, but considers it merely as a first step towards learning the underlying technology. They will try to modify or rebuild some part of it, learn from the successes and failures, and iterate until they've modified/replaced everything and understand the whole machine. And from there they would try to improve it. Some call this "stealing technology". Okay. But don't forget that the Europeans during the Renaissance had this philosophy that in order to become excellent, you first have to copy the classics (Romans), then create something equally valuable to the classics, then surpass the classics. This is China doing the same, but I understand it if people don't like it.

China had been trying for decades to incentivize its own semiconductor companies to develop, but failed to do because all the Chinese semiconductor companies chose the cheap way out, and imported foreign technology, instead of buying from domestic tool makers. As a result, domestic tool makers lacked practice, which is why they didn't develop in quality very quickly. This created a chicken and egg problem that was hard to get out. Until the sanctions did what the Chinese government failed to do. Yes, they hurt in the short term. But they provided an important opportunity in the long term.

All of this is "wasteful" from a globalist, financial perspective. But it's absolutely godsent from the perspective of China being a developing country that 1) still needs to lift up a lot of people, not only out of monetary poverty, but also out of educational and skill poverty, and 2) wants to improve their sovereignty, in the sense of becoming more resilient to foreign sanctions and being able to walk their own path without interference from others.

Truly, money is not everything. The real economy is not all about money. GDP is but a proxy for real value.

What countries are included in "Americas"? I speculate the Southern Hemisphere is the biggest driver in that category and is one of the places China is most actively engaging. Africa is another region, but lumped together with Europe. The chart, as is, doesn't have sufficient detail to parse out the effects of sanctions from the regions participating vs not.

I wonder if that is the point of the chart's design... WSJ?

> China prevented sanctions from killing Huawei by subsidizing them. But often those kinds of subsidies make companies weaker and less competitive in the long run. There are plenty of examples of that in the US.

Such as?

> But it's absolutely godsent from the perspective of China being a developing country that 1) still needs to lift up a lot of people, not only out of monetary poverty, but also out of educational and skill poverty

Chip Design and Manufacturing only generates so many jobs.

These are highly specialized and automated industries that don't employ that many people.

A subset of the younger generation of Chinese absolutely can upskill into this, yet what about the rest of the workforce who wasn't born before the 2000s or didn't studying EECS in university?

And the rural-urban divide still remains as Chinese govt stats show.

> You can see this spillover effect in the renewable energy and EV market, for example. They spent decades learning how to build batteries, solar panels, electric engines, etc. and now the whole is bigger than the sum of the parts: expertise in building solar panels has positive spillover effects on the semiconductor industry because some of the technology is shared; expertise in building batteries is synergetic with expertise in building electric engines; etc

Absolutely! And that's why most trade parters have begun either revoking MFN status and/or adding export controls.

What's the point of building all this if several large markets increasingly close off access or require Chinese players to build JVs with local players? That excess capacity is increasingly difficult to export.

> Truly, money is not everything. The real economy is not all about money. GDP is but a proxy for real value

Agreed, yet the median Chinese person remains poor by global standards (median household income is 33k yuan/yr as Stats CN has announced).

What do you do with the vast majority of the workforce who does not have the skills to work in high skilled manufacturing or services jobs?

It's not like the social safety net has been expanded significantly anyhow.

Which is the whole point of this arms race from the American PoV - forcing relative stagnation/isolation unless you return to the negotiating table [0]

Already Xi's economic advisor Zhou Qiren (invited to the Third Plenum) has been advocating this for years now [1] because the current system is bordering on State Capitalism leading to inefficiencies and unnecessary domestic competition.

Edit: cannot reply so replying here

> It seems to me if Huawei ban had any deterimental effect on China's GDP per capita then it would be more like a rounding error.

Yet the tens of billions of dollars spent propping up Huawei and similar firms could have been spent shoring up domestic consumption so that it could subsidize these champions.

Instead it's basically being burnt as this leads to overproduction, as household incomes and consumption show. If you keep spending such exorbitant amounts on production but not on consumption, you end up with overcapacity - which itself is damaging long term as this makes maintaince significantly more expensive, as well as undercuts the domestic market by making an entire industry dependent on government dole.

[0] - https://www.tandfonline.com/doi/pdf/10.1080/0163660X.2018.15...

[1] - https://link.springer.com/book/10.1007/978-981-15-9885-2

Yet the median Chinese household cannot afford those EVs, because median household income has stagnated at around 33k Yuan/$4.5k for years now.

If you're overproducing yet there is limited ability for domestic consumers to put these products, this means you are dependent on foreign trade partners.

Yet even these trade partners are forcing Chinese players to manufacture in those markets or face high tariffs and revocation of MFN guaruntees.