In some parts of tech, China is ahead

I have been pushing this line for a while, now I am pleased to see coverage from The New York Times:

Industry leaders point to a number of areas where China jumped first. Before the online dating app Tinder, people in China used an app called Momo to flirt with nearby singles. Before the Amazon chief executive Jeff Bezos discussed using drones to deliver products, Chinese media reported that a local delivery company, S.F. Express, was experimenting with the idea. WeChat offered speedier in-app news articles long before Facebook, developed a walkie-talkie function before WhatsApp, and made major use of QR codes well before Snapchat.

Before Venmo became the app for millennials to transfer money in the United States, both young and old in China were investing, reimbursing each other, paying bills,and buying products from stores with smartphone-based digital wallets.

The Paul Mozur article is interesting throughout.

Comments

There is this mantra that when it comes to computing western contries do lucrative the clever bits while China does the low-margin dumb bits.

But in this story the "dumb bits" means manufacture and assembly of integrated circuts, RF boards etc, as well as complex integration of hardware and software.

The "clever" bits consists in drawing laying out web pages and writing fairly shoddy code in the latest hot JavaScript framework.

It's interesting that the part about lucrative vs. low margin still is true. But I wonder how sustainable that is.

+1

More than half true. Places like Intel are still world's best, but a lot of start-up tech is undergrad technology.

AR,

You are correct in observing that the actual level of Tech in Asia is much higher than Westerners (Americans) imagine... And not just in Japan.

"But in this story the “dumb bits” means manufacture and assembly of integrated circuts, RF boards etc, as well as complex integration of hardware and software."

I would have written this as

"But in this story the “dumb bits” means design, manufacture and assembly of integrated circuts, RF boards etc, as well as complex integration of hardware and software."

Tech is now defined at Marginal Revolution as trivial software?

Read the title of the post again, smart guy.

Tinder was not the first dating app, Tacocopter happened in 2011, "in-app news articles" didn't start at Facebook, WhatsApp did not invent an internet-based walkie talkie, snapchat didn't invent QR codes, and Venmo wasn't the first mobile payments app.

All these examples are absurd. Is Chinese aviation ahead of ours because Shanghai Airlines has been around longer than SpaceX?

A news article that says a company is experimenting with X is useless in America. It's even less valuable in China.

Separately, in a lot of cases innovation depends upon demand. If you have something that is "good enough" you won't see a lot of new entrants. Payment technology in the US has been "good enough" that the superior methods took a long time to gain the needed traction.

These examples are rather trivial advances in technology. I also liked China's Glass Bridge for tourists in a scenic part of China, aping the glass platform I think it development at the US Grand Canyon. China is not on an leading edge for anything. Sadly the USA and other countries are losing their edge due to their flawed patent system.

+1 on the misuse of the patent system by rent seeking entities. Interesting to think that Chinese competition could be a significant factor in forcing western companies to change their approach to the patent wars. Mind you, the Chinese do seem to be aggressively pursuing the development of gene editing, with reports of human trials starting soon. Some see significant potential for that to be a game changer for the Chinese, more so than mobile apps.

Ray thinks the patent problem is the opposite of what you think it is

I agree, these minor variations on what is possible with a social network & a smart phone no doubt have precursors going back many years. Normally in articles like this they talk about the m-pesa mobile phone payments system in Kenya, which does at least have the advantage of being a real new thing, though is not often used as some sign that innovation is moving to Kenya.

And yet no Pokemon Go!

https://www.foreignaffairs.com/articles/united-states/2016-04-13/once-and-future-superpower

"Before Venmo became the app for millennials to transfer money in the United States, both young and old in China were investing, reimbursing each other, paying bills,and buying products from stores with smartphone-based digital wallets."

As pointed out, these examples are all rather selective. PayPal has been around since 1998 although I am not sure when the first smartphone app came out.

I was going to call bullshit as well. Venmo was developed for feature flip phones back in the late 2000s, not for smartphones.)

I'm fairly certain Paypal developed an app as soon as smartphones hit the market, and I'm sure Venmo did as well.

This is just the tip of the iceberg of the emerging phase of globalization, a phase in which products are produced in China for China firms replacing the first phase of globalization in which products were produced in China (and elsewhere) for American firms. Of course, the irony is unmistakable: American firms, by collaborating with China to produce goods in China for American firms, jump-started China on the road to industrialization and now China will be competing with American firms for the same customers. Sure, American firms can shift production to other low cost countries, such as Vietnam, but the pattern will repeat, multiplying the number of foreign firms to compete for the same customers. Isn't that how trade is supposed to work? If so, why has Cowen become a skeptic of globalization?

I suspect the fear is that China will eventually dominate world trade (and, hence, the world), its model for industrialization and economic growth the new model to be copied not only by other developing countries but developed countries whose economies have stalled. So while ideologues in America obsess about cutting regulations and taxes and the public sector, China continues to invest massive amounts in productive capital and infrastructure and continues to experience an economic miracle of unparalleled economic growth. Of course, it's possible that China's model is doomed to failure, that it will all come crashing down. It's possible. It's also possible that it won't and Americans will be left behind as predicted by the recently departed Tim LaHaye.

r,

From below

China is (by far) the leader in the production of all sorts of practical goods (coal, steel, power, aluminum, nickel, copper, cobalt, concrete, textiles, etc.) and services (railroads) and infrastructure (dams). Countries looking to develop will use China as a model… China will gladly fill that role. Indeed, we should hope that China becomes a model for developing countries because the west has failed.

Francis Fukuyama has a good article on the subject “Exporting the Chinese Model” (Project Syndicate). Quotes (not in order)

“The US used to build massive dams and road networks back in the 1950s and 1960s, until such projects fell out of fashion. Today, the US has relatively little to offer developing countries in this regard. President Barack Obama’s Power Africa initiative is a good one, but it has been slow to get off the ground; efforts to build the Fort Liberté port in Haiti have been a fiasco.”

“China’s development model is different from the one currently fashionable in the West. It is based on massive state-led investments in infrastructure – roads, ports, electricity, railways, and airports – that facilitate industrial development. American economists abjure this build-it-and-they-will-come path, owing to concerns about corruption and self-dealing when the state is so heavily involved. In recent years, by contrast, US and European development strategy has focused on large investments in public health, women’s empowerment, support for global civil society, and anti-corruption measures.

Laudable as these Western goals are, no country has ever gotten rich by investing in them alone. Public health is an important background condition for sustained growth; but if a clinic lacks reliable electricity and clean water, or there are no good roads leading to it, it won’t do much good. China’s infrastructure-based strategy has worked remarkably well in China itself, and was an important component of the strategies pursued by other East Asian countries, from Japan to South Korea to Singapore.”

Women’s empowerment vs. dams? Exactly how “empowered” are women in countries without electric power?

A related point is that the USA wasn’t a technology leader (and didn’t try to be) until it had fully exploited the technology it could import. After that the U.S. made more of an effort to push the technology frontier. The right question isn’t whether China is a technology leader now, but whether it will be in 2050.

Replace "China" with "Japan" and "2016" with "1986." Of course, maybe this time is different. Ask me again in 30 years.

China today and Japan in the 1980s have little in common: China has a much larger land area and much more plentiful natural resources, a much larger population, and a government that is investing an enormous amount in productive capital and infrastructure. Granted, they are both Asian.

r,

"China today and Japan in the 1980s have little in common"

China and Japan have a lot in common. However, China has ten times as many people. If China reaches, Japan's level of development, China's GDP will be three times larger than the USA.

Given the population ratio of the U.S. vs. Japan, that was never going to happen. Given the population ratio of China vs. the U.S. it will happen.

"China today and Japan in the 1980s have little in common"

Sure. But the Japanese were much better educated, had a Democratic government, less corruption and were safely under the umbrella of US security.

So, I don't see how China is in much better shape today than Japan was in the 1960's (let alone the 1980's). It has some advantages, but also some disadvantages.

The biggest benefit that China currently has is that it's engaging in catch up growth. I would expect that China, much like every other country in the last 40 years, will have declining growth rates as it gets closer to first world income levels.

Nothing you've pointed out is very original. And the historical model is pretty consistent.

JW,

"Nothing you’ve pointed out is very original. And the historical model is pretty consistent."

Entirely true. The historical model predicts that China will end up with a GDP around 3X the U.S. Very few Americans seem to get that. Very few people outside of the U.S. seem to get it either.

"I would expect that China, much like every other country in the last 40 years, will have declining growth rates as it gets closer to first world income levels."

True as far as it applies to China. However, the "much like every other country" part is not true. Quite a few countries seem to be stuck in "middle-income" status (say 25-50% of first world income levels). Brazil is a standard example. Mexico is another.

Well, I had assumed that China would become more like South Korea, Taiwan or Japan. Assuming that to be the case, (that China doesn't get stuck), then one would expect it to decline to parity in income growth with the US at roughly 1/2 to 2/3rds of US income. (That's the range of the SK, T and J).

Which would imply that China (roughly 4X the US population) would have a GDP of about 2-3x the US GDP at that time.

"Entirely true. The historical model predicts that China will end up with a GDP around 3X the U.S. "

So, yes our figures match.

"True as far as it applies to China. However, the “much like every other country” part is not true. Quite a few countries seem to be stuck in “middle-income” status Quite a few countries seem to be stuck in “middle-income” status (say 25-50% of first world income levels). Brazil is a standard example. Mexico is another."

Yes, I agree that this is a big caveat. Will the Chinese Communist government leave it more like Mexico/Brazil (long term 3rd world) or will the Chinese Asian culture/race push it towards the South Asian 1st world model?

I have no idea and haven't read anything convincing either way.

JW,

From Fred

Taiwan Per-Capita PPP 2010 GDP as a percent of US (PGDPUSTWA621NUPN) - 69.35%
South Korea Per-Capita PPP 2010 GDP as a percent of US (PGDPUSKRA621NUPN) - 61.78%
Japan Per-Capita PPP 2010 GDP as a percent of US (PGDPUSJPA621NUPN) - 74.42%
Singapore Per-Capita PPP 2010 GDP as a percent of US (PGDPUSSGA621NUPN) - 128.02%
Hong Kong Per-Capita PPP 2010 GDP as a percent of US(PGDPUSHKA621NUPN) - 90.04%
China Per-Capita PPP 2010 GDP as a percent of US (PGDPU2CNA621NUPN) - 18.89%

"I have no idea and haven’t read anything convincing either way."

My guess is that (post-Mao), the PRC will do as well as any other "Chinese" state. One important caveat is that the major "rising powers" of the last 200 years (U.S., Japan, Germany) has had some "problems" along the way. In other words, the future path for China may well have some stumbling blocks.

Other "Chinese" states prospered under dictatorships (Taiwan and South Korea), but none them lasted for as much time as the CCP clearly intends to remain in control.

On things like the digital wallet, I wonder how much attention should be placed on the differences in each country of entrenched interests with heavy political influence. Would the digital wallet be more used in the U.S. right now had regulators not impeded its progress in favor of big banks? I think so.

Our political environment has become afraid of, and oppressive to, innovation.

Regulators have not impeded the progress of mobile wallets (to any material degree, of course selling drugs over Venmo does not count). In fact banks have made significant investments (many of them possibly foolish) into fintech and the worry is that regulation will catch up in the future. But it hasn't stopped digital payments/mobile wallets yet.

China's mobile ecosystem is definitely more competitive than the rest of the world, but revenues are behind Silicon Valley. Tencent, Ali and Baidu combined revenue is less than half of Google's.

I think the focus on mobile in China is partially due to "leapfrogging" from nothing to phones as opposed to from PCs to phones in the West as the author points out, but the Chinese language and it's implications that also play a role. Chinese people hate search bars, and the quick and easy default options of mobile apps capitalize on this preference.

Also I would not rush to call China more "advanced" in mobile banking. Linking your bank account to an online profile doing transfers is not hard, security is where all the value added happens and it's not clear that China has the lead there. In fact mobile banking may serve the government's intel wishes most of all, linking a real name and ID to a particular phone and a bevy of online user accounts.

DF,

"Chinese people hate search bars"

I have read that many popular Chinese web sites are actually numbers. Presumably, this is because of the difficulty of entering Kanji. As best I can tell, Kanji are quite easy to read (for a literate person), but hard to enter (for everyone).

Actually Kanji input, for both Chinese and Japanese, is pretty easy. The most common input method for both is typing in Pinyin, which is Chinese written in the Latin alphabet, and typing in Romaji, which is Japanese written in the Latin alphabet. The appropriate Kanji then shows up as the output.

So reading Kanji and typing Kanji on the computer are relatively easy. What's difficult is writing the Kanji.

Here's a previous MR post you may find interesting, if you hadn't read it already. It links to a longer article on methods for Chinese text input:
http://marginalrevolution.com/marginalrevolution/2016/05/how-does-china-use-the-qwerty-keyboard.html

What great stagnation?

http://gizmodo.com/china-actually-built-that-crazy-traffic-straddling-bus-1784724612

Even more terrifying in reality.

That bus is really cool and I love how quickly it just appeared, like it was a secret project. A secret project that involved making miles of tram line things. I'd love to see one in real life - must be a War of the Worlds type experience.

It's built on 300 meters of test track.

1. Tyler, has been absolutely correct about China taking the lead in some areas. And it's not just trivial stuff- on CRISPR Cas9, and the potential medical benefits of 3D printing- China has also at least pulled into a tie. A lot of the comments to the contrary here and other places are simply patriotic or ethnic denial.

2. That said, the US is still far ahead in most areas. The examples here are mostly stupid; Tinder is a different product than Momo, Facebook news interface is miles ahead of WeChat's, and China is still a place where you can't buy stuff at many vendors if you don't have the right change. WeChat is like ten apps roled into one in a pretty unique way, but it hasn't really brought anything unique to the table beyond this bundling. U.S. energy companies are miles ahead of China's state giants, and America is still way ahead in most medical and robotic technology.

3. A lot of the tech pioneers in China are U.S. educated. We should be bending over backwards to keep these people.

4. Tyler, I would love to see a post about how China's rise has made you question your priors. I read lots of libertarian dogma from folks less familiar with the PRC than you where my immediate response is "but, China."

"A lot of the comments to the contrary here and other places are simply patriotic or ethnic denial."

"2. That said, the US is still far ahead in most areas. The examples here are mostly stupid; "

Point 2 is what most of the other posters were saying.

"In some parts of tech, China is ahead"

No doubt. The importance of mobile apps is probably overrated. However, the significance of China's production technology isn't overrated at all. It is most certainly underrated.

China is (by far) the leader in the production of all sorts of practical goods (coal, steel, power, aluminum, nickel, copper, cobalt, concrete, textiles, etc.) and services (railroads) and infrastructure (dams). Countries looking to develop will use China as a model... China will gladly fill that role. Indeed, we should hope that China becomes a model for developing countries because the west has failed.

Francis Fukuyama has a good article on the subject "Exporting the Chinese Model" (Project Syndicate). Quotes (not in order)

"The US used to build massive dams and road networks back in the 1950s and 1960s, until such projects fell out of fashion. Today, the US has relatively little to offer developing countries in this regard. President Barack Obama’s Power Africa initiative is a good one, but it has been slow to get off the ground; efforts to build the Fort Liberté port in Haiti have been a fiasco."

"China’s development model is different from the one currently fashionable in the West. It is based on massive state-led investments in infrastructure – roads, ports, electricity, railways, and airports – that facilitate industrial development. American economists abjure this build-it-and-they-will-come path, owing to concerns about corruption and self-dealing when the state is so heavily involved. In recent years, by contrast, US and European development strategy has focused on large investments in public health, women’s empowerment, support for global civil society, and anti-corruption measures.

Laudable as these Western goals are, no country has ever gotten rich by investing in them alone. Public health is an important background condition for sustained growth; but if a clinic lacks reliable electricity and clean water, or there are no good roads leading to it, it won’t do much good. China’s infrastructure-based strategy has worked remarkably well in China itself, and was an important component of the strategies pursued by other East Asian countries, from Japan to South Korea to Singapore."

Women's empowerment vs. dams? Exactly how "empowered" are women in countries without electric power?

A related point is that the USA wasn't a technology leader (and didn't try to be) until it had fully exploited the technology it could import. After that the U.S. made more of an effort to push the technology frontier. The right question isn't whether China is a technology leader now, but whether it will be in 2050.

I think you didn't state the biggest reason that the US doesn't build many big projects anymore. It's the very high costs of environmental and regulatory hurdles.

There are trade offs both ways. Pollution in China is worse than pollution was in the US in the 1960's. Indeed, it maybe worse than pollution has ever been in the US.

I've seen a lot of criticism of the Libertarian model for it's potentially poor handling of pollution and yet the worst offenders have historically been the large authoritarian States.

JW,

"I think you didn’t state the biggest reason that the US doesn’t build many big projects anymore. It’s the very high costs of environmental and regulatory hurdles."

That's a complex issue and I partially agree. See my prior comments on the Tappan Zee bridge (the original and proposed replacement).

However, the issue at hand is development models for poor countries. When Francis Fukuyama wrote

"The US used to build massive dams and road networks back in the 1950s and 1960s, until such projects fell out of fashion"

He wasn't referring to projects in the U.S., but development projects outside of the U.S. A good example is the current Aswan Dam. Both the U.S. and the USSR proposed to build the Aswan High Dam. For political reasons, Egypt went with the Soviets.

Two big areas where China is cutting edge are rail transit and construction using large factory built modules that go up very fast once they are on site.

Actually my impression is that Tyler has been very dismissive of Chinese innovation power until recently.

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