not disputing your points, however, for all the politician talk about understanding what the ordinary citizen thinks, oh pulease!

as for getting everyone else’s hands “dirty”, sure, but when the profits start dropping off , suddenly, the fingers are all pointing at you know who

as for the unemployed, wonder how many of the olympic tourist crowd got to see the big crowds of unemployed milling around beijing’s old neighbourhoods or even occasionally around tiananmen square, protesting. that looks set to be some permanent feature of certain chinese cities soon, empty stomachs and bleak futures are fuel for rage

when the individual benefits without the state getting in on the action, or without somnehow returning some to society, he seems destined for trouble, how many of the rich (eg hurun report) have disappeared from the list and reappeared on court lists; really doubt if china has really altered the equation as you seem to think?

It’s funding it through universities or CAS which doesn’t make it that different from the type of university funding that the US does. Like the US, there isn’t that much in the way of top-down direction.

What is missing is the financing and management elements to commercialize anything that gets developed in the universities. That will come eventually.

Regula: Intel is building an entire plant in China. I wonder what federal law says about that?

Quite a bit. There are huge export restrictions on the type of equipment that Intel can bring into China.

Intel is building an entire plant in China. I wonder what federal law says about that?

I think the shift in policy towards high tech will make China lust after Taiwan even more. In semiconductors there is a long history of basic technology patents that hamstring a newcomer’s entry into the market. The existing manufacturers negotiate broad trades of basic technology licenses between themselves, making it possible for engineers to designs things without running into basic patent infringement issues. Taiwan has been in the game much longer than China.

If the Chinese government directly finances advanced microprocessor technology, it represents Industrial policy. LOL

A Chinese Challenge to Intel
Researchers have revealed details of China’s latest homegrown microprocessor.
http://www.technologyreview.com/printer_friendly_article.aspx?id=21322&channel=specialsections&section=storage

In California last week, Chinese researchers unveiled details of a microprocessor. The chip, code-named Godson-3, was developed with government funding by more than 200 researchers at the Chinese Academy of Sciences’ Institute of Computing Technology (ICT). Engineers have added 200 additional instructions to Godson-3 to simulate an x86 chip, which allows Godson-3 to run more software, including the Windows operating system.

China is making a late entry into chip making, admits Zhiwei Xu, deputy director of ICT. “Twenty years ago in China, we didn’t support R&D for microprocessors,” he said during a presentation last week at the Hot Chips conference, in Palo Alto. “The decision makers and [Chinese] IT community have come to realize that CPUs [central processing units] are important.”

Tom Halfhill, an analyst at research firm In-Stat, says that the objective for China is to take control of the design and manufacture of vital technology. “Like America wants to be energy independent, China wants to be technology independent,” Halfhill says. “They don’t want to be dependent on outside countries for critical technologies like microprocessors, which are, nowadays, a fundamental commodity.” Federal laws also prohibit the export of state-of-the-art microprocessors from the United States to China, meaning that microchips shipped to China are usually a few generations behind the newest ones in the West.

For example…

DC: China’s low-end manufacturers have found their tax rebates withdrawn, and complicated export duties imposed.

The government just increased tax rebates for textiles since they were complaining. The model in which the government orders something and it is done just doesn’t fit China, and what actually happens is that you have a mess of conflicting interest groups interacting with each other.

The statement that the “Communist Party decides everything” is true but meaningless and very misleading since in implies a top-down decision making structure which isn’t how things work. All of the major economic actors and interest groups have representation within the Communist Party and so that it’s not a trivial to figure out what constitutes a “decision” by the Party.

Animation giant once made plastic Christmas trees, writes Malcolm Moore in Hong Kong

Eight Commercial Tower, a dusty, grey building in an old Hong Kong warehouse district, is the headquarters of one of China’s most bizarre companies.

In the past decade, Imagi has switched from being the world’s largest plastic Christmas tree manufacturer into China’s answer to Pixar, the computer-generated animation studio.

In its previous incarnation, named Boto, it shipped more than six million trees a year and was a prime example of the Chinese manufacturing miracle.

Some 10,000 workers laboured at its plant in Shenzhen, turning out 400 different types of trees, including green, gold, frosted with snow, and sparkling with fibre-optic lights. Some had real pine cones while others rotated and counted down to New Year’s Eve before launching into Auld Lang Syne.

Now Imagi is a symbol of China’s transformation from a low-cost, low-skilled sweatshop into a powerful competitor in high-technology industries. The cost advantages of making toys, cigarette lighters and other knick-knacks can easily be replicated with 3-D movies, it appears.

Imagi’s remarkable conversion is only one of many on the Chinese mainland. BYD, the world’s second-largest battery maker, is now looking at building hybrid cars and has hired a team of Italian designers. Airbus is about to start manufacturing the A320 in Tianjin, Intel is making chips in Dalian, and Chinese companies are leading the way in renewable energy technology, especially photovoltaic panels.

The Communist Party is determined to move industry up the value chain, using a variety of incentives and punishments. China’s low-end manufacturers have found their tax rebates withdrawn, and complicated export duties imposed. Their raw material costs have spiralled and they are going out of business in their thousands.

“Move up or move out” said the front page headline of the state-owned China Daily’s business section yesterday,

“The process may seem painful,” the newspaper intoned, but “it can help the economy achieve a more balanced and therefore more sustainable growth in the long term”. At Eight Commercial Tower, the transformation is well under way.

@Twofish
Agreed that SWF are just new set of players – but they are the first to have armies! I mean bargaining power derived from the state and physical armies if some were so foolish. So now does the game remain same?

@ Dave C
Your position is rational position from Chinese bank perspective. In fact any bank in its position would have similar issues. But we need to understand that problems have two parties and responsibility of solution will also rest with two sides.

@ Twofish
SOE consolidation – Consolidation, in certain cases, aggravates the risk. So we cannot ignore it. Its always the guys whose money is on the line – they have to do due diligence.

@ Brad Setser
Brad – I am sure China will be agonising a lot over what DC calls a “raw-deal”. Now multiply into it the size of funds backing that conviction. That to me is potential disaster in waiting. If it comes at a Wrong time – global banking industry may be in a hole like Saddam.

@twofish
SOE whichever nation- are always tool in moments of distress. Barring some European countries, everywhere you have some influence or other.

I look at it this way – any over-extending beyond natural balance will create similar over-extension. (This reads like idiotically complicated – lets simplify). Unbalance begets unbalance.
World over manufactured goods for US, US over manufactured currency (money) for the World. The ingenuity of the system (one can call it fraud or innovation – bu I dont take sides on this one) created a cycle wherein world continued to manufacture goods (and services) and US continued to manufacture money. We just woken up to Hey-emperor-you’re naked situation. The story does not tell us if Emperor ran for his clothes or if people suddenly closed their eyes or whatever. But its going to be one heck of an embarrasment for all of us. Like hollywood says – “Coming Soon…”!

Thanks for amazing post series Brad.

Rahul

P.S. The system thinks 6+7 is not 13!