TechanaLye assesses China as 3 years behind TSMC

[Jert]

People | Yacoby Lab

yacoby.physics.harvard.edu

This is a typical Harvard physics lab. How many Americans can you find? Not many. Why? Because even if they get a faculty role after graduating, it still pays much less than a CS bachelor's degree.
some of them did go to wall street or software. but lot's of wasted effort.
Again, doubt how many researchers care about freedom that much, unless they are LGBTQ member, which US has a clear advantage.

Just because someone is not named John Smith or Jane Smith, you automatically assume he/she is not American??

 

[count]

China's economy is going through a rough patch in the short term, that's for sure. But it's not as bad as the picture being painted outside of China.

China overbuilt on fixed assets. That's a problem that needs to be solved by write downs and restructuring with associated financial losses. There will be a political challenge in distributing the financial losses. However, this doesn't mean China's economy collapsing, or that it's going to have Japan style stagnation for the next 30 years. Part of the reason Japan's economy struggled so much was China was right behind them to take their place as the worlds leading manufacturer. I don't think there is anyone who can take that place from China today.

Also, having a bunch of empty apartment buildings and debt write downs doesn't have much impact on China's ability to invest in leading edge foundries so long as it's a priority for the Chinese government.

 

[samwilde]

For China building these chip fabs is an investment to reduce chip imports. Over the lifetime of the fabs hundreds of billions of imports would be expected to be displaced. At the same time this will ensure security of chip supply for their consumer appliances and automotive sectors. And yes there will be dislocations in the world fab space as this happens.
World consumption of chips is expected to continue to rise with the growth of EVs and self-driving vehicles. Increased home automation will also lead to increased chip demand. It remains to be seen how large the dislocation caused by the increased chip supply in the market will be.

 

[KevinK]

Those houses will still get finished. The difference is while in the US the property developers would have been perceived as too big to fail and bailed out, in this case the unfinished houses get resold to a different, financially solvent, developer, the original insolvent developer gets liquidated, and the Chinese government pays the new company to finish the houses so those people can live in them.

You're smoking something. First off, that's how it works in the US, as well, with unfinished projects and unwanted real estate (commercial and residential). Eventually the market finds a price low enough and someone buys. But no developer is going to want to touch China's toxic sold, but unfinished housing projects where they have to deliver without new money coming in from somewhere - those unfinished projects with expectant buyers are huge liabilities, even if the price was zero. The problem is that the failing Chinese developers have already taken the money and ran to start developing new projects. And the Chinese government is only putting in mere "pennies" toward finishing some projects, where serious dollars are needed to make all the buyers whole.

But again, my main point was that the real estate crunch and the carrying costs of existing local government debt are drastically cutting local governments' ability to invest in new targets like cutting edge semiconductors. And that's happening just as local governments' portfolios of other industrial investments are starting to go south due to hyper-competition, a shrinking domestic market, and more limits on exports. But it's not just me suggesting this:

Why It’s So Hard for China to Fix Its Ailing Economy​

A real estate collapse has made consumers cautious and businesses wary, as China confronts a crisis unlike any other since it opened its economy to the world.

https://www.nytimes.com/2024/09/03/business/china-economy-consumption.html?unlocked_article_code=1.H04.Dj5m.eaH-HyCGmJ5W&smid=url-share

To put it into perspective, the US has 15 million vacant homes. China has 4.19x the population of the US. Adjust for the population and that would be 62.85 million vacant homes in China. OMG the US residential real estate market is a disaster.

If you're going to use numbers, you should get the context right. First off, your 15M number includes rentals. China has about 20% vacant homes and a 96% ownership rate, with between 65-80M vacant homes. The US vacancy number is about 10.5%, with a 65% ownership rate and the vacancy number has been declining since the 2007/2008 housing crisis. These facts are important because
* China has that 65-80M vacant homes ON TOP OF of the 48M that have paid for, but have been left unfinished.
* Rentals have a far higher natural vacancy rate, usually 6-8% vs 2% for owner-occupied. So a US 10% would still be be less heinous than if China were only at 10%.

How many vacant homes are there in the US? | USAFacts

Over 15 million American homes — approximately 10% of the country’s housing inventory — were vacant in 2022.

usafacts.org

 

[KevinK]

Also, having a bunch of empty apartment buildings and debt write downs doesn't have much impact on China's ability to invest in leading edge foundries so long as it's a priority for the Chinese government.

It's getting harder and harder to write down those debts, that have been mostly kicked down the road and hidden in LGFV's, as local governments' sources of income, like development sink. China's getting to the point where they either have to invest to preserve existing jobs (the failing EV plant) or invest (a lot) in future jobs (a new semi fab).

 

[count]

It's getting harder and harder to write down those debts, that have been mostly kicked down the road and hidden in LGFV's, as local governments' sources of income, like development sink. China's getting to the point where they either have to invest to preserve existing jobs (the failing EV plant) or invest (a lot) in future jobs (a new semi fab).

Want to elaborate on failing EV plant?

Fabs don't employ that many people in the grand scheme of things. TSMC has something like 70,000 employees total producing something like 60% of the worlds chips. From an employment standpoint that's a rounding error for China. I don't think this is a jobs thing - its part of a strategy to become independent of western technology, which is a major priority for the Chinese government.

Auto manufacturing by contrast employs a lot of people. VW alone employs just under 700,000, and only has <10% of global auto market share.

China will go through an economic restructuring, I'm sure there will be some pain involved, but it has nothing to do with China's ability to catch up to the rest of the world in semiconductor manufacturing.

 

[KevinK]

Want to elaborate on failing EV plant?
Auto manufacturing by contrast employs a lot of people. VW alone employs just under 700,000, and only has <10% of global auto market share.

There were about 500 Chinese EV companies in 2019, all building factories using local funding. We're down to about 40 in operation today, all with one or more factories, employing about 1.5M people directly (BYD has 570,000 workers, though some make buses and other non-EV vehicles). Of those 40, only BYD is profitable. Likely the number will need to get down to 3 or 4 to survive long term. Each closed factory represents a local government that has lost on the their investment. The remaining ones have to make decisions about where to invest their shrinking subsidy dollars.

China will go through an economic restructuring, I'm sure there will be some pain involved, but it has nothing to do with China's ability to catch up to the rest of the world in semiconductor manufacturing.

China isn't built well for this kind of restructuring - local governments try to hold off the pain as long as possible, but eventually the options and alternate investments become impossible. That's where I think we are. But we'll see.

 

[soAsian]

Why the high praise for China? Just because China has 1.4 billion people doesn't mean everyone is smart. Are we prioritizing quantity over quality? Also, have you heard about the latest trend among Chinese youth, 'lay flat' (look it up)

The number of people doesn't necessarily translate to intelligence or capability. If that were the case, shouldn't India or any African country with a high birth rate become a superpower? What's behind this hoax that a large population equals a super smart country? The USA has one of the lowest population numbers among first-world countries, yet it's a global superpower.

Regarding anything related to China, I prefer to see it before I believe it. Chinese news often reports something as highly advanced, only for it to turn out to be mediocre

 

[count]

I wouldn’t call it high praise, more like a balanced view as opposed to the “China is crashing and will never catch up to the USA” nonsense.

 

[KevinK]

I wouldn’t call it high praise, more like a balanced view as opposed to the “China is crashing and will never catch up to the USA” nonsense.

I think the real message is that China can't keep developing the way they used to - they are hitting some economic barriers of their own making, plus are bumping up against the limits of how much mercantilism other countries are willing to bear in pursuit of lower prices on goods. They're going to need to prioritize their choices and figure out how to grow domestic demand.

 

[jim_22222]

You're smoking something. First off, that's how it works in the US, as well, with unfinished projects and unwanted real estate (commercial and residential). Eventually the market finds a price low enough and someone buys. But no developer is going to want to touch China's toxic sold, but unfinished housing projects where they have to deliver without new money coming in from somewhere - those unfinished projects with expectant buyers are huge liabilities, even if the price was zero. The problem is that the failing Chinese developers have already taken the money and ran to start developing new projects. And the Chinese government is only putting in mere "pennies" toward finishing some projects, where serious dollars are needed to make all the buyers whole.

But again, my main point was that the real estate crunch and the carrying costs of existing local government debt are drastically cutting local governments' ability to invest in new targets like cutting edge semiconductors. And that's happening just as local governments' portfolios of other industrial investments are starting to go south due to hyper-competition, a shrinking domestic market, and more limits on exports. But it's not just me suggesting this:

Why It’s So Hard for China to Fix Its Ailing Economy​

A real estate collapse has made consumers cautious and businesses wary, as China confronts a crisis unlike any other since it opened its economy to the world.

https://www.nytimes.com/2024/09/03/business/china-economy-consumption.html?unlocked_article_code=1.H04.Dj5m.eaH-HyCGmJ5W&smid=url-share

If you're going to use numbers, you should get the context right. First off, your 15M number includes rentals. China has about 20% vacant homes and a 96% ownership rate, with between 65-80M vacant homes. The US vacancy number is about 10.5%, with a 65% ownership rate and the vacancy number has been declining since the 2007/2008 housing crisis. These facts are important because
* China has that 65-80M vacant homes ON TOP OF of the 48M that have paid for, but have been left unfinished.
* Rentals have a far higher natural vacancy rate, usually 6-8% vs 2% for owner-occupied. So a US 10% would still be be less heinous than if China were only at 10%.

How many vacant homes are there in the US? | USAFacts

Over 15 million American homes — approximately 10% of the country’s housing inventory — were vacant in 2022.

usafacts.org

China's real long term issue is consumption.
Caused by the political system etc.
The fundamental long-term challenge for China lies in stimulating consumer spending. Influenced by its political framework, China has yet to fully develop certain sectors that typically drive consumption in other economies, such as professional and collegiate sports, which can generate significant revenue and consumer interest.
Despite a population with increasing purchasing power—enough to afford luxury items like yachts—such consumption is not widely encouraged, possibly due to various concerns, including social, environmental, and economic considerations.

 

[count]

I think the real message is that China can't keep developing the way they used to - they are hitting some economic barriers of their own making, plus are bumping up against the limits of how much mercantilism other countries are willing to bear in pursuit of lower prices on goods. They're going to need to prioritize their choices and figure out how to grow domestic demand.

I would agree that they have reached the limit for fixed asset investment as a percent of gdp.

Some sectors will struggle more than others, like construction.

But this is a complete red herring when it comes to the topic of “will China catch up and be able to compete against leading edge foundries”

 

[jim_22222]

But this is a complete red herring when it comes to the topic of “will China catch up and be able to compete against leading edge foundries”

The answer should be: they can if they want to.
It's not the size of North Korea or Iran.
The US doesn't hold all the cards.
Watch out for damages from unexpected directions.
TSMC is the biggest winner.
It's going to be an interesting game for everyone.
Some ordinary folks might become victims if they are unlucky.

 

[vslee]

But this is a complete red herring when it comes to the topic of “will China catch up and be able to compete against leading edge foundries”

The reason it is relevant is that trying to catch up would be extremely capital intensive. And KevinK is pointing out that they no longer have the capability to spend like they did in the past.

 

[samwilde]

Here is an example of the typical hyperbole article written about China.

https://www.reuters.com/world/china/even-chinas-14-bln-population-cant-fill-all-its-vacant-homes-former-official-2023-09-23/

Even China's 1.4 billion population can't fill all its vacant homes, former official says
...
BEIJING, Sept 23 (Reuters) - Even China's population of 1.4 billion would not be enough to fill all the empty apartments littered across the country, a former official said on Saturday, in a rare public critique of the country's crisis-hit property market.
...
As of the end of August, the combined floor area of unsold homes stood at 648 million square metres (7 billion square feet), the latest data from the National Bureau of Statistics (NBS) show.
That would be equal to 7.2 million homes, according to Reuters calculations, based on the average home size of 90 square metres.
...
"How many vacant homes are there now? Each expert gives a very different number, with the most extreme believing the current number of vacant homes are enough for 3 billion people," said He Keng, 81, a former deputy head of the statistics bureau.

Just for reference, the average number of people per household in China is 2.76. So "enough for 3 billion people" would be 3 billion/2.76 = 1086 million vacant homes.

This is more houses than exist in China total, occupied and vacant. Double in fact.
The number of households in China is around 500 million.
And yet people eat up articles like this lunatic fantasy from Reuters.

 

[count]

The reason it is relevant is that trying to catch up would be extremely capital intensive. And KevinK is pointing out that they no longer have the capability to spend like they did in the past.

This is laughable. ASML has an annual capex of $2b. China can easily spend 10x that in a drive to catch up in EUV if they wanted to. It's nothing.

 

[vslee]

This is laughable. ASML has an annual capex of $2b. China can easily spend 10x that in a drive to catch up in EUV if they wanted to. It's nothing.

Are you seriously implying that their EUV machines and all of the technology behind it was able to be developed by spending only a total of $2b per year in the past?

 

[samwilde]

Most of that cost to develop EUV was salaries in the US, Europe and Japan as well. The Chinese would be paying Chinese salaries. Let us say half the salary expense. Even if EUV was developed in the West with $20 billion USD they could probably develop it with $10 billion USD.

Their C919 airliner program has already cost them over $49 billion USD. So they can do it if they want to.

 

[jim_22222]

Are you seriously implying that their EUV machines and all of the technology behind it was able to be developed by spending only a total of $2b per year in the past?

currently their major issue seems are talent and leadership. xi looks like have no clue what a world class research institute looks like. they put some loyal( appearance) but dumb scientists on top. mao was way more smarter, that is why they built hydrogen bombs so fast.

 

[vslee]

Most of that cost to develop EUV was salaries in the US, Europe and Japan as well. The Chinese would be paying Chinese salaries. Let us say half the salary expense. Even if EUV was developed in the West with $20 billion USD they could probably develop it with $10 billion USD.

Their C919 airliner program has already cost them over $49 billion USD. So they can do it if they want to.

I'm still trying to understand why you cited the $2 billion per year figure though, and how that is relevant here.