Special Edition-China: Investment, Apollo Lite, Water, Rare Earth, BRI, Liu Cixin

"Notes for tech generalists"

[Investment] 

In and Out

U.S. Senator Marco Rubio recently introduced the Equitable Act (WSJ) to ban Chinese companies listed on U.S. exchanges that don't comply with American law. 

Chinese investment banker Bao Fan, who has advised and invested some of China’s biggest tech companies, told South China Morning Post (SCMP):

Chinese companies have been asking the “hard question” lately of whether to list in the US, or Hong Kong.

However, WSJ reader Joe Dadi defends the act because “NYSE is the platinum standard.. There is simply no comparison (to other exchanges).” But he also believes something positive about raising capital and listing in China:

It is near impossible to get funded to develop hardware in the US. Everyone is going to Asia for funding equipment companies. Money is definitely there for growth and expansion pre-IPO, there is near zero seed money for (hardware) startups.” 

Fellow reader Eric Hines adds: 

“Increasingly, the Equitable Act is going to need to be applied to Hong Kong-based companies, also.”

More in and out


[Risk]

China: Water

In 2011, Jim Rogers, the Singapore-based American investor, predicted water is China’s biggest crisis:

 “I don't mind if China has civil war, epidemics, panics, depressions, all of that. You can recover from that. The only thing you cannot recover from is water."

This May, a Financial Times’s opinion piece outlined three problems China facing to become a world superpower and water crisis is one of them:

“The third problem, and perhaps the greatest, is a looming water crisis in 12 northern provinces that account for 41 per cent of China’s population, 38 per cent of its agriculture, 46 per cent of its industry and 50 per cent of its power generation”  

USA: Aging

CNN Business believes America’s aging population is “a risk to the US economy that is not receiving as much attention as concerns about interest rates, the trade war and corporate earnings.”

It quotes David Kelly, chief global strategist with JPMorgan Funds, in a recent interview on Richard Quest's Markets Now.

Kelly said that the combination of retiring boomers and a shortage of working-age Americans creates a problem that "is particularly awkward for the economy." He added that this trend should "persist throughout the 2020s.”


[Tech]

Autonomous Driving: LiDar or Vision (that debate, again) 

This month, Baidu claims its Apollo Lite vision-based vehicle framework achieves level 4 autonomy.

Based on the press release, Twitter user JPR007 speculates Baidu’s Apollo might be “ the ‘Android’ to Tesla’s ‘IOS’ in Autonomous Driving", because Baidu Apollo has signed up the most partners to its open source platform. However, he also suspects

“(Apollo Lite still) heavily dependent upon HD Mapping rather than independent real-time imaging. A positive (thinking) may be that Apollo has a more open mind about giving priority to camera imaging rather than dependency on LIDAR” 

Previously, CONTRAST has hosted mini debates on Lidar vs Vision, the two schools of tech adoptions essential to achieve autonomous driving. You can read them here and here.

Now, reviewing Apollo Lite, it brought the same debate and unavoidably led a discussion to Tesla. Here is a twitter debate:

Twitter User @PK8820

This is one step away from being exactly what @elonmusk said about autonomy: camera-based with some kinda radar. But not LIDAR based which is expensive and useless in rain and fog.

Twitter user JB:

That "one step" being lidar. It's not either video or lidar, but both. Everywhere *except* Tesla. Why is Tesla the outlier? Superior tech? Better engineers?

Nope. Marketing. Musk needs to be able to sell the lie of FSD to gullible customers. He cant do that if they use lidar. 

But Twitter user RanLo reminds us: 

Tesla has cameras, RADAR and sensors.


[Supply Chain]

Made-Outside-China

  • Giant (捷安特) : Made in China is over 

Giant, the world's biggest bike maker tells Bloomberg that "Made in China" is over. Its Chairwoman Bonnie Tu said that

“(Giant) took Trump's threats seriously in September last year and soon shut down a China-based plant. When Trump ramped the tariffs up to 25 percent in May, the company accelerated its efforts to shift most U.S. orders out of China.”

The company also saw a record 9.8 percent spike in share value, the highest increase in four years, according to Taiwan News

  • Apple: iPhones can ALL be made outside of China

In June, Apple told Bloomberg so.

Matt Schrader, a China analyst at commented

“Turns out those Foxconn investments in India worth keeping an eye on…Remember, Tim Cook is a supply chain guy. Steve Jobs hired him away from Compaq and elevated him specifically because he's a supply chain guy. He pioneered the Foxconn assembly model, and I guarantee you he's thinking about how to reduce Beijing's leverage.”

Another twitter user added:

Samsung took 14 months to move all phone (manufacturing) out of China after THAAD 2017. Samsung makes more phones than Apple.”


[Trade]

Nothing Rare

By now, we probably all learned rare earth is not that rare (60 minutes)but the costs on environment damage forbid many rare-earth-rich nations including the U.S. on mining it. However, with U.S.-China’s fierce trade battle, how severe is it to the U.S. if China bans on rare earth export?

Simon Rabinovitch , a China-focused journalist at The Economist, dug deep. Below is where he found China does and doesn’t have leverages:

China(’s) real advantage is downstream: turning ores into oxides and metals into products. This is where it has focused in the past decade…

So the big question: would this hurt the US? The experts I spoke to generally agreed that the threat to the Pentagon is overblown. Its demands are small enough in size ("can fit in one suitcase") that it can work around China…

But damage to US supply chains would be real…

That begs a second question: how long before the US and others catch up to China's processing & production abilities? .. (According to a China rare earth company executive in Jiangxi, China): “Our equipment can basically be bought on the open market. It would take a couple of months to replicate our factory abroad. Then it would take at least a couple of years to master the production process." In other words, a cushion, but not a big one.

Simon’s tweet thread is here. The full article on The Economist is here.


[Infrastructure]

Shoot First…

Why is it so hard to interpret China’s Belt and Road Initiative (BRI)

In this Foreign Affairs article, Yuen Yuen Ang, Associate Professor of Political Science at the University of Michigan and the author of How China Escaped the Poverty Trap,  argues to demystify BRI, one must understand two patterns of China’s domestic policies: 

1. Policy Campaigns 

2. Deliberate Ambiguity 

In Ang’s view, China’s policy campaigns is equivalent to America’s election campaigns.

(It has) the advantage of inspiring mass participation and achieving quick results, but the scale and speed of the action they inspire, combined with a lack of coordination, usually produce a string of blunders.

If you have heard of the term “relevant department” (有关部门)that frustrates so many foreign press, then you already understand Deliberate Ambiguity.

(Chinese top leaders) often speak—and formulate directives—in vague or even cryptic terms. And ambiguity leaves policies open to interpretation, allowing them to be adapted to different conditions and gradually fine-tuned as leaders figure out their plans”, particularly, in uncharted areas, “frankly, even leaders don't really know what to do. 

Ang’s interpretation in Chinese domestic politics is so explicit that one reader had to ask :

 Have you ever worked in any "relevant department" of the Chinese government? (Because ) your writing is beyond naivety.


[Culture]

Liu Cixin’s War of the Worlds 

Liu Cixin, author of beloved Si-fi Three Body Problem, a Hugo Award winner and whose fans included Obama and Zuckerberg, was recently interviewed by Jiayang Fan, a New Yorker staff writer. 

Liu Cixin’s war of the worlds” became an instant talk-about among both sci-fi lovers and China watchers. It also stirred up some controversy on Liu when readers caught that both of the interviewer (Fan)  and the interviewee (Liu) thought the other party has been “brainwashed”.

When Fan raised several sensitive political issues including the internment in Xinjiang, freedom of speech, etc, Fan felt

(Liu’s) answer duplicated government propaganda so exactly that I couldn’t help asking Liu if he ever thought he might have been brainwashed.

It turns out Liu thought the same on Fan. At one point, he pondered and answered to Fan: 

“This is why I don’t like to talk about subjects like this . The truth is you don’t really—I mean, can’t truly—understand.” He gestured around him. “You’ve lived here, in the U.S., for, what, going on three decades?” The implication was clear: years in the West had brainwashed me . In that moment, in Liu’s mind, I, with my inflexible sense of morality, was the alien.

Maybe the divergent views between the west-minded and China-minded – so apparent that even sci-fi world failed to unite – is best summarized by Liu’s own characters, observed by Fan. 

In Liu’s fictional universe, idealism is fatal and kindness an exorbitant luxury. As one general says in the trilogy*, “In a time of war, we can’t afford to be too scrupulous.” Indeed, it is usually when people do not play by the rules of Realpolitik that the most lives are lost.

(*Three Body Problem is the first of Liu’s The Remembrance of Earth's Past trilogy. )


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