A group of Western VCs goes to China, not to invest but to see what the competition is like. They realize that China is too far ahead on clean tech and decide the only way forward is to work with Chinese companies.

One VC describing a visit to Chinese battery giant CATL: Really interesting piece by @AlastairJMarsh for Bloomberg: bloomberg.com/news/articles/…

Chinese universities ranked above MIT, Oxford, Stanford in the new 2025 Nature Index:

Zhejiang, USTC, Peking, Tsinghua, Nanjing, Shanghai Jiaotong, Sun Yat-sen, Fudan, Sichuan

China’s heavy investment in scientific research underpins all of its tech & industrial advances.
China tops the country rankings once again:

All Americans should think about this chart The underlying chart comes from here:

I added the markers for NAFTA and China joining the WTO.stlouisfed.org/on-the-economy…

Every time someone talks about Chinese "overcapacity" as Chinese production exceeding global demand, I'll point to this supply & demand chart from econ 101.

China is shifting the global supply curve (blue) to the right. So global supply & demand intersect at a lower price.

1/🧵 2/ Take solar panels. Chinese firms make a lot of solar panels very cheaply. These solar panels aren't just accumulating in a warehouse. They're being bought by customers in China and around the world.

As Chinese firms drive down the cost of production (helped historically with central and local government support), this drives down global prices for solar panels and increases the total amount of solar panels that the world buys and uses.

The chart here can be interpreted in two ways. The first is that the falling price of solar panels helps to drive up global deployment of solar power. The second is that as we make more solar panels, we get better at it, which drives down the cost of solar.

Both are true. And China is at the center of this process.

China is exploiting Trump’s attacks on US allies in a variety of ways.

In Europe, China is going on a charm offensive.

With Canada, China is building on top of the pain caused by Trump, retaliating now for Canadian tariffs back in August.

1/ 🧵

https://twitter.com/ft/status/1898232545440903399

2/ With Europe, China has been saying that Europe should be involved in Ukraine negotiations. China has also offered lifting multiple sanctions for every sanction lifted by the EU.

See @fbermingham’s fantastic, in-depth report: scmp.com/news/china/dip…

BYD is preparing to make over a million EVs a year outside of China.

BYD says each of its overseas factories will create thousands of jobs and that its international expansion is backed by the Chinese government.

1/ 🧵 Much of BYD’s overseas expansion is in response to rising tariffs. Brazil has set rising tariffs on imported EVs. Turkey announced 40% extra tariffs on Chinese EVs. Hungary offers BYD a way around EU tariffs.

2/reuters.com/business/autos…

Why is China’s EV adoption rate so high, accounting over 50% of new car sales?

One factor is China’s high-speed rail system. You don’t need to worry about EV battery range for long drives because you can take bullet trains instead.

New NBER paper from @HanmingF
🧵 1/
The paper looks at 328 prefecture cities in China from 2010 to 2023. The paper uses a classic staggered DID approach to show that EVs as a share of new and used car sales increased more in cities that got a high-speed rail line compared to cities that didn’t.
2/

House of Huawei, the new book by Washington Post reporter @evadou, has to be one of the most important books on China and industrial policy in recent years.

I’m still reading through it and will share parts I found striking in this ongoing thread:
🧵 1/ An executive from Canada’s Nortel called China’s telecom market a “gold mine” in the 1980s because China was completely reliant on foreign equipment.

A Canadian ambassador said that Canadian companies would sell old technology to China and always stay a step ahead.

Japanese workers accepted and even embraced automation, driving a decade lead in industrial robots. Why?

Norms around lifetime employment for workers and enterprise-level unions. Robots didn’t just displace workers but allowed workers to switch to better jobs within firms.

1/ An example is spot-welding robots. Outside Japan, welder’s unions might be against these robots which replace their jobs.

But in Japan, because workers expect their employment to be protected at the firm level, they welcomed robots that freed workers from tough welding jobs.

2/

Why would China want Chinese firms like BYD to build factories overseas and send those jobs to other countries?

One factor: this supports the rest of the Chinese supply chain. In Japan and the US, the auto parts industry employs 2-3x more workers than auto manufacturing.
🧵 Some Chinese auto parts suppliers like EV battery makers are also moving production overseas.

For example, Chinese auto parts suppliers have been busy setting up plants in Mexico for “heating and cooling systems, shock-absorption products, metal components.” bloomberg.com/news/articles/…

A few of my favorite charts from the recent IEA Global EV Outlook 2024 report.

This chart shows that EV flows tend to stay within region. For example, EVs sold in China are mostly made in China using mostly Chinese battery cells. Also true for Europe and North America.

1/ 🧵 China has 10x the lithium-ion battery cell manufacturing capacity as Europe or the US. And it's mostly Chinese firms: BYD, CATL, and Gotion make up over 50%.

In Europe, it's mostly Korean firms--LG is over 50%.

In the US, it's mostly Tesla, Panasonic, SK Innovation, and LG.

2/

China’s scientific progress is real.

Citation counts can be gamed. There is some fraud. And Chinese researchers have been incentivized with cash to target top journals.

But the Nature Index, which looks at contributors to 145 top international journals, is solid. 1/ 🧵 The Nature Index is straightforward and transparent. Here’s the methodology:

2/ nature.com/nature-index/f…

"Tariff engineering" is when a company tweaks a product to get a lower tariff rate.

The Subaru BRAT of the 1980s got around the 25% "chicken tax" on US truck imports by adding jump seats in the back to qualify as passenger cars.

Some more examples:
1/ Ford's Transit Connect vans are cargo vans that would normally be subject to the 25% "chicken tax" on cargo vehicle imports. But they're made with rear seats to qualify as passenger vans for import. Then the rear seats are ripped out.
2/ washingtonpost.com/business/econo…

Having Chinese automakers set up plants in the US could be a smart solution that would allow US consumers to have cheaper, innovative Chinese EVs while keeping jobs in the US. This is what happened with Japanese automakers.

But there’s one thorny problem: auto parts.
1/ 🧵 In the 1980s, in addition to “voluntary” export quotas, the US put pressure on Japanese automakers to move production to the US. Honda was the first, opening a plant in Ohio in 1982, followed quickly by Toyota and Nissan.
2/

Industrial policy across sectors can have a multiplier effect.

China’s solar industry benefited from its R&D on semiconductors. China’s high-speed rail built on its aerospace research. Chinese EVs draw directly on China’s smartphone supply chain, as @robinsonmeyer points out. 1/ Many of the Chinese suppliers to Apple I discussed in my High Capacity piece overlap with the EV industry.

For example, Lens Technology makes cover glass for iPhones and makes smart display glass, windshieldst, windows, and mirrors for Chinese EVs 2/ high-capacity.com/p/how-china-is…

There's a mistaken belief that South Korea's industrial policy succeeded because it took an export-oriented approach rather than import substitution.

An FT piece cites Hyundai as an example. But South Korea basically banned the import of foreign cars until 1987. 1/ 🧵

https://twitter.com/FT/status/1786055297053671621

The 1984 Washington Post article about South Korea's plans to export cars to the US market shows how tightly the country controlled its auto imports:

South Korea's plans to ramp up auto exports back then sound eerily similar to Chinese EVs today. 2/ washingtonpost.com/archive/busine…

My article on Chinese SOEs is out in the latest issue of CJS. I take a deep dive into two massive Chinese SOEs that are behind many infrastructure projects around the world and operate through a system of “managed competition.” journals.sagepub.com/share/I3Y6DDGN… Some backstory: This project came about while I was studying China’s high-speed rail program. I noticed the same SOEs showing up, and I noticed they had nearly identical subsidiaries. Then I started to notice a similar industrial structure in other key sectors.