"Breakneck" is fantastic

Dan Wang's book is the best I have read in a long time

The real economy is the basis of everything . . . we must never deindustrialize.”

-Xi Jinping

I have been meaning to write this for ages, but Dan Wang’s book Breakneck is really, really great.

His framing - the “engineering state” of China vs the “lawyerly state” of the US - has been so widely adopted exactly because he’s hit a nerve.

It’s a depressing book to read in Europe because of the endless references to how un-dynamic and bureaucratic even America is compared to China.

Dan, come to Europe - when it comes to bureaucracy, you ain’t seen nothin’ yet!

Wang makes clear the downsides as well as the upsides of the “engineering state” - including the horrific social engineering - his history of the one-child policy is harrowing - I had thought of it as mainly local officials fining and harassing people - in reality it was a horrific campaign of mass forced abortions.

But I want to dwell here on just one little bit of the book - about why and how China has become the dominant industrial power.

I just want to quote some snippets here in the hope you’ll go out and read it!

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Looking at these two countries, I came to realize the inadequacy of twentieth-century labels like capitalist, socialist, or, worst of all, neoliberal. They are no longer up to the task of helping us understand the world, if they ever were. Capitalist America intrudes upon the free market with a dense program of regulation and taxation while providing substantial (albeit imperfect) redistributive policies. Socialist China detains union organizers, levies light taxes, and provides a threadbare social safety net. The greatest trick that the Communist Party ever pulled off is masquerading as leftist. While Xi Jinping and the rest of the Politburo mouth Marxist pieties, the state is enacting a right-wing agenda that Western conservatives would salivate over: administering limited welfare, erecting enormous barriers to immigration, and enforcing traditional gender roles—where men have to be macho and women have to bear their children.

China is an engineering state, which can’t stop itself from building, facing off against America’s lawyerly society, which blocks everything it can.

Engineers have quite literally ruled modern China. As a corrective to the mayhem of the Mao years, Deng Xiaoping promoted engineers to the top ranks of China’s government throughout the 1980s and 1990s. By 2002, all nine members of the Politburo’s standing committee—the apex of the Communist Party—had trained as engineers. General Secretary Hu Jintao studied hydraulic engineering and spent a decade building dams. []

Xi Jinping studied chemical engineering at Tsinghua, China’s top science university. For his third term as the Communist Party’s general secretary starting in 2022, Xi filled the Politburo with executives from the country’s aerospace and weapons ministries. In the United States, it would be as if the CEO of Boeing became the governor of Alaska, the chief of Lockheed Martin became the secretary of energy, and the head of NASA was governor of a state as large as Georgia. China’s ruling elites have practical experience managing megaprojects, suggesting that China is doubling down on engineers—and prioritizing defense—more than ever.

The engineering state builds big in part because it is made up of self-professed communists who grew up admiring the soviet union. Communist Party leaders like Xi Jinping studied in an educational system steeped in Marxism. For them production was a noble deed to advance communism while consumption was a despicable act of capitalism. This party believes that only the state has the wisdom to invest in strategic megaprojects whereas consumers will waste money on themselves. It is hostile to ordinary people having much command of resources, which empowers an individual’s agency rather than the state’s.

Xi has forcefully pushed back against the idea that China needs more generous welfare. In a major speech in 2021, he said, “Even when we have reached a higher level of development… we should not go overboard with social transfers. We must avoid letting people get lazy from their sense of entitlement to welfare”.

Under Mao China practiced a more literal form of communism, with full control of the means of production. Deng Xiaoping pivoted away from that failed experiment. As Deng was fond of remarking, the defining feature of socialism was not economic redistribution but rather “concentrating resources to accomplish great tasks”

The engineering state is much more interested in promoting building and man manufacturing than services. China now has the capacity to produce around sixty million cars a year (one third electric, two thirds combustion), out of an annual global market of around ninety million cars sold. China’s domestic market absorbs less than half its production. China produces so much in part because every province wants to be an automotive production hub. The country has over a hundred automotive brands, most of them small, all fighting over sales . The competition is so fierce in part because auto companies receive extensive support from local governments, who all try to promote their champion through cheap credit and rebates to local companies.

Shenzen was China’s greatest boomtown and therefore, the world’s. Its population soared from three hundred thousand in 1980 to seven million in 2000 and eighteen million in 2020.

Foxconn’s manufacturing campus in the north of Shenzen occupies five hundred acres. The site has factories of course, and dormitories. It also has grocery stories, cafes, a fire brigade, a hospital, cinemas, swimming pools, and vendor-operated restaurants. The factory is the size of a city. The population peaks in early fall as production ramps up for the Christmas season. Dormitories fill up then, with up to six men or women crammed into one room. Assembly lines operated for three eight hour shifts a day; there is never a minute that factories aren’t producing iPhones. At the peak times three hundred thousand people work at Foxconn’s Shenzen campus.

Chinese officials climbed over each other to host a Foxconn facility . The salivated at the number of jobs and the amount of tax revenues the company could create for their jurisdiction, which could elevate them to higher office… []

In 2016 Henan “borrowed” workers from state-owned coal companies to meet the iPhone production surge. In 2017 the Financial Times reported that up to three thousand high school students had to work on assembly lines – a few of them for eleven hour days – and if they did not their school withheld their graduation diplomas. They were euphemistically called “interns” who assembled iPhones for “vocational experience.”

[Helen Wang worked] sourcing components for the first iPhone. In an interview Helen told me that her first thought on receiving an assignment was often “I need to build a city”. Construction on this scale was something that Apple, Foxconn and government officials did together. Helen told me that Shenzen conducted levelling operations along mountains to make land suitable for production.

A 2012 story in the New York Times reported that Apple needed to hire nearly nibne thousand industrial engineers in the earlier days of iPhone production. The company’s analysts expected recruitment to last nine months to hire that many engineers in the United States. In China they were able to do it in two weeks.

…the United States and China are inversions of each other. Americans expect innovations from scientists working at NASA, in universities, or in research labs. They celebrate the moment of invention: the first solar cell, the first personal computer, first in flight. In China, on the other hand, tech innovation emerges from the factory floor, when a new product is scaled up into mass production. At the heart of China’s ascendancy in advanced technology is its spectacular capacity for learning by doing and consistently improving things.

The fourteenth five-year plan released in 2021 demands that he manufacturing share of the economy stay constant. Manufacturing already accounts for 28 percent of China’s GDP, which is much higher than Germany’s 21 percent and Japan’s 20 percent, to say nothing of deindustrialized economies like the United States and the United Kingdom (both around 10 percent). Xi has repeatedly stated that he’s not interested in abandoning manufacturing for services. In authoritative speeches, Xi cited “certain Western countries” that forsook the real economy for the fictitious economy. No points for guessing which Western countries these might be. And Xi has declared that “the real economy is the basis of everything . . . so we must never deindustrialize.”

If an engineer in Shenzhen has an idea for a new product, it’s easy to tap into an eager network of investors. Shenzhen is a community of engineering practice where factory owners, skilled engineers, entrepreneurs, investors, and researchers mix with the world’s most experienced workforce at producing high-end electronics.

Silicon Valley used to be like this too, but now it lacks a critical link in the chain—the manufacturing workforce. The value of these communities of engineering practice is greater than any single company or engineer. Rather, they have to be understood as ecosystems of technology.

The American imagination has been too focused on the creation of tooling and blueprints. Andy Grove, the legendary former CEO of Intel, said it best in 2010: that the United States needs to focus less on “the mythical moment of creation” and more on the “scaling up of products”. Grove saw Silicon Valley transition from doing both invention and production to specializing only in the former. And he understood quite well that technology ecosystems would rust if the research and development no longer had a learning loop from the production process.

Bell Labs invented the first solar cell, and German companies produced solar production equipment. Beijing’s designation of solar as a “strategic emerging industry” invited Chinese companies to rush into this industry. Chinese companies bought German equipment and competed fiercely to make the most efficient solar cells. By the mid-2010s, Chinese companies figured out how to make all the German tools, as well as the entirety of the solar value chain. The plunge in solar power costs over the last decade has been driven less by breakthroughs in science—which is the United States’ strong suit—than by efficient production, which is China’s strength. The beneficiaries are not only the climate but also China’s national power.

Tesla’s presence jolted China’s electric vehicle market. China’s business community began using the term “catfishing” for what Tesla was doing in China. The idea was that introducing a powerful new creature into the domestic environment would make Chinese firms swim faster. That’s exactly what they did to raise their game. When Tesla vehicles started rolling out of the Shanghai Gigafactory in 2019, BYD saw its sales decline by 11 percent, while profits fell by 42 percent. But Tesla would eventually do the whole market a favor. As in the United States, the company’s audacious branding stimulated consumers to think of electric vehicles as more than high-powered golf carts. And Tesla made investments in China’s tooling ecosystem that other automakers exploited to produce better cars. BYD benefited as well, reporting record profits in 2023 and becoming the world’s largest electric vehicle maker. And even the Communist Party’s main newspaper praised how Tesla produced the “catfish effect” for Chinese firms.

It’s hard, I admit, to draw a straight line between the loss of, for example, television manufacturing in the United States through the 1980s to the stumbles by Boeing and Intel over the past decade. But if we think about technology ecosystems as communities of engineering practice, it makes sense that factory closures accelerated as process knowledge dissolved, prompting production problems and more job losses. And it also makes sense that Chinese workers went from merely assembling iPhones to producing some of their most valuable components as well. As one country lost its process knowledge, the other gained whole industries.

…in 2023, China added twenty times more coal-burning capacity than the rest of the world put together. It is serious about addressing issues in climate change, yes. But Beijing is not turning its back on its rich coal reserves. That also explains why China is so enthusiastic about electrifying the auto fleet: It would rather burn domestic coal than Middle East oil to power its cars.

The United States will not overcome the lawyerly society by debating the kinds of issues that law students thrill to: the correct ruling on any particular case or the personalities on the Supreme Court. I want to invoke the classic line by professor Grant Gilmore, in a text often assigned to first-year law students: “The worse the society, the more law there will be. In hell there will be nothing but law, and due process will be meticulously observed.”

Rather, I want Americans to experience what the previous generation of Chinese have felt: a sense of optimism about the future driven in large part by physical dynamism. Chinese who have experienced the country’s blistering economic growth over the past four decades look to the past with pride and to the future with hope. When residents of Chongqing or Shenzhen see a new cityscape unfold before their eyes, they expect the future to keep changing for the better.

Conclusions

Things I think the book brings out well are:

• How internal competition between Chinese state governments leads to a subsidy arms race and stimulates over production.

• How state-level governments promote local champions, on the one hand increasing competition between firms, but also leading to ever-greater subsidies.

• How China absorbs new technologies and firms and uses them to spur internal competition.

• The importance of economy-level scale and the industrial commons.

• The importance of leaning-by-doing and the long term unsustainability of the 1990s vision of “Designed in California. Assembled in China”

… but there is so much more in the book, including on Chinese society and the government’s unique relationship with the tech industry.

You can get it here - honestly, it’s great!