Last month Thomas Friedman had wrote a column for the NY Times in which he sounded a note of real concern and pessimism about China’s future under Xi Jinping. “Xi is turning the whole Western world against China,” he wrote. As I pointed out here, that was a long way from the fanboy columns about China Friedman was writing circa 2008.
Today, Friedman has another column about China and Taiwan which makes the argument that even if China succeeds in invading and dominating Taiwan like it has Hong Kong, China will ultimately fail to get what it wants. As an example of why he points to the disappearance of Chinese industrial titan Jack Ma.
If China has a Steve Jobs equivalent it’s Jack Ma, the co-founder of the e-retail giant Alibaba. Has anyone seen Ma lately?…
Although news reports said that Ma had surfaced briefly in Hong Kong, there has also been talk that he may have been under some kind of house confinement during the last year. Ever since Ma gave a speech in October 2020 that criticized China’s financial regulators, Xi has cracked down on Alibaba’s global empire and blocked what would have been a record initial public offeringof an affiliate company set to have taken place last November.
The point he makes is that China can either have leading technology companies or it can have complete communist control of every company and individual in China but it can’t have both. At the moment, President Xi seems to be erring on the side of his personal control over and above the success of Chinese industries.
Then Friedman turns to another example of this same dynamic, one that I wrote about back in July. The most advanced chip foundry in the world is Taiwan Semiconductor Manufacturing Company (TSMC). TSMC makes chips for all of the world’s leading tech companies, e.g. Apple, AMD, etc. They are able to do that because they have the most advanced EUV lithography machines in the world. These are $150 million machines which are the size of a bus. A senior VP for IBM described the EUV machines as “the most complicated machine humans have built.” These advanced machines are produced by just one Dutch company called ASML. But the most critical component of the machines, the precise mirrors that print chip designs onto blank silicon wafers, are produced by one German company, Zeiss. The research behind all of this was a collaborative effort between the US, Japan and Europe.
Simply put, these machines that make the modern world possible are a combined effort of the free nations of the world and at present China is not able to buy them, at least not the latest, most advanced versions. However, Friedman speculates, as I did, that China might be thinking about an invasion of Taiwan as a way to seize control of the world’s largest chipmaker. But Friedman argues it ultimately can’t work because no one can do it alone.
I used to worry that Xi’s big idea — “Made in China 2025,” his plan to dominate all the new 21st-century technologies — would leave the West in the dust. But I worry a little less now. I have great respect for China’s manufacturing prowess. Its homegrown chip industry is still good enough to do a lot of serious innovation, supercomputing and machine learning.
But the biggest thing you learn from studying the chip industry is that all its most advanced technologies today are so complex — requiring so many inputs and super-sophisticated equipment — that no one has the best of every category, so you need a lot of trusted partners.
And if China thinks it can get around that by seizing Taiwan just to get hold of TSMC, that would be a fool’s errand. Many of the key machines and chemicals TSMC uses to make chips are from America and the European Union, and that flow would immediately be shut down.
Seizing TSMC would be a fairly short-sighted move on China’s part. Yes, they would take a leap forward in terms of the capabilities they controlled, but they would also be cut off from the people who built those machines in the first place. What happens if ASML decides it won’t service the machines anymore to protest a Chinese invasion? And who will build the next generation of EUV machines which would no longer be sold to Taiwan?
Ultimately, you can’t bully and steal your way to prosperity in a world where high tech success is dependent on a free market spread across the entire globe. I think Friedman is right about this. I hope we don’t have to find out the hard way.