Tag: peter hessler

EV’s, China and Industrial Policy

Let’s begin with an extract from one of my favorite books to have re-read this year, “Country Driving: A Chinese Road Trip”, by Peter Hessler:

At the end of the 1990s, the government of Wuhu, a city in eastern China’s Anhui Province, decided to set up a car company of their own. They hired an engineer named Yin Tongyao, who had previously been a star at Volkswagen. Yin had distinguished himself during the transfer of the VW Fox, when he helped move manufacturing equipment from Westmoreland, Pennsylvania, to northeastern China.

At his new job in Wuhu, Yin immediately put this international experience to good use. He first went to England, where he bought equipment from an outdated Ford engine factory. Then he traveled to Spain, where he acquired manufacturing blueprints from a struggling Volkswagen subsidiary that formerly made a car called the Toledo. The Toledo shared the same platform—the basic frame and components—as the Jetta. In secret, Yin moved the British Ford engine factory to Wuhu, incorporated the Spanish blueprints, and set up an assembly line. Strict national regulations forbade new auto manufacturers from entering the market, so the officials in Wuhu simply called it an “automotive components” company. The factory produced its first engine in May of 1999. Seven months later it turned out a car. It had a Ford-designed engine, a body that came from Volkswagen via Spanish blueprints, and many authentic Jetta accessories. The folks in Wuhu had simply tracked down Chinese parts suppliers who were supposedly exclusive to Volkswagen, and then they worked out deals on the side. Volkswagen was furious, and so were people in the central government.

Hessler, Peter. Country Driving: A Chinese Road Trip (p. 65). Canongate Books. Kindle Edition.

By the way, the next sentence in the book is one of my favorite sentences from it: “Everybody knew the basic principle of the Reform years: It’s easier to ask for forgiveness than permission”. If you are an Indian student reading this, and wondering what the big deal is, look up negative lists.

But anyways, the reason I began with this excerpt is because I was reminded of it when I read this:

Then, in 2007, the industry got a significant boost when Wan Gang, an auto engineer who had worked for Audi in Germany for a decade, became China’s minister of science and technology. Wan had been a big fan of EVs and tested Tesla’s first EV model, the Roadster, in 2008, the year it was released. People now credit Wan with making the national decision to go all-in on electric vehicles. Since then, EV development has been consistently prioritized in China’s national economic planning. 

https://www.technologyreview.com/2023/02/21/1068880/how-did-china-dominate-electric-cars-policy/

“Industrial policy” is an easy phrase to bandy about, but very few countries have managed to successfully execute industrial policy. Whatever your opinion about the Chinese economy (especially in the present instance), even the most pessimistic China observer will happily admit to the fact that China deserves to be put in the small group of countries that has managed to successfully execute industrial policy for some sectors. And as we have covered earlier, the EV sector is certainly one of them. Remember how Volkswagen was “furious”, back in 1999?

Try this on for size:

In July, Volkswagen paid $700 million for a 4.99 percent stake in XPeng, a money-losing Chinese electric car start-up, putting a valuation of $14 billion on XPeng. Nio received assistance from the Hefei local government, but XPeng has acknowledged assistance from the local government in Wuhan, also in central China. Volkswagen announced in April that it would build a $1.1 billion car development center in the central China city of Hefei. VW will hire 2,000 engineers to do work previously performed at its headquarters in Wolfsburg, Germany, for cars manufactured in China.

So what exactly did China do when it comes to industrial policy regarding automobiles?

  1. They played the long game:
    “They realized … that they would never overtake the US, German, and Japanese legacy automakers on internal-combustion engine innovation,” says Tu. And research on hybrid vehicles, whose batteries in the early years served a secondary role relative to the gas engine, was already being led by countries like Japan, meaning China also couldn’t really compete there either.  This pushed the Chinese government to break away from the established technology and invest in completely new territory: cars powered entirely by batteries. 
  2. They hired the right people.
  3. They used the ability to provide subsidies in myriad ways: subsidies for production, but also an implicit guarantee of purchase of EV’s, and nudge-nudge, wink-wink tweaking of “regulations” to make sure demand for EV’s remained in place.
  4. Industrial policy is not a synonym for import substitution. In fact, foreign competition can often provide a benchmark of sorts for domestic producers: this is the standard you have to match, if not beat. And that cuts both ways – international producers benefit from ferocious domestic competition too!
  5. China utilized it’s home ground advantages judiciously when it came to economic geography.
  6. And if you’re looking for a metric that exemplifies the success of this industrial policy, look no further:
    “Chinese automakers like BYD and Chery, and the European and Singaporean shipping lines that transport cars for them, have placed almost all of the orders now pending worldwide for 170 car-carrying vessels. Before China’s auto export boom, only four a year were being ordered, said Daniel Nash, head of vehicle carriers at VesselsValue, a London shipping data firm.
    The incentive to build more ships is clear. The cost per day for an automaker to hire a car-carrying ship has soared to $105,000, from $16,000 two years ago, Mr. Nash said. BYD is spending close to $100 million apiece for the construction of what will be the six largest car carriers ever built. Most of the vessels are scheduled for completion in the next three years.”

And that brings us to the inevitable question: can we (India, that is) replicate what the Chinese did for their automobile industry?

“I think the interesting question is, would a country like India or Brazil be able to replicate this?” Mazzocco asks. These countries don’t have a traditional auto industry as strong as China’s, and they also don’t have the Chinese government’s sophisticated background in handling massive industrial policies through a diverse set of policy tools, including credits, subsidies, land use agreements, tax breaks, and public procurements. But China’s experience suggests that EVs can be an opportunity for developing countries to leapfrog developed countries.

“It’s not that you can’t replicate it, but China has had decades of experience in leveraging these [systems],” says Mazzocco.

https://www.technologyreview.com/2023/02/21/1068880/how-did-china-dominate-electric-cars-policy/

“The Chinese government’s sophisticated background in handling massive industrial policies” is a phrase I do not disagree with, but one of the many reasons to read Hessler’s excellent book is so as to understand that this sophistication was earned. It didn’t fall out of the sky:

When Deng came to power, China’s auto industry faced the same basic challenge that characterized so much of the Reform period: How do people learn to do something completely new? From the government’s perspective, it was critical to learn from foreign automakers, but nobody wanted to relinquish profits and control of the industry to outsiders. As a result, Deng invited foreign manufacturers to set up shop under strict regulations. In order to produce cars in China, a foreign company had to find a state-owned partner, and outside ownership was limited to 50 percent.
The American Motors Company jumped at the opportunity. In January of 1979, less than a week after President Jimmy Carter formally recognized the government of the People’s Republic, AMC was already sending a delegation to work out a deal. Over the next decade they learned to regret their pioneering status. While other companies such as Toyota stayed out of China, biding their time, AMC forged ahead and got nowhere. The partnership structure was awkward: two sets of management, each with its own culture, goals, and values. The AMC experience became so notorious that it eventually inspired a book called Beijing Jeep by the journalist Jim Mann. It’s a story of one misunderstanding after another; the chapter titles include “Getting Nowhere,” “A Very Long Haul,” and “An Outpouring of Grievances.” Even the index conveys a sort of taut frustration—it begins with “Absenteeism” and continues through “Xenophobia,” an alphabetized testimony to cultural differences of the 1980s.

Hessler, Peter. Country Driving: A Chinese Road Trip (p. 63). Canongate Books. Kindle Edition.

So sure, we can have Chinese engineers sneer at how long it takes Indian workers to come up to speed, but hey, we all have to start somewhere.

And if you ask me, the best place to start is to internalize my favorite sentence from Country Driving: sometimes, it is easier to ask for forgiveness than ask for permission.

Nike says it more pithily, and therefore better, but the message remains the same in either case.

Country Driving, by Peter Hessler: A Review

The decor represented a study in contradictions: the pig fetus floated a few feet away from the Buddhist shrine; the Denver skyline faced a People’s Liberation Army tank. There were two bottles of Johnnie Walker, along with the two Ming-dynasty signal cannons that Wei Ziqi had foraged from the Great Wall. A calendar was dedicated to Huairou infrastructure. Sometimes, when we sat down for dinner at the family table, I looked around and thought: How could anybody hope to make sense of this world?

Location 4221, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

The world that Peter Hessler is describing in this excerpt is a microcosm of the world that is being described in Country Driving. And by the end of the book, he manages to answer the question that he poses in such rhetorical fashion here: he does end up making sense of it. Resoundingly, satisfyingly so.

I love to begin classes in introductory macro classes by asking three questions:

  1. What does the world look like?
  2. Why does it look the way it does?
  3. And what can we do to make it better?

The reason I bring up these three questions in today’s blog post is because this framework helps us understand why you should read Country Driving today, in 2024.

It is a book published in 2010, and it is a book about China from the late 1990’s, through until around 2006. Not, in other words, an “up to date” book about China. There’s only the occasional mention of the Beijing Olympics, for God’s sake, leave alone all else that has so memorably followed.

Up to date books may well do a much better job of telling you what China looks like today. But if you are looking for an answer to the second question – why does China today look the way it does?… then you couldn’t do much better than read Country Driving.

There is another reason to read it today, but we’ll get to that reason at the very end.

There are three sections to the book. The first section talks about Peter Hessler’s madcap trips across Northern China. The second talks about his experiences living next to a family in Sancha (a remote village in close proximity to Beijing), while the third is about China’s booming manufacturing sector. My first impression when I read the book a while ago was that these sections correspond to China’s past, present and future. But after having read it a second time, maybe a better way to think about it would be to think about the three sections as representing China’s experiences with agriculture, services and manufacturing.

But both of these are poor pegs on which to hang our understanding of the book. This book is, above all else, a book about China’s people. There are statistics, lots of ’em. There is incisive analysis about China’s policies. But the book is, first and foremost, about ordinary lives in extraordinary times. It is a reflection of how Chinese folks have adjusted to a period of tremendous social and economic upheaval, and how they’ve had to grow up and get used to new and alien ways of life. Not always have these process of adjustments worked well for everybody, but as with people in such situations the world over, so also with regular ol’ Chinese folks. They’ve shrugged their shoulders, and gotten on with it.

Mei banfa, they say, and they move on.

The words might be unfamiliar to us here in India, but the fatalism isn’t. Mei banfa is simply the Chinese way of expressing a sentiment that surely has an equivalent phrase in every Indian language.

Mei banfa means “nothing can be done”. Kuch nahi ho sakta.

In the first section of the book, Peter Hessler talks about a couple of really long drives that he undertook in the Northern and Western parts of the country. Remember, this is from about twenty-five years ago, back from before China embarked upon their second highway development program. The first was all the way back in the 1930’s of course, but then history took over, and didn’t let go for sixty long years.

It wasn’t just roads that didn’t develop during those sixty years. A lot of related things didn’t, and when they started to develop, the pace of development was difficult to keep up with, metaphorically and literally. Here’s an example of the literal kind, from the first section:

It all started with a few trucks whose fuel lines had frozen. The trucks stalled, and then other vehicles began to pass them on the two-lane road. While passing, they occasionally encountered an oncoming car whose driver didn’t want to budge. People faced off, honking angrily while more vehicles backed up; eventually it became impossible to move in any direction. Potential escape routes along the shoulder were quickly jammed by curbsneaking drivers. A couple of motorists with Jeep Cherokees had taken advantage of their rear-wheel drive by embarking off-road; usually they made it about fifty yards before getting stuck. Men in loafers slipped in the snow, trying to dig out City Specials with their bare hands. The wind was so cold it hurt just to stand there. Meanwhile, truckers had crawled beneath their rigs, where they lit road flares and held them up to frozen fuel lines. The tableau had a certain beauty: the stark snowcovered steppes, the endless line of black Santanas, the orange fires dancing beneath blue Liberation trucks. “You should go up there and get a picture of those truckers,” Goettig said. “You should get a picture,” I said. “I’m not going anywhere near those guys.”

Location 1336, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

And from the same section, an example of the metaphorical struggle to keep pace with the demands of the 21st century:

Throughout the city, in hopes of managing the new traffic in the way that scarecrows manage birds, the government had erected fiberglass statues of police officers. These figures were located at major intersections and roundabouts, where they stood at attention atop pedestals. They portrayed officers in full uniform, complete with necktie, visored cap, and white gloves. Each statue even wore an ID tag with a number. In Baotou I never saw a live cop.

Location 1381, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

These are only two examples – the joy of reading Country Driving is that every other page has an anecdote that is likely to elicit a hearty chuckle. I am yet to read other books by the same author, but one reason I’m looking forward to the exercise is that Peter Hessler manages to imbue his books with an enviable mixture of dry, sardonic wit for the situations he comes up against, and a very human warmth and regard for the people he is writing about. It makes for an irresistible combination.

The first section conveys loneliness. The landscape is lonely, most of the people we meet (including Peter himself, in his car) are lonely, and we also learn about how (and why) China chose to be lonely and aloof from the rest of the world. We learn about the series of walls that make up what we refer to as the Great Wall today, and we learn about the people in the Northern and Western parts of China who either yet have to migrate to China’s South-East, or won’t. These, back then, were villages waiting to die, for lack of young, able-bodied people:

THE FARTHER I DROVE across northern China, the more I wondered what would become of all of the villages. The cities were easy to predict, at least in terms of growth—their trajectory was already laid out in tracks of cement and steel. In the countryside, though, it was impossible to imagine who would be living here in a generation. Often I stopped in a village and saw only the very old, the disabled, and the very young, because migrants left their children behind to be raised by grandparents. Workers still didn’t feel settled in the cities, although inevitably that was bound to change; it seemed likely that in the future they’d find some way to have their families closer to work

Location 1609, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

It is one thing to write a paragraph like this. To convey the same thing through a sentence like this one, though, fills me with envy: “He wore the slightly dazed expression that you find among people who have lived through war and revolution and famine and now, in their twilight years, have been assigned the task of raising young children.”

If the first section is about loneliness, the second section is about love and relationships. It is about familial love and it is about the universal love that we all feel for children. But it is also about the need to build relationships in a rapidly growing, and therefore rapidly urbanizing economy. When old familial and social structures break down, what replaces them? We meet nurses that won’t let fathers stay near their children in hospitals but we also meet the custom of villagers stopping by the home of a family that needs to visit hospital – with cash “gifts”. You see the rise of the impersonal bureaucracy that is modern life, but you also see the rise of customs that have adopted to the harsh realities of modern life. Peter Hessler uses the phrase in another context in this section, but it is a phrase that applies to both this section and Chinese cities back then: “a city of villagers”.

By the way, the fact that reciprocity underpins human societies is alive and well in China. In the context of the villages stopping by with gifts of cash, note that “recovery always means that the grateful family hosts a banquet”.

But back to relationships. As Peter Hessler puts it, it is rare to have any sort of link in China’s villages that was “purely economic”. But with rapid urbanization, and the breaking down of the earlier social structures, such “purely economic” structures become all too necessary. And there is (of course) a word for it: guanxi. Wikipedia describes it as the Chinese equivalent of an “old boy’s network”, and while that is a fairly good description, keep in mind that it is much more elaborate and hierarchical.

And if you think I’m exaggerating, here, take a look for yourself:

For a Chinese male, nothing captures the texture of guanxi better than cigarettes. They’re a kind of semaphore—in a world where much is left unsaid, every gesture with a cigarette means something. You offer a smoke at certain moments, and you receive them at others; the give-and-take establishes a level of communication. And sometimes the absence of an exchange marks boundaries. A city person has little to say to a peasant and naturally he will not accept his cigarettes. Even between two businessmen, one person might refuse a smoke as a way of establishing superiority, especially if he carries a better brand. All told there are more than four hundred different types of Chinese cigarettes, each with a distinct identity and meaning. Around Beijing, peasants smoke Red Plum Blossom whites. Red Pagoda Mountain can be found in the pockets of average city folk. Middle-class entrepreneurs like Zhongnanhai Lights. Businessmen with a flair for the foreign sport State Express 555. A nouveau riche tosses out Chunghwa like it’s rice. Pandas are the rarest beast of all. That was Deng Xiaoping’s favorite brand, and government quotas make them hard to find; a single pack costs more than twelve dollars. If you carry Panda, you’re probably just being pretentious.

Location 4078, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

But these guanxi relationships aren’t the real thing, now are they. These are not ties built on years and decades of living next to each other in close proximity and shared experiences. This is a transactional, and therefore superficial relationship.

And so while the second section has more people and more proximity, it only serves, paradoxically, to make the loneliness even more acute:

In China, rapid change has left many people with a hollow feeling: they no longer believe in the Communist ideology of old, and the forces of migration and urbanization have radically transformed society. The new pursuit of wealth can seem empty and exhausting; many people wish for a more meaningful connection with others. Some of them turn to religion not necessarily because they desire a personal relationship with God, but because they want to share something with neighbors and friends. This is one reason why the crackdown on Falun Gong was largely successful—after the community was broken, most people saw no reason to believe in that particular faith. A half century of Communism had taught them patience; they knew that something else would eventually appear

Location 3575, Location 4078, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

The third section was my least favorite section, but that isn’t me criticizing Peter Hessler. It is just that I much preferred learning about Chinese life in the first two sections. Reading about the birth, growth and mutation of Chinese manufacturing is in my case an occupational hazard, and this was a section I hd therefore hurried through when I first read the book.

But on my second read, I took the time to dip in rather more extensively, and my little fishing expedition was quite rewarding. I learnt much more about the sociology of Chinese manufacturing, along with some fascinating details and trivia about China’s headlong rush into manufacturing:

Whenever Highway 330 led me to a place of decent size, I pulled over and asked a bystander, “What do people make here?” Usually they could answer the question in a sentence; sometimes they didn’t need to say a word. In the town of Wuyi, a man responded by reaching into his pocket and pulling out a handful of playing cards. I subsequently learned that Wuyi manufactures one billion decks a year: half of China’s domestic market. Fifty miles away, Yiwu makes one quarter of the world’s plastic drinking straws. A place called Yongkang produces 95 percent of Chinese scales. In another part of Zhejiang, Songxia turns out 350 million umbrellas every year. Fenshui specializes in pens; Shangguan manufactures table tennis paddles. Datang produces one-third of the socks on earth. Forty percent of the world’s neckties are made in a place called Shengzhou.

Location 4942, Location 4078, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

And if you’re wondering what I meant by sociology:

A few years ago, a Wenzhou newspaper called Fortune Weekly ran a special Valentine’s Day supplement that included a survey of local male millionaires. The newspaper asked the men where they liked to have romantic Valentine’s Day dinners, and it listed the gifts they purchased for their wives and girlfriends. One question called upon respondents to recall “the time in your life when you felt the deepest emotion.” The two most common responses were “When I started my business” and “When I got divorced.” Another question asked: “If forced to choose between your business and your family, which would it be?” Of the respondents, 60 percent chose business, and 20 percent chose family. The other 20 percent couldn’t make up their minds

Location 5090, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

And:

It wasn’t simply a matter of a different age, a different culture—the fundamental motivation for settling a new city was also different. And there was a distinct narrowness to the groups of pioneers who showed up in a Chinese boomtown. Back when many American towns had been founded, the first wave of residents typically included lawyers, along with traders and bankers. A local newspaper often began printing while people still lived in tents. The first permanent buildings were generally the courthouse and the church. It was certainly a tough world, but at least there was some early sense of community and law. In a Chinese boomtown, though, it’s all business: factories and construction supplies and cell phone shops. The free market shapes all early stages of growth, which is why entertainment options appear instantly but social organizations are rare. No private newspapers, no independent labor unions—such things are banned by the Communist Party. Religion might flourish at the individual level, but institutions are weak; in Lishui’s development zone nobody built a church or temple. There weren’t any law firms or nonprofit organizations. Police and government cadres were almost as rare—they showed up only when there was some opportunity for profiteering.

Location 6219, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

Country Driving is a book that deserves to be read because it is a book that transports you across space and time and into a different society. You learn more about China (always a good thing), you learn more about why China was the way it was and therefore is the way it is (also a good thing), and above all, you get to read a wonderfully entertaining book.

The fact that this book is written by somebody as wryly funny as Peter Hessler is the (very welcome) cherry on top.And that, for me, is the best reason to read this book – it helps you learn while being enormously entertaining.

An all too rare combination, that.

What Are You Optimizing For, Cartography Edition

I’m rereading Peter Hessler‘s Country Driving: A Journey Through China from Farm to Factory. I hope to write a fuller review of this delightful book (and other books by the same author) eventually, but for now, today’s blogpost is about Chinese cartography.

One of Peter’s trips took him on a 3000 mile drive through Western China, from Inner Mongolia to the Tibetan plateau. This trip (and both the time during which the journey was undertaken and the location fill me with jealousy) was sometime in the early 2000’s, and as a consequence, the book is utterly fascinating.

The absolute worst thing that a driver could do was open a map. It was like handing over a puzzle to a child—people’s faces went from confusion to fascination as they turned the map this way and that, tracing lines across the page. One of the first things I learned on the road was to keep the Sinomaps out of sight while asking directions.

Location 1760, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

We’ll have more to say about Sinomaps in a little while, but for now, let’s focus on what Peter writes about next: Chinese cartography. Over time, he says (and he means centuries) Chinese maps “became less analytical and more descriptive”. They increasingly relied on verbal descriptions, rather than visual schema. Here’s how he describes maps drawn of the Great Wall: “huge towers loom atop steep cartoonish peaks, whereas the surroundings lack detail or scale.”

In other words, the maps show military installations, and focus on nothing else. He contrasts this with European and Arabic cartography. The incentives, he says, in those cases, were trade. Merchants created detailed maps of the Mediterranean and later of the African coastline, with enthusiastic assistance from their rulers (Islamic and European, respectively).

These maps were much more detailed, much more accurate and therefore much more representative. But all this is not because European or Middle Eastern folks back then were somehow better at drawing maps, because as Peter Hessler points out in his book, the Chinese had excellent maps of equally good quality sixteen centuries before the Europeans.

Instead, the difference in quality comes down to a favorite question of ours in these parts: what are you optimizing for? In China, back in the 11-16th centuries, maps were drawn up not for trade and commerce, but for military purposes. And very specific military purposes – it wasn’t about territorial expansion, but about defense. Defense against whom? Against the Mongols, and those wars were mostly fought in China’s north and north west. In such a landscape, Peter Hessler points out, specific points (such as huge towers, for example) matter more than anything else. And there is hardly anything else in such “vast and featureless” landscapes in the first place.

And so:

In the end, any map describes not only a region but also the key interests of the mapmakers themselves. During the same century that the Portuguese were trying to access the gold trade of East Africa, the Ming dynasty was protecting itself against northern nomads, and these very different goals created very different schematic views of the world.

Location 1787, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

“What Are You Optimizing For?” is a magical question, and we should be asking it more often.

Now, Sinomaps. What is Sinomaps?

“SinoMaps Press is a public institution under the direct jurisdiction of the State Bureau of Surveying and Mapping.” So begins the About Us section of the SinoMaps website. And back when Peter Hessler went on his envy-generating road-trips, SinoMaps were the only option available.

He grew so fascinated with the maps that he’d been using that he actually visited their offices, and this delightful passage was the result:

Their target market was shifting away from government and military, but they still had an idiosyncratic notion of the private consumer. “We publish many maps of things that people need because of economic development,” Xu said. He meant this literally—the company was attempting to map the things that Chinese people buy. “We publish a Restaurant Map, which shows all the places where you can eat in Beijing,” Xu said. “And we make a Special Tourist Map, which shows not just the famous museums, but also places like Bar Street and Silk Alley.” I mentioned that the old Silk Alley, which had been a popular clothes market, had recently been demolished and moved to a new location. “See what I mean?” Xu said. “Now we have to change that one, too!”

Location 1809, Kindle Edition, Country Driving: A Journey Through China from Farm to Factory, Peter Hessler

Layers on Google Maps, in other words. But in print. And therefore out of date as soon as they have been printed!