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Our Greatest Opportunities Lie in China

Today, I’m torn between telling you about the climax of my three-day COSM conference in Bellevue, Washington, and reporting on the extraordinary new book by Newt Gingrich on Trump vs. China.

It seems a conundrum, but perhaps I can resolve it by doing both. The final day of COSM, after all, was largely devoted to an intense debate on China, both in a panel, and in my interview of Michael Kratsios, former Peter Thiel associate — now chief technology officer of the United States.

I agree with Gingrich and Kratsios that the challenge of China policy is the most critical issue facing our country. But I question the approach of making the US technology sector pay the price of bans and bars from the Chinese market, the world’s fastest growing and most promising technology domain.

But first an edited commentary on COSM’s technology message from Mike Kendall, my “Man on the Margin” blogger and pilot, who guides much of what I do here on cryptocurrencies, trade policy, and the role of gold. I amplified some points and translated acronyms:

Advances in computational power are what is driving everything — from artificial intelligence (AI), autonomous vehicles, the blockchain, adjusted reality, virtual reality, 5G next-generation wireless, and everything converging in-between.

Ray Kurzweil of Google made the point that it was only in the last 18 months that computational power has increased to the point where the recent advances in AI, such as protein folding, were made possible.

Kurzweil sees the continuing increase in computational power and what it enables drastically changing our world by the next decade. (That’s good news for those awaiting more realistic sex robots.) The computational power and data storage required for one autonomous vehicle is massive. Increasingly cars are becoming mobile datacenters.

Then there is 5G, wearables that will replace the smartphone, and holographic renderings allowing a convergence between AR, VR, and the real world. We learned from Jules Urbach of Otoy that we will have to wait for 6G before Star Trek holograms become a part of our daily life. Gilad Garon of ASOCS, a Gilder investment, announced that his Israeli company is already working on 6G.

Amid all this potential, the political world is diligently working to blow up the global technology supply chain that enables it. Primarily the damage comes through our geopolitical and trade war initiatives and increasingly shrill rhetoric toward China. There was an excellent panel on China. Moderated by the former Microsoft VP, now managing partner of Ignition Partners, Bob Kelly, the panel included George Gilder, Wendy Liu, a Chinese representative of UBS headquartered in Hong Kong, Gary Rieschel, a long-time venture capitalist active in China investment, and Jim Michel, a local U.S. manufacturer who has to deal directly with China. There was excellent perspective from a wide variety of views, including Michel’s experience waking up in Shanghai to see a drone peering in his window.

Overall, at the grass-roots level where people actually engage in commerce, all agree that there are many problems on China’s side that need to get corrected. Both Chinese producers and foreign investors want to see these problems corrected. In the big picture, it is not working well for either side.

The US political solution of seeing China as a nail and wielding a hammer is not constructive. If US and Chinese political policy continue on this path, the global supply chain that is producing the foundation of computational and technology advances is at risk of getting disrupted, with all the negative ramifications. This was the issue cogently addressed by GG.

Inflamed rhetoric about the evils of Chinese communist government is exacerbating the mistrust. By percentage of GDP, China’s government is less involved in its economy than the US government. China launches three times more initial public offerings, fosters more business starts, and educates millions more engineers than we do.

If China was truly communist, they couldn’t produce anything that anybody wants. It was the communist China government that created the Shenzhen Economic Zone that was the foundation for China’s economic miracle beginning in 1980. This led to exponential growth that unleashed the Chinese economic miracle. The U.S. would do well to pattern our own cities on that model. We would also do well to keep a perspective on the big picture. The world advances by cooperation, not by conflict.

Thank you, Mike for that excellent report.

Let’s Turn to China

Published a week ago, the Gingrich book is a major statement by the Republican party’s leading intellectual. I will begin by a quote that I fully endorse, from page 310:

“We have the largest entrenched bureaucratic structure in American history. [We suffer from] the massiveness of our rules and regulations, the growth of lawyers as the dominant definer of acceptable government behavior, and the defense of entrenched public and private interests. All [these challenges] will be vastly more difficult to navigate and coordinate than [during previous national turning points] in 1860 [at the outbreak of Civil War], in 1939 [before World War II], and in 1946 [faced with the Soviet threat]. Our own systems, habits interest groups, and bureaucracies may be a bigger problem than the threat from China’s Communist system.”

After declaring “It’s not China’s fault,” the former House Speaker went on to list an entire catalog of 25 self-inflicted American burdens, such as slovenly primary education, anti-STEM secondary education, obsolescent scientific and technical education, advanced graduate courses dominated by foreign students, mostly Chinese, Pentagon bureaucracy and special interest obsolescence, National Aeronautics and Space Administration paralysis, Air Force blindness to space challenges, and lawyers — lawyers and litigation everywhere slowing and intimidating and crippling our response to foreign challenges.

I agree that none of these obstacles to American success are China’s fault. And I agree with most of Gingrich’s alternative policies.

But I do not agree with his belief that the analogy of Soviet Communism or German Nazism or Japan’s Pearl Harbor attack are helpful in facing the challenge what is essentially Chinese capitalism.

If it were truly a communist regime, China would get nowhere. Marxism and Leninism afford a religious source of legitimacy for the rule by a Communist party now full of engineers and entrepreneurs who have a clearer vision of the technological future than anyone in American government.

As I left the hotel from COSM, I was alerted to Xi Jinping’s extraordinary speech on the centrality of blockchain to the future of the world economy and China’s. I recalled, as did Texas blockchain entrepreneur Paul Snow of Factom at the conference, that Michael Kratsios, the undeniably brilliant chief technology officer of the United States, did not mention blockchain or cryptocurrencies anywhere in his presentation or interview.

Responding to Snow and I, Kratsios chiefly treated the following as a threat:

  • Crypto
  • Facial recognition
  • Huawei’s 5G initiatives
  • America’s great internet companies as potential monopolies.

Even the estimable Trump administration, even Newt Gingrich, have a way to go before they really come to terms with the vast changes and entrepreneurial vitality of China.

I believe China still offers a huge opportunity for US enterprise and investment.

My counsel: Don’t solve problems. When you solve problems, you feed your failures, starve your strengths, and achieve costly mediocrity. Pursue opportunities! Change the entire context with creative investments and upside surprises. That is what we want to do around here.

Regards,

George Gilder
Editor, Gilder’s Daily Prophecy

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George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology — and its impact on our lives.

He’s an established investor, writer, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

And he’s certainly no stranger to the financial newsletter...

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