Working Paper On Innovative Solutions In Cities Around The World: Fill & Download for Free

NO. Not now. Not ever.Most things that make it not nice to build a business, aren't features of the country (China) but of the ambient environment around it that make it undesirable to live and build a tech startup.More specifically:I. COPYCAT CULTUREIs there any wonder, then, that the Chinese are widely regarded as not being creative? Yes, they file a lot of patents, but the quality isn’t great.In my view, there’s not yet much terribly impressive about China’s technology achievements. A calm look at China’s technology achievements should pick up strengths as well as weaknesses. There are certain lights under which Chinese technology efforts look spectacular. China is the only country other than the US to have been able to develop internet giants, which can look upon their Silicon Valley counterparts as peers and puts it in a good position to continue developing digital technologies. The Chinese mobile internet experience certainly is far more fun than what consumers in the US are able to play with. It’s true that the country leads on 5G, the consumer internet like social network, mobile payments, and e-commerce, as well as the buildout of certain industrial technologies that include solar energy generation, mobile infrastructure equipment, and high-speed rail. They’re also making good inroads in consumer electronics, from smartphones to drones. And Chinese firms have a plausible shot at leading in emerging technologies like artificial intelligence and quantum computing. These however have more to do with differences in the social environment and regulatory regime. These are not trivial achievements. But neither are they earth-shattering successes.I find it bizarre that the world has decided that consumer internet is the highest form of technology. It’s not obvious to me that apps like WeChat, Facebook, or Snap are doing the most important work pushing forward our technologically-accelerating civilization. To me, it’s entirely plausible that Facebook and Tencent might be net-negative for technological developments. The apps they develop offer fun, productivity-dragging distractions; and the companies pull smart kids from R&D-intensive fields like materials science or semiconductor manufacturing, into ad optimization and game development. I wish we would drop the notion that China is leading in technology because it has a vibrant consumer internet. A large population of people who play games, buy household goods online, and order food delivery does not make a country a technological or scientific leader.Although Alibaba and Tencent may be technically impressive on software development, their business success is mostly a function of the size of the market and the social, regulatory environment. On the demand side, a huge and dynamic market will pull forward domestic capabilities. The ubiquity of mobile payments is due not just to technological innovation (substantial though that might be), but also the financial regulatory regime and the leapfrog over credit cards. In China they had the “good fortune” of basically being behind in so many things so they could leapfrog into a mobile world, go straight to mobile payment skipping credit cards, and now leapfrogging into online retail skipping the shopping malls, and so on. An industry’s legacy is hard to dump because it creates bad habits that are hard to change and baggage that is hard to leave behind. E-commerce works great because China has built first-rate infrastructure and because many migrant workers are available to deliver goods in dense urban areas. These are fine companies, but in my view the milestones of our technological civilization ought to be found in scientific and industrial achievements, not the creation of consumer internet companies. Now even if one did want to consider consumer internet the be the most important sector, the US still looks good. A rough rule-of-thumb comparison: market caps of the five biggest US tech companies (Apple, Microsoft, Google, Amazon, and Facebook) add up to US$5tn at the time of this writing, while the two Chinese internet giants (Alibaba and Tencent) add up to US$1tn. This 5:1 advantage to the US feels intuitively right to me as a measure of relative capabilities.China has developed credible brands in certain hardware technologies, like the smartphone, and many types of industrial goods. They’re building good consumer products, although bad at creating global brands. It has a strong position when it comes to manufacturing industrial goods. A few firms have staked out leading positions in industries that include steel, solar power generation, and telecommunications equipment. The bulk still has a long way to go however before they can really be considered the peers of German, Japanese, Korean, and American giants. In fact, I suspect that Chinese firms should be considered underperformers as a whole. Few domestic firms have become globally-successful brands, and Chinese firms are still far behind more technologically-sophisticated industries involving R&D-intensive technologies like automotives, semiconductors, and aviation. They have a weak position even in the domestic market. As a rule of thumb, it’s harder to name global Chinese brands than Japanese and Korean ones, even when they were close to China’s current level of per capita GDP. The lack of success in global brand building shows that Chinese firms (not foreign firms producing in China) are actually poor exporters. Shouldn’t we expect more from the world’s second-largest market?How about emerging technologies like AI, quantum computing, facial recognition, biotechnology, and hypersonics, and other buzzing areas? The fact that data so easily aggregates creates business models that are profitable because if it works in one city it can work in a hundred big cities; if it works with one demographic, then it applies to all demographics. Also, the market size is an even larger advantage in AI where so much data is needed; the more data, the better it works. But I think there’s no scientific consensus on China’s position on any of these technologies, but let’s consider it at least a plausible claim that Chinese firms might lead in them. So far however these fields are closer to being speculative science projects than real, commercial industries. AI is mostly a vague product or an add-on service whose total industry revenue is difficult to determine, and that goes for many of the other items. In my view, focusing the discussion on the Chinese position in emerging technologies distracts from its weaknesses in established technologies. Take semiconductors, machine tools, and commercial aviation, which are measured by clearer technical and commercial benchmarks. They are considerably more difficult than making steel and solar panels, and Chinese firms have a poor track record of breaking into these industries.The focus on speculative science projects brings to light another issue around discussions of China and technology: an emphasis on quantifying inputs. So much of the commentary focuses on its growth in patent registrations, R&D spending, journal publications, and other types of inputs. One can find data on these metrics, which is why measures of “innovation” are often constructed around them. But these inputs are irrelevant if they don’t deliver output, and it’s not clear that they often do, neither in China nor anywhere else. Wonderfully asymptoting charts on Chinese patent registrations and R&D spending suggest that Chinese firms might overrun the rest of the world any day now. So far however the commercial outputs are not so impressive.In many ways, China’s technology success is too much like a paper tiger, impressive in appearance but in reality not so powerful.Why?Because much of China’s technology stack is built on American components, especially semiconductors. China owns very few patents featuring originality and high or core technology. In fact, Chinese innovation relies on the modification of existing technologies, like putting together a cell phone and a cigarette case. Chinese engineers are trying only to replace existing technologies, which is relatively simpler than inventing them de novo. These creations are fun, but they lack depth.China works to beat America.America works to get the best of the world.There’s a matter of will. Chinese aspirations to replace US technology has long been a whimsical task. All the research on this topic will end up into this.Competition comes from the perception of scarcity while creativity comes from and leads to abundance. If you can create you don't need to worry about competition. When you’re competing with people, it’s because you’re copying them. No one can compete with you on being you. Copycatting is a part of Chinese culture. Ten years ago, Shenzhen was 90% about copycatting and 10% innovation. Now, it's 70% innovation and 30% copycatting.There are two kinds of evolution: the genetic kind and the cultural kind. Both shape our behavior and mindset, and the cultural kind has gotten a lot faster.You don’t need a totalitarian figure to realize that you are oppressed. Oppression is manifested in different ways. You are oppressed through social norms, through limiting beliefs, through facile and prosaic views. Only awareness and intellectual depth can battle this.The culture is kind of an operating system, and the operating system stays intact even as you put different programs through it.Few of us are immune to the values of the people around us. The culture is so strong that people are absorbed into it and become part of it and do it willingly, and if someone is not willing, then the guys around them are so strong that they will pull them into the culture.One of the most important things I’ve come to understand is that Eastern culture, which values sustainability, safety, community common good, rules & system, is best at value preservation (aka you’re already doing well and just want to make sure nothing gets screwed up).In Asia, stability is prized. Inequality is much less tolerated. There’s a culture of sharing. People aren’t so cutthroat. It's something in the culture that's made Asian/Chinese people become a creature of convention, shun failure and variation, more risk-averse, scared to take ambitious swings to be themselves, extreme lack of critical thinking, deferring to groupthink, and perceive human engagement as competition rather than collaboration.Western culture, which values risk-taking, personal freedom and citizen empowerment, is best at value creation (aka creating value from scratch).Guess which culture does better in innovation?* There is plenty of evidence:For decades, the online infrastructure — from design to programming languages to wireless protocols — came from the West. China has long been known for cyber and intellectual property theft and protectionist regulation. We only need to look at the amount of money paid by Chinese companies to Western companies for the license of technology, intellectual property, plans, designs, formulas and so forth.In 2007, agents of the Chinese military hacked the aerospace firm Lockheed Martin and stole tens of millions of documents related to America’s most expensive weapons system, the F-35 Joint Strike Fighter. A notably similar Chinese plane, the J-31, appeared soon thereafter. (China denies stealing the plans.)The Chinese hacking of American businesses exposed a deep clash of perceptions: America was starting to see China as a near-peer, intent on flouting rules laid down mostly by the West. But China still regarded itself as a scrappy latecomer, using whatever tools it could to protect and improve the lives of a vast population.That clash extends far beyond hacking: China has invoked its status as a “developing country” to erect barriers against foreign competitors, and to coerce American companies into sharing technology. Eventually, those practices turned some American businesses from ardent advocates for good relations into fierce critics. When China joined the World Trade Organization, in 2001, it agreed to a schedule for dropping tariffs and opening markets. But that schedule ended in 2006, and so did the momentum toward opening.Chinese hackers at the behest of various agencies—military, intelligence—roamed farther and wider. In 2014, they stole the private records of twenty-two million U.S. government employees and their relatives from a server at the Office of Personnel Management. It was more alarming than the usual breach; foreign spy agencies could use those records to identify people who work covertly as U.S. employees, or have secrets that would make them vulnerable to blackmail. The following year, Xi promised Obama to curtail hacking, and it briefly died down, but China’s cyber attacks have since resumed, including “widespread operations to target engineering, telecommunications, and aerospace industries,” according to a 2018 report by the U.S. intelligence community.In recent years, the FBI frequently arrests Chinese nationals for stealing research-and-development secrets. The U.S. government estimates that China’s intellectual-property theft costs America as much as $500 billion a year, or between $4,000 and $6,000 per U.S. household.The U.S. has prosecuted at least half a dozen Chinese students and scholars for spying or for stealing scientific research. In 2017, four Chinese intelligence officers of the People’s Liberation Army’s 54th Research Institute stole trade secrets and hacked credit-reporting giant Equifax, which compromised the personal data of nearly 150 million Americans. The group ran approximately 9,000 queries while routing traffic through 34 servers to secretly obtain names, birth dates, social security and driver’s license numbers for nearly half of all American citizens, before compressing and exporting the data. In 2018, Ji Chaoqun, an electrical-engineering student at the Illinois Institute of Technology, was charged with acting as an agent for China’s Ministry of State Security, and accused of trying to recruit spies among engineers and scientists. (Ji has pleaded not guilty.) Christopher Wray, the director of the F.B.I., warned the Senate Judiciary Committee that China has enlisted “nontraditional collectors” of intelligence to steal their way up the economic ladder at our expense. Federal law enforcement agencies also announced charges against a Chinese national who is accused of working with the Chinese army while she was allegedly a student at Boston University. Yanqing Ye, an alleged lieutenant in the People's Liberation Army, conducted research for China's National University of Defense Technology while she attended Boston University from October 2017 to April 2019. She is also charged with granting a military researcher in China access to her BU virtual private network login so the researcher could conduct web searches from overseas without detection. She is said to have left the country before charges could be unsealed. Until the head of Harvard’s Chemistry Department was arrested in 2020, China was allegedly paying him $50,000 a month as part of a plan to attract top scientists and reward them for stealing information. Federal prosecutors charged him with lying to the Department of Defense about his work for a Chinese-run The Thousand Talents program that tries to recruit experts from Western universities to work in China and ramp up its progress in science and technology. The FBI said the program has rewarded individuals for stealing proprietary information and violating export controls. China is also behind recent breaches US officials, including at a US federal gov office, the hotel chain Marriott, and the health insurer Anthen. The professor has pleaded not guilty to making false statements to U.S. authorities. Three scientists were ousted in 2019 from MD Anderson Cancer Center in Houston over concerns about China’s theft of cancer research.China’s first-generation Internet entrepreneurs unabashedly created copies of successful American start-ups Yahoo, Amazon, Facebook, Google and eBay. China’s powerful BAT companies — Baidu, Alibaba, and Tencent are Chinese equivalents of Apple, Alphabet, Microsoft, Amazon and Facebook. People call Baidu as the Google of China, Sina as the Yahoo of China because they’re pretty much US ideas. Microsoft for many years complained of the piracy of their intellectual property in China. Though now Chinese technocrats are breaking boundaries with their own business models and disruptive innovations.For years, the copycat products that emerged from China’s cultural stew were widely mocked by the Silicon Valley elite. They were derided as cheap knockoffs, embarrassments to their creators and unworthy of the attention of true innovators. That’s why it’s very difficult for any Chinese company to go to the US market. There was this parallel universe of Chinese companies that pretty much only were offering their services in China. And we had Tencent who was trying to spread some of their services into Southeast Asia. Alibaba has spread a bunch of their payment services to Southeast Asia. Broadly, in terms of global expansion, that had been pretty limited, and TikTok, which is built by this company Beijing ByteDance, is really the first consumer internet product built by one of the Chinese tech giants that is doing quite well around the world. It’s starting to do well in the US, especially with young folks. It’s growing really quickly in India. I think it’s past Instagram now in India in terms of scale. So yeah, it’s a very interesting phenomenon.These days, the most acute standoff between the two countries is over who will dominate the next generation of technologies. Under a plan called Made in China 2025, Beijing has directed billions in subsidies and research funds to help Chinese companies surpass foreign competitors on such frontiers as electric vehicles and robotics. A Pentagon report commissioned under Obama warned that the U.S. was losing cutting-edge technology to China, not only through theft but also through Chinese involvement in joint ventures and tech startups. It prompted Congress, in 2018, to tighten rules on foreign investment and export controls.The technology dispute escalated later that year, when the Trump Administration expanded an attack on Huawei, the world’s largest manufacturer of fifth-generation (5G) networking equipment, warning that the Chinese government could use the equipment for spying and hacking. Recently, the Justice Department unveiled new charges against the Chinese telecom company and its subsidiaries. The charges include racketeering conspiracy and conspiracy to steal trade secrets from US companies for over two decades. The DOJ accuses Huawei of stealing and copying US intellectual property (think: robots, cellular tech), and selling it in products around the world.But those outsiders missed what was brewing beneath the surface. The most valuable product to come out of China’s copycat era wasn’t a product at all: it was the entrepreneurs themselves.China is watching Silicon Valley. That's why Chinese founders usually have comprehensive knowledge about their US competitors, listing off minute product features and the latest numbers on their size and traction.Chinese people clearly stay on top of Silicon Valley. I can count at least ten Chinese publications that focus solely on Silicon Valley news. On 36Kr, a mainstream Chinese tech news outlet (think of it as the TechCrunch of China), close to half of the articles every day cover FAANG (Facebook, Apple, Amazon, Netflix, Google).When Facebook reported its security incident, related posts flooded my WeChat Moment timeline even faster than my Twitter feed. Once, I sent an English article about Instagram’s latest product change to a friend living in China, thinking that this would be news to her. She replied and said: “I read about this on Chinese sites three days ago. Have you been living under a rock?”One thing is clear: people in China–at least those in the tech circle–are not living under a rock. Every time you go to China, you would be humbled by people’s extensive knowledge of entrepreneurs and companies across the Pacific. I have met Chinese people who can recite Paul Graham’s essays, Ray Dalio’s principles, and Elon Musk’s latest tweets. The Chinese version of Crunchbase maintains extremely up-to-date–even encyclopedic–coverage of US startups’ fundraising activities. Chinese people do not need anyone to tell them how the US works.On the other hand, when you ask founders in Silicon Valley about Company Z in China, they often have no idea about its existence.Many well-educated Americans can’t name a single Chinese entrepreneur beyond Jack Ma. Even though China has become home to around a hundred unicorns (as many as the US), people in Silicon Valley struggle to name even one. It is rare to encounter American entrepreneurs who have set foot in China, whereas many Chinese entrepreneur have traveled to Silicon Valley. Many in the US are unaware that some of the world’s most innovative products come from China, and I believe that China remains under- and poorly covered in most Western media outlets.It makes me wonder how there can be so much information asymmetry in the tech world between the US and China.What explains this knowledge gap?The word “hunger” often comes up when they describe the Chinese entrepreneurs they meet. Why? Because if you are an entrepreneur in China, you are living a hunger game. Chinese people have a strong desire to copy American innovations and beat them in their game. It is a middle-income country with a well telegraphed desire to become the world’s pre-eminent power over the course of the next few decades. The Chinese market is so brutally competitive that if you don’t do everything it takes and learn all the best practices to win, you will almost certainly lose. It’s part of the reason why Chinese founders are like sponges in water–always absorbing knowledge and learning what’s working in other markets, so that they can improve their products and themselves. This “hunger” is something I see more of in China (and other emerging markets) than in the US, and it is my best explanation for the knowledge gap.Of course, language gap is another big factor–almost every Chinese entrepreneur I meet can speak English to some degree, whereas the number of American entrepreneurs who can speak Chinese can be counted with one hand. Granted, this has to do with the fact that English is a global lingua franca and Chinese is not. But I would argue that language proficiency is a function of hunger as well–if you are not hungry to learn about the outside world, you would not be motivated to take the time and effort to learn a foreign language.Having got to know about Silicon Valley for a while now, I see how easy it is to think that they are sitting in the mecca for world-class technology, that America still has the monopoly on real innovation, or that a VC can learn everything there is to know about tech without traveling much outside of Menlo Park.* What explains this copycat culture?The idea of progress itself is a relatively new. Before then, most cultures had the opposite idea of ancestor worship: that our ancestors were the greatest people who ever lived, that all the important knowledge was revealed to them, and all we should do is study them.Silicon Valley’s and China’s internet ecosystems grew out of very different cultural soil.Entrepreneurs in the valley are often the children of successful professionals, such as computer scientists, dentists, engineers, and academics. Growing up they were constantly told that they—yes, they in particular—could change the world. Their undergraduate years were spent learning the art of coding from the world’s leading researchers but also basking in the philosophical debates of a liberal arts education. When they arrived in Silicon Valley, their commutes to and from work took them through the gently curving, tree-lined streets of suburban California.It’s an environment of abundance that lends itself to lofty thinking, to envisioning elegant technical solutions to abstract problems. People are taught that crowds can be wrong, and that it’s a duty to stand apart if you disagree. Maybe these frequent exhortations to avoid groupthink increases independent thinking on the margins. Throw in the valley’s rich history of computer science breakthroughs, and you've set the stage for the geeky-hippie hybrid ideology that has long defined Silicon Valley. Central to that ideology is a wide-eyed techno-optimism, a belief that every person and company can truly change the world through innovative thinking. Copying ideas or product features is frowned upon as a betrayal of the zeitgeist and an act that is beneath the moral code of a true entrepreneur. It’s all about “pure” innovation, creating a totally original product that generates what Steve Jobs called a “dent in the universe.”Startups that grow up in this kind of environment tend to be mission-driven. They start with a novel idea or idealistic goal, and they build a company around that. Company mission statements are clean and lofty, detached from earthly concerns or financial motivations.In stark contrast, China’s startup culture is the yin to Silicon Valley’s yang: instead of being mission-driven, Chinese companies are first and foremost market-driven. Their ultimate goal is to make money, and they’re willing to create any product, adopt any model, or go into any business that will accomplish that objective. That mentality leads to incredible flexibility in business models and execution, a perfect distillation of the “lean startup” model often praised in Silicon Valley. It doesn’t matter where an idea came from or who came up with it. All that matters is whether you can execute it to make a financial profit. The core motivation for China’s market-driven entrepreneurs is not fame, glory, or changing the world. Those things are all nice side benefits, but the grand prize is getting rich, and it doesn’t matter how you get there.Jarring as that mercenary attitude is to many Americans, the Chinese approach has deep historical and cultural roots. Rote memorization formed the core of Chinese education for millennia. Chinese education system emphasizes memorization, rather than solving the problem. Entry into the country’s imperial bureaucracy depended on word-for-word memorization of ancient texts and the ability to construct a perfect “eight-legged essay” following rigid stylistic guidelines. While Socrates encouraged his students to seek truth by questioning everything, ancient Chinese philosophers counseled people to follow the rituals of sages from the ancient past. Rigorous copying of perfection was seen as the route to the true mastery.Layered atop this cultural propensity for imitation is the deeply ingrained scarcity mentality of twentieth-century China. Most Chinese tech entrepreneurs are at most one generation away from grinding poverty that stretches back centuries. Many are only children—products of the now-defunct “One Child Policy”—carrying on their backs the expectations of two parents and four grandparents who have invested all their hopes for a better life in this child. Growing up, their parents didn’t talk to them about changing the world. Rather, they talked about survival, about a responsibility to earn money so they can take care of their parents when their parents are too old to work in the fields. A college education was seen as the key to escaping generations of grinding poverty, and that required tens of thousands of hours of rote memorization in preparing for China’s notoriously competitive entrance exam. During these entrepreneurs’ lifetimes, China wrenched itself out of poverty through bold policies and hard work, trading meal tickets for paychecks for equity stakes in startups.The blistering pace of China’s economic rise hasn’t alleviated that scarcity mentality. Chinese citizens have watched as industries, cities, and individual fortunes have been created and lost overnight in a Wild West environment where regulations struggled to keep pace with cutthroat market competition. Deng Xiaoping, the Chinese leader who pushed China from Mao-era egalitarianism to market-driven competition, once said that China needed to “let some people get rich first” in order to develop. But the lightning speed of that development only heightened fears and concerns that if you don’t move quickly— if you don’t grab onto this new trend or jump into that new market—you’ll stay poor while others around you get rich.Combine these three currents—a cultural acceptance of copying, a scarcity mentality, and the willingness to dive into any promising new industry—and you have the psychological foundations of China’s internet ecosystem.The reason for this is they have an economic system that can’t deliver.In a socialist economy, you get a one-size-fits-all adjustment. Every adjustment needs to be commanded. Communicate it down and get everybody to do the right thing. That’s impossible. You miss out on this learning process where entrepreneurs copy others when they see things successful and stop doing it when it’s not. In a market economy, everybody’s little adjustments get tested, and we get to see what works.This is not meant to preach a gospel of cultural determinism. Birthplace and heritage are not the sole determinants of behavior. Personal eccentricities and government regulation are hugely important in shaping company behavior. Maybe taxes and regulations matter more after all; I also don’t want to pass over cultural norms that stigmatize failure. If the limiting factors to great entrepreneurship is independent thinking combined with courage (courage is in shorter supply than capital or genius), then maybe it’s better to be away from innovation. After all, policies are easier to fix than the social environment. (See II below)In Beijing, entrepreneurs often joke that Facebook is “the most Chinese company in Silicon Valley” for its willingness to copy from other startups and for Zuckerberg’s fiercely competitive streak. Likewise, I saw how government antitrust policy can defang a wolf-like company. But history and culture do matter, and in comparing the evolution of Silicon Valley and Chinese technology, it’s crucial to grasp how different cultural melting pots produced different types of companies.* Copycat culture could mean fragility for China's technology. Here's how:I'm skeptical of copying things. To the extent you're trying to copy Silicon Valley, you're ready putting yourself in some in a weird derivative position. You know, you don't want to be the Harvard of North Dakota. The something of somewhere is often the nothing of nowhere.China’s technology foundations are fragile, which the trade war has made evident.The trade war produced the clearest evidence that China’s technology foundations are fragile. When the US government decided to restrict technology exports to particular firms, it drove ZTE to near bankruptcy, crippled the operations of Fujian Jinhua, and has at least dealt a major blow to Huawei. US sanctions have revealed that most Chinese firms engage in only a thin layer of innovation, and that Chinese firms in general have not had serious success mastering more foundational technologies. The most important of these is the semiconductor. Without particular chips like CPUs, GPUs, and FPGAs, which for the most part come from American providers, even a firm as large as Huawei can struggle.The US has the policy tools in place to slow down China’s technology progress, at least in the short term. Creating hassles for large companies slow down the entire ecosystem, because leading companies spend the most on R&D and serve as downstream buyers. The US can escalate the use of export controls in still more ominous ways, and in some cases also prevent other countries from shipping goods to China. CFIUS will make it more difficult for Chinese firms to engage in technological learning through equity investments. And if US tariffs stay on for an extended period, Chinese firms will not be able to learn to improve their products in the world’s largest market of sophisticated consumers. The medium-term outlook for China’s technology progress is in my view not so cheerful.Failure to develop more foundational technologies has meant that the US has had an at-will ability to kneecap major firms, and to be able to impose at least significant operational hassles on Huawei. Over the medium term, US controls will disrupt the ability of Chinese firms to acquire leading technologies. And so long as substantial US tariffs stay in place, Chinese firms will have worse access to the world’s largest and best consumer market, meaning that they’ll be exposed to less export discipline.It’s now a matter of national security for China to strengthen every major technological capability. The US responded to the rise of the USSR and Japan by focusing on innovation; it’s early days, but so far the US is responding to the technological rise of China mostly by kneecapping its leading firms. So instead of realizing its own Sputnik moment, the US is triggering one in China.The most frightening aspect of this crisis is not the short-term economic damage it is causing though, but the potential long-lasting disruption to supply chains.China is losing its prowess as the only game in town for whatever widget one wants to make was already under way. It was moving at a panda bear’s pace, though.Under President Trump, that slow moving panda moved a little faster. Companies didn’t like the uncertainty of tariffs. If Trump wins re-election, it will only speed up this process, as companies will fear what happens if the phase two trade deal fails.After US sanctions started taking down giants, private companies are thinking more carefully about how to maintain continuous access to supplies. US political actions are now as unpredictable as major earthquakes, and have the same effects on supply chains. Every company has to cultivate non-US, and ideally Chinese alternatives. That task is taken most seriously by the technology sector, since the lack of only a few components can defeat a system as complex as a smartphone or base station.* What's the solution?We intuitively know that the physical and cultural environment matters.You don’t control everything in your environment, but you control enough to make a huge difference. Think about what you control and how you can change it to get more horsepower out of your brain.Any time you sincerely want to make a change, the first thing you must do is to raise your standards. If you’re lucky you end up with environment that have high standards. If you’re not that lucky, there is a few things you can do to help raise the bar.In a world that attempts to impose certain norms upon us, it is the duty of the sovereign individual to question those norms. It was understandable back in the Middle Ages to look at the pyramids, or the ruins left from the ancient Romans and believe they were the peak of civilization. Ancestor worship had to be challenged and overturned to have the scientific and industrial revolutions and be forward looking.Although gene and culture are important, we now have many ways to create “instincts”: we can structure our environment for the type of person we want to become. We can LEARN to do better or worse. We can pass on traditions about how to deal with modern risks, just as we pass on language. We can unlearn what society tells us to do and think for ourselves.When it comes to getting better at thinking and making decisions, we place all the emphasis on the conscious brain, learning mental models and methods of thinking that improve outcomes. In so doing, we improve the raw horsepower of our brain. Yet, there is no point having a 400 horsepower engine if you can only get 25 horsepower out of it.China’s technology foundation has been fragile, but it will patch up now that everyone has realized it.Over the longer term, I expect that China will stiffen those foundations and develop firms capable of pushing forward the technological frontier, and Chinese firms will build strong technological capabilities, with companies that will reach the leading edge and push it forward.I am constructive for China’s longer-term industrial development. I think that long-term prospects are bright. In my view, Chinese firms face favorable odds first in reaching the technological frontier and next in pushing it forward. The country still feels like a highly optimistic place. International survey results consistently show that Chinese rank at the top of feeling optimism for the future. If you're optimistic, the future will take care of itself. If you're pessimistic, we're headed the apocalypse. And in my view, government institutions are organized around the ideas of adaptation and progress. Consider a few of their names. In 2003, the economic super-ministry renamed itself from the State Planning Commission to the National Development and Reform Commission. The most important government body is the Central Commission for Comprehensively Deepening Reform. “Development” and “reform” are splendidly Hegelian ideas: both are forward-looking and without end. Surely it’s better to be a developing country than a developed one, for the latter means that everything is done and finished. The implication behind developed being that there is no more growth to go. And a commitment to continuous “reform” recognizes the impossibility of overcoming every contradiction entailed by modernization, and therefore institutions need to be perpetually adaptive. Incantation alone cannot make something true, but getting names right is a nice part of institutional success.Companies were doing what they always do - search the world with the lowest costs of production. Maybe that meant labor costs. Maybe it meant regulations of some kind or another. They were already doing that as China moves up the ladder in terms of wages and environmental regulations.No country has the logistic set up like China has. Few big countries have the tax rates that China has. Brazil surely doesn’t. India does. But it has terrible logistics.I consider two advantages to be important: First, Chinese workers produce most of the world’s goods, which means that they’re capturing most of the knowledge that comes from the production process. Second, China is a large and dynamic market. On top of these structural factors, Chinese firms have stiffened their resolve to master important technologies after repeated US sanctions.I believe that technology ultimately progresses because of people and the deepening of the process knowledge they possess, and that the creation of new tools and IP are the milestones of better training. We should distinguish technology in three forms: tools, direct instructions (like blueprints and IP), and process knowledge. The third is most important: Process knowledge is hard to write down as an instruction: you can give someone a well-equipped kitchen and an extraordinarily detailed recipe, but absent cooking experience, it’s hard to make a great dish.On the supply side, Chinese workers engage in a greater amount of technological learning than anyone else, for the simple reason that most supply chains are in China. Chinese workers are working with the latest tools to produce most of the world’s goods; over the longer term, my hypothesis is that they’ll be able to replicate the tooling and make just as good final products. They can do so because the domestic market is huge and dynamic. China today has a large industrial system with few missing backwards and forward linkages, which means it’s a mostly complete learning loop. The government and businesses are motivated by a sense of urgency to master most technologies. I expect that as China’s economy grows more sophisticated, its absorptive and learning capacity will improve.As a long-term strategy, our best hope lies in access to quality education, specifically an education that reinforces the autonomy of the individual by creating a culture that encourages long-term innovation, cultivating self-awareness, CRITICAL/INDEPENDENT THINKING, problem-solving, and emphasizing academic freedom. Education’s purpose is not to give you the answer or shove information in, but to stoke curiosity, fuel discovery, teach you how to be more self-aware (mission-driven), how to think, take risk, embrace failure and variation. Traditional school fails you on this point miserably. The problem is not people being uneducated. The problem is that we are educated just enough to believe what we have been taught, and not educated enough to question anything from what we have been taught. Schools educate us just enough to believe what we’ve been taught and not enough to think for ourselves. The problem with school is that you often become what you study instead of OWNING what you study.On the demand side, a huge and dynamic market will pull forward domestic capabilities. Technological learning in the labor force is a supply-side factor pulling forward the capabilities of Chinese firms. They benefit also from a demand-side factor: the domestic market is really big. People tend to forget that fact. China can become strong because of the tenacious entrepreneurs and the huge domestic market size of a homogenous country where everyone speaks the same language, the same culture, and there is a huge population (it has a population that is bigger than the combined population of Europe and America. It is more than four times as big as that of the US) without any competitors from the outside. In addition, China has developed an ecosystem with VCs and entrepreneurs and companies really helping each other grow iteratively. It’s true that Chinese firms haven’t yet had much success in creating global brands, but perhaps they can be forgiven for focusing on the world’s fastest-growing large market. The size of the market can overwhelm many deficiencies, like problems with the education system stifling creativity. And although consumer internet companies are not strategically so important, they buy upstream components, and are in a more credible position than European and Japanese firms in developing future digital technologies. China today is a huge internal market made up dynamic firms, ingenious workers, and a strong interest in technology. That’s rather like the US in the second half of the 19th century, which built the largest firms in the world mostly by relying on domestic demand.But I also recognize that this case is highly theoretical and a priori. There are many things that can get in the way. Perhaps workers fail to understand the tools they work with well enough to replicate it and invent the next iteration. Although the domestic market is large, policy distortions restrict competitive pressures. Productivity growth has been slowing down for a decade. And perhaps the market conditions aren’t yet right for engagement in high technology; it’s hard to see the case for investing in the development of the world’s best software and robotics systems when Chinese labor is still so much cheaper than developed levels. So let’s see how the constructive case runs against these practical challenges.II. AUTHORITARIAN SYSTEMPolitical system is one of the consequences of the culture.In the seven years since the president came to power, the Chinese state has become significantly more authoritarian.Chinese political values have long been at odds with the rest of the world’s. You can look at authoritarian societies see they didn't adopt what we view as universal values around freedoms. There is very little social redeeming value in the present governments in authoritarian countries.Its government is deciding which features of the global status quo to preserve and which to reject, not only in business, culture, and politics but also in such basic values as human rights.The treatment of Xinjiang is often cited as a sign of how far Beijing will go to repress freedom, fundamental human rights (free speech, free market, free enterprise system, free privacy, free religion and belief, freedom of assembly and freedom to petition the government) and crush cultural and regional diversity. And that’s their weakness.China is ranked the #113th in the annual Economic Freedom of the World 2019 (EFW) report.1. Strict Government Internet CensorshipChina is the friend we like, but whom we don't respect.They are friend who is rude and then complains that everyone else is rude. They want to play with everyone else, but want to change the rules to suit them. We would invite them to parties but they will sit in a corner not talking to others and then complain that everyone else is not very nice.Although China has some government advantage: building infrastructure, providing investments, and setting the countrywide direction, but starting 1996, the Chinese government began building great firewall to block out anything it did not want its people to know.The Great Firewall of China refers to the country’s online censorship system that blocks a range of foreign websites and slows down Internet traffic as it crosses the border. It’s why Chinese users can’t access Facebook, Twitter or YouTube. China's Great Firewall is already unique in its sophistication in enacting nationwide censorship. But as interesting as its history is, its future is equally fascinating and frightening. China wants this "cyber sovereignty" to become an international norm, and it's already using AI to tighten the screws on the few people left who bother trying to climb the wall.China's Great Firewall is more than just the reason people in the country can't access Facebook or YouTube. It has also played a huge role in shaping the country's Internet landscape, allowing giants like Baidu to emerge in the absence of Google. The Great Firewall has stifled innovation and creativity in China. But it’s also been said to help local tech companies by cutting off competition, leading to the rapid growth of homegrown tech giants like Baidu, Tencent and Alibaba, among a variety of other unique technology products that cater to domestic users. By setting up their firewall, they created an environment where their tech babies can grow up without being beaten up in the battle with the big boys. Thanks to China’s Great Firewall, Chinese tech companies don’t need to worry about competing with cash-flush American tech giants at home. They created copies of successful American start-ups in an existing market where they know there's high demand and also there's no competition. US tech companies that refused to help with censorship are gradually forced out or banned, and China’s Internet became kind of isolated island. Some American companies are worried that they will not be able to compete with China in its home market. That market has been mostly closed to foreigners. China can remain rich simply because it has a population that is bigger than the combined population of Europe and America (China’s population is more than four times as big as that of the US), so it has a big domestic market without any competitors from the outside.One way to get into China is to develop your product with a Chinese partner—creating the old capitalist/communist Frankenstein.* There is a lot of evidence:X Box and PlayStation were banned until 2014, for example. In Silicon Valley, some companies concluded that entering China had become all but impossible. Last year, Facebook, which had been asking China for years to let it operate there, abandoned the effort. Reed Hastings, the C.E.O. of Netflix, acknowledged the barriers before him, saying, “We will be blocked in China for a long time.” By then, the Chinese gamers had grown accustomed to mobile and PC games. Google left China to avoid censorship.In this place the Chinese company Baidu has become the largest search engine in the country. Alibaba has more sales than eBay and Amazon combined. There’s no Facebook in China, and the social messaging platform WeChat now has the user base the size of the entire population of North and South America. Chinese companies are already competing head to head with Silicon Valley and also markets like India, Japan, Southeast Asia, and South America.* What explains this censorship system?The desire to censor has always been a hallmark of intellectual insecurity. Those who can defend their ideas in a free marketplace of ideas don’t need to rig the game.As the Party returns to the idea that its absolute power is the only thing standing between China and chaos, the United States, and the embrace of markets, is increasingly seen as an enemy.China’s current leader casts himself as a defender against humiliation and threats from the outside. Xi Jinping promotes the view that China’s system presents an alternative to free-market democracy—what he has called “a new option for other countries and nations who want to speed up their development while preserving their independence.”Every city prizes security, but in Xi’s country it has been elevated to a state religion as his country fends off Western influence.The government had issued an unprecedented order, directing public institutions to remove all foreign computer equipment and software within three years.Instead of city walls, the Party relies on digital defenses; day by day, censors purify the Internet of subversive ideas, and facial-recognition technologies track people’s comings and goings.The simplest answer with which to start is: Because Beijing can.The Chinese probably believe that, even if their system is not fully accepted, history shows there will be little price to be paid for that. From Mao’s Great Leap Forward to Tiananmen Square, and from the internment camps of the Uighurs to the crackdown in Hong Kong, China’s leaders have seen time and again that foreign leaders and businessmen will still want to do business with them regardless of the scale of the atrocity. In recent years, there has been an obvious change in how many in the West view China. But one has yet to see a fundamental reordering of relations with Beijing in Berlin, Paris or London despite that change. Even in the case of Washington, there is a question of just how far America will be willing to go in disengaging from the Chinese market.* Here's what this censorship system could mean for China’s economy — and the world:The only two ways to coordinate human societies at scale are free markets and physical power. Any ideology rejecting free markets is just advocating for power. Socialism, communism, and fascism all converge to the same endpoint – rule by the biggest thug.This is bad news for the U.S. and other democratic nations. Visits to China, interactions with Chinese officials, and other such exchanges offer valuable insights into Beijing’s ambitions and behavior. What Beijing doesn’t seem to realize is that this is also bad news for China.After you compete and get a sense of how competitors behave and how strong they are, it actually makes sense to explore strategic investments and be able to partner. The more you’re willing to partner, that should grow the pie bigger as well.A country that still needs foreign investment and technology will not benefit from making foreign CEOs wonder whether they or their employees should take the risk of traveling there. A country that harps on how it is misunderstood and mistreated by the West will not benefit from constricting critical channels of communication. NGOs, journalists, and diplomats all play a role in connecting China to the wider world. The alternative is a China that is isolated, poorly understood, and cut off from important ideas and conversations.(*) The Great Firewall also is effective in another way: It promotes self-censorship.Concerns about getting blocked in China, or for Chinese netizens, getting a visit from the police, results in people not talking about certain topics or seeking out certain types of information.China maintains one of the most controlled, most oppressive, least free information spaces in the world. It’s hard to exercise political freedom if you don’t have economic freedoms. If you’re dependent upon the state for your livelihood, you lose your ability to use your voice to oppose (the state) because you can be punished.China is a top-down system, to put it mildly. Xi Jinping is both “grandpa Xi” and the country’s boss. Xi has cracked down on bad news leaking out from the mainland, so even if you could complain, it’s officially frowned upon.Mountains of information about China are hidden behind a language barrier, non-agreement to the Hague Convention on legal proceedings, a time difference, opaque ownership of Chinese companies, industrial secrecy, regime secrecy and a lack of those basic freedoms that allow the truth to come out. People in the West do not have much documentary evidence or sworn testimony in their hands, because China is still shrouded in secrecy, but it is obvious for the world to see.One rule for understanding authoritarian systems is that “you want to look at what they do and not what they say.” Authoritarian systems tend to hide internal problems from the rest of the world. Only a true emergency would force them to change their public messaging. For example, if a country like China, after downplaying the severity of the virus early on, is closing down a city of 11 million, this is a big deal. It is spreading. It is deadly. And we’re going to get hit.Another principle called the “principle of embarrassment” when trying to understand the historical accuracy of stories from authoritarian systems, is that “if a story is really embarrassing to the teller, you kind of think they might be telling the truth”. Because otherwise, it’s the kind of thing that people don’t usually admit about themselves, or institutions. For example, when China was telling us after January 20th that it was spreading during the incubation period from people that didn’t have symptoms, that was actually making it look very bad. Even then, many public health experts in the United States thought the Chinese were wrong, or lying, when they warned that the virus was spreading through asymptomatic transmission. China just really wants to prevent the pandemic because they covered it up for too long. Now it’s going to spread to the world. And they’re going to get blamed for it. It isn’t until a high‑stakes decision goes horribly wrong that people pause to reexamine their practices. So I had a completely different sense of what they said before January 20th when they lied and covered it up. And it was kind of not treated with the correct suspicion compared to what they said afterwards.It’s troubling that as the PRC [People’s Republic of China] restricts outlets and platforms from operating freely in China, Beijing’s leaders use free and open media environments overseas to promote misinformation.The reason I’m telling you all this is, there’s these ways in which even if you don’t necessarily have direct evidence on the medical ir political side, if you kind of understand how institutions and authoritarians work, there’s a way in which you get more information about their claims.It seems people in China do what they are asked to do. They follow the leader, so long as the leader is providing them with safety, employment and, for the higher educated, Western-style opportunities. I wasn’t there long enough to get a sense of people’s disdain for Xi, or the Communist Party. The country is slowing, but it is growing. If you had to chose a side, for or against Beijing, people are mostly pleased with what their country has become in this hybrid capitalist/communist system of theirs.As they should.There is no space for speech freedom in China now. Prescribed media guidelines are not unusual in China, where reporters and private newspapers and magazines operate within a heavily-censored environment that is tightly controlled by Communist authorities. We're increasingly seeing laws and regulations in China that undermine free expression and people's human rights. These local laws are each individually troubling, especially when they shut down speech by punishing dissent in places where there isn't democracy or freedom of the press. Free speech has been further restricted; civil rights lawyers have been locked up and non-governmental organizations have been closed down. Since he took power in late 2012, Xi has tightened ideological control and suppressed civil freedoms across the nation, reversing a trend under his predecessor to give Chinese media some limited scope to expose and report regional corruption and lower-level officials’ misdeeds. Even within the Communist party, cadres are threatened with disciplinary action for expressing opinions that differ from the leadership. The impacts on the individuals are multi-faceted. Economically, they would cut off your livelihood [academics get fired, writers can’t publish and no one dares hire you]. You would get sidelined by mainstream society, you’d lose friends and, worse than that, you might lose your personal freedoms, so a number of intellectual elites have chosen to leave China. Under Xi’s crackdown on speech and academic freedoms, a number of prominent liberal intellectuals, journalists, rights lawyers and NGO workers have either been silenced, jailed or escaped abroad.But it's even worse when it tries to impose their speech restrictions on the rest of the world. Chinese censorship is also spreading beyond its borders. Now, China is seeking to control not just what is said in China but what is said about China, too. China is not exporting a state ideology in the manner of the Soviet Union. But it wants to make the world more amenable to its ideology, so it has demanded extraterritorial censorship, compelling outsiders to accept limits on free speech beyond its borders. The increasingly Kafkaesque legal system of mainland China stands in stark contrast with the world’s rule of law. But during the Xi period, the mainland’s intolerance for free speech and thuggish attitude towards the law has seeped into other countries.The Chinese president is sincerely indifferent about whether a foreign country is a dictatorship or a democracy. Insisting that countries cannot have views on each other’s internal political systems is a vital defence mechanism for the Chinese Communist party as it fends off outside pressure on human rights or the rule of law. Beijing argues that foreigners who express views on a sensitive topic, such as Hong Kong, are interfering in China’s internal affairs. And this is where it crosses over into interference in free speech in the west. This is much more than an effort to stop foreigners standing in Tiananmen Square and shouting “freedom for Hong Kong”. China’s efforts to control and censor speech at home are gradually being internationalized, reaching into foreign corporations, the international media, the seminar rooms and campuses of western universities, and the statements and policies of foreign governments.China feels perfectly entitled to interfere when foreigners express views that displease Beijing. The increasingly tough tone of the Chinese media is part of Beijing’s efforts to inflame nationalism at home and intimidate multinational companies into toeing the party line. The Communist state is becoming more and more aggressive in pressuring foreign companies to choose between self-censorship and the loss of access to what will soon be the world’s largest market. It showed the government’s eagerness to punish foreign companies until they embraced the party’s point of view wholeheartedly. If you show your willingness to back down and kowtow to the party, the party considers you a pushover. They will increasingly encroach on your bottom line.When it comes to the media and academia, Beijing uses both visas and market access as a weapon. China specialists who are barred from the country can have their careers blighted. So the pressure to self-censor is huge.This raises a larger question about the future of the global Internet. China is building its own Internet focused on very different values, and is now exporting the authoritarian social values and visions of its tightly-controlled internet culture to other countries. Until recently, the Internet in almost every country outside China has been defined by American platforms with strong free expression values. There's no guarantee these values will win out. A decade ago, almost all of the major Internet platforms were American. Today, six of the top ten are Chinese.Obviously, China wants to be the dominant economic and military power of the world, spreading its authoritarian vision for society and its corrupt practices worldwide.So far this century, democracy and free speech only exist in America.* There is a lot of evidence:The country is expelling three reporters from The Wall Street Journal. Earlier this month, the outlet published a coronavirus-related opinion piece with a headline that China called racist. In response, it's now revoking three reporters' press credentials – though it seems none of them contributed to the opinion piece. And it's calling on the Journal to apologize and "hold the persons involved accountable." China has long tried to silence critics at home. But this is seen as an escalation to do that abroad, as it's rare for China to expel a foreign correspondent.We're beginning to see this in social media. While WhatsApp is used by protesters and activists everywhere due to strong encryption and privacy protections, on TikTok, the Chinese app growing quickly around the world, mentions of Hong Kong protests are censored, even in the US.A pro-Hong Kong tweet from the general manager of the Houston Rockets about his support of the Hong Kong protests led to a clash between China and America’s National Basketball Association, which resulted in NBA games being pulled from Chinese state television. This row was unusually high-profile because it featured the US and sport. But it fits a familiar pattern. Foreign countries and companies now have to cope with Chinese efforts to police their speech on an ever-widening range of taboo subjects, including Tibet, Taiwan, Xinjiang, Hong Kong, recent Chinese history, human rights and Beijing’s territorial claims in the South and East China Seas.Last year, the Chinese government demanded that foreign airlines remove references to Taiwan from their websites, because China views Taiwan as a renegade province. Other companies that have bowed to pressure from Beijing include Marriott hotels and United Airlines, both of which were accused of encouraging the idea that Taiwan is a separate country.People’s Daily, the flagship newspaper of the Chinese Communist Party, and the Chinese Ministry of Foreign Affairs took aim at Apple, accusing it of serving as an “escort” for “rioters” in Hong Kong by providing an app that allows protesters to track police movements.Months earlier, at the request of the Chinese government, Shutterstock had begun censoring a few searches by users based in China for politically volatile subjects like "Taiwan flag."China has placed similar pressure on the Italian company Versace; German companies, including Mercedes-Benz; and airlines from around the world.The BBC’s World News television channel has been officially banned from broadcasting in China. BBC World News has never been allowed to broadcast into Chinese homes, having been blacked by censorship rules. It was previously possible to view the news channel only at certain international hotels.* Why does China want to repress free speech?Overlapping the desire to look more successful in handling issues is Beijing’s goal of preserving Chinese President Xi’s reputation as an effective leader. Although it is correct to see Xi Jinping as perhaps the most powerful PRC leader since Mao, or at least Deng Xiaoping, that power has come at the expense of the more typical consensus-style rule that preceded him. Xi has consolidated his sway not by accommodating his rivals but by squeezing them through intimidation and arrests in the guise of cleaning up the Party. Given how much corruption there was—and because it was an essential element in leading party members to be “loyal” to the existing regime—Xi’s anti-corruption effort has both increased his power by cowering or eliminating pockets of competitors within the Party and, at the same time, likely narrowed his base of support within the Party. As long as Xi is seen as being successful, there is little room to challenge his rule. Should that assessment change, however, it is not hard to imagine grudge-holding party members attempting to coalesce in an effort to challenge him.* What could self-censorship mean for China?China has some of the most severe restrictions on media and internet freedoms across the globe, and this step will only damage China’s reputation in the eyes of the world. Nationalism could get out of hand and hurt China’s global image. Beijing’s way of dealing with criticism is eroding its soft power.None of this is good news for China’s long-term international aims. Beijing has plenty it can offer the world, even to advanced nations such as Sweden. But being seen as bullying is no way to bring them willingly onside.While popularity alone cannot secure long-term influence, alienating countries with what they perceive to be threats is not the way to prove a country’s global leadership qualities.China fully understands that it needs to boost its soft power to achieve its ultimate aim of total rejuvenation. Trust and respect are two fundamental pillars of this soft power and, although there will be many in China who deny it, it is clear that these pillars are being chipped away by Beijing’s way of dealing with criticism.It really is insane for anyone to hope for more regulation on speech. It's completely unprincipled. You need to imagine your enemies in control of those tools. That should include the politicians you think are lying and the opaque media companies you already don't trust.Freedom of speech is detestable only to those who have no desire to think for themselves.The most contrarian thing of all is not to oppose the crowd but to think for yourself. The key to doing something great is to uncover insight hidden from popular opinion, or in other words to think for yourself. Great things are built by people who discover secrets hidden by conventional opinions.If you do not learn from others, you are functionally illiterate and you will be incompetent because your personal experiences aren’t broad enough to sustain you. Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works. The most successful people are all huge learners.The idea of facing the unvarnished truth makes us anxious. To get over that, we need to understand intellectually why untruths are scarier than truths and then, through practice, get accustomed to living with them.People are not free when they are given information that makes them feel good—true freedom requires the ability to confront information that feels bad. We have nothing to fear from knowing the truth. Criticism is the best thing that can happen to a person/company/country. 1/ It means people care. 2/ It shows you what you can improve.There’s no downside to challenging your own ideas and beliefs (other than, perhaps, patience). One of two things will happen: 1/ You will discover that you are wrong. 2/ Or you will improve that arguments for your own ideas.It is better to be divided by truth than to be united in error. It is better to speak the truth that hurts and then heals, than falsehood that comforts and then kills.If you’re sick, it’s natural to fear your doctor’s diagnosis—what if it’s cancer or some other deadly disease? As scary as the truth may turn out to be, you will be better off knowing it in the long run because it will allow you to seek the most appropriate treatment. The same holds for learning painful truths about your own strengths and weaknesses. Knowing and acting on the truth is what I call the “big deal” for a country. It’s important not to get hung up on all those emotion- and ego-laden “little deals” that can distract you from the overall mission.It's usually a red flag when someone gets mad at you for disagreeing with them. When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you. That’s why I believe you must appreciate and develop the art of thoughtful disagreement. This is a critical principle for our society now. It’s very relevant in terms of us getting to the best answers together. The alternative is very scary. In thoughtful disagreement, your goal is not to convince the other party that you are right—it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing—with both your “higher-level yous” trying to get to the truth—are immensely helpful and a giant source of untapped potential.You must not let your need to be right be more important than your need to find out what’s true. If you don’t mind being wrong on the way to being right, you’ll learn a lot--and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth.One reason that freedom of speech is so important is that doubt is the foundation of science. When you close a topic to discussion, you are saying that it is decided, and scientific inquiry is no longer allowed into that domain. There's no innovation without doubt. It is doubt that challenges and reforms old ideas. Think about a stand up comedian — they are CONSTANTLY tweaking their set to make it perfect. We should be constantly tweaking our processes to make them perfect as well. Try different things — always be experimenting.“The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” — Bertrand RussellThere are no bad or good ideas or new ideas. There are only early ideas… They’ll all happen. It’ll all happen. I’ve become convinced now it’ll all happen. Every smart person has a crazy idea, it’s all going to happen at some point. They will all happen. It’s just a question of when. It’s all about execution. Some are just executed better than others. Every idea can be good if it is at the right time, right place and be executed by the right people. No matter how good your idea is, it can be bad if one of those three is missing.You must have contention, a clash of ideas. If Galileo had not challenged the Pope, we would still believe the world is flat, right? And Christopher Columbus might never have discovered America.The conventional-minded say, as they always do, that they don't want to shut down the discussion of all ideas, just the bad ones. You'd think it would be obvious just from that sentence what a dangerous game they're playing. But I'll spell it out. There are two reasons why we need to be able to discuss even "bad" ideas. The first is that any process for deciding which ideas to ban is bound to make mistakes. ... The second reason it's dangerous to ban the discussion of ideas is that ideas are more closely related than they look.People hate things that contradict their deeply-held beliefs. But since ideas that contradict deeply-held beliefs are the most interesting (see the history of physics for example), anyone on the hunt for interesting ideas will tend to offend a lot of people.Also, if you try to control every-thing, you train your citizens to defer to you—and you train them to fear risk.Civil society is a place where all ideas can be criticized without the risk of physical violence.“Artists” calling for censorship don’t know what art is. “Scientists” citing consensus don’t know what science is. “Teachers” indoctrinating students don’t know what teaching is. “Journalists” parroting propaganda don’t know what reporting is. Programming us all day long.Unfortunately, that's increasingly becoming their culture. We're seeing the impulse to restrict speech and enforce new norms around what people can say. In the current political atmosphere, which values obedience more than competence, local people have an incentive to avoid taking responsibility. Increasingly, we're seeing people try to define more speech as dangerous because it may lead to political outcomes they see as unacceptable. Some hold the view that since the stakes are so high, they can no longer trust their fellow citizens with the power to communicate and decide what to believe for themselves.Americans think that free speech and freedom of press is basic for people. But in China they think state capacity, collective culture, the community, the country, are the first things they need to think about. Most ordinary Chinese people don’t understand why democracy is so important for America. They’ll say, “Yes, America brings democracy to Iraq, to Afghanistan, to lots of countries. But these countries are getting killed now.” They say, “We’re not democratic, but we live in a peaceful country. We have a good living standard.” They are too quick to dismiss what people love about life outside. They’ve lost their basic ability to think independently. If peace means a willingness to lose freedom and basic human rights, dominated politically, humiliated and segregated, I don't want peace! It also strikes me that they are expert practitioners of “whataboutism", countering any criticism of China by pointing to a different sin committed by the West — though in this case I find the comparison unconvincing.The death on 7 February of doctor Li Wenliang, who had tried to warn colleagues about the virus but was reprimanded and silenced by security forces, triggered an outpouring of grief and anger and an unusual public discussion about censorship. It is an encouraging sign that so many Chinese netizens have this time sensed that freedom and democracy is not just an abstract slogan, but a practical value that might some day protect their own lives and assets. When enough people realize the values of democracy and freedom align not only with some moral high ground but also benefit their daily lives, the momentum for change will be unstoppable. The biggest concern, though, is that they will cherry-pick their demands for freedom of speech, as in the Li case. If they avoid seeing the system itself as the root of the problem, they will never eradicate the true cause of the crisis, and we will see more martyrs.* What's the solution?China should stop worrying about looking good—instead they should worry about achieving their goals.Put their insecurities away and get on with achieving their goals. Reflect and remind themselves that an accurate criticism is the most valuable feedback they can receive. They need to learn from those they disagree with, or even offend them. See if they can find the truth in what they believe. Trying to understand the reasoning of people who disagree with them is the quickest way to get an education and to increase their probability of being right. Imagine how silly and unproductive it would be to respond to your ski instructor as if he were blaming you when he told you that you fell because you didn’t shift your weight properly. It’s no different if a supervisor points out a flaw in your work process. Fix it and move on.China needs to avoid alienating others and learn how to influence people if it is to cement its place at the top.It is often said that Beijing political elites are encouraged to read the works of the great thinkers of the West. This will allow an insight into the Western mind that will be useful in replicating the West’s global success. One slightly less highbrow tome they might want to put on the reading list is Dale Carnegie’s 1936 classic How to Win Friends and Influence People. The original self-help book has some advice for countries wanting to win over the world, with tips that include “how to change people without giving offence”, “the only way to get the best of an argument is to avoid it”, and “make the other person happy about doing the thing you suggest”.That might all be useful instruction for a country that is, rightly or wrongly, increasingly being seen as an international bully.To do this well, approach the conversation in a way that conveys that they’re just trying to understand. Having open-minded conversations with believable people who disagree with them is the quickest way to get an education and to increase their probability of being right. Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, they are not arguing; they are openly exploring what’s true. Be reasonable and expect others to be reasonable. If they’re calm, collegial, and respectful they will do a lot better than if they are not.Find the most believable people possible who disagree with them and try to understand their reasoning. Triangulate their view with believable people who are willing to disagree. By questioning experts individually and encouraging them to have thoughtful disagreement with each other that they can listen to and ask questions about, they can both raise their probability of being right and become much better educated. This is most true when the experts disagree with them or with each other. Smart people who can thoughtfully disagree are the greatest teachers, far better than a professor assigned to stand in front of a board and lecture at you. The knowledge you acquire usually leads to principles that you develop and refine for similar cases that arise in the future.They can control thought without limiting speech by defining the limits of acceptable thought while allowing for lively debate within these barriers. For example, Fox News and MSNBC set the implicit limits on acceptable political opinions in America.When I have kids someday, I think the most valuable thing I could teach them is being comfortable around people and opinions they disagree with. One of the qualities I most value in a person is “fun to disagree with,” and that, more than anything, has really shaped for me a life of wonderful, passionate weirdos.So the key here is to create a learning culture, in which people have the humility to know what they don’t know and the curiosity to rethink the way they’ve always done things. Requiring proof is an enemy of progress. This is why companies like Amazon use a principle of disagree and commit. The goal in a learning culture is to welcome all kinds of experiments, to make rethinking so familiar that it becomes routine and people don’t hesitate to pitch new ideas.In performance cultures, people are determined to prove themselves.In learning cultures, people are more interested in improving themselves — and the organization around them.The foundation of a learning culture is psychological safety — being able to take risks without fear of reprisal. When people have psychological safety, they’re more willing to acknowledge their own mistakes and figure out how to prevent them moving forward. They’re also more comfortable raising problems and exploring innovative solutions.Create the psychological safety for people to constantly rethink what’s possible.It's not psychological safety if people can only voice what you want to hear. Psychological safety begins with admitting our own mistakes and welcoming criticism from others. The goal is not to be comfortable. It's to create a climate where people can speak up without fear.Without psychological safety, people hide mistakes and withhold ideas. They aim to prove themselves and protect their image.With psychological safety, people admit errors and voice suggestions. They are willing to take risk and fail. They strive to improve themselves and protect their team.The standard advice for leaders on building psychological safety is to model openness and inclusiveness: Ask for feedback on how you can improve, and people will feel it’s safe to take risks.Although psychological safety erases the fear of challenging authority, it doesn’t necessarily motivate us to question authority in the first place. To build a learning culture, we also need to create a specific kind of accountability — one that leads people to think again about their decisions.2. Protectionist RegulationThe only two ways to coordinate human societies at scale are free markets and physical power. Any ideology rejecting free markets is just advocating for power. Socialism, communism, and fascism all converge to the same endpoint – rule by the biggest thug.Socialism appeals to people today because it promises “equality and social justice,” but look at its track record. In Russia, Cuba, North Korea, Nicaragua, Vietnam and China, socialism has meant a loss of freedom. Socialist experiments also failed in Israel, India, Great Britain, Afghanistan, Syria, Algeria, Cambodia, Somalia, etc. There are no socialist success stories.Only capitalist countries create real wealth. The history of humanity is poverty, starvation, early death. In the last 20 years, we’ve seen more humans escape extreme poverty than any other time in human history. That’s because of markets. Yet, millions vote for socialism.If we pursue free services and money we will drive more power into the hands of a larger and larger incompetent government, and I think we know where that will end up — and it won’t be great for anyone.If the state directs the economy, some government department must manage millions of production decisions and prices. That never works. No bureaucrat can anticipate the needs and wants of millions of people in different places. No politician can match the wisdom of decentralized entrepreneurs making subtle adjustments constantly.Some industries are government-owned, but when you look at things that are inefficiently done — public education, our congested streets — (it’s clear) socialized industries don’t work well.No one is attracted towards an authoritarian country (a system of government that is very authoritarian) or totalitarian dictatorship. Speaking about regulatory problem, some governments regulate too much. It cost too much to invent new things.Chinese people lack the freedom to fail.* There is a lot of evidence:This is not a happy time to be an entrepreneur seeking to list your firm on one of China's stock exchanges. Nor is your situation better if you’re one of the Securities Commission members charged with approving listing applications.Chinese companies aren’t doing very well, and Beijing thinks it’s because the standards on initial public offerings (IPOs) weren’t strict enough in the first place. A better winnowing process is needed to ensure that only the crème de la crème of Chinese companies gets listed. Those not making the grade are viewed as “locusts that must be killed,” or as viruses, with the commissioners’ mission being to “prevent diseases from entering the body via the mouth.” That kind of thinking would put a dampener on an entrepreneur seeking seed capital no matter how great he thinks his idea is.In China, the only way to obtain seed capital is first to get regulatory approval. That’s a process that can take years. And the commissioners aren’t inclined to view applications benignly, for they will be held “accountable for life” for each IPO they approve. Only last month, Chinese authorities swooped down to seize a large private insurer deemed to have become too risky. One would not want to be one of those who approved its application.Gig work in China’s fledgling ride-hailing industry is coming to an end as new regulations make part-time driving overly expensive. On January 1, ride-hailing apps in China start banning drivers who operate without the required “double licenses”: one for drivers and another for the cars they steer. Municipal governments across the country have nuanced stipulations for what these certificates entail, but in general, the fresh rules aim to more closely vet drivers transporting passengers around.Like a lot of China’s nascent industries, ride-hailing took off quickly in part thanks to relatively lax government oversight at the start. The first set of industry laws took effect in 2016, when the country officially legalized apps like Uber, which was later acquired by its local competitor Didi. Since then, Chinese authorities have gradually rolled out more rules, and the strictest regulations, including the rollout of the double licenses last year.There’s also a lot of unreasonable market access limitations imposed by local governments on makers of electric vehicles. The government does not allow companies to test fleets of driverless cars in urban areas.Long-time crypto watchers will recall 2013, when China banned exchanges from allowing people to buy into bitcoin and other crypto coins using the local yuan currency.The Chinese financial company, Ant Group, was set to go public recently. The IPO was expected raise an estimated $37 billion and boost Ant's market value to in excess of $300 billion. But regulators for the Shanghai Stock Exchange, where Ant was planning to list, abruptly suspended the offering on Tuesday, citing "major issues" with the group that "may fail to meet information disclosure requirements." In a recent speech, Alibaba cofounder Jack Ma made critical comments about the country’s financial regulatory system. Then on Monday, four regulators summoned Ma and Ant Group’s top execs for a chat. We don’t know what was said, but it probably wasn’t “keep criticizing us.” Ant Group and the government are frenemies; the Chinese Communist Party wants to cultivate the country’s capital markets...but not to the point where it’ll tolerate dissent. Ant may still IPO, but it’ll have to pull off some major reorganizing to get right with regulators.The difference is that in the US, people are applauded for being themselves. There's a lot of value placed on independence and fighting the “system". Silicon Valley encourages risk-taking. American people are innately risk-takers.Silicon Valley embraces risk using an “affordable loss principle” in discovery of “what works”. It celebrates risk, yet at the same time it has some of the best mechanisms for avoiding the consequences of risk in the world.What made Silicon Valley really attractive has been it is one giant incubator as a society, with a lot of pay-it-forward culture and a low cost of trying.SV essentially places zero penalty on failure. You have almost unlimited upside if something works and very limited downside.They’re working with a huge net. It’s easier to take risk when you are insulated from it.It's a culture in which people are willing to bypass convention in any area, not be overly biased by why things can't be done, but rather take the approach, how one might take a shot at it? It is one where people are not afraid of failure but just look at the consequences of success, not the probability of failure. It is more experimental, less planned, more iterative, and evolutionary even as to the goals, let alone the methods.It is more of a Wild West risk-taking culture, at least at the personal level of things. Entrepreneurs accept risk as given and focus on controlling the outcomes at any given level of risk; they also frame their problems spaces with personal values and assume greater personal responsibility for the outcomes. Founders think in action…”Fire-ready-aim”. They pursue opportunities without regard to resources currently controlled. Working at a startup is like riding a roller coaster and rolling the dice. Building a startup is so hard with so many obstacles and ups and downs in the way that practical people become too pragmatic and turn big visions into decent ideas instead of sticking with their original vision. I think it takes real nerve to ride this roller coaster for very long, and you have to normalize the madness or go crazy yourself. See this for more information.Nothing stands still in Silicon Valley; the place has a kinetic energy. Look at the top ten firms in Silicon Valley. Every five or ten years, the list completely changes, with perhaps one or two exceptions. The entire venture capital industry essentially invests in failures, since the majority of the companies they fund eventually go under.These entrepreneurs deserve their money because of the risks they take. But you don’t see people jumping off the tops of buildings here. They tend to land on their feet. They tend to land in places like this, drinking cappuccinos, because the risk is a peculiar kind of risk. Most of the people in high tech will admit if they lost their job, they would find another one. They might even find a better one.* Here's what this regulation could mean for China:Rigid controls in politics and education would constrain radical innovation. Regulation can shut down iteration and experimentation, and nuclear tech is definitely the case. Economic reformers are worried about the increasing emphasis on the role of the state in the economy, fearing that it could kill entrepreneurship.If you look at the history of technology, most technologies came with new risks; most of them needed new safety mechanisms to be invented with it. When we invented the X-ray, for example we also realized it could be harmful for our health.Safety concerns are real, but we need to understand there are always tradeoffs to regulation. We need to acknowledge that there is a tradeoff between safety and speed, efficiency, progress, and long term breakthroughs.The main way our society works is through innovation. No innovation, no growth. The single most important contributor to a nation’s economic growth is the number of start-ups that grow to a billion dollars in revenue within 20 years. There’s no investment where money works as hard as it does in a tech startup. Driven founders, leveraged with code, capital, media, and intellect, sweating every dollar spent.No progress is possible without trial, error and failure. Not in business, not in science, not in nature. Without failure, there is no learning, no progress, and no success.If you keep doing the same thing over and over again, then there’s no innovation. You don’t get innovation by following the rules all the time, you get it by taking a risk. You don’t succeed unless you take risks. Price of extreme creativity is natural resistance to all things structure and rules. Creativity, like entrepreneurship, thrives in an environment that welcomes risk, not in one where risk-taking is punished. By its very nature, creation is risky. The world of technology thrives best when individuals are left alone to be different, creative, and disobedient.And when you take risks you sometimes fail. When that happens you pick yourself up and start over again. Except that doesn’t happen when failure means you get a visit from your friendly local commissar.Billionaire Mark Cuban explains it this way. “Failure is part of the success equation.” Jeff Bezos described it well when he said, “You have to have a willingness to repeatedly fail. If you don’t have a willingness to fail, you’re going to have to be very careful not to invent.”Failure is acknowledged as a natural part of the process of innovation. Being able to view failure as an asset is the hallmark of an entrepreneurial environment. This is why I’m amused when I hear people sneering at Donald Trump’s bankruptcies, as if failing when taking big risks is a cause for shame.Innovation requires experiments (most of which fail). It works best when the innovator isn’t required to ask for permission first. If you try to constrain really talented people, you’re only going to create a mirror of yourself with your same strengths and weaknesses. You HAVE to let people do stuff that you disagree with. You can’t tell how good they are if they’re just replicating what you’d have them do. Also, if you replace market decision-making with command and control, you train your citizens to defer to you—and you train them to fear risk.If you punish people for being wrong, they cover up their mistakes. They make excuses and throw blame to justify the past.If you treat being wrong as a learning opportunity, people admit their errors. They take responsibility for correcting and preventing them in the future.When you punish failure, people are quick to deny it. They strive to convince others—and themselves—that they haven't failed.When you normalize failure as part of growth, people are quick to recognize it. They strive to learn from it and rectify it.The key to success is the ability to extract the lessons out of each of these experiences and to move on with that new knowledge. Anyone that doesn’t continue to experiment and doesn’t embrace failure, will eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their existence.Xi’s “Made in China 2025” economic project aims to displace the U.S. as the world’s technological power, while another plan calls for dominance in Artificial Intelligence by 2030. China has aspirations to become a world power equal to the United States, and many American declinists believe this is inevitable. I don’t share their view. So long as the Chinese people lack the freedom to fail, China will remain weak.The country that today funds its failing companies is running out of money, and the international community is running out of patience, as can be seen from the tariffs President Trump is levying on Chinese steel.China’s response is to try to strong-arm its companies into succeeding. It will have the opposite effect.* What's the solution?Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment/culture in which it is okay to safely make mistakes and unacceptable not to learn from them so that people can learn from them, China will see rapid progress and fewer significant mistakes.Gary Shapiro, author of two best-selling books on innovation, explains the innovative success of the United States and Israel: “Both countries share the unique view that entrepreneurial failure is an education rather than a badge of dishonor. They don’t punish risk-taking the way many other nations do.”If a place is a magnet for talent, its odds of achieving success are greatly magnified. That's why an enlightened society would encourage and educate founders and investors, not restrict them. We don’t need to celebrate failure. We just need to normalize it. It’s important to de-risk it (a.k.a reduce downside of risk-taking), preserve the entrepreneurship and risk-taking that has allowed the creation of all these incredible businesses advancing the world. People need the freedom to fail.If a country is going to attract people with extremely high potential, the first thing it has to do is let them thrive. It has to give them the degrees of freedom to do both what they can do very well, and to some extent, allow them to make mistakes. You want people to increase their proficiency and improve their craft. You want to create a culture where that’s possible and encouraged. Countries should encourage a culture of tinkering, experimentation, and following intellectual curiosity. Tech is all about the exchange of new ideas. So you can only go where people are open to new things.A country can incentivize more founders by making median founder outcome closer to average and by removing economic and cultural friction. They should systematically remove barriers and bottlenecks to starting companies for people interested in it: celebrate starting companies as a thing for ambitious people to do globally, see startup failures on resumes as badges of honor instead of blemishes, create communities to find co-founders and founder support, etc.We need to create the best mechanism for avoiding the consequences of risk.We can embrace risk by using an “affordable loss principle” in discovery of “what works”.What makes a place really attractive is whether it is one giant incubator as a society, with a lot of pay-it-forward culture and a low cost of trying. We need a place that essentially places zero penalty on failure so we have almost unlimited upside if something works and very limited downside. It's a culture in which people are willing to bypass convention in any area, not be overly biased by why things can't be done, but rather take the approach, how one might take a shot at it? It is one where people are not afraid of failure but just look at the consequences of success, not the probability of failure. It is more experimental, less planned, more iterative, and evolutionary even as to the goals, let alone the methods.This culture is discouraged in most places, partly because failure is discouraged, partly because planning predictability and success along predefined pathways is the only way things get funded instead of saying something is just worth attempting. As the stories of Silicon Valley become more prevalent, this style and culture is becoming more pervasive and will grow in other areas, especially as old generations retire and new generations come up with new models. Having said that, there are ecosystems around places like Bangalore and Israel that are starting to start this transformation of culture. More established places like Europe see less of this, unfortunately, even though they have a lot of talent to make this approach possible.Everyone deserves a leader or a government that can help them achieve their dreams more than focus on controlling them. Government should merely act as “referees” to establish the rules of the game and ensure the right rules are properly enforced. That’s an important thing for government to ensure that the rules are correct and that the incentives are what we actually want them to be for. Where the government goes wrong, is when they want to not just be a referee on the field, they want to be a player on the field. It’s incredibly important that the government focus on incenting the outcome, not the path.Free market capitalism is the most effective system to drive entrepreneurship and jobs. If you look at the number of jobs that have been created by the free enterprise system, this is the best thing going. I’m a big believer in the entrepreneurial spirit that helped create lots of great businesses around the world, the free enterprise system, fair, free and open markets. We’ve always been a proponent of a fair and free and open market and we recognize that’s got to be balanced by the public interest. Entrepreneurship has created the greatest gains in our standard of living to date, even if it’s hard to grasp the wild polarization of wealth in society. I don’t see capitalism’s lock on the best operating system for society changing any time soon — the most driven humans drive humanity forward, it’s that simple..The desire to control other people (always for the greater good) is the root of evil.Their flagrant abuses of intellectual property and human rights, their suppression of freedom, independence, and consolidated democracy, whether in China, Hong Kong, in northwest China or in anywhere else, will not stand. If you’re intellectually honest and advocate for a system that controls people, turn over the keys to your enemies for a dry run. You cannot be a great leader — and you cannot be a great country — when you oppose freedom, when you are so brutal to the people. Everyone deserves a leader or a government that can help them achieve their dreams more than focus on controlling them.For a long time, we’ve known that, on average, freer economies are richer, grow faster and have longer life expectancies. Since diversity of thought and idea is the key to economic growth, it is time for Mr Xi’s five “NOs” to be matched with some western “NOs” — including a decisive “NO” to restrictions on free speech, privacy, free market and free enterprise system.Finding a way out for mainland China to evolve into a more liberal and law-governed society and adopt Western-oriented secular modernization, allowing some degree of cultural freedom, embrace capitalism and open its economy to foreign investment and domestic entrepreneurship would require Mr Xi to display a humility, open-mindedness and tolerance for opposing points of view that seem completely alien to him and the system that he has created.Yet any fair account has to accept that Mr Xi can also claim some successes, so it is possible I will be just the latest in a long line of western skeptics who get China wrong. But it is hard to look at the Xi cult and not feel a sense of foreboding.

It is terrible that Deng Xiaoping opened the PRC to the worst forms of Dickensian industrial sweatshop conditions. Mao would be horrified if he saw what was done. But it is easy to make excuses when you aren’t the one having to work under these conditions. For these poor people this is the only real option. Many of these women are young mothers who never see their children, slaving away so Americans can buy cheap goods, while American corporations make top dollar for shareholders in America, many of whom are bourgeois elites.LONG working hours, low pay and squalid accommodation — welcome to Santa’s real workshop where your Christmas presents are made.It is not nearly as glamorous as what you’d see in a Christmas movie.There are no bells and whistles, smiles or elves — the reality is grim and people work like slaves in Chinese sweatshops.China Labour Watch investigated four factories where people work 11 hours a day, six and sometimes seven days a week, often without a break, for minimum wage.An undercover investigation into Chinese toy sweatshops in southern China’s Guangdong Province discovered 10 workers were crammed in small dorm rooms and in winter could not even have warm showers.“The situation has lasted for many decades. Tragically, not much has changed so far,” China Labour Watch said.Inside the sweatshops, people are making Disney, Mattel, Fisher-Price and McDonald’s brand toys.Conveyor belts are filled with Thomas the Tank Engines, Barbies, DJ Suki Trolls, Hello Kitty merchandise, Hot Wheels cars and Disney princesses.China Labour Watch, a community-based organisation which fights for workers’ rights, went into the factories undercover in April and September.Workers at three of the four factories were only paid about $300 a month. At the other, workers were paid $400 a month. Workers from all the factories barely got to see their families.Factory workers sleep in squalid conditions. Picture: China Labour WatchSource:SuppliedFactory workers showered in a dirty cubicle. Picture: China Labour WatchSource:SuppliedAccording to Chinese Labour Law, labourers are not allowed to work more than eight hours a day but can work overtime in some circumstances. However, a labourer can't work more than 36 hours of overtime a month.“We found that the average working hours in these four factories was 11 hours a day, with more than 50 overtime hours a month, and at half of the factories, overtime hours had reached 100 hours,” a Chinese Labour Watch report said.“Moreover, the extremely high production requirements left workers with barely any time to rest. “During the 11 hours that workers put in within a day, all they had was a 40 to 60 minute lunch break. This is an obvious violation of the right of workers’ to have adequate rest.”The dirty bedrooms where factory workers sleep. Picture: China Labour WatchSource:SuppliedThe Chinese workers barely see their families and live in accommodation attached to sweatshops.They’re living in filth, with electrical wiring covering the floor.At least 14 people share a shower and toilet and there’s one cafeteria where they can buy food, which lacks nutrition.If workers aren’t given enough food and are still hungry, they are not allowed to have any more.“We can’t tolerate that children’s dreams are based on workers’ nightmares,” the report said.“Any toy that is manufactured in China is a process where workers’ rights have been infringed upon.“Workers in toy factories face heavy workloads every day, but only earn an extremely low wage. They have children as well. But after years of separation, when the workers finally return home with various illness or occupational injuries, who will protect the dream of their children?”Factory workers gather to eat their dinner. Picture: China Labour WatchSource:SuppliedMany workers stuck in the sweatshops celebrate their birthdays and some factories organise parties for them.They were “gifted” a lump of paper towel, according to China Labour Watch.New employees were also given a yoghurt as a present.Each factory had production targets and in the assembly department, workers must assemble 4000 toys a day.Workers said they could not stop at all during their shift in order to meet the target.They are exposed to dangerous chemicals daily and those who work in the spray painting department work with isoamyl acetate, also known as banana oil.The workers don’t have much protective equipment, and exposure to high concentrations of banana oil can cause headaches, drowsiness, dizziness and fatigue.Regular exposure to high concentrations of the chemical can even cause skin to crack.It can also damage the lungs and central nervous system. According to China Labour Watch, workers were never told about the dangers of being exposed to the chemical.Workers weren’t provided with gloves, glasses or masks to protect them.Toy Factory that makes toys for Mattel in Dongguan. Picture: China Labour WatchSource:SuppliedWorker Li Jintato told VOA News he left his home village when he was just 14 and got a job at a toy factory. His monthly wage covers two or three hours of overtime, but he is owed much more.“The wages are too low. My monthly salary is $360, but after deductions for social security, I make only a little more than $292 per month,” he said.McDonalds purchases its toys from Combine Will, a factory investigated by China Labour Watch, and the fast food giant told news.com.au — Australia’s #1 news site it took the allegations of poor working conditions very seriously.“We are committed to ensuring fair and ethical workplace standards in every corner of our supply chain. We are working closely with the International Council of Toy Industries in their investigation as well as overseeing a thorough review of these allegations and will swiftly and effectively address any issues that are identified,” a spokesperson said.Mattel and Disney did not respond to news.com.au — Australia’s #1 news site’s inquiries.Source: ‘Children’s dreams based on workers’ nightmares’Under the Christmas tree, some of us will hopefully find a great Iphone 4 32G, an amazing 9.7 inch Ipad 3G, a Dell netbook, a Sony PSP® or a Nokia N8 smartphone. On the user manual, it shall be written how to handle it but certainly not how it has been made. Today, La Vie French magazine publishes a long story (including side boxes here and here) about life at Foxconn, main Apple’s supplier. Sorry, it’s only in French but let me propose you my comment in English.Despite tragic suicides (14 officially – one last November, yet much lower than in others fims like France Telecom but when it comes to very young people in such a guarded area, it raises questions) and several promises for pay rises, Foxconn is still compared by Hong-kong ngo Sacom, as a “labour camp”. How come?So I went there in May and then back again lately, to check what really changed during this 6 months period of time. Salary is now high, better than any other factory around, but happiness is still not here, whatever swimming pool or tennis court you might have seen on tv, owing to Foxconn p.r. Is it due to Foxconn’s military discipline (typically taiwanese, i have been told) ? to a rather hostile environnement (huge dorms, huge factory) that doesn’t match with young workers expectations?Everyday, Xiao Li, 18 years old, wakes up at 6 in the morning in a room where she has be assigned by her manager, with 9 other people, coming from 9 different places. On 6h40, she leaves her room, walks down a long road and arrives at the South gate after a 20 minutes walk. She will buy noodles on her way, like every morning. If she eats at the canteen, she will waste time and sleep less. In this giant factory outside Shenzhen, Xiao Li and his 300 000 comrades get ready for a 13 hours a working day (excluding lunch break, including overtime), six days a week with a 10 minutes break every two hours. Six days a week is normal in China but it can easily turn to 7 days when sudden customers’ orders come up.At her production assembly line, which has always been relying on human labour more than sophisticated machines for cost reasons, she is not allowed to speak, listen to music or even look at her comrades while trying to achieve the christmas production targets. Her mobile is confiscated every morning too but insults from managers, she says, have disappeared. Instead, they just ignore her, after all the bad publicity they got last spring when 13 Foxconn suicides hit the headlines which blamed the company for harsh management.However, a noticeable improvement has been made after 30 glorious years of economic reforms in China: she is allowed to sit down while working. Well, it depends on her manager’s good mood.Compared to the toxic bluejeans factories in Xintang or swimwear factory in Dongyuan, what is striking here - although it is NOT child labour - is that all of the workers are 17, 18, 19 or in their early twenties. Foxconn doesn’t want older people to live in this 320 000 people city.The young foxconn workers are obedient, have almost no previous work experience and they don’t have a clue about what labor rights mean, according to Liu Kaiming, director of the Institute of Contemporary Observation, a labour right group in Shenzhen. They would never complain, in such an unfriendly environnement where security guards, like those bloodcurling fluorescent lamps, are everywhere: at the dorms, at the canteen, at the recruitement center or at the workshop.Inside the factory, if you call the police number , you will have great chance to be transfered automatically to the guards phone number. As far as me and my cantonese interpreter were concerned, guards illegaly tried to check my passeport, her id card and even called the police when we asked them politely to call the Media department for us. For sure, Foxconn likes secrecy.(I took this picture last May, when a mother who was sitting at the main gate, was taken by the police. Her son died but no police investigation has been made so far. She believed the guards had beaten her child to death)These young workers are educated, are often the fruit of China’single child policy. They have moved from small towns in remote parts of China after their degree. They are the new generation of Mingong (=migrant workers) in China.Their parents are farmers or migrant workers themselves, from poverty-stricken provinces like Henan, Hunan, Sichuan. But these families hope their children will send them back some precious money, to build a concrete home or to cover health expenses. However, none of these parents have any idea about how difficult is their child’s job, how harsh is the military discipline, how hard is it to socialize when you have no time for it and how big is the pressure provoked by higher productivity objectives.Like many African migrants in my country, Foxconn kids only want their parents to believe they are successful. And the only thing that matters for these children is their salary, not even themselves.Bigger pressure? As westerners say: no pain, no gain. During a 3 months trial period and owing to Taiwanese consultants, Foxconn workers’ productivity has been gradually risen. This little 17 years old girl with a red heart (see below) checks the quality of the expansive HP ink cartridges… 28 0000 a day (!), 40% more than last Summer. While working, she doesn’t have to think nor to open her eyes, she just has to breathe and let her fingers feel the cartridges as fast as possible.Every single minute is now scientifically maximised. Because she has been trained for that and she has now much more value than any sophisticated machine in the eyes of Foxconn, she won’t be able to change position during her stay here. She will be doing the same movement for the next three years, 3 years being the average lenght for any worker in Foxconn, before they get worn out.We also met Ling Hui Ping on the way to the factory. He told us he was on the Iphone assembly line. He is coming from Hunan, his parents are crop farmers. At 20h30, after listening politely to his managers comments and criticisms, after cleaning his workshop perimeter, it’s time for this 18 years old boy to rush to his dorm, alone. Because Foxconn city is so big, it can easily take half an hour to get back home. At 21h30, he will only enjoy one hour to empty his head and get a life: calling his family, taking a shower before his dorm lights are turned off. Outside, famous brands like “Lining”, “Baleno”, “Nokia” have been inaugurating there shops for a few weeks and been playing electronic music like hell, in an attempt to attract workers and get the most out of their new purchasing power. Mc Donald is said to arrive soon. Tonight, our friend may be able to sleep, or not. He has one dream: to collect enough money and start a small business, in his home town. “Probably, a phone shop“.On Internet, young Chinese people in the cities enjoy making fun of these mingong life style: they love flashy clothes, fluffy hairstyle, cheesy pop songs, romantic films. On their day off, they are fresh, smiling and positive. At first sight, you would never guess what they endure. Foxconn kids have been assigned to packed dorms with people from different shifts, different workshops, different hometowns, giving them rare occasions to know each other.(below: guards never say goodbye. They just check women’s bags as they leave the workshop after the night shift)However, a friend at China Labour Bulletin recently told me that owing to the pay rise, it was actually the first time he could see a smile on Foxconn’s workers face during their day off.He is right. Once a week, on their day off, owing to their bigger salary, workers are able to treat themselves and enjoy simple pleasures like a funny haircut or a good candy. They like showing up on the bridge upon Foxconn main gate which now looks like a catwalk. Some workers get spiritual and spend their only day off praying together, with the risk of being evangelized by some foolish priest . Some are left alone. But lots of them were willing to talk to us and describe their everyday life… some would mention face-losing punishments : when something is missing on the assembly line, one has to stand up during 6 hours, nose to the wall.All right. Terry Gou, Foxconn CEO and Taiwanese billionaire, has delivered on his promise to increase salary at Longhua: workers now get 3200 yuans per month, including overtime. It’s a very good salary indeed, even better than the salary of graduate people in many cities. The strikes at Honda Foshan and the pressure from Shenzhen and Guangdong governements to prevent any threat to their sacred “Harmonious society” did help. But one have to take into account the sharp rise of food prices in China: +11.7% in November, +10.9% in October.Fragile Foxcoon workers are supposed to be offered psychological support through a hotline phone number. 1/ the calls are not anonymous at all as you must give your name and the number of your workshop BEFORE telling about your problem. 2/Franz Kafka may laugh as these psychologists are simply other workmates who have been offered this unusual position overnight after a quick book training. This leads to unsolvable situations. One worker that we met in a shop said “2 months ago, I mentioned a difficulty to the hotline. The week after, my manager knew about it and said it was no longer his responsibility any more since i had decided to deal with that with the assistants. He has lost his trust in me“.On the other side, a new recruitment center has been built to hire workers for the new factories in Henan or Sichuan where salaries and production costs will be lower. If Foxconn doesn’t change its practices, local governments might eventually do something. Chengdu, which is going to welcome hundred thousands of workers for Foxconn new plant has promised it will reduce hukou disparities between migrants workers and local urban people, given them and their relatives a access to education and health care.And in case any social protest happens, Foxconn will be able to rely on People’s Liberation Army’s support. The folks are setting up a small artillery regiment… just two blocks away from Longhua factory’s main gate. Merry Christmas !SolutionsSome of you will think that it’s always better to have a job than nothing, that these young people will be helpful for their whole family, that it’s worse in Bangladesh, Philippines or in some western suburbs. It’s a blog, it’s my opinion and i am seeing this from a different perspective. If i want to focus on Apple, it’s not for my glory but because i am using this brand which i appreciate very much, like more and more Chinese people here (I live in Beijing but i am always stunned to see the long queues at the Sanlitun village Apple store at 10 am, where a Iphone easily costs a 1 month salary).Apple’s prices are very high (and similar whether you’re Chinese or American), its products are all the same whatever the market and yet, this successful and trendy brand fails to have a global staff strategy. But when it comes to cost cutting, Apple doesn’t mind offering third world treatments.I can understand HP’s position since we all enjoy very cheap hp products (well, apart from cartridges) but for Apple, for all its fuss, its support from the media when the Ipad came out… no. We should make corporate social responsibility a rule and force Steve Jobs to find a supplier who would give visible exemplary working conditions to its production team (not 80 to 100 hours a week). Big companies which build their image through innovation should also innovate in terms of labour practices. Steve Jobs… are you a pioneer or not? Here, we’re back to the old Industrial revolution…(Iron bars on windows are part of Chinese cheap modern architecture to prevent theft. What is new since i first came last May are the extra steel wire (below), the nets and the fences on the roofs).On day off, outside the dorms, Foxconn seems so far away.Brands are now trying to attract Foxconn workers in front of their dormitories, after the 67% pay rises. In May, such events did not exist. These mingong make these phones too… but they won’t get a discount.Here is a fake Foxconn job offer that proposes only 5 working days, no unpaid overtime and bigger basic salary. When we call them they ask for a 500 rmb commission fee … only to bring you at the Foxconn job center.Below: an unregistered home church on the first floor of a gloomy dormitory. The priest is Taiwanese and is traveling from one factory to another to “evangelize” people. In China, religious activities are under the control of the Chinese government, obviously not here.Friends, these pictures are copyright. Please email me first in case you are interested in using/buying them.Here is my short video teaser with French subtitles, a short introduction of the La Viestory, that appears on their website You will note in the video how a underground home church looks like or that a 18 years old worker can make up to 3000 iphones a day. Not more, it’s only a teaser* the original title of my blog post was “Why I don’t want a Iphone for christmas” but i decided to change it on December 26th after receiving dozens of insults from Apple addicts. However, it is a personnal blog post, where i am free to express my opinion. I still believe Foxconn is definitely not a nice place for a Chinese educated teenagers to live and work. I have been working in China for 2 years and a half. Like ALL correspondents, I like traveling with an interpreter. No only when it comes to use cantonese or a dialect but because this person will help to establish friendship and confidence between me and the worker who has probably never met a “laowai” (= foreigner) before.* 2015 January. I changed the headline again, from “For Foxconn workers, money doesn’t buy happiness” which didn’t really make sense to “The hard life of a Chinese high-tech labour worker”. Since this post, I went 3 times again to Foxconn, in Shenzhen, Chongqing and Chengdu. And explain in it a book called “Le Tigre et le Moucheron: sur les traces de Chinois indociles” (Nov. 2014 – Les Arènes)Source: The hard life of a Chinese high-tech labour worker37 Facts about sweatshops worldwideNo one likes to pay too much for the things they need, but the desire to save money from a consumer perspective and the greed that is seen from a manufacturer’s perspective has led to the creation of the modern sweatshop. Sweatshops can be defined by three primary characteristics: low pay, long hours, and unhealthy working conditions.In the United States, a sweatshop is defined by the US Department of Labor as a factory that violates a minimum of two current labor laws.Facts You Didn’t Know About SweatshopsThe modern sweatshop does not have to be inside of a building. In the agricultural industry, where many immigrants are employed, working conditions include all day hours under hot sunshine with wages that may be below the minimum wage. The problem with sweatshops is this: those who work in them typically have no other option because of their current life circumstances.An estimated 250 million children ages 5 to 14 are forced to work in sweatshops in developing countries.Products that commonly come from sweatshops are clothing, coffee, shoes, toys, chocolate, rugs, and bananas.The price increase to the average consumer if sweatshop salaries were doubled: 1.8%.Consumers say that they would be willing to spend 15% more, on average, to guarantee workers wouldn’t need to work in sweatshop conditions.The people who are forced to work in sweatshops must usually spend the majority of their paycheck on food in order for their household to survive.Women sewing NBA jerseys make 24 cents per garment – an item that will eventually sell for $140 or more.In 2000, more than 11,000 sweatshops in the US violated the minimum wage and overtime laws.The percentage of sweatshop employees that are women: up to 90%.The issue with the modern sweatshop is that many people are not aware that they currently exist. There are tragic stories that hit the news every so often, but with the amount of violence that is also included in the news, this social injustice barely registers on the average person’s radar. That’s not to say that they have fault in the creation of a sweatshop. It just means that we all need to do a better job of being aware of poor working conditions and low pay so that everyone can have a chance to chase their own dreams.What Are The Average Wages of Workers?Numerous nations around the world are thought to have active sweatshops in the apparel industry that are currently operating.In Bangladesh, the average worker’s hourly wage is just US$0.13, which is the lowest in the world.The average worker’s hourly wage in Vietnam: $0.26.Only 4 out of the top 10 nations that have the highest number of suspected sweatshops have an hourly wage that exceeds $1 per hour.Costa Rica has the highest average hourly wages for apparel workers at $2.38 per hour.It takes an apparel worker in a sweatshop an average of working 70 hours per week to exceed the average income for their country.Apparel workers in the Dominican Republic, Haiti, Honduras, and Nicaragua earn 3 to 7 times the national average.Comparable wages only mean that someone has enough to get by. Although some nations have emphasized the removal of sweatshops and this has led to a natural increase in the amount of money that workers can make, there are still nations that barely provide their workers any money at all. If someone from the working poor in Bangladesh is only making $.13 an hour, then that is an effective life sentence. They can do nothing else because all of their money goes to support basic living conditions. In the United States, we have households who also make around the average and they need basic service supports just to make ends meet. Imagine not having any basic service supports available to you and that’s what the sweatshop worker faces every day.Why Do We Need to Support An End to Sweatshops?Children are as young as 6 or 7 years old when they start working at a sweatshop for up to 16 hours per day.In Asia, children as young as 5 were found to work from 6 in the morning until 7 at night for less than 20 cents per day.A shirt that sells in the United States for $60 can cost less than 10 cents in labor.In India, between 5% – 30% of the 340 million children under the age of 16 are estimated to fall under the definition of child labor.In Latin America, the proportion of children under the age of 16, working in sweatshops, is estimated to be between 10% – 25%.The Department of Labor indicates that 50% of garment factories in the U.S. violate two or more basic labor laws, establishing them as sweatshops.1 million jobs have been moved away from the US since the implementation of the North American Free Trade Agreement.Many Nike sweatshop workers die by the age of 15, which is acclaimed correct by the ASSL League.Clothing, shoes, coffee, chocolate, bananas, and toys are the most common commodities produced in sweatshops.Think about the clothing you have on right now. If you have a national brand name, then there’s a good chance that your garment was created in a sweatshop from overseas. For a child who can make four of those clothing items per hour at $.20 per hour, the stark reality is that the retail price of your clothing paid that child five cents. What can you do with five cents? Not a whole lot. Even in developing nations, five cents doesn’t do much. This is why we need to support an end to sweatshops everywhere they exist. It doesn’t matter that a majority of people make earn less than two dollars per day. By giving these workers fair opportunities, they can create more opportunities within their local communities. That is how we can build up our world economy.Can We Reach Those Who Need Help?It is estimated that 1.3 million children in Bangladesh are working full-time in order to help support their families.The number of children in Bangladesh who have never enrolled in school: 1.5 million.85% of sweatshop workers are young women between the ages of 15-25.Women are often fired from sweatshops if they become pregnant because maternity leave equates to an unproductive worker.A study in 2000 found that 98% of Los Angeles garment factories violated workplace health and safety standards.The average manufacturing wage in China is just $0.64 per hour.Sometimes workers are forced to be active for 48 hours straight and any breaks that are allowed are required sleep breaks.The problem of sweatshops isn’t just an international problem. It is something that happens in every country on the planet. This is the problem that capitalism represents. There are laws in place to prevent the exploitation of workers, but we must be able to reach those workers in order to improve conditions. When one out of every two factories is believed to be out of compliance in the United States and defined as a sweatshop, that’s a problem. When only 2% of garment factories in Los Angeles are in compliance with workplace health and safety standards, that’s a problem. This isn’t the 19th century anymore. There are no excuses. Taking advantage of people who are trying to earn a fair living, combined with our own needs to have cheap garments and other products, has created this problem. If the conditions of sweatshops are going to change, then the first change that may need to be made is within our own buying choices.How Bad Have Sweatshops Become?In 1999, the average American family of four spent $1,831 on apparel.The total amount of that $1,831 that went to the wages of workers who created the apparel: $55.The salaries of apparel workers between 1968-1999 had an inflation-adjusted 16% drop.There are about 12.3 million people annually who are subjected to forced slave labor at any given time.The Department of State reveals that 40% of workers in some fishing industries are under the age of 18.It isn’t up to everyone else take action. We need to take action. Some companies have been supporting sweatshops for over two decades and we still continue to purchase products from them. We are the ones who are creating a market for sweatshop products. If the average person is willing to spend at least 15% more on items so that workers can get a fair living wage, then we don’t have to wait to begin that process. We can start focusing our purchasing habits on materials and goods that have been created in conditions that are favorable to workers right now. If we all come together to do this, we can put the sweatshops of the business for good.Source: 37 Shocking Sweatshop Statistics - BrandonGaille.comChinese workers can face serious work hazards and abuse. In Hebei Province in northern China, a worker dragged a barrel in a chemical factory. CreditOded Balilty/Associated PressGUANGZHOU, China — Nearly a decade after some of the most powerful companies in the world — often under considerable criticism and consumer pressure — began an effort to eliminate sweatshop labor conditions in Asia, worker abuse is still commonplace in many of the Chinese factories that supply Western companies, according to labor rights groups.The groups say some Chinese companies routinely shortchange their employees on wages, withhold health benefits and expose their workers to dangerous machinery and harmful chemicals, like lead, cadmium and mercury.“If these things are so dangerous for the consumer, then how about the workers?” said Anita Chan, a labor rights advocate who teaches at the Australian National University. “We may be dealing with these things for a short time, but they deal with them every day.”And so while American and European consumers worry about exposing their children to Chinese-made toys coated in lead, Chinese workers, often as young as 16, face far more serious hazards. Here in the Pearl River Delta region near Hong Kong, for example, factory workers lose or break about 40,000 fingers on the job every year, according to a study published a few years ago by the Shanghai Academy of Social Sciences.Pushing to keep big corporations honest, labor groups regularly smuggle photographs, videos, pay stubs, shipping records and other evidence out of factories that they say violate local law and international worker standards. In 2007, factories that supplied more than a dozen corporations, including Wal-Mart, Disney and Dell, were accused of unfair labor practices, including using child labor, forcing employees to work 16-hour days on fast-moving assembly lines, and paying workers less than minimum wage. (Minimum wage in this part of China is about 55 cents an hour.)In recent weeks, a flood of reports detailing labor abuse have been released, at a time when China is still coping with last year’s wave of product safety recalls of goods made in China, and as it tries to change workplace rules with a new labor law that took effect on Jan. 1.No company has come under as harsh a spotlight as Wal-Mart, the world’s biggest retailer, which sourced about $9 billion in goods from China in 2006, everything from hammers and toys to high-definition televisions.In December, two nongovernmental organizations, or NGOs, documented what they said were abuse and labor violations at 15 factories that produce or supply goods for Wal-Mart — including the use of child labor at Huanya Gifts, a factory here in Guangzhou that makes Christmas tree ornaments.Wal-Mart officials say they are investigating the allegations, which were in a report issued three weeks ago by the National Labor Committee, a New York-based NGO.PhotoA dormitory at a steel company in the provinces.CreditChang W. Lee/The New York TimesGuangzhou labor bureau officials said they recently fined Huanya for wage violations, but also said they found no evidence of child labor.A spokesman for Huanya, which employs 8,000 workers, denied that the company broke any labor laws.But two workers interviewed outside Huanya’s huge complex in late December said that they were forced to work long hours to meet production quotas in harsh conditions.“I work on the plastic molding machine from 6 in the morning to 6 at night,” said Xu Wenquan, a tiny, baby-faced 16-year-old whose hands were covered with blisters. Asked what had happened to his hands, he replied, the machines are “quite hot, so I’ve burned my hands.”His brother, Xu Wenjie, 18, said the two young men left their small village in impoverished Guizhou Province four months ago and traveled more than 500 miles to find work at Huanya.The brothers said they worked 12 hours a day, six days a week, for $120 to $200 a month, far less than they are required to be paid by law.When government inspectors visit the factory, the young brothers are given the day off, they said.A former Huanya employee who was reached by telephone gave a similar account of working conditions, saying many workers suffered from skin rashes after working with gold powders and that others were forced to sign papers “volunteering” to work overtime.“It’s quite noisy, and you stand up all day, 12 hours, and there’s no air-conditioning,” he said. “We get paid by the piece we make but they never told us how much. Sometimes I got $110, sometimes I got $150 a month.”In its 58-page report, the National Labor Committee scolded Wal-Mart for not doing more to protect workers. The group charged that last July, Huanya recruited about 500 16-year-old high school students to work seven days a week, often 15 hours a day, during peak production months for holiday merchandise.Several students interviewed at the Guangzhou Technical School, less than two miles from Huanya, confirmed that classmates ages 16 to 18 had spent the summer working at the factory.PhotoA worker recycling batteries at a factory in Fuyang, China. A labor law that took effect on Jan. 1 has provisions to protect workers.CreditJianan Yu/ReutersSome high school students later went on strike to protest the harsh conditions, the report said. The students also told labor officials that at least seven children, as young as 12 years old, were working in the factory.“At Wal-Mart, Christmas ornaments are cheap, and so are the lives of the young workers in China who make them,” the National Labor Committee report said.Jonathan Dong, a Wal-Mart spokesman in Beijing, said the company would soon release details of its own investigation into working conditions at Huanya.Labor rights groups have also criticized Disney and Dell. Officials of Disney and Dell declined to comment on specific allegations, but both companies say they carefully monitor factories in China and take action when they find problems or unfair labor practices.“The Walt Disney Company and its affiliates take claims of unfair labor practices very seriously and investigates any such allegations thoroughly,” the company said in a statement. “We have a strong commitment to the safety and well-being of workers, and fair and just labor standards.”Many multinationals were harshly criticized in the 1990s for using suppliers that maintained sweatshop conditions. Iconic brand names, like Nike, Mattel and Gap, responded by forming corporate social responsibility operations and working with contractors to create a system of factory audits and inspections. Those changes have won praise in some quarters for improving worker conditions.But despite spending millions of dollars and hiring thousands of auditors, some companies acknowledge that many of the programs are flawed.“The factories have improved immeasurably over the past few years,” says Alan Hassenfeld, chairman of the toy maker Hasbro and co-chairman of Care, the ethical-manufacturing program of the International Council of Toy Industries. “But let me be honest: there are some bad factories. We have bribery and corruption occurring but we are doing our best.”Some factories are warned about audits beforehand and some factory owners or managers bribe auditors. Inexperienced inspectors may also be a problem.PhotoWorkers at a toy factory in Guangzhou. Although some companies have won praise for labor efforts begun after outcries against sweatshops in the 1990s, critics say more change in needed.CreditTimothy O’Rourke for The New York TimesSome major Western auditing firms working in China even hire college students from the United States to work during the summer as inspectors, an indication that they are not willing to invest in more expensive or sophisticated auditing programs, critics say.Chinese suppliers regularly outsource to other suppliers, who may in turn outsource to yet another operation, creating a supply chain that is hard to follow — let alone inspect.“The convoluted supply chain is probably one of the most underestimated and unrecognized risks in China,” says Dane Chamorro, general manager for Greater China at Control Risks, a risk-consulting firm. “You really have to have experienced people on the ground who know what they’re doing and know the language.”Many labor experts say part of the problem is cost: Western companies are constantly pressing their Chinese suppliers for lower prices while also insisting that factory owners spend more to upgrade operations, treat workers properly and improve product quality.At the same time, rising food, energy and raw material costs in China — as well as a shortage of labor in the biggest southern manufacturing zones — are hampering factory owners’ ability to make a profit.The situation may get worse before it improves. The labor law that took effect on Jan. 1 makes it more difficult to dismiss workers and creates a whole new set of laws that experts say will almost certainly increase labor costs. Yet it may become more difficult for human rights groups to investigate abuses. Concerned about the growing array of threats to profitability, as well as embarrassing exposés, factories are heightening security, harassing labor rights groups and calling the police when journalists show up at their gates.At the center of the problem is a labor system that relies on young migrant workers, who often leave small rural villages for two- or three-year stints at factories, where they hope to earn enough to return home to start families.As long as life in the cities promises more money than in rural areas, they will brave the harsh conditions in factories in this and other Chinese cities. And as long as China outlaws independent unions and proves unable to enforce its own labor rules, there is little hope for change.“This is a problem that has been difficult to solve,” Liu Kaiming, the director of the Institute on Contemporary Observation, which aids migrant workers in nearby Shenzhen, said of sweatshop labor. “China has too many factories. The workers’ bargaining position is weak and the government’s regulation is slack.”There is little that any Western company can do about those issues, no matter how seriously they take corporate social responsibility — other than leaving China.Source: In Chinese Factories, Lost Fingers and Low PayWhat China could have been: Deng Xiaoping, Mao, and building a socialist society by Alexander Finnegan on Posts

Here is an in-depth analysis from online literature that I had done on smart factories. Hope this helps:INTRODUCTION -Big Data, IOT, Cloud Computing and Machine learning, these are some of the innovations of digitization that are transforming manufacturing practices across countries and industries. The onset of digitization and the so called 4th industrial revolution or Industry 4.0 is shifting manufacturing from a largely process driven industry to an innovation driven industry. Nowadays people are surrounded by many things that are called smart. South Korea’s government in collaboration with the local industry has even launched the project to build the smart city [1]. Smart Factory has been achieved by: digitalization data from analog systems, increasing use of flexible structures, strategies (scenarios) and also use of artificial intelligence (smart solution). Below you will find some of these technologies to develop the framework of a smart factory.The term "Industry 4.0" originates from a project in the high-tech strategy of the German government, which promotes the computerization of manufacturing. [2] Many have compared Industry 4.0 with the Fourth Industrial Revolution. However, the fourth industrial revolution also encompasses the effect of digitization on the whole society and not just solely on economic/manufacturing ramifications. The first industrial revolution mechanized production systems with water and steam power; the second industrial revolution, led by Ford introduced the concepts of mass production with the help of electric power, followed by the digital revolution and the use of electronics in the form of CNC systems to automate production. [3]Industry 4.0 is the inclusion of automation and data exchange in manufacturing technologies. It includes cyber-physical systems, IoT, cloud computing and other such technologies. Industry 4.0 can help create a "smart factory". Within such integrated smart factories, cyber-physical systems monitor all physical processes, create a virtual copy of the physical world and make live and decentralized decisions. Over the Internet of Things, such systems communicate and cooperate with each other and with humans in real time, and via the Internet of Services, both internal and cross-organizational services are offered and used by participants of the value chain. [4]What is a SMART FACTORY?A Smart Factory relies on interoperable and dynamic systems; multi-scale dynamic modelling and simulation; intelligent automation; scalability, high cyber security; and network of sensors. Such companies use data and information throughout the entire product life cycle with the objective of creating flexible manufacturing processes that respond rapidly to changes in demand at very low costs to the organization, as well as to the environment. These processes allow the easy flow of information across all business functions inside the organization and manage the connections to suppliers, customers, and other stakeholders outside it.Smart factories will revolutionise how we perceive manufacturing by -1. Bringing about a revolution in the development and application of smart manufacturing concept to every aspect of business.2. Providing flexible and adaptable production process3. Bring about a sensitivity to manufacturing, where volumes are dictated by a pull based demand instead of the current push based demand.What are the enabling technologies?The broad definition of smart manufacturing can cover many different technologies. Some of the key technologies in the smart manufacturing movement include big data and data analytics; inter connectivity devices and services, and smart robotics. [6]a) Internet of Things and machine-to-machine communicationIoT is used to connect any type of object having a virtual representation or identity in the internet. Machine-to-machine (M2M) communication or integration refers to the set of technologies and networks that provide connectivity and inter-operability between machines to allow them to interact. The concept of Machine to Machine integration in industrial and manufacturing applications overlaps with IoT to a large extent, so that both the terms can be used interchangeably, as both refer to the impact that such interconnected devices will have in the industrial world. Sensors are becoming significantly more performative and less expensive, enabling manufacturers to embed smart sensors in an increasing number of sophisticated devices and machines. These machines and devices are collecting and communicating more information than ever before. [5]b) Cloud-based application infrastructure and middlewareCloud computing is Internet-based computing that provides shared resources for computer processing and data to computers and other devices as demanded. It is a model for enabling ever present and on-demand access to a shared pool of configured computing resources (networks, storage, servers, applications and services),[7][8] which can be quickly provided and released with minimum effort. Cloud computing and storage solutions provide users and organizations with various capabilities to store and use their data in data centres owned privately or by third parties [9] that may be located far from the user–either from across a city to across the world. Such systems can serve as the IT backbone for factories of the future and for entire supply chains, especially when the systems enable seamless intra- and inter-factory integration and facilitate dynamic scaling of device integration and computing power according to the changing needs of the manufacturer. [8]c) Data AnalyticsBoth IoT and cloud-based technologies increase data generation and availability in manufacturing environments. For the manufacturing domain, this data will allow organizations to monitor and control all processes at a much higher level of detail. Previously unknown sources of incidents in shop floor processes will be identified, anticipated and prevented. The ad-hoc availability of such a large amount of data opens amazing new opportunities for new and innovative types of live analysis and visual representation. Batch-generated static reports are no longer state-of-the-art, as it becomes possible for users to view, chart, drill into and explore data flexibly in close to real-time, and as automated reasoning algorithms can now be applied to provide decisions that have in-process impact on manufacturing operation and optimization. [5]d) Smart RoboticsThe emergence of IT in the manufacturing domain not only introduces new solutions, such as IoT technologies, to this field of application, but also changes existing automation and control systems, especially robotics. For instance, human-robot co-working, which is possible by integrating safety sensors and safety mechanisms into robotic systems, combining the inherent flexibility of humans with the accuracy, precision, repeatability and performance of robots. In present production systems, work cell or line production is practiced commonly, in which individual workers or small teams operate various tasks in a bounded area using well-formed fixtures. Since recent market demands for simultaneous application of efficiency, agility and reliability are not satisfied by such systems, which are either operated solely by human ability or on fully automated lines. Robot cells, in which robot’s support humans in the execution of production tasks, are being developed to overcome this issue. [5]e) Additional factory of the future technologiesBesides these technologies, various other fields of research and development exist which might provide relevant solutions for the factory of the future, such as 3D printing, cognitive machines, augmented reality, wearable computing, exoskeletons, smart materials, advanced and intuitive programming techniques, or knowledge management systems. [5]SMART FACTORY FrameworkThe roadmap to making a smart factory can include several lines of actions named as smart solutions. Some of these as used in different areas are explained below.From Stores to machines via Cloud:Current logistics involve physical entry of raw material or BOP (Bought out Parts) in the stores, manual entry into ERP systems and formation of Master production of Schedule and CNC program installation on machines after every batch change. A smart solution would encompass1. Tagging of items on entry by RFID2. Updating of the ERP system3. MPS and WorkCentre scheduling by the ERP4. Information is passed on to respective WorkCentre’s by wireless communication.5. Auto sequencing of CNC program on the machine as per MPSAll the above information is stored on Cloud, which can also be linked with supplier database to keep updated.Benefits Associated—-The above solution will get rid of much of the headache associated with WorkCentre scheduling and cut costs by reducing the manpower required for production planning and control department. It will also reduce much non-value added work from planning so that they can focus on other issues much better.The automatic sequencing on the machine will also reduce setup times and improve productive.Automated Guided Vehicles:An automated guided vehicle (AGV) is a mobile robot that is based on a line follower concept using wires in the floor, or vision, magnets, or lasers for navigation. They are most often used in industrial applications to move materials around a manufacturing plant or warehouse. [10]The AGV’s can be used for raw materials, Work in progress (WIP) and finished goods requiringMovement of materials for long distancesRegular delivery of consistent loadsWhen on-time delivery is critical and late deliveries are causing inefficiencyProcesses where tracking of material is importantBenefits Associated—-An AGV system based on call system will implement E-Kanban with lean inventories. Inventories are a necessary evil which all industries focus on reducing, so a decreased inventory level will reduce the capital cost tied up. The inventory replenishment will also be better and chances of line starvation will reduce, improving available time for operations.Six Sigma with IOTThe Internet of Things (IoT) promises entirely new worlds of opportunity in many industries, but chief among them is the role that IoT and the machine-to-machine revolution is playing in manufacturing. The streamlined process, the end-to-end visibility, and the cost savings they deliver now and in the future means that technology is a small part of the story. In the big picture, the real change is visible in the approach to process. From hand-held devices to robotics and other innovations, the IoT advances deliver connectivity in an experiential framework that sets the customer at the centre of the operations, but also connects an organization’s employees. [12]The application of IoT, or machine to machine interaction can be done for automated quality inspections for critical parameters can provide live and constant feedback to the process for improvement and alignment towards the required process capabilities. Such seamless integration through IoT also keeps the subsequent machine sensitive to input parameters.Benefits AssociatedMachine to machine interaction ensures tighter control on output parts and realisation of achieving Six Sigma QualityDigital Utilities and Predictive MaintenanceIn the traditional factory, only a handful of key performance indicators were manually picked to be monitored. Then, a rule-based set of rigid threshold alerts was pre-calibrated by process control engineers. There’s a wealth of data that’s generated between these pre-fixed thresholds – data that could help you see what happens with your machines always, notice when things are starting to go south, and do something about it before you lose machine uptime. But this wealth of data gets ignored and discarded.Considering the number of assets that utilities are responsible for — machines, turbines, transformers, pumps, vehicles, kilometres of pipes and cables — and the risks associated with failure of such assets, a reliable maintenance strategy is a priority for them.In a quest to ensure reliability of such assets, utilities have progressed from primarily a reactive, break and fix and “repair” approach, toward a preventive maintenance approach. The basic principle of a smart factory is that by connecting machines, components and systems, we create intelligent, interlinked networks along the entire supply chain, which can control each other autonomously.The algorithms in a smart factory obtain a combination of health information from various sensors. They determine the condition of in-service equipment, and predict when maintenance work needs to be performed. Alerts about required maintenance tasks are triggered at optimal times, promising significant cost saving.In other words, transitioning from the traditional factory to the smart factory means no more preventive maintenance, which often requires significant, unnecessary expenses. No more replacing perfectly good parts when it’s not actually required, just because it’s on the schedule.Transitioning to a smart factory means letting intelligence systems with a deep understanding of every machine in your fleet, and the relationship between them, make predictions and prescribe courses of action. [13]Power and utility costs are one of the biggest part of running expenditure of any plant or factory.Going one step further digitizing all utilities and using cloud computing and data analytics to control them, gives tremendous opportunity to autonomously cut excessive loads in electricity, compressed air and water. This can result in huge savings in energy costs.It will also render greater control, flexibility and adaptability of plant’s energy resources.In INDIA :The government’s ‘Make in India’ campaign is aimed at facilitating investments, encouraging innovation and building high-class manufacturing infrastructure is expected to boost manufacturing activities in key sectors.[15]India's first very own smart factory, is under progress at the Indian Institute of Science's (IISc) Centre for Product Design and Manufacturing (CPDM) with seed funding from The Boeing Company at Bangalore. [16]CONCLUSION -The factory of the future will deliver customized products on pull demand with better quality, while still taking advantage of the economies of scale and offering human-centered jobs, along with cyber-physical systems to enable smart manufacturing. New manufacturing processes will address the challenges of sustainability, flexibility, innovation, and quality requirements in human-centric manufacturing. Future infrastructures will support access to information everywhere and always without the need for any specific installation of parameterization. Production resources will manage themselves autonomously and will connect to one another (M2M), while products will know their own appropriate production systems. This is where the digital and real worlds will merge. [5]REFERENCES[1] D.-H. Shin, Ubiquitous city: Urban technologies, urban infrastructure and urban informatics, Journal of Information Science, vol.35, no.5, Sage Publications, pp.515–526, 2009.[2] Kagermann, H., W. Wahlster and J. Helbig, eds., 2013: Recommendations for implementing the strategic initiative Industrie 4.0: Final report of the Industrie 4.0 Working Group[3] BMBF-Internetredaktion (2016-01-21). "Zukunftsprojekt Industrie 4.0 - BMBF". 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Expert Systems with Applications, 42(21), 7905–7916.[10] Automated guided vehicle - Wikipedia[11] Industrial Manipulators and Material Handling Solution[12] Six Sigma and IoT Brings Opportunity - business.com[13] Article on The digital utility: New opportunities and challenges By Adrian Booth, Niko Mohr, and Peter Peters ( Mckinsey & Company)[14] http://www.genewsroom.com/press-releases/ge-introduces-digital-power-plant-steam-enhance-efficiency-and-reduce-emissions-coal[15] Digitalisation and smart manufacturing: The way ahead to a sustainable India[16] Industry 4.0: IISc building India’s 1st smart factory in Bengaluru - Times of India[17] The Dawn of the Smart Factory