For a fascinating look at why China’s hardware manufacturing dominance is the foundation of their AI strategy, please spend some time with this Substack writer:
Here’s an excerpt:
One of the more interesting developments in AI is that while the American AI companies are mainly focused on closed-weight models, China is building open-weight models.
That begs the question: why?
On its face, the bet is simple: if China doesn’t have access to leading-edge chips, then open-weights are the best way to encourage both adoption and ecosystem development.
I think they’re making a different bet.
A couple of years ago, Isaiah Taylor, the founder of nuclear company Valar Atomics, told me something that’s stuck in my head ever since:
There are only really three pillars to anything around us, as far as consumable goods. We’ve got energy, intelligence, and dexterity.
I would generalize “dexterity” to “action.” Everything we see around us, and will see around us in the future, is the result of the potential to do work (energy), the capacity to decide what to do and how (intelligence), and the ability to manipulate matter (action).
In economic terms, energy, intelligence, and action are strong complements in the production of anything.
And in the immortal words of Joel Spolsky, “Smart companies try to commoditize their products’ complements.”
America is, implicitly or explicitly, making a bet that whoever wins intelligence, in the form of AI, wins the future.
China is making a different bet: that for intelligence to truly matter, it needs energy and action.
If you control energy and action, making intelligence abundant strengthens your position.
After catching up to America in electricity generation in just 2010, China now generates 2.5x as much electricity as we do.
It also dominates the technologies that turn electricity into action: the Electric Stack.
- Lithium-Ion Batteries
- Magnets and Electric Motors
- Power Electronics
- Embedded Compute
Today, China produces 75% of lithium-ion batteries globally and manufactures 90% of the neodymium magnets that make motors spin. In power electronics and embedded compute, it’s rapidly gaining ground.
That means that China controls the means of producing electric vehicles (EVs), drones, robots, and all of the other electric products that are replacing the combustion-driven machines on which America built its might.
As we speak, everything that moves, heats, lights up, computes, or converts energy is being rebuilt to perform better, faster, cheaper, quieter, and as a freebie, cleaner around electric technology.
Simply put: anything that can go electric will.
Or rather, anything that can go electric economically will.
…..
That today China owns two layers of the Electric Stack almost entirely was not inevitable, or even likely.
The four key Electric Stack technologies were invented at various points between the 1960s and 1990s in America, Japan, and the UK, and reached critical maturity around the same time in the 1990s.
Then, in many cases, we sold the future. GM sold its neo magnets division, Magnequench, to China for $70 million. A123 Systems, which invented the Lithium Iron Phosphate (LFP) battery, went bankrupt and sold to Wanxiang for $257 million in 2013.
Thanks to shortsighted Western errors and farsighted Chinese industrial policy, in the commercialization phase, the Electric Stack center of gravity has moved from America and Japan to China, which dominates the stack. By controlling these four technologies, China has become the world leader in everything from EVs to drones to electric bikes to robots.
A giant piece of this is that mastery of this stack applies across domains, allowing market leaders like BYD to make everything from cars, to home energy products, to iPads, to much of the world’s drones. Within the whole sector – the components, software, and expertise largely transfer – meaning mastery of one product of the stack allows success in scaling others. Advantages compound. The result has been China getting the best “LEGO set” in the world, with regards to this stack.
Conrad Bastable calls this LEGO set the Electric Platform. For a sobering in-depth read on this topic, read his essay, Forsaking Industrialism. This essay owes Conrad an enormous debt for both that piece, and the conversation we had on Hyperlegible. I will reference both, explicitly or implicitly, throughout.
