Li Keqiang, Russia, outdoor sports, revolutionary chip design, Shanghai Halloween - Week in Review #2

”Be innocent but not naive, be kind but resilient. Rise above the vulgarities of daily lives, but plant our feet firmly on the ground. This should be the common pursuit of our generation.”

I feel so grateful for the strong support for the first issue of my personal newsletter. Many of you also subscribe to my company’s

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based on my recommendation.

Thank you. This means a lot to me.

Again, for why I write here, please check here.

For the 2nd issue this week, I will cover these events that actually matter beyond news cycles:

1. Aftermath of Li Keqiang’s death

2. Northeast China’s Russia-sized opportunity

3. The 3-trillion outdoor sports market

4. Central Finance Work Conference concluded

5. Tsinghua U team’s revolutionary chip design to replace GPUs

6. Comparing China and US’s debt levels

7. The Shanghai Halloween part(ies)

The most profound

#1 Aftermath of Li Keqiang’s death

One week later, it still feels like a bad joke that Premier Li has died so young. It was so surreal to watch the cremation service. His photo looks so young, yet his lifeless body looks so cold.

And I also have to admit, in the few days after Premier Li’s death, I watched the news unfold with some trepidation. From the first instant, some people started to speculate whether this would copy the same post-death turmoils of Hu Yaobang or Zhou Enlai.

This is a ridiculous claim. LKQ was far below the stature enjoyed by Zhou or Hu in the Party’s pantheon, both of whom were first-generation revolutionaries who lived through hell and fire of the Long March as well as many prior and subsequent historic events. Nor is today’s China recognizably the same with China of 1976 or 1989.

Others, such as Stephen McDonell of BBC, attempted to drive an imaginary wedge between LKQ and rest of the Party, and went so far as to fancifully claim LKQ as a "liberal". I don’t even know what a “top-ranking communist party liberal official” actually means. Is that an Adam Smith liberal or Bill Clinton liberal? And I don’t recall any person calling LKQ a “liberal” when he was the sitting premier. Does an early death make someone “liberal”? Will Premier Li himself agree with this characterization?

Yet, however untrue a claim is, the ghost we imagine will take shape in real life if enough people believe in it. Furthermore, if the authorities cannot manage this super-delicate situation well, any misstep can add fuel to the fire. And to be honest, an over-early death of a clean and somewhat charismatic former No.2 guy is a good rallying point for all sorts of discontents for the past few years.

In these treacherous waters, every step can be met with suspicion, even if unfounded. For example, when the funeral arrangement was announced, some people immediately questioned why LKQ did not enjoy a memorial追悼会, but forgot to check this actually complied with past protocol and that former premier Li Peng also only got a cremation service.

Here is another one. Instantly after news broke out about Li’s death due to heart attack in Shanghai, a short essay started to 刷屏 on my WeChat (definition of 刷屏 by

Slow Chinese 每周漫闻

). The essay described what a world-class, 24/hr, rapid-response system against cardio-vascular disease Shanghai has, and concluded by a subtle statement: “Shanghai doesn’t have to shoulder some of the blames有些锅,上海不必背”. The essay doesn’t directly mention Li’s death at all, but what it may insinuate is not hard to understand: is this something other than a simple heart attack?

I estimated from data this article had attracted close to 1 million views within one day. That’s a LOT of people already. Gradually, censorship kicked in. It was not unable to be shared in chat groups around the morning of day 2, and censored all together by the end of day 2.

A similar scene unfolded in Hefei. People spontaneously paid visit to LKQ’s childhood home and laid down flowers. From the videos I saw mothers and children, businessman and food delivery boys, who joined in orderly, endless queues to say a last goodbye to a well-respected former leader. Then, authorities started to micro-manage these activities, but also in a subtle way. At some point, unidentified "volunteers" in blue clothes appeared at the scene and seemed to do nothing apart from keeping a watchful eye there. The choice of blue, a relatively soothing color, was also notable.

This is the current state of art of Chinese information control & management. The authorities understand very well they can’t close all exhaust valves for this high-pressure cooker that is public sentiment, nor can you release the pressure too quickly. If you push too hard, the pushing itself can become a source of reaction. But if you just leave it alone, rumors will run amok, the many “Stephen McDonells” will keep fanning the flame until all hell breaks loose. It is delicate. It is artwork.

All in all, it is lucky a crisis seems averted. I use the word “lucky”, because frankly, things could have ended up in flames, where people let passion getting hold of themselves and package whatever grievances into this innocent dead man.

I am simply glad that us Chinese people have matured to a stage of civilization where we can show up spontaneously, en masse, laying down flowers for a respected leader and nothing else. Now, there is one more precedent to trust that the people can pay tribute to a good man, simply for tribute’s sake, no more and no less, and there will hopefully be decreasing need to politicize each act.

This is touching. This is decent. If you wish the best for China’s civil society, those orderly queues, beautiful flowers, as well as those quiet “volunteers” in blue, are strong symbols of our strength, much stronger than the smashed windows, burned cars and general chaos that too many people have implicitly tried to instigate.

That’s why I find these events to be so profound.

The interesting

#2 Northeast China’s Russia-sized opportunity

Last Friday, the Politburo met to discuss revitalization of northeast China.

Northeast China, or Dongbei, is a resource-rich region and the first major industrial center of PRC with close to 100 million residents, but has had a huge rust-belt problem since the reform and opening-up. To counter this decline, so-called Dongbei revitalisation东北振兴 program has been in place for 2 decades now. The end result of this program? Not good. GDP, population and government revenues kept slowing down or even declining. Young people were fleeing in droves. Last month, a programmer in Chengde, part of greater Dongbei region, was fined heavily by local security services for using VPN, causing a public uproar. I commented that it is dire fiscal situation, not security concerns, that drove this type of behaviors.

It seems even in a socialist market economy, there is only so much government policies can achieve.

But recently, things have taken a surprising turn. In 2023 Q1, for the 3 provinces of Dongbei, Liaoning’s GDP grew by 4.7%, which is the first time since 2014 that Liaoning grew faster than national average (4.5%). Heilongjiang grew 5.1%, first time above national average since 2013. Jilin’s growth was more extreme. It grew a whopping 8.2%, ranking #1 of all provinces.

In the Politburo readout, there is an unusual line stating that Dongbei is "facing a significant new opportunity面临新的重大机遇". This expression is quite rare.

So what has happened? What "significant new opportunity" is the Politburo talking about here? Why makes the backwaters of Chinese economy suddenly great again?

There is actually a huge elephant in the room which the Politburo readout didn’t mention at all: Russia.

Ever since the Ukraine War and subsequent western sanctions against Russia, trade between Russia and Dongbei has been growing exponentially. In Q1 2023 alone, exports to Russia from Heilongjiang and Liaoning almost doubled year-over-year, while from Jilin almost tripled. And that’s after the already fast growth from 2022.

Ironically, it was outside forces that were responsible for Dongbei’s industrialization in the first place. Dongbei, formerly known as Manchuria, was a long a semi-colony / colony of competing Russian and Japanese interests during the Century of Humiliation. The Russians and Japanese even fought several important wars there. As late as 6 years after founding of the PRC, the Soviets, supposedly China’s socialist brother, even occupied Port Arthur (now known as Dalian), the largest port in Dongbei.

Russo-Japanese War 1905, fighting over Chinese territory of Dongbei/Manchuria

The lesson we can draw from this sequence of events? Even the Party cannot fight but can only ride the tide of history. Market forces, voluntary choices by the people and historical serendipity form the foundation of economic development. A purely state-controlled model can never work.

The under-reported

#3 The 3-trillion outdoor sports market

The NDRC, China’s chief economic planner, announced a fascinating document that I saw zero reporting by western media. The document is titled Action Plan for Boosting Construction of Outdoor Sports Facilities and Service Upgrade (2023-2025) 《促进户外运动设施建设与服务提升行动方案（2023—2025年）》).

At

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, we talked many times about how outdoor sports has been one of the bright growth spots. As we commented before:

In the face of these financial hardships, a considerable number of people have begun recognizing the reality of the economic climate, adopting a more relaxed perspective towards it.

In mountainous Guizhou, the phenomenal “Village Soccer” is making national headlines. It is also pushing premium sports brands such as Lululemon to buck a general consumption downgrade trend.

Now, the government is on board for this too. The Action Plan was quite expansive. It talked about specifics of building out more sports facilities, nature trails, ski resorts, mountain sports camps, water sports, campings and even aviation tourism. It even specified a target for market size of 3 trillion yuan (~$400bn) for outdoor sports. This is huge, as it accounted for 2-3% of GDP, and implies a per capita spending of ~$300/year. Investors should pay strong attention to this sector now, if you haven’t already.

This also reflects a classic pattern of Chinese economy policy. Usually the government doesn’t initiate anything from scratch. It prefers to adopt a wait-and-see attitude. If something works, it just creates policies to double down and make it faster.

Rowing on Suzhou River, in the heart of Shanghai

The honorable mentions

#4 Central Financial Work Conference concluded

The main theme of once-every-5-year conference? Tighter and stronger supervision of banking and capital markets. Although there were marked changes from the same conference 5 years ago, I don’t think the previous conference should be used as a good benchmark. A better benchmark should be policies and statements in the few years leading to this one. With this perspective, frankly I haven’t seen anything that hasn’t already been said before, for example in this 2022 article by the banking regulator, translated by

Baiguan - China Insights, Data, Context

, you can see all the major principles are essentially the same with the CFWC readout. So in this sense, the new CFWC shouldn’t been seen as a break in policy, but only a summarization of policy changes over the last 5 years.

Again, policymakers are playing catching-up, not initiating something revolutionary.

#5 Tsinghua U team’s revolutionary chip design to replace GPUs

A bunch of Tsinghua University researchers have unveiled a revolutionary chip design and published on Nature. According to

China Academy Newsletter

(emphasis my own):

These researchers have developed an all-analog photoelectronic chip that promises to revolutionize high-speed vision tasks. The chip, named ACCEL, combines electronic and light computing to achieve unprecedented energy efficiency and computing speed for vision-related processes.

Traditional digital computing units have long been limited by their energy consumption and computing speed when it comes to handling vision tasks. These tasks, such as image recognition for autonomous driving, robotics, medical diagnosis, and wearable devices, require high-resolution imaging, precise classification, and ultra-low latency.

The ACCEL chip takes advantage of the emerging field of photonic computing, which utilizes light to process information and perform computations. By integrating diffractive optical analog computing (OAC) and electronic analog computing (EAC) in a single chip, ACCEL achieves remarkable energy efficiency and computing speed.

…

In a nutshell, OAC harnesses light waves to perform computations, while EAC uses electronic components to process information in a continuous manner. Both methods offer advantages for certain types of calculations and contribute to the development of high-speed vision tasks.

…

The capabilities of ACCEL are truly impressive. It achieves a systemic energy efficiency of 74.8 peta-operations per second per watt, which is more than three orders of magnitude higher than state-of-the-art GPUs or TPUs. Furthermore, its computing speed reaches 4.6 peta-operations per second, with over 99% of the computations performed optically.

I am no science guy. And I have no framework to judge how far this is from actual usage. Hence I only put this into the honorable mentions section.

But the scientific principles here make some sense to me. If GPU is for graphic tasks, why not compute it based on graphics (light) rather than digits? It is really an amazing, “super open-minded脑洞大开” idea.

It reminds me of a rumor that was feverishly discussed about a few weeks ago, that China may negate the need for EUV by simply building a massive lithographic factory. Unlike ASML, China does not need to export EUVs so size is not an issue. I am not sure about whether this “EUV factory” is actually real or not. It could be just wishful thinking. But what I am sure is this:

First, the Chip War will never work, and here is my first-principle reason: After the golden age of Einstein and Bohr, there has been no major breakthrough in basic sciences. So, in effect, all of us earthlings’ scientific knowledge have been capped at the same level. The corollary of this universal cap is that, sooner or later China will be able to close in on the technological gap, which is essentially just engineering: tinkering and implementation of basic scientific principles. And remember, Chinese engineers are among the best in the world.

Second, an unintended consequence of chip war may be bifurcation of technological progress. Why it has to be the case that, if you ban NVIDIA’s GPUs or ASML’s EUVs, China just has to manufacture and copy the same GPUs and EUVs? This kind of thinking is as if there is but one path of technological progress, which is really just hubris.

Increasingly, this hubris might become more and more amusing.

#6 Comparing US and China debt levels

This is not an event, but an interesting article I have come across this week. The article compares in detail the overall debt levels between China and US. The conclusion in short: both China and US have their own debt problems, and whoever successfully resolves the debt problem may decide the future trajectory of China-US competition. We will translate that article in full next week or so at

Baiguan - China Insights, Data, Context

. Stay tuned there.

#7 Shanghai Halloween

Shanghai has had an unprecedented, 4-night long Halloween celebration. According to many people, it was the best Halloween celebration of the whole world. Young people dress up in all sorts of costumes imaginable, turning it into a massive cosplay party. Next week we will also decode some of the cultural symbols at

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.

It’s true that a few people use this occasion to present a political message. But the vast majority there were just for fun, which echoes the two points I mention above, 1) Chinese society has entered a stage where there is much more tolerance to, and preference for fun, for letting of some steam, for chillax, something you would not imagine in the go-go days of the 90s or early 2000s. 2) We have entered a stage of civilization where not all acts in public will be seen as political. Do you know that in China, it’s actually technically illegal to gather in large numbers, as those young people did, without pre-approval of the police? But although the Shanghai police were kept busy during those days, the overall atmosphere was orderly and jovial. (This year’s Halloween was totally unexpected, but I predict for the Halloween next year there will be stricter guidelines, such as designated routes and time.)

Still, it is hard to resist thinking of the coincidence here. The Halloween, which is traditionally a day for remembering the dead in the West, coincided with death of Li Keqiang. So young people reveled on the streets in Shanghai, at the same time when people joined in queues to lay down flowers in Hefei.

This reminds me of another big coincidence. Almost same time of last year, also in Shanghai, former party boss Jiang Zemin passed away in Huadong Hospital, which is only a few meters away from the Urumqi Road, where massive anti-Zero Covid protests took place only 3 days prior.

Eerie, isn’t it?

---

So much for this week. Let me conclude this letter with a handwritten letter by LKQ himself to a classmate of his in 1982, which perfectly captures not only the character of LKQ, but the highest ideals of a classic Confucian “scholar-official”士大夫, something I will keep re-visiting to explain China’s unique governance structure and philosophy.

“宋健同学，纯真而不欠闻达，善良而不失坚强。把生命高举在尘俗之上，又溶化于社会之中，这应该是我们这一代的共同追求。” ​​​

“Classmate Song Jian: Be innocent but not naive, be kind but resilient. Rise above the vulgarities of daily lives, but plant our feet firmly on the ground. This should be the common pursuit of our generation.” — Li Keqiang to his classmate in 1982.

(End)