In early 2025, China's economy began to dispel the gloom left by the pandemic: GDP growth in the first quarter reached 5.4%, exceeding the first quarter of 2024 by 0.1 percentage points; at the same time, China's technological innovation stirred up global technological trends, tipping the scales of global great power competition in its favor. Facing various crazy actions taken by Trump since he took office, especially the global "reciprocal tariff" stick, technology embargo, and potential more geopolitical surprises, is China's economy, particularly its industry, prepared? As the final year of the 14th Five-Year Plan, during the accelerated phase of economic transformation, how well has China's economic development, especially industrial development, honed its internal skills? Recently, Guancha Network revisited Professor Lu Feng of the School of Government Management at Peking University to seek answers to these questions. Since 2023, Professor Lu Feng, who has long been dedicated to studying the mechanisms of China's industry and technological innovation, annually shares his profound and incisive views on China's economy, industrial development, and Sino-US competition with readers of Guancha Network. These views are not only derived from deep theoretical reasoning but also from visits and research in frontline industrial enterprises. Although they may not always be gentle, they hit the mark, relating to the direction and future of the country's economic development. Below is the full transcript of the dialogue. This discussion lasted about three hours, with approximately 28,000 words in total. To facilitate readers' reading, this article is divided into four parts: One, what challenges does the Chinese economy face? Two, why can't Trump achieve manufacturing repatriation? Three, why emphasize that China's industry cannot be self-restrained? Four, will industrial socialism triumph over financial capitalism? [Image] Professor Lu Feng of the School of Government Management at Peking University, from the Peking University website. [Interviewer/Observer Network Gao Yanping] One, what challenges does the Chinese economy face? 1. The challenges we face: a new round of impacts may be imminent Observer Network: We begin our discussion of China's economic development from its external environment, which mainly involves Sino-US relations. Trump implemented dazzling policies upon taking office, both domestically and internationally. His so-called "reciprocal tariff" policy globally was temporarily halted due to China's countermeasures, and now the US attempts to globally ban advanced Chinese computing chips. There are currently many interpretations and analyses; how do you judge them? Lu Feng: Although we knew Trump wouldn’t follow conventional rules, his actions as president still had unexpected aspects, such as his desire to make Canada the 51st state of the US and annex Greenland from Denmark, while reasserting control over the Panama Canal, with no concealment of his territorial expansion ambitions. Then, although everyone expected Trump to wield the tariff cudgel again, when it was implemented, the scope of import tariffs imposed by the US government and their rates were so extensive that they impacted the entire world, sparing even its closest allies. Regardless of how different Trump’s methods and style of governance were, his strategic goal has been consistent with previous US administrations in substance: maintaining American hegemony. However, during periods when US strength declines and crises occur, Trump’s task is to reshape American hegemony. How to reshape it? My observation is that he first aims to dismantle the existing world economic system (which was originally shaped by the US) and shift the cost of economic adjustments onto all other countries, including allies; then, through high tariffs and other means, reverse the trend of deindustrialization in the US, i.e., so-called "manufacturing repatriation"; simultaneously, concentrate efforts to suppress the greatest "threat" to American hegemony—in the eyes of some American political elites, this "threat" is none other than China. American international relations scholar John Mearsheimer said that there are only three places in the world where the US would be willing to shed blood: Europe, the Middle East, and East Asia, as these are key regions related to American hegemony. When Trump first took office, he did not immediately act against China as many speculated, but instead proposed his Gaza solution, especially directly holding talks with Russia, attempting to bypass Europe to end the Ukraine-Russia conflict. Of course, what Trump thinks is one thing, whether he can accomplish it is another. Structurally speaking, if he resolves the Middle East and Ukraine-Russia conflicts, the US could then focus its full attention on the remaining one—East Asia—essentially concentrating efforts on dealing with China. Upon taking office, the Trump administration not only increased tariffs on Chinese goods, announced new semiconductor export restrictions to China, but also intended to impose fees and restrictions on international maritime transport services related to Chinese ship operators and ships built in China. Therefore, in my view, Trump’s main target is China. Simply put, the US has already prepared itself to confront China, which is the international backdrop we face, regardless of our wishes. Two, why can't Trump achieve manufacturing repatriation? 2.1 Manufacturing Repatriation Trump Can't Achieve: Industrial Jump Not Realizable Within a Generation Observer Network: The core goal of Trump's administration is to make America great again and push manufacturing back to the US through the tariff cudgel. Do you think he can achieve this goal? Lu Feng: This issue relates to the basic motivation behind the US suppressing China. The Trump administration (including the previous Biden administration) believes that without curbing China's development, the US cannot re-industrialize. However, historical facts show that the decline of American industry, acknowledged by academia, began around the early 1970s and has lasted for over 50 years. This process was self-driven by the US and cannot be blamed on others. Let us briefly review history. The process of the US becoming a world power has two stages. The first stage was from 1870 to before the First World War, during which the US rapidly became an industrialized nation within three or four decades and on a large scale (if compared to China's reform and opening-up period, this stage is equivalent to its first 40 years). By the turn of the century, the US had become the largest industrial producer in the world (and also the largest agricultural producer), surpassing Britain (which was later surpassed by Germany). Driven by industrial strength and interests, the US launched the Spanish-American War in 1898, occupying Cuba, the Philippines, Puerto Rico, Guam, and other Spanish colonies. The Spanish-American War marked the US’s ascent to the global political stage as one of the world powers (imperialist nations). The First World War ended in 1918, but the US joined the war in 1917 quite late. However, once involved, it decisively ensured the victory of the Allies led by Britain and France over the Central Powers led by Germany and Austria-Hungary due to the sheer size of the US. Before the First World War, Britain had been the world's hegemon and also the financial hegemon. However, after the war, Britain transitioned from being a creditor nation to a debtor nation, weakening the position of the pound sterling, because the industrially backward Britain had to borrow money from the US to purchase arms. Nevertheless, after the war, the European powers still did not fully recognize the status of the US, considering it rustic. In international politics, unable to outplay the European powers, the US retreated into isolationism. The second stage was from the Second World War to the start of the Cold War, during which the US became the world hegemon. After Japan attacked Pearl Harbor, the US declared war on Germany and Japan. That evening, Churchill, the British Prime Minister at the time, said: "I can sleep soundly tonight." Because for him, with the US joining the war, the outcome was decided. After entering the war, the US mobilized its vast industrial system to produce military equipment, known as the "arsenal of democracy," using astonishing industrial capacity to crush the Axis Powers of Germany, Italy, and Japan. Thus, industrial strength determined the outcome of modern warfare. Today, the US political sphere once again evokes past events, hoping to restore that dominant position. There is an important historical fact worth pondering: until the outbreak of the Second World War, although the US industry was already the largest in the world and its engineering capabilities were strong, it lagged behind Europe scientifically. The "gift" Hitler bestowed on the US was forcing a wave of European scientists to flee to the US, and the war also brought many new European inventions to the US. For instance, the theoretical research on atomic energy was conducted in Europe, the first experiment proving nuclear fission was done by exiled European scientists in the US, and finally the US developed the atomic bomb through the Manhattan Project. Jet propulsion engines were first invented by Germany (Germany led in aerodynamic research) and Britain. During the war, to secure American support, Britain transferred jet engine technology to the US, but the US struggled immensely to master it, and it was applied to aircraft post-war. Radar technology was also transferred from Britain to the US, and subsequently, MIT established the Radiation Lab to study radar technology applications. The US post-war ballistic missiles were designed by German scientists who had created V1 and V2 rockets for Nazi Germany. This fact reflects a historically proven development sequence: only after becoming an industrial powerhouse can a country become a scientific powerhouse. This sequence has never been reversed in history, as only industrialization generates demand and investment capability for science and technology. Today’s scientific superpower, the US, after deindustrialization for several decades, cannot reverse this process to achieve reindustrialization; it is impossible. Another historical fact that proves this development sequence is that every industrial revolution wave in the world starts with producing existing products, not creating entirely new ones. The most iconic product of the British Industrial Revolution was cotton textiles, but cotton textiles were not invented by the British—they had long existed, and the British innovation was mechanizing the production of cotton textiles. In essence, the British Industrial Revolution began with mechanizing traditional products. When the US underwent massive industrialization in the late 19th century, the steel, chemical, and automobile products and technologies it produced were mostly European inventions, while American innovation lay in adopting mass production methods, including Ford's assembly line. When Japanese industries began impacting the global market in the 1970s and 1980s, the products they produced were all derived from European and American inventions (with some improvements), and their competitive advantage mainly stemmed from innovations in production methods (i.e., process or process technology), such as Toyota's production method. This does not mean that entirely new products will not emerge, but rather that the invention of completely new products will only appear long after a country begins industrialization. For example, the US utilized the technical capabilities accumulated during World War II to develop computer, semiconductor, and software-based new technology industries in the 1950s, giving rise to Silicon Valley. It was the golden age of the US economy, with coexistence of traditional industrial advantages and high-tech industrial advantages, experiencing relatively high economic growth rates from the post-war era to the early 1960s. Why can a country only generate entirely new products long after industrialization? The reasoning behind this phenomenon is actually very profound: any major technological innovation that produces entirely new products, regardless of the field, requires support from the entire industrial system. Therefore, the prerequisite for significant technological innovation is the formation of an industrial system, including the corresponding education, finance, and other supportive systems, and the maturity of these conditions takes time. Of course, initiating industrialization itself is no easy feat, often requiring underdeveloped countries to innovate in production methods, organizational forms, and systems to compete with leading countries in existing product markets. 2.2 Manufacturing Repatriation Trump Can't Achieve: The Fundamental Reason for American Industrial Decline Lies in Pursuing World Hegemony Observer Network: An interesting discovery. So, from an industrial power to a scientific superpower, and then to deindustrialization, is this the inevitable law of great power development? Why did America's once powerful manufacturing sector decline? Lu Feng: To put it bluntly, the fundamental reason for America's industrial decline is pursuing world hegemony. Of course, this is a lengthy process, and we can only provide a brief overview. After World War II, the US set about establishing a liberal international economic order aimed at ensuring other countries opened their markets to the US. After the onset of the Cold War with the Soviet Union, this order or system also acquired strong geopolitical factors, forming two pillars. The first pillar was helping revive allied economies through the Marshall Plan, which also altered the initial post-war plan to turn West Germany and Japan into agricultural countries. Although the Marshall Plan aimed to dispose of America's post-war surplus goods or capacity, all America's allies owed it debts, and the only way to repay these debts was for these countries to export to the US and earn dollars to settle their debts. Consequently, the US abandoned its pre-war high tariffs and protectionist trade policies, opening its domestic market to its allies. Naturally, these allies also had to open their markets to the US. The second pillar was providing security guarantees to allies to counter the "threat" from the Soviet bloc. Here, it is necessary to clarify America's "grand strategy" thought. Maintaining and sustaining hegemony is the fundamental goal and logic of America's grand strategy post-WWII. All internal debates among American elites are not about this goal itself but about the type of hegemonic strategy the US should pursue. Among several different "versions" of strategies, the "primacy" strategy has always been the dominant theme. Its basic stance is that the US can only ensure peace by maintaining overwhelming superiority over all other countries, as peace results from a power imbalance. [1] America's primacy strategy includes four elements: 1) having overwhelming military superiority, deeply intervening in world affairs, ensuring internal divisions in both oceanic regions adjacent to the US, and preventing regional hegemons from emerging in Europe and Asia or Eurasia. 2) Providing security guarantees to allies, dissuading them from pursuing independent development paths, eliminating their motivations to rearm and become challengers or competitors again. 3) Integrating the world through the American system, continuously expanding the scope of the liberal economic order, incorporating more countries according to American conditions to create optimal conditions for American capital penetration. 4) Strictly preventing nuclear weapons proliferation to ensure America's operational freedom (as the advent of nuclear weapons changed the nature of warfare). Within the liberal international economic order dominated by the US, since allies depend both on American markets and American security guarantees, the US gained "privileges": first, once countries join this system, they cannot independently develop, which allowed the US to win over former war initiators like West Germany and Japan. Second, allies must absorb dollars, enabling the US to leverage its dollar hegemony to transfer the costs and consequences of any domestic economic adjustments to allies. By the 1960s, European and Japanese industries had been rebuilt and began competing with American industries. At that time, the US made a big "mistake": getting involved in and expanding the Vietnam War. This unpopular war greatly depleted American strength, not only causing a rise in unemployment and inflation domestically but also fattening Japan through massive material procurement. Ultimately, the war was not won. Starting from 1968 (still during the Vietnam War period), the US experienced its first trade deficit since the beginning of industrialization in the 19th century. To escape the困境 of expanding international payments deficits, plummeting dollar values, and gold outflows, the Nixon administration announced on August 15, 1971, the abandonment of the gold standard, halting dollar convertibility to gold, and imposing a 10% import surcharge, leading to the collapse of the Bretton Woods system. The unilateral action by the US caused immense losses to its allies, historically referred to as the "Nixon Shock." At a meeting,面对一脸 astonishment from the finance ministers of various allies, then US Treasury Secretary Connally uttered the famous phrase: "The dollar is our currency, your problem." Looking back at history, the Nixon Shock that shattered the Bretton Woods system initiated the process of American economic financialization. To maintain overwhelming global advantage, America's military spending increasingly exceeded what the US economy could bear, relying more and more on debt growth supported by dollar hegemony. By the 1970s, Japan gradually achieved an edge over American companies in industries such as steel, shipbuilding, machine tools, automobiles, semiconductors (storage chips), and consumer electronics. Faced with unfavorable competition, American industry underwent a massive wave of corporate mergers and so-called "rust belt" factory closures from the late 1970s through the 1980s. However, at that time, American emerging high-tech industries represented by Silicon Valley and Boston were also flourishing, offering hope for replacing old industries with new ones. Thus, in American media, the terms "sunset industries" and "sunrise industries" emerged, evolving into "old economy" and "new economy" concepts by the 1990s. The US actually has its wise individuals. I quote verbatim from an American bestseller published in 1982: "Despite controversies, the substantive problem of the American economy can be traced back to this direction: capital in the form of financial resources and physical factories and equipment has shifted from productive investments in our national foundational industries to non-productive speculation, mergers, and overseas investments. What remains are closed factories, laid-off workers, and many newly emerging ghost towns." The authors also urged: "If the American economy is to maintain a certain level of vitality and leadership in the remaining 20 years of this century, it must undergo a fundamental change. Its goal must be American reindustrialization. Facing the rapid decline in competitiveness over the past 15 years—the most vividly demonstrated by the nationwide wave of factory closings this year—conscious efforts to rebuild American production capacity are the only real choice." However, America's political and capital elites did not make such a choice: the former sought to maintain America's world hegemony, while the latter wanted to exploit the dollar hegemony to make money faster and more. Recently, the Observer Network published an article by former Greek Finance Minister Yanis Varoufakis, which profoundly reviewed that event. He wrote that the core problem the Nixon team faced at the time was: "How to maintain hegemony when the US becomes a deficit country?" To solve this paradox, the Nixon team did not adopt contractionary policies that might trigger an economic recession and weaken American military strength. Instead, they expanded fiscal deficits and trade deficits and reconstructed the global capital flow cycle system to make other countries pay for America's deficits and imbalances. This required breaking free from the constraints on Wall Street imposed since the New Deal era, wartime economy, and the Bretton Woods system, relaxing financial regulations to avoid another Great Depression. The Carter administration continued this policy, while the more neoliberal Reagan administration fully relaxed financial regulation. Thus, American financial capitalists discovered they could play financial games with tens of billions of dollars in foreign capital. The larger the system that sustained American deficits to meet the export demands of Asian and European countries grew, the more massive the trade volume needed to sustain this deliberately unbalanced globalization system became. This is the driving force behind America's dominant globalization. Under dollar hegemony, financial liberalization made the US the only country in the world that didn't have to choose between "guns and butter," but it also made finance, including the stock market, have an increasingly greater impact on the economy, making American businesses increasingly subject to the rules of financial markets. Financial logic inevitably undermines industries requiring long-term investments. Therefore, economic financialization became the decisive force behind America's industrial decline. Just looking at the trajectory of America's trade deficits can explain: America's trade deficits started at the billion-dollar level (all figures are in US dollars), rapidly expanding to the trillion-dollar level in the 1980s, and American industrial manufactured goods trade deficits also appeared during this period; thereafter, trade deficits continued to expand, reaching over a trillion dollars in 2021. Neoliberalism gave rise to the ideology of "maximizing shareholder value" in corporate governance. Thus, the tide of economic financialization reversed the trend of separation of management and ownership rights in American industries since the late 19th century. Capital owners (shareholders) seized control of companies (including leveraged buyouts, stock incentive plans, etc.) from "internal people" who previously managed independently, with Wall Street busy with corporate mergers, spin-offs, layoffs of restructured companies to increase profits and stock prices. Simultaneously, the US re-expanded its military buildup (the "Star Wars" program) in the 1980s, promoting the development of emerging high-tech industries, and the dollar became stronger after decoupling from gold. After the dissolution of the Soviet Union, the neoliberal international economic order expanded worldwide, entering the period of globalization dominated by American unipolar hegemony. Under this economic order requiring all countries to open their markets to American capital, as long as it increases profits, American enterprises increasingly outsourced manufacturing operations to low-cost locations in the form of multinational corporations. At that time, the US had nothing to fear, as it held the strongest military force globally, the leading high-tech, and the omnipotent dollar, allowing the world to work for it. The global financial crisis triggered by the US subprime mortgage crisis in 2008 exposed the fundamental flaws of this model. Americans themselves discovered the vulnerability of the US economy, including social wealth polarization caused by financialization and deindustrialization. Trumpism emerged and gained social support under this background, its appeal lying in acknowledging the fundamental problem of American economic decline—industrial decline—but its error was blaming the cause of decline on others: all other countries in the world—including China and America's allies—were profiting at America's expense (the opposite was true). The truth is, America's industrial decline was self-inflicted. Importantly, if the diagnosis based on a hegemonic standpoint is wrong, the remedy will also be ineffective. Today, Trump swings the tariff cudgel from the standpoint of maintaining American hegemony, but if simply doing this could revive American industry, then roosters could certainly lay eggs. 2.3 Manufacturing Repatriation Trump Can't Achieve, China's Industrialization Was Not Developed Through "Industrial Transfer" Observer Network: Trump's calculation is that by raising tariffs, he can prompt manufacturing to return to the US. Do you think this plan cannot succeed? Lu Feng: First, I believe that so-called "manufacturing repatriation" and "industrial transfer" commonly discussed in China are equally imprecise concepts. For many years, a notion has been popular in Chinese society: China's astonishing development after reform and opening-up was due to承接ing "international industrial transfer," which is incorrect. Incorrect concepts lead to incorrect thinking. For example, during the US-China trade war from 2018 to 2019, causing panic among China's "elite" society, economists solemnly discussed the "terrifying" prospect of the US forcing industrial chains to leave China. Just a few years later, facts have proven that this fear was merely a psychological feeling among these "elites": China is the subject of the global industrial chain, and the trade war has made China's industrial chain more complete and stronger. Industry or industry is not something that can be moved (such as factories, equipment, and production lines); its essence is organizational and social capabilities, and capabilities determine the effectiveness of material capital. The key point is that organizational capabilities are always endogenous to the organization and cannot be transferred. Therefore, any national industry develops rather than "transfers." True, investment from developed country enterprises can bring some "knowledge," but whether one can learn anything from foreign enterprises depends entirely on whether the local country has indigenous enterprises independently participating in competition and cooperation, meaning whether there is a foundation of capability. Otherwise, a foreign enterprise's presence in the local area is just an "enclave," providing employment and tax revenue, but unrelated to local economic development. The late renowned development economist Amstaden pointed out: Foreign investment has never initiated a country's industrialization; they only enter after a certain level of development has occurred in the country, aiming solely to capture the market. [5] After China's reform and opening-up, it also introduced technology and foreign investment, and later multinational corporations set up factories in China. However, the reason China could withstand the negative impacts of foreign investment (such as destroying local enterprises), learn knowledge, and transform it into its own competitiveness lies in the fact that China was open to foreign investment with a nearly complete industrial system in place, which is China's foundation of capability. Reform and opening-up is a great endeavor, but there has never been a good thing in the world where opening up automatically leads to development and everything works out fine (otherwise, the Philippines would be a developed country). Opening up is a double-edged sword, capable of promoting one's own development but also potentially controlled by outsiders, hindering one's development. Therefore, opening up is at most a necessary condition for development, but not a sufficient one. What is the sufficient and necessary condition for development? What is the key to utilizing openness to achieve better development? —— the ability to grow on one's own foundation. Those with ability can utilize the benefits of openness, while those without can be strangled by openness. China's industrial system is endogenous, not "transferred." The founding generation of leaders experienced China's "century of humiliation" and revolutionary wars, understanding the importance of industrialization for maintaining national independence and economic development. Therefore, starting from the 1950s, New China promoted industrialization according to the requirements of a great power standing independently among the nations of the world, with the basic characteristic being the establishment of a complete industrial system. What does "completeness" mean? It means that whatever industries existed in the world at the time, China would build them, including the semiconductor industry, which was still in its infancy. The goal of industrialization also determined the direction of social development, such as China's comprehensive layout of scientific research and today's higher education system that "produces" the largest number of science and engineering graduates in the world, which began forming at that time. In the 1960s and 1970s, China also experienced setbacks such as the Sino-Soviet split and the "Third Line Construction." During this 20-year period of self-reliance, despite various difficulties and mistakes made by itself, China continued to expand its industrial system, achieving remarkable technical achievements marked by the "two bombs, one satellite, and one missile." Of course, the Chinese people sacrificed the economic welfare of two generations to establish a complete industrial system under extremely low economic development levels. But precisely because of laying this foundation, the development of the economy after the reform and opening-up was able to achieve the accomplishments we see today. [Image] The miracle of China's industrialization developed on the basis of the first thirty years of the founding period. Of course, some people either don't understand or refuse to acknowledge the connection between the industrial foundation established in the first thirty years and the subsequent economic development after the reform and opening-up, especially when they believe China's development was due to "industrial transfer." To demonstrate this connection, I will give a "small" example. Today, the largest semiconductor equipment company in China, Northern China Integrated Circuit Technology Co., Ltd. (Northchip), not only accounts for half the industry share but also has the widest range of product lines. Among the ten major categories of integrated circuit equipment, it can provide almost all types of equipment except lithography machines and test equipment, comparable to Applied Materials, the largest semiconductor equipment company in the US, surpassing any domestic and international manufacturers. In 2017, just before the US launched a trade war against China, Northchip's revenue was 2.223 billion yuan; how much was it in 2023? It was 22.079 billion yuan, nearly ten times what it was six years ago (i.e., before the trade war). According to the recent performance report released by Northchip, it achieved operating revenue of 29.838 billion yuan in 2024, growing by 35.14%; net profit attributable to shareholders of listed companies was 5.621 billion yuan, growing by 44.17%. In just six short years, from being obscure to ranking seventh in the world's top ten semiconductor equipment companies, where did such a company come from? Northchip's predecessor was Seven Star Huachuang, which was formed by merging the equipment manufacturing departments from six factories (originally seven) during the SOE restructuring in the late 1990s. These equipment departments came from several electronic factories established in the Jiuxianqiao area of Beijing by the Ministry of Electronics Industry in the 1950s. Factory 774 (formerly the Beijing Electronic Tube Factory, precursor to BOE) began researching and manufacturing semiconductor equipment in the early 1960s. In 2017, Seven Star Huachuang merged with the Northern Microelectronics Equipment Base to become today's Northchip. Semiconductors are an industrial sector in which China has taken detours, but its history is long and carries substantial heritage. Today's Northchip, from its chairman to every employee, has been working on semiconductor equipment since they started their careers, reflecting this company's "genetics," encompassing decades of accumulated knowledge, experience, skills, and behavioral habits. It is precisely because of such a foundation of capability that once the US blockade forced chip manufacturers to open up to domestic equipment suppliers, Northchip erupted accordingly. Therefore, even for industries that have been neglected, China's industrial system always leaves a spark, ready to ignite again when conditions mature. Semiconductors are like this, and large aircraft are the same. By the way, I'll tell another story. In February 2023, we interviewed Mr. Han, a Korean semiconductor materials expert (a pseudonym), who retired in Korea and was invited to work for a Chinese enterprise, displaying a scholarly demeanor. I asked him if China could continue producing large silicon wafers if foreign equipment supply were completely cut off. He replied that if China closed its doors and made them domestically with somewhat inferior native equipment for supplying domestic customers, there would be no problem; however, if participating in international competition, China would fall behind the world's advanced level by about five years. I then asked if he meant that China could produce all semiconductor equipment. His translator restated his response in the third person: "Han observed that China is developing equipment for each process node domestically. It just takes longer to do so, but it is definitely achievable because China already possesses the capability and conditions. Therefore, Han believes that China is the only country in the world capable of independently developing the semiconductor industry." Han explained that America's supply chain is incomplete, but it can rely on its allies without supply issues; Japan is no longer competitive in chips, but it excels in equipment; Samsung and SK Hynix in Korea are very strong in the chip domain, but Korea lacks strengths in materials and equipment, relying on the global supply chain. He concluded that Korea made a strategic mistake by overly depending on Japanese equipment. Therefore, his conclusion was definitive: Only China is fully nationalizing all equipment and processes, and it will surely succeed. The foundation for fully nationalizing semiconductor equipment is China's independent and complete industrial system. In fact, over two years since that interview, China's semiconductor industry has progressed faster than anticipated. Back to America's reindustrialization issue. The US government forcing TSMC and Korean enterprises to build factories in the US is not industrialization. In 2017, during Trump's first term as president, Foxconn made a high-profile announcement to invest $10 billion in a giant liquid crystal panel factory in Wisconsin, creating 13,000 new jobs. Trump personally attended the groundbreaking ceremony and called the Foxconn investment park in Wisconsin the "Eighth Wonder of the World." However, this project later "went bust," fully demonstrating that industries are not transferable. [Image] Foxconn's Wisconsin factory, now abandoned American industry has been in decline for over 50 years, and its social conditions—industrial structure, employment structure, infrastructure, investor and worker behavior, corporate governance models, and relevant laws—have undergone tremendous changes, no longer adapting to industrialization requirements. According to media reports, the conflict between TSMC and American employees manifests as American employees earning higher wages than those in Taiwan but lacking in skills and discipline. When a large amount of industrial social experience is lost, aside from high-tech and financial industries requiring highly educated personnel, the general characteristics of the American workforce for manufacturing industries are high costs and low skills. Conversely, during China's industrial boom phase, the general characteristics of the industrial workforce (including engineers and managers) were low costs and high skills, while the industrial social experience base was continually expanding. As long as industry is not lost, rising labor costs can still be offset by product innovation and technological progress (such as adopting automation and intelligence), as many Chinese industries are doing. What does losing industry mean? I’ll give an example. A few years ago, I read an article by an American scholar saying that twenty or thirty years ago, the US considered printed circuit board production (which was originally invented by Americans) to be polluting and low in added value, thus abandoning this industry. However, at the time, no one foresaw that today printed circuit boards have become high-tech products because they have become so complex with the evolution of terminal products (think of the precise multi-layer circuit boards used in today's smartphones). That American scholar lamented that when the US interrupted its participation in the technological advancement of printed circuit boards for a long time, re-entering this industry became almost impossible—what kind of capital would tolerate hiring high-cost, low-skill personnel to start from scratch learning how to make printed circuit boards? Moreover, doing so would face overwhelming competitive advantages from powerful rivals. It is now clear that for a deindustrialized country to reindustrialize, the difficulty is greater than the first industrialization. Trump, with only a four-year term, cannot solve America's problems accumulated over 50 years, and raising tariffs further cannot address fundamental issues. Of course, China itself cannot make fundamental mistakes, especially not bind its own hands. Three, why emphasize that China's industry cannot bind its own hands? 3.1 China's Industrial Development Cannot Bind Its Own Hands: Emerging Industries Cannot Replace Traditional Ones Observer Network: Why have you been emphasizing that China's industry "cannot bind its own hands"? Lu Feng: This involves the theme I want to discuss: America is confronting us, and we must remove self-imposed limitations on industrial development and economic growth—only by relying on the overall strength of the industrial system can China defeat America's pressure on the economy and technology. What I mean by "binding our own hands" refers to the self-limiting system formed under the influence of "binary thinking." In last year's article on Observer Network, I detailed criticism of "binary thinking," and here I will briefly restate it. "Binary thinking" gradually influenced public discourse at the end of the high-growth stage (2000-2013) under the dominance of liberal economists. Their stance was that China's high growth in the first decade of the 21st century was "investment-driven," "coarse development," and "overcapacity," believing that high growth hindered what they considered more important—liberalization and marketization. To negate high growth, they arbitrarily divided China's industrial system, which had contributed significantly to high growth, into two parts: the first part, accounting for about 90% of industrial added value, belongs to the "old kinetic energy" that should not develop further; the second part, which should become the focus of future development, includes scientific research activities, informatization, and services, as they saw the US industrial structure in this way. Therefore, "binary thinking" believed that the central problem of China's economy is no longer growth but "transition" from the first part-dominated industrial structure to the second part-dominated "transformation." In reality, "binary thinking" is a deindustrialization ideology. [Image] Author's illustration Under various influences, "binary thinking" profoundly affected economic policies over the past decade, with "new kinetic energy" replacing "old kinetic energy" as the policy language. Once such policies were implemented, China formed a production-limiting system that employed administrative measures to require "specific tasks and goals to be clearly defined locally, with intensified thresholds for environmental protection, energy consumption, quality, standards, safety, and enforcement efforts," implementing "capacity reduction," production limits, and shutdowns or transformations of traditional industries. The ultimate "achievement" of this production-limiting system was the rolling blackouts affecting the entire country in September 2021, fortunately stopped by the Party Central Committee in time, which proposed the guideline of "establishing first before breaking." Even though the higher authorities emphasized that "developing new-quality productivity does not mean neglecting or abandoning traditional industries," until today, many traditional industries, especially foundational ones, are still operating under production-limiting constraints (such as limiting the total output of a certain product nationwide). Since the policy of "new-old kinetic energy conversion" was officially proposed more than 10 years ago, how has it progressed? From Figure 1, the data from the National Bureau of Statistics can clearly present this. Figure 1: The proportion of high-tech industries and traditional industries in the total industrial added value of规模以上 industries [Image] Author-provided Over the 12 years from 2011 to 2023, despite intense suppression of traditional industries, the proportion of high-tech industries in the total规模以上 industrial added value rose from 9.1% to 15.7%; in absolute terms, this increase amounted to 4.44 trillion yuan in industrial added value, while the total规模以上 industrial added value in 2023 reached 39.22 trillion yuan. In other words, ignored and suppressed traditional industries are irreplaceable and remain the mainstay of China's economic growth. So, why can't the proportion of high-tech industries increase as desired? Because the industrial system is composed of multiple industrial sectors forming an industrial economy, its fundamental characteristic being technical division and complementarity among different sectors and economic interdependence in demand and supply. Therefore, there exists a certain proportional relationship among the various parts of the industrial system, and the development of each industry relies on the development of others, so no single industry can be "more and more" beneficial. For instance, chips are intermediate products, so the scale of the integrated circuit industry depends on the demand from industries needing chips. Without terminal industries using chips, chips have no value; if the industries producing terminal products shrink, the semiconductor industry would immediately suffer from "overcapacity." Clearly, high-tech industries cannot