A good business model should not turn your heaviest users into a source of loss. This is exactly why I have always believed that a “coding plan” (usage‑based pricing) is a terrible business. Think of a gym that only makes money because people buy memberships and then never show up. That’s a broken logic. A sound business model should ensure that your most core, highest‑volume users generate the largest profit – not the other way around. #BusinessModel #StartupTruth #UsageBasedPricing #BadEconomics

CEO of Anthropic Dario Amodei awkwardly smiles through his answer to a question about why Claude AI directly contributed to the US Military bombing of the elementary school in Minab.

French President Emmanuel Macron wants the G7 summit to tackle a flood of subsidized Chinese exports disrupting global markets. But even before leaders meet, it’s clear that credible action is one deliverable he won’t be able to land. politico.eu/article/emmanuel…

This is a really fascinating paper that everyone interested in China's industrial policy should read. It destroys so many myths (see below), and is written by deeply credible people who conducted over three years of fieldwork in China and interviewed 60 Chinese officials, entrepreneurs, and engineers. When it comes to China studies, it literally doesn't get more rigorous than this. First myth it destroys: contrary to popular belief, Beijing's industrial policy didn't build the companies that became China's EV champions. They rose largely **despite** it, through its cracks. For sure, Beijing did favor EVs as an industry and pushed hard for it but their big bet was SOEs (State Owned Enterprises): research grants, pilot programs, licenses, cheap credit - virtually all of it flowed to state firms. The result? China's actual EV champions - BYD, Geely, NIO, XPeng, Li Auto, etc. - are overwhelmingly private firms that succeeded despite Beijing favoring their SOE competitors. How so? Because, when favoring SOEs, the central government didn't just pick winning companies, it picked winning cities, each SOE being anchored in a specific city: Shanghai (SAIC), Changchun (FAW), Wuhan-Shiyan (Dongfeng), etc. Which means that every city not on the list, that wanted a piece of the auto boom, had only one option left: team up with private entrepreneurs who were equally excluded from central government favor. That's what truly fueled China's EV miracle: an alliance of the excluded, between local private entrepreneurs and local mayors. This is the biggest misconception this paper destroys: the reality is that the "Chinese state capitalism" that many in the West think powered the EV boom actually tried to block many of these companies from existing. In effect, it was closer to an obstacle course that local actors (mayors and provinces) learned to game. Geely - now the third largest automaker in China - is a fantastic example of this. First of all, it started off illegal since, to build passenger cars, you had to have a central government license and they couldn't get one. Zhejiang Province told them to go ahead regardless because the province had hundreds of auto parts suppliers but no carmaker of its own. It's only a couple of years later, recognizing the fait-accompli that Geely was producing cars and was competitive, that the central government admitted them to the National Sedan Catalog - effectively legalizing them retroactively because there were facts on the ground. Then there was the Volvo acquisition in 2010, which is fair to say - looking back - proved to be the most strategically valuable acquisition in Chinese automotive history. Despite it being presented at the time (and still described this way today) as "China buying Volvo", all 3 major state-backed banks in China (Export-Import Bank, China Development Bank, Bank of China) refused to finance the deal. The only state-bank money Geely managed to get was a $200 million loan from a provincial branch of China Construction Bank - a tiny fraction of what the deal required. Geely actually did the deal with Goldman Sachs money via Hong Kong plus loans and equity from four local governments (Chengdu, Zhangjiakou, Daqing, Shanghai's Jiading district), each of which bought in by securing a Volvo plant or headquarters for itself. In effect, the doors that Beijing controlled were largely closed to Geely, but it made it because the doors subnational actors controlled were opened. Which all means this paper destroys another very common myth: the big merit of the central government in all this was to be relatively chill about it, to NOT be dictatorial. I just imagine if that had happened in France and you had - say - the mayor of Lyon or Marseilles open, fund and promote an unlicensed carmaker against Renault: the préfet would shut it down within weeks, and the mayor would be lucky to escape prosecution. That's the irony: on industrial policy, the supposedly "totalitarian" Chinese state proved more tolerant of local defiance than most Western liberal democracies would be. Beijing's greatest contribution to the EV miracle wasn't the plan - it was looking the other way while the plan was being violated. To be sure, the paper doesn't hide the costs of this system: ferocious local competition also produced what's known today in China as "involution" (内卷-Neijuan, basically a hypercompetitive price war), as well as some spectacular failures. For instance one county lost 6.6 billion yuan on a carmaker that never really made cars. But that's precisely the point: this is a high-risk, high-reward model of decentralized experimentation, the very opposite of the careful central planning Westerners imagine. I've repeated this countless times but it bears repeating again: the single greatest misconception people have about China is - probably because we wrongly associate communism with centralized control - that it is a monolith run from Beijing. Some even say it's run by "one man." The reality is the exact opposite: China is, in practice, one of the most decentralized countries on earth. Roughly 85% of government spending in China happens at the subnational level - against about 30% in the average OECD country (and even less in France, which is actually one of the most centrally controlled countries on earth). A Chinese mayor commands fiscal resources, land, investment funds and policy latitude that virtually no Western mayor could dream of. Last but not least, I'd be remiss not to mention what the paper has to say on the positive legacy of Mao and its role in the rise of EVs (given I myself wrote an article titled "Mao's economic record wasn't bad, actually": arnaudbertrand.substack.com/…). When it comes to China myths, none is more entrenched than the idea that Mao left behind nothing but ruins. This paper confirms a key argument of my article: Mao's deliberate dispersal of industry across China (during the Great Leap Forward and Cultural Revolution decentralizations) left dozens of cities with their own small auto works. Inefficient, yes - but these scattered factories survived into the 1990s and became the seed stock of everything that followed: the industrial base, the engineers, and the production licenses that EV startups would use to enter the market. The paper even says it outright: the fragmentation that industrial policy "sought to eradicate" is "precisely" what "ironically enabled" the EV sector's rapid rise. This is exactly the mechanism I described in my Mao article: structures built in the Mao era - communes becoming township governments, commune enterprises becoming TVEs, Third Front factories seeding interior industrialization - became load-bearing foundations of the reform miracle. Fittingly, the spark for China's first municipal carmaker adventure was literally a TVE (Township and Village Enterprise), the institutional descendants of Mao's commune enterprises: Tongbao, a kit-car maker in Wuhu whose success stunned local officials into building what became Chery (one of China's biggest carmakers today). You can't tell the story of China's EV miracle without crediting the legacy of Mao. What's the biggest lesson in all this for Western policymakers? The obvious one is that the part of industrial policy that most people assume China does and that they sometimes want to copy - i.e. the state picking winners - is actually the part that failed. The part that did succeed is the China nobody in the West believes exists: a radically decentralized system with a high degree of tolerance for disobedience and experimentation. We imagine China as a country where nothing happens without Beijing's approval when the reality is closer to the opposite: China's EV miracle happened precisely because localities asked for forgiveness rather than permission. All in all, and this is the lesson I often come back to, this is yet another illustration of the importance of understanding China for what it is as opposed to the caricature we've built of it. This matters whichever "camp" you're in. If you see China as a rival, you can't compete with someone you don't understand. If you see them as a source of lessons, you can't emulate what you've misunderstood. Whatever you want from China - to compete with it or learn from it - the entry fee is the same: genuinely understanding it.

This is a really fascinating paper that everyone interested in China's industrial policy should read. It destroys so many myths (see below), and is written by deeply credible people who conducted over three years of fieldwork in China and interviewed 60 Chinese officials, entrepreneurs, and engineers. When it comes to China studies, it literally doesn't get more rigorous than this. First myth it destroys: contrary to popular belief, Beijing's industrial policy didn't build the companies that became China's EV champions. They rose largely **despite** it, through its cracks. For sure, Beijing did favor EVs as an industry and pushed hard for it but their big bet was SOEs (State Owned Enterprises): research grants, pilot programs, licenses, cheap credit - virtually all of it flowed to state firms. The result? China's actual EV champions - BYD, Geely, NIO, XPeng, Li Auto, etc. - are overwhelmingly private firms that succeeded despite Beijing favoring their SOE competitors. How so? Because, when favoring SOEs, the central government didn't just pick winning companies, it picked winning cities, each SOE being anchored in a specific city: Shanghai (SAIC), Changchun (FAW), Wuhan-Shiyan (Dongfeng), etc. Which means that every city not on the list, that wanted a piece of the auto boom, had only one option left: team up with private entrepreneurs who were equally excluded from central government favor. That's what truly fueled China's EV miracle: an alliance of the excluded, between local private entrepreneurs and local mayors. This is the biggest misconception this paper destroys: the reality is that the "Chinese state capitalism" that many in the West think powered the EV boom actually tried to block many of these companies from existing. In effect, it was closer to an obstacle course that local actors (mayors and provinces) learned to game. Geely - now the third largest automaker in China - is a fantastic example of this. First of all, it started off illegal since, to build passenger cars, you had to have a central government license and they couldn't get one. Zhejiang Province told them to go ahead regardless because the province had hundreds of auto parts suppliers but no carmaker of its own. It's only a couple of years later, recognizing the fait-accompli that Geely was producing cars and was competitive, that the central government admitted them to the National Sedan Catalog - effectively legalizing them retroactively because there were facts on the ground. Then there was the Volvo acquisition in 2010, which is fair to say - looking back - proved to be the most strategically valuable acquisition in Chinese automotive history. Despite it being presented at the time (and still described this way today) as "China buying Volvo", all 3 major state-backed banks in China (Export-Import Bank, China Development Bank, Bank of China) refused to finance the deal. The only state-bank money Geely managed to get was a $200 million loan from a provincial branch of China Construction Bank - a tiny fraction of what the deal required. Geely actually did the deal with Goldman Sachs money via Hong Kong plus loans and equity from four local governments (Chengdu, Zhangjiakou, Daqing, Shanghai's Jiading district), each of which bought in by securing a Volvo plant or headquarters for itself. In effect, the doors that Beijing controlled were largely closed to Geely, but it made it because the doors subnational actors controlled were opened. Which all means this paper destroys another very common myth: the big merit of the central government in all this was to be relatively chill about it, to NOT be dictatorial. I just imagine if that had happened in France and you had - say - the mayor of Lyon or Marseilles open, fund and promote an unlicensed carmaker against Renault: the préfet would shut it down within weeks, and the mayor would be lucky to escape prosecution. That's the irony: on industrial policy, the supposedly "totalitarian" Chinese state proved more tolerant of local defiance than most Western liberal democracies would be. Beijing's greatest contribution to the EV miracle wasn't the plan - it was looking the other way while the plan was being violated. To be sure, the paper doesn't hide the costs of this system: ferocious local competition also produced what's known today in China as "involution" (内卷-Neijuan, basically a hypercompetitive price war), as well as some spectacular failures. For instance one county lost 6.6 billion yuan on a carmaker that never really made cars. But that's precisely the point: this is a high-risk, high-reward model of decentralized experimentation, the very opposite of the careful central planning Westerners imagine. I've repeated this countless times but it bears repeating again: the single greatest misconception people have about China is - probably because we wrongly associate communism with centralized control - that it is a monolith run from Beijing. Some even say it's run by "one man." The reality is the exact opposite: China is, in practice, one of the most decentralized countries on earth. Roughly 85% of government spending in China happens at the subnational level - against about 30% in the average OECD country (and even less in France, which is actually one of the most centrally controlled countries on earth). A Chinese mayor commands fiscal resources, land, investment funds and policy latitude that virtually no Western mayor could dream of. Last but not least, I'd be remiss not to mention what the paper has to say on the positive legacy of Mao and its role in the rise of EVs (given I myself wrote an article titled "Mao's economic record wasn't bad, actually": arnaudbertrand.substack.com/…). When it comes to China myths, none is more entrenched than the idea that Mao left behind nothing but ruins. This paper confirms a key argument of my article: Mao's deliberate dispersal of industry across China (during the Great Leap Forward and Cultural Revolution decentralizations) left dozens of cities with their own small auto works. Inefficient, yes - but these scattered factories survived into the 1990s and became the seed stock of everything that followed: the industrial base, the engineers, and the production licenses that EV startups would use to enter the market. The paper even says it outright: the fragmentation that industrial policy "sought to eradicate" is "precisely" what "ironically enabled" the EV sector's rapid rise. This is exactly the mechanism I described in my Mao article: structures built in the Mao era - communes becoming township governments, commune enterprises becoming TVEs, Third Front factories seeding interior industrialization - became load-bearing foundations of the reform miracle. Fittingly, the spark for China's first municipal carmaker adventure was literally a TVE (Township and Village Enterprise), the institutional descendants of Mao's commune enterprises: Tongbao, a kit-car maker in Wuhu whose success stunned local officials into building what became Chery (one of China's biggest carmakers today). You can't tell the story of China's EV miracle without crediting the legacy of Mao. What's the biggest lesson in all this for Western policymakers? The obvious one is that the part of industrial policy that most people assume China does and that they sometimes want to copy - i.e. the state picking winners - is actually the part that failed. The part that did succeed is the China nobody in the West believes exists: a radically decentralized system with a high degree of tolerance for disobedience and experimentation. We imagine China as a country where nothing happens without Beijing's approval when the reality is closer to the opposite: China's EV miracle happened precisely because localities asked for forgiveness rather than permission. All in all, and this is the lesson I often come back to, this is yet another illustration of the importance of understanding China for what it is as opposed to the caricature we've built of it. This matters whichever "camp" you're in. If you see China as a rival, you can't compete with someone you don't understand. If you see them as a source of lessons, you can't emulate what you've misunderstood. Whatever you want from China - to compete with it or learn from it - the entry fee is the same: genuinely understanding it.

Why did private firms, not state-owned enterprises (SOEs), come to dominate China’s EV sector? My new @ChinaJournal article (co-authored with Xiao Ma @maxiaoalex) challenge the "top-down industrial policy" narrative. The real engine? Strategic alliances between local governments and private capital. 🧵 Based on 3 years of fieldwork, 60 interviews (with officials, entrepreneurs, and engineers), and rich first-hand accounts, we show how strict central regulations inadvertently drove local states to bet big on private EV players. Here is the story: (1/15)

By the way, public service announcement: if you're one of the numerous people posting about Anthropic's dystopian ways and you're thinking about getting Claude to help you write that post... don't! Another one of their terms is that you may not use Claude to do anything that "exposes [Anthropic to] reputational harms" 👇 And, if you do, under the - extremely unusual - clause 13 of their terms (anthropic.com/legal/consumer…), you have PRE-AGREED, by using Anthropic (and accepted their terms), that the harm you've done is irreparable, that you won't oppose Anthropic injunction, and they don't need to prove actual damage. They can simply go to a judge in a friendly jurisdiction (and of course, their terms precise that any dispute "will be resolved exclusively in the state or federal courts located in San Francisco, California") and: a) file an injunction that shuts you down b) make you pay for everything since under section 11 of their terms you agree to indemnify Anthropic for "any and all liabilities, claims, damages, expenses (including reasonable attorneys' fees and costs), and other losses arising out of or related to your breach or alleged breach of these Terms." In other words, if you use Claude to help you talk shit about Anthropic publicly, their terms say you pay their lawyers to go after you and you've already pre-agreed you've lost the case. Oh, and cherry on the cake: in the odd case the judge were like "are you crazy, this is insanely abusive, you Anthropic are the ones at fault here," according to their terms Anthropic's maximum liability is... $100.

By the way, public service announcement: if you're one of the numerous people posting about Anthropic's dystopian ways and you're thinking about getting Claude to help you write that post... don't! Another one of their terms is that you may not use Claude to do anything that "exposes [Anthropic to] reputational harms" 👇 And, if you do, under the - extremely unusual - clause 13 of their terms (anthropic.com/legal/consumer…), you have PRE-AGREED, by using Anthropic (and accepted their terms), that the harm you've done is irreparable, that you won't oppose Anthropic injunction, and they don't need to prove actual damage. They can simply go to a judge in a friendly jurisdiction (and of course, their terms precise that any dispute "will be resolved exclusively in the state or federal courts located in San Francisco, California") and: a) file an injunction that shuts you down b) make you pay for everything since under section 11 of their terms you agree to indemnify Anthropic for "any and all liabilities, claims, damages, expenses (including reasonable attorneys' fees and costs), and other losses arising out of or related to your breach or alleged breach of these Terms." In other words, if you use Claude to help you talk shit about Anthropic publicly, their terms say you pay their lawyers to go after you and you've already pre-agreed you've lost the case. Oh, and cherry on the cake: in the odd case the judge were like "are you crazy, this is insanely abusive, you Anthropic are the ones at fault here," according to their terms Anthropic's maximum liability is... $100.