Of course, I do not fully agree with Godfree’s line that “sanctions have been the greatest unintentional R&D program in history.” There is some truth in that claim, but it needs to be handled with much more precision. Sanctions do not automatically generate innovation. In many countries, external containment and technological blockade would just as easily produce stagnation, fragmentation, or outright decline.
What really matters is that China already possessed a substantial industrial base, a sufficiently large domestic market, a complete manufacturing network, and strong organizational capacity. What sanctions did was not to create these capabilities from scratch, but to suddenly accelerate processes that could otherwise have unfolded much more slowly: domestic substitution, technological coordination, and the concentration of capital around strategic sectors.
Put differently, sanctions did not create China’s capabilities. They forced China to mobilize, integrate, and reorganize capabilities that had already been accumulated to a meaningful degree — only at a much faster pace.
Excellent post. I’ve lived in Shenzhen for 20 years and have witnessed the incredible rise of growth and innovation produced in this truly amazing city.
Western discussions of innovation often rely on a false dichotomy between the state and the market, as if government involvement must inevitably distort innovation. But what Godfree unintentionally reveals is a very different path. In China, much innovation does not emerge from a purely spontaneous market, nor is it simply commanded into existence by a single government agency. It grows out of a far more complex combined mechanism.
The education system supplies engineering talent at scale. Local governments provide space and initial support. Large firms build platforms. The manufacturing system provides mass-production capability. Capital markets and industrial capital provide financing. And national strategy injects direction and urgency at critical moments.
So Shenzhen is neither a “free-market miracle” nor a “state-planning miracle.” It is the outcome of state capacity, industrial capital, engineering culture, and market competition being tightly intertwined.
That is also why many Western observers can clearly see China’s entrepreneurial vitality, yet still struggle to explain why that vitality in China can be translated into difficult, heavy, real-world sectors such as chips, robotics, drones, new energy, and industrial equipment — while in many Western countries it more easily drifts toward software, platforms, financialized narratives, and asset-light services.
I mean, not automatically, but accelerating, that's what he mean "I genuinely think think the sanctions have been the greatest unintentional R&D program in history, they forced China to build in 5y what would have taken 20 without them, and now the country is sitting on a self sufficient semiconductor ecosystem, a dominant position in clean energy tech, a manufacturing base that operates like a collective intelligence network and an education system that produces millions of engineers who see building physical things as the highest form of ambition'
Why are there so few places in the world today that can turn deep-tech innovation into a large-scale, low-friction, continuously reproducible industrial process — and why is Shenzhen the clearest example of all? Why has Shenzhen been able to compress education, supply chains, engineering culture, capital judgment, platform companies, local government, and manufacturing capacity into a single, highly integrated system within one geographic space?
The real answer lies in China’s uniquely high industrial density, and in the extreme compression of both space and time across resources. Chips, modules, prototyping, structural components, thermal management, packaging, testing, mass production, distribution, financing, and customer feedback — in many countries, these functions are scattered across multiple cities, multiple organizations, and multiple layers of approval. In Shenzhen, they have been compressed into a tightly coupled network.
As a result, innovation is no longer just about coming up with an idea. It becomes a continuous process of rapid trial and error, rapid iteration, rapid manufacturing, and rapid feedback. That means Shenzhen’s true advantage is not low cost. Its real advantage is that it simultaneously drives down the transaction costs, coordination costs, and experimentation costs of deep-tech innovation.
That is far more important than simply having “a lot of engineers” or “a complete supply chain.”
The part of this I keep coming back to is the ecosystem-architect point, because it's the bit most western readers still file under "subsidy" and move on. It isn't subsidy. When Huawei hands a hardware founder Ascend silicon, the toolchain and the cloud at near-zero cost, the founder isn't just building on Chinese hardware. They're building inside Huawei's roadmap. The architecture, the optimisation budget, the upgrade cycle all start bending to someone else's schedule.
For most founders that's a trade worth taking. But I'd want to be honest about what the company becomes on the other side of it. Not a standalone betting on its own silicon. A node in an incumbent's stack, with real distribution and real constraints. The interesting question as the "four dragons" list isn't which of them is biggest. It's which of them ever gets to set terms rather than take them.
There's no point whatsoever for a single man Elon Musk to have 800 Billion dollars. 100 Billion is an obscene amount & would allow anyone to try to acheive anything. They so choose. Thst would leave the staggering amount of 700 Billion to help educate innovation, develop & invest in people. Which is by far & away more profitable for a country & it's civilians. In so many different ways. The Western systems are structured to benefit a very small group of people. Who only have interest in self gain. Most of these people have gained their wealth & positions through their family or family connections. Not talent, not intelligence or hard work. In most cases exploiting their countries civilians. Has a hand in their wealth also. The reason the Western World hates Putin is he put a stop to that type of individual. The result has been a staggering turnaround for his country. Financially & socially from being in the gutter with a life expectancy of 54 years old for me. Now one of the biggest economies in the World. With a thriving dynamic future ahead. China has done this on a completely different level. With a huge population of hard working educated people at its disposal. The country is light years ahead of the rest of the World in many areas. It's only going to get even better for them. Invest in your citizens & they'll be the best investment any Government could do.
I’d also argue that China took a deep look at its industry base and how the US or other folk could disrupt it after ZTE was nearly bankrupted via leverage over Qualcomm.
The Chinese have been systematically filling in these holes in their technology stacks since then.
It’s only a matter of time before a lot of exclusively-western technologies get a Chinese counterparty. ASML is but the most prominent target.
As much as I’d like to believe that Shenzhen is a Shangri-La, a significant portion of the Chinese elite still prefer to send their kids abroad for school and life alike.
Of course, I do not fully agree with Godfree’s line that “sanctions have been the greatest unintentional R&D program in history.” There is some truth in that claim, but it needs to be handled with much more precision. Sanctions do not automatically generate innovation. In many countries, external containment and technological blockade would just as easily produce stagnation, fragmentation, or outright decline.
What really matters is that China already possessed a substantial industrial base, a sufficiently large domestic market, a complete manufacturing network, and strong organizational capacity. What sanctions did was not to create these capabilities from scratch, but to suddenly accelerate processes that could otherwise have unfolded much more slowly: domestic substitution, technological coordination, and the concentration of capital around strategic sectors.
Put differently, sanctions did not create China’s capabilities. They forced China to mobilize, integrate, and reorganize capabilities that had already been accumulated to a meaningful degree — only at a much faster pace.
He didn't say, did he, that sanctions automatically generate innovation?
Excellent post. I’ve lived in Shenzhen for 20 years and have witnessed the incredible rise of growth and innovation produced in this truly amazing city.
It would be my choice, too. A much better mix than the 'tech Shenzen' suggests.
Western discussions of innovation often rely on a false dichotomy between the state and the market, as if government involvement must inevitably distort innovation. But what Godfree unintentionally reveals is a very different path. In China, much innovation does not emerge from a purely spontaneous market, nor is it simply commanded into existence by a single government agency. It grows out of a far more complex combined mechanism.
The education system supplies engineering talent at scale. Local governments provide space and initial support. Large firms build platforms. The manufacturing system provides mass-production capability. Capital markets and industrial capital provide financing. And national strategy injects direction and urgency at critical moments.
So Shenzhen is neither a “free-market miracle” nor a “state-planning miracle.” It is the outcome of state capacity, industrial capital, engineering culture, and market competition being tightly intertwined.
That is also why many Western observers can clearly see China’s entrepreneurial vitality, yet still struggle to explain why that vitality in China can be translated into difficult, heavy, real-world sectors such as chips, robotics, drones, new energy, and industrial equipment — while in many Western countries it more easily drifts toward software, platforms, financialized narratives, and asset-light services.
I mean, not automatically, but accelerating, that's what he mean "I genuinely think think the sanctions have been the greatest unintentional R&D program in history, they forced China to build in 5y what would have taken 20 without them, and now the country is sitting on a self sufficient semiconductor ecosystem, a dominant position in clean energy tech, a manufacturing base that operates like a collective intelligence network and an education system that produces millions of engineers who see building physical things as the highest form of ambition'
Shhh! Don't wake the West..
Why are there so few places in the world today that can turn deep-tech innovation into a large-scale, low-friction, continuously reproducible industrial process — and why is Shenzhen the clearest example of all? Why has Shenzhen been able to compress education, supply chains, engineering culture, capital judgment, platform companies, local government, and manufacturing capacity into a single, highly integrated system within one geographic space?
The real answer lies in China’s uniquely high industrial density, and in the extreme compression of both space and time across resources. Chips, modules, prototyping, structural components, thermal management, packaging, testing, mass production, distribution, financing, and customer feedback — in many countries, these functions are scattered across multiple cities, multiple organizations, and multiple layers of approval. In Shenzhen, they have been compressed into a tightly coupled network.
As a result, innovation is no longer just about coming up with an idea. It becomes a continuous process of rapid trial and error, rapid iteration, rapid manufacturing, and rapid feedback. That means Shenzhen’s true advantage is not low cost. Its real advantage is that it simultaneously drives down the transaction costs, coordination costs, and experimentation costs of deep-tech innovation.
That is far more important than simply having “a lot of engineers” or “a complete supply chain.”
The part of this I keep coming back to is the ecosystem-architect point, because it's the bit most western readers still file under "subsidy" and move on. It isn't subsidy. When Huawei hands a hardware founder Ascend silicon, the toolchain and the cloud at near-zero cost, the founder isn't just building on Chinese hardware. They're building inside Huawei's roadmap. The architecture, the optimisation budget, the upgrade cycle all start bending to someone else's schedule.
For most founders that's a trade worth taking. But I'd want to be honest about what the company becomes on the other side of it. Not a standalone betting on its own silicon. A node in an incumbent's stack, with real distribution and real constraints. The interesting question as the "four dragons" list isn't which of them is biggest. It's which of them ever gets to set terms rather than take them.
Exactly!
There's no point whatsoever for a single man Elon Musk to have 800 Billion dollars. 100 Billion is an obscene amount & would allow anyone to try to acheive anything. They so choose. Thst would leave the staggering amount of 700 Billion to help educate innovation, develop & invest in people. Which is by far & away more profitable for a country & it's civilians. In so many different ways. The Western systems are structured to benefit a very small group of people. Who only have interest in self gain. Most of these people have gained their wealth & positions through their family or family connections. Not talent, not intelligence or hard work. In most cases exploiting their countries civilians. Has a hand in their wealth also. The reason the Western World hates Putin is he put a stop to that type of individual. The result has been a staggering turnaround for his country. Financially & socially from being in the gutter with a life expectancy of 54 years old for me. Now one of the biggest economies in the World. With a thriving dynamic future ahead. China has done this on a completely different level. With a huge population of hard working educated people at its disposal. The country is light years ahead of the rest of the World in many areas. It's only going to get even better for them. Invest in your citizens & they'll be the best investment any Government could do.
I’d also argue that China took a deep look at its industry base and how the US or other folk could disrupt it after ZTE was nearly bankrupted via leverage over Qualcomm.
The Chinese have been systematically filling in these holes in their technology stacks since then.
It’s only a matter of time before a lot of exclusively-western technologies get a Chinese counterparty. ASML is but the most prominent target.
As much as I’d like to believe that Shenzhen is a Shangri-La, a significant portion of the Chinese elite still prefer to send their kids abroad for school and life alike.