Philippa Kaur

THE VISION is becoming clear. In a decade or so China will, if the Communist Party has its way, become a techno-utopia with Chinese characteristics, replete with “deep tech” such as cloud-computing, artificial-intelligence (AI), self-driving cars and home-made cutting-edge chips. Incumbent technology giants such as Alibaba in e-commerce or Tencent in payments and entertainment will be around but less overweening—and less lucrative. Policies to curb their market power will redistribute some of their profits to smaller merchants and app developers, and to their workers. Second-tier cities will boast their own tech industries with localised services that, when linked up with national data resources, compete with the less-mighty titans. Data will pulse through the system, available to firms of all sizes, under the watchful eye of the government in Beijing. China’s internet will strengthen its authoritarian design.Clearer, too, is the way in which President Xi Jinping wants to make this vision a reality. Besides talking up deep tech, this involves taking the shallower sort down a peg. In the past nine months China’s regulators have cracked down on the county’s effervescent tech scene, which, though it has generated world-beating innovations and astounding shareholder value, is no longer seen as fit for purpose. As a result, the country’s hottest tech groups have lost at least $1trn in combined market capitalisation since February (see chart 1). Foreign investors who have backed Chinese online firms are retreating. Domestic Chinese investors are anxious. Indices tracking Chinese tech stocks in Hong Kong and Chinese groups more broadly in New York are down by 40-45% since mid-February. No matter. Indeed, it may be part of the plan. Consumer-internet companies make up at least 40% of big Chinese stocks in the MSCI China Index. Like their American peers—Apple, Alphabet, Amazon, Facebook, Netflix—these firms have made tonnes of money for their shareholders. But, the party seems to think, at the expense of abusing their market power, exploiting workers and polluting minds. The list of casualties is a Who’s Who of Chinese tech: Ant Group, an Alibaba affiliate whose $37bn initial public offering (IPO) was suspended days before the listing; Didi Global, whose ride-hailing app was expelled from Chinese app stores days after its own $4.4bn IPO in New York; Tencent, fined by regulators for sexually explicit content and unfair practices, and told to end exclusive music-licensing deals; the online-tutoring industry, swathes of which were barred last month from making a profit. And the list is getting longer. Trustbusters are reportedly getting ready to slap a $1bn fine on Meituan, a super-app that delivers meals. On August 9th the Financial Times reported that NetEase, an online-entertainment group, decided to shelve the planned IPO in Hong Kong of its music-streaming business owing to investors’ worries about the regulatory crackdown.The ranks of potential winners are less well-defined. As a guiding principle, the vice-premier, Liu He, recently stated that China is moving into a new phase of development that prioritises social fairness and national security, not the growth-at-all-costs mentality of the past 30 years. He noted how the government will guide the “orderly development of capital”, the better to suit the “construction of a new development pattern”. Barry Naughton of the University of California, San Diego, calls this the “grand steerage”. Dexter Roberts of the Atlantic Council, a think-tank in Washington, DC, discerns an echo of Mao Zedong’s “politics-in-command” economy. Either way, it is a break with the old pro-growth model and the beginning of “real state capitalism”, as one investment banker puts it.Start with data. Europe and some American states, such as California, have devised laws that seek to protect consumers from the misuse of their personal information by large companies. China has put similar rules in place; in some cases they are more severe than in the West. But Chinese regulators are going further. In a largely ignored, jargon-filled policy paper from the State Council, China’s cabinet, in April last year, data were named as a “factor of production” alongside capital, labour, land and technology. This hinted at the importance assigned to information by the Chinese state, notes Kendra Schaefer of Trivium, a consultancy.China’s new data policy remains a work in progress. The Data Security Law will come into force on September 1st and the Personal Information Protection Law is due to be adopted by China’s rubber-stamp parliament soon. It is unclear how they will be enforced, though data specialists intuit that many types of data currently held by internet giants could eventually be traded on government-backed and private exchanges. Ant, for example, is already being prodded by authorities to open up its vast stores of personal financial data to state-owned companies and smaller tech rivals. No specific rules for financial-technology firms have been issued but everyone is waiting for them, says Deng Zhisong of Dentons, a law firm.Another prong of the state’s strategy is to redistribute the wealth and power large tech platforms have accrued over the past decade. E-commerce groups such as Alibaba, JD.com and Pinduoduo have been targeted by the State Administration for Market Regulation (SAMR), China’s newish antitrust regulator, which accuses them of monopolistic behaviour. Merchants on these platforms often indeed pay high fees and must choose between selling on one or the other. Payment systems run by Tencent and Alibaba have prevented exchange of information between them, which led to a bifurcation of the market.The giants are now being forced to shift to more open models where payments and shopping activity are no longer exclusive to one platform, allowing merchants to regain some control over the prices of their wares. Analysts believe that the changes will lead to higher margins for sellers and lower prices for consumers but slower growth for the tech titans. Alibaba warned investors in early August that long-running tax benefits could soon come to an end, adding billions of dollars in costs.Workers will benefit from the wealth transfer, too. Companies like Didi and Meituan, which use armies of low-paid drivers or warehouse staff, are on the hook. The authorities are already going after Meituan for not providing adequate care to such employees. It will be forced to raise wages and give drivers better insurance. Meituan’s market value has fallen by a fifth, or $42bn, since the measures were announced in late July.The final facet of China’s campaign is a transfer of resources from internet companies to firms that can create tangible advances in technologies that the party deems less frivolous. This would represent a striking shift in Chinese economic governance, which since the 1990s has put rapid development and attracting foreign direct investment over all else. Under-regulated internet firms have been the prime example. Local officials lowered taxes and gave away land in order to attract the online giants to their cities and provinces. Now the government wants to use such carrots, as well as its anti-tech sticks, to create a less unruly and more hardware-focused technology sector that will help it surpass America and the rest of the West in economic might, writes Rush Doshi, an adviser to President Joe Biden, in his new book, “The Long Game: China’s Grand Strategy to Displace American Order”. Mr Xi has referred to “great changes unseen in a century” in areas such as AI and quantum computing (which would harness the weirdness of subatomic physics to drastically speed up certain types of calculations). These, he has suggested, will usher in a new global economic order that revolves around China. Senior officials believe that if China can get a first-mover advantage on the cutting edge of technology, it will become not just an economic superpower but a geopolitical and military one, too, writes Mr Roberts of the Atlantic Council. Move fast and regulate things Many politicians in America and Europe would love to fashion their technology sectors into something like Mr Xi’s vision: less social media and other “spiritual opium”, as Chinese state press recently dubbed video-gaming, and more strategic development of the technological infrastructure of the 21st century. This includes computer chips, clean energy and much besides, partly to counteract an effort by America and its allies to restrict exports to China of some critical technologies such as semiconductors. When launching a new business, entrepreneurs and investors must therefore ask, “How does this solve China’s problems?” sums up Liu Jing of Cheung Kong Graduate School of Business in Beijing. Yet the way China’s regime is going about its desired transition is far from guaranteed to work. One problem stems from who is doing the regulating. The Communist Party presents an image of a unified force with a single set of objectives. In fact, like any large bureaucracy, Chinese authorities are fragmented, and can act at cross-purposes. The policies behind the techlash are born of sweeping goals for society from the highest reaches of central government, an echelon of engineers and economists who lack speciality in most of the sectors in the firing line. But it is up to specialists in bodies such as SAMR and the Cyberspace Administration of China (CAC) to enact these objectives. And as regulators’ remits expand, the odds of a clash shorten. Some run-ins have already happened. A recent policy from the central bank aimed at breaking up powerful fintech groups spilled into antitrust territory covered by SAMR, notes Angela Zhang of the University of Hong Kong. Following Didi’s post-IPO app ban and online tutors’ profit-prohibition, in both of which the CAC played a part, the China Securities Regulatory Commission (CSRC), which has spent years trying to convince global investors that Chinese markets are stable, had to contact bankers and investment funds to assure them that other industries would not be treated so harshly. The CSRC’s move was interpreted by some as a sign that regulators were rethinking their scorched-earth tactic. Instead, the situation highlights how poorly co-ordinated the campaign has been at times. Another worry is that the crackdown has spooked entrepreneurs and venture capitalists. It is true that some smaller firms view the tech giants as bullies that have strong-armed rivals and snuffed out competition. China’s most innovative startups have had the choice of selling out to big tech or facing a quick and brutal demise, says Mr Liu. The recent dismantling of online monopolies has been a godsend for many promising, young executives who have long struggled under the thumb of big tech, he observes. And entrepreneurs have flocked to the approved deep-tech fields: last year alone Chinese founded 22,000 chip firms, 35,000 cloud-computing companies and 172,000 ai startups.But the tech giants’ founders, such as Jack Ma of Alibaba, are still held in high regard by other technology bosses. Many industry executives now feel that years of hard work and sacrifice have gone unnoticed by their new regulatory overlords. The Communist Party has communicated its intentions and goals poorly to a generation of talented businesspeople, says an executive at a small startup. If the current turmoil persists, China may end up with an open field for free and fair competition “but no one to run the companies”, says another executive.Investors face similar considerations. A prominent private-equity financier says that he fully agrees with the goals of the regulation campaign. If carried out correctly China could reduce inequality while becoming a model for regulating big tech. But, he adds, the tactics have not been thought out. Pointing to China’s world-beating fintech sector, he warns that “harming China tech is harming China as a nation.” A more level playing field could let smaller tech companies flourish. But “who would invest in these right now?” asks Chen Long of Plenum, a Beijing-based research group. A big test of investor sentiment will come with the rumoured IPO of ByteDance, a $180bn unlisted giant which owns TikTok and its Chinese sister short-video app. But venture capitalists are already getting cold feet. Fundraising for privately held tech firms peaked at $28bn in the last quarter of 2020, when the techlash began, according to CB Insights, a data provider. In the second quarter of this year Chinese startups raised just $23bn, even as those in America raked in ever more capital (see chart 2). The bulk of last year’s litter of new deep-tech companies probably predates the clampdown. Their prospects and easy access to capital are far from assured.Apparently without irony, Chinese media have likened the government’s push to spur the domestic semiconductor industry to China’s Great Leap Forward. In 1958 Mao decreed that farmers set up furnaces in their backyards in order to help China surpass Britain in steelmaking. What the media have omitted to mention is that the resulting steel was mostly unusable pig-iron. Meanwhile, millions of Chinese starved as fields went unploughed. Mr Xi’s technological leap towards cutting-edge chips and other deep tech will not be as calamitous—China is too prosperous for that. But it is not immune to the law of unintended consequences. ■ More

SINCE THE EU launched its emissions trading system in 2005, industries have followed divergent greenhouse-gas trajectories. The power sector has cut them by half. Among cement- and steelmakers, which got free allowances for four-fifths of their exhausts to stop the shift of production abroad, they have barely budged.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

IN THE EARLY 15th century many of the Portuguese voyages of discovery around Africa and into Asia were financed by Prince Henry of Portugal, whom historians dubbed “Henry the Navigator”. When Christopher Columbus sought finance for his planned westward voyage to the “Indies”, he first turned to the king of Portugal before achieving success with Ferdinand and Isabella of Spain. Monarchs financed explorations because they believed such trips would boost their power and their treasuries.In the 21st century corporate executives have become deeply involved in adventure and exploration. Sir Richard Branson of Virgin and Jeff Bezos of Amazon have just travelled to the edge of space. Elon Musk of Tesla has developed the SpaceX programme and is talking of the eventual colonisation of Mars. Messrs Musk and Bezos competed for the contract to operate future Moon landings. Mr Bezos even offered to part-finance the project.In itself, this is a remarkable development. Sixty years ago, when the space race was between America and the Soviet Union, few could have imagined that individual businessmen would ever have the resources to enter the fray. The shift says something about the extremes of wealth in the 21st century.The resemblance to absolute monarchs does not stop with exploration. Like past rulers, modern tycoons build their own monuments in the form of corporate headquarters, not just skyscrapers in London and New York but the vast, low-rise campuses in Silicon Valley. Whereas the ancient dynasts travelled in horse-driven coaches, modern CEOS separate themselves from the public in chauffeur-driven limos and private jets.Like monarchs of old, executives have to deal with rival sources of power. They face the equivalent of feudal barons, in the form of boards of directors who may try to unseat them. And they need to contend with ambitious princelings, who in the modern era are younger executives who would like their job. The good news is that whereas an unseated monarch was likely to be executed, a dethroned boss can enjoy a generous pay-off.Then there is their ability to control time. At the court of Louis XIV, France’s “Sun King”, the rhythm of the day was entirely devoted to the monarch’s habits, with the luckiest courtiers watching him get dressed, have lunch and go to bed. Modern CEOs also have the ability to change the schedules of those around them. If he or she gets up at 5am to send messages, someone on the staff will feel obliged to rise early and answer them. Similarly, if the CEO likes to hold Zoom conferences on weekends, or have working dinners on a Friday night, the family life of subordinates will suffer.Another parallel with monarchs is a tendency towards arrogance. In his book “Fall”, John Preston recounts that when Robert Maxwell, the publishing tycoon, was dissatisfied with his food, he would sometimes sweep the plate on to the floor and leave others to clear it up. Maxwell also bugged the phones of his staff and listened to their conversations, which also recalls Louis XIV, who intercepted the mail of his courtiers.Lavish entertainment is a further common denominator. Monarchs held elaborate balls and competed to show off their wealth. Modern tycoons pay rock stars to perform at their birthdays. Carlos Ghosn, the boss of Nissan, even held an extravagant party at the Sun King’s former digs in Versailles.Royal dynasties added to their empires through both military conquest and strategic marriages. Modern executives achieve the same effect through mergers and acquisitions, using their financial clout to buy smaller rivals and reduce the threat of disruptive competition. In effect, ancient monarchs were monopoly providers of security services, who received payment in the form of taxation and conscription. Their abiding sin was too much ambition; Philip II of Spain’s military overreach in battling England and the Netherlands was followed by the country’s steady decline as a global power, for example.The same trap awaits modern tycoons. Often they make the mistake of taking on too much debt by acquiring businesses that do not mesh with the rest of the enterprise. Or, like many an ancient ruler, they make the mistake of fighting on two fronts. Space-obsessed Mr Bezos is still executive chairman of Amazon. Mr Musk is trying to make both rockets and Tesla cars. The greatest danger to monarchs may come when they seem at the height of their powers.This article appeared in the Business section of the print edition under the headline “The new monarchs” More

ONCE UPON a time, long before the hoodie was invented, pioneers of business preferred to call themselves self-made men rather than entrepreneurs. They built hard assets like ports, railways and oil terminals. They cajoled—and canoodled with—governments. They built vast conglomerates. In America, such men made history in the Gilded Age. In India, one of their modern-day avatars is Gautam Adani, a trader who started his career haggling for diamonds, and now controls more ports, power stations, solar farms and airports than almost any other private tycoon. A thickset 59-year-old of few words, a strong political antenna and a stomach for debt, he could not be further removed from the elfin founder-CEOs of the digital age. And yet as recently as June, the value of his companies had more than quintupled in 12 months, to $133bn. That is tech-like growth from what is normally one of the stodgiest parts of the old economy—infrastructure.In India’s “Billionaire Raj”, Mr Adani is usually overshadowed by the other “A”, Mukesh Ambani, India’s richest man, who controls Reliance Industries, a petrochemicals-to-phones conglomerate. Yet Mr Adani, whose personal net worth almost caught up with Mr Ambani’s in June, is just as intriguing—not least for some of the contradictions he embodies. In a country whose banks have lost fortunes lending to infrastructure projects, his debt-fuelled acquisition spree has gone from strength to strength. He is a champion of Prime Minister Narendra Modi’s drive for self-reliance, yet relatively few of his firms’ shares are owned by Indian institutional investors. And he courts environmental, social and governance (ESG) funds from around the world, yet parts of his empire are knee-deep in coal. Anyone who can sustain such a precarious juggling act probably deserves to make history, too.The Adani Group’s interests have dovetailed with the economic ambitions of Mr Modi’s government. For instance, since listing in 2018, the share price of Adani Green Energy (AGEL), its renewables company, has soared by over 2,700%. As well as building what it reckons is the world’s biggest solar-power company, it is helping Mr Modi achieve his clean-energy ambitions. And Mr Adani is not afraid of bold bets to win government contracts. Take Adani Enterprises (AEL), another listed entity, for instance. In 2018-19 it scooped up six privatised Indian airports, despite no previous experience in the industry. Since then (and despite the blight on air travel caused by the covid-19 pandemic) its stockmarket value has eclipsed that of Adani Ports, historically the group’s crown jewel.This expansion is not as reckless as it seems. Adani Group touts an “adjacency model” in which it moves into complementary areas: from ports to power to logistics to data storage, for example. Its debts are backed by rising cashflows. It has stepped up reliance on bond markets, rather than India’s ropy banks. And it has brought foreign groups, such as TotalEnergies, the French supermajor, and Qatar’s sovereign-wealth fund, into joint ventures. The government, not overly keen on foreign competition in India, welcomes these sorts of capital inflows as much as Mr Adani does.Its financing creates a paradox, though. While the group attracts foreign funding for businesses that are focused squarely on India, ordinary Indian investors barely get a look-in. Besides the flagship ports business, domestic mutual funds hold minuscule amounts of its other listed entities, including those whose share prices have shot up of late, such as AGEL and AEL. The group says such shareholdings should widen “in the near future”, explaining that the small free floats are a result of relatively recent listings.But in the meantime, questions about the group’s arcane shareholding structure have helped wipe tens of billions of dollars off the combined value of its six listed entities since mid-June. Besides Mr Adani, who has huge stakes in all his listed companies, most of the remaining large investors are offshore funds, including some based in Mauritius. Some have almost all of their investments in Adani Group companies, and questions about their ownership have been raised in parliament. In response, a government minister said last month that the Securities and Exchange Board of India, the capital-markets regulator, was investigating some of the group’s companies. Adani Group said it had always been transparent with its regulators, and had received no information requests recently.The group’s hunger for capital creates a further conundrum. Increasingly it is peddling its clean-energy businesses to ESG fund managers. Yet AEL owns Carmichael, an Australian thermal-coal mine that has been the target of a grassroots “Stop Adani” campaign, and has been shunned by banks and insurers worried about the climate implications of funding coal projects. Tim Buckley of the Institute for Energy Economics and Financial Analysis, a pro-renewables think-tank, reckons that the coal exposure could cause an ESG backlash hurting other parts of the Adani empire. He argues that to bolster its ESG reputation, the conglomerate should commit to phasing out coal power.Nice present, bleak futureMr Adani appears to have no plans for that yet. He believes a developing country like India cannot give up coal overnight. The group still intends to produce 30% of the gross operating profit of its utility businesses from thermal power generation in 2025 (it was 52% last year). When Carmichael produced its first lump of coal in time for Mr Adani’s birthday on June 24th, he tweeted: “There couldn’t be a better birthday gift.”Perhaps he recognises that foreigners, sustainable pretensions notwithstanding, find India irresistible, especially with investment in China in the doldrums. Perhaps he hopes that they will flock to giants like Adani, not least because of its knack for coping with India’s bureaucracy. Yet if they do, the group faces a problem. The stronger it becomes, the more unsavoury it will seem that few ordinary Indian shareholders are sharing in the upside. More

THE SUDDEN unavailability a decade ago of cars in “tuxedo black”, “rugged brown” or “royal red” highlighted the vulnerability of the industry’s global supply chain. The abrupt closure of the only factory making a vital pigment because of its proximity to the tsunami-hit Fukushima nuclear plant in Japan affected most of the world’s big carmakers. A side-effect of a global pandemic has denied carmakers a more vital component. A shortage of semiconductors has left car firms unable to install the complex electronics that control entertainment systems, safety features and advanced driving aids. Many have cut assembly-line shifts. Some have temporarily closed factories. Ferdinand Dudenhöffer of the Centre Automotive Research, a German think-tank, estimates that the bottlenecks will dent worldwide production in 2021 by 5.2m cars, to 74.8m. Ford’s net profit fell by half in the second quarter, year on year, mainly owing to the chip crunch. Jaguar Land Rover expects sales in the three months to September to be 50% lower than planned. On August 3rd Stellantis, created by the merger of Fiat Chrysler and PSA, which owns Peugeot and Citroën, said it would make 1.4m fewer cars in 2021 than expected. (A big Stellantis shareholder is a part-owner of The Economist’s parent company.) Though car bosses agree the worst is over, shortages are likely to dent output in 2022.The dearth of chips is a consequence of the pandemic, which boosted demand from makers of electronic devices for those stuck at home during lockdowns. Car firms also underestimated the rapid pace of recovery this year. Expecting weak sales, in 2020 they pared back orders. Although carmakers spent $40bn or so on chips in 2019, that accounted for only a tenth of global demand, which puts them low in the semiconductor pecking order. This makes orders hard to reinstate. Established car firms also long ago outsourced development of most technology, including electronic subunits, to big suppliers. These “tier 1” suppliers, such as Germany’s Bosch or Denso of Japan, buy circuit boards and microcontrollers to make components from suppliers in the next tier down, which in turn buy semiconductors from chipmakers. This has kept chip firms and car firms at arm’s length. Deloitte, a consultancy, talks of a “lack of visibility up and down the value chain”. Carmakers’ initial response has been to make more vehicles that require fewer chips, or to use the scarce resources to build their most profitable models. In the long run, the changing nature of the car will force them to think more creatively. Fully electric cars are packed with twice as many chips by value than fossil-fuelled ones, says KPMG, another consultancy. As Pedro Pacheco of Gartner, yet another firm of consultants, points out, software will become a significant source of profits as cars move from a disparate collection of chips to a centralised “brain” connected to the internet that can be updated remotely. In 2019 Tesla made an average of nearly $1,200 per vehicle from selling software updates, Mr Pacheco notes. To ensure that the hardware woes don’t stymie this ambition, carmakers may need to take another leaf from Tesla’s book. The Californian firm has been designing its own chips since 2016, which lets it launch new software-enabled features quickly. Volkswagen’s boss, Herbert Diess, has said that the German giant will develop its own chips and software for autonomous driving: “Software and hardware have to come out of one hand.” For now Volkswagen would like closer relations with chipmakers. So would its rivals. Few have the resources—or inclination—to design chips. Some will still need help developing their own software. Big suppliers, fearful of losing out as carmakers cosy up to chip firms, are being forced to up their game. Bosch, the world’s biggest car-parts maker, has invested €1bn ($1.2bn) in a factory that will start to produce advanced chips for cars later this year. A hiccup over paintwork is one thing. As the industry braces for a more electric and electronic future, it can ill afford to leave its fate in someone else’s hands. More

“WE’RE ALWAYS 30 days away from going out of business,” is a mantra of Jen-Hsun Huang, co-founder of Nvidia, a semiconductor company. That may be a little hyperbolic coming from the boss of a company whose market value has increased from $31bn to $486bn in five years and which has eclipsed Intel, once the world’s mightiest chipmaker, by selling high-performance chips for gaming and artificial intelligence (AI). But only a little. As Mr Huang observes, Nvidia is surrounded by “giant companies pursuing the same giant opportunity”. To borrow a phrase from Intel’s co-founder, Andy Grove, in this fast-moving market “only the paranoid survive”.Constant vigilance has served Nvidia well. Between 2016 and 2021 its revenues grew by 233%. In the three months to May sales expanded by a dizzying 84%, year on year, and gross margin reached 64%. Although Intel’s revenues are four times as large and the older firm fabricates chips as well as designing them, investors value Nvidia’s design-only business more highly (twice as much in terms of market capitalisation). Its hardware and accompanying software are used in all data centres that make up the computing clouds operated by Amazon, Google, Microsoft and China’s Alibaba. Nvidia’s systems have been adopted by every big information-technology (IT) firm, as well as by countless scientific research teams in fields from drug discovery to climate modelling. It has created a broad, deep “moat” that protects its competitive advantage.Now Mr Huang wants to make it broader and deeper still. In September Nvidia confirmed rumours that it was buying Arm, a Britain-based firm that designs zippy and energy-efficient chips for most of the world’s smartphones, for $40bn. The idea is to use Arm’s design prowess to engineer central processing units (CPUs) for data centres and AI uses that would complement Nvidia’s existing strength in specialised chips known as graphics-processing units (GPUs). Given the global reach of Arm and Nvidia, regulators in America, Britain, China and the European Union must all approve the deal. If they do—a considerable “if”, given both firms’ market power in their respective domains—Nvidia’s position in one of computing’s hottest fields would look near-unassailable.Game timeMr Huang, whose family immigrated to America from Taiwan when he was a child, founded Nvidia in 1993. For its first 20 years or so the company made GPUs that made video games look lifelike. In the past decade, however, it turned out that GPUs also excel in another futuristic, but less frivolous, area of computing: they dramatically speed up how fast machine-learning algorithms can be trained to perform tasks by feeding them oodles of data. Four years ago Mr Huang, who goes by Jensen, startled Wall Street with a blunt assessment of his company’s prospects in what has become known as accelerated computing. It could “work out great”, he said, “or terribly”. Regardless, the company was “all in”.Around half of Nvidia’s annual revenues of $17bn still comes from gaming chips. They have also proved excellent at solving the mathematical puzzles that underpin ethereum, a popular cryptocurrency. This has at times injected crypto-like volatility to GPU sales, which contributed to a near-50% fall in Nvidia’s share price in late 2018. Another slug of sales comes from selling chips that accelerate features other than graphics or AI to computer-makers and car companies.But the AI business is growing fast. It includes specialised chips as well as advanced software that lets programmers fine-tune them—itself enabled by an earlier bet by Mr Huang, which some investors criticised at the time as an expensive distraction. In 2004 Mr Huang started investing in “Cuda”, a base software layer that enables just such fine-tuning, and implanting it in all of Nvidia’s chips.A lot of these systems end up in servers, the powerful computers that undergird data centres’ processing oomph. Sales to data centres have increased from 25% of total revenues in early 2019 to 36%, contributing nearly as much as to the total as gaming GPUs. As companies across various industries adopt AI, the share of Nvidia’s data-centre sales going to big cloud providers such as Amazon and Google has declined from 100% to half that.Today its AI hardware-software combo is designed to work seamlessly with the machine-learning algorithms collected in libraries such as TensorFlow (which is maintained by Google) and PyTorch (run by Facebook), boosting the algorithms’ number-crunching power. Nvidia has created programs to hook its hardware and software up to the IT systems of big business customers with AI projects of their own. All this makes AI developers’ job immeasurably easier, says a former Nvidia executive. Nvidia is also expanding into AI “inference”: running AI models, hitherto the preserve of CPUs, rather than merely training them. Real-time, huge AI models like those used for speech recognition or content-recommendation systems increasingly need the specialised GPUs to perform well, says Ian Buck, head of Nvidia’s accelerated-computing business.This is also where Arm comes in. Owning it would give Nvidia the CPU chops to complement its historic strength in GPUs and more recently acquired abilities in network-interface cards needed to run server farms (in 2019 Nvidia acquired Mellanox, a specialist in such interconnecting technology). In April the company unveiled plans for its first data-centre CPU, Grace, a high-performance chip based on an Arm design. Arm’s energy-efficient chips would help Nvidia supply AI products for “edge computing”—in self-driving cars, factory robots and other places away from data centres, where power-hungry GPUs may not be ideal.Transistors in microprocessors are already the size of a few atoms, so have little room to shrink and tricks such as outsourcing computing to the cloud, or using software to split a physical computer into several virtual machines, may run their course. So businesses are expected to turn to accelerated computing as a way to gain processing power without spending through the roof on ever more CPUs. Over the next five to ten years, as AI becomes more common, up to half of the $80bn-90bn that is spent annually on servers could shift to Nvidia’s accelerated-computing model, estimates Stacy Rasgon of Bernstein, a broker. Of that, half could go on accelerated chips, a market which Nvidia’s GPUs dominate, he says. Nvidia thinks the global market for accelerated computing, including data centres and the edge, will be more than $100bn a year.Nvidia is not the only one to have spotted the opportunity. Competitors are proliferating, from startups to other chipmakers and the tech giants. Venture capitalists have backed companies such as Tenstorrent, Untether AI, Cerebras and Groq, all of which are trying to make semiconductors even better suited to AI than Nvidia’s GPUs, which for all their virtues can be power-hungry and fiddly to program. Graphcore, a British firm, is touting its “intelligence-processing unit”.In 2019 Intel bought an Israeli AI-chip startup called Habana Labs and ceased work on the neural-network processors it had acquired as part of an earlier purchase of Nervana Systems, another startup. Amazon Web Services (AWS), the e-commerce giant’s cloud division, will soon start offering Habana’s Gaudi accelerators to its cloud customers, claiming that the Gaudi chips, which are slower than Nvidia’s GPUs, are nevertheless 40% cheaper relative to performance. Advanced Micro Devices (AMD), a veteran chipmaker that is Nvidia’s main rival in the gaming market and Intel’s in the CPU business, is in the process of finalising a $35bn deal to acquire Xilinx, which makes another kind of accelerator chip called field programmable gate arrays (FPGAs).A bigger threat comes from Nvidia’s biggest customers. The cloud giants are all designing their own custom silicon. Google was the first to come up with its “tensor-processing unit”. Microsoft’s Azure cloud division opted for FPGAs. Baidu, China’s search giant, has its “Kunlun” chips for AI and Alibaba, its e-commerce titan, has Hanguang 800. AWS already has a chip designed for inference, called Inferentia, and has one coming for training. “The risk is that in ten years’ time AWS will offer a cheap AI box with all AWS-made components,” says the former Nvidia executive. Mark Lipacis at Jefferies, an investment bank, notes that since mid-2020 AWS has put Inferentia into an ever-greater share of its offering to customers, potentially at the expense of Nvidia.As for the Arm acquisition, it is far from a done deal. Arm’s customers include all of the world’s chipmakers as well as AWS and Apple, which uses Arm chips in its iPhones. Some have complained that Nvidia could restrict access to the chip designer’s blueprints. The Graviton2, AWS’s tailor-made server chip, is based on an Arm design. Nvidia says it has no plans to change Arm’s business model. Western regulators are due to decide on whether to approve the deal with Britain’s competition authority, which had until July 30th to scrutinise the transaction and is expected to be among the first to do so. China, for its part, is unlikely to welcome an American takeover of an important supplier to its own tech firms, which is currently owned by SoftBank, a Japanese technology conglomerate.Even if one of the antitrust watchdogs puts paid to the acquisition, however, Nvidia’s prospects look bright. Venture capitalists have become markedly less enthusiastic over time about backing startups taking on Nvidia and the tech giants investing in accelerated computing, says Paul Teich of Equinix, an American data-centre operator. Intel has overpromised many things, including accelerated computing, for years, and mostly undelivered. AWS and the rest of big tech have plenty of other things on their plates and lack Nvidia’s clear focus on accelerated computing. Nvidia says that, measured by actual utilisation by businesses, it has not ceded market share to AWS’s Inferentia.Mr Huang says that it is the expense of training and running AI applications that matters, not the cost of hardware components. On that measure, he says, “we are unrivalled on price-for-performance.” None of Nvidia’s rivals possess its software ecosystem. And it has a proven ability to switch gears and capitalise on good luck. “They’re always looking around at what’s out there,” enthuses another former executive. And with an entrenched position, Mr Lipacis says, it also benefits from inertia.Investors have not forgotten the near-halving of Nvidia’s share price in 2018. It may still be partly tied to the fortunes of the crypto market. Holding Nvidia stock requires a strong stomach, says Mr Rasgon of Bernstein. Nvidia may present itself as a pillar of the computing industry, but it remains an aggressive, founder-led firm that behaves like a startup. Sprinkle in some paranoia, and it will be hard to disrupt. More

NO CHILD ASPIRES to a life talking the kind of nonsense that many executives speak. But it seems that, as soon as managers start to climb the corporate ladder, they begin to lose the ability to talk or write clearly. They instead become entangled in a forest of gobbledygook.The first explanation for this phenomenon is that “jargon abhors a vacuum”. All too often, executives know they have nothing significant to say in a speech or a memo. They could confine their remarks to something like “profits are up (or down)”, which would be relevant information. But executives would rather make some grand statement about team spirit or the corporate ethos. They aim to make the business sound more inspirational than “selling more stuff at less cost”. So they use long words, obscure jargon, and buzzwords like “holistic” to fill the space.Another reason why managers indulge in waffle relates to the nature of the modern economy. In the past, work was largely about producing, or selling, physical things such as bricks or electrical gadgets. A service-based economy involves tasks that are difficult to define. When it is hard to describe what you do, it is natural to resort to imprecise terms.Such terms can have a purpose but still be irritating. Take “onboarding”. A single word to describe the process of a company assimilating a new employee could be useful. But “to board” would do the trick (at least in American English, which is more comfortable than British English with “a plane boarding passengers” and not just “passengers boarding a plane”). The only purpose of adding “on” seems to be to allow the creation of an equally ugly word, “offboarding”, the process of leaving a firm.Overblown language is also used when the actual business is prosaic. Private Eye, a British satirical magazine that often mocks corporate flimflam, used to have a regular column pointing out the absurd tendency of companies to tag the word “solutions” onto a product; carpets became “floor-covering solutions”. (Bartleby has long wanted to start a business devoted to dissolving items in water so it could be called “Solution Solutions”.) Nowadays, the target for mockery is the use of the term DNA, as in “perfect customer service is in our DNA”.In her book about life in the tech industry, “Uncanny Valley”, Anna Wiener used the term “garbage language” to describe “a sort of nonlanguage which was neither beautiful nor especially efficient”. Tech executives spouted a very grand vision of how they would reshape society but their rhetoric often clashed with the hard reality of what they were doing, which was to sell advertising or monopolise users’ time. It is a variation on the old Ralph Waldo Emerson dictum: “The louder he mentioned his honour, the faster we counted our spoons.”The third reason why managers use jargon is to establish their credentials. What makes one person fit to manage another? It is hard to identify any obvious attributes; managers are not like doctors, who prove their expertise through passing exams and practical training. If you can speak the language of management, you appear qualified to rule. If others don’t understand terms like “synergy” and “paradigm”, that only demonstrates their ignorance. In a sense, managers are acting rather like medieval priests, who conducted services in Latin rather than in the local language, adding to the mystical nature of the process.Once corporate jargon is established, it is hard for managers to avoid using it. The terms are ever-present in PowerPoint slides, speeches and annual reports. Not to use them would suggest a manager is not sufficiently committed to the job. Junior staff, for their part, dare not question the language for fear of damaging their promotion prospects.Of course, new words will inevitably be coined in the world of business, as in other areas of life. Technology has ushered in a range of terms, such as hardware and software, which were once unfamiliar but are now widely understood. But a lot of the more irritating jargon has been brought in from other areas of life, like the self-help movement.All this matters because the continued use of obscure language is a sign that the speaker is not thinking clearly. And if those in charge aren’t thinking clearly, that’s bad for the business. People who are in real command of the detail are able to explain things in a way that is easily understood. And if a manager’s colleagues understand the message, they are more likely to get the right things done. Jargon gets in the way.This article appeared in the Business section of the print edition under the headline “Jargon abhors a vacuum” More

FIRST IT WAS fintech. Last November China’s Communist rulers abruptly suspended the $37bn initial public offering (IPO) of Ant Group, a financial-technology titan, and forced it to modify its asset-light business into something more like a bank. Since then they have pursued other internet giants. The two biggest, Alibaba and Tencent, have been targeted by trustbusters. This month regulators banned Didi Global’s ride-hailing app over data transgressions, days after the firm’s $4bn IPO in New York. And on July 24th, in the clearest sign yet that the government wants to revise its state-capitalist model into something with less global capitalism and more Chinese state, online-education companies were told they can no longer make a profit or use offshore vehicles that enable their shares to be traded abroad. Global capitalists are spooked. The share prices of three big online tutors listed in New York, TAL Education, New Orient and Gaotu, are down by two-thirds, wiping out $18bn in shareholder value. The panic has engulfed other Chinese firms with American listings, which were collectively worth over $2trn not long ago (and often also use the offending offshore structures). The Nasdaq Golden Dragon China Index, which tracks nearly 100 of the biggest such stocks, fell by a record 19% in three trading days. Fear spread to Hong Kong, where it has pulled the territory’s benchmark tech-stocks index down by 16%, and even to mainland China. Foreigners have dumped enough mainland-traded shares to cause a surge in currency outflows that pushed down the value of the yuan on July 27th, according to Natixis, an investment bank. Policy uncertainty may have reach a point at which outsiders just stop buying Chinese stocks, says Zhang Zhiwei of Pinpoint Asset Management, a hedge fund. The squeeze reflects the government’s “overriding concern” that it has less control over its internet than it would wish, says Mark Hawtin of GAM, an asset manager. Online education is a case in point. It has been one of China’s most innovative and fastest-growing industries in recent years. Firms have used clever software to offer individualised courses to millions of pupils, many of whom are poor. In 2019 and 2020, the industry saw 27 IPOs. Three-quarters of the proceeds funded firms offering services to schoolchildren rather than university students. This ferment proved too much for the government, which prizes stability above all else. The authorities began to view the industry’s fees as an extra burden on parents, potentially discouraging them from having more children—an increasingly pressing problem as China’s population begins to decline. State media, channelling their inner Marx, talk of an end to “the era of barbaric growth”. The simplest way to curb this barbarism is to do away with the profit motive. Many companies serving school-age children will now have to become non-profit organisations. Their lucrative businesses suddenly seem about to “be worth almost nothing”, says Travis Lundy of Smartkarma, a research outfit.As Peter Milliken of Deutsche Bank puts it, in China “the profit pool [investors] chase exists within parameters set by the state.” Where will these shift next? One place may be video-gaming. Games firms collect lots of data on users, many of whom are minors, and gaming addiction is a Beijing bugbear, notes Chelsey Tam of Morningstar, a research firm. The industry titan, Tencent, has already been censured. In July alone it was fined twice, by the cyber-regulator for sexually explicit content and by antitrust authorities for unfair practices, and ordered to end exclusive music-licensing deals. On July 27th it suspended registrations for new users of WeChat, a ubiquitous messaging app, to align itself with new regulations. Its market value has sunk from $950bn in January to $550bn. Other targets include internet-connected cars and online health care, which both suck in reams of sensitive data. A private-equity investor in the health business says his firm is adjusting its portfolio to reflect new risks. In a meeting with banks on July 28th the government tried to restore calm. But its message is clear: the Marxist pursuit of power trumps market logic. More