[00:00] The Communist Party resembles something like um the God of the Old Testament, very generous sometimes, but then randomly smite you. >> Which society do you think is higher agency? >> China's major advantage in being a technological superpower is that it can just wait for the Americans to invent a lot of stuff. >> They're the prairie fire that uses the American spark. >> What should the US do that it's not doing? >> The future is made up of the a series of short runs. If China is really able to do super well in the next 5 years, 15
[00:30] years, might be enough to subdue America in pretty substantial ways. Why is there no sense of crisis? Patrick, riddle me this. [Music] >> What was the title of your book before Breakneck? We had a series of titles and the one that I thought that would make the most sense was move fast and break people. China's quest engineer the future >> publisher did not like that one
[01:01] >> too much like Facebook they thought. So um and they were right. Um and I think breakneck is a nice snappy title. I love that it mostly has a positive connotation. We made the vaccines at breakneck speed. We build the bridges at breakneck speed. Yeah, look at that coil of violence uh inside the title. I think I think this one worked. >> What about breaking people is relevant though. >> I think the part of China that I object
[01:31] to the most is that for the most part physical dynamism in building a lot of new things, bridges, subways, highways, new homes, hyperscalers, whatever else. Some problems there, but mostly pretty positive. The fundamental problem with China is that they're not just physical engineers. They're also social engineers. And they treat society as if it were just another building material. And I object strongly to their practices around ethnreligious minorities in Tibet
[02:02] as well as Hingang. I object strongly to the one child policy and I thought that the zerocoid policy was also a disaster. when they need to feel the need to run rough shot over people. Whether that's to build a giant dam like the three gorgeous dam which displaced around a million people or if it is to build a really great train track or if it is to stop overpopulation as they imagined it throughout the 1980s. They barely hesitate to do what are some brutal
[02:33] pretty brutal measures. >> Can you teach us the origins of that aspect of their society? Yeah. So, China is a country I call the engineering state because they want to engineer the physical environment, the economy, um the people as well. I want to be just pretty playful with this framework that they're a country of engineers. Uh in part, the roots are from the fact that in recent years, if you take a look at the most senior leadership, the entirety of the standing committee of the pilot
[03:04] bureau had degrees in engineering. I also draw this back to slightly older roots. Um, if we take a look at the Chinese emperors way back in the past, let's say 1500 years, two of China's biggest projects include the Great Wall uh as well as the Grand Canal, so a fortification system uh in the first case and then a big manage water management uh system in the second case. That is a country that has built a lot of big projects in the past. uh a lot of the emperors barely hesitated to
[03:35] completely reorder a peasants's relationship to her land. And throughout Chinese history, they've really moved a lot of people around to settle the frontiers here or um defeat the nomadic tribes over there. And so that's kind of my playful framework for saying that China is really ruled by this engineering mindset that really wants to build. Um they're often very liberal-minded about governing society as if uh people were just a series of chess pieces to be moved around. Um and
[04:06] that extends from the imperial times all the way to the modern day. >> What do you think the greatest aspect of the US system is that you have the hardest time imagining getting truly adopted in China? >> Pluralism. I spent six years living in China. I moved to China at the start of 2017 to be a technology analyst at an economic investment um research firm called Goffcow Trigonomics. At the time that I moved there at the
[04:36] start of 2017, Trump had just taken office. I remember watching these kind of strange confirmation hearings for his cabinet officials right when I left. And I lived through this period when Trump launched a trade war that quickly morphed into a tech war. And I wrote a lot of uh research notes about what exactly was happening to companies like Huawei and other sanctioned um entities. Um and throughout this time I was open to the idea. I didn't necessarily
[05:06] believe it, but I was open to the idea that we're at the start of something like an Asian century in which China and India were be going to become much bigger powers. Um, by the time that I'd left in 2023 when I uh returned to the US to be a fellow not too far away from here at the Yale Law School's Pai China Center in Connecticut, I thought that you know the experiences that I lived through some incredible technological successes along with worsening
[05:36] repression along with a worsening geopolitical environment for China. um along with the centerpiece of zero covid all three years of which I was there I started being skeptical that China could tolerate debate could really encourage some measure of useful disscent uh inside the official system that they were going to be able to figure out these persistent problems with autocratic systems in terms of figuring
[06:07] out succession planning for example that they were capable of a great number of successes. But because there is this official voice that is meant to speak over everyone else, because that official voice is a little bit idiosyncratic in terms of all of the values that it really cares about. Some degree of national power, some degree of sovereignty, some thin skin about anything that could be critical of the regime. I don't feel like the Communist
[06:40] Party has mastered some autocratic formula in order to really build the future because they cannot have anything like debate, discussion, and a long-term stable society. You have this great Andy Grove quote in the book about the difference between the mythical magical moment of creation and innovation that the US has has so dominated and this ability to innovate on the factory floor the scaling up that China has done so
[07:10] well based on everything you just said how do you relate to their ability to do more innovation in the future there's that famous stat of like only one noble laureate has ever been from China or something I think it's like that low say a little bit about your your conclusions around their current ability to innovate and how that might change in the future. >> Yeah. One of the things I want to try to do in this book is to try to tackle this idea of what is innovation. I think um
[07:40] we here in the US and I as someone who spents a lot of time in Silicon Valley as a research fellow at the Hoover Institution, I think there is this mythical moment of invention in which you have an amazing genius like Steve Jobs hang out in a garage or or many other geniuses hang out in garages and some incredible product pops out of the garage and you know a worldleading product takes shape and I think that is certainly an American strength. And I
[08:11] think what the Chinese have been able to do was to become a technological superpower without taking this Silicon Valley view of, you know, we need to just be in nature, take a lot of LSD, go into our garages, and then Apple computer comes out. That's not the way that they tend to do things. The way they tend to do things is to import uh a lot of managerial expertise
[08:41] including from Apple computers work with Apple's standards uh to put together and assemble a lot of other components from the US, Japan, Germany, whatever else and then slowly iterate and learn a million and one things on the shop floor and then build a highly sophisticated product that America is no longer really able to build. Still most iPhones are being built in China, increasing share in India and Vietnam, but still most
[09:12] iPhones in the world are being built in China. And I think the Chinese method for becoming a technological superpower is to take this vast manufacturing workforce. There's about 70 million manufacturing workers in China versus about 12 million in the US. the 70 million manufacturing workers in China are working with some of these high-end products that cannot be built um here in the US. They're learning to solve three new problems a day before breakfast. and they um are really at the cutting edge
[09:44] of figuring out how to do new things, do it better, build up ecosystems of suppliers, build up new ecosystems of labor and just um you know generate all of this process knowledge which can't easily be written down which can't easily be encoded in tools and equipment and just use that to catapult into new forms of products. So if you are a uh an iPhone manufacturing worker um who was there at the original assembly lines uh in Shenzhen in 2008, you know, it's no
[10:15] accident that Shenzhen is now the capital of the hardware industry of the world because that worker might be able to start building a Huawei phone um in the next year and a few years after that uh maybe start a drone company. um Shenzhen is also the center of the drone business in the world and then maybe a few years after that um start an electric vehicle battery um business which is also highly complex and something that the US isn't building very much of today and so I want to try to dissolve this uh idea that innovation
[10:46] is something that um is holding back China too substantially um I think the statistic about Nobel Prize winners only a handful of Nobel prize winners in the sciences have emerged from China. I think that is a true statistic, but you know, a lot of these Nobel prizes are backwards looking by decades. We're still giving out prizes for work in Japan or the US in the 70s. Um, it is pretty arbitrary. It's very rate limited. Um, and what I want to propose
[11:17] is that China's other major advantage in being a technological superpower is that it can just wait for the Americans to invent a lot of >> the spark >> be the spark, right? And then they they set the fire. They're the prairie fire that uses the American spark. So I think about something like solar photovoltaics which was invented in New Jersey by Bell Labs in 1954. The US mostly treated it as a scientific project and not a giant manufacturing industry. And now about
[11:47] 90% of the solar industry is in China. Everything from the polysilicon processing down to the final module assembly. And so China can just wait for a lot of these labs uh in the US and Germany, Japan to figure out these new sparks and then they set off the prairie fire. And this is also one of these crucial points in the classic Andy Grove essay published in Bloomberg Business Week in I believe 2010 that the US in my words uh is really great at setting a lot of ladders in place but its firms
[12:18] are no longer really great at climbing these ladders. It is really the Chinese firms that are able to climb all of these big technological ladders. If I oversimplify this to the US is the leader in zero to one and China is the leader in one to n scale up in manufacturing which would be harder for for the other to get like would it be harder for the US to get really good at the scale up in manufacturing or harder for China to get good at the 0ero to one based on everything you know about both what's more likely >> I think that it is harder for the US um the task is comparatively simpler for
[12:50] China and China has already gotten significantly better at a lot of these scientific projects that used to be you know only the preserve of American universities and a few other places by most metrics that we can identify Chinese scientists are producing better qualities of work not just quantity um if we take a look at some of the most uh the top 1% cited scientific papers um Chinese researcher are producing uh an increasing share of many of these uh top
[13:21] papers we can see that China has produced a a lot of uh really good scientific projects. To say nothing of um the moon missions, I think there's a pretty strong sense now that China will get to the moon um by the end of the 2020s and America might not be able to get back to the moon, that it has forgotten a lot of these skills. Um that um China has invested a huge amount in trying to improve its universities. we can see that a lot of um American researchers uh often American
[13:52] researchers of Chinese descent have decided to move to China because there's better funding um there's more grad students they can work with there's a more stable environment for them to do their science and conversely I think we have not seen that the US is really learning the hard parts of manufacturing really well um I think there are some successes uh we can see that the TSMC fab in Arizona is actually doing fairly well now according to the the latest reporting. But if we take a look at many
[14:22] of America's apex manufacturers, companies like Boeing making aviation, Intel making chips, Detroit and Tesla making vehicles, mostly that's been going downhill. Um the US isn't making a huge number of iPhones. It's barely making a huge number of um Apple's desktop computers. And so I feel like the Chinese are learning at a much faster rate to patch up their deficiencies than the Americans have. >> What should the US do that it's not
[14:53] doing? Like if you were the dictator of the US economy and your goal was to make it catch up in this regard as much as possible because it seems like the consensus is wouldn't it be great and there's some people that are trying to do this and in small ways so far if we had manufacturing excellence back here again and controlled vertically our whole destiny. We have the spark covered. Um, what would you do if you were fully in control? >> Yeah. Uh, I am against fully in control. Uh, I want no dictator in China and so therefore I renounce being dictator of
[15:23] the US. I think what I am really thinking about for this particular book project as well as my broader writing over the past 10 years on China is to be less focused on policy prescriptions, fixing statutes, fixing regulations. What I really want to do is to inspire Americans to treat technology as a political project as well as an aesthetic project. I think this is one
[15:55] of the things that China really does well is that it takes manufacturing super seriously and the US has not taken it super seriously since various points in the 1980s. I'm fond of quoting a former chairman of the economic adviserss who said in the 1990s in this glib quip which is quite funny um but computer chips potato chips what's the difference as if you know these things could all be funible funibly measured in
[16:25] um quantities of dollars and I think there is something qualitatively different between high-end semiconductors as well as a spud so I think that Um, various parts of the American elite have decided that manufacturing is not so important. We don't need to manufacture socks and t-shirts. Fine. We don't need to manufacture televisions. And here's where I uh start getting a little bit nervous. We don't need to start manufacturing um, you know, iPhones or
[16:55] munitions or all sorts of other goods. And that is where I get really nervous. And what I really want is for Americans to feel the importance of having a robust manufacturing base, feel the need to try to recover some of that and air more on the side of doing more manufacturing rather than less. And so again, I I have no great policy prescriptions. Um, I am critical of some of the policies of the present
[17:25] administration, but I think that if we are all much more committed to just building out and recognizing some of these problems that we have and recognizing China's trends, then I think, you know, the conversation flows much more naturally about what we need to do and which statutes and regulations we need to fix. >> Can you imagine h that happening without some sort of visceral crisis? like can that happen slowly and organically? In the 1950s, I think it was in 1957, there was the Sputnik moment in which a
[17:56] kind of >> exactly what I'm thinking of >> toy satellite uh emerged from the Soviet Union and essentially over the last 15 years, the number of politicians citing whatever new breakthrough uh as a splitnick moment for the US. Um I I once cataloged this. I I found a half dozen instances of major figures that included Barack Obama to various other uh US senators have cited this thing or that
[18:26] as a Sputnik moment. I think Obama cited uh highspeed rail in China as the Sputnik moment. Some other senators cited um Huawei's lead in 5G um telecommunications equipment. Um just two weeks ago there was a um Harvard professor uh Steven Greenblat who wrote in the New York Times Chinese universities are really rising in global rankings in part because of they're doing better and better science that if that's not a Sputnik moment I I am quoting him essentially if that's not a Splutnick moment I don't know what will
[18:56] be and what I'm actually kind of afraid of is that the more we use this term Sputnik moment um which Americans are using quite often and the less that it is actually accompanied by real action as the original moment in the 1950s was the more that this term is kind of just bandied about >> boy who cried wolf >> glibly you know um crying wolf about this or that and actually there's no fundamental action and what I'm often really surprised about is just the lack
[19:27] of real sense of crisis with a lot of Americans with um you know the rusting manufacturing base we're uh chatting together in New York city. The Second Avenue uh subway extension cost about $2 billion per mile. Almost everything in the US is uh in terms of major infrastructure, especially in big cities, is ends up being over budget and over time. Voters originally approved the California highspeed rail by referendum in 2008. I think they said
[19:58] this must be finished by 2020. Right now, we're in 2025. How many people have actually ridden California highspeed rail? the answer is zero because the first segment is supposed to start operating between 2030 and 2033 between Bakersfield and Merrced and so you know there's just these rampant failures all the time in America and somehow I don't really see many heads rolling um from the heads of agencies or you know US senators stepping down because they failed at a transportation project is something that is more common in Asia um and so why why is there no sense of
[20:29] crisis Patrick riddle me this >> I remember this idea from the hundred-year marathon on um the book about the you know very long-term planning of China to be resurgent and then be dominant that uh maybe it's quite deliberate that there is some line that operated below which no one notices the compounding that's happening in China and with no spikiness above the line to their progress just more smooth and steady it it you know all of a sudden we're going to wake up in 2050 and be like oh my god what happened how did this happen and it's been happening for you know forever for 100 years and
[21:01] so what do you think of that that it's just been deliberately quiet and below the radar. And that's a big reason that Americans haven't noticed. They don't go to China. They don't visit. They don't see it. They don't go around Shenzhen. They don't go anywhere. Uh and so it's just completely invisible to them and and they're used to the status quo here. >> Well, it sounds like a problem with Americans um rather than with the Chinese. I mean, they are really happy to broadcast all of their achievements. They have these amazing trains they love to highlight. They're constantly inviting Americans to go come check out these glimmering cities. um China's
[21:33] infrastructure gleams and you only have to go over there to take a look at it and there are plenty of people uh ringing the alarm but it does feel a little bit like boy who cries wolf. So um I think this is it's not just um you know the sense of crisis with China there's also the sense of crisis in California and New York that even people here kind of just shrug after such obscene cost overruns. >> Yeah. Um, what are the most what are the highest similarities between the two peoples between Americans and Chinese?
[22:03] Obviously, you've talked about some of the differences, but what are what's most similar between the two countries? >> Um, a lot. And what I really enjoy is um I I start my book in my very first paragraph to say that Chinese and Americans are more alike than any other people. And I think this is um something of among people who have spent any time in China. They're always um congratulating me and saying, "Yeah, that's exactly right. Chinese and Americans are so alike." So, how are they alike? Uh well, they're the two great um fs of entrepreneurial dynamism
[22:36] in the world. It is uh Shenzhen and Silicon Valley that are inventing the future and not so much Europe and Japan uh any longer. So there's a kind of a hustle energy. There's a hastiness. There's a sense of taking shortcuts. And a lot of that manifests in, you know, some things that are that don't work very well, but um, you know, you just need a lot of hustle and dynamism that you see among these people. Both countries have a sense of the technological sublime. So there's these awe of grand projects like the Golden
[23:07] Gate Bridge or Manhattan or Apollo that the Chinese are um and that that the Americans have and the Chinese also share and both countries are filled with elites and masses that really believe themselves to be really important great powers in the world. And if other countries don't get in line, whether that is uh the Philippines uh or South Korea on that side of the Pacific uh or the uh Canadians uh or the uh Danish
[23:38] with Greenland, um then they they also need to be muscled around a little bit. And so I see far more similarities than differences between these two peoples. >> What would be something that you would have put in the book if the book was designed to be a bit more like out there, speculative, unhinged? like what was on the cutting room floor that you would talk about with your friends, you know, over beers more than you'd put it in a New York Times bestselling book. >> Well, Patrick, is this book not unhinged enough for you? I thought the uh there's plenty of people who believe that I've >> What's the spinal tap version? I I I I've gone off the deep end here, but um
[24:09] you know, if we had to turn it into to 11, um then I think I would talk a little bit more about all of the ways that China believes in the future. So, I think that China is that's another similarity between the US and China. I think they're often very future oriented. they have a sense of optimism and um much less much more so
[24:39] than the Europeans um who have a sense of optimism only about the past. So I think that um both countries see themselves to be pursuing some sort of a destiny and they're driving really hard towards it. And something that I'm quite interested in is the path of Chinese futurism. Um I think that there's a lot of ways in which Chinese are much more pro technology uh than Americans are. uh China hasn't experienced this broad tech clash um that um has come across big tech companies in the US. Um there is no
[25:11] sense that uh tech is partisan because nothing in China is allowed to be partisan. there's no sense of a tech right and just if we take a look at technology by technology whether that is um something like e-commerce um the rate of e-commerce purchases in China is something like I I believe last I checked something like twice as high uh than in the US um they have um much more of a sense that artificial intelligence could be a friend um and something that
[25:42] um you know is not they don't worry about taking away all of their energy and um they uh spend a lot more time on their phones. Um you know, I think this is and and this is not positive. This is one of the things that most bugs me about Chinese society today. Um last one I went to Shanghai in um the end of 2024, you can just see people being on their phones all the time. You could be with a lot of friends at a restaurant and people could be just on their phones the entire time. You could be in a business meeting and people are on their
[26:12] phones. And on the one hand that speaks to you know I think some sort of social dysfunction among social interactions. On the other hand that also speaks to the fact that they are not very um concerned about what smartphones may be doing to their life and their brain. And I would also want to try to write a little bit about know how the communist party uh sees itself to be modernizing the country and how it feels about various technologies that include um let's say space missions uh going to the
[26:44] moon and then Mars and the moons of Saturn as well. Um, and then how they view themselves to be much more of an industrial civilization relative to uh the Americans which they often denounce uh in their terms a fictitious economy or a bubble economy, not a financial bubble sense, but a bubble that pops very easily sense. Um, and I think there's um various strands of Chinese science fiction that could also be really worth exploring too. What feels like the very bleeding edge frontier if
[27:14] I were to take a month and travel around China and maybe you could pick like the four cities I would go visit to to learn the most and most see the bleeding edge frontier of everything you just described. What what does that feel like today that people might not fully appreciate? >> Shanghai is uh my favorite city in China. Maybe my favorite city in the world. >> Wow. >> Feels a lot like New York. um in uh both have been port cities with an industrial past that has significantly moved away from them. They Shanghai has a ton of
[27:45] art deco buildings because the time of its great boom in the 1920s and the 1930s was also a time when art deco uh really boomed. There's a river that runs um through both cities and there's a sense of hustle and ambition that one can see. It is really comfortable. It's um like uh a city. It's a little bit like New York if the French managed significant parts of it and they put in a lot of uh beautiful plain trees as well as um cafes. I think it's uh perhaps not the bleeding edge of
[28:15] technology as such but I think Shanghai represents a bleeding edge of um some element of consumption. Um you can just order food really easily in Shanghai. you can um most of the um Uber like DD taxis that you would get into um almost all of them are electric. There are parts of the city that are superbly well managed in terms of a lot of traffic flows. Um there's you can always tell how much time a red light is going to be
[28:46] um um to be on and you can see this in the apps. Um and there's all sorts of ways in which the city is very well managed. um it has a subway system that doesn't screech uh with this metallic uh noise uh like in New York City. And so as a place for consumption uh Shanghai is really wonderful. I would then hop on the highspeed rail uh from Shanghai to go to the city of Huf in the province of Anay which is pretty close by. Hu is probably let's say 2 hours uh away by
[29:18] train from um Shanghai. Historically, Huf um has been um significantly poorer. It is much more mountainous. Um but now Huf is the center of uh China's electric vehicle industry. And so there's several big EV makers that are headquartered there or have their operations there. And um as a city, it has been growing pretty consistently. There's a lot of um Chinese first tier cities that have not been growing quite fast anymore. Um, but there's plenty of these second tier
[29:48] cities uh that are growing uh really well. And then I think um it is always worthwhile going to Shenzhen uh which is uh in the south pretty close to Hong Kong. Um I find Shenzhen probably the most boring city in China. It's um a lot of these big office parks. Um a lot of it is meant for driving. The city layout is actually kind of uh weird. It's um like there's several big hubs that are connected by highways that are pretty distant from each other. um not that much interesting culture going on.
[30:18] People there to people are there to hustle and to work. Um but it is the headquarters of companies like Huawei and Tencent and DJI. A lot of China's most innovative companies and you can find a lot of really interesting electronics there. And you ask for fourth cities. So I guess the the fourth one that I'll offer is uh Chongqing, which is in also in the southwest. Chongqing. I've um I've learned uh is really big among the Tik Tok influencers. Um you can see a lot of
[30:49] these >> very futuristic >> very futuristic uh carved essentially into cliffs. There's these shimmering lights. Um there's this really well-known subway station that goes through the bottom of an apartment building in one side and then out to the other side. Uh and so that is a a really wonderful imagery. >> Um it's in the southwest which is where my family is from. Uh I like southwesterners. Um they have uh I think the best sense of humor in China. People uh there tend to just sit over tea and chat. Uh they have great food. It's
[31:19] often very spicy and it is also really traumatic. So uh what else could you want um than great food, great people? where of all these places or or in a different city, if you were to send an envoy of US technology entrepreneurs somewhere where when they emerged from this this trip, they would be the most inspired to come back and do things differently maybe than they were planning to. Where would you send them? >> I think maybe the places to visit are not necessarily in these big cities. uh
[31:50] I think it would be to try to go to a few factories and anchor your trip around a few factories. Now these factories might be something like electric vehicle um manufacturers in Hu. Uh it might be something like um let's say battery manufacturers in Shenzhen. Um but wherever you can go to find some sophisticated factories um making advanced manufacturing products um just go there and you know drop by the cities along the way to see how consumers live.
[32:21] Um and I'm aware of several teams of envoys um that have been traveling to China um in the recent past. Um there's um there's been a bunch of European clean tech investors who who've just um gone to China and in um California. I know of you know something like um you know two trips that have gone on this year and three more trips that are being planned. And so people are visiting um and I think that you know it's um there are these marvels out there and it's only on us that we're not going out to
[32:51] discover it. And so if you have the chance to visit, if you have the chance to go inside a factory, um definitely take it. I I strongly believe that it doesn't matter what a factory is making. It is always fascinating. Whatever it is, they could be the most boring products that could be making brake pads. And I've I've visited a superbly interesting brake pad factory. I had no idea how these things were were made. When I was in China, I every time I had the chance to do a factory tour, um to perhaps uh eat with the workers, um I
[33:21] always took it and I'd tell the uh factory managers, I'll take put away all my electronic devices. I'll sign whatever you need me to sign, but um just uh you know, walk me through the factory floor. And that's always a ravishing experience. >> Can you compare and contrast the work ethics of the two countries? I'm especially curious at like the very highest end like if you took America's most productive people maybe in the technology sector working all the time to build you know new AI companies or whatever and compared it to a similar set in China how the two compare and
[33:52] contrast also more broadly curious how they compare and contrast but especially at the very high end. >> Yeah. So if we're taking a look at the let's say top 0.01% to 01% of entrepreneurs. I feel like there's a lot of similarities and when I chat with people who interact with their counterparts um Silicon Valley folks chatting with their counterparts in Beijing, they tend to respect each other and they look upon each other as peers and I think there's some ways in which the um Silicon Valley folks are a little
[34:22] bit more philosophical. they're a little bit more engaged with um you know policy and trends and what um the uh their impacts of um their companies and their technologies are on society often because the employees make them. I think maybe the Chinese entrepreneurs are um a little bit more involved with thinking about the political trends often because the communist party makes them. Um but
[34:52] you know at a you know work ethic um level I think they're probably pretty comparable. But if we broaden it out a little bit more, let's say the top 10% of workers, um maybe here again there's um there's more similarities than dissimilarities, I I I would suspect that the Chinese are putting in more hours just trying to work harder here. And if we take a look at the median um engineer, median worker between the US
[35:23] and China, I strongly suspect the Chinese are just putting in much much more hours um relative to the median in the US. Uh I think in California, we'd love to make fun of the Google offices um which clears out by 3 p.m. on a Friday. everyone's um at the Yoka studios again and not uh not really working super hard be in particular because it's Google and that sort of thing is pretty unimaginable in China which uh invented this phrase 996 working from 9:00 a.m. to 9:00 p.m. six days a week and I think there's some you
[35:55] know really you know maybe inspiration is really important working smart is really important but I think working hard is also uh very very important um you know according to these um statistics which are out there uh it takes a an automaker from the US or Japan or uh Germany roughly six years to conceptualize of a new model and actually get it out on the roads of a new um vehicle And in China, it's something more like 18 months um to two years, right? So at a first
[36:25] approximation, they're probably working at least three times faster than the Americans uh are are doing. Um there's some, you know, founding mythos of uh companies like MTW. Um I visited Mto with my friend Eugene Wei who is also a big fan and who has been on this show. Um we went to visit uh their offices in Beijing in uh 2018. And part of what the story that Mtoan tells about itself uh is that it survived 5,000 other
[36:55] competitors who were all Groupon clones that started at around the same time in something like 2015 or so. Mine was a big company now. It's one of China's biggest uh tech companies. Mine was a big company um back then and it's now one of China's biggest tech companies now. And you know, just imagine how ruthless and cutthroat the executive team has to be to survive this battle royale of 5,000 companies. And so, you know, I think there are some ways in which um you know, maybe inspiration is
[37:26] still better here. Maybe the sparks are still better here, but I do often feel that the Chinese are just comprehensively outworking the Americans in in some big ways. Maybe that doesn't matter for technologies like AI. Um, but for pretty much everything else, it pays to just work at much faster cycles and just learn much more. I'd love to ask some investing questions as an investing audience. Um, if I were to shrink down the investing debate about China to a single uh common debate, it would be around bite dance because it's a company
[37:57] that produces crazy amounts of free cash flow. uh it's its equity trades at a tiny fraction of that free cash flow in terms of a multiple than it would if it was just like if you could just take the exact same financials and put it in in America it might be I don't know 10 times more valuable or something like this and so people use this as an example of like what do you think about bite dance when they're really asking like what do you think about the opportunity to invest in China and maybe this is the right time to talk about this sort of kneecapping that happened several years ago around some of the Chinese internet giants um and you know
[38:29] what happened and why and what that tells us about the about the the party and and and and beyond. But I' I'd love just your general framing on like how to think about these companies which sound really interesting and fantastic which have produced lots of free cash flow in some cases as an investment opportunity or not or it just belongs in like the too hard pile for American investors. Yeah, I think the um as a former technology analyst at Gavcow trackomics um this question was on our minds um
[39:00] every day and um our uh clients were um endowments, pensions, hedge funds, asset allocators of all sorts um from a strictly macro perspective. So I never said anything about buy sell particular stocks but you know just thinking about these um you know I think thinking about these broad trends of China I think there's several paradoxes I think the first paradox uh is that Chinese companies are uh really capable and um
[39:31] China's economy has grown by an average of something like 9% over the past uh 20 years and what has been happening to China's stock market it's been essentially flat where the the Shanghai and the Shenzhin exchanges have not risen very much. Nothing commensurate with 9% growth. And so there's just a variety of I think just structural factors that makes it really difficult um for China's uh stock markets to grow at large. So that that is one component um of of of the valuation puzzle um with
[40:02] a big company like Bance or or Alibaba. Alibaba is listed and um still relatively cheap. I think another paradox here is that yes, a company like Alibaba uh or bite dance could be throwing off so much cash. Um but the nature of their businesses sometimes entangles them with the Communist Party. And the Communist Party um I I as I think about it resemble something like um the God of the Old Testament >> which uh can be very generous sometimes
[40:34] but then otherwise it could just um you know randomly smite you um because it is trying to pursue some sort of valuesdriven uh belief system. bite dance in uh 2018. I was living in um Beijing at this time was humiliated by the government when the government said that one of the suite of apps of bite dance had um violated core socialist values because it had a lot of these jokes out there and the communist party didn't really like these jokes and the founder of by danceying wrote this you
[41:07] know totally self- flagagillating letter saying we are so sorry that we did not uphold core socialist values and I am at fault and you know it is just impossible to imagine any tech CEO in America writing something like that. Um Alibaba most famously uh is uh founded by a loudmouth uh named Jack Ma who uh shot off his mouth uh one too many times in uh the year 2020 when he launched this blistering broadside against financial regulators um saying that they were so
[41:38] behind the times. And shortly after that um the communist parties smashed uh Ant Financial and prevented it uh from going public which is still uh the case today and financial still not public and um shortly after that the communist party started taking the scalps of uh companies uh that weren't just uh didn't include only Alibaba but also online education um e-commerce uh antitrust actions against the entire sector. Um so that part is real as well. Then there's
[42:09] a third component of all of these risks that I think investors have a hard time putting to bed, which is um you know the suite of geopolitical issues that are kind of particular to China. American investors aren't even buying Alibaba directly. It is um buying from a Cayman Island uh entity that has contractual relationships with Bite Dance. And are we really sure that we're getting something real here? You know, it's hard to lay that fear to bed. Um, China has
[42:39] capital controls and um, that has deterred a lot of investment um, including portfolio flows uh, from a lot of investors. And probably the biggest geopolitical puzzle for a lot of people uh is that Beijing is very clear that it intends to seize the island nation of Taiwan one day. And um if it does so, it is pretty likely that it will face um very hard sanctions um from especially the US
[43:09] government as well as probably u you know all western governments. And we saw what happened uh in 2021 when Russia decided to move on Ukraine. Um a lot of the central bank reserves in Russia uh were frozen. Um American portfolio managers were no longer able to invest in Russia. And um you know even McDonald's corporation had to leave Russia because of American sanctions. And can anyone really be sure that um a few years from now? Um sometimes some
[43:41] people feel like even a few months from now Beijing is going to initiate some sort of action against Taiwan. This is not really my expectation that they will do something but um none of us can be sure that they won't do something. And so long as that fear is present, I think that goes some length to explaining why it becomes pretty unappetizing. >> Why buy trades for 10 times your cash flow? >> Yeah. uh you know if you're a pension or you're a university endowment um do you really want to hold this and then you
[44:11] know the US government treasury comes asking you know what are you doing >> thinking about potential future equilibrium states between the two superpowers so let's just assume these are the two you know big important powers one of the things that always caught my attention in the US maybe the reason it's become less interested in global affairs is how self-sufficient it is there's actually not a huge percent of the economy that's like relying on the outside or pretty self-sufficient in lots of ways in terms of you know major goods. Understanding that is one of the future scenarios that these two just
[44:42] sort of exist as separate universes from each other. Is that one? What are the other like equilibrium states that you could imagine 20 years from now, 30 years from now between the two countries? >> Yeah. Well, equilibrium is a really important concept here because it implies that um no state really feels the need to shift in a big way. Um I think the scary thing might be that um you know something upsets the equilibrium where one country feels the feels under threat in some way. First I think uh I uh only partially agree with
[45:12] you that um the US feels very self-sufficient at the moment. Um you're right by a lot of you know just simple conventional measures um imports are something like 12% of US um GDP and it's not a huge uh amount but um in a crisis it turns out that the US actually really needs something like this 12%. I think a lot about the early days of COVID which um is speaks to another difference between um China as well as uh uh
[45:43] America. Um, in the early days of COVID, um, the US struggled to produce anything as simple as masks and cotton swabs. Um, I was living in China and one of the most instructive little, um, moments I remember was going up to a factory manager um, in around Shanghai. And this factory manager marveled to me that Americans uh, manufacturers didn't get their act together to produce really important goods. And in this um Chinese
[46:13] guys formulation um too many of these American companies ask themselves whether making masks and cotton swabs is part of their core competence. And for very few companies that's where their core competence and then they don't uh don't make it. Chinese companies say that making money is their core competence. Therefore they go make what the market demands which uh then was masks and cotton swabs. And so I was, you know, grabbing masks made by Foxcon, which normally makes iPhones, and by JD.com, which is one of China's
[46:44] biggest e-commerce retailers. They just decided to retool a lot of their factory lines to produce these things that the market needed. And there was some complacency and lack of um hustle among American manufacturers to actually produce these sort of things. In the early days of the pandemic, a lot of consumer goods uh were in shortage. A lot of furniture was in shortage. um you know, random fruits ran out depending on which part of Mexico uh had a COVID outbreak uh at that time. And just
[47:15] generally speaking, I think that the American manufacturing base has not covered itself in glory um over the last 20 years. It's not just Boeing, Intel, Tesla, Detroit broadly. Um there's all sorts of rust um and inability to move. If we take a look at uh China's energy imports, um it is importing less and less in part because it has scaled up uh so much solar capacity uh within China. So um by the end of this year, China is
[47:45] um expected to add 500 gawatts of solar capacity. The US is expected to add about 50 gawatt. So just one order of magnitude more. There's 33 nuclear plants under construction in China right now. there's zero under construction in the US and the Chinese have beencome been much much more successful in shifting its consumers into buying electric vehicles. So um at this point by the end of this year one out of every two cars sold in China will be electric and so they've been able to blunt this
[48:16] um dependence that they have on foreign energy. It's not growing so much and perhaps it will decline uh soon enough. And there's all sorts of ways in which they're also very serious about food self-sufficiency. They're also very serious about semiconductor self-sufficiency. And so, um, this is again where I see, you know, if the US and China are in competition, China's being much better at patching up its, um, its its own problems than the US has. >> The the factory story, uh, the the retooling to make masks and cotton swabs
[48:46] sounds very high agency thing. Which society do you think is higher agency? >> I think it's uh, China. I think China is a high agency high-te society where they are really able to you know once they decide to do something they um are you know once they decide to build this infrastructure it comes out and it gleams once California decides to build infrastructure you know it's 17 years and it's going to be like 20 years um before uh anyone is able to you know get close to riding highspeed rail and you
[49:16] know there's um there's various ways to measure you know something like social trust in China by a lot of conventional measures like you know you lose your wallet uh in the park nearby will someone return it to you in China that um share is rather low but um I was thinking of this definition of social trust from the scholar Francis Fukuyama that said that he says something like social trust is the measure of spontaneous coordination of um people able to get together quickly make
[49:46] decisions quickly and act quickly and at least in the early days of COVID that's something that China really had um where manufacturers were working really well together, tech companies were making it really clear where the uh fever clinics were on the mapping services and the government really stepped up in a big way as well. Um and the US you know at least in 2020 really did not do any of these sort of things. >> We haven't talked at all about the lawyerly uh tendencies of US society that's you know you talk about engineering in China and the and the sort of US being run by lawyers. What
[50:17] are the pros and cons of of that very different orientation? >> The pros of the lawyerly society are um a guarantee of my favorite value in America, which is pluralism. That um there is some measure of robust debate that is guaranteed uh in the US. And one of the things that really thrills me about having moved back to uh the US um over the last um two and a half years now is that there's just always energy
[50:50] uh among Americans to try to diagnose their problems and try to improve on them. Um, two weeks ago I uh went from New York to Washington DC to speak at the Abundance Conference um in um in in in DC and that is just one strand of um the recognition that America has lost a lot of crucial abilities to build homes, transit, um all sorts of infrastructure and we need to get a lot better. I think that folks in um New York and you're one
[51:21] of these rallying points um you know are helping people to understand the world um as it is a little bit better to really try to improve a lot of different things. I am plugged into several conversations at the Hoover Institution and there's a tremendous sense that a lot of things in the US are not working and we need to get better. The problem is that uh the US is not very good at execution. And even though you know we've realized for a long while that the manufacturing base is quite deeply broken in this country, the US has not
[51:51] really been able to fix this uh in any compelling ways. Um there are complaints among the American left about what should be done. There are complaints about the American right about what should be done. It's very strange to be in this political system where elections usually have these razor thin uh margins and then one side takes over seriously overreaches and then the other side wins by really thin margins and then overreaches uh again. I think the fundamental problem of among lawyers is that they are for the most part
[52:22] protectors of the rich and and that is essential in some ways because you can't build companies worth $4 trillion like Nvidia without substantial legal protections. Um you know we need a lot of lawyers in place for Nvidia to feel comfortable about um doing everything that it's doing. But I think the society won't work well if it is mostly about serving the rich. So, in New York City, we're we're chatting now. The rich don't really have to worry too much about affordable housing. Um the rich have access to these skinny uh skyscrapers
[52:54] that you can see on the skyline. The um you know, rich don't really have to deal with the problems of the subways uh which are just again screechingly loud and um service is really quite bad compared to any European or uh East Asian uh country. And I think that, you know, the lawyers need to get out of the way a little bit uh in order for the US to, you know, build things for the broader masses. I just offer two anecdotes that I I think about a lot. Um both relating to trains. Um when I took
[53:26] the Acceler down to Washington DC um two weeks ago, um the acceler works okay. It's not always very reliable and I find that it is um really really wobbly. And while I was on the acceler, I came across this headline, acceler getting an upgrade. We're going to get um new trains. And I was happy about that until I read deeper into the article. It said that new trains are going to be something like 11 minutes slower than the old trains. And so, you know, at a first approximation, we're we're like moving slower um than before. The foam
[53:57] seats are better. Uh they're more comfortable, but we're going to take longer um to actually um uh get to DC. And uh I substantially wrote this book in my you know um cloistered um uh office at the um at Yale University. And every so often I was uh tired of the monastic life and I decided to you know be seduced by the pleasures of New York City. Uh I take the Metro North train um to get from New Haven down to uh New York City. That train is highly
[54:27] reliable. It's a little bit slow. Um, and I was uh radicalized um when I found a timet from 1914 um in which it was faster to get from Grand Central Terminal in New York to New Haven about 100 years ago than it is today. It's not totally apples to apples comparison because the train now makes many more stops. But again, out of first approximation, we're moving slower than 100 years ago. That is in part because of the lawyerly society in which a lot of homeowners in Connecticut put up their hands and said, "We shall not have a rail line running through our
[54:58] backyard." and that, you know, the proposed route of Amtrak turned out to be much more squiggly after these homeowners um decided to use their very expensive lawyers to sue and say um no way in our backyard. And um you know that has added quite a lot of time uh to and quite a lot of expense to these projects which cannot be very technocratically rationally designed. And so um this is where I'm hopeful that the lawyers aren't going to get in the way of absolutely everything especially the sort of broader infrastructure that's like you know serve the masses
[55:29] needs. >> It reminds me of this idea that if you study eastern portraiture versus western in the west almost all of them are you know your face is most of the canvas whereas in the east often the portraiture is a small person amidst a bigger landscape and quite quite representative of the two different styles. Um, I'm curious just to just for a side quest for a minute, if you had to write a sequel to the book about a country that's not the US or China, what next country you would be most interested in writing about and why? >> Yeah, I think this would be challenging
[56:02] because I really believe that the future will be determined by these two big countries. um that I think what's most important is for these two countries to get along because um on my very first page I denounce Europe for being a mausoleum economy um where things are very beautiful but things are also very dead and I don't quite yet believe that um you know um India and Indonesia are quite ready yet to challenge these um two bigger powers but I think this um
[56:33] gets back to um you know the the broader question of um the equilibrium that you brought up and I think you know what we don't want is for there to be um too much destabilization. I think most Americans as well as most Chinese ought to be thinking about is how do we avoid a confilration and how do we avoid a hot war because World War I took something like 10 million lives. um the World War II two took something like 50 million
[57:03] and we don't want to get um to World War II in which you know tens of millions uh die. you know there's a scenario in which you know I think the US strategy over the last 30 years has been to kind of hope that markets and the internet will change China for the better um and change this communist system into something um more like a liberal democracy and that bet has not worked out and that bet um I think could be
[57:34] firmly uh laid to bed and so now we have to ask you know what is this um you know is there some sort of uneasy equilibrium that we can really stumble in to avoid a hot war and at least um my guru um at the Hoover Institution historian Steven Cotkin would say what we need is a new cold war um in which um you know the two countries decide not to have a very big fight but rather um to compete on the
[58:04] level of the systems to have um to deliver better for the people. Now I think um you know a lot of people are nervous about this cold war framing uh including me. The cold war was not very cold for uh a lot of other countries uh say something like Vietnam. Um the cold war created so many crazy abuses um within the Soviet Union as well as the US and the name of competition. Um maybe cold war is not the right analogy because there's huge trade and integration between um the US and China
[58:36] right now whereas there was essentially no trade uh between the US and the Soviet Union in the past but then we should come up with some new term really to try to understand um both of these countries and to try to you know keep competition on the level of companies as well as who's delivering the better vision for their own people rather than anything bigger involving a conflict ration in the Pacific God forbid. the USSR collapsed um at the end of the Cold War. What is China doing most differently from Russia that uh you
[59:07] think will not lead to an eventual collapse of the Chinese system? I think the Chinese are excellent students of history and I think the first may there's maybe several study there's several countries that they really study um first and foremost it is the Soviet Union um that they diagnose the problem of the Soviet Union to have been in the late 80s when Gorbachev tried to achieve both economic reform as well as political reform at the same time and um
[59:39] you know the story of the Soviet Union is one in which the political system sort of imploded and then um the pieces nobody picked up the pieces really to try to get the system back up again. And so that's the first thing that they try to avoid. And there's they also really try to avoid the fate of Japan which uh suffered an economic implosion um by the late 80s and also never quite got back up again. And so I think the first reason to believe that China will not suffer a political collapse um like the
[60:09] Soviet Union or an economic collapse like Japan is that there's history here to suggest a better path forward for them um that they want to avoid a lot of these mistakes. Um whether they could actually avoid some of these mistakes is a different question. Maybe they'll come up with some whole new novel um interesting mistake that um you know creates some sort of a collapse in either scenario. But I think history will not repeat in exactly the same way. China is is a Leninist system uh like the Soviet Union. But it has a thriving
[60:41] uh substantial consumer um economy which is doing superbly well in terms of creating all sorts of products that the Soviet Union never created. All it did was a ton of heavy industry. It produced a lot of steel and chemicals, very little goods for its people. Um China is not like Japan. um for a variety of ways, but one that's quite pertinent to me is that if we take a look at um Japanese exports uh throughout the 70s and the 80s, a product from uh Nintendo
[61:13] or Mitsubishi or Toyota was almost entirely Japanese value ad. These were Japanese companies making Japanese products. Um and part of the complaint of the Reagan administration was that Japan was too closed and Japan needed to open up. By contrast, China has been much more open than Japan. Um, China most famously is uh well known for building Apple's iPhones and Tesla's um vehicles and it the communist system recognized that it was so far behind um
[61:44] technological leaders mostly throw open the doors with some restrictions to Western companies to produce in China and then you know previously make mostly foreign goods only assembling uh these different components until at this point a great deal of Apple supply chain is made up Chinese components as well. And so, you know, it's not quite the Soviet Union, it's not quite Japan, and I think there's this ineffable um Chinese characteristics um also thrown in which the Chinese people, I think, are highly
[62:15] entrepreneurial much like the Americans. They're highly dynamic. They take shortcuts. Um there's a million and one huers trying to make a dime um and trying to profit and trying to found companies. And so, you know, maybe we can say that uh China right now um has some of the uh control uh paranoia of the Soviet Union um some of the manufacturing excellence of Japan and some of the American entrepreneurial hustle and you combine all of that and I think that is um part of the reason that
[62:45] I think that um China is going to be a pretty formidable power going forward. >> What do you think? Uh I think it was Eugene, our friend Eugene that first gave me the Seeing Like a State book by James C. got of the of just the very abstract idea that uh top- down systems just don't work as well over the very long term as bottom-up ones do. That in the near term they actually can work faster and better, but the the roots aren't aren't as deep and as natural and therefore, you know, they're they're just more fragile top- down systems than bottom-up ones. Do you think that holds credence in this argument between the US
[63:16] and, you know, more arguably a more bottomup um society and organization than China? >> I do. I love the work of James C. Scott, a former um Yale political scientist, anthropologist who very sadly passed away um just about a year ago, but I've read pretty much all of Scott's works. And um if I can throw in another Scott work for listeners, it is the art of not being governed, which is about highland Southeast Asia. Um these parts of very mountainous parts of um essentially
[63:48] southwestern China, this region that is about as big as Europe. um that includes southwestern China as well as Vietnam, Laos, Cambodia, uh northern Thailand in which various peoples have decided to run away from the state. Um whether that's the Burmese state or the Tibetan state or especially the Hanchinese state, they were um wary of conscription. They were wary of taxation and they didn't really like assessors coming over to look at their grain all the time, sometimes bearing disease. And
[64:18] Scott was really remarkable for um having spent quite a lot of time in these zones talking to people who have oral histories which gives them more malleable ethnic identities and they can run away much more effectively. And I think about this a lot because I've spoken to a lot of Chinese who have decided to run away exactly in these um highlands. Um again my um family origins are in Yinan province. This is exactly the part of Zomia, Highland Southeast Asia that um James Scott has written
[64:49] about. I feel like people from um where I'm from uh Yingan province are some of the have some of the more libertarian attitudes um in China. They really don't like the state um looking over their shoulder. Um many of them practice agriculture up in the mountains which is much more difficult for the uh state to come over uh and assess. And I think part of the problems of the engineering state is that many people have decided to retreat um to um these different
[65:20] parts of these different corners of the world. Um in 2023 I went on this walk and talk with Kevin Kelly around Mai and we walked from one of the highest mountains in Thailand down to the city of Mai. And afterwards, uh, my wife and I spent a lot of time with mostly young Chinese, um, young Chinese who are in their 20s or early 30s who ran away from China. Um, decided that the sensorious uh, nature of the
[65:50] overbearing state was more than they could bear. And they decided to um, make art, dabble in crypto, um, smoke dope uh, in the mountains around Mai. And I thought, you know, it is really strange that, you know, Ciin Ping is trying to achieve something he calls the great rejuvenation of the Chinese uh people. And there's a lot of young people who are saying, "No thanks. We'll give that a pass." There's a lot of millionaires um by one count um 14,000 millionaires departed from China in the year 2023 to move to Singapore, to move to Japan, to
[66:21] move to the UK and the US in part because the Communist Party has smashed a lot of their businesses. There's a lot of um people who are not so creative, who are not necessarily very wealthy, who decided to hop on a plane to Ecuador where they don't need a visa and then walk across the Darian um gap into the United States. And um at its peak in 2024, there were several months in which um USCBP were was apprehending something like 30 to 40,000 Chinese nationals um
[66:51] at the Texan um border. And that that to me is also something that um is really uh striking that so many people are you know willing to do this dangerous trek essentially to uh escape from China. I think that China will not become anything like a cultural superpower in part because the engineers are so sensorious. They're so thin skinned. They censor everything they can't understand which is a lot. Um and if you take a look at a lot of aspects of cultural production whether that is books, novels, uh films in China that
[67:22] has really become much more constricted uh over the past 12 years of cases rule. I think that China will not become anything like a big financial superpower in part because the control tendencies uh of the engineers is to impose a lot of capital controls. Uh and that makes it much more difficult for foreigners to want to hold R&B. Last I checked, R&B still only made up about 4% of uh global trade volumes. And I I think I want to make this narrow case that the
[67:52] engineering state is really good at building stuff. They have the manufacturing workforce. They have the entrepreneurial enthusiasm. They have um the government support in order to keep getting better and better at a lot of advanced manufacturing industries. Um but even if China, you know, pisses off a lot of its own people, pisses off a lot of its neighbors as well as um broader set of people, the very fact that it can make manufactured products um better and better, that is a pretty significant threat to the United States
[68:23] because there is a chance I think that they will do really well on artificial intelligence as well. But even if they just get much better at making vehicles, I don't want to see the US further de-industrialized. Um right now there's 12 million manufacturing workers in the US. I don't want to get in a scenario where a decade from now we have only 6 million and I think that is going to hurt the economy and introduce greater political dysfunctions and even if the engineering state uh does very well in the short run for um James C. got
[68:53] reasons and even if the in the longer run it does not do so well in part because people want to leave in part because of demographic problems the future is made up of the a series of short runs and if China is really able to do super well in the next 5 years 15 years might be enough to subdue America in pretty substantial ways later later on >> one of the things that jumps out is the sensitivity of the Chinese model to the person in charge and the people aligned with with him if we had had this conversation when Den Jaing was running China or so important in China. Maybe
[69:23] the trajectory we would have projected to be very different than it's ended up being. I'm curious what you think, you know, the 3, four, five people that have been the most important maybe since Mao or something and how they've changed the the trajectory of China and how how likely it is that the next person is more like Dingja or more liberal or more uh more plurist pluralist leanings or not. Such an interesting aspect of this whole trajectory. Yeah, I would bet not because um first I agree with you that
[69:53] um the Chinese system is really under the sway of a single leader um and that is almost by design. I mean it is really meant to the authority in China is meant to vest um in the pallet bureau standing committee which is made up of seven to nine people. Um but you know it is also u possible as we've seen in the case of Cinping really to dominate um the entire system and what she says more or less goes and I think that but the the the
[70:23] part that I would hesitate to fully um you know imagine when ciin goes away that the system will be different is that even if we have a dangoing like figure um China might still have a lot of dysfunctions because I would say that dangiaing introduced a lot of the dysfunctions um that carry over to um to Cinping. Broadly speaking, um Dangoing ought to be best known for being the architect of reform and opening which liberalized the economy. And that is a
[70:54] tremendous good that is perhaps the most tremendous economic good ever in the history of humanity because about 1.4 4 billion people were lifted out of poverty and a few hundred million of those are living very comfortable lives and a few million of those are were living lives on par with uh some of the best uh in the United States and that is an extraordinary achievement. On the other hand, Deng Xiaoing was also uh very autocratic himself and he was in the words of one um historian who was
[71:25] quite senior in the party he was half a ma. Um he was someone who was really really ruthless towards his political enemies. Um he was never quite able to figure out succession planning. He um fired two of his handpicked successors and almost fired um his third one Tanzaming who ended up running the country. Um but he was someone who um was also really famous for ordering tanks uh into Beijing um for a while throughout the 1990s. people labeled him
[71:57] as well as a few other communist party members the butchers of Beijing um because they ordered in the tanks. And so Denging did not permit substantial political reform. Um he promoted tremendous economic reform but um he did not figure out this problem of succession. And so um you know we can maybe situate Ciin Ping in kind of a a direct analog of Deng Xiao Ping because uh he is also grappling with questions of succession what comes after him um
[72:27] and he is has been pretty ruthless towards people he has purged and so um this is where I I'm uh skeptical that there are deep pluralist genes in China. I think that China um throughout its imperial history has substantially lacked a liberal tradition. Um a liberal tradition meaning one that is interested in restraining the power of the emperor. Um and um you know promoting the power of the individual or the family or the corporation. I think that the future of China my bet would be that there is it
[72:57] looks politically much more similar um in the future as it does today. I've been a little surprised since the original deepseek moment which for at least a week really shook the US in terms of the progress that had been made in AI in China that I haven't heard more about it since and and so I'm curious your impression of AI in China the the country and the party's orientation towards it the state of the technology relative to the U leading US you know research labs etc. What does AI in China feel like to you today? Yeah, I think um
[73:29] AI for me um what is most important is going to be um in the next five years. Today I think that the US still has a decisive lead on most aspects of artificial intelligence um mostly because it has the compute resources. Um here it has the leading Nvidia chips and China does not. But I think if we are going to have much more AI in our lives, I think the competition is much more of a tossup. Um, again looking forward um in the next 5 years,
[74:01] which is a lifetime by the standards of a lot of AI um but maybe maybe a shorter time span for for the rest of us. And here is where I think China actually does have a lot of advantages uh in AI uh relative to the US. So if we have uh much broader AI in our lives, we're going to be using um AI for all of our queries, we're going to also demand much more power than we currently have. And the US has not been doing very well on adding new power to the grid. As I said,
[74:32] um it is only going to be adding something like 50 gawatts of solar this year relative to 500 in China. No new nuclear plants under construction. Um maybe that will change uh because the Trump administration is more friendly towards nuclear. Um but the US has simply not added um much by way of power and China I think as a civilization um is um as a as the engineering state civilization is just very interested in making sure that no heavy industry ever goes hungry for power and so just the scale of the you know electrical
[75:03] production in China is just vastly outpacing the US. The question of talent is um always very fluid. Um right now you know how many researchers really matter for artificial intelligence. I don't know if the figure is more like um 10,000 or more like 1,000. And within the 10,00 um it seems like China has a lot of really good talent which is um represented by DeepSeek earlier this year which showed that it's not only
[75:33] Silicon Valley that can produce really good reasoning models. And at least from what we can tell in some of the publicly listed hires for Meta's super intelligence lab um a substantial number of these really elite I think there's 11 engineers who are publicly disclosed something like um seven of them had gone to uh Chinese universities and I believe they're all Chinese nationals and um I think there's some sense of nervousness among some folks in Silicon Valley that some of these really elite engineers um
[76:04] might pack up their bags and decide to repatriate back to China for a variety of reasons. Either because, you know, the byite dance is offering a much better a comparable pay package to them and they can live a much more comfortable life in Beijing or Shanghai. Maybe they just want the better noodles. Um, which California doesn't really have. Um, or, you know, there's some sense in which they feel anti-Asian hostility in the US. They fear the rhetoric of the Trump administration. And there's some nervousness among
[76:34] Asian-Americans, even friends I have um here, that the Trump administration is going to turn super populist and drive out all of the um Indian engineers as well as the Chinese engineers as well. And so within this talent pool um if a substantial number of them decide to repatriate, then it's a little bit tough to see um to say exactly who's ahead on talent, but um you know, it's possible that the Chinese will will have some sort of lead here. And then there's also a question of if AI gets much better, what will the Americans use it on? What
[77:04] will uh the Chinese use it on? America is much more of a servicesdriven economy. Um maybe we have all of the data to automate our healthcare sector as well as our consulting sector. And so and the Chinese are going to have the data to automate their manufacturing sector. And you know, to be very glib here, I I'll say that, you know, maybe America gets a much better McKenzie and China gets a much better Foxcon and then they're going to use this much better AI Foxcon to produce a lot more drones and
[77:34] munitions and ships as well. And the US simply doesn't have the training data, the process knowledge in place um really to get much better at manufacturing. And so um maybe right now we haven't seen another big deepseek moment, but I think the future is very much up for grabs. Um and China right now has really good talent, really good reasoning model. It is now chips uh compute constraint, but seems like Donald Trump wants to make a deal and um impose an export tax of 15%
[78:04] on Nvidia, but then give a lot more compute to China. And I think that you know the future is going to be a really tight race between who can get to AGI and who can deploy AGI in a much better way. >> What is the most interesting thing to you about Huawei? I think Huawei represents a Chinese company that is super vertically integrated um which does a little bit of everything. the part of the founding myth of many uh Asian companies. I think the founding myth of Foxcon which makes
[78:34] all the iPhones the Taiwanese manufacturer um started by making something like the plastic television knobs um before it made you know desktops and iPods and um iPhones and I I forget what sort of I think some something related to switchboards um something that Huawei started on until it is now a company that makes 5G equipment. um that uh makes all of these mobile stations that makes a lot of mobile handsets um and kind of a million
[79:04] and uh one things and according to parts of Washington DC it also has a really uh close relationship with the people's liberation army and making some sensitive military goods for them as well but there's a lot of these Chinese companies that um you know decide why not let's just be vertically integrated we're not only going to make um you know all of our electric vehicles. We're also going to make the batteries and we're also going to make some of the chips that are powering uh the vehicles as well. And there is this um you know
[79:34] element of uh vertical integration uh in which um you know I want to set up to go back to one of our earlier points. I also want to set up a contrast between um two of America's handset companies. Um first let's compare um Apple um what is the valuation of Apple now? It's about three four trillion dollars. Um uh with Xiaomi whose market cap is I don't know um not more than onetenth of um Apple's valuation probably not even
[80:04] 120th Apple's valuation. Um Apple has been famously working on uh a car for about uh 10 years nicknamed project Titan until they decided to throw in the towel a couple of years ago. Xiaomi, which you know, let's say is worth 120th the level of um Apple, uh which is mostly a handset maker as well as a maker of rice cookers and you know, fans and all sorts of other household consumer electronics goods. Um
[80:34] the CEO of Xiaomi declared in 2021, I'm going to invest $10 billion in making my car. This is going to be my focus. This is going to be my last great entrepreneurial venture. And what happened afterwards? Um again, Apple threw in the towel and decided not to make any vehicles. Uh Xiaomi um Xiaomi's first electric SUVs are um now on the streets uh in China. They keep raising their production quantities because a lot of people really love uh these SUVs
[81:04] and they they love these cars. And most striking to me, um, in a few months ago, there's this, uh, very well-known German raceourse in Western Germany called Norberg Ring, which has this, um, racetrack named the Green Hell because it is twisting through these, um, mountains, uh, in Western Germany. Um and Xiaomi uh in its first time uh submitting going into this race um making its very first car won one of the speed records um beating uh established
[81:34] companies like Porsche and BMW. And you know this is a company that just had the manufacturing workforce that had the ecosystems of suppliers that had to some extent government support um that was really able to do something that a much richer company was unable to do. And so this is where I, you know, come back to this idea. Are we undervaluing China? Um, should we really be looking at some of these measures like Nobel prizes. Um, are we undervaluing China because we are
[82:05] thinking too much about the market valuations of big companies like um, Nvidia and Apple. You know, maybe what actually matters is a company saying that it's going to do something and actually achieving it. And once it achieves it, it is making some really good products that are pretty worldbeating. And so that's something that, you know, we see with Huawei, we see with Xiaomi, with a lot of other companies living in this fiercely dynamic entrepreneurial environment, you know, tearing each other apart through um market competition, sometimes underhanded, and producing great
[82:35] technology champions along the way. >> If we were to step back and you frame this whole thing as okay, the engineering state has its its strengths and weaknesses, the the lawyerly state has its strengths and weaknesses, and these are the two superpowers. If you were to boil the whole story down to, you know, the simplest narrative that that you could imagine, how would you do that to like a 15-year-old or a 10-year-old, someone a kid that's trying to understand the trajectory of the world that may not understand that, you know, the the subtle difference between loyally and and engineering. Is there
[83:06] have you attempted to to boil it down even to that level uh and create the best story for them to understand what's happening? Maybe what I would point out is that when China decides to do something, it um moves really quickly. It is um much more of a whole of society, a whole of government effort. Um and it is much more serious about um doing a lot of uh big projects. And sometimes that goes
[83:36] disastrously off track um because they end up committing to something like the one child policy um or zero COVID in which the number is right there in the name. It's almost an engineering project. Um there's no ambiguity about what these sort of things mean. Whereas the US is um much more deliberative. It thinks a lot about things. um often it fails uh in some of these um the goals that it tries to do. Um
[84:06] something like you know the US couldn't possibly have achieved zero COVID um because it there was no enforcement possible enforcement mechanism of to get people actually you know staying indoors and not going outside in any big way. Um, so the US doesn't get stupid ideas like um zero COVID, but it also doesn't get, you know, things that it says that it really wants to do like California highspeed rail. And so um what I would say is that, you know, one of the my conclusions, one of my new
[84:37] realizations after writing this book is that maybe there can be too much state capacity. Maybe you don't want a state to be too efficient. you know, if the engineers are too efficient and they really decide to drag society um to go off track, they can go really off track before there's any sort of course correction. So, you you kind of want the ideal level of state capacity that's much more than what the US has right now, but maybe a little bit less than what China has. >> Are there any other companies that, again, putting my investor hat on,
[85:07] Huawei is a great example, Xiaomi is a great example, Foxcon's a good example. any other companies that you think are the most interesting to study for people that are interested in what's working so well in China may want to go visit uh you know one of their factories or whatnot what are the what's the cannon of the other couple companies that should be studied in detail in addition to the ones that we've talked about so far >> I would um love to get to know um better company like Mwtoin which again is one of these octopus-l like conglomerates um
[85:37] when I visited Mtowin in um Beijing In 2018, they told me, "We have about 50 core business lines." And we went, "What?" Um, you know, how can you have 50 core business lines, but they I think they really meant it. Um, they they really um you know, there's a lot of managers and they they're they're really intent on making a lot of these different things work. Um there is a great book about Huawei written about um the company by my friend Eva Doe, a former um reporter
[86:08] uh with the Wall Street Journal, now a reporter at the Washington Post called House of Huawei released earlier this year. I I endorsed it and I I think it is really good and so I would like to try to understand um you know companies also better like um Alibaba um and BYD as well as you know plenty of upand cominging companies that I've never heard of uh that um I think are working in some pretty interesting things um Deep Seek you know I think we we all of these companies deserve much better
[86:38] profiles than what the Chinese government has allowed uh any reporters or any writers um really to to to try to have access. These companies generally don't like to talk to uh foreigners at the best of times and then you have an overbearing state that in some cases forbids deepseek from chatting with foreigners. But if we can get, you know, some real understanding of these companies that would be amazing. >> Do you think that that's in the cards? Like do you think there's a version of the world where those profiles are really good for China if they're true and honest and high access?
[87:08] >> I think it would be great uh for China. I want the US to be 20% more engineering and I want China to be 50% more lawyerly. I think that it would be amazing if the Chinese state actually respected um the creative impulses of its own people. I think it would be amazing if individual rights could actually be respected. I think there's a general Asian reticence towards real press and you can see this also among the Koreans as well as the Japanese. But um you right now in this environment I
[87:39] don't really see it in the cards because the US and China are in some form of an adversarial relationship. Maybe Donald Trump will change that u once he visits Beijing as um he's likely to do uh later this year. Um I'm not really counting on it. I think these two countries are pretty adversarial and I don't see either the Chinese state or the American state really waking up one day and deciding that we're going to trust the other party and then we're going to be friends. >> I wouldn't ask you to give me a probability or something of a hot war because it's just too freaking hard.
[88:10] It's too complicated. But if if your life depended on creating that probability, what are the variables that you think will most influence whether or not one happens? I think that, you know, the flash points would be most likely uh something over Taiwan. That's kind of the obvious one. if the um Chinese ever decide that their window is closing in actually reunifying the island or in their words liberating the island into
[88:41] socialism either because the US is going to be much more militarily strong, the Taiwanese are going to be much more militarily strong, there's some sort of crisis in China, um then perhaps they decide to move. Um right now I see the status quo persisting because um the status quo works well for the Chinese, the Taiwanese and the Americans and but if there's some big shift in strategic calculations then that's always a sign of nervousness. Um maybe there's a flash point in the South China Sea which um the Philippines and China right now have
[89:14] really been ramming each other's ships and the Philippines has historically been a US protectorate, US ally. um you know that could be a flash point in 2020 um shortly after the pandemic broke out of Wuhan and the world was really nervous about this respiratory virus. You know, on top of this, the icing on the cake was that there was a minor border conflict between China and India up way up in the Himalayans um which was fatal for um you know, a number of
[89:44] Chinese as well as uh Indian troops. And China is surrounded by something like 25 countries. Um it just has a lot of neighbors. Uh some of whom like North Korea and Russia um are not very nice and um they don't fully trust themselves. And so maybe there is some sort of a, you know, border conflict um that erupts with one of China's near neighbors. Um what I wouldn't uh think is likely is for the Americans to try to
[90:18] invade mainland China. I don't see that the Chinese would try to seize Oregon. What would they do with Oregon? um you know it would be you know kind of a um you know it would be some sort of a conflict somewhere in the Pacific that uh erupts into a a bigger a bigger war and you know for something like Taiwan that's not one of the things that really keeps me up at night right now maybe it could happen but um generally if you bet on say on peace um that it's been a pretty good bet and I expect that will
[90:49] continue the scary things are some sort of um you know totally unpredictable um border conflict as we saw in 2020 with India or something or some ship sinking um with respect to the Philippines that gets that escalates from there. >> So you've been writing about China for a long time. Uh your annual letters have been some of my favorite things to read for many many years. Your research too back when you were doing that. In the process of writing this specific book, did your mind change in any major ways or surprising ways?
[91:22] Yeah, I think that I'm feel more strongly that China will be a tech superpower as in the way that it arguably already is. um mostly as I wrote my chapter about Shinjzhin and process knowledge and just really trying to conceptualize Shinjzhin as an ecosystem uh in which university professors and VCs and factory managers and workers are rubbing shoulders with each other. They're solving a lot of new
[91:53] problems every single day. Um they're not necessarily affected by policies from either Beijing or DC. And that gave me this metaphor of a you know um engine of technological momentum that I think will not be derailed very easily because a lot of these investments have been in place for 10 years some for 15 years um and there's no easy thing not export controls um that will derail this tech engine very easily and at the same time
[92:23] I think I appreciated how traumatic the um you know second half of the 20th century has been for so many Chinese. You know, you thought you were done with the misrule of the Maui years, um the famine of the great leap forward, the total insanity of the cultural revolution. Denialing comes along. He starts to make everyone richer through um reform and opening and then he unleashes the one child policy which I describe as a campaign of rural terror meted out against overwhelmingly female
[92:54] bodies uh in the countryside. This was um you know something that I never quite realized just how awful it was to so many people. You know, you think of one child and you know, that sounds like nice and clean, but you don't associate the, you know, 300 million abortions that China conducted throughout this period, 100 million sterilizations um throughout this period. Um, you know, tens of thousands of Chinese girls being adopted by American couples um who um
[93:24] are, you know, living here because their parents had to give them up. Um and this was also the time period when we were uh when I was writing this period that my wife suffered a miscarriage and it was um exactly during this time when I was you know writing about the traumas of other female bodies that something like that happened and so I think you know I'm always trying to communicate that China could be very powerful and it is extremely capable
[93:55] at the same time it is also so highly capable not just technologically but inflicting these traumas and horrors upon the population and we can and should recognize both of these things that repression can grow worse while technological dynamism uh grows richer. So um and I'm always feel myself that I'm have to fight this two-front war against people who think that China will collapse because of all the repression or that because China's economic growth has been so impressive and lifting so
[94:26] many um you know millions of people out of poverty that gives the communist party a free pass on you know all of the sorts of violations that it has inflicted upon the people. I think we can acknowledge both things are true that the Communist Party has grown repressive in more novel ways over the past 10, 30 years. At the same time, it has grown richer and more technologically capable. >> What a paradox. >> Yeah. How do you think this book and this experience will change your relationship to China, the place, and
[94:58] Chinese nationals more generally? And and do was any part of it risky? Did it feel risky to you to write the book given you lived there for so long may want to live there again in the future? >> I decided over the course of writing this book that I wanted to write the truest story that I know and I decided to just try to do the best job that I possibly can. And part of the reason I moved out of China to the Yale law school where I substantially wrote this
[95:29] book was in part to tear myself away from the headlines um so that I don't have to be living in Shanghai and feel like I'm living through a lot of headlines. Partly it is because the Chinese state is overwhelmingly sensorious. Um in China my personal site danwan.co has been blocked. Um, I found that uh to my surprise and some degree of distress uh one day in 2022, I had to go see the Canadian Council General to ask whether I needed to leave
[96:00] in a hurry. Um, because usually they block big sites like the New York Times or Facebook or Wikipedia, not rinky dink websites like mine. And you know, I have friends in China who have been detained by the Chinese state uh arbitrarily for a number of years. um based on who they were and um based on alleged activities that um we we don't believe are true. And I've decided that um you know, I wasn't going to give in to any sort of
[96:31] hard censorship or soft. Um there's a wonderful analogy about China's censorship by a psyologist named Perry Link called the anaconda and the chandelier. So imagine that if we're sitting around a dinner table, um you know, all of us are chatting over dinner. Um the censorship isn't necessarily very direct, but above us hangs a chandelier in which a giant anaconda lies sleeping. And you never really know when the anaconda might um
[97:02] wake up and decide to strangle you. Um but you're kind of just aware that the anaconda is there and you start self-censoring yourself in all sorts of ways. and I decided I didn't need to live in China and um have that. Now I wonder uh whether the Chinese state will like my book. I try to write the truest story as I can which meant capturing the successes as well as the traumas um of the Chinese state. And um I what I plan to do is um when um in a couple of
[97:33] months from now when I submit my visa application, they'll have some time to think about it. They'll have had time to react to my book. No surprises if they give me a visa to go to my favorite uh city in the world, Shanghai, my favorite region of the world, southeast, southwest China, um along with all those wonderful mountains and wonderful pickles and bowls of noodles in Gujo, I would be delighted to visit and if they do not give me a visa, then I cannot visit. And so, um I think my life is
[98:04] really quite simple. >> What's next for you? What what having completed this really epic project that I think will be the def you know seen as the definitive account of what's going on in China visit the US for a long time. What what do you do next? >> Uh curl up on my couch and read some great novels. Uh everyone's reading Middle March. Uh I haven't read read Middle March yet. Uh so that that is something that's quite exciting for me. I want to be engaged with the broader Chinese diaspora. um people who have
[98:35] decided to move to Thailand. There's a set of um people who've moved to New York and they host feminist standup comedy um in Mandarin and I want to be supportive of these sorts of efforts. Um the sort of engineers I know in Silicon Valley. I want to help uh integrate them um into society and you know help them appreciate the good parts of America that I enjoy the most. um if there's anything that they um can't necessarily
[99:05] uh access very easily, I want to be helpful in trying to give them a little bit of community. Um and then otherwise um as I always do uh think big thoughts and then write them down in my letters. >> The closing question I ask everybody is the same. What is the kindest thing that anyone's ever done for you? There's a quote I really like from Ursula Kain which is that love is not like a stone which only sits there. Love has to be
[99:35] continuously made like a bread and remade once again. And that's something I think about with uh something like kindness. It is um I think we can sub in kindness for love here. That the way that I think about kindness is not uh only a single act. I think it is uh more a disposition and a a spirit of generosity. So um I brought up before earlier um Tyler Cowan who has been a mentor of mine for over the past decade.
[100:06] We've traveled together in Asia. We've traveled together in Yingan and Taiwan. We've gone to the opera together here in New York. We've seen a great bronze concert here in New York. And Tyler has been very generous in helping me orient um and um tweak my uh thinking and giving me uh some degree of ambition because that is something that Tyler is really good at, raising people's ambitions at crucial times. And because I bring up Ursula K, Ursula Crober
[100:37] Leguin, I have to think about uh my other guru Arthur Crober um who is the founder of GCO trackomics. We were having uh lunch once in the near the end of 2016 when he told me about made in China 2025, a big industrial plan which I hadn't heard of at the time. And then a few months afterwards, I moved to Hong Kong to work for Goffcow Dragons. And shortly after that, two years after that, I moved to Beijing. And then I moved to Shanghai. Two hours from now,
[101:07] I'm going to go to Arthur's home for a book launch party, which um he is uh very kindly hosting for me. And I find Arthur not only very wise about China, but very wise about all things. And so um for me, kindness is um an an act that has to be uh performed again and again. This is something I want to try to do for other younger people, but to have these sort of long-lasting relationships in which we try to um help each other,
[101:38] help mentor each other, guide each other, and raise our ambitions at crucial periods. >> A beautiful closing definition. I've never heard never heard that quote despite having read many of her books. Wonderful place to close. Dan, thank you so much for your time. >> Thank you very much, Patrick. [Music]