WEBVTT - Dan Wang Explains What China's Tech Crackdown Is Really All About 0:00:10.720 --> 0:00:14.360 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:14.440 --> 0:00:19.040 I'm Tracy Alloway and I'm Joe. Wi isn't thal so Joe. 0:00:19.440 --> 0:00:24.960 It's been a pretty eventful summer here in Hong Kong. Yeah, 0:00:25.040 --> 0:00:27.800 I mean that's my impression. I guess sort of like 0:00:28.160 --> 0:00:34.240 here too. But every everywhere that Chinese money has touched 0:00:34.800 --> 0:00:38.280 this summer, whether it's China itself, whether it's Hong Kong, 0:00:38.440 --> 0:00:42.440 or whether it's US markets, has been quite a wild ride, 0:00:42.479 --> 0:00:45.920 to say the least. Yeah, so obviously, um, being in 0:00:45.920 --> 0:00:50.479 the Bloomberg news room, it's been kind of NonStop this summer. 0:00:51.040 --> 0:00:55.400 So we're talking about the crackdowns of course that um, 0:00:55.440 --> 0:01:00.600 the Chinese Party has announced on various sectors of its economy. Uh. 0:01:00.680 --> 0:01:07.000 It started with targeting at financial back in October. There 0:01:07.080 --> 0:01:10.120 was a lot of theorizing about why ant lots of 0:01:10.160 --> 0:01:14.080 people focusing on the data that AT controls. But then 0:01:14.240 --> 0:01:18.880 the summer it kind of just spun into a new 0:01:19.080 --> 0:01:22.800 level of intensity and we saw China cracking down on 0:01:22.880 --> 0:01:28.160 for profit education companies. We saw it coming after d D, 0:01:28.400 --> 0:01:31.800 the ride hailing app, saying that they had to you know, 0:01:31.840 --> 0:01:35.440 improve their labor laws and also that Beijing, the City 0:01:35.480 --> 0:01:38.360 of Beijing might actually take them over and kind of 0:01:38.360 --> 0:01:40.680 make them a state owned enterprise or something like that. 0:01:41.400 --> 0:01:44.560 It's it's basically been NonStop and everyone is trying to 0:01:44.560 --> 0:01:49.600 figure out why now and what exactly is China trying 0:01:49.640 --> 0:01:53.360 to do. Yeah, that is sort of like the I 0:01:53.360 --> 0:01:56.000 mean you just sort of listed all of these things, 0:01:56.080 --> 0:01:58.200 and each one of them on their own have been extraordinary. 0:01:58.280 --> 0:02:00.880 Like the d D thing was crazy. It's of course 0:02:00.960 --> 0:02:03.880 that's like they're there like uber type company, And wasn't 0:02:03.920 --> 0:02:06.000 that like that was like it like three days of 0:02:06.040 --> 0:02:07.760 their U S I p O. Wasn't it like it 0:02:07.800 --> 0:02:09.800 was literally the I p O like out of Tuesday 0:02:09.919 --> 0:02:12.680 or something, and then the following one day there was like, oh, 0:02:12.760 --> 0:02:15.320 we're cracking down. And then some of the companies like 0:02:15.400 --> 0:02:19.120 these online are these uh private education companies, some of 0:02:19.160 --> 0:02:21.720 which are listening to us, like their business models are 0:02:21.760 --> 0:02:24.000 like basically going to zero right there, like your band, 0:02:24.200 --> 0:02:26.160 there's you can't do what you do. I don't know 0:02:26.200 --> 0:02:28.800 if it's total zeros, but it has been extraordinary. But 0:02:28.840 --> 0:02:31.640 I still don't feel like I understand, like what is 0:02:31.760 --> 0:02:35.440 the the end goal here? Yeah, so I guess two 0:02:35.480 --> 0:02:38.680 things on that topic. So you know you mentioned, Um, 0:02:38.720 --> 0:02:41.040 the d D crackdown happens soon after the I p O. 0:02:41.400 --> 0:02:43.760 A lot of people are pointing out that the seems 0:02:43.840 --> 0:02:46.160 like China is sort of shooting itself in the foot. 0:02:46.240 --> 0:02:50.040 It's going after some of its most successful companies. But 0:02:50.240 --> 0:02:52.280 on the other hand, you know, a lot of what 0:02:52.440 --> 0:02:56.480 China says it's doing is about improving quality of life. 0:02:56.560 --> 0:03:00.120 So it doesn't want people to spend loads of money 0:03:00.160 --> 0:03:04.359 on their education and have to be you know, really competitive. Um, 0:03:04.400 --> 0:03:07.400 it doesn't want well, it wants to protect workers rights, 0:03:07.560 --> 0:03:10.600 um for for d D drivers and things like that. 0:03:11.200 --> 0:03:15.799 It wants to protect user data, you know, similar comments 0:03:15.800 --> 0:03:17.480 that we've heard in the West when it comes to 0:03:17.600 --> 0:03:20.600 Facebook and Google. Right. So, but of course people are 0:03:20.680 --> 0:03:24.519 very distrustful of those messages. Um. There's lots and lots 0:03:24.520 --> 0:03:27.200 of theories going around about what exactly is going on. 0:03:27.639 --> 0:03:30.160 And today I am very happy to say that we 0:03:30.200 --> 0:03:33.200 are going to be bringing back a long time odd 0:03:33.240 --> 0:03:35.920 lots guests. We're going to be speaking with Dan Wong. 0:03:36.120 --> 0:03:39.600 He's a technology analyst over at Gavicale drab Eck Economics, 0:03:39.720 --> 0:03:41.840 and of course he's been on the show a couple 0:03:41.840 --> 0:03:44.800 of times, one of the best commentators in my opinion 0:03:44.920 --> 0:03:47.960 when it comes to China's tech sector. So really the 0:03:48.000 --> 0:03:53.680 perfect person can't wait? Okay, uh Dan, welcome back. Well 0:03:53.720 --> 0:03:56.840 it's not for nothing, Tracy that Odd Lots is my 0:03:56.920 --> 0:04:00.640 favorite podcast and Tracy my Joe my favorite podcast host. 0:04:01.240 --> 0:04:05.400 Too kind. And so I'm trying to think, Um, where 0:04:05.440 --> 0:04:08.640 to begin? Um, why don't we start? Well, why don't 0:04:08.680 --> 0:04:11.840 we begin at the beginning? Um, you know the crackdown 0:04:11.880 --> 0:04:16.920 on Aunt Financial in October. What was your initial thought 0:04:17.040 --> 0:04:20.560 about that one? Because I remember when when it happened, 0:04:20.800 --> 0:04:24.279 people kind of thought this was an idiosyncratic event. Um, 0:04:24.320 --> 0:04:29.000 you know, there was something specific about and Financial, an 0:04:29.080 --> 0:04:32.480 offshoot of Ali Baba and which is of course founded 0:04:32.480 --> 0:04:35.400 by Jack Ma and so people thought this was all 0:04:35.440 --> 0:04:39.280 about that one company and maybe that one person. But 0:04:39.440 --> 0:04:43.400 you know, almost a year later, it seems that there's 0:04:43.400 --> 0:04:47.960 a wider message here. I think the narrative has evolved 0:04:48.360 --> 0:04:52.480 since the early days of h and Financial, when about 0:04:52.960 --> 0:04:57.800 just before the US election, the financials I p O 0:04:58.360 --> 0:05:02.360 was halted by the Chinese authorities. And so if we 0:05:02.480 --> 0:05:06.640 draw the line from late October through to June and 0:05:06.680 --> 0:05:10.520 now presently we're speaking in September. The first big shock 0:05:10.839 --> 0:05:14.040 was the financial I p O and then the second 0:05:14.080 --> 0:05:16.760 big shock was the d D I p O. Has 0:05:16.839 --> 0:05:21.320 Joe mentioned, UM, you know, facing a fairly severe regulatory 0:05:21.320 --> 0:05:23.960 crackdown in terms of having its app pulled from app 0:05:24.000 --> 0:05:27.719 stores about a couple of days after its I p O. 0:05:28.200 --> 0:05:30.520 And so I think when we thought about those two 0:05:30.560 --> 0:05:34.640 events in isolation, um it was a really big shock 0:05:34.720 --> 0:05:37.360 and we wondered, you know, what exactly was going on. 0:05:37.920 --> 0:05:43.760 But as this regulatory campaign escalated, as we saw more 0:05:43.880 --> 0:05:48.680 industries get taken on, I think paradoxically, I think I 0:05:48.720 --> 0:05:51.839 am at least a little bit more aware that there 0:05:52.000 --> 0:05:58.200 is um more of a regulatory theme around governing these 0:05:58.480 --> 0:06:02.359 internet giants. And so if I wanted to, um, you know, 0:06:02.440 --> 0:06:06.359 put things into different buckets, I would put the first bucket. 0:06:07.000 --> 0:06:09.240 The first bucket would be made up of UH and 0:06:09.480 --> 0:06:12.120 financial and the D D I p O s in 0:06:12.120 --> 0:06:15.560 which the Chinese authorities were highly reactive, in which they 0:06:15.560 --> 0:06:19.200 couldn't really control the timelines because these timelines were controlled 0:06:19.240 --> 0:06:20.960 by the companies in terms of the I p O s, 0:06:21.320 --> 0:06:23.680 and so they had to crack down pretty quickly and 0:06:23.680 --> 0:06:27.159 pretty hard. And then I would cite something like, um, 0:06:27.240 --> 0:06:30.160 you know, a second bucket made up of items, um, 0:06:30.279 --> 0:06:34.400 that are much better studied. Uh, and so in terms 0:06:34.400 --> 0:06:38.080 of something like the online education crackdown. But we've read 0:06:38.160 --> 0:06:42.080 from the Chinese Ministry of Education is that the Ministry 0:06:42.120 --> 0:06:47.680 of Education surveyed around nineteen education firms, around seven hundred 0:06:47.720 --> 0:06:52.159 thousand children and then over hundred and fifty thou parents 0:06:52.640 --> 0:06:57.360 before they issued these pretty traconian regulations that more or 0:06:57.400 --> 0:07:01.240 less decapitated the online education sect. Or we can also 0:07:01.320 --> 0:07:05.760 think of other antitrust issues here that have affected companies 0:07:05.800 --> 0:07:08.760 like Ali Baba. We might also be able to think 0:07:08.760 --> 0:07:12.200 of some things like video games, in which President season 0:07:12.240 --> 0:07:15.600 Paying has been talking about video games for over the 0:07:15.680 --> 0:07:18.600 last four to five years. So I think there is 0:07:18.760 --> 0:07:20.840 a little bit of, you know, maybe two or three 0:07:20.840 --> 0:07:24.680 different buckets here. The first bucket are the purely reactive stuff. 0:07:24.720 --> 0:07:28.840 There's a second bucket of antitrust issues prominently faced by 0:07:28.880 --> 0:07:32.160 Ali Baba and mayelon camping. And then there's a longer 0:07:32.280 --> 0:07:36.200 term issue with video games and online education, in which 0:07:36.240 --> 0:07:39.440 the party state has decided, well, maybe we don't like 0:07:39.720 --> 0:07:43.640 these things very much. So already this was really helpful, 0:07:43.800 --> 0:07:47.080 and you know, obviously coming at this, looking at this 0:07:47.160 --> 0:07:51.640 from an American American perspective, it's always tempting to try 0:07:51.640 --> 0:07:54.280 to draw analogies. And when you look at sort of 0:07:54.320 --> 0:07:57.280 big tech in the US, you see a lot of 0:07:57.320 --> 0:08:00.320 politicians on both sides of the aisle with their plants 0:08:00.320 --> 0:08:04.400 about Facebook and Amazon, they're kind of the complaints are different, 0:08:04.600 --> 0:08:07.239 some overlap, but there's, you know, complaints about the power 0:08:07.280 --> 0:08:09.160 that they have. And then you have a lot of 0:08:09.200 --> 0:08:12.760 regulatory actions that take place in the US and Europe, 0:08:12.960 --> 0:08:16.360 and these lawsuits that never seek to that never really 0:08:16.400 --> 0:08:18.520 seemed to amount to anything, like maybe there'll be a 0:08:18.520 --> 0:08:21.160 big fine or a bunch of state's attorneys general like 0:08:21.240 --> 0:08:23.600 to one of the companies, and then four years later 0:08:23.640 --> 0:08:25.440 they have to make some change whatever, but it doesn't 0:08:25.440 --> 0:08:28.600 really seem to do anything. Is the angst about the 0:08:28.720 --> 0:08:33.760 power of tech slash big tech in China comparable, with 0:08:33.920 --> 0:08:36.960 the difference being that, well, they could do something about it, 0:08:37.040 --> 0:08:40.360 whereas politicians and regulators here can't get their act together. 0:08:40.880 --> 0:08:44.400 Or is the angst something different? I think it is 0:08:44.640 --> 0:08:49.079 more a question of degrees. So first I agree with you, 0:08:49.520 --> 0:08:53.440 that's the ferocity that the Chinese Party state um brought 0:08:53.480 --> 0:08:58.400 to bear on against these companies is you know, nothing 0:08:58.520 --> 0:09:01.520 like but the West, do you know? As best as 0:09:01.559 --> 0:09:04.760 I can tell, there are some irritating lawsuits that big 0:09:04.800 --> 0:09:08.439 tech is facing in the US, and then some minor finds, 0:09:08.760 --> 0:09:11.280 you know, somewhat big finds that they are challenging in 0:09:11.320 --> 0:09:14.760 the European Union. But there hasn't been a really really 0:09:14.800 --> 0:09:20.800 substantial actions here, whereas the Chinese have acted much more severely. Now, 0:09:20.960 --> 0:09:23.880 I think I would cite, you know, um, you know, 0:09:23.920 --> 0:09:26.800 in terms of the type of ankst that the Chinese have. 0:09:27.360 --> 0:09:31.200 I would want to put a framework of maybe four 0:09:31.559 --> 0:09:35.880 big slogans of the moment as well as one theme 0:09:36.160 --> 0:09:38.840 of the moment. And here I'm really drawing on the 0:09:38.880 --> 0:09:42.640 work of my Dragonomics colleagues, and I think the four 0:09:42.880 --> 0:09:48.560 big slogans that we've identified our first building the rule 0:09:48.600 --> 0:09:51.319 of law, that this is something President se Jingping has 0:09:51.360 --> 0:09:54.880 talked about over the last three or four years, requires 0:09:54.920 --> 0:09:59.640 a pretty comprehensive regulatory framework for dealing with a different 0:09:59.679 --> 0:10:04.160 company needs. Second, I would cite dual circulation, which is 0:10:04.440 --> 0:10:10.280 includes a theme to improve the functioning of domestic markets. Third, 0:10:10.400 --> 0:10:13.920 I would say, um, there's something of family values here. 0:10:13.960 --> 0:10:17.920 In which the country just really want UM families to 0:10:18.000 --> 0:10:22.000 have many more children. And then the big theme that 0:10:22.320 --> 0:10:24.839 we have been thinking about, the fourth slogan that we've 0:10:24.880 --> 0:10:29.439 been thinking about right now is something called common Prosperity, 0:10:29.520 --> 0:10:32.560 which has really exploded in the pages of state media, 0:10:33.000 --> 0:10:37.720 which is, in our view, something reduce inequality as well 0:10:37.760 --> 0:10:40.800 as social division. And so, you know, if you think 0:10:40.840 --> 0:10:45.360 about these broad interlocking programs trying to make it easier 0:10:45.520 --> 0:10:49.559 for families to have children, trying to make the marketplace 0:10:49.800 --> 0:10:55.400 that are regulated arguably more fair, to reduce these antitrust issues, UM, 0:10:55.520 --> 0:11:00.560 to have a common prosperity, which is uh means to 0:11:00.880 --> 0:11:04.120 you know, stop the wealthy from getting more wealthy, UM, 0:11:04.160 --> 0:11:06.520 and then to improve I think what they call it 0:11:06.600 --> 0:11:10.840 is an olive shaped distribution and economic distribution that's shaped 0:11:10.880 --> 0:11:13.400 like an olive UM. You know. I think the tech 0:11:13.400 --> 0:11:17.720 companies are all implicated by each of these slogans, but 0:11:17.800 --> 0:11:19.840 it doesn't mean that tech companies are the will be 0:11:19.880 --> 0:11:22.800 the only companies that will be implicated by each of 0:11:22.800 --> 0:11:25.160 these slogans. I think right now the focus is on 0:11:25.240 --> 0:11:28.680 tech because tech companies are implicated by all four of 0:11:28.720 --> 0:11:32.680 these slogans. Now, one more big theme is the idea 0:11:32.760 --> 0:11:36.320 that I think Beijing has decided that, well, we are 0:11:36.360 --> 0:11:41.520 going to prioritize certain technologies over others. Now, I previously 0:11:41.640 --> 0:11:45.080 worked in California, and I haven't always bought into the 0:11:45.160 --> 0:11:50.880 idea that consumer internet companies like Facebook or Snap really 0:11:50.920 --> 0:11:54.520 represent the peak of our technological civilization, that they are 0:11:54.720 --> 0:11:57.200 the shortest signs that we live in some sort of 0:11:57.200 --> 0:12:03.160 technologically accelerating civilization. Sort of lamented that among my smartest 0:12:03.240 --> 0:12:07.480 peers who have graduated from very good schools are much 0:12:07.559 --> 0:12:12.560 more keen work in hedge funds or asset allocation or 0:12:12.960 --> 0:12:17.240 the consumer internet companies instead of much harder technologies. And 0:12:17.240 --> 0:12:20.880 I think this is something that has upset Beijing as well. 0:12:21.280 --> 0:12:24.439 You know, one very key line from a major speech 0:12:24.559 --> 0:12:27.959 that Presidency gave last year was that, well, we can 0:12:28.000 --> 0:12:33.040 tell that digitization is really important, as we've seen over COVID, 0:12:33.400 --> 0:12:35.679 but what we must never do is to lose our 0:12:35.720 --> 0:12:40.600 manufacturing sectors because the real economy is absolutely paramount. And 0:12:40.640 --> 0:12:44.000 as I've said multiple times on hot lots before, the 0:12:44.080 --> 0:12:50.880 Chinese government really wants semiconductors, semiconductors, white body aircraft, life sciences. 0:12:50.920 --> 0:12:55.080 These are much more the technologies that Beijing is targeting, 0:12:55.400 --> 0:12:58.280 and I think Beijing has sent this a signal, and 0:12:58.760 --> 0:13:02.640 US in this case initiated a very severe cracknown to say, 0:13:02.760 --> 0:13:06.120 online education. While we're not sure that's as important as 0:13:06.160 --> 0:13:11.520 technology as for something, for example, something like chemicals video games. 0:13:11.960 --> 0:13:14.319 Children really shouldn't be playing too many of those, Um, 0:13:14.320 --> 0:13:17.480 they should be working in clean rooms for semi conductors instead. 0:13:17.679 --> 0:13:20.120 I'm exaggerating a little bit there, but I think that 0:13:20.320 --> 0:13:23.280 is a little bit more of the theme that China 0:13:23.320 --> 0:13:25.560 wants to do regulate the market better and then to 0:13:25.640 --> 0:13:29.679 prioritize the right source of technologies. Yeah, and I remember, UM, 0:13:29.720 --> 0:13:32.280 a couple of days after one of the crackdown announcements, 0:13:32.360 --> 0:13:33.840 or maybe it was on the day, we did see 0:13:34.040 --> 0:13:38.800 Chinese listed semiconductor stocks just absolutely spiking, So there was 0:13:38.880 --> 0:13:44.000 almost a rotation out of consumer tech and into semiconductors. UM. 0:13:44.040 --> 0:13:47.240 And I have more questions about what exactly China is 0:13:47.280 --> 0:13:49.440 trying to do when it comes to its tech industry 0:13:49.440 --> 0:13:52.320 and overall economy. But before we get there, you know, 0:13:52.400 --> 0:13:56.599 you mentioned some of the key phrases from party speeches. 0:13:57.040 --> 0:14:01.880 Common prosperity, disorderly spansion of capital has been another one 0:14:01.920 --> 0:14:05.120 that's come up a lot, And I know you're on 0:14:05.160 --> 0:14:08.600 the record saying that you read a lot of the 0:14:08.640 --> 0:14:11.800 party speeches, probably all of them, and you also go 0:14:11.920 --> 0:14:15.680 through like all the party the official party reading materials, 0:14:15.720 --> 0:14:18.720 like you know, the magazines they produce and things like that, 0:14:19.440 --> 0:14:23.400 and a lot of investors don't tend to do that. 0:14:23.520 --> 0:14:26.440 So I guess my question is, like, should we be 0:14:26.680 --> 0:14:30.360 paying attention to party speak? Were there hints of this 0:14:31.080 --> 0:14:34.920 in party speeches or things that she had said previously? 0:14:35.040 --> 0:14:37.320 And do you think that the crackdowns are sort of 0:14:37.400 --> 0:14:41.120 changing the behavior of investors in the sense that they're 0:14:41.120 --> 0:14:45.000 going to be paying more attention going forward? Cracy doesn't 0:14:45.000 --> 0:14:50.360 everyone read the party's main theory magazine, till Translation Seeking 0:14:50.400 --> 0:14:54.840 Truth as many of us do. Um Seeking Truth is 0:14:55.160 --> 0:14:59.360 a magazine that comes out twice a month. UM. Last year, 0:14:59.400 --> 0:15:01.880 I've read every issue and right now and still continuing 0:15:01.920 --> 0:15:06.400 the exercise. It's a beautifully laid out of magazine. It 0:15:06.560 --> 0:15:11.040 is features these thick pages, well printed pictures, uh, and 0:15:11.360 --> 0:15:14.400 a lot of the best writers in the party state. 0:15:14.840 --> 0:15:17.400 And every time I flipped through it, UM, you know, 0:15:17.480 --> 0:15:21.800 it's always led by a major speech or major essay 0:15:21.880 --> 0:15:24.680 by the General Secretary of the Communist Party C. Kinking 0:15:25.120 --> 0:15:28.440 in a fund that's distinct the rest of the h 0:15:28.760 --> 0:15:31.320 in the magazines. And so if you haven't had the 0:15:31.360 --> 0:15:33.320 pleasure of holding one of these things, you know, I 0:15:33.360 --> 0:15:37.400 recommend it just for the tactile experience alone. UM. So 0:15:37.600 --> 0:15:39.920 you know I did read, um, you know, every one 0:15:39.960 --> 0:15:44.840 of MS speeches um Gintilshire last year, which isn't as 0:15:44.960 --> 0:15:47.760 arduous and exercise as you might think. You know, one 0:15:47.880 --> 0:15:52.120 speech every two weeks, which usually isn't terribly long. He 0:15:52.280 --> 0:15:55.880 mixes a great deal of party speak along with some 0:15:56.280 --> 0:16:00.360 pretty straightforward and frank phrases that are easily compared priscible 0:16:00.840 --> 0:16:03.200 and so you know that is the signature style. It's 0:16:03.200 --> 0:16:06.080 not actually that much work, I think to engage with 0:16:06.160 --> 0:16:08.480 one speech every two weeks, and I think this is 0:16:08.480 --> 0:16:11.960 something that more of us should be doing. And really 0:16:12.080 --> 0:16:14.760 for me, the exercise that um, you know, for me, 0:16:14.840 --> 0:16:17.680 the meaning of the exercise is that it's really important 0:16:17.800 --> 0:16:22.640 to see what the party state engages as priorities at 0:16:22.640 --> 0:16:25.040 the moment. So for example, you know, if they have 0:16:25.160 --> 0:16:28.720 five issues dedicated on party history, well you know, maybe 0:16:28.720 --> 0:16:31.560 they're not thinking about for example, you know, some other 0:16:31.600 --> 0:16:34.840 big projects related to the environment, for example, and so 0:16:34.920 --> 0:16:37.760 getting a sense of what the major priorities are. You know, 0:16:37.800 --> 0:16:40.240 I think that is a decent way of getting there. 0:16:40.680 --> 0:16:44.200 It would be very reluctant to say that, you know, 0:16:44.320 --> 0:16:48.280 reading all of the party documents, reading Kosha, reading the 0:16:48.320 --> 0:16:52.080 People's Daily is an effective way to do uh investing. 0:16:52.160 --> 0:16:54.960 I think, you know, there are millions of these articles 0:16:55.240 --> 0:16:59.120 a day, can't possibly read them all. And there's also 0:16:59.200 --> 0:17:03.040 a lot of noise, um mixed in with these signals now, 0:17:03.160 --> 0:17:05.560 you know, when it comes to online education. I think 0:17:05.600 --> 0:17:08.960 what we found noteworthy was that President Senior Ping has 0:17:09.440 --> 0:17:11.640 mentioning this a couple of years ago. In fact, it's 0:17:11.960 --> 0:17:16.040 published in his big compendium, The Governance of China, Volume three, UM. 0:17:16.080 --> 0:17:18.119 And so you know, this has been a signal for 0:17:18.119 --> 0:17:21.560 a while, and the signals really started to escalate over 0:17:21.600 --> 0:17:24.520 the last couple of months. And so I think that 0:17:24.720 --> 0:17:27.560 is a place where we could have had a bit 0:17:27.600 --> 0:17:31.160 of a fairer warning. The state media gave us fair warning, um, 0:17:31.200 --> 0:17:33.760 if we only chose to engage it. But that's not 0:17:33.800 --> 0:17:35.760 to say that, um, you know, we have to be 0:17:35.960 --> 0:17:39.280 pouring over every People's Daily article. UM. But I think 0:17:39.359 --> 0:17:42.720 you know, it is worth keeping keeping in mind what's 0:17:42.760 --> 0:17:44.800 going on, what the party is saying, what the party 0:17:44.880 --> 0:17:47.919 is saying to itself, it's cadres UH and um, you 0:17:47.960 --> 0:18:07.040 know the broader world. I think there's something interesting you said. 0:18:07.040 --> 0:18:08.960 You mentioned that they took the survey. I think you 0:18:09.000 --> 0:18:12.199 said like seventeen thousand education companies and that hundreds of 0:18:12.200 --> 0:18:16.160 thousands of UH students. You know, the US is characterized 0:18:16.200 --> 0:18:19.280 as a democracy where there is a sort of direct 0:18:19.280 --> 0:18:22.320 feedback mechanism between the voters and the government and theory, 0:18:22.640 --> 0:18:26.560 and obviously China is not characterized as such. But these things, 0:18:26.600 --> 0:18:29.080 these actions that they take, such as going after the 0:18:29.160 --> 0:18:32.159 education companies or such as going after video game playing, 0:18:32.640 --> 0:18:36.320 say various things like that to improve like family values, 0:18:36.400 --> 0:18:38.960 as you put it, is there like this basic like 0:18:39.040 --> 0:18:42.159 sort of like feedback mechanism where even though there aren't 0:18:42.200 --> 0:18:45.280 elections per se as we understand them in the US, 0:18:45.640 --> 0:18:48.480 you still have this sort of like either direct or 0:18:48.520 --> 0:18:53.200 indirect response from the impulses that parents and families expressed 0:18:53.200 --> 0:18:57.640 towards what gets UH turned into government law. There are 0:18:58.280 --> 0:19:04.200 two mains of feedback mechanisms, UM that the party state 0:19:04.320 --> 0:19:08.800 are really engages. UM. So First, it maintains these open 0:19:09.400 --> 0:19:13.159 channels of petitioning where you can see um, you know, 0:19:13.240 --> 0:19:16.800 people usually elderly people lining up to know, voice their 0:19:16.840 --> 0:19:20.119 grievances and then tell you know, the government, UM what 0:19:20.240 --> 0:19:23.160 they're they're they're they're mad about. I mean usually these 0:19:23.200 --> 0:19:26.000 things are higher prices of hects or higher prices of 0:19:26.040 --> 0:19:28.080 gas or something. But you know that is you know, 0:19:28.119 --> 0:19:30.440 one of these things that are out there. And then 0:19:30.480 --> 0:19:35.560 the other is UM that the party maintains these active 0:19:35.960 --> 0:19:39.200 uh you know, groups of people that are actively soliciting 0:19:39.560 --> 0:19:42.679 people's opinions. And so this is UM. The survey was 0:19:42.760 --> 0:19:45.560 something that the Ministry of Education announced, UM, you know, 0:19:45.640 --> 0:19:49.320 surveying seven thousand different parents. You know, I think it 0:19:49.440 --> 0:19:53.520 is something that's logistically possible by the Chinese bureaucracy to do. 0:19:54.160 --> 0:19:57.160 I'm also aware that you know, for example, I currently 0:19:57.240 --> 0:19:59.959 live in Shanghai, and I know that the Shanghai government 0:20:00.160 --> 0:20:05.120 regularly hosts these grievance sessions just to tell them what's 0:20:05.160 --> 0:20:08.359 going on and UM, you know what the problems are. Now, 0:20:08.600 --> 0:20:12.640 whether this can be UM an effective replacement for democracy, 0:20:12.800 --> 0:20:16.520 I think absolutely not. Uh, you know, there's no mechanism 0:20:16.640 --> 0:20:20.119 for poor leaders to be removed by the people. This 0:20:20.280 --> 0:20:24.760 is all done, uh, certainly all done by a party basis, 0:20:24.800 --> 0:20:27.399 But I think, um, you know, I would suggest that 0:20:27.440 --> 0:20:30.879 there is a lot of very active surveys of public 0:20:30.880 --> 0:20:34.640 opinion done by the party state, as well as active 0:20:34.640 --> 0:20:39.359 solicitation of views by different people. This actually leads to 0:20:39.760 --> 0:20:42.159 the other big question about all of this, which is 0:20:42.680 --> 0:20:47.160 why now. So you know, there are these different explanations 0:20:47.240 --> 0:20:51.920 for why China is embarking on these various crackdowns. Um, 0:20:51.960 --> 0:20:56.560 you know, perhaps quality of life explanations, perhaps solidifying control. 0:20:57.400 --> 0:21:01.160 But at first clients, it doesn't seem to make much 0:21:01.240 --> 0:21:04.400 sense to be doing this in the middle of a 0:21:04.440 --> 0:21:09.520 global pandemic, um, when the economy is relatively fragile. Um, 0:21:09.640 --> 0:21:13.119 China just sort of emerged from the trade war with 0:21:13.200 --> 0:21:15.760 the US, although plenty of people would say that under 0:21:15.880 --> 0:21:19.280 President Biden relations have actually gotten worse between the U. 0:21:19.320 --> 0:21:22.800 S And China. So what's your take on why now? 0:21:22.880 --> 0:21:26.679 Because they could have gone after these respective industries, um, 0:21:26.720 --> 0:21:33.320 presumably at any time in history. That's a great question, 0:21:33.359 --> 0:21:36.760 and that's something I scratched my head a bit as well. 0:21:37.080 --> 0:21:40.240 And so I think the first thing to note is that, um, 0:21:40.280 --> 0:21:44.360 I think but the government realized last year over COVID 0:21:44.480 --> 0:21:47.800 was that, my goodness, a lot of people are using 0:21:48.000 --> 0:21:52.480 online services, for example, for food delivery or for online education. 0:21:53.160 --> 0:21:58.400 And for the most part, the Chinese internet space has 0:21:58.440 --> 0:22:02.560 been I would say, pretty minimal regulated until basically the 0:22:02.640 --> 0:22:05.840 last two three years. I think the over the last 0:22:06.080 --> 0:22:09.160 five years. Um. You know, when I visited a bunch 0:22:09.160 --> 0:22:12.080 of tech companies when I was living in Beijing, you know, 0:22:12.160 --> 0:22:16.000 they would often say that they are are fewer regulations 0:22:16.400 --> 0:22:19.000 relative to the US and relative to every other industry 0:22:19.040 --> 0:22:21.200 in China. And so I think, you know, I think 0:22:21.200 --> 0:22:25.520 the most important impetus is that the government realized how 0:22:25.600 --> 0:22:29.760 much more online everyone became last year in China. Probably 0:22:29.800 --> 0:22:32.600 something like this happened in the US as well, um, 0:22:32.640 --> 0:22:35.359 and so they can't let this be, you know, U 0:22:35.480 --> 0:22:39.600 governed space for much longer. The other um, you know 0:22:39.680 --> 0:22:42.680 why now issue is that I think, much more broadly, 0:22:43.400 --> 0:22:46.560 my view is that China will not open its borders 0:22:47.240 --> 0:22:52.040 for at least twelve more months, potentially for many years. 0:22:52.960 --> 0:22:56.920 And I think that's because COVID is still ravaging quite 0:22:57.200 --> 0:23:01.200 a few parts of the world and to Chinese don't 0:23:01.200 --> 0:23:05.000 want to leave China right now, and so there's sort 0:23:05.040 --> 0:23:09.119 of not that many costs to China for maintaining its borders. 0:23:09.119 --> 0:23:11.919 Shots hit more or less fields. It can manage a 0:23:11.960 --> 0:23:15.080 lot of these problems. Um, you know, it's certainly not ideal, 0:23:15.119 --> 0:23:17.320 but it can manage them. And it's better than letting 0:23:17.359 --> 0:23:21.240 COVID run free in Beijing, Shanghai and everywhere else. And 0:23:21.280 --> 0:23:24.640 so you know, if you remove this idea that um, 0:23:24.680 --> 0:23:28.560 this constraint that you know, things can only be regulated 0:23:28.560 --> 0:23:30.720 after things are really good, well, I'm not sure that 0:23:30.760 --> 0:23:33.240 they believe that there is going to be a much 0:23:33.320 --> 0:23:38.000 better time than this. So again, you know, I'm lazily 0:23:38.119 --> 0:23:41.199 reaching for the U S analogies here, but um, you 0:23:41.200 --> 0:23:44.119 know you mentioned the first sort of the anti trust 0:23:44.400 --> 0:23:46.280 aspect of all this and going after like the really 0:23:46.280 --> 0:23:49.200 big companies, and I think like one of the sources 0:23:49.320 --> 0:23:53.240 of anxiety in the US is just simply that like 0:23:53.680 --> 0:23:57.000 there are the big internet tech companies in the US, 0:23:57.080 --> 0:24:00.639 and consumer tech companies represent a major or some power, 0:24:01.160 --> 0:24:03.879 and a company like Facebook, I mean it's kind of 0:24:03.920 --> 0:24:06.480 like a government. They have like a Supreme Court and 0:24:06.840 --> 0:24:09.520 uh an internal checks and balances of what can get published. 0:24:09.520 --> 0:24:11.600 I don't know how well, it works, but it exists, 0:24:11.960 --> 0:24:14.720 and there's a perception that, say, like Mark Zuckerberg is 0:24:14.720 --> 0:24:18.280 as powerful as any other politician in the US. And 0:24:18.320 --> 0:24:22.480 I'm curious if in that bucket of regulation, that too 0:24:22.720 --> 0:24:25.879 is a source of the impulse in China, which is 0:24:25.960 --> 0:24:29.800 just that whether it's Ali Baba, or and Financial or 0:24:29.840 --> 0:24:32.520 some of these other big ones, that this sort of 0:24:32.560 --> 0:24:35.880 pure political power or pure power that gets accumulated by 0:24:36.000 --> 0:24:39.919 some of these companies becomes big enough to rival the 0:24:40.000 --> 0:24:44.520 state of the party. I think that's definitely underlying motivations 0:24:45.040 --> 0:24:48.439