Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Authoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Wasn't thal Joe.
Speaker 2: We are recording this on August twenty seventh. Did you
Speaker 2: catch the Trump Cabinet meeting yesterday?
Speaker 3: I saw your tweets and they looked like some of
Speaker 3: the most obsequious. I mean a lot of these unusually obsequious.
Speaker 3: But even yes, I.
Speaker 2: Saw your tweets, you could just say yes. So there
Speaker 2: are a bunch of things that stood out, But one
Speaker 2: in particular was Donald Trump talking about building out new
Speaker 2: energy capacity and he said specifically, I'm going to quote here.
Speaker 2: You know, in China they do it very quickly. They
Speaker 2: have one person that says do it, and that's it.
Speaker 2: But essentially, we have one person that says do it,
Speaker 2: and we've given that order.
Speaker 3: Yeah, you know, like he's very abundance coded. He wants
Speaker 3: to like he wants to get rid of all of
Speaker 3: the uh or he seems to have this impulse to
Speaker 3: get rid of all of the myriad checks and balances
Speaker 3: and all these things that stand in the way of
Speaker 3: developing things. So it sounds like Trump is abundance pilled.
Speaker 3: I assume that's the direction you're going on. Yes.
Speaker 2: If there's one thing I think you could say about
Speaker 2: China's economy and it's political economy, it is that China
Speaker 2: is pretty good at building things, yes, right, And we've
Speaker 2: seen various examples of that over time. Back when I
Speaker 2: was living in Hong Kong, I took the high speed
Speaker 2: rail from Hong Kong to Beijing and that was absolutely amazing.
Speaker 2: You get to Beijing in less than a day. The
Speaker 2: US is nowhere near having anything like that, and I
Speaker 2: speak as someone who takes Amtrak in the Northeast regularly.
Speaker 2: On the other hand, China at various times has produced
Speaker 2: too much.
Speaker 4: Right.
Speaker 3: It's accused as such, right. I know that people say.
Speaker 2: This, okay, But for instance, you think back to the
Speaker 2: Ghost City, Sure bridges to nowhere.
Speaker 3: Sure at they were bridges to nowhere at the time.
Speaker 2: Amusement parks that no one goes to.
Speaker 3: Definitely, although we have amusement parks here that no one
Speaker 3: goes to.
Speaker 2: Disagree or disagree hard. But this has sparked a new
Speaker 2: movement in China by policymakers called involution yes, which is
Speaker 2: basically an attempt to reduce over capacity in terms of
Speaker 2: building things.
Speaker 3: There's definitely no question that there does seem to be
Speaker 3: this phenomenon which the government in Beijing seems highly cognizant of,
Speaker 3: which is this sort of like profitless competition, much of
Speaker 3: it driven by the incentive structure that is borne by
Speaker 3: the provinces promoting their local champions, and so far as
Speaker 3: much like sort of success as some of these companies
Speaker 3: have on some metrics, there's no money to be made
Speaker 3: in many cases. It sounds sort of nice from the
Speaker 3: consumer perspective, you know, it's like Zurbier twenty tens when
Speaker 3: we were all getting like, you know, cheap ubers and
Speaker 3: stuff like that. But you know, there's a seems to
Speaker 3: be a risk of certain internal imbalances on that.
Speaker 2: I think the issue is you have a lot of
Speaker 2: companies who are basically producing all the same thing and therefore,
Speaker 2: you know, racing to the bottom in terms of price,
Speaker 2: and no one can actually make money. And I don't
Speaker 2: know about you, but if I was a startup founder,
Speaker 2: I would probably want to make money right at some point.
Speaker 2: I would not want to be locked in a forever
Speaker 2: competition in terms of who could drive the absolute lowest cost.
Speaker 3: Well, what if you were just a normal consumer who
Speaker 3: wasn't a founder?
Speaker 2: Sadly, that is what I am. Okay, Well, on this note,
Speaker 2: we have the perfect guest. We're going to be speaking
Speaker 2: with Dan Wong, friend of the Pod and who has
Speaker 2: just written a new book called Breakneck China's Quest to
Speaker 2: Engineer the Future. He's also a research scholar at the
Speaker 2: Hoover Institution. So Dan, welcome back to the show.
Speaker 4: Thanks so much, Tracy, really glad to talk about moby
Speaker 4: Dick with my friends.
Speaker 3: Why do coach trouble? Why do you coble?
Speaker 2: You know, I was actually wondering if you were going
Speaker 2: to bring up the Moby Dick reference.
Speaker 4: The problem Joe, I've been a ket for a very
Speaker 4: long time. Maybe this is the way needs to be
Speaker 4: getting into That's.
Speaker 2: Right, okay, simple question to start. Why does China like
Speaker 2: building stuff?
Speaker 4: China likes building stuff because it is made up of
Speaker 4: leadership that is very heavily engineering pilled. Many of them
Speaker 4: have been engineer's trained of a very Soviet sort, hydraulic engineers,
Speaker 4: electrical engineers, thermal engineers, which is kind of a termine China.
Speaker 4: That means producing coal and processing coal, they treat the
Speaker 4: megaproject as the solution to every problem. They are building
Speaker 4: enormous dams. They're building a big new dam now that
Speaker 4: is going to use sixty times more concrete than the
Speaker 4: Hoover dam. They're it's going to produce I think, three
Speaker 4: times as much power as the three gorgeous dam. But
Speaker 4: this is a lot of their solutions to a lot
Speaker 4: of different economic problems and social problems as well. That
Speaker 4: new highways, new homes, coal plants, hyperscalers. It's what they
Speaker 4: know how to do, and it's what they're going to do.
Speaker 3: First of all, Before we go any further, I just
Speaker 3: want to say it, like, having spoken to for years,
Speaker 3: I'm thrilled of all the recognition you're getting for this book.
Speaker 3: I know we weren't like the first to discover Dan Wong.
Speaker 3: I think Tyler Cowen got there first, but it's been
Speaker 3: fantastic talking to you over the years, and there's sort
Speaker 3: of like a vindication I think of your career, et cetera,
Speaker 3: because now everyone wants to see the world through the
Speaker 3: Dan Wong lund. So think I just wanted to say
Speaker 3: how exciting it is and happy for you that you're
Speaker 3: getting all.
Speaker 2: This is channeling the Trump cabinet.
Speaker 3: Oh wow, I'm being am I Trump. Yeah, yeah, I guess, okay, good, Okay.
Speaker 3: As Tracy mentioned, Trump talked about you know if someone
Speaker 3: says do it and then they do it. But I'm curious,
Speaker 3: like how much is it? Would you say, like the
Speaker 3: political system really allows for that versus the actual like
Speaker 3: breadth of labor and just engineering knowledge, Like how would
Speaker 3: you tilt the sort of political structure versus the skills.
Speaker 3: I think it's both.
Speaker 4: So China has a lot of economic ministries like the NDERC,
Speaker 4: the National Development and Reform Commission, and the MIIT, the
Speaker 4: Ministry of Industry and Information Technologies. You have all of
Speaker 4: these planners that are making new plans all the time,
Speaker 4: and they have exactly great plans to know where the
Speaker 4: next subway station in Beijing or Shinjin or quimming On
Speaker 4: to go. And so there's plenty of shovel ready projects
Speaker 4: because people have already been planning for these things for years.
Speaker 4: And every time China's economy has any sort of a wobble,
Speaker 4: then the Communist Party says, okay, well we're going to
Speaker 4: build another really big dam, or we're going to build
Speaker 4: more highway systems. So you have a lot of shovel
Speaker 4: ready projects in place, and then you have the government
Speaker 4: thinking that while pouring more concrete is still going to
Speaker 4: be the solution to a lot of our different problems.
Speaker 4: And on top of that, you have a very skilled
Speaker 4: manufacturing workforce. You have a very skilled public sector that
Speaker 4: has been building a lot of high speed trains, that
Speaker 4: have been building a lot of big ships, that have
Speaker 4: been building subway systems. They know how to do this stuff,
Speaker 4: and so it just comes really naturally. You have the
Speaker 4: system plus the politics all favoring a lot of construction.
Speaker 2: When you say Chinese policy makers are made up of engineers,
Speaker 2: I have two questions. So one, how did that come
Speaker 2: to be? And then secondly, could you maybe give us
Speaker 2: some specific examples of how that manifests in actual policy. So,
Speaker 2: for instance, does having an engineering background make you perhaps
Speaker 2: better at making strategic decisions about economic priorities? Like how
Speaker 2: does that background actually come into play?
Speaker 4: I think China's engineering state has deep roots, but the
Speaker 4: modern manifestation really took shape after the nineteen eighties when
Speaker 4: dunzhel Peing took over from the total mayhem of the
Speaker 4: mal Years and dounzheal Peing thought, well, Mao was kind
Speaker 4: of this poet. He was a warlord, he was a romantic,
Speaker 4: he was a murderer.
Speaker 3: What is the opposite of all of that.
Speaker 4: Well, we're going to put mechanical engineers within the polit bureau,
Speaker 4: and that is exactly what Deng Xiaoping did. So throughout
Speaker 4: the nineteen eighties and the nineteen nineties, don't put a
Speaker 4: lot of engineers in the polit bureau, such that by
Speaker 4: the year two thousand and two, every single member of
Speaker 4: the Standing Committee, all nine people, especially Hu Jintao and
Speaker 4: Buen Jabal, the General Secretary and the Premier at the time,
Speaker 4: everyone had degrees in engineering, and that.
Speaker 3: Has fluctuated a little bit.
Speaker 4: By the time that Seizing Pain came to office, who's
Speaker 4: undergrad was a chemical engineer, I think he saw the
Speaker 4: light and his doctorate was Marxist economics, so you know,
Speaker 4: we have a pseudo economist up there. By the time
Speaker 4: that he came into office, his Premier, He Kutiang, was
Speaker 4: trained in I believe law in the economics. But now
Speaker 4: in the twentieth Party Congress after twenty twenty two, China's
Speaker 4: engineers are really dominant again, which you have a lot
Speaker 4: of people from the military industrial complex in the top
Speaker 4: of the politbureau. But I also want to suggest, but
Speaker 4: playfully and lightly, that there are ancient roots of China's
Speaker 4: engineering state as well. This is famously the state that
Speaker 4: administered a vast exam nation system, which people became mandarins
Speaker 4: by doing these exams administered by the court.
Speaker 3: You had a lot of.
Speaker 4: Chinese emperors that didn't hesitate to conscript people to build
Speaker 4: great walls or grand canals. So these are fortifications and
Speaker 4: waterway systems, and so I don't want to take this
Speaker 4: too literally, but you can sort of see how a
Speaker 4: lot of emperors never really hesitated to completely restructure a
Speaker 4: person's relationship to our land. And so that's a little
Speaker 4: bit deeper too.
Speaker 3: So, you know, Tracy mentioned that, and I have no
Speaker 3: doubt that it is true that there's you know, these
Speaker 3: various like white elephant projects are things that get built
Speaker 3: that aren't necessary. In your book talks about them. All
Speaker 3: that being said, it seems like one of the objective
Speaker 3: facts in the world is that Chinese living standards and
Speaker 3: the economy has dramatically in the last ten twenty years,
Speaker 3: like to an extraordinary degree. Does the success of all
Speaker 3: these Chinese planning boards? Do you think it strikes a
Speaker 3: heart in certain conventionalism, planning isn't supposed to work. Economists
Speaker 3: are very skeptical of planning, the hi Ekian idea that
Speaker 3: the market and prices are the best signals for these things.
Speaker 3: What kind of challenge does China's success opposed to some
Speaker 3: of these ideas.
Speaker 4: I don't want to think that China's success strikes at
Speaker 4: the very heart of planning in economics. I think that
Speaker 4: China has not demonstrated the success of central planning a
Speaker 4: large I think I would defend a narrower case that
Speaker 4: a lot of construction has been good for a lot
Speaker 4: of people. So I think that China is what other
Speaker 4: tests is there? Well, maybe there are other tests, which
Speaker 4: is that whether people are happy. I think that is
Speaker 4: a decent test, whether they feel the ability to have
Speaker 4: creative expression, whether they feel that their lives are going
Speaker 4: to be better because they're able to save some money.
Speaker 4: I think not just about the physical living standards, although
Speaker 4: I think that is really important because I've spent plenty
Speaker 4: of time in China's rich re zones. I was living
Speaker 4: in Hong Kong, Beijing, and Shanghai, where you can see
Speaker 4: that these cities get better and better every year. You
Speaker 4: have new subway stations. Shanghai this year will have a
Speaker 4: thousand parks, up from five hundred in twenty twenty. All
Speaker 4: of these cities are really highly functional. I've been in
Speaker 4: China Southwest and Gwaijo Province, China's fourth poorest province, and
Speaker 4: you have these enormous bridges that are bridges to nowhere
Speaker 4: when they start, but then to nowhere has become maybe
Speaker 4: two somewhere, so after it is built, and people actually
Speaker 4: feel a lot of pride about all of these things.
Speaker 4: And so I think that a lot of construction, a
Speaker 4: lot of home building, a lot of electricity production through
Speaker 4: coal as well as hydro and solar, these things are
Speaker 4: all really good. I think you can definitely point to
Speaker 4: a lot of costs. There's a lot of material waste
Speaker 4: and all of this concrete that's very carbon intensive. There's
Speaker 4: a lot of financial problems. Squadjo can't really pay a
Speaker 4: lot of its debts right now. There's a lot of
Speaker 4: displacement of people. Three gorgious scam display something like a
Speaker 4: million people. I would say that physical construction is mostly
Speaker 4: pretty good, though there are plenty of costs.
Speaker 2: We talk more about financial problems from all of this,
Speaker 2: because obviously the local government debt situation has been much discussed.
Speaker 2: But you point out in the book, for instance, that
Speaker 2: you can see evidence of some of this impact in
Speaker 2: things like Chinese stocks. So because you have all these
Speaker 2: companies who are basically racing to the bottom in terms
Speaker 2: of price, it's difficult for them to produce a profit,
Speaker 2: and so the stock price basically has traded sideways for
Speaker 2: like a decade. I guess part of that would also
Speaker 2: be capital controls and the impact from that. But how
Speaker 2: does this manifest in terms of finances.
Speaker 4: Well, let's take a look at something like the solar industry,
Speaker 4: which I think is kind of an emblematic Chinese success.
Speaker 4: You have China producing something like ninety percent of the
Speaker 4: solar PV modules in the world. But China isn't only
Speaker 4: producing the final product, it is also producing all of
Speaker 4: the polysilicon as well as all the tools to produce solar.
Speaker 4: And in the solar industry, you have basically zero differentiation
Speaker 4: between most of the big solar producers. You know, something
Speaker 4: like the third largest solar producer in China is not
Speaker 4: that different from the fifteenth largest, and maybe not even
Speaker 4: that different from the thirtieth largest. They're all making pretty
Speaker 4: undifferentiated products. And what this has represented is kind of
Speaker 4: a strategic trium for the Chinese government that they have
Speaker 4: a lock on one of these critical industries of the
Speaker 4: future that a lot of countries will need. It is
Speaker 4: awesome for consumers everywhere. So if you are trying to
Speaker 4: build a solar panel onto your roof, either in China
Speaker 4: or in the US, you know, solar costs have plunged
Speaker 4: something like ninety four percent since the year two thousand
Speaker 4: or so. I think that's about the right figure. And
Speaker 4: it's been total misery for these companies as well as
Speaker 4: their investors. And maybe this is what socialism with Chinese
Speaker 4: characteristics means, which is a lot of state power, a
Speaker 4: lot of consumer power, but not very much financial investor's benefit.
Speaker 3: So, speaking of her novelle this is not about Moby Dick,
Speaker 3: I'm actually thinking about his novella Bartleby, in which you know,
Speaker 3: the famous character Bartleby decides I would prefer not to.
Speaker 3: He's working on Wall Street and then one day he
Speaker 3: would prefer not to, and the people around him are
Speaker 3: completely exasperated at this person. And of course we saw
Speaker 3: a few years ago people were talking about the live
Speaker 3: flat movement, And so when you talk about, oh, you know,
Speaker 3: like perhaps it's come at the cost of happiness, Like
Speaker 3: how wide spread is this? How much of this success
Speaker 3: in China? I mean one of the other aspects of
Speaker 3: you know, unions aren't legal in China. I presume striking
Speaker 3: isn't legal in China, and so forth, Like how much
Speaker 3: of this material success that everyone enjoys to some extent
Speaker 3: in your view, has come down to sort of extracting
Speaker 3: the worker surplus. And how big do you think is
Speaker 3: there like a larger brewing impulse to fight against that.
Speaker 4: Well, when I first read bartle B the Scrivener, I
Speaker 4: saw some commentary that it's actually a lot about homo eroticism.
Speaker 4: I thought that maybe that's where we were going to go,
Speaker 4: but maybe we'll take a look at that later. I
Speaker 4: think that whether people in China are happy is always
Speaker 4: a very interesting and excessively broad question, and I always
Speaker 4: wonder about things like.
Speaker 3: That, if anyone's happy in the world, but keep going.
Speaker 4: You know, Bhutan, with something like four traffic lights in
Speaker 4: the country is supposed to be super happy. We don't
Speaker 4: really get that. Certainly, we can observe that there are
Speaker 4: a lot of Chinese, mostly elites, who are interested in
Speaker 4: creative expression. Many of them have become deeply unsatisfied. So
Speaker 4: they are moving to the Netherlands, They're moving to New York,
Speaker 4: They're moving to Chang Mai. I've seen some of their
Speaker 4: events here in New York. There's a feminist stand up
Speaker 4: comedy which is, you know, having a lot of comedy
Speaker 4: shows in Chinese. That is pretty active of a scene
Speaker 4: here in Manhattan actually, And so there's a lot of
Speaker 4: people journalists who have had their pieces completely censored Six
Speaker 4: Ways to Sunday who are pretty dissatisfied. There's plenty of
Speaker 4: people dissatisfied in Shanghai who had a horrible time throughout
Speaker 4: the lockdown. And we had these astonishing numbers of something like,
Speaker 4: at its peak, forty thousand Chinese flying to Ecuador where
Speaker 4: they don't have to get a visa to walk up
Speaker 4: to the southwestern border in the United States because they
Speaker 4: are so upset with a seizing pain. But it's the
Speaker 4: broader mass of Chinese unhappy, well pretty hard to say.
Speaker 4: I think there are plenty of people who are working
Speaker 4: for state don't enterprises and you know, not really enjoying
Speaker 4: much of their time there. You could be working for
Speaker 4: one of these big tech companies and working nine ninety
Speaker 4: six hours nine am to nine pm, six days a week,
Speaker 4: and that's not very happy. You could be living with
Speaker 4: your parents.
Speaker 3: Because which, by the way, is the same Silicon Valley.
Speaker 4: Well, I thought it was the same as Bloombergley, but yeah.
Speaker 3: It's probably nine nine to seven in Stilicon Valley.
Speaker 2: But do you get equity in the company in return
Speaker 2: for your hard work?
Speaker 4: Maybe some of them do, but it's probably not to
Speaker 4: the same extent in Silicon Valley. But at the same time,
Speaker 4: you know, if you're a young Chinese living in Shanghai,
Speaker 4: perhaps your cause of living is not super high because
Speaker 4: they're living with your parents. You get to save some
Speaker 4: money by working at a state owned enterprise. You have
Speaker 4: excellent cafes popping up all the time. A lot of
Speaker 4: things are pretty cheap. You can get a bowl of
Speaker 4: noodles really cheaply. And you know, for people who are
Speaker 4: debating whether they want to try to make a career
Speaker 4: in London or New York and try to be really
Speaker 4: ambitious or just have a thumping lifestyle life flat lifestyle
Speaker 4: in Shanghai. Maybe that's kind of a wash. So I
Speaker 4: don't see simmering discontent that threatens the top older gem,
Speaker 4: but certainly there are plenty of people dissatisfied.
Speaker 2: There's also arguably a sort of existential dread hanging over
Speaker 2: certain sectors or certain entrepreneurs, which is that at any time,
Speaker 2: the Chinese government could change its mind about what industry
Speaker 2: it actually wants to promote and nurture. And we saw
Speaker 2: that happen. I think when you and I were both
Speaker 2: in Hong Kong in twenty twenty slash twenty twenty one,
Speaker 2: and this was a big deal. So this idea that
Speaker 2: China all of a sudden kind of turned its back
Speaker 2: on more consumer oriented technology companies, how big of a
Speaker 2: legacy did that have or how big of an impact
Speaker 2: did that have on the sort of entrepreneurial spirit of China.
Speaker 4: There's plenty of data to suggest that VC funds in
Speaker 4: China are having a hard time actually raising funds and
Speaker 4: also having a hard time deploying their capital. Certainly, it's
Speaker 4: become pretty difficult for a lot of startups to exit
Speaker 4: because they can't necessarily list in the US, and they
Speaker 4: can't necessarily list very easily in China as well. China's
Speaker 4: consumption over the last few years has been pretty limp
Speaker 4: after the COVID crackdowns. A lot of companies had to
Speaker 4: have pretty extensive layoffs, and they're just not having a
Speaker 4: really easy time given the limp consumption, spending really large
Speaker 4: in China. I think this goes to a kind of
Speaker 4: a broader point within authoritarian systems, which is that no
Speaker 4: one feels very safe in a lot of authoritarian systems.
Speaker 4: You can be an elite in Beijing, and what is
Speaker 4: your life going to be? Your life could be working
Speaker 4: in the financial industry, which is a definite elite everywhere,
Speaker 4: including in Beijing. And two years ago, Beijing announced that
Speaker 4: it was going to have a salary cap of three
Speaker 4: hundred thousand dollars roughly for people working in state owned banks.
Speaker 4: And if you made over that figure the last couple
Speaker 4: of years, you may have to give some money back
Speaker 4: to the government. Maybe you're working for a tech company
Speaker 4: and you think that online education is going to be
Speaker 4: totally safe, because Chinese love education and they're always going
Speaker 4: to be spending more money on their kids, and then
Speaker 4: that worked until the government declared everything must be a nonprofit.
Speaker 4: If you're working for the military, if you're working for
Speaker 4: the government, your life could be subject to either a
Speaker 4: corruption crackdown or some sort of the political wins changing
Speaker 4: and your patron is no longer in place, and then
Speaker 4: your whole network of patronage has to fall. And so
Speaker 4: this is one of these things where there is kind
Speaker 4: of this apocalyptic sense that hangs over you if you're
Speaker 4: living in Beijing, Shanghai, perhaps even in Hong Kong, where
Speaker 4: a lot of your life could fall apart and there's
Speaker 4: no one really to protect you, no lawyers that you
Speaker 4: can turn to, the court system to really turn to.
Speaker 3: You know, one of these things that comes up a lot,
Speaker 3: and I don't really find it to be that interesting
Speaker 3: with a conversation. Look, oh, is China a communist or capitalist?
Speaker 3: And it seems like a very tedious conversation. I mean,
Speaker 3: it has a you know, a leninist system of government.
Speaker 3: I think that fact says to say, is it going
Speaker 3: in the direction of something that we could call socialist?
Speaker 3: I think Doung Choupang said the goal was to have
Speaker 3: a modern socialist state by year twenty forty nine, So
Speaker 3: twenty four years from now, is it going into direction
Speaker 3: that would be described this is so well, there.
Speaker 4: Are a bunch of Marxists over there, and they would
Speaker 4: always tell you that history is the most important and
Speaker 4: we are marching towards socialism. So their answer is yes.
Speaker 4: I have my doubts. I took a look at China
Speaker 4: today and I think it is the most right wing
Speaker 4: major country in the world. This is a country that
Speaker 4: really prizes manufacturing above all else. It doesn't really have
Speaker 4: much by way of immigration. You have a state that
Speaker 4: enforces totally traditional gender roles, and you have a pretty
Speaker 4: minimal welfare safety net. Where taxes in China are not
Speaker 4: actually that high. It is pretty regressively funded on consumption taxes.
Speaker 4: This is a country that arrests union organizers and that
Speaker 4: has busted up certain Marxist reading groups in universities. And
Speaker 4: I take a look at that, and I think, doesn't
Speaker 4: this look kind of like Eisenhower's America? You know?
Speaker 3: This is it certainly doesn't soun liberal.
Speaker 4: It doesn't sound very liberal at all, and I'm not
Speaker 4: even sure if it sounds very socialist. There is absolutely
Speaker 4: a Leninist aspect in which state control of public enterprises.
Speaker 4: You know, public ownership of production is very much real.
Speaker 4: Many important sectors telecommunications, aviation, energy are state owned, and
Speaker 4: you have some redistribution between the provinces. But you know,
Speaker 4: kind of my handy snapshot is not to think of
Speaker 4: China as socialists or autocratic. I think these are pretty
Speaker 4: limited terms that don't really offer much anymore. My simple
Speaker 4: formulation of China is that it is a Lendinness technocracy
Speaker 4: with grand Opera characteristics, pretty rational most of the time,
Speaker 4: but then every so often we'll do something pretty preposterous
Speaker 4: and then kind of collapse in something really ridiculous.
Speaker 2: That said, we have seen recently China make some moves
Speaker 2: to boost social safety nets. So they've said they're going
Speaker 2: to you know, do more for seniors, and they're also
Speaker 2: going to try to boost consumer spending. One thing that
Speaker 2: I thought was kind of amusing was they basically rolled
Speaker 2: out a cash for clunkers equivalent. And again, I think
Speaker 2: of all those things focus on consumer spending, social safety nets,
Speaker 2: though arguably in the US those are perhaps declining cash
Speaker 2: for clunkers, that sort of thing. I think that is
Speaker 2: very American in many ways in terms of the political economy.
Speaker 2: And meanwhile in the US, you know, Trump is talking
Speaker 2: about how he wants to be more efficient in terms
Speaker 2: of controlling the economy. Like China. We've also had some
Speaker 2: instances of the US government taking stakes in companies recently
Speaker 2: that seems very Chinese in certain respects. Is the US
Speaker 2: starting to emulate China and China emulate.
Speaker 4: The US tracy? When I first heard of the tariffs
Speaker 4: on Liberation Day, I thought that liberation doesn't sound very
Speaker 4: much like an American word. It sounds much more like
Speaker 4: a Chinese word to my ears.
Speaker 3: Now five liberations campaign.
Speaker 4: Yes, right, we're going to liberate Taiwan into socialism. You know,
Speaker 4: this is what they're up to. And certainly there are
Speaker 4: a lot of aspects in which the US and Trump
Speaker 4: in particular, is copying China. We are making Intel a state,
Speaker 4: don't enterprise with American characteristics. There's a lot of questions
Speaker 4: now with data probity and whether the unemployment figures are
Speaker 4: going to be well reported, And there is kind of
Speaker 4: just this you visiting stochastic terror on the downtrodden, especially
Speaker 4: undocumented immigrants, and all of these things are not very
Speaker 4: nice things that I think that Trump is learning from
Speaker 4: c and right now, I think what we have is
Speaker 4: authoritarianism without the good stuff, and the good stuff of
Speaker 4: actually building quite a lot of mass transit and clean
Speaker 4: technology generation, clean energy generation. Rather, we don't really have
Speaker 4: the Port Authority bus terminal being built and renovated on time.
Speaker 4: You don't have California high speed rail. We don't have
Speaker 4: smoothly functional cities that have a lot of public order.
Speaker 4: And I don't think that the US should try to
Speaker 4: emulate a lot of these things. But I think there
Speaker 4: are better things to emulate, because a lot of what
Speaker 4: Trump is building are gilded ballrooms and detention centers. I had,
Speaker 4: you know, we're getting quite a lot of just I
Speaker 4: think many of the worst aspects of authoritarianism.
Speaker 3: You know, I'm curious, I say, at the beginning, you've
Speaker 3: had this huge rise. Everyone is obsessed with this story
Speaker 3: right now. Everyone, it's just every every day I wake up,
Speaker 3: it's on social media, it's coming from DC, it's et cetera.
Speaker 3: Everyone is sort of maybe miles of gate, but the
Speaker 3: capacity of China to build that, damn Or you know,
Speaker 3: you open uh Instagram and it's some crazy drone show
Speaker 3: or something like that that shows the technical prowess there.
Speaker 3: You know, this wasn't the case the sort of popularization
Speaker 3: of all this when you started your book, or certainly
Speaker 3: not the first time we had you on this show.
Speaker 3: What do you make of that, Like, how has perceptions
Speaker 3: of China changed, or maybe even your own perception of
Speaker 3: China changed since you started really focusing on this stuff.
Speaker 4: Well, Joe, maybe Chinese industrialism has been my white whale
Speaker 4: for a lot of time.
Speaker 3: I'm sorry, I'm sorry, I'm sorry.
Speaker 4: I moved to Hong Kong at the start of twenty
Speaker 4: seventeen from Silicon Valley, where I used to be working,
Speaker 4: in part because I was feeling that a lot of
Speaker 4: the technologies that was important in Silicon Valley at the
Speaker 4: time were not so interesting. It was a lot of cryptocurrencies,
Speaker 4: was a lot of consumer platforms. We hadn't even gotten
Speaker 4: to SaaS for business yet, and so it was just
Speaker 4: not that interesting. And so when I had lunch with
Speaker 4: Arthur Kroeber and you told me about something called Made
Speaker 4: in China twenty twenty five, I thought that ultra high
Speaker 4: voltage transmission, electric vehicle batteries, memory trips, these were far
Speaker 4: more interesting. But I felt that it was actually making
Speaker 4: a distinctively popular decision among my Silicon Valley peers because
Speaker 4: they thought that they were the center of the universe,
Speaker 4: which is a view they still hold. And what are
Speaker 4: we doing if we're not being in San Francisco and
Speaker 4: not pursuing some aspect of tech? And so when I
Speaker 4: moved to China, it definitely didn't feel like the elitist
Speaker 4: popular thing to do. But I was really glad to
Speaker 4: go take a look at what China was building. And
Speaker 4: I think that there is a broader sense in Silicon
Speaker 4: Valley that tech is important, but non tech is also important.
Speaker 4: Right now, I feel like a lot of folks in
Speaker 4: Silicon Valley, where I spend a lot of time as
Speaker 4: a fellow at Hoover, you know, a lot of folks
Speaker 4: are trying to build God in a box, and that
Speaker 4: attention has shifted to AI, and I feel like that
Speaker 4: has become a totalizing aspect once more, and I feel
Speaker 4: like part of my task is still to remind people
Speaker 4: that drones are important and bridges are important, and we
Speaker 4: live in a material world, and you know, let's build
Speaker 4: up a manufacturing base as well.
Speaker 2: So with the focus shifting to AI, you could make
Speaker 2: an argument that the US has the lead there still,
Speaker 2: even though we've seen moments of panic with the deep
Speaker 2: Seek model early this year and things like that. But
Speaker 2: on the other hand, I suppose you could argue that
Speaker 2: AI also needs vast amounts of physical infrastructure, including data centers,
Speaker 2: energy chips. Who has the upper hand when it comes
Speaker 2: to AI.
Speaker 4: I don't have a super strong view on this, but
Speaker 4: I could outline a potential scenario in which China is
Speaker 4: going to be leading on AI based on a few factors.
Speaker 4: First and most important, as you point out, Tracy, that
Speaker 4: China has a lot of electrical power. So the US
Speaker 4: may have all of the computing because it has all
Speaker 4: of the advanced chips from Nvidium. As Howard Letnik says,
Speaker 4: China has a best the fourth best chips in terms
Speaker 4: of AI, and that is a pretty substantial constraint. But
Speaker 4: what is a bigger US constraint, maybe right now going forward,
Speaker 4: is that there just isn't enough electrical power, especially if
Speaker 4: Trump is taking winterbines offline and being very discriminatory about
Speaker 4: certain types of energy. And China I think has organized
Speaker 4: itself as a civilization to nine nothing towards heavy industry
Speaker 4: whatever heavy industry wants it is going to get and
Speaker 4: that could be powered by solar, could be powered by wind,
Speaker 4: it could be powered by coal, it could be powered
Speaker 4: by nuclear. But China will not have this issue that
Speaker 4: META faced earlier in the end of last year, in
Speaker 4: which a rare species of be prevented META from building
Speaker 4: a giant new power facility, and China will definitely not
Speaker 4: do that. So China has a lot of electrical power.
Speaker 4: China may not have a lot of advanced chips, but
Speaker 4: it has a lot of mature chips which are going
Speaker 4: to be necessary for inference. So if we do invent
Speaker 4: God in a box, you know, we're going to be
Speaker 4: running queries all the time to figure out how to
Speaker 4: automate and shop and whatever else. And that is going
Speaker 4: to require a lot of processing power. And I think
Speaker 4: this is where China's mature chips are going to have
Speaker 4: a pretty good advantage. And China also has I think
Speaker 4: another unique advantage, which is that training data might be
Speaker 4: more strategically valuable. China has most of the manufacturing capacity
Speaker 4: in the world, or about thirty percent of manufacturing value
Speaker 4: add but that is quite a large chunk. And you
Speaker 4: know what does the US have, Well, we have a
Speaker 4: lot of consulting companies and a lot of healthcare companies.
Speaker 4: So maybe the US will automate something on the scale
Speaker 4: of McKinsey, and China will automate something on the scale
Speaker 4: of fox Con. And you know, they're going to have
Speaker 4: a lot more manufacturing production and we're going to have
Speaker 4: a lot more better consultants.
Speaker 2: Yeah, I suppose there's a synergy here where you could
Speaker 2: use AI to make your manufacturing more efficient.
Speaker 3: Right, No, totally, And we talked to Cameron Johnson about that,
Speaker 3: the diffusion of AI within it, and right, like a
Speaker 3: factory that's monitored properly is brimming with fresh training data
Speaker 3: all the time, and that has a compounding effect and
Speaker 3: the accelerating effect and so forth potentially widening that gap.
Speaker 3: I want to ask actually another AI question. It's not
Speaker 3: even about US China per se, maybe more US question.
Speaker 3: Use the word totalizing. And I've been thinking about this
Speaker 3: exactly in a couple of different ways. Like one is,
Speaker 3: like I wonder about whether people have lost interest in
Speaker 3: things like say, drug discovery in part because of this
Speaker 3: implicit assumption, Well, once we achieve AGI in two years,
Speaker 3: that will do all the drug discovery, So why are
Speaker 3: we even bothering with working on that in the meantime?
Speaker 3: And also it feels like much of culture strikes me
Speaker 3: in the US as sort of disappearing and other things
Speaker 3: like that. People are just sort of losing interest in
Speaker 3: lots of things because AI is crowding out in the
Speaker 3: psychological space everything else. And I'm curious if, in your
Speaker 3: time in Bay Area think about these things, whether that
Speaker 3: rings sure or not.
Speaker 4: Definitely, I hear the craziest when I'm in California, and
Speaker 4: I hear, you know, I think a lot of people
Speaker 4: are very smart Stanford kids who are very smart, and
Speaker 4: yet they could be very narrow minded and not have
Speaker 4: a very broad view. I heard some things like people say, well,
Speaker 4: maybe you don't need to think so much about climate change,
Speaker 4: for example, anymore, And I say, oh, well, why don't
Speaker 4: we have to think about climate change because AI will
Speaker 4: figure out what we need to do with climate change
Speaker 4: and implement everything. Maybe we don't need to be so
Speaker 4: careful about teaching kids how to read the great books
Speaker 4: or maybe even to read at all, because AI will
Speaker 4: just help us get there. And they're trying to manifest
Speaker 4: the eskaton in Silicon Valley. And there is also this
Speaker 4: bit of an apocalyptic error in which maybe the world
Speaker 4: will end in twenty twenty seven because AGI will be
Speaker 4: out there and it's not going to be aligned, and
Speaker 4: all of our world will kind of just end. I
Speaker 4: really don't buy that view. I believe that we have
Speaker 4: to have a longer term view about everything. There is
Speaker 4: kind of this sense often in DC. This is not consensus,
Speaker 4: but every so often when we'd hear that, oh, the
Speaker 4: Communist Party is so weak, their legitimacy is so thin
Speaker 4: and that might topple over at any moment, and we
Speaker 4: don't really have to treat it serious like that feels
Speaker 4: very much like cope. And there is also a Silicon
Speaker 4: Valley variant which is not really the same about China,
Speaker 4: but there is the sense that, well, you know, we're
Speaker 4: all going to ascend into utopia in twenty twenty seven
Speaker 4: when we know invent all the AI and the superintelligence.
Speaker 2: I like how binary everything is. It's either utopia or
Speaker 2: you know, the apocalypse. On the note of potential own goals,
Speaker 2: one of the things we've had now is years and
Speaker 2: years and years of US export controls on semiconductors going
Speaker 2: into China, and I remember you were very early in
Speaker 2: describing this as a sort of Chinese Sputnik moment, this
Speaker 2: idea that this was the moment when China really realized
Speaker 2: that it actually had to produce these things itself and
Speaker 2: try to regain or get the lead over the US
Speaker 2: when it comes to crucially strategic technology. Now that the
Speaker 2: dust has kind of settled, although clearly things are happening
Speaker 2: on the tariff side, but now that we've had years
Speaker 2: and years and years of export controls, does it look
Speaker 2: like that spurred China's technological development.
Speaker 4: I think that it definitely spurred Kina technology development. If
Speaker 4: we take a look at some of these sanctioned companies today, Smick,
Speaker 4: which was on the entity list in twenty twenty, now
Speaker 4: has double the revenues of that level. Huawei, which had
Speaker 4: the most severe export controls, it was kind of like
Speaker 4: a new export control invented specifically to heard Huawei has
Speaker 4: by now recovered its revenues back to the twenty nineteen
Speaker 4: pre sanctioned levels. And I being in China was just
Speaker 4: this really stark reminder that US export controls really accelerated
Speaker 4: a lot of Chinese efforts to do better. Now Beijing
Speaker 4: has always had this ambition to be a technology power.
Speaker 4: It's had this ambition for a very long time, but
Speaker 4: for the most part, it didn't have a lot of
Speaker 4: China's most dynamic companies willing to sign on. Because a
Speaker 4: lot of China's most dynamic companies, let's say Huawei, by
Speaker 4: Dance Dji, they were able to say to Beijing, well,
Speaker 4: we need to make the most efficient five G equipment,
Speaker 4: or the most efficient drones, or the most efficient short
Speaker 4: form video, whatever it is, products that we should export
Speaker 4: around the world, and therefore we need to be buying
Speaker 4: the best products in the world. And that was overwhelmingly
Speaker 4: things like Qualcom chips or Nvidia chips or whatever else.
Speaker 4: And what the US government did was that it recapped
Speaker 4: their ability to access US equipment at a stroke, and
Speaker 4: that fully aligned them into Beijing's goals of technology pursuit.
Speaker 4: And now you have Huawei being all sweetness and light
Speaker 4: to Chinese domestic vendors to say, well, why don't we
Speaker 4: work together. We really have a lot of common interests here.
Speaker 4: Huawei was not super big into semiconductors in twenty nineteen
Speaker 4: in terms of their production, but now Huawei is one
Speaker 4: of the biggest spenders in semiconductors R and D, and
Speaker 4: I believe I just saw a Bloomberg piece saying that
Speaker 4: Huawei's chips are now rolling off the production line, and
Speaker 4: that was something I think entirely created by the US government,
Speaker 4: that all of these fiercely competitive companies really were fighting
Speaker 4: for their lives solving seven problems a day before breakfast
Speaker 4: because they had to solve all of these problems, and
Speaker 4: I think that probably wasn't necessary. Over the broader strokes.
Speaker 3: One of the things that causes alarm for DC regarding China.
Speaker 3: I mean, look, it's great that countries are getting richer
Speaker 3: and the technological frontier is being pushed, and innovation anywhere
Speaker 3: theoretically can help anyone everywhere. But this question, and it's
Speaker 3: more sort of political, perhaps geopolitical, than economic, is does
Speaker 3: China have ambitions outside of its borders?
Speaker 1: Right?
Speaker 3: We know the US is we have military positions all
Speaker 3: over the place, and we clearly have ambitions outside of
Speaker 3: its borders. China has no formal alliances, I believe, with
Speaker 3: any country, etc. But there's always this concern what do
Speaker 3: you think about China's interest in the rest of the
Speaker 3: world beyond sort of export destinations.
Speaker 4: I think that China is very deeply interested in Taiwan
Speaker 4: and the South China Sea, and which it defines as
Speaker 4: within its own borders, and so that is a matter
Speaker 4: of dispute. I think that China is very keenly interested
Speaker 4: in dominating most of Southeast Asia, and.
Speaker 3: What is dominating me.
Speaker 4: I think that they would really like for the leaders
Speaker 4: of Malaysia and Vietnam and the Philippines to come regularly
Speaker 4: to Beijing, to Kawtel for the emperor's pleasure, and maybe
Speaker 4: that is a pretty big threat to US interests. I
Speaker 4: think that is something that we can debate. I would
Speaker 4: be skeptical that China has broader goals to seize Japan.
Speaker 4: I think that would be pretty fanciful. I think that
Speaker 4: China's success right now is building a lot of advanced manufacturing.
Speaker 3: You're right.
Speaker 4: I've been tracking this for a very long time. I
Speaker 4: remember my first appearance on odd Lass in twenty seventeen
Speaker 4: to talk about Made in China twenty twenty five, and
Speaker 4: I was pretty constructive that China was going to figure
Speaker 4: out a lot of these technologies, and I think that
Speaker 4: was fairly out of consensus at the time, and I
Speaker 4: think that was fairly. China has made incredible strides beyond
Speaker 4: my expectations of and I has been pretty bullish about
Speaker 4: a lot of that. And something I worry about is
Speaker 4: that I think that China's success in advanced manufacturing will continue.
Speaker 4: I just wrote a piece with Arthur Kroeber and Foreign
Speaker 4: Affairs pointing out that even though China's economy is slowing,
Speaker 4: and even though there's all sorts of problems with the
Speaker 4: economy and the political system, they're going to keep advancing
Speaker 4: on manufacturing and technology because they have the manufacturing process
Speaker 4: knowledge and they have the investments really to push them forward.
Speaker 4: And I think that we're already seeing that China is
Speaker 4: de industrializing Germany. Brat Setzer has great charts on this
Speaker 4: all the time, especially in the automotive sector. I think
Speaker 4: that China will continue to de industrialize the rest of
Speaker 4: East Asia Europe as well, and that will move on
Speaker 4: to the United States as well. And I don't have
Speaker 4: too many great views about the security threat or what
Speaker 4: is going to happen with military, but I think this
Speaker 4: the clear and present danger is that China's technology keeps
Speaker 4: advancing and that will further de industrialize parts of the
Speaker 4: Midwest as well as many parts of Europe, and I
Speaker 4: think that is going to create all sorts of political
Speaker 4: problems in the West as well, And that is the
Speaker 4: big danger that I'm nervous about.
Speaker 2: What does the US need to do in order to
Speaker 2: preserve its own manufacturing capacity, and I guess ideally build
Speaker 2: it out.
Speaker 4: I think there has to be a lot more investment
Speaker 4: in manufacturing process knowledge, which is all of the TACIT
Speaker 4: knowledge that we can't really write down that we have
Speaker 4: to have be a lot better at producing things like
Speaker 4: not only semiconductors, but also electric vehicle batteries and broader
Speaker 4: sets of electronics as well. I think it would be
Speaker 4: a good idea for the US to invite more Chinese
Speaker 4: companies to build factories in Michigan and Ohio Wisconsin find
Speaker 4: put some controls on them. But if China's Force technology
Speaker 4: program worked against let's say, Apple and Tesla and all
Speaker 4: of these other American companies, why don't we do it
Speaker 4: to them and learn from the best. In terms of manufacturing.
Speaker 4: I'm really skeptical that everything that the Trump administration right
Speaker 4: now is doing has been good for manufacturing. As best
Speaker 4: as we can tell, the US has lost forty fives
Speaker 4: manufacturing jobs since Liberation Day, and that was the last
Speaker 4: data reading that we have forty thousand jobs lost. I
Speaker 4: think that it doesn't make sense to pursue technology while
Speaker 4: decapping the NSF and the NIH, doesn't make sense tonecap
Speaker 4: top universities. It doesn't make sense to deport a lot
Speaker 4: of lower skilled labor that are really important for construction
Speaker 4: as well as manufacturing. And it doesn't make sense to
Speaker 4: try to intimidate higher skilled people researchers to be in
Speaker 4: the US as well. Now, maybe there's something good to
Speaker 4: be said for energy production in the US. There's probably
Speaker 4: something good to be said for the deregulatory agenda under
Speaker 4: Trump to build a little bit more, But right now
Speaker 4: I'm not seeing much energy and further to build more
Speaker 4: than let's say, detention centers, coal plants, skilled ballrooms, not
Speaker 4: really the sort of you know, advanced manufacturing that America needs.
Speaker 3: It's funny to think about coal powered electric vehicles in
Speaker 3: the future, coal powered AI data centers or whatever, but
Speaker 3: seems like a plausible thing that we'll see at one point.
Speaker 3: One area where the US is clearly dominant, and we've
Speaker 3: already touched on this is like global Internet services, and
Speaker 3: obviously you have what I guess now we'd call the
Speaker 3: legacy ones like your metas and Microsoft's and Amazon. But also,
Speaker 3: you know, open Ai is still you know, it's the
Speaker 3: biggest in the world, and it could be on scale
Speaker 3: and have a footprint as big as some of these
Speaker 3: other giants. It seems like the world is very happy
Speaker 3: to buy bid cars and other built things. But we
Speaker 3: saw the UK di Juae itself several years ago. Will
Speaker 3: the rest of the world adopt Chinese core tech or
Speaker 3: do you think there's still an anxiety about this, maybe
Speaker 3: because of perceptions of the influence that the party would
Speaker 3: have over these companies, et cetera. Does the US still
Speaker 3: enjoy a relative advantage in the comfort that around the
Speaker 3: world people have with using sort of US digital service.
Speaker 4: Certainly, I think there's a lot of governments that are
Speaker 4: really nervous about Chinese technologies the UK, there's all sorts
Speaker 4: of restrictions on Huawei products kind of globally, and we've
Speaker 4: seen even countries really friendly towards China really complain about
Speaker 4: how much it is flooding their markets. We've seen Brazil
Speaker 4: complain about this, We've seen Russia complain about this, and
Speaker 4: so I think governments all over the world are trying
Speaker 4: to have some measure to block Chinese goods. On the
Speaker 4: other hand, I think consumers really don't care, you know what.
Speaker 3: I mean, like for a car or you know, I
Speaker 3: would I'd like to show me phone. No, I don't know,
Speaker 3: maybe they look they look pretty cool, or a zte
Speaker 3: phone or.
Speaker 4: Powerful show that's a national security threat we are reporting you.
Speaker 4: But I think, yeah, definitely, there's a lot of people
Speaker 4: who camera. The cameras seem great, and the BYD cars
Speaker 4: and the Salami cars seem to be also really good
Speaker 4: as well. People want to buy these things, and I
Speaker 4: think the Chinese attitude is, Okay, if you want to
Speaker 4: terrify us, we'll challenge you in wto if that's still
Speaker 4: a thing or will you know, try to push back diplomatically,
Speaker 4: but we're not going to restrain our own exports. What
Speaker 4: we need to do is, you know, if you want
Speaker 4: to block our exports and make good it's more expensive
Speaker 4: for your consumers, that's on you. So, you know, I
Speaker 4: think that's kind of its attitude, and I think there's
Speaker 4: also some nervousness now among European governments from buying American Cloud.
Speaker 4: I don't know if that is going to necessarily lead
Speaker 4: to your purchases, but maybe.
Speaker 3: Tracy, do you have the show me dog feeder?
Speaker 2: No, that I wasn't even aware of that.
Speaker 3: Yeah, there's the thing. There's incredible showing with me. It's
Speaker 3: not just oh's the phone company? Then when cars? You know,
Speaker 3: there's a Shelby rice cooker. There's a shell me TOAs.
Speaker 2: What does the dog feeder do?
Speaker 3: I think it's like a smart dog feeder and it
Speaker 3: knows when to release more food into the bowl using
Speaker 3: all these centers.
Speaker 2: No, I'm old school. I just have a bowl that
Speaker 2: I feel.
Speaker 3: That might be my Christmas present too, if I can
Speaker 3: acquire one.
Speaker 2: Thank you. You're getting an autograph copy of Herman Melville's
Speaker 2: movie Deck if I can find one. Wait, I shouldn't
Speaker 2: say that because people will be like, oh, don't you
Speaker 2: know he's dead. You're getting a first edition of the
Speaker 2: Moby Dick if I can find.
Speaker 3: The Rockwell Kent illustration.
Speaker 2: Okay, all right, noted, I just want to go back
Speaker 2: to what we were talking about in the intro for
Speaker 2: a second, which is the new Involution campaign. Again, it
Speaker 2: seems like China is trying to get a handle on
Speaker 2: some of these overcapacity issues. Is it going to work,
Speaker 2: and what are your general thoughts on this fresh attempt.
Speaker 4: I was living in China when China first announced this
Speaker 4: big supply side reform effort back in twenty seventeen, when
Speaker 4: I tried to reduce a lot of its expansions in steel,
Speaker 4: and this was kind of the big effort. What's really
Speaker 4: different right now is that China's trying to control not
Speaker 4: really the activities of the say, own enterprise sector, is
Speaker 4: trying to control more of the activities of the private sector,
Speaker 4: and I think that is much more difficult as well.
Speaker 4: And I think, you know, it's going to be too
Speaker 4: early to say, but there may be a future in
Speaker 4: which China actually consolidates a lot of the solar production
Speaker 4: to bigger firms, but then all of them become much
Speaker 4: more capable, and they become much bigger threats to foreign
Speaker 4: solar makers to the extent that there are any. But
Speaker 4: consolidation is probably going to help raise quality because there
Speaker 4: are going to be fewer firms earning more profit that
Speaker 4: are going to be able to reinvest more in expansion
Speaker 4: in R and D. So I think that overproduction is
Speaker 4: kind of endemic to China, which is partly why it's
Speaker 4: the engineering state. This is what they're really good at.
Speaker 4: They're just not thinking enough about services, and so I'm
Speaker 4: skeptical that they're going to be able to really tamp
Speaker 4: down overproduction a little longer run.
Speaker 2: All right, Dan Wong, The book is breakneck. It's a
Speaker 2: fantastic read. Joe and I make a very brief appearance,
Speaker 2: so if anyone's interested in that as well, definitely pick
Speaker 2: it up. But d yeah, thank you so much for
Speaker 2: coming back on and for being on the Pod repeatedly
Speaker 2: over almost a decade.
Speaker 4: Now I want to be a friend of the Pod
Speaker 4: for the next decade as well.
Speaker 3: Thank you, Joe.
Speaker 2: Always good to have Dan on, and I'm so glad
Speaker 2: he's sort of like synthesized and laid out all of
Speaker 2: his thoughts because again, like Dan has been watching Chinese
Speaker 2: technology and analyzing the Chinese economy for years and years
Speaker 2: of fear was before it was cool, and really in
Speaker 2: many respects had a front row seat do some pretty
Speaker 2: big developments like the tech crackdown, like COVID zero policies
Speaker 2: in China. So it's really good to read his narrative
Speaker 2: and get his thoughts.
Speaker 3: No, Dan's the best. I love him. You know what's
Speaker 3: interesting I was thinking about and I saw some discussion
Speaker 3: of this online. I forget who. But one thing we
Speaker 3: didn't talk about is, you know, there isn't the persistent
Speaker 3: real estate slump right in China. They have not there
Speaker 3: has not yet been a bottom. It's not the end
Speaker 3: of the world. And actually cheaper housing. Many people would
Speaker 3: say that would be a nice problem they have in
Speaker 3: this perspective right now. But if you think about the
Speaker 3: combination of consolidating the private sector, if you say, okay,
Speaker 3: there's overproduction in the private sector, what that means is
Speaker 3: that there's a lot of people employed who shouldn't be
Speaker 3: or who are it's unsustainable. If you think about that shrinking,
Speaker 3: that's going to be a contributor to a softening in
Speaker 3: the real estate. That's fewer people of jobs, that's fewer
Speaker 3: people who can buy homes. See, when you think about
Speaker 3: the internal balances, there's some real attentions because it's like, yeah,
Speaker 3: of course, let's consolidate. But then you add to the
Speaker 3: woes of one of the biggest sectors in the economy.
Speaker 2: And I mean, we have seen the youth unemployment rate
Speaker 2: pick up recently, and I think that's where you start
Speaker 2: to get into some interesting questions around the social contract
Speaker 2: that the party has with people and this you know,
Speaker 2: expectation that living standards are going to continue to improve
Speaker 2: forever like that is the pressure on the party right,
Speaker 2: and to some extent, as you point out, it's intention
Speaker 2: with the idea of having very efficient companies that are
Speaker 2: operating at scale and at low cost.
Speaker 1: You know.
Speaker 3: One of the things too, it comes up I think
Speaker 3: in a lot of the China conversations is this sort
Speaker 3: of uselessness of a lot of political terms that we
Speaker 3: use here. It came up with Joseph Triggan when we
Speaker 3: were talking about a look, what is the right, you know,
Speaker 3: the the ultra left within the party, mean the ultra right,
Speaker 3: et cetera. But even hearing Dan talk about well it's
Speaker 3: a sort of right wing Leninist country, et cetera. Like
Speaker 3: these words that we use to describe politics, I think
Speaker 3: they maybe they detract more than they clarify when we're
Speaker 3: talking about China.
Speaker 2: I don't believe in political labels.
Speaker 3: Joe, No, that's good. That's good, all right. I respect that.
Speaker 3: Shall we leave it there, Let's leave it there.
Speaker 2: This has been another episode of the aud Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at The Stalwart.
Speaker 3: Follow Dan Wong He's at Dan w Wong, and of
Speaker 3: course check out his new book Breakneck. Follow our producers
Speaker 3: Carmen Rodriguez at Carman armand Dashill Bennett at Dashbot and
Speaker 3: kill Brooks at Kilbrooks. For more Odd Loots content, go
Speaker 3: to Bloomberg dot com slash odd Lots with the daily
Speaker 3: news letter and all of our episodes, and you can
Speaker 3: chat about all of these topics twenty four to seven
Speaker 3: in our discord Discord dot gg slash hotlines.
Speaker 2: And if you enjoy odd Lots, if you like it
Speaker 2: when we have Dan Wong on the show, then please
Speaker 2: leave us a positive review on your favorite podcast platform.
Speaker 2: And remember, if you are a Bloomberg subscriber, you can
Speaker 2: listen to all of our episodes absolutely ad free. All
Speaker 2: you need to do is find the Bloomberg channel on
Speaker 2: Apple Podcasts and follow the instructions there. Thanks for listening