September 1, 2025 • 49 mins
In the past couple of years, the world has fully awoken to the incredible economic and technological growth exhibited by China. But what lessons are there for America? Are there even lessons for America? Dan Wang, research fellow at Stanford University's Hoover History Lab, has probably been one of the foremost commentators and observers on China's rise, having taken seriously their efforts to push the technological frontiers for years now. Now, he's out with a new book BREAKNECK: China's Quest to Engineer the Future. On this episode, we talk about what he's seen in the country, whether China is legitimately on the road to socialism, and how perceptions of the country have changed since he started doing his research.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe. Wasn't thal Joe.
Speaker 2 (00:24):
We are recording this on August twenty seventh. Did you
catch the Trump Cabinet meeting yesterday?
Speaker 3 (00:32):
I saw your tweets and they looked like some of
the most obsequious. I mean a lot of these unusually obsequious.
But even yes, I.
Speaker 2 (00:42):
Saw your tweets, you could just say yes. So there
are a bunch of things that stood out, But one
in particular was Donald Trump talking about building out new
energy capacity and he said specifically, I'm going to quote here.
You know, in China they do it very quickly. They
have one person that says do it, and that's it.
(01:02):
But essentially, we have one person that says do it,
and we've given that order.
Speaker 3 (01:07):
Yeah, you know, like he's very abundance coded. He wants
to like he wants to get rid of all of
the uh or he seems to have this impulse to
get rid of all of the myriad checks and balances
and all these things that stand in the way of
developing things. So it sounds like Trump is abundance pilled.
I assume that's the direction you're going on. Yes.
Speaker 2 (01:26):
If there's one thing I think you could say about
China's economy and it's political economy, it is that China
is pretty good at building things, yes, right, And we've
seen various examples of that over time. Back when I
was living in Hong Kong, I took the high speed
rail from Hong Kong to Beijing and that was absolutely amazing.
You get to Beijing in less than a day. The
US is nowhere near having anything like that, and I
(01:50):
speak as someone who takes Amtrak in the Northeast regularly.
On the other hand, China at various times has produced
too much.
Speaker 4 (01:59):
Right.
Speaker 3 (02:00):
It's accused as such, right. I know that people say.
Speaker 2 (02:03):
This, okay, But for instance, you think back to the
Ghost City, Sure bridges to nowhere.
Speaker 3 (02:10):
Sure at they were bridges to nowhere at the time.
Speaker 2 (02:13):
Amusement parks that no one goes to.
Speaker 3 (02:15):
Definitely, although we have amusement parks here that no one
goes to.
Speaker 2 (02:18):
Disagree or disagree hard. But this has sparked a new
movement in China by policymakers called involution yes, which is
basically an attempt to reduce over capacity in terms of
building things.
Speaker 3 (02:32):
There's definitely no question that there does seem to be
this phenomenon which the government in Beijing seems highly cognizant of,
which is this sort of like profitless competition, much of
it driven by the incentive structure that is borne by
the provinces promoting their local champions, and so far as
much like sort of success as some of these companies
(02:53):
have on some metrics, there's no money to be made
in many cases. It sounds sort of nice from the
consumer perspective, you know, it's like Zurbier twenty tens when
we were all getting like, you know, cheap ubers and
stuff like that. But you know, there's a seems to
be a risk of certain internal imbalances on that.
Speaker 2 (03:09):
I think the issue is you have a lot of
companies who are basically producing all the same thing and therefore,
you know, racing to the bottom in terms of price,
and no one can actually make money. And I don't
know about you, but if I was a startup founder,
I would probably want to make money right at some point.
I would not want to be locked in a forever
competition in terms of who could drive the absolute lowest cost.
Speaker 3 (03:31):
Well, what if you were just a normal consumer who
wasn't a founder?
Speaker 2 (03:35):
Sadly, that is what I am. Okay, Well, on this note,
we have the perfect guest. We're going to be speaking
with Dan Wong, friend of the Pod and who has
just written a new book called Breakneck China's Quest to
Engineer the Future. He's also a research scholar at the
Hoover Institution. So Dan, welcome back to the show.
Speaker 4 (03:54):
Thanks so much, Tracy, really glad to talk about moby
Dick with my friends.
Speaker 3 (04:00):
Why do coach trouble? Why do you coble?
Speaker 2 (04:02):
You know, I was actually wondering if you were going
to bring up the Moby Dick reference.
Speaker 4 (04:06):
The problem Joe, I've been a ket for a very
long time. Maybe this is the way needs to be
getting into That's.
Speaker 2 (04:12):
Right, okay, simple question to start. Why does China like
building stuff?
Speaker 4 (04:17):
China likes building stuff because it is made up of
leadership that is very heavily engineering pilled. Many of them
have been engineer's trained of a very Soviet sort, hydraulic engineers,
electrical engineers, thermal engineers, which is kind of a termine China.
That means producing coal and processing coal, they treat the
(04:39):
megaproject as the solution to every problem. They are building
enormous dams. They're building a big new dam now that
is going to use sixty times more concrete than the
Hoover dam. They're it's going to produce I think, three
times as much power as the three gorgeous dam. But
this is a lot of their solutions to a lot
of different economic problems and social problems as well. That
(05:02):
new highways, new homes, coal plants, hyperscalers. It's what they
know how to do, and it's what they're going to do.
Speaker 3 (05:08):
First of all, Before we go any further, I just
want to say it, like, having spoken to for years,
I'm thrilled of all the recognition you're getting for this book.
I know we weren't like the first to discover Dan Wong.
I think Tyler Cowen got there first, but it's been
fantastic talking to you over the years, and there's sort
of like a vindication I think of your career, et cetera,
because now everyone wants to see the world through the
(05:30):
Dan Wong lund. So think I just wanted to say
how exciting it is and happy for you that you're
getting all.
Speaker 2 (05:36):
This is channeling the Trump cabinet.
Speaker 3 (05:38):
Oh wow, I'm being am I Trump. Yeah, yeah, I guess, okay, good, Okay.
As Tracy mentioned, Trump talked about you know if someone
says do it and then they do it. But I'm curious,
like how much is it? Would you say, like the
political system really allows for that versus the actual like
breadth of labor and just engineering knowledge, Like how would
(06:01):
you tilt the sort of political structure versus the skills.
I think it's both.
Speaker 4 (06:06):
So China has a lot of economic ministries like the NDERC,
the National Development and Reform Commission, and the MIIT, the
Ministry of Industry and Information Technologies. You have all of
these planners that are making new plans all the time,
and they have exactly great plans to know where the
next subway station in Beijing or Shinjin or quimming On
(06:29):
to go. And so there's plenty of shovel ready projects
because people have already been planning for these things for years.
And every time China's economy has any sort of a wobble,
then the Communist Party says, okay, well we're going to
build another really big dam, or we're going to build
more highway systems. So you have a lot of shovel
ready projects in place, and then you have the government
(06:50):
thinking that while pouring more concrete is still going to
be the solution to a lot of our different problems.
And on top of that, you have a very skilled
manufacturing workforce. You have a very skilled public sector that
has been building a lot of high speed trains, that
have been building a lot of big ships, that have
been building subway systems. They know how to do this stuff,
and so it just comes really naturally. You have the
(07:12):
system plus the politics all favoring a lot of construction.
Speaker 2 (07:15):
When you say Chinese policy makers are made up of engineers,
I have two questions. So one, how did that come
to be? And then secondly, could you maybe give us
some specific examples of how that manifests in actual policy. So,
for instance, does having an engineering background make you perhaps
better at making strategic decisions about economic priorities? Like how
(07:38):
does that background actually come into play?
Speaker 4 (07:42):
I think China's engineering state has deep roots, but the
modern manifestation really took shape after the nineteen eighties when
dunzhel Peing took over from the total mayhem of the
mal Years and dounzheal Peing thought, well, Mao was kind
of this poet. He was a warlord, he was a romantic,
(08:02):
he was a murderer.
Speaker 3 (08:03):
What is the opposite of all of that.
Speaker 4 (08:05):
Well, we're going to put mechanical engineers within the polit bureau,
and that is exactly what Deng Xiaoping did. So throughout
the nineteen eighties and the nineteen nineties, don't put a
lot of engineers in the polit bureau, such that by
the year two thousand and two, every single member of
the Standing Committee, all nine people, especially Hu Jintao and
Buen Jabal, the General Secretary and the Premier at the time,
(08:25):
everyone had degrees in engineering, and that.
Speaker 3 (08:28):
Has fluctuated a little bit.
Speaker 4 (08:30):
By the time that Seizing Pain came to office, who's
undergrad was a chemical engineer, I think he saw the
light and his doctorate was Marxist economics, so you know,
we have a pseudo economist up there. By the time
that he came into office, his Premier, He Kutiang, was
trained in I believe law in the economics. But now
in the twentieth Party Congress after twenty twenty two, China's
(08:53):
engineers are really dominant again, which you have a lot
of people from the military industrial complex in the top
of the politbureau. But I also want to suggest, but
playfully and lightly, that there are ancient roots of China's
engineering state as well. This is famously the state that
administered a vast exam nation system, which people became mandarins
(09:16):
by doing these exams administered by the court.
Speaker 3 (09:19):
You had a lot of.
Speaker 4 (09:21):
Chinese emperors that didn't hesitate to conscript people to build
great walls or grand canals. So these are fortifications and
waterway systems, and so I don't want to take this
too literally, but you can sort of see how a
lot of emperors never really hesitated to completely restructure a
person's relationship to our land. And so that's a little
bit deeper too.
Speaker 3 (09:41):
So, you know, Tracy mentioned that, and I have no
doubt that it is true that there's you know, these
various like white elephant projects are things that get built
that aren't necessary. In your book talks about them. All
that being said, it seems like one of the objective
facts in the world is that Chinese living standards and
the economy has dramatically in the last ten twenty years,
(10:02):
like to an extraordinary degree. Does the success of all
these Chinese planning boards? Do you think it strikes a
heart in certain conventionalism, planning isn't supposed to work. Economists
are very skeptical of planning, the hi Ekian idea that
the market and prices are the best signals for these things.
What kind of challenge does China's success opposed to some
(10:24):
of these ideas.
Speaker 4 (10:25):
I don't want to think that China's success strikes at
the very heart of planning in economics. I think that
China has not demonstrated the success of central planning a
large I think I would defend a narrower case that
a lot of construction has been good for a lot
of people. So I think that China is what other
(10:48):
tests is there? Well, maybe there are other tests, which
is that whether people are happy. I think that is
a decent test, whether they feel the ability to have
creative expression, whether they feel that their lives are going
to be better because they're able to save some money.
I think not just about the physical living standards, although
I think that is really important because I've spent plenty
(11:08):
of time in China's rich re zones. I was living
in Hong Kong, Beijing, and Shanghai, where you can see
that these cities get better and better every year. You
have new subway stations. Shanghai this year will have a
thousand parks, up from five hundred in twenty twenty. All
of these cities are really highly functional. I've been in
China Southwest and Gwaijo Province, China's fourth poorest province, and
(11:31):
you have these enormous bridges that are bridges to nowhere
when they start, but then to nowhere has become maybe
two somewhere, so after it is built, and people actually
feel a lot of pride about all of these things.
And so I think that a lot of construction, a
lot of home building, a lot of electricity production through
coal as well as hydro and solar, these things are
all really good. I think you can definitely point to
(11:52):
a lot of costs. There's a lot of material waste
and all of this concrete that's very carbon intensive. There's
a lot of financial problems. Squadjo can't really pay a
lot of its debts right now. There's a lot of
displacement of people. Three gorgious scam display something like a
million people. I would say that physical construction is mostly
pretty good, though there are plenty of costs.
Speaker 2 (12:12):
We talk more about financial problems from all of this,
because obviously the local government debt situation has been much discussed.
But you point out in the book, for instance, that
you can see evidence of some of this impact in
things like Chinese stocks. So because you have all these
companies who are basically racing to the bottom in terms
of price, it's difficult for them to produce a profit,
(12:34):
and so the stock price basically has traded sideways for
like a decade. I guess part of that would also
be capital controls and the impact from that. But how
does this manifest in terms of finances.
Speaker 4 (12:45):
Well, let's take a look at something like the solar industry,
which I think is kind of an emblematic Chinese success.
You have China producing something like ninety percent of the
solar PV modules in the world. But China isn't only
producing the final product, it is also producing all of
the polysilicon as well as all the tools to produce solar.
And in the solar industry, you have basically zero differentiation
(13:09):
between most of the big solar producers. You know, something
like the third largest solar producer in China is not
that different from the fifteenth largest, and maybe not even
that different from the thirtieth largest. They're all making pretty
undifferentiated products. And what this has represented is kind of
a strategic trium for the Chinese government that they have
a lock on one of these critical industries of the
(13:30):
future that a lot of countries will need. It is
awesome for consumers everywhere. So if you are trying to
build a solar panel onto your roof, either in China
or in the US, you know, solar costs have plunged
something like ninety four percent since the year two thousand
or so. I think that's about the right figure. And
it's been total misery for these companies as well as
(13:52):
their investors. And maybe this is what socialism with Chinese
characteristics means, which is a lot of state power, a
lot of consumer power, but not very much financial investor's benefit.
Speaker 3 (14:19):
So, speaking of her novelle this is not about Moby Dick,
I'm actually thinking about his novella Bartleby, in which you know,
the famous character Bartleby decides I would prefer not to.
He's working on Wall Street and then one day he
would prefer not to, and the people around him are
completely exasperated at this person. And of course we saw
a few years ago people were talking about the live
(14:40):
flat movement, And so when you talk about, oh, you know,
like perhaps it's come at the cost of happiness, Like
how wide spread is this? How much of this success
in China? I mean one of the other aspects of
you know, unions aren't legal in China. I presume striking
isn't legal in China, and so forth, Like how much
of this material success that everyone enjoys to some extent
(15:03):
in your view, has come down to sort of extracting
the worker surplus. And how big do you think is
there like a larger brewing impulse to fight against that.
Speaker 4 (15:13):
Well, when I first read bartle B the Scrivener, I
saw some commentary that it's actually a lot about homo eroticism.
I thought that maybe that's where we were going to go,
but maybe we'll take a look at that later. I
think that whether people in China are happy is always
a very interesting and excessively broad question, and I always
wonder about things like.
Speaker 3 (15:33):
That, if anyone's happy in the world, but keep going.
Speaker 4 (15:35):
You know, Bhutan, with something like four traffic lights in
the country is supposed to be super happy. We don't
really get that. Certainly, we can observe that there are
a lot of Chinese, mostly elites, who are interested in
creative expression. Many of them have become deeply unsatisfied. So
they are moving to the Netherlands, They're moving to New York,
(15:57):
They're moving to Chang Mai. I've seen some of their
events here in New York. There's a feminist stand up
comedy which is, you know, having a lot of comedy
shows in Chinese. That is pretty active of a scene
here in Manhattan actually, And so there's a lot of
people journalists who have had their pieces completely censored Six
Ways to Sunday who are pretty dissatisfied. There's plenty of
(16:20):
people dissatisfied in Shanghai who had a horrible time throughout
the lockdown. And we had these astonishing numbers of something like,
at its peak, forty thousand Chinese flying to Ecuador where
they don't have to get a visa to walk up
to the southwestern border in the United States because they
are so upset with a seizing pain. But it's the
broader mass of Chinese unhappy, well pretty hard to say.
(16:43):
I think there are plenty of people who are working
for state don't enterprises and you know, not really enjoying
much of their time there. You could be working for
one of these big tech companies and working nine ninety
six hours nine am to nine pm, six days a week,
and that's not very happy. You could be living with
your parents.
Speaker 3 (17:00):
Because which, by the way, is the same Silicon Valley.
Speaker 4 (17:03):
Well, I thought it was the same as Bloombergley, but yeah.
Speaker 3 (17:05):
It's probably nine nine to seven in Stilicon Valley.
Speaker 2 (17:07):
But do you get equity in the company in return
for your hard work?
Speaker 4 (17:10):
Maybe some of them do, but it's probably not to
the same extent in Silicon Valley. But at the same time,
you know, if you're a young Chinese living in Shanghai,
perhaps your cause of living is not super high because
they're living with your parents. You get to save some
money by working at a state owned enterprise. You have
excellent cafes popping up all the time. A lot of
things are pretty cheap. You can get a bowl of
(17:32):
noodles really cheaply. And you know, for people who are
debating whether they want to try to make a career
in London or New York and try to be really
ambitious or just have a thumping lifestyle life flat lifestyle
in Shanghai. Maybe that's kind of a wash. So I
don't see simmering discontent that threatens the top older gem,
but certainly there are plenty of people dissatisfied.
Speaker 2 (17:54):
There's also arguably a sort of existential dread hanging over
certain sectors or certain entrepreneurs, which is that at any time,
the Chinese government could change its mind about what industry
it actually wants to promote and nurture. And we saw
that happen. I think when you and I were both
in Hong Kong in twenty twenty slash twenty twenty one,
(18:17):
and this was a big deal. So this idea that
China all of a sudden kind of turned its back
on more consumer oriented technology companies, how big of a
legacy did that have or how big of an impact
did that have on the sort of entrepreneurial spirit of China.
Speaker 4 (18:35):
There's plenty of data to suggest that VC funds in
China are having a hard time actually raising funds and
also having a hard time deploying their capital. Certainly, it's
become pretty difficult for a lot of startups to exit
because they can't necessarily list in the US, and they
can't necessarily list very easily in China as well. China's
consumption over the last few years has been pretty limp
(18:57):
after the COVID crackdowns. A lot of companies had to
have pretty extensive layoffs, and they're just not having a
really easy time given the limp consumption, spending really large
in China. I think this goes to a kind of
a broader point within authoritarian systems, which is that no
one feels very safe in a lot of authoritarian systems.
(19:19):
You can be an elite in Beijing, and what is
your life going to be? Your life could be working
in the financial industry, which is a definite elite everywhere,
including in Beijing. And two years ago, Beijing announced that
it was going to have a salary cap of three
hundred thousand dollars roughly for people working in state owned banks.
And if you made over that figure the last couple
(19:41):
of years, you may have to give some money back
to the government. Maybe you're working for a tech company
and you think that online education is going to be
totally safe, because Chinese love education and they're always going
to be spending more money on their kids, and then
that worked until the government declared everything must be a nonprofit.
If you're working for the military, if you're working for
the government, your life could be subject to either a
(20:03):
corruption crackdown or some sort of the political wins changing
and your patron is no longer in place, and then
your whole network of patronage has to fall. And so
this is one of these things where there is kind
of this apocalyptic sense that hangs over you if you're
living in Beijing, Shanghai, perhaps even in Hong Kong, where
a lot of your life could fall apart and there's
(20:23):
no one really to protect you, no lawyers that you
can turn to, the court system to really turn to.
Speaker 3 (20:29):
You know, one of these things that comes up a lot,
and I don't really find it to be that interesting
with a conversation. Look, oh, is China a communist or capitalist?
And it seems like a very tedious conversation. I mean,
it has a you know, a leninist system of government.
I think that fact says to say, is it going
in the direction of something that we could call socialist?
I think Doung Choupang said the goal was to have
(20:51):
a modern socialist state by year twenty forty nine, So
twenty four years from now, is it going into direction
that would be described this is so well, there.
Speaker 4 (21:01):
Are a bunch of Marxists over there, and they would
always tell you that history is the most important and
we are marching towards socialism. So their answer is yes.
I have my doubts. I took a look at China
today and I think it is the most right wing
major country in the world. This is a country that
really prizes manufacturing above all else. It doesn't really have
much by way of immigration. You have a state that
(21:24):
enforces totally traditional gender roles, and you have a pretty
minimal welfare safety net. Where taxes in China are not
actually that high. It is pretty regressively funded on consumption taxes.
This is a country that arrests union organizers and that
has busted up certain Marxist reading groups in universities. And
I take a look at that, and I think, doesn't
(21:46):
this look kind of like Eisenhower's America? You know?
Speaker 3 (21:48):
This is it certainly doesn't soun liberal.
Speaker 4 (21:51):
It doesn't sound very liberal at all, and I'm not
even sure if it sounds very socialist. There is absolutely
a Leninist aspect in which state control of public enterprises.
You know, public ownership of production is very much real.
Many important sectors telecommunications, aviation, energy are state owned, and
you have some redistribution between the provinces. But you know,
(22:12):
kind of my handy snapshot is not to think of
China as socialists or autocratic. I think these are pretty
limited terms that don't really offer much anymore. My simple
formulation of China is that it is a Lendinness technocracy
with grand Opera characteristics, pretty rational most of the time,
but then every so often we'll do something pretty preposterous
and then kind of collapse in something really ridiculous.
Speaker 2 (22:35):
That said, we have seen recently China make some moves
to boost social safety nets. So they've said they're going
to you know, do more for seniors, and they're also
going to try to boost consumer spending. One thing that
I thought was kind of amusing was they basically rolled
out a cash for clunkers equivalent. And again, I think
of all those things focus on consumer spending, social safety nets,
(23:00):
though arguably in the US those are perhaps declining cash
for clunkers, that sort of thing. I think that is
very American in many ways in terms of the political economy.
And meanwhile in the US, you know, Trump is talking
about how he wants to be more efficient in terms
of controlling the economy. Like China. We've also had some
instances of the US government taking stakes in companies recently
(23:24):
that seems very Chinese in certain respects. Is the US
starting to emulate China and China emulate.
Speaker 4 (23:32):
The US tracy? When I first heard of the tariffs
on Liberation Day, I thought that liberation doesn't sound very
much like an American word. It sounds much more like
a Chinese word to my ears.
Speaker 3 (23:45):
Now five liberations campaign.
Speaker 4 (23:47):
Yes, right, we're going to liberate Taiwan into socialism. You know,
this is what they're up to. And certainly there are
a lot of aspects in which the US and Trump
in particular, is copying China. We are making Intel a state,
don't enterprise with American characteristics. There's a lot of questions
now with data probity and whether the unemployment figures are
(24:09):
going to be well reported, And there is kind of
just this you visiting stochastic terror on the downtrodden, especially
undocumented immigrants, and all of these things are not very
nice things that I think that Trump is learning from
c and right now, I think what we have is
authoritarianism without the good stuff, and the good stuff of
(24:31):
actually building quite a lot of mass transit and clean
technology generation, clean energy generation. Rather, we don't really have
the Port Authority bus terminal being built and renovated on time.
You don't have California high speed rail. We don't have
smoothly functional cities that have a lot of public order.
And I don't think that the US should try to
(24:52):
emulate a lot of these things. But I think there
are better things to emulate, because a lot of what
Trump is building are gilded ballrooms and detention centers. I had,
you know, we're getting quite a lot of just I
think many of the worst aspects of authoritarianism.
Speaker 3 (25:06):
You know, I'm curious, I say, at the beginning, you've
had this huge rise. Everyone is obsessed with this story
right now. Everyone, it's just every every day I wake up,
it's on social media, it's coming from DC, it's et cetera.
Everyone is sort of maybe miles of gate, but the
capacity of China to build that, damn Or you know,
you open uh Instagram and it's some crazy drone show
(25:29):
or something like that that shows the technical prowess there.
You know, this wasn't the case the sort of popularization
of all this when you started your book, or certainly
not the first time we had you on this show.
What do you make of that, Like, how has perceptions
of China changed, or maybe even your own perception of
China changed since you started really focusing on this stuff.
Speaker 4 (25:51):
Well, Joe, maybe Chinese industrialism has been my white whale
for a lot of time.
Speaker 3 (25:56):
I'm sorry, I'm sorry, I'm sorry.
Speaker 4 (25:59):
I moved to Hong Kong at the start of twenty
seventeen from Silicon Valley, where I used to be working,
in part because I was feeling that a lot of
the technologies that was important in Silicon Valley at the
time were not so interesting. It was a lot of cryptocurrencies,
was a lot of consumer platforms. We hadn't even gotten
(26:19):
to SaaS for business yet, and so it was just
not that interesting. And so when I had lunch with
Arthur Kroeber and you told me about something called Made
in China twenty twenty five, I thought that ultra high
voltage transmission, electric vehicle batteries, memory trips, these were far
more interesting. But I felt that it was actually making
a distinctively popular decision among my Silicon Valley peers because
(26:44):
they thought that they were the center of the universe,
which is a view they still hold. And what are
we doing if we're not being in San Francisco and
not pursuing some aspect of tech? And so when I
moved to China, it definitely didn't feel like the elitist
popular thing to do. But I was really glad to
go take a look at what China was building. And
I think that there is a broader sense in Silicon
(27:05):
Valley that tech is important, but non tech is also important.
Right now, I feel like a lot of folks in
Silicon Valley, where I spend a lot of time as
a fellow at Hoover, you know, a lot of folks
are trying to build God in a box, and that
attention has shifted to AI, and I feel like that
has become a totalizing aspect once more, and I feel
like part of my task is still to remind people
(27:26):
that drones are important and bridges are important, and we
live in a material world, and you know, let's build
up a manufacturing base as well.
Speaker 2 (27:50):
So with the focus shifting to AI, you could make
an argument that the US has the lead there still,
even though we've seen moments of panic with the deep
Seek model early this year and things like that. But
on the other hand, I suppose you could argue that
AI also needs vast amounts of physical infrastructure, including data centers,
energy chips. Who has the upper hand when it comes
(28:12):
to AI.
Speaker 4 (28:13):
I don't have a super strong view on this, but
I could outline a potential scenario in which China is
going to be leading on AI based on a few factors.
First and most important, as you point out, Tracy, that
China has a lot of electrical power. So the US
may have all of the computing because it has all
of the advanced chips from Nvidium. As Howard Letnik says,
(28:35):
China has a best the fourth best chips in terms
of AI, and that is a pretty substantial constraint. But
what is a bigger US constraint, maybe right now going forward,
is that there just isn't enough electrical power, especially if
Trump is taking winterbines offline and being very discriminatory about
certain types of energy. And China I think has organized
(28:57):
itself as a civilization to nine nothing towards heavy industry
whatever heavy industry wants it is going to get and
that could be powered by solar, could be powered by wind,
it could be powered by coal, it could be powered
by nuclear. But China will not have this issue that
META faced earlier in the end of last year, in
which a rare species of be prevented META from building
(29:19):
a giant new power facility, and China will definitely not
do that. So China has a lot of electrical power.
China may not have a lot of advanced chips, but
it has a lot of mature chips which are going
to be necessary for inference. So if we do invent
God in a box, you know, we're going to be
running queries all the time to figure out how to
automate and shop and whatever else. And that is going
(29:40):
to require a lot of processing power. And I think
this is where China's mature chips are going to have
a pretty good advantage. And China also has I think
another unique advantage, which is that training data might be
more strategically valuable. China has most of the manufacturing capacity
in the world, or about thirty percent of manufacturing value
(30:01):
add but that is quite a large chunk. And you
know what does the US have, Well, we have a
lot of consulting companies and a lot of healthcare companies.
So maybe the US will automate something on the scale
of McKinsey, and China will automate something on the scale
of fox Con. And you know, they're going to have
a lot more manufacturing production and we're going to have
a lot more better consultants.
Speaker 2 (30:23):
Yeah, I suppose there's a synergy here where you could
use AI to make your manufacturing more efficient.
Speaker 3 (30:29):
Right, No, totally, And we talked to Cameron Johnson about that,
the diffusion of AI within it, and right, like a
factory that's monitored properly is brimming with fresh training data
all the time, and that has a compounding effect and
the accelerating effect and so forth potentially widening that gap.
I want to ask actually another AI question. It's not
even about US China per se, maybe more US question.
(30:53):
Use the word totalizing. And I've been thinking about this
exactly in a couple of different ways. Like one is,
like I wonder about whether people have lost interest in
things like say, drug discovery in part because of this
implicit assumption, Well, once we achieve AGI in two years,
that will do all the drug discovery, So why are
we even bothering with working on that in the meantime?
(31:16):
And also it feels like much of culture strikes me
in the US as sort of disappearing and other things
like that. People are just sort of losing interest in
lots of things because AI is crowding out in the
psychological space everything else. And I'm curious if, in your
time in Bay Area think about these things, whether that
rings sure or not.
Speaker 4 (31:36):
Definitely, I hear the craziest when I'm in California, and
I hear, you know, I think a lot of people
are very smart Stanford kids who are very smart, and
yet they could be very narrow minded and not have
a very broad view. I heard some things like people say, well,
maybe you don't need to think so much about climate change,
(31:59):
for example, anymore, And I say, oh, well, why don't
we have to think about climate change because AI will
figure out what we need to do with climate change
and implement everything. Maybe we don't need to be so
careful about teaching kids how to read the great books
or maybe even to read at all, because AI will
just help us get there. And they're trying to manifest
(32:19):
the eskaton in Silicon Valley. And there is also this
bit of an apocalyptic error in which maybe the world
will end in twenty twenty seven because AGI will be
out there and it's not going to be aligned, and
all of our world will kind of just end. I
really don't buy that view. I believe that we have
to have a longer term view about everything. There is
(32:41):
kind of this sense often in DC. This is not consensus,
but every so often when we'd hear that, oh, the
Communist Party is so weak, their legitimacy is so thin
and that might topple over at any moment, and we
don't really have to treat it serious like that feels
very much like cope. And there is also a Silicon
Valley variant which is not really the same about China,
but there is the sense that, well, you know, we're
(33:03):
all going to ascend into utopia in twenty twenty seven
when we know invent all the AI and the superintelligence.
Speaker 2 (33:09):
I like how binary everything is. It's either utopia or
you know, the apocalypse. On the note of potential own goals,
one of the things we've had now is years and
years and years of US export controls on semiconductors going
into China, and I remember you were very early in
describing this as a sort of Chinese Sputnik moment, this
(33:32):
idea that this was the moment when China really realized
that it actually had to produce these things itself and
try to regain or get the lead over the US
when it comes to crucially strategic technology. Now that the
dust has kind of settled, although clearly things are happening
on the tariff side, but now that we've had years
(33:52):
and years and years of export controls, does it look
like that spurred China's technological development.
Speaker 4 (33:58):
I think that it definitely spurred Kina technology development. If
we take a look at some of these sanctioned companies today, Smick,
which was on the entity list in twenty twenty, now
has double the revenues of that level. Huawei, which had
the most severe export controls, it was kind of like
a new export control invented specifically to heard Huawei has
(34:19):
by now recovered its revenues back to the twenty nineteen
pre sanctioned levels. And I being in China was just
this really stark reminder that US export controls really accelerated
a lot of Chinese efforts to do better. Now Beijing
has always had this ambition to be a technology power.
It's had this ambition for a very long time, but
(34:39):
for the most part, it didn't have a lot of
China's most dynamic companies willing to sign on. Because a
lot of China's most dynamic companies, let's say Huawei, by
Dance Dji, they were able to say to Beijing, well,
we need to make the most efficient five G equipment,
or the most efficient drones, or the most efficient short
form video, whatever it is, products that we should export
(35:01):
around the world, and therefore we need to be buying
the best products in the world. And that was overwhelmingly
things like Qualcom chips or Nvidia chips or whatever else.
And what the US government did was that it recapped
their ability to access US equipment at a stroke, and
that fully aligned them into Beijing's goals of technology pursuit.
And now you have Huawei being all sweetness and light
(35:24):
to Chinese domestic vendors to say, well, why don't we
work together. We really have a lot of common interests here.
Huawei was not super big into semiconductors in twenty nineteen
in terms of their production, but now Huawei is one
of the biggest spenders in semiconductors R and D, and
I believe I just saw a Bloomberg piece saying that
(35:44):
Huawei's chips are now rolling off the production line, and
that was something I think entirely created by the US government,
that all of these fiercely competitive companies really were fighting
for their lives solving seven problems a day before breakfast
because they had to solve all of these problems, and
I think that probably wasn't necessary. Over the broader strokes.
Speaker 3 (36:05):
One of the things that causes alarm for DC regarding China.
I mean, look, it's great that countries are getting richer
and the technological frontier is being pushed, and innovation anywhere
theoretically can help anyone everywhere. But this question, and it's
more sort of political, perhaps geopolitical, than economic, is does
(36:26):
China have ambitions outside of its borders?
Speaker 1 (36:29):
Right?
Speaker 3 (36:29):
We know the US is we have military positions all
over the place, and we clearly have ambitions outside of
its borders. China has no formal alliances, I believe, with
any country, etc. But there's always this concern what do
you think about China's interest in the rest of the
world beyond sort of export destinations.
Speaker 4 (36:49):
I think that China is very deeply interested in Taiwan
and the South China Sea, and which it defines as
within its own borders, and so that is a matter
of dispute. I think that China is very keenly interested
in dominating most of Southeast Asia, and.
Speaker 3 (37:06):
What is dominating me.
Speaker 4 (37:08):
I think that they would really like for the leaders
of Malaysia and Vietnam and the Philippines to come regularly
to Beijing, to Kawtel for the emperor's pleasure, and maybe
that is a pretty big threat to US interests. I
think that is something that we can debate. I would
be skeptical that China has broader goals to seize Japan.
(37:29):
I think that would be pretty fanciful. I think that
China's success right now is building a lot of advanced manufacturing.
Speaker 3 (37:38):
You're right.
Speaker 4 (37:38):
I've been tracking this for a very long time. I
remember my first appearance on odd Lass in twenty seventeen
to talk about Made in China twenty twenty five, and
I was pretty constructive that China was going to figure
out a lot of these technologies, and I think that
was fairly out of consensus at the time, and I
think that was fairly. China has made incredible strides beyond
my expectations of and I has been pretty bullish about
(38:02):
a lot of that. And something I worry about is
that I think that China's success in advanced manufacturing will continue.
I just wrote a piece with Arthur Kroeber and Foreign
Affairs pointing out that even though China's economy is slowing,
and even though there's all sorts of problems with the
economy and the political system, they're going to keep advancing
on manufacturing and technology because they have the manufacturing process
(38:23):
knowledge and they have the investments really to push them forward.
And I think that we're already seeing that China is
de industrializing Germany. Brat Setzer has great charts on this
all the time, especially in the automotive sector. I think
that China will continue to de industrialize the rest of
East Asia Europe as well, and that will move on
to the United States as well. And I don't have
(38:44):
too many great views about the security threat or what
is going to happen with military, but I think this
the clear and present danger is that China's technology keeps
advancing and that will further de industrialize parts of the
Midwest as well as many parts of Europe, and I
think that is going to create all sorts of political
problems in the West as well, And that is the
big danger that I'm nervous about.
Speaker 2 (39:06):
What does the US need to do in order to
preserve its own manufacturing capacity, and I guess ideally build
it out.
Speaker 4 (39:13):
I think there has to be a lot more investment
in manufacturing process knowledge, which is all of the TACIT
knowledge that we can't really write down that we have
to have be a lot better at producing things like
not only semiconductors, but also electric vehicle batteries and broader
sets of electronics as well. I think it would be
a good idea for the US to invite more Chinese
(39:35):
companies to build factories in Michigan and Ohio Wisconsin find
put some controls on them. But if China's Force technology
program worked against let's say, Apple and Tesla and all
of these other American companies, why don't we do it
to them and learn from the best. In terms of manufacturing.
I'm really skeptical that everything that the Trump administration right
now is doing has been good for manufacturing. As best
(39:57):
as we can tell, the US has lost forty fives
manufacturing jobs since Liberation Day, and that was the last
data reading that we have forty thousand jobs lost. I
think that it doesn't make sense to pursue technology while
decapping the NSF and the NIH, doesn't make sense tonecap
top universities. It doesn't make sense to deport a lot
(40:17):
of lower skilled labor that are really important for construction
as well as manufacturing. And it doesn't make sense to
try to intimidate higher skilled people researchers to be in
the US as well. Now, maybe there's something good to
be said for energy production in the US. There's probably
something good to be said for the deregulatory agenda under
Trump to build a little bit more, But right now
(40:39):
I'm not seeing much energy and further to build more
than let's say, detention centers, coal plants, skilled ballrooms, not
really the sort of you know, advanced manufacturing that America needs.
Speaker 3 (40:51):
It's funny to think about coal powered electric vehicles in
the future, coal powered AI data centers or whatever, but
seems like a plausible thing that we'll see at one point.
One area where the US is clearly dominant, and we've
already touched on this is like global Internet services, and
obviously you have what I guess now we'd call the
(41:13):
legacy ones like your metas and Microsoft's and Amazon. But also,
you know, open Ai is still you know, it's the
biggest in the world, and it could be on scale
and have a footprint as big as some of these
other giants. It seems like the world is very happy
to buy bid cars and other built things. But we
saw the UK di Juae itself several years ago. Will
(41:37):
the rest of the world adopt Chinese core tech or
do you think there's still an anxiety about this, maybe
because of perceptions of the influence that the party would
have over these companies, et cetera. Does the US still
enjoy a relative advantage in the comfort that around the
world people have with using sort of US digital service.
Speaker 4 (42:00):
Certainly, I think there's a lot of governments that are
really nervous about Chinese technologies the UK, there's all sorts
of restrictions on Huawei products kind of globally, and we've
seen even countries really friendly towards China really complain about
how much it is flooding their markets. We've seen Brazil
complain about this, We've seen Russia complain about this, and
(42:21):
so I think governments all over the world are trying
to have some measure to block Chinese goods. On the
other hand, I think consumers really don't care, you know what.
Speaker 3 (42:31):
I mean, like for a car or you know, I
would I'd like to show me phone. No, I don't know,
maybe they look they look pretty cool, or a zte
phone or.
Speaker 4 (42:40):
Powerful show that's a national security threat we are reporting you.
But I think, yeah, definitely, there's a lot of people
who camera. The cameras seem great, and the BYD cars
and the Salami cars seem to be also really good
as well. People want to buy these things, and I
think the Chinese attitude is, Okay, if you want to
terrify us, we'll challenge you in wto if that's still
a thing or will you know, try to push back diplomatically,
(43:02):
but we're not going to restrain our own exports. What
we need to do is, you know, if you want
to block our exports and make good it's more expensive
for your consumers, that's on you. So, you know, I
think that's kind of its attitude, and I think there's
also some nervousness now among European governments from buying American Cloud.
I don't know if that is going to necessarily lead
to your purchases, but maybe.
Speaker 3 (43:23):
Tracy, do you have the show me dog feeder?
Speaker 2 (43:26):
No, that I wasn't even aware of that.
Speaker 3 (43:28):
Yeah, there's the thing. There's incredible showing with me. It's
not just oh's the phone company? Then when cars? You know,
there's a Shelby rice cooker. There's a shell me TOAs.
Speaker 2 (43:35):
What does the dog feeder do?
Speaker 3 (43:36):
I think it's like a smart dog feeder and it
knows when to release more food into the bowl using
all these centers.
Speaker 2 (43:42):
No, I'm old school. I just have a bowl that
I feel.
Speaker 3 (43:44):
That might be my Christmas present too, if I can
acquire one.
Speaker 2 (43:47):
Thank you. You're getting an autograph copy of Herman Melville's
movie Deck if I can find one. Wait, I shouldn't
say that because people will be like, oh, don't you
know he's dead. You're getting a first edition of the
Moby Dick if I can find.
Speaker 3 (44:03):
The Rockwell Kent illustration.
Speaker 2 (44:05):
Okay, all right, noted, I just want to go back
to what we were talking about in the intro for
a second, which is the new Involution campaign. Again, it
seems like China is trying to get a handle on
some of these overcapacity issues. Is it going to work,
and what are your general thoughts on this fresh attempt.
Speaker 4 (44:25):
I was living in China when China first announced this
big supply side reform effort back in twenty seventeen, when
I tried to reduce a lot of its expansions in steel,
and this was kind of the big effort. What's really
different right now is that China's trying to control not
really the activities of the say, own enterprise sector, is
(44:47):
trying to control more of the activities of the private sector,
and I think that is much more difficult as well.
And I think, you know, it's going to be too
early to say, but there may be a future in
which China actually consolidates a lot of the solar production
to bigger firms, but then all of them become much
more capable, and they become much bigger threats to foreign
(45:08):
solar makers to the extent that there are any. But
consolidation is probably going to help raise quality because there
are going to be fewer firms earning more profit that
are going to be able to reinvest more in expansion
in R and D. So I think that overproduction is
kind of endemic to China, which is partly why it's
the engineering state. This is what they're really good at.
They're just not thinking enough about services, and so I'm
(45:31):
skeptical that they're going to be able to really tamp
down overproduction a little longer run.
Speaker 2 (45:36):
All right, Dan Wong, The book is breakneck. It's a
fantastic read. Joe and I make a very brief appearance,
so if anyone's interested in that as well, definitely pick
it up. But d yeah, thank you so much for
coming back on and for being on the Pod repeatedly
over almost a decade.
Speaker 4 (45:53):
Now I want to be a friend of the Pod
for the next decade as well.
Speaker 3 (45:56):
Thank you, Joe.
Speaker 2 (46:10):
Always good to have Dan on, and I'm so glad
he's sort of like synthesized and laid out all of
his thoughts because again, like Dan has been watching Chinese
technology and analyzing the Chinese economy for years and years
of fear was before it was cool, and really in
many respects had a front row seat do some pretty
big developments like the tech crackdown, like COVID zero policies
(46:34):
in China. So it's really good to read his narrative
and get his thoughts.
Speaker 3 (46:38):
No, Dan's the best. I love him. You know what's
interesting I was thinking about and I saw some discussion
of this online. I forget who. But one thing we
didn't talk about is, you know, there isn't the persistent
real estate slump right in China. They have not there
has not yet been a bottom. It's not the end
of the world. And actually cheaper housing. Many people would
say that would be a nice problem they have in
(46:59):
this perspective right now. But if you think about the
combination of consolidating the private sector, if you say, okay,
there's overproduction in the private sector, what that means is
that there's a lot of people employed who shouldn't be
or who are it's unsustainable. If you think about that shrinking,
that's going to be a contributor to a softening in
the real estate. That's fewer people of jobs, that's fewer
(47:20):
people who can buy homes. See, when you think about
the internal balances, there's some real attentions because it's like, yeah,
of course, let's consolidate. But then you add to the
woes of one of the biggest sectors in the economy.
Speaker 2 (47:31):
And I mean, we have seen the youth unemployment rate
pick up recently, and I think that's where you start
to get into some interesting questions around the social contract
that the party has with people and this you know,
expectation that living standards are going to continue to improve
forever like that is the pressure on the party right,
and to some extent, as you point out, it's intention
(47:52):
with the idea of having very efficient companies that are
operating at scale and at low cost.
Speaker 1 (47:58):
You know.
Speaker 3 (47:59):
One of the things too, it comes up I think
in a lot of the China conversations is this sort
of uselessness of a lot of political terms that we
use here. It came up with Joseph Triggan when we
were talking about a look, what is the right, you know,
the the ultra left within the party, mean the ultra right,
et cetera. But even hearing Dan talk about well it's
a sort of right wing Leninist country, et cetera. Like
(48:21):
these words that we use to describe politics, I think
they maybe they detract more than they clarify when we're
talking about China.
Speaker 2 (48:30):
I don't believe in political labels.
Speaker 3 (48:32):
Joe, No, that's good. That's good, all right. I respect that.
Shall we leave it there, Let's leave it there.
Speaker 2 (48:36):
This has been another episode of the aud Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (48:41):
And I'm Joe Wisenthal. You can follow me at The Stalwart.
Follow Dan Wong He's at Dan w Wong, and of
course check out his new book Breakneck. Follow our producers
Carmen Rodriguez at Carman armand Dashill Bennett at Dashbot and
kill Brooks at Kilbrooks. For more Odd Loots content, go
to Bloomberg dot com slash odd Lots with the daily
news letter and all of our episodes, and you can
(49:02):
chat about all of these topics twenty four to seven
in our discord Discord dot gg slash hotlines.
Speaker 2 (49:08):
And if you enjoy odd Lots, if you like it
when we have Dan Wong on the show, then please
leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
listen to all of our episodes absolutely ad free. All
you need to do is find the Bloomberg channel on
Apple Podcasts and follow the instructions there. Thanks for listening
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe. Wasn't thal Joe.
Speaker 2 (00:24):
We are recording this on August twenty seventh. Did you
catch the Trump Cabinet meeting yesterday?
Speaker 3 (00:32):
I saw your tweets and they looked like some of
the most obsequious. I mean a lot of these unusually obsequious.
But even yes, I.
Speaker 2 (00:42):
Saw your tweets, you could just say yes. So there
are a bunch of things that stood out, But one
in particular was Donald Trump talking about building out new
energy capacity and he said specifically, I'm going to quote here.
You know, in China they do it very quickly. They
have one person that says do it, and that's it.
(01:02):
But essentially, we have one person that says do it,
and we've given that order.
Speaker 3 (01:07):
Yeah, you know, like he's very abundance coded. He wants
to like he wants to get rid of all of
the uh or he seems to have this impulse to
get rid of all of the myriad checks and balances
and all these things that stand in the way of
developing things. So it sounds like Trump is abundance pilled.
I assume that's the direction you're going on. Yes.
Speaker 2 (01:26):
If there's one thing I think you could say about
China's economy and it's political economy, it is that China
is pretty good at building things, yes, right, And we've
seen various examples of that over time. Back when I
was living in Hong Kong, I took the high speed
rail from Hong Kong to Beijing and that was absolutely amazing.
You get to Beijing in less than a day. The
US is nowhere near having anything like that, and I
(01:50):
speak as someone who takes Amtrak in the Northeast regularly.
On the other hand, China at various times has produced
too much.
Speaker 4 (01:59):
Right.
Speaker 3 (02:00):
It's accused as such, right. I know that people say.
Speaker 2 (02:03):
This, okay, But for instance, you think back to the
Ghost City, Sure bridges to nowhere.
Speaker 3 (02:10):
Sure at they were bridges to nowhere at the time.
Speaker 2 (02:13):
Amusement parks that no one goes to.
Speaker 3 (02:15):
Definitely, although we have amusement parks here that no one
goes to.
Speaker 2 (02:18):
Disagree or disagree hard. But this has sparked a new
movement in China by policymakers called involution yes, which is
basically an attempt to reduce over capacity in terms of
building things.
Speaker 3 (02:32):
There's definitely no question that there does seem to be
this phenomenon which the government in Beijing seems highly cognizant of,
which is this sort of like profitless competition, much of
it driven by the incentive structure that is borne by
the provinces promoting their local champions, and so far as
much like sort of success as some of these companies
(02:53):
have on some metrics, there's no money to be made
in many cases. It sounds sort of nice from the
consumer perspective, you know, it's like Zurbier twenty tens when
we were all getting like, you know, cheap ubers and
stuff like that. But you know, there's a seems to
be a risk of certain internal imbalances on that.
Speaker 2 (03:09):
I think the issue is you have a lot of
companies who are basically producing all the same thing and therefore,
you know, racing to the bottom in terms of price,
and no one can actually make money. And I don't
know about you, but if I was a startup founder,
I would probably want to make money right at some point.
I would not want to be locked in a forever
competition in terms of who could drive the absolute lowest cost.
Speaker 3 (03:31):
Well, what if you were just a normal consumer who
wasn't a founder?
Speaker 2 (03:35):
Sadly, that is what I am. Okay, Well, on this note,
we have the perfect guest. We're going to be speaking
with Dan Wong, friend of the Pod and who has
just written a new book called Breakneck China's Quest to
Engineer the Future. He's also a research scholar at the
Hoover Institution. So Dan, welcome back to the show.
Speaker 4 (03:54):
Thanks so much, Tracy, really glad to talk about moby
Dick with my friends.
Speaker 3 (04:00):
Why do coach trouble? Why do you coble?
Speaker 2 (04:02):
You know, I was actually wondering if you were going
to bring up the Moby Dick reference.
Speaker 4 (04:06):
The problem Joe, I've been a ket for a very
long time. Maybe this is the way needs to be
getting into That's.
Speaker 2 (04:12):
Right, okay, simple question to start. Why does China like
building stuff?
Speaker 4 (04:17):
China likes building stuff because it is made up of
leadership that is very heavily engineering pilled. Many of them
have been engineer's trained of a very Soviet sort, hydraulic engineers,
electrical engineers, thermal engineers, which is kind of a termine China.
That means producing coal and processing coal, they treat the
(04:39):
megaproject as the solution to every problem. They are building
enormous dams. They're building a big new dam now that
is going to use sixty times more concrete than the
Hoover dam. They're it's going to produce I think, three
times as much power as the three gorgeous dam. But
this is a lot of their solutions to a lot
of different economic problems and social problems as well. That
(05:02):
new highways, new homes, coal plants, hyperscalers. It's what they
know how to do, and it's what they're going to do.
Speaker 3 (05:08):
First of all, Before we go any further, I just
want to say it, like, having spoken to for years,
I'm thrilled of all the recognition you're getting for this book.
I know we weren't like the first to discover Dan Wong.
I think Tyler Cowen got there first, but it's been
fantastic talking to you over the years, and there's sort
of like a vindication I think of your career, et cetera,
because now everyone wants to see the world through the
(05:30):
Dan Wong lund. So think I just wanted to say
how exciting it is and happy for you that you're
getting all.
Speaker 2 (05:36):
This is channeling the Trump cabinet.
Speaker 3 (05:38):
Oh wow, I'm being am I Trump. Yeah, yeah, I guess, okay, good, Okay.
As Tracy mentioned, Trump talked about you know if someone
says do it and then they do it. But I'm curious,
like how much is it? Would you say, like the
political system really allows for that versus the actual like
breadth of labor and just engineering knowledge, Like how would
(06:01):
you tilt the sort of political structure versus the skills.
I think it's both.
Speaker 4 (06:06):
So China has a lot of economic ministries like the NDERC,
the National Development and Reform Commission, and the MIIT, the
Ministry of Industry and Information Technologies. You have all of
these planners that are making new plans all the time,
and they have exactly great plans to know where the
next subway station in Beijing or Shinjin or quimming On
(06:29):
to go. And so there's plenty of shovel ready projects
because people have already been planning for these things for years.
And every time China's economy has any sort of a wobble,
then the Communist Party says, okay, well we're going to
build another really big dam, or we're going to build
more highway systems. So you have a lot of shovel
ready projects in place, and then you have the government
(06:50):
thinking that while pouring more concrete is still going to
be the solution to a lot of our different problems.
And on top of that, you have a very skilled
manufacturing workforce. You have a very skilled public sector that
has been building a lot of high speed trains, that
have been building a lot of big ships, that have
been building subway systems. They know how to do this stuff,
and so it just comes really naturally. You have the
(07:12):
system plus the politics all favoring a lot of construction.
Speaker 2 (07:15):
When you say Chinese policy makers are made up of engineers,
I have two questions. So one, how did that come
to be? And then secondly, could you maybe give us
some specific examples of how that manifests in actual policy. So,
for instance, does having an engineering background make you perhaps
better at making strategic decisions about economic priorities? Like how
(07:38):
does that background actually come into play?
Speaker 4 (07:42):
I think China's engineering state has deep roots, but the
modern manifestation really took shape after the nineteen eighties when
dunzhel Peing took over from the total mayhem of the
mal Years and dounzheal Peing thought, well, Mao was kind
of this poet. He was a warlord, he was a romantic,
(08:02):
he was a murderer.
Speaker 3 (08:03):
What is the opposite of all of that.
Speaker 4 (08:05):
Well, we're going to put mechanical engineers within the polit bureau,
and that is exactly what Deng Xiaoping did. So throughout
the nineteen eighties and the nineteen nineties, don't put a
lot of engineers in the polit bureau, such that by
the year two thousand and two, every single member of
the Standing Committee, all nine people, especially Hu Jintao and
Buen Jabal, the General Secretary and the Premier at the time,
(08:25):
everyone had degrees in engineering, and that.
Speaker 3 (08:28):
Has fluctuated a little bit.
Speaker 4 (08:30):
By the time that Seizing Pain came to office, who's
undergrad was a chemical engineer, I think he saw the
light and his doctorate was Marxist economics, so you know,
we have a pseudo economist up there. By the time
that he came into office, his Premier, He Kutiang, was
trained in I believe law in the economics. But now
in the twentieth Party Congress after twenty twenty two, China's
(08:53):
engineers are really dominant again, which you have a lot
of people from the military industrial complex in the top
of the politbureau. But I also want to suggest, but
playfully and lightly, that there are ancient roots of China's
engineering state as well. This is famously the state that
administered a vast exam nation system, which people became mandarins
(09:16):
by doing these exams administered by the court.
Speaker 3 (09:19):
You had a lot of.
Speaker 4 (09:21):
Chinese emperors that didn't hesitate to conscript people to build
great walls or grand canals. So these are fortifications and
waterway systems, and so I don't want to take this
too literally, but you can sort of see how a
lot of emperors never really hesitated to completely restructure a
person's relationship to our land. And so that's a little
bit deeper too.
Speaker 3 (09:41):
So, you know, Tracy mentioned that, and I have no
doubt that it is true that there's you know, these
various like white elephant projects are things that get built
that aren't necessary. In your book talks about them. All
that being said, it seems like one of the objective
facts in the world is that Chinese living standards and
the economy has dramatically in the last ten twenty years,
(10:02):
like to an extraordinary degree. Does the success of all
these Chinese planning boards? Do you think it strikes a
heart in certain conventionalism, planning isn't supposed to work. Economists
are very skeptical of planning, the hi Ekian idea that
the market and prices are the best signals for these things.
What kind of challenge does China's success opposed to some
(10:24):
of these ideas.
Speaker 4 (10:25):
I don't want to think that China's success strikes at
the very heart of planning in economics. I think that
China has not demonstrated the success of central planning a
large I think I would defend a narrower case that
a lot of construction has been good for a lot
of people. So I think that China is what other
(10:48):
tests is there? Well, maybe there are other tests, which
is that whether people are happy. I think that is
a decent test, whether they feel the ability to have
creative expression, whether they feel that their lives are going
to be better because they're able to save some money.
I think not just about the physical living standards, although
I think that is really important because I've spent plenty
(11:08):
of time in China's rich re zones. I was living
in Hong Kong, Beijing, and Shanghai, where you can see
that these cities get better and better every year. You
have new subway stations. Shanghai this year will have a
thousand parks, up from five hundred in twenty twenty. All
of these cities are really highly functional. I've been in
China Southwest and Gwaijo Province, China's fourth poorest province, and
(11:31):
you have these enormous bridges that are bridges to nowhere
when they start, but then to nowhere has become maybe
two somewhere, so after it is built, and people actually
feel a lot of pride about all of these things.
And so I think that a lot of construction, a
lot of home building, a lot of electricity production through
coal as well as hydro and solar, these things are
all really good. I think you can definitely point to
(11:52):
a lot of costs. There's a lot of material waste
and all of this concrete that's very carbon intensive. There's
a lot of financial problems. Squadjo can't really pay a
lot of its debts right now. There's a lot of
displacement of people. Three gorgious scam display something like a
million people. I would say that physical construction is mostly
pretty good, though there are plenty of costs.
Speaker 2 (12:12):
We talk more about financial problems from all of this,
because obviously the local government debt situation has been much discussed.
But you point out in the book, for instance, that
you can see evidence of some of this impact in
things like Chinese stocks. So because you have all these
companies who are basically racing to the bottom in terms
of price, it's difficult for them to produce a profit,
(12:34):
and so the stock price basically has traded sideways for
like a decade. I guess part of that would also
be capital controls and the impact from that. But how
does this manifest in terms of finances.
Speaker 4 (12:45):
Well, let's take a look at something like the solar industry,
which I think is kind of an emblematic Chinese success.
You have China producing something like ninety percent of the
solar PV modules in the world. But China isn't only
producing the final product, it is also producing all of
the polysilicon as well as all the tools to produce solar.
And in the solar industry, you have basically zero differentiation
(13:09):
between most of the big solar producers. You know, something
like the third largest solar producer in China is not
that different from the fifteenth largest, and maybe not even
that different from the thirtieth largest. They're all making pretty
undifferentiated products. And what this has represented is kind of
a strategic trium for the Chinese government that they have
a lock on one of these critical industries of the
(13:30):
future that a lot of countries will need. It is
awesome for consumers everywhere. So if you are trying to
build a solar panel onto your roof, either in China
or in the US, you know, solar costs have plunged
something like ninety four percent since the year two thousand
or so. I think that's about the right figure. And
it's been total misery for these companies as well as
(13:52):
their investors. And maybe this is what socialism with Chinese
characteristics means, which is a lot of state power, a
lot of consumer power, but not very much financial investor's benefit.
Speaker 3 (14:19):
So, speaking of her novelle this is not about Moby Dick,
I'm actually thinking about his novella Bartleby, in which you know,
the famous character Bartleby decides I would prefer not to.
He's working on Wall Street and then one day he
would prefer not to, and the people around him are
completely exasperated at this person. And of course we saw
a few years ago people were talking about the live
(14:40):
flat movement, And so when you talk about, oh, you know,
like perhaps it's come at the cost of happiness, Like
how wide spread is this? How much of this success
in China? I mean one of the other aspects of
you know, unions aren't legal in China. I presume striking
isn't legal in China, and so forth, Like how much
of this material success that everyone enjoys to some extent
(15:03):
in your view, has come down to sort of extracting
the worker surplus. And how big do you think is
there like a larger brewing impulse to fight against that.
Speaker 4 (15:13):
Well, when I first read bartle B the Scrivener, I
saw some commentary that it's actually a lot about homo eroticism.
I thought that maybe that's where we were going to go,
but maybe we'll take a look at that later. I
think that whether people in China are happy is always
a very interesting and excessively broad question, and I always
wonder about things like.
Speaker 3 (15:33):
That, if anyone's happy in the world, but keep going.
Speaker 4 (15:35):
You know, Bhutan, with something like four traffic lights in
the country is supposed to be super happy. We don't
really get that. Certainly, we can observe that there are
a lot of Chinese, mostly elites, who are interested in
creative expression. Many of them have become deeply unsatisfied. So
they are moving to the Netherlands, They're moving to New York,
(15:57):
They're moving to Chang Mai. I've seen some of their
events here in New York. There's a feminist stand up
comedy which is, you know, having a lot of comedy
shows in Chinese. That is pretty active of a scene
here in Manhattan actually, And so there's a lot of
people journalists who have had their pieces completely censored Six
Ways to Sunday who are pretty dissatisfied. There's plenty of
(16:20):
people dissatisfied in Shanghai who had a horrible time throughout
the lockdown. And we had these astonishing numbers of something like,
at its peak, forty thousand Chinese flying to Ecuador where
they don't have to get a visa to walk up
to the southwestern border in the United States because they
are so upset with a seizing pain. But it's the
broader mass of Chinese unhappy, well pretty hard to say.
(16:43):
I think there are plenty of people who are working
for state don't enterprises and you know, not really enjoying
much of their time there. You could be working for
one of these big tech companies and working nine ninety
six hours nine am to nine pm, six days a week,
and that's not very happy. You could be living with
your parents.
Speaker 3 (17:00):
Because which, by the way, is the same Silicon Valley.
Speaker 4 (17:03):
Well, I thought it was the same as Bloombergley, but yeah.
Speaker 3 (17:05):
It's probably nine nine to seven in Stilicon Valley.
Speaker 2 (17:07):
But do you get equity in the company in return
for your hard work?
Speaker 4 (17:10):
Maybe some of them do, but it's probably not to
the same extent in Silicon Valley. But at the same time,
you know, if you're a young Chinese living in Shanghai,
perhaps your cause of living is not super high because
they're living with your parents. You get to save some
money by working at a state owned enterprise. You have
excellent cafes popping up all the time. A lot of
things are pretty cheap. You can get a bowl of
(17:32):
noodles really cheaply. And you know, for people who are
debating whether they want to try to make a career
in London or New York and try to be really
ambitious or just have a thumping lifestyle life flat lifestyle
in Shanghai. Maybe that's kind of a wash. So I
don't see simmering discontent that threatens the top older gem,
but certainly there are plenty of people dissatisfied.
Speaker 2 (17:54):
There's also arguably a sort of existential dread hanging over
certain sectors or certain entrepreneurs, which is that at any time,
the Chinese government could change its mind about what industry
it actually wants to promote and nurture. And we saw
that happen. I think when you and I were both
in Hong Kong in twenty twenty slash twenty twenty one,
(18:17):
and this was a big deal. So this idea that
China all of a sudden kind of turned its back
on more consumer oriented technology companies, how big of a
legacy did that have or how big of an impact
did that have on the sort of entrepreneurial spirit of China.
Speaker 4 (18:35):
There's plenty of data to suggest that VC funds in
China are having a hard time actually raising funds and
also having a hard time deploying their capital. Certainly, it's
become pretty difficult for a lot of startups to exit
because they can't necessarily list in the US, and they
can't necessarily list very easily in China as well. China's
consumption over the last few years has been pretty limp
(18:57):
after the COVID crackdowns. A lot of companies had to
have pretty extensive layoffs, and they're just not having a
really easy time given the limp consumption, spending really large
in China. I think this goes to a kind of
a broader point within authoritarian systems, which is that no
one feels very safe in a lot of authoritarian systems.
(19:19):
You can be an elite in Beijing, and what is
your life going to be? Your life could be working
in the financial industry, which is a definite elite everywhere,
including in Beijing. And two years ago, Beijing announced that
it was going to have a salary cap of three
hundred thousand dollars roughly for people working in state owned banks.
And if you made over that figure the last couple
(19:41):
of years, you may have to give some money back
to the government. Maybe you're working for a tech company
and you think that online education is going to be
totally safe, because Chinese love education and they're always going
to be spending more money on their kids, and then
that worked until the government declared everything must be a nonprofit.
If you're working for the military, if you're working for
the government, your life could be subject to either a
(20:03):
corruption crackdown or some sort of the political wins changing
and your patron is no longer in place, and then
your whole network of patronage has to fall. And so
this is one of these things where there is kind
of this apocalyptic sense that hangs over you if you're
living in Beijing, Shanghai, perhaps even in Hong Kong, where
a lot of your life could fall apart and there's
(20:23):
no one really to protect you, no lawyers that you
can turn to, the court system to really turn to.
Speaker 3 (20:29):
You know, one of these things that comes up a lot,
and I don't really find it to be that interesting
with a conversation. Look, oh, is China a communist or capitalist?
And it seems like a very tedious conversation. I mean,
it has a you know, a leninist system of government.
I think that fact says to say, is it going
in the direction of something that we could call socialist?
I think Doung Choupang said the goal was to have
(20:51):
a modern socialist state by year twenty forty nine, So
twenty four years from now, is it going into direction
that would be described this is so well, there.
Speaker 4 (21:01):
Are a bunch of Marxists over there, and they would
always tell you that history is the most important and
we are marching towards socialism. So their answer is yes.
I have my doubts. I took a look at China
today and I think it is the most right wing
major country in the world. This is a country that
really prizes manufacturing above all else. It doesn't really have
much by way of immigration. You have a state that
(21:24):
enforces totally traditional gender roles, and you have a pretty
minimal welfare safety net. Where taxes in China are not
actually that high. It is pretty regressively funded on consumption taxes.
This is a country that arrests union organizers and that
has busted up certain Marxist reading groups in universities. And
I take a look at that, and I think, doesn't
(21:46):
this look kind of like Eisenhower's America? You know?
Speaker 3 (21:48):
This is it certainly doesn't soun liberal.
Speaker 4 (21:51):
It doesn't sound very liberal at all, and I'm not
even sure if it sounds very socialist. There is absolutely
a Leninist aspect in which state control of public enterprises.
You know, public ownership of production is very much real.
Many important sectors telecommunications, aviation, energy are state owned, and
you have some redistribution between the provinces. But you know,
(22:12):
kind of my handy snapshot is not to think of
China as socialists or autocratic. I think these are pretty
limited terms that don't really offer much anymore. My simple
formulation of China is that it is a Lendinness technocracy
with grand Opera characteristics, pretty rational most of the time,
but then every so often we'll do something pretty preposterous
and then kind of collapse in something really ridiculous.
Speaker 2 (22:35):
That said, we have seen recently China make some moves
to boost social safety nets. So they've said they're going
to you know, do more for seniors, and they're also
going to try to boost consumer spending. One thing that
I thought was kind of amusing was they basically rolled
out a cash for clunkers equivalent. And again, I think
of all those things focus on consumer spending, social safety nets,
(23:00):
though arguably in the US those are perhaps declining cash
for clunkers, that sort of thing. I think that is
very American in many ways in terms of the political economy.
And meanwhile in the US, you know, Trump is talking
about how he wants to be more efficient in terms
of controlling the economy. Like China. We've also had some
instances of the US government taking stakes in companies recently
(23:24):
that seems very Chinese in certain respects. Is the US
starting to emulate China and China emulate.
Speaker 4 (23:32):
The US tracy? When I first heard of the tariffs
on Liberation Day, I thought that liberation doesn't sound very
much like an American word. It sounds much more like
a Chinese word to my ears.
Speaker 3 (23:45):
Now five liberations campaign.
Speaker 4 (23:47):
Yes, right, we're going to liberate Taiwan into socialism. You know,
this is what they're up to. And certainly there are
a lot of aspects in which the US and Trump
in particular, is copying China. We are making Intel a state,
don't enterprise with American characteristics. There's a lot of questions
now with data probity and whether the unemployment figures are
(24:09):
going to be well reported, And there is kind of
just this you visiting stochastic terror on the downtrodden, especially
undocumented immigrants, and all of these things are not very
nice things that I think that Trump is learning from
c and right now, I think what we have is
authoritarianism without the good stuff, and the good stuff of
(24:31):
actually building quite a lot of mass transit and clean
technology generation, clean energy generation. Rather, we don't really have
the Port Authority bus terminal being built and renovated on time.
You don't have California high speed rail. We don't have
smoothly functional cities that have a lot of public order.
And I don't think that the US should try to
(24:52):
emulate a lot of these things. But I think there
are better things to emulate, because a lot of what
Trump is building are gilded ballrooms and detention centers. I had,
you know, we're getting quite a lot of just I
think many of the worst aspects of authoritarianism.
Speaker 3 (25:06):
You know, I'm curious, I say, at the beginning, you've
had this huge rise. Everyone is obsessed with this story
right now. Everyone, it's just every every day I wake up,
it's on social media, it's coming from DC, it's et cetera.
Everyone is sort of maybe miles of gate, but the
capacity of China to build that, damn Or you know,
you open uh Instagram and it's some crazy drone show
(25:29):
or something like that that shows the technical prowess there.
You know, this wasn't the case the sort of popularization
of all this when you started your book, or certainly
not the first time we had you on this show.
What do you make of that, Like, how has perceptions
of China changed, or maybe even your own perception of
China changed since you started really focusing on this stuff.
Speaker 4 (25:51):
Well, Joe, maybe Chinese industrialism has been my white whale
for a lot of time.
Speaker 3 (25:56):
I'm sorry, I'm sorry, I'm sorry.
Speaker 4 (25:59):
I moved to Hong Kong at the start of twenty
seventeen from Silicon Valley, where I used to be working,
in part because I was feeling that a lot of
the technologies that was important in Silicon Valley at the
time were not so interesting. It was a lot of cryptocurrencies,
was a lot of consumer platforms. We hadn't even gotten
(26:19):
to SaaS for business yet, and so it was just
not that interesting. And so when I had lunch with
Arthur Kroeber and you told me about something called Made
in China twenty twenty five, I thought that ultra high
voltage transmission, electric vehicle batteries, memory trips, these were far
more interesting. But I felt that it was actually making
a distinctively popular decision among my Silicon Valley peers because
(26:44):
they thought that they were the center of the universe,
which is a view they still hold. And what are
we doing if we're not being in San Francisco and
not pursuing some aspect of tech? And so when I
moved to China, it definitely didn't feel like the elitist
popular thing to do. But I was really glad to
go take a look at what China was building. And
I think that there is a broader sense in Silicon
(27:05):
Valley that tech is important, but non tech is also important.
Right now, I feel like a lot of folks in
Silicon Valley, where I spend a lot of time as
a fellow at Hoover, you know, a lot of folks
are trying to build God in a box, and that
attention has shifted to AI, and I feel like that
has become a totalizing aspect once more, and I feel
like part of my task is still to remind people
(27:26):
that drones are important and bridges are important, and we
live in a material world, and you know, let's build
up a manufacturing base as well.
Speaker 2 (27:50):
So with the focus shifting to AI, you could make
an argument that the US has the lead there still,
even though we've seen moments of panic with the deep
Seek model early this year and things like that. But
on the other hand, I suppose you could argue that
AI also needs vast amounts of physical infrastructure, including data centers,
energy chips. Who has the upper hand when it comes
(28:12):
to AI.
Speaker 4 (28:13):
I don't have a super strong view on this, but
I could outline a potential scenario in which China is
going to be leading on AI based on a few factors.
First and most important, as you point out, Tracy, that
China has a lot of electrical power. So the US
may have all of the computing because it has all
of the advanced chips from Nvidium. As Howard Letnik says,
(28:35):
China has a best the fourth best chips in terms
of AI, and that is a pretty substantial constraint. But
what is a bigger US constraint, maybe right now going forward,
is that there just isn't enough electrical power, especially if
Trump is taking winterbines offline and being very discriminatory about
certain types of energy. And China I think has organized
(28:57):
itself as a civilization to nine nothing towards heavy industry
whatever heavy industry wants it is going to get and
that could be powered by solar, could be powered by wind,
it could be powered by coal, it could be powered
by nuclear. But China will not have this issue that
META faced earlier in the end of last year, in
which a rare species of be prevented META from building
(29:19):
a giant new power facility, and China will definitely not
do that. So China has a lot of electrical power.
China may not have a lot of advanced chips, but
it has a lot of mature chips which are going
to be necessary for inference. So if we do invent
God in a box, you know, we're going to be
running queries all the time to figure out how to
automate and shop and whatever else. And that is going
(29:40):
to require a lot of processing power. And I think
this is where China's mature chips are going to have
a pretty good advantage. And China also has I think
another unique advantage, which is that training data might be
more strategically valuable. China has most of the manufacturing capacity
in the world, or about thirty percent of manufacturing value
(30:01):
add but that is quite a large chunk. And you
know what does the US have, Well, we have a
lot of consulting companies and a lot of healthcare companies.
So maybe the US will automate something on the scale
of McKinsey, and China will automate something on the scale
of fox Con. And you know, they're going to have
a lot more manufacturing production and we're going to have
a lot more better consultants.
Speaker 2 (30:23):
Yeah, I suppose there's a synergy here where you could
use AI to make your manufacturing more efficient.
Speaker 3 (30:29):
Right, No, totally, And we talked to Cameron Johnson about that,
the diffusion of AI within it, and right, like a
factory that's monitored properly is brimming with fresh training data
all the time, and that has a compounding effect and
the accelerating effect and so forth potentially widening that gap.
I want to ask actually another AI question. It's not
even about US China per se, maybe more US question.
(30:53):
Use the word totalizing. And I've been thinking about this
exactly in a couple of different ways. Like one is,
like I wonder about whether people have lost interest in
things like say, drug discovery in part because of this
implicit assumption, Well, once we achieve AGI in two years,
that will do all the drug discovery, So why are
we even bothering with working on that in the meantime?
(31:16):
And also it feels like much of culture strikes me
in the US as sort of disappearing and other things
like that. People are just sort of losing interest in
lots of things because AI is crowding out in the
psychological space everything else. And I'm curious if, in your
time in Bay Area think about these things, whether that
rings sure or not.
Speaker 4 (31:36):
Definitely, I hear the craziest when I'm in California, and
I hear, you know, I think a lot of people
are very smart Stanford kids who are very smart, and
yet they could be very narrow minded and not have
a very broad view. I heard some things like people say, well,
maybe you don't need to think so much about climate change,
(31:59):
for example, anymore, And I say, oh, well, why don't
we have to think about climate change because AI will
figure out what we need to do with climate change
and implement everything. Maybe we don't need to be so
careful about teaching kids how to read the great books
or maybe even to read at all, because AI will
just help us get there. And they're trying to manifest
(32:19):
the eskaton in Silicon Valley. And there is also this
bit of an apocalyptic error in which maybe the world
will end in twenty twenty seven because AGI will be
out there and it's not going to be aligned, and
all of our world will kind of just end. I
really don't buy that view. I believe that we have
to have a longer term view about everything. There is
(32:41):
kind of this sense often in DC. This is not consensus,
but every so often when we'd hear that, oh, the
Communist Party is so weak, their legitimacy is so thin
and that might topple over at any moment, and we
don't really have to treat it serious like that feels
very much like cope. And there is also a Silicon
Valley variant which is not really the same about China,
but there is the sense that, well, you know, we're
(33:03):
all going to ascend into utopia in twenty twenty seven
when we know invent all the AI and the superintelligence.
Speaker 2 (33:09):
I like how binary everything is. It's either utopia or
you know, the apocalypse. On the note of potential own goals,
one of the things we've had now is years and
years and years of US export controls on semiconductors going
into China, and I remember you were very early in
describing this as a sort of Chinese Sputnik moment, this
(33:32):
idea that this was the moment when China really realized
that it actually had to produce these things itself and
try to regain or get the lead over the US
when it comes to crucially strategic technology. Now that the
dust has kind of settled, although clearly things are happening
on the tariff side, but now that we've had years
(33:52):
and years and years of export controls, does it look
like that spurred China's technological development.
Speaker 4 (33:58):
I think that it definitely spurred Kina technology development. If
we take a look at some of these sanctioned companies today, Smick,
which was on the entity list in twenty twenty, now
has double the revenues of that level. Huawei, which had
the most severe export controls, it was kind of like
a new export control invented specifically to heard Huawei has
(34:19):
by now recovered its revenues back to the twenty nineteen
pre sanctioned levels. And I being in China was just
this really stark reminder that US export controls really accelerated
a lot of Chinese efforts to do better. Now Beijing
has always had this ambition to be a technology power.
It's had this ambition for a very long time, but
(34:39):
for the most part, it didn't have a lot of
China's most dynamic companies willing to sign on. Because a
lot of China's most dynamic companies, let's say Huawei, by
Dance Dji, they were able to say to Beijing, well,
we need to make the most efficient five G equipment,
or the most efficient drones, or the most efficient short
form video, whatever it is, products that we should export
(35:01):
around the world, and therefore we need to be buying
the best products in the world. And that was overwhelmingly
things like Qualcom chips or Nvidia chips or whatever else.
And what the US government did was that it recapped
their ability to access US equipment at a stroke, and
that fully aligned them into Beijing's goals of technology pursuit.
And now you have Huawei being all sweetness and light
(35:24):
to Chinese domestic vendors to say, well, why don't we
work together. We really have a lot of common interests here.
Huawei was not super big into semiconductors in twenty nineteen
in terms of their production, but now Huawei is one
of the biggest spenders in semiconductors R and D, and
I believe I just saw a Bloomberg piece saying that
(35:44):
Huawei's chips are now rolling off the production line, and
that was something I think entirely created by the US government,
that all of these fiercely competitive companies really were fighting
for their lives solving seven problems a day before breakfast
because they had to solve all of these problems, and
I think that probably wasn't necessary. Over the broader strokes.
Speaker 3 (36:05):
One of the things that causes alarm for DC regarding China.
I mean, look, it's great that countries are getting richer
and the technological frontier is being pushed, and innovation anywhere
theoretically can help anyone everywhere. But this question, and it's
more sort of political, perhaps geopolitical, than economic, is does
(36:26):
China have ambitions outside of its borders?
Speaker 1 (36:29):
Right?
Speaker 3 (36:29):
We know the US is we have military positions all
over the place, and we clearly have ambitions outside of
its borders. China has no formal alliances, I believe, with
any country, etc. But there's always this concern what do
you think about China's interest in the rest of the
world beyond sort of export destinations.
Speaker 4 (36:49):
I think that China is very deeply interested in Taiwan
and the South China Sea, and which it defines as
within its own borders, and so that is a matter
of dispute. I think that China is very keenly interested
in dominating most of Southeast Asia, and.
Speaker 3 (37:06):
What is dominating me.
Speaker 4 (37:08):
I think that they would really like for the leaders
of Malaysia and Vietnam and the Philippines to come regularly
to Beijing, to Kawtel for the emperor's pleasure, and maybe
that is a pretty big threat to US interests. I
think that is something that we can debate. I would
be skeptical that China has broader goals to seize Japan.
(37:29):
I think that would be pretty fanciful. I think that
China's success right now is building a lot of advanced manufacturing.
Speaker 3 (37:38):
You're right.
Speaker 4 (37:38):
I've been tracking this for a very long time. I
remember my first appearance on odd Lass in twenty seventeen
to talk about Made in China twenty twenty five, and
I was pretty constructive that China was going to figure
out a lot of these technologies, and I think that
was fairly out of consensus at the time, and I
think that was fairly. China has made incredible strides beyond
my expectations of and I has been pretty bullish about
(38:02):
a lot of that. And something I worry about is
that I think that China's success in advanced manufacturing will continue.
I just wrote a piece with Arthur Kroeber and Foreign
Affairs pointing out that even though China's economy is slowing,
and even though there's all sorts of problems with the
economy and the political system, they're going to keep advancing
on manufacturing and technology because they have the manufacturing process
(38:23):
knowledge and they have the investments really to push them forward.
And I think that we're already seeing that China is
de industrializing Germany. Brat Setzer has great charts on this
all the time, especially in the automotive sector. I think
that China will continue to de industrialize the rest of
East Asia Europe as well, and that will move on
to the United States as well. And I don't have
(38:44):
too many great views about the security threat or what
is going to happen with military, but I think this
the clear and present danger is that China's technology keeps
advancing and that will further de industrialize parts of the
Midwest as well as many parts of Europe, and I
think that is going to create all sorts of political
problems in the West as well, And that is the
big danger that I'm nervous about.
Speaker 2 (39:06):
What does the US need to do in order to
preserve its own manufacturing capacity, and I guess ideally build
it out.
Speaker 4 (39:13):
I think there has to be a lot more investment
in manufacturing process knowledge, which is all of the TACIT
knowledge that we can't really write down that we have
to have be a lot better at producing things like
not only semiconductors, but also electric vehicle batteries and broader
sets of electronics as well. I think it would be
a good idea for the US to invite more Chinese
(39:35):
companies to build factories in Michigan and Ohio Wisconsin find
put some controls on them. But if China's Force technology
program worked against let's say, Apple and Tesla and all
of these other American companies, why don't we do it
to them and learn from the best. In terms of manufacturing.
I'm really skeptical that everything that the Trump administration right
now is doing has been good for manufacturing. As best
(39:57):
as we can tell, the US has lost forty fives
manufacturing jobs since Liberation Day, and that was the last
data reading that we have forty thousand jobs lost. I
think that it doesn't make sense to pursue technology while
decapping the NSF and the NIH, doesn't make sense tonecap
top universities. It doesn't make sense to deport a lot
(40:17):
of lower skilled labor that are really important for construction
as well as manufacturing. And it doesn't make sense to
try to intimidate higher skilled people researchers to be in
the US as well. Now, maybe there's something good to
be said for energy production in the US. There's probably
something good to be said for the deregulatory agenda under
Trump to build a little bit more, But right now
(40:39):
I'm not seeing much energy and further to build more
than let's say, detention centers, coal plants, skilled ballrooms, not
really the sort of you know, advanced manufacturing that America needs.
Speaker 3 (40:51):
It's funny to think about coal powered electric vehicles in
the future, coal powered AI data centers or whatever, but
seems like a plausible thing that we'll see at one point.
One area where the US is clearly dominant, and we've
already touched on this is like global Internet services, and
obviously you have what I guess now we'd call the
(41:13):
legacy ones like your metas and Microsoft's and Amazon. But also,
you know, open Ai is still you know, it's the
biggest in the world, and it could be on scale
and have a footprint as big as some of these
other giants. It seems like the world is very happy
to buy bid cars and other built things. But we
saw the UK di Juae itself several years ago. Will
(41:37):
the rest of the world adopt Chinese core tech or
do you think there's still an anxiety about this, maybe
because of perceptions of the influence that the party would
have over these companies, et cetera. Does the US still
enjoy a relative advantage in the comfort that around the
world people have with using sort of US digital service.
Speaker 4 (42:00):
Certainly, I think there's a lot of governments that are
really nervous about Chinese technologies the UK, there's all sorts
of restrictions on Huawei products kind of globally, and we've
seen even countries really friendly towards China really complain about
how much it is flooding their markets. We've seen Brazil
complain about this, We've seen Russia complain about this, and
(42:21):
so I think governments all over the world are trying
to have some measure to block Chinese goods. On the
other hand, I think consumers really don't care, you know what.
Speaker 3 (42:31):
I mean, like for a car or you know, I
would I'd like to show me phone. No, I don't know,
maybe they look they look pretty cool, or a zte
phone or.
Speaker 4 (42:40):
Powerful show that's a national security threat we are reporting you.
But I think, yeah, definitely, there's a lot of people
who camera. The cameras seem great, and the BYD cars
and the Salami cars seem to be also really good
as well. People want to buy these things, and I
think the Chinese attitude is, Okay, if you want to
terrify us, we'll challenge you in wto if that's still
a thing or will you know, try to push back diplomatically,
(43:02):
but we're not going to restrain our own exports. What
we need to do is, you know, if you want
to block our exports and make good it's more expensive
for your consumers, that's on you. So, you know, I
think that's kind of its attitude, and I think there's
also some nervousness now among European governments from buying American Cloud.
I don't know if that is going to necessarily lead
to your purchases, but maybe.
Speaker 3 (43:23):
Tracy, do you have the show me dog feeder?
Speaker 2 (43:26):
No, that I wasn't even aware of that.
Speaker 3 (43:28):
Yeah, there's the thing. There's incredible showing with me. It's
not just oh's the phone company? Then when cars? You know,
there's a Shelby rice cooker. There's a shell me TOAs.
Speaker 2 (43:35):
What does the dog feeder do?
Speaker 3 (43:36):
I think it's like a smart dog feeder and it
knows when to release more food into the bowl using
all these centers.
Speaker 2 (43:42):
No, I'm old school. I just have a bowl that
I feel.
Speaker 3 (43:44):
That might be my Christmas present too, if I can
acquire one.
Speaker 2 (43:47):
Thank you. You're getting an autograph copy of Herman Melville's
movie Deck if I can find one. Wait, I shouldn't
say that because people will be like, oh, don't you
know he's dead. You're getting a first edition of the
Moby Dick if I can find.
Speaker 3 (44:03):
The Rockwell Kent illustration.
Speaker 2 (44:05):
Okay, all right, noted, I just want to go back
to what we were talking about in the intro for
a second, which is the new Involution campaign. Again, it
seems like China is trying to get a handle on
some of these overcapacity issues. Is it going to work,
and what are your general thoughts on this fresh attempt.
Speaker 4 (44:25):
I was living in China when China first announced this
big supply side reform effort back in twenty seventeen, when
I tried to reduce a lot of its expansions in steel,
and this was kind of the big effort. What's really
different right now is that China's trying to control not
really the activities of the say, own enterprise sector, is
(44:47):
trying to control more of the activities of the private sector,
and I think that is much more difficult as well.
And I think, you know, it's going to be too
early to say, but there may be a future in
which China actually consolidates a lot of the solar production
to bigger firms, but then all of them become much
more capable, and they become much bigger threats to foreign
(45:08):
solar makers to the extent that there are any. But
consolidation is probably going to help raise quality because there
are going to be fewer firms earning more profit that
are going to be able to reinvest more in expansion
in R and D. So I think that overproduction is
kind of endemic to China, which is partly why it's
the engineering state. This is what they're really good at.
They're just not thinking enough about services, and so I'm
(45:31):
skeptical that they're going to be able to really tamp
down overproduction a little longer run.
Speaker 2 (45:36):
All right, Dan Wong, The book is breakneck. It's a
fantastic read. Joe and I make a very brief appearance,
so if anyone's interested in that as well, definitely pick
it up. But d yeah, thank you so much for
coming back on and for being on the Pod repeatedly
over almost a decade.
Speaker 4 (45:53):
Now I want to be a friend of the Pod
for the next decade as well.
Speaker 3 (45:56):
Thank you, Joe.
Speaker 2 (46:10):
Always good to have Dan on, and I'm so glad
he's sort of like synthesized and laid out all of
his thoughts because again, like Dan has been watching Chinese
technology and analyzing the Chinese economy for years and years
of fear was before it was cool, and really in
many respects had a front row seat do some pretty
big developments like the tech crackdown, like COVID zero policies
(46:34):
in China. So it's really good to read his narrative
and get his thoughts.
Speaker 3 (46:38):
No, Dan's the best. I love him. You know what's
interesting I was thinking about and I saw some discussion
of this online. I forget who. But one thing we
didn't talk about is, you know, there isn't the persistent
real estate slump right in China. They have not there
has not yet been a bottom. It's not the end
of the world. And actually cheaper housing. Many people would
say that would be a nice problem they have in
(46:59):
this perspective right now. But if you think about the
combination of consolidating the private sector, if you say, okay,
there's overproduction in the private sector, what that means is
that there's a lot of people employed who shouldn't be
or who are it's unsustainable. If you think about that shrinking,
that's going to be a contributor to a softening in
the real estate. That's fewer people of jobs, that's fewer
(47:20):
people who can buy homes. See, when you think about
the internal balances, there's some real attentions because it's like, yeah,
of course, let's consolidate. But then you add to the
woes of one of the biggest sectors in the economy.
Speaker 2 (47:31):
And I mean, we have seen the youth unemployment rate
pick up recently, and I think that's where you start
to get into some interesting questions around the social contract
that the party has with people and this you know,
expectation that living standards are going to continue to improve
forever like that is the pressure on the party right,
and to some extent, as you point out, it's intention
(47:52):
with the idea of having very efficient companies that are
operating at scale and at low cost.
Speaker 1 (47:58):
You know.
Speaker 3 (47:59):
One of the things too, it comes up I think
in a lot of the China conversations is this sort
of uselessness of a lot of political terms that we
use here. It came up with Joseph Triggan when we
were talking about a look, what is the right, you know,
the the ultra left within the party, mean the ultra right,
et cetera. But even hearing Dan talk about well it's
a sort of right wing Leninist country, et cetera. Like
(48:21):
these words that we use to describe politics, I think
they maybe they detract more than they clarify when we're
talking about China.
Speaker 2 (48:30):
I don't believe in political labels.
Speaker 3 (48:32):
Joe, No, that's good. That's good, all right. I respect that.
Shall we leave it there, Let's leave it there.
Speaker 2 (48:36):
This has been another episode of the aud Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (48:41):
And I'm Joe Wisenthal. You can follow me at The Stalwart.
Follow Dan Wong He's at Dan w Wong, and of
course check out his new book Breakneck. Follow our producers
Carmen Rodriguez at Carman armand Dashill Bennett at Dashbot and
kill Brooks at Kilbrooks. For more Odd Loots content, go
to Bloomberg dot com slash odd Lots with the daily
news letter and all of our episodes, and you can
(49:02):
chat about all of these topics twenty four to seven
in our discord Discord dot gg slash hotlines.
Speaker 2 (49:08):
And if you enjoy odd Lots, if you like it
when we have Dan Wong on the show, then please
leave us a positive review on your favorite podcast platform.
And remember, if you are a Bloomberg subscriber, you can
listen to all of our episodes absolutely ad free. All
you need to do is find the Bloomberg channel on
Apple Podcasts and follow the instructions there. Thanks for listening
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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