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.

The five liberations campaign.

Yes. Right. We're going to we're going to liberate Taiwan into socialism. You know, this is um 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 stateowned enterprise with American characteristics. Uh there's a lot of questions now with data probity uh and whether the unemployment figures are going to be uh well reported. Um and there is kind of just this you know visiting stochastic terror on the downtrodden um especially uh undocumented uh immigrants and all of these things are you know not very nice things that I think that uh Trump is learning uh from but I think there are better things to emulate because a lot of what Trump is building are gilded ballrooms and detention centers and you know we're getting quite a lot of just I think many of the worst aspects of authoritarianism.

Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Aloway

and I'm Joe Weisenthal.

Joe, we are recording this on August 27th. Did you catch the uh the Trump cabinet meeting yesterday? Oh.

Uh, I I could I I saw your tweets and they looked like some of the most, you know, obsequious I mean, a lot of these have unusually obsequious, but even Yes, I saw your tweets.

You could just say yes. Um,

so there were 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. But essentially, we have one person that says do it and we've given that order.

Uh yeah, you know, like um the he's he's very abundance coded. 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 uh Trump is abundance pill. I assume that's the direction you're going in.

Yes. If there's one thing I think you could say about China's economy and its political economy, it is that China is pretty good at building things, right? And we've seen various examples of that over time. Uh back when I was living in Hong Kong, I took the highspeed rail from Hong Kong to Beijing and that was absolutely amazing. You could get to Beijing in less than a day. The US is nowhere near having anything like that. and I speak as someone who takes Amtrak in the northeast regularly. Uh on the other hand, China at various times has produced too much. Right?

It's accused as such, right? This is uh I know that people say this.

Okay. Uh but for instance, uh you think back to the ghost cities.

Sure.

Uh bridges to nowhere.

Sure. And they were bridges to nowhere at the time. Yeah. amusement parks that no one goes to.

Definitely. Although we have amusement parks here that no one goes to.

Disagree. Disagree hard. Um but this has sparked a uh new movement in China by policy makers called involution. Yes.

Which is basically an attempt to uh reduce over capacity in terms of building things. There's definitely no question that um you know there does seem to be this phenomenon which the uh 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 for as much like sort of success as some of these uh companies have on some metrics um you know there's no money to be made in many cases it sounds sort of nice from the consumer perspective you know, it's like zer era 2010s 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 front.

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, you know, drive the absolute lowest cost.

Well, what if you were just a normal consumer who wasn't a founder?

Sadly, that is what I am. Um, 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. And so Dan, welcome back to the show.

Thanks so much, Tracy. Really glad to talk about Moby Dick with my friends.

Why do you cause trouble? Why do you cause trouble? You know, like

I was actually wondering if you were going to bring up the Moby Dick reference in the book.

Trouble between us.

Joe, I've been a for a very long time and maybe this is what we need to be getting into.

That's right. Um, okay. Simple question to start. Why does China like building stuff? China likes building stuff because it is made up of a leadership that is very heavily engineering pill. Uh many of them have been engineers trained of a very Soviet sort. Hydraulic engineers, electrical engineers, thermal engineers, which is kind of a term in uh China that means uh producing coal and processing coal.

Uh they treat the mega project as the solution to every problem. They are building enormous dams. They're building a big new dam now uh that is going to use 60 times more concrete than the Hoover Dam. They're going to 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 new highways, new homes, coal plants, hyperscalers, it's what they know how to do and it's what they're going to do.

First of all, before we go any further, I just want to say like

uh having spoken to for years, I'm thrilled of all the recognition you're getting for this book. And I know we weren't like the first to discover Dan Wong. I think the first um T I think Tyler Cohen uh Tyler Cohen got there first. But it's been fantastic talking to you over the years. And there's sort of like vindication I think of your career, etc. because now everyone's come around. Everyone wants to see the world through the Dan Wong lens. So, thank uh I just wanted to say how exciting it is and happy for you that you're getting all this

Joe's channeling the Trump cabinet meeting.

I'm being I'm being um

Am I Trump?

Yeah. Uh yeah, I guess.

Okay, good. Okay.

You know, how much do you think like um you know, as Tracy mentioned, uh Trump talked about, you know, someone says do it and then they do it. And I'm but I'm curious like how much is it would you say like the political system really allows for that versus the sort of the actual like breadth of labor and just engineering knowledge like how would you tilt the sort of political structure versus the skills?

I think it's both. So, China has a lot of economic ministries like the NDRC, the National Development and Reform Commission, and the MIT, 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 Shenzhen or Quiming ought to go. And so there's plenty of shovelready projects because people have already been planning for these things for years. And every time China's economy has any sort of a wobble, uh, then the Chinese government and 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 shovelready projects in place and then you have the government thinking that, well, 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, uh 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 system plus the politics all favoring a lot of construction.

When you say Chinese policy makers are, you know, 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 does that background actually come into play?

I think China's engineering state has deep roots. Uh but the modern manifestation really took shape uh after the 1980s when Dung Xiaoing took over from the total mayhem of the Mao years and Deng Xiaoing thought well Mao was kind of this poet he was a warlord. He was a romantic. He was a murderer. What is the opposite of all of that? Well, we're going to put mechanical engineers within the poll bureau. And that is exactly what Dunia did. So throughout the 1980s and uh the 1990s uh don't put a lot of engineers in the pilot bureau such that by the year 2002 every single member of the standing committee all nine people uh especially Huenta and Wabal uh the general secretary and the premier at the time um everyone had degrees in engineering and that has fluctuated a little bit uh by the time that Cin Ping came to office whose undergrad was a chemical engineer. um you know I think he saw the light and his uh doctorate was Marxist economics. So you know we have an we have a a pseudoeconomist up there. Um by the time that he came into office his premier uh the Kyang was trained in I believe law and economics in the 20th party congress after uh 2022 uh China's engineers are really uh dominant again which you have a lot of uh people from the military-industrial complex um be in the top of the pilot bureau but I also want to suggest um but playfully and lightly that there are um ancient roots of China's engineering state as well. This is famously the state that administered a vast examination system which people became uh mandarins by doing these exams administered by the court. You had a lot of Chinese emperors that didn't hesitate to conscript people to build great walls or grand canals. So these are fortifications and waterway systems. Um, 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.

So, you know, Tracy mentioned that and I and I have no doubt that it's true that there's, you know, there's various like white elephant projects or things that get built that aren't necessary and your book uh talks about them uh them. Um, all that being said, it seems like one of the objective facts in the world is that Chinese living standards and the economy has expanded dramatically in the last 10, 20 years like to an extraordinary degree. Uh, does the success of all these Chinese planning boards do you think it like strikes a heart in certain conventionalism? Planning isn't supposed to work. Economists are very skeptical of planning. the hayakian idea that the market and prices are the best signals for these things. What do you what kind of challenge does China's success pose to some of these ideas?

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 at 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's

what other test is there?

Well, I think that is a uh there maybe there are other tests which is that uh whether people are happy uh I think that is a decent test whether they feel the ability to have creative expression um whether they feel that their lives are going to be better uh because they're able to save some money. I think it's not just about the physical living standards, although I think that is really important because I've spent plenty of time uh in China's richer 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 500 in uh 2020. Uh you know, all of these cities are really highly functional. I've been in China's southwest and Gujo province, China's fourth poorest province. And you have these enormous bridges that are bridges to nowhere when they start, but then to nowhere has become maybe two somewhere 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 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. Guo can't really pay a lot of its debts right now. There's a lot of displacement of people. Three gorgeous dam displays something like a million people. I would say that physical construction is mostly pretty good though there are plenty of costs.

I 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 you know 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 and so the stock price basically has traded sideways for like a decade. I guess part of that would also be uh capital controls and the impact from that. But how does this manifest in terms of finances?

Well, let's take a look at something like the solar industry which I think is kind of an emblematic Chinese success. Uh you have uh China producing something like 90% of the solar uh PV modules uh 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 uh solar. Um, and in the solar industry, you have basically zero differentiation between most of the big solar producers. You know, something like the third largest solar producer in China is not that different from the 15th largest and maybe not even that different from the 30th largest. They're all making pretty undifferentiated products. And you know what this has represented is kind of a strategic triumph for the Chinese government that they have a lock on what are these critical industries of the future that a lot of countries will need. It is awesome for consumers everywhere. Uh 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 94% uh since the year 2000 or so. I think that's that's about the right figure. And it's been total misery for these companies as well as their investors. And maybe, just maybe, this might be what socialism with Chinese characteristics means, which is a lot of state power, a lot of consumer power, but not very much financial investor benefit.

So, speaking of Herman Melville, this is not about Moby Dick. Um, I'm actually thinking about uh uh his uh novela Bartleby in which um you know, the famous character Bartleby decides I I would prefer not to. he's working on Wall Street and then one day he he would prefer not to and the people around him are completely exasperated at this person and of course we saw the um you know the li with some few years ago people were talking about the live flat movement and so when you talk about oh you know like perhaps it's come at the cost of happiness like how widespread is this how much of this success in China I mean one of the other aspects of you know unions aren't uh 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 in your view has come down to is sort of extracting the worker surplus and how big do you think is is there like a larger brewing impulse to fight against that?

Well, when I first read Bartleby the scribe, I saw some commentary that it's actually a lot about homoeroticism. 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 you know whether people in China are happy is always a very interesting and excessively broad question and I always wonder about things like that.

I wonder if anyone's happy in the world but keep going.

You know Bhutan with something like four traffic lights in the country is supposed to be super happy. No, we don't really we don't really get that. Certainly we can observe that there are a lot of Chinese mostly elites uh who are interested in creative expression. many of them have become deeply unsatisfied. So they uh are moving to the Netherlands, they're moving to New York, they're moving to Mai. I've seen some of their events uh here in New York. There's a feminist stand-up comedy uh which is you know having a lot of comedy shows in Chinese uh that is um pretty active of a scene here in uh Manhattan actually. And so there's a lot of people uh I mean journalists who have had their pieces completely censored, Six Ways to Sunday um who are pretty dissatisfied. There's plenty of people dissatisfied uh in Shanghai who had a horrible time uh throughout the lockdown. And we had these astonishing numbers of something like uh at its peak 40,000 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 uh they are so upset with Xiinping. But, you know, is the broader mass of Chinese unhappy? Well, pretty hard to say. I think there are plenty of people who are working for stateowned 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 96 hours uh 9:00 a.m. to 9:00 p.m. 12 days 6 days a week and that's not very happy. Um, you could be living with your parents because

which by the way is the same in Silicon Valley.

Well, I thought it was the same as Bloomberg. Yeah, it's probably 997 in Silicon Valley, but

do you get equity in the company in return for your hard work?

Uh, maybe some of them do, but it's probably not to the same extent in Silicon Valley. Um, but at the same time, you know, if you're a young Chinese living in Shanghai, um, perhaps your cost of living is not super high because you're living with your parents, you get to save some money by working at a stateowned enterprise. You have excellent cafes popping up all the time. A lot of things are pretty cheap. you can get a bowl of noodles really cheaply. And you know, for people who are debating whether they want to try to, you know, strike their um try to make a career in London or New York and try to be really ambitious or just have a tamping lifestyle, lifelat lifestyle uh in Shanghai, maybe that's kind of a wash. So, I don't see simmering discontent that threatens to topple regime, but certainly there are plenty of people dissatisfied.

There's also arguably um a sort of existential dread uh 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 2020, 2022. And this was a big deal. So this idea that China all of a sudden kind of turned its back on more consumeroriented 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?

There's plenty of data to suggest that funds uh investing in, you know, VC funds in China are having a hard time actually raising funds and also having a hard time deploying their capital. Um certainly it's become pretty difficult for a lot of startups to exit uh because they can't necessarily list in the US and they can't necessarily list very easily in China as well. China's consumption uh over the last few years has been pretty limp after the COVID crackdowns. A lot of uh companies had to have pretty extensive layoffs. Um and you know they're just not having a really easy time uh given the limp consumption spending at large uh in China. I think this goes to a kind of a broader point within authoritarian systems uh which is that no one feels very safe uh in a lot of authoritarian systems. You can be an elite in Beijing and what is your life going to be? Your life could be working in the financial industry uh which is a definite elite everywhere uh including in Beijing. And two years ago, uh, Beijing announced that it was going to have a salary cap of $300,000 roughly for people working in stateowned banks. And if you made over, uh, that figure last couple 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. Uh, and then that worked uh, until the government declared, uh, everything must be a nonprofit. If you're working for the military, if you're working for the government, uh your life could be subject to either a corruption crackdown or some sort of the political winds 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 uh over you if you're living in Beijing, Shanghai, perhaps even Hong Kong where a lot of your life could fall apart and there's no one really to protect you, no lawyers that you can turn to, no court system to really turn to.

You know, one of these things that uh comes up a lot and I don't really find it to be that interesting of a conversation like, 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 is safe to say.

Is it on pace? Is it in going in the direction of something that we could call socialist? I think Denopang said the goal was to have a modern socialist state by the year 2049. So 24 years from now is it going in a direction that would be described this is a this is socialism. Well, there are a bunch of Marxists over there and they would always tell you that uh 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 uh major country in the world. This is a country that really prizes manufacturing above all else. Uh it doesn't really have much by way of immigration. You have a state that 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 has busted up certain Marxist reading groups uh in universities. And I take a look at that and I think doesn't this look kind of like Eisenhower's America? You know, this is

it certainly doesn't sound liberal. 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. Um, many important sectors, telecommunications, aviation, energy are stateowned and you have some redistribution between the provinces. But, you know, kind of my handy snapshot is not to think of China as socialist 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 Londonist technocracy with grand opera characteristics. Uh pretty rational most of the time, but then some every so often we'll though do something pretty preposterous and then kind of collapse in something really ridiculous.

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. Um, one thing that I thought was kind of amusing was they basically rolled out a cash for clunkers equivalent. Uh, and again, I think of all those things, a focus on consumer spending, social safety nets, although arguably in the US those are perhaps declining. Um, cash for clunkers, that sort of thing. I think of that as 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. That seems very Chinese in certain respects. Is the US starting to emulate China and China emulate 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 uh to to my ears.

The five liberations campaign.

Yes. Right. We're going to we're going to liberate Taiwan into socialism. You know, this is um 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 stateowned enterprise with American characteristics. Uh there's a lot of questions now with data probit uh and whether the unemployment figures are going to be uh well reported. Um and like there is kind of just this you know visiting stochastic terror on the downtrodden um especially uh undocumented uh immigrants and all of these things are you know not very nice things that I think that uh Trump is learning uh from she and right now I think what we have is authoritarianism without the good stuff and the good stuff of actually building um quite a lot of mass transit and clean technology um generation um clean energy generation rather uh you know we don't really have you know the Port Authority bus terminal being built and renovated um on time. We don't have California highspeed rail. We don't have smoothly functional cities that have a lot of um public order. And I don't think that the US should try to 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. And you know, we're getting quite a lot of just I think many of the worst aspects of authoritarianism.

Um, you know, I'm cur I said at the beginning, uh, you've had this huge rise. You were everyone is obsessed with this story right now. Everyone, it's it's just every every day I wake up and there's just, you know, it's on social media, it's coming from DC, it's, etc. everyone is sort of maybe miles a gape at the capacity of China to build that dam or you know you open uh Instagram and it's some crazy drone show or something like that that shows the technical prowess there. I'm curious like from you know this wasn't the case the sort of popular popularization of all this when you started your book or certainly not the first time uh we had you on the 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?

Well, Joe, maybe Chinese industrialism has been my white whale for quite a long time. I'm sorry.

I'm sorry. Um, I moved to Hong Kong at the start of 2017 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 to SAS for business uh yet. And so it was just not that interesting. And so when I had uh lunch with Arthur Crober and he told me about something called made in China 2025, I thought that ultra high voltage transmission um electric vehicle batteries, memory chips, these were far more interesting. But I felt that it was actually making a distinctively unpopular decision among my Silicon Valley peers because 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 did definitely didn't feel like the elitist you know 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 Valley that you know tech is important but non- tech is also important right now I feel like a lot of folks in um Silicon Valley where I spend a lot of time at as as a fellow at Hoover you know, a 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 that you know 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.

I don't have a super strong view on this, but I could outline a potential scenario in which uh 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 um advanced chips from Nvidia. As Howard Lutnik says, China has at best the fourth best chips uh 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. Um especially if you know Trump is taking wind turbines offline and being very discriminatory about certain types of energy. Um and China I think has organized itself as a civilization to deny 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 uh Meta faced earlier uh in the end of last year in which a rare species of B prevented Meta from building 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 um automate and shop and whatever else. And that is going to require a lot of processing power. And I think this is where uh China's mature chips are going to have a pretty good advantage. And China also has, I think, another unique advantage, which is that its training data uh might be more strategically valuable. uh China has most of the manufacturing capacity uh in the world um or about 30% of manufacturing value 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 Mckenzie and China will automate something on the scale of Foxcon and um you know they're going to have a lot more manufacturing production and we're going to have a lot more better consultants. Yeah, I suppose there's a synergy here where you could use AI to make your manufacturing more efficient, right?

No, totally. And we talked to um uh 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 an accelerating effect and so forth potentially widening um that gap.

I want to ask actually another AI question. It's not even about um US China per se. Maybe a more US question. You 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? 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 San Francisco or think or Bay Area thinking about these things whether that rings true or not.

Definitely. I hear the craziest when I'm in California and I hear, you know, I think a lot of people are, you know, very um smart uh Stanford kids who are very smart and yet they could be very narrow-minded and not uh have a very broad view. I heard some things like, you know, people say, well, maybe we don't need to think so much about climate change, for example, anymore. And I say, oh, well, why don't we have to think about climate change? because uh AI will uh figure out how what we need to do with climate change and implement everything. Maybe we don't need to, you know, be so um 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 there is this you know there's they're trying to you know manifest the escaton uh in Silicon Valley and there is also this bit of an apocalyptic error in which you know maybe the world will end in 2027 because AGI will be out there and it's not going to be aligned and all of the our world will 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 kind of this you know sense often in DC this is not consensus but every so often one would hear that oh the communist party is so weak there legitimacy is so thin and that might topple over at any moment and we don't really have to treat it serious that feels very much like cope and there is also a Silicon Valley variant which is not uh really the same about China but there is this sense that well you know we're all we're all going to ascend into utopia um in 2027 when we uh you know invent all the AI and the super intelligence.

I like how binary everything is. It's either utopia or, you know, the apocalypse. Um, 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 sputnick moment. this 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 and years and years of export controls, does it look like that spurred China's technological development?

I think that it definitely spurred China's technology development. Uh if we take a look at some of these uh sanctioned companies today, um Smick, which was on the entity list in 2020, now has double the revenues of that level. Uh Huawei, which had the most severe export controls. It was kind of like a new export control invented specifically to hurt Huawei, has by now recovered its revenues back to the 2019 presence levels. And I, you know, being in China was, uh, 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 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, Bite Dance, DJI, they were able to say to Beijing, well, we need to make the most efficient 5G equipment uh or the most efficient drones or the most uh efficient short form video, whatever it is, um products that we should export around the world. And therefore, we need to be be buying the best products in the world. And that was overwhelmingly things like Qualcomm chips or Nvidia chips or whatever else. And what the US government did was that it kneecapped their ability to access US equipment at a stroke. And that fully aligned them uh into Beijing's uh goals of technology pursuit. And now you have Huawei being all sweetness and light 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 uh in uh 2019 in terms of their um production, but now Huawei is one of the biggest uh spenders in um uh semiconductors R&D. And I believe I just saw a Bloomberg piece saying that 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 uh really were fighting for their lives uh solving you know seven problems a day before breakfast um because they had to solve all of these problems and I think that probably wasn't necessary over the broader strokes.

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 China have ambitions outside of its borders? Right? We know the US has we have we have military positions all over the place and we clearly have ambitions outside of its borders. I China has no formal alliances I believe with any country etc. But there's always this concern. What what do you think about China's interest in the rest of the world beyond sort of export destinations?

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 you know that is a matter of dispute.

Um I think that China is very keenly interested in dominating most of Southeast Asia. And

and what does dominating mean?

I think that they would really like for the leaders of Malaysia and Vietnam in the Philippines to come regularly to Beijing to cout 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. I think that would uh be pretty fanciful. I think that um China's success uh right now is building a lot of advanced manufacturing. Um you're right, I've been tracking this for a very long time. I remember my uh first appearance on OddLots in 2017 to talk about uh made in China 2025

and I was pretty uh 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 um you know fairly China has made incredible strides beyond my expectations of um you know and I was been pretty bullish about a lot of that and something I worry about is that I think that China's success in advance manufacturing will continue. I just wrote a piece with Arthur Crober in 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 on manufacturing and technology because they have the manufacturing process knowledge and they have the investments um really to push them forward. And I think that we're already seeing that China is de-industrializing Germany. Brad sets 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 uh uh Europe as well and that will move on to the United States as well. And I don't have too many great views about the security threat or you know what is going to happen with 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 um as well as you know 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.

What does the US need to do in order to preserve its own manufacturing capacity and I guess ideally build it out?

I think there has to be a lot more investment in manufacturing process knowledge which is all of the tacet 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 um electronics as well. I think it would be a good idea for the US to invite more Chinese companies to build factories in Michigan, 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, you know, 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. Um, as best as we can tell, uh, the US has lost 40,000 manufacturing jobs, uh, since Liberation Day. Um, and that was the last data reading that we have. 40,000 jobs, uh, lost. Um, I think that it doesn't make sense to pursue technology while kneecapping the NSF and the NIH. It doesn't make sense to kneecap uh, top universities. It doesn't make sense to deport a lot of uh, lowerkilled labor that are really important for construction as well as manufacturing. And it doesn't make sense to try to intimidate higher skilled uh 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 uh under Trump to to build a little bit more, but right now I'm not seeing much energy and, you know, fervor to build more than, let's say, detention centers, coal plants, gilded ballrooms, not really the sort of, you know, advanced manufacturing that America needs. It's funny anything about um coal powered electric vehicles in the future, coal powered uh AI data centers or whatever, but it uh seems like a plausible thing that we'll see at one point. Um you know

one area where the US is clearly dominant and uh we've already touched on this and you said uh is like you know global internet services and obviously you have what I guess now we'd call the legacy ones like your meta and Microsofts 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 um as big as some of these other giants. Um it seems like the world is very happy to buy BYD cars and other built things. We saw the UK uh D Huawei itself uh several years ago. Will 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 etc. Does the US still enjoy a relative advantage in the comfort that around the world people have with using sort of US digital services?

Certainly, I think there's a lot of governments that are really nervous about uh Chinese technologies. um the UK, there's all sorts of restrictions on um 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. Um and so I think governments all over the world are trying to you know have some measure to block Chinese goods. On the other hand, I think consumers really don't care. Um, you know what?

That's what I mean. Like for a car or you know I would I'd like a Xiaomi phone. No, I don't know. Maybe they look they look pretty cool or a uh ZTE phone or Huawei.

Careful. That's a national security threat. We are reporting you. Um, but I think yeah, definitely there's a lot of people who

the cameras seem great.

The cameras seem great and the BYD cars and the Xiaomi 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 tariff us um we'll challenge you in WTO if that's still a thing or we'll you know try to push back diplomatically but we're not going to restrain our own exports um what we need to do is you know if you want to block our exports and make goods more expensive for your consumers that's on you so um you know I think that's kind of it 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 to fewer purchases. But maybe

Tracy, do you have the Xiaomi dog feeder?

No, I don't. Have you seen that?

I wasn't even aware of this.

That's the thing that's incredible on show me. It's not just, oh, there's a phone company then when cars, you know, there's a Xiaomi rice cooker. There's a Xiaomi toaster.

What does the dog feeder do?

I think but I think it's like a smart dog feeder and it knows when to release more food into the bowl and using all these sensors and stuff.

No, I'm old school. I just have a bowl that I fill.

That might be your That might be my Christmas present, too, if I can acquire one.

Oh, thank you. You're getting a first edition of uh Moby Dick if I can

please with the uh the Rockwell Kent illustration.

Okay. All right. Noted. Noted. Um I just want to go back to what we were talking about in the intro for a second uh which is the new involution campaign. Um 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?

I was living in China when uh China first announced this big supply side reform effort uh back in 2017 when it tried to reduce a lot of its expansions in um steel and this was kind of um the big effort. What's really different right now is that China is trying to uh control not really the activities of the stateowned enterprise sector is trying to control more the activities of the private sector and I think that is much more difficult uh as well

and I think you know it's going to be too early to say but it there may be a view uh there may be a future in which China actually consolidates a lot of the solar production to a few bigger firms but then all of them become much more capable and they become you know much bigger threats. uh to you know foreign 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 and R&D so I think that overp production 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 skeptical that they're going to be able to really tamp down over production over the longer run.

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 yeah, thank you so much for coming back on and for being on the pod repeatedly over almost a decade now.

I want to be a friend of the pod for the next decade as well.

That's right. Thank you both.

Thank you so much,

Joe. Always good to have Dan on and I'm so glad he 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 and years before it was cool and really in many respects had a front row seat to some pretty big developments like the tech crackdown like COVID zero policies in China. So

it's really good to read his narrative and get his thoughts.

No, Dan's the best. I love him. You know, it's interesting I I was thinking about and uh I saw some discussion of this online. I forget who, but one of the tensions, you know, one thing we didn't talk about um is, you know, there is an 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 to have from the US perspective right now. But if you think about the combination of consolidating the private sector, if you say, okay, there's over production 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 that's going to be a contributor to a softening of the real estate. That's fewer people who have jobs. That's fewer people who can buy homes. So 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 of the economy

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 its intention with the idea of having very efficient companies that are operating at at scale and at low cost.

You know, one of the things too that uh comes up I think in a lot of the China conversations is the sort of uselessness of a lot of political terms that we use here. It came up with Joseph Turriian when we were talking about oh like what is what is the right you know the the ultralleft within the party mean the ultraight etc. But even hearing Dan talk about, well, it's a sort of right-wing Leninist country, etc. Like these words that we use to describe politics, I think they uh maybe they detract more than they clarify when we're talking about China.

I don't believe in political labels, Joe.

No, that's good. That's good. All right. I respect that.

Shall we leave it there?

Let's leave it there.

This has been another episode of the Odd Thought Thoughts Podcast. I'm Tracy Aloway

and I'm Joe Weisenthal. If you enjoyed the conversation then please like and subscribe.

Thanks for watching.