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Keyu Jin: China's Economy, Tariffs, Trade, Trump, Communism & Capitalism | Lex Fridman Podcast #477

Summary

Ku Jin, an economist at the London School of Economics and author of The New China Playbook, discusses major misconceptions about China's economy in this Lex Fridman podcast episode.
Key Economic Insights:
The biggest Western misconception is that China's economy is centrally controlled by a few people. In reality, it's highly decentralized with local mayors driving innovation and growth through competitive "mayor economy" dynamics. China combines capitalist competition with socialist social fabric - companies are ruthlessly competitive while society maintains strong communal bonds.
Cultural and Educational Framework:
Chinese culture balances deference to authority with individual entrepreneurship, rooted in Confucian values of social harmony and meritocracy. The education system emphasizes intense competition through standardized testing, creating ambitious but conformist thinking. Jin contrasts this with American "secret" competition and creativity encouragement.
Economic Transformation and Reforms:
Deng Xiaoping's pragmatic reforms from the late 1970s transformed China through decentralized local government incentives tied to GDP growth. This "mayor economy" model drove rapid industrialization, real estate development, and technological innovation, with local officials competing for promotion based on economic performance.
Innovation and Technology:
China excels at scaling and diffusing technology (1-to-N innovation) rather than breakthrough invention (0-to-1). The recent DeepSeek AI breakthrough exemplifies China's cost-cutting, scale-based approach to innovation. US export controls inadvertently accelerated Chinese technological development through "crisis innovation."
Current Challenges:
China faces a real estate crisis that has impacted local government finances and consumer wealth. The one-child policy created demographic challenges and intensified educational competition. Despite economic slowdown, Jin argues the fundamentals remain strong, rejecting collapse predictions.
US-China Relations:
Jin advocates for mutual respect in trade negotiations, warning that tariffs harm both countries. She emphasizes China's desire for de-escalation while maintaining core principles around Taiwan and Hong Kong. Cultural understanding and face-saving are crucial for successful diplomacy.
Future Outlook:
The new generation of Chinese entrepreneurs focuses on local economies, work-life balance, and consumer experiences rather than pure manufacturing. Second and third-tier cities are becoming centers of innovation and opportunity, representing China's evolving economic priorities.
Key Points

China's economy is highly decentralized despite political centralization, with local mayors playing crucial roles in driving growth and innovation rather than being controlled by central authority
The relationship between Chinese people and authority involves paternalism and negotiated deference, not blind submission - there's an implicit social contract trading some deference for stability and prosperity
China operates as a hybrid system that's extremely capitalist economically while maintaining socialist social fabric and communal values
Competition in China is ferocious, driven by economic circumstances and the need to succeed among 1.3 billion people, creating intense pressure in education and business
Confucianism emphasizes social harmony, moral discipline, education, and individual responsibility to contribute to society as core values
China's meritocratic system, based on standardized testing and competition, has been fundamental to economic success but is now eroding as connections become more important
Deng Xiaoping's pragmatic reforms in the late 1970s transformed China from a political/ideological focus to an economic focus, enabling unprecedented growth through decentralization and incentives
The "mayor economy" creates competition between local officials measured on GDP growth, driving rapid development but sometimes leading to inefficient resource allocation
Chinese culture combines extreme long-term patience with short-term "short flat fast" thinking - patient on generational investments but impatient for quick business returns
US export controls and sanctions have backfired, accelerating China's domestic technological development rather than slowing it down
China excels at "1 to N" innovation (scaling and improving existing technologies) while the US leads in "0 to 1" breakthroughs, creating complementary rather than competitive advantages
The relationship between Chinese government and private companies is complex and supportive when businesses align with national goals, not simply suppressive
China's "innovate first, regulate after" approach contrasts with Europe's "regulate first" model, allowing faster innovation but creating some instability
DeepSeek represents China's ability to achieve breakthrough results through crisis-driven innovation and resource mobilization when faced with existential threats
The one-child policy had massive unintended consequences including empowering women, increasing savings rates, creating intense educational competition, and current demographic challenges
China's real estate crisis stems from efforts to make housing affordable and reduce speculation, but has severely impacted local government finances and consumer confidence
Tariffs are economically inefficient tools that harm both countries - better approaches involve strengthening domestic competitiveness through investment and innovation
Cultural understanding and respect are crucial for successful US-China diplomatic relations, with face-saving and mutual benefit being essential elements
Full Transcript

Language: en
The following is a conversation with Ku
Jin, an economist at the London School
of Economics specializing in China's
economy, international macroeconomics,
global trade imbalances, and financial
policy. She wrote the highly lauded book
on China titled The New China Playbook:
Beyond Socialism and Capitalism that
details China's economic transformation
since 1978 to Today. and it dispels a
lot of misconceptions about China's
economy that people in the west have.
This is the Lex Freedman podcast. To
support it, please check out our
sponsors in the description and consider
subscribing to this channel. And now,
dear friends, here's Ku Jin.
What is the single biggest misconception
the West has about China's economy
today? The biggest misunderstanding is
somehow that a group of people or even
just one person runs the entire Chinese
economy. It is far from the reality. It
is a very complex large economy and even
if there is an extreme form of political
centralization, the economy is totally
decentralized. the role that the local
mayors, I call this the mayor economy,
plays in reforms, but also driving the
technological innovation that we're
seeing right now. It is actually not run
by just a handful of people. It's more
decentralized than the US is. And I
think more broadly, a big
misunderstanding is really the
relationship between Chinese people and
authority.
Can you elaborate on that?
Well, you know, people think that
somehow there's almost blind submission
to authority in China. We have a very
nuanced relationship uh with authority
whether it is you know between kids and
parents or um students and their
teachers or with your bosses and the
Chinese government. It's kind of the
same thing. There's paternalism. Uh they
think that they're responsible for you.
Um but uh deference a certain amount of
deference to authority is not blind
submission. It's been written implicitly
in our contract uh for thousands of
years that in exchange for some
difference uh we are given stability,
security and peace and hopefully
prosperity.
So there is some element that we have in
the west of freedom of the individual so
that a little bit of the rebel is
allowed uh in balance with the
difference to authority.
Yeah, absolutely. Without that, how can
you have this radical dynamic
entrepreneurism you see in China if you
don't have a sense of self, a sense of
uh the fact that you can find
opportunities, you look for
opportunities, you you you drive
opportunities. Um it's all self
motivated. Is there still a young kid in
China that's able to dream to be sort of
the the stereotypical Steve Jobs in the
garage, start a business and change the
world by doing so?
There are millions of young kids like
that in China. They might not be
thinking about changing the world and
this is where the Chinese approach to
innovation is very different from the
Silicon Valley one, I'd say. Um, but
they see opportunity. They see a country
with a billion consumers. They see
scale. They see speed. They see that
with their dreams and the team that you
have in China with engineers and the
digital transformation, you can do so
many things. And this generation of
young people think about transforming
their local economy. I I think we're
going to get into this, but it's no
longer going to just be manufacturing.
The young kids are entrepreneurs.
Well, let's uh stay in the big picture a
bit. There's a a perception that China
is a uh communist country. So to what
degree is China a capitalist country and
to what degree is it a communist
I've rarely seen a more capitalist uh
society than China from the pure
economic uh uh side. I've rarely seen
companies that are as competitive as
Chinese companies. uh people as
ambitious and obsessed with making money
as Chinese people uh kind of ruthless
actually uh and look you know consumers
shop firms invest if you invest well
financially you'll get great returns
what is not capitalistic about the
Chinese economy at the same time the
social fabric is highly socialist first
of all the state enterprises dominate in
many of the sectors the state banks s
control the financial system. Uh we
often talk about common prosperity,
about equal opportunity, just and fair
society. But even, you know, daily
stories, a walk in the park behind my my
parents apartment, you're going to find
at least 50 organized social groups on a
daily level, singing, dancing,
exercising, doing whatever these
fantastic idiosyncratic hobbies they
have, getting together every single day.
And three courses for the elderly and
retired, right? That sense of
communalism, that sense of belonging,
uh that strive for harmony at the
societal level is there.
So, uh just to go back to something you
said, there is a value for competition
culturally. So, on the business side, on
the economic side, there is sort of a
cultural value of people competing in a
meritocratic way.
Competition is ferocious in China,
especially when it comes to Chinese
companies, but also in education.
I should be thankful that I'm not, you
know, born later than I am because I
thought China was pretty competitive
already, uh, going to the schools and
studying for the exams. It is a
different level today. Competition is
not necessarily in the culture. I'd say
it's driven really by the changing
economic and social circumstances of the
day. The Chinese companies are all
hardworking. They're all going after the
market share. They all kind of want to
do the same thing. You know, it's not
quite like in the US where you open a
coffee shop. Well, next door I'm going
to, you know, open a bagel shop, right?
In China, if the coffee shop does well,
everybody wants to open the same coffee
shop. And I think again, I'm sure we're
going to get to this, but there's a lot
of that kind of competition, which
really drives the world sometimes crazy
um of replication, but it's because it's
not easy, right? It's not easy to make
money in education system. There are not
enough jobs for the young people. So how
do you get ahead? Uh how as let's say if
you're part of a lower stratum society,
how are you going to make sure that your
children are going to have a better life
than you? You invest in education. So
everything is about competition in a
country with 1.3 billion people. That's
uh somewhat to be expected.
Let's go back to the roots of that. So
you described that China's economy model
uh is rooted in its history. So can we
talk about Confucianism?
Can you explain to what degree those
roots run back to Confucianism and in
general to other parts of Chinese
Yeah, Confucianism is more of a moral
philosophy uh than let's say religion or
a belief system. It prioritizes
um social harmony above anything else.
It's not about metaphysics but more
about ethics and at the individual level
the responsibility the duties are all
meant to preserve that social order. So
it's felop piety
um it is loyalty it is how to be a
Chinese gentleman. Um but things like
saving frugality is part of the moral
discipline. Education is part of the
moral cultivation. So there's a very
strong emphasis that you as a citizen
have a responsibility to contribute to
society as a whole.
On the education side, a part of
confusionism is a is a value for
meritocracy. So how does that permeate
the education system in China? You've
already spoken to it a little bit, the
value of competition and that it's
already getting more and more intense,
but it would be very interesting to get
your understanding of the education
system, its history and as it stands
If China were relatively successful
economically,
a huge part of the reason is by and
large it's been meritocratic.
That is changing somewhat now, but
the only way that you have still that
many poor people, especially a couple
decades back, still be in harmony with
society, seeing all these rich people,
you know, make tons of money and you're
still belonging to that lower stratum.
The only reason is that you believe that
your children have a future through
meritocracy.
And even though it's imperfect, it's
highly imperfect. standardized testing,
all this competition, all of the the the
hours and the tutorials to studying for
standardized exams. Well, that is a very
realistic um scenario in China because
there that many people, you know, when I
was growing up in school, we had 60
people per class and there were 10
classes in one grade. Now, imagine that
many people applying for colleges
uh in the in the American way. how many
essays would have been written and need
to be scrutinized. Also that gives room
for total corruption if you you know if
you know what I mean just connection
based and actually the standardized
exams as imperfect as it is to select
talent is still by and large fair and um
that's how that whole generation of you
know entrepreneurs but bureaucrats
government officials were selected if
you look at the Chinese premers uh the
presidents of the past they they all
went to great schools you know a lot of
them were engineers years and uh same
thing for civil servants. It has changed
somewhat. You know, the meritocracy I
think is is eroding in China. I'm
worried about that because it is fine
that you get into a good university
based on your own merit, but finding a
job now becomes much less meritocratic.
People with connections get jobs more
easily than than others. Of course, this
is not just a unique Chinese phenomena.
It's actually everywhere. But I guess
what I'm saying is that that meritocracy
which was so fundamental to the Chinese
ancient Chinese education system by the
way civil servants were selected based
on standardized exams in the past that's
always been throughout Chinese history
and that relates to Confucianism. Now
the opportunities and coming back to the
competition point is that the
opportunities getting slimmer and
slimmer and again this is not a unique
Chinese phenomenon. Jobs where are the
jobs going to be right? So, um,
meritocracy has become more of a
Uh, do you have any memories of your own
experience in terms of competition, the
good and the bad of it? Maybe, uh, from
that, can you, uh, pull out the thread
of of the value of that kind of
competition? Basically, you know, uh, I
grew up in the Soviet Union, so there's
a kind of brutality to the competition.
Um, but I think it ultimately molds
really interesting people.
There is a good and bad part of
competition. And I remember when I was
going into middle school, every single
midterm exam, final exam, you were
ranked from number one to number 800 in
your entire grade and publicly
displayed.
Nice. Right.
Um, imagine, you know, the majority of
people and how they feel.
Um, but it it does drive ambition in
part and you don't take anything for
granted. uh and you work hard, you keep,
you know, you keep the spirit up.
But, you know, going to the US, I
finally realize that Americans are
totally competitive. It's just that they
don't display it. It's not as apparent.
I I remember I go I went to a very
competitive high school, but everyone's
like so chill. Oh, I'm not studying. Oh,
you know, they're they're studying. They
are secretly studying. Um when I was
doing my PhD at Harvard, people say,
"Oh, you know, my parents say don't work
too hard." You know, people say, "Don't
say you worked." They're working hard,
right? Just you don't show it. In China,
it's it's kind of um a noble thing to
show that you're working hard and that
you're number one or that you're top of
the class and you want to display it.
You want to let everybody know. But in
the US, everybody's like secretly doing
Yeah. Some of it is the is the signaling
the culture emphasizes the signaling of
is it better to be kind of for
everything to come easily thereby
showing that you're a genius it comes
naturally or is it better to show that
you worked extremely hard for the thing
but the ultimate result is there's still
competition but I don't know when you're
visually displaying
uh explicitly stating that it's good to
be number one and it's bad to be number
800. I think that permeates throughout
the culture to where
you understand
uh first of all you understand that hard
work is the only way to uh improve to to
to succeed in life and second of all you
just create this framework of uh early
on understanding what it means to live a
good life. And a part of that is to uh
to find the thing you're damn good at
and get even better at it, master it,
become hopefully the best person in the
world at that thing. I don't know.
That's a extremely important lesson for
society teach.
That's the right I would say the right
kind of competition or the efficient
kind of competition. I feel that in the
Chinese education system it was not
necessarily efficient because it kind of
frames you and molds you to be thinking
in a certain way uh what's been taught
to you. You don't have the bandwidth or
the time or creativ freedom to be more
creative and to think outside the box.
There it's just the box. You maximize
the box and that's it. You don't
actually know what's outside of the box
and you never actually go there. That's
the bad part of Chinese competition. And
when I got to the US, uh, the high
school teachers were asking us to
question authority, to question text.
I'm like, wow, really? You can do that?
So, I started asking why.
All right. So, there there has been this
miracle in the Chinese economy from um
after Mao under uh Deng Xiaoing where
the Chinese economy got transformed and
grew incredibly. So can you explain what
happened the different transformations
that happened uh the different reforms
that happened under Deng Xiao Ping?
Dang Xiao Ping was by far our most
pragmatic leader and I think everybody
is grateful to Deng Xiaoing. My father's
generation would not have seen
that amount of prosperity and peace and
opportunity without Deng Xiaoing. Uh it
started in the late 1970s when Dung
Xiaoing came out with this open up and
reform mandate and it was very tough.
Again coming back to the big
misunderstanding of China. It's not as
if one leader decides that that's what
we're going to do and then everybody
follows order and does that. No, there
are tons of political barriers, tons of
incentive compatibility problems at the
local level. In the end, you need the
local provincial governors, the mayors
to do the job. And how many perfeurers
are there in China, right? A lot. And um
they have their own interests, right? We
we know this around the world.
Politically is the most difficult thing
to do. Um but somehow Dung Xiaoing was
able to break tradition, break
convention,
um come up with this completely new way
of thinking about society, life and
economy. And it was so transformative. I
remember people of that generation
told me one time that you know society
was going to focus on the economy.
Really? Why would they do that? Wasn't
it politics? Wasn't it everything about
politics and struggle and ideology? So
for them that the whole country and the
government is going to focus on the
economy was just so shocking uh even
though we take it for granted now that
that that shows you that breaking that
that mold was incredibly difficult. Um
but um I think opening up was a really
momentous thing that China did and it
wasn't just joining the debut. I mean
they were doing a decade of work in
preparation leading up to that um uh
what's called you know special economic
zone is really to turn Shenzhen from a
fishing village to an export platform
now to a Chinese style Silicon Valley
right and there was the agricultural
reforms in the 1980s that meant that
farmers could decide what they were
going to grow and keep the surplus
whereas it was a collective system
before you you know that very well and
then of course the ultim Imate
transformation was when China actually
joined the WTO in 2001
and the rest of was history right we're
still talking about the aftermath but
reforms was the single biggest impetus
to Chinese growth and every time there
was a major reform it was followed by a
good decade long growth every time
growth went down there was a new series
of major reforms rolled out and then
oops that you know led to another wave
of good growth. But I'd say that reform
pace has slowed in the last 15 years.
But are there reforms to be done? Yeah,
absolutely. You know, has China reached
even close to its potential? Not at all.
Um, but again, it comes back to
politics. Right now, it's less about
economics. It's more about national
security. It's more about politics. And
I think that is probably the single
biggest barrier to continued good
economic growth.
Baby, can you speak to what it takes in
such a large system, in many ways, such
a successful economy to do reform? So
you mentioned pragmatism. Deng shiping
famously said that it doesn't matter
whether the cat is black or white as
long as it catches mice. So there's that
pragmatism.
That I think underlies a lot of great
reforms. As a contrast to Soviet Union,
uh the Chinese economy as I mentioned
was extremely decentralized. You know in
Soviet Union the ministries were in
charge. It was a central bureaucracy
but a lot of the power were given to
these provincial governors, party
secretaries, mayors of different sorts
and they were incentivized. That's the
key is that these mayors were
incentivized to do a good job. If I were
successful on a radical reform, if I
were successful, I'd be a national hero
and then that reform would be rolled out
in every single city in in the country
over time and I would be promoted to the
higher run of the central government and
who knows I might even become vice
premier, premier president one day. That
was how the individual was motivated to
carry out these really tough reforms.
Now, China has changed a bit, right?
It's not about being radical and
radically successful. It's being it's
about being safe, right? So, when you
shift from basically an entrepreneurial
state to a safe state, then the
objective function changes and you see
it in different economic uh outcomes.
So, maybe can you speak to that? What
what are some important things to
understand about the structure of the
Chinese state?
Well, the central leadership politically
is extremely powerful and very
consolidated, but they hold a very
crucial key to the local governments,
which is that they decide their fate. Am
I going to promote them? Am I going to
put them in jail? Am I going to fire
them? Am I going to reward them? Am I
going to p punish them? They they hold
that crucial key. And I think what was
you know very surprising for most of the
western audience is that when I
mentioned about the mayor economy
there's a you know why why don't our
American mayors in each city do these
very radical things and then push for
GDP growth and technology and innovation
it's quite different I think this is
where China's very unique in the world
is that political centralization
economic decentralization and the yard
stick to measure local mayor's
competence
through in the first stage it was GDP
growth. So I am a a mayor of you know
the city of Nanjing in Jangu province.
I'm going to like peak at my neighbors
mayor's uh uh city's GDP growth and I'm
going to be very very competitive. By
the way I forgot about that competition
is extremely competitive among the local
government officials because you are
competing with other mayor for a top
job. Right? So you need to do better
than them. And whether that was
efficient um structure or not, I cannot
comment. But it certainly just fueled
this massive and rapid expansion,
economic expansion. Uh first it was
industrialization. Everybody wanted to
do exports. Then they discovered, oh my
gosh, we can have so much fiscal
revenues coming from land, right?
Selling land and real estate. Let's
let's let's build real estate and let's
urbanize. And then the the money kept
coming in to these local governments and
that they can spend it on on nurturing
more companies or supporting real estate
or supporting investment and they can do
a better job. So then it was geared
towards real estate and that's how the
property cycle became the big thing.
Everything was at double speed because
of what the local government's
incentives um were designed to do. I I I
say now that China's biggest challenge
is consumption, right? It's not
production. We know that China is very
very competitive in production and
supply. China needs to be a consuming
country to be a rich country. Why don't
you put consumption as part of the yard
stick for measuring local governments?
You know, for a while is environmental
protection. Guess what? Very few of them
will really want to do it seriously
because it goes against the uh
incentives of driving growth, right?
They would suffer on GDP growth if they
were very serious about environmental
protection. So for a couple years
nothing happened in China on that front
and then the central government got
really kind of concerned and even angry
and frustrated. So they decide to put
that as a penalizing uh factor and then
guess what happened? Well actually
environmental protection um sped up and
you know in the matter of short short
few years I see blue skies every day in
Beijing. That's how it works.
So GDP is a measure of success in
production. What's uh the measure or
what does it mean to be successful on
the consumer side? You said it's
important to improve that. What does it
mean to be a successful consumer nation?
The metrics shouldn't be geared just
towards growth alone. GDP growth alone.
It was just singular GDP growth and you
can borrow uh heavily and just spend on
infrastructure. That's not a productive
way to drive the economy. That's what
the local governments were doing for a
long period of time. You know, in the
last few years, innovation unicorns have
kind of been an implicit yard stick for
local governments. That's kind of how
we've seen these great, you know, EV
companies, 80 cities doing EVs. I mean,
do we really need 80 cities to do their
own EVs, right? Solar panels, now
Deepseek has become, you know, a star.
uh semiconductor companies, you know,
each local government wants to have
their own national champion. So
implicitly technology was part of the
yard stick competition as well. But if
you can more accurately have a metric
for consumption measures really focus on
you know making sure that it's coming
from consumption this GDP growth rather
than from investment or infrastructure
then I think that it might focus the
government's objective a bit more on uh
thinking about how to make people feel
more secure uh so that they want to save
more for instance creating more jobs for
instance more on social security
spending on health care uh on elderly
care uh because for the longest period
of time this political economy model was
brilliant at scaling up supply but it
was extremely weak at raising personal
consumption because the incentive does
not lie in consumption it lies in
production. So you shift the objectives
a little bit and maybe local government
will do more to stimulate consumption.
Okay. You mentioned uh the mayor
economy. That seems like an incredibly
powerful idea. And you also mentioned
that perhaps uh you're not sure exactly
how perfectly efficient it is and what
efficiency there means. How good are you
at quickly figuring out the best ideas?
That's what an efficient market does.
There's a kind of component to what
you're saying where you're a little bit
critical of do you really need 80 EV
companies? But maybe you do. It seems
like an incredible thing to do, right?
So, what are the pros and cons of this?
Maybe you can speak to it a little bit
I think it depends on the timing. If
you're starting something, starting a
new emerging strategic sector like EVs
or batteries or solar panels, you need
the local governments to be involved to
mobilize, right? The big push to
coordinate the supply chains. If you
wait for the markets to develop over
time, it's going to take a long time.
Maybe they don't even want to do it,
right? Look at the US. the US is very
very behind on some of these new
strategic sectors. But once you've
reached a certain level of market
competition, I think the state needs to
to withdraw or to retreat because
ultimately the state is not the best at
allocating resources, picking winners.
You want the private actors, whether
it's the venture funds or the, you know,
through market competition to ultimately
decide who gets the most resources. But
in the beginning that big push is not
not really in any of the canonical
models that I've studied in economics in
the western school of thought state push
state mobilization state initiation
that's not there but I think if you look
at EVs solar panels even just thinking
about the idea of reforms in the first
place um that initial state push was
vitally important uh the other negative
although I think by and large positive
positive aspect is I don't think that we
need 80 cities to do their own EV brands
but to get started maybe that's what it
would have taken to drive that incentive
and then ultimately it's up to the
market to decide who are the last five
remaining EV companies right through
market mechanisms that's Chinese style
industrial policy um industrial policy
was heavily criticized and again if I
talk to my Harvard professors they will
be very very very skeptical
about the the role of the state
especially in such a major way. But if
you look at the Chinese experience, the
evidence for success is all there. The
the cities that have pushed the most on
supporting that particular sector
ultimately did the best in terms of
production but also in terms of
innovation measured by patents. It's all
in the data. Um but the downside is that
a lot of the capital is wasted and this
is what I also discuss in my book is
that it is inefficient although maybe
it's necessary uh the amount of waste of
investment you know plowed into these uh
companies that will ultimately just go
under. um but also the misallocation of
resources because it's led by the state
are some of the downsides. But I guess I
guess on balance it's been positive
because look at China's internal
combustion engine effort nothing right
semiconductors
thanks to Biden thanks to Trump it's
improved dramatically but all these
things that they tried to do before they
couldn't do but when it's a new thing
like something that there's no incumbent
no particular advantage in any country
actually China is really spearheading
these sectors
can we linger a little bit more on this
mayor economy it just seems seems like
such a powerful thing where one mayor
looks over to the next and looks even
just a trivially simple number like the
GDP GDP. Why don't we do that in the
United States or in the West more? Just
compete on GDP.
Well, you you need to be elected and
reelected, right? Is that what your
electoral base cares about? Right? In
China, it's what the central government,
your boss, cares about. If you ask the
consumers, they rather you spend on
social spending, right? The things we
talked about that stimulates
consumption, on education, on
healthcare, things that stimulate
So yeah,
that's the political it's a difference
of political system.
So maybe can you speak to the
difference? Another difference is the
longterm multigenerational thinking
uh that permeates Chinese culture. So
how does that differ from the west sort
of the western style capitalism of uh
quarterly focused thinking?
The Chinese are both the most patient
and the most
short-termist
um economic actors I met. The patients I
don't need to explain because I think
the political continuity means that they
can make plans for two decades ahead,
right? Even longer. um uh the investment
of Chinese parents in their children is
a multi-deade long project uh and they
they save you know Chinese people love
to save because they think that they'll
have even more money uh if they save
that money rather than spend it on a ski
vacation. So that I I think it's
patently obvious to uh uh most people
around the world. But I think that most
of them would not have known that there
is a very popular motto in China which
is called short flat fast. That's the
impatient part of the Chinese culture
especially with respect to the economy.
Short flat fast was used to describe a
winning volleyball strategy that
eventually became adapted to describing
the society as a whole and economic
decision-m. If you're an investor, you
only want to invest in things that you
can quickly turn around, make a lot of
money, and don't need to do much work.
Uh it also applies to marriages. So, a
short courtship, a very flat emotional
relationship, and a fast divorce. Um
that that is uh how uh you you see these
um companies rise, you know, within a
very short period of time. of course
investors are only interested in those
companies that can turn around and exit
in a very short period of time making
many many multiples and um so in that
sense people are very very impatient
right I I sit on some boards of these
long-standing companies and the values
are just so different uh even though a
lot of these public companies are
constrained by the quarterly results and
so forth but the values are about
sustaining ing something a company for a
long time thinking about organic growth
thinking about investments for the
future sustainability um maybe it's that
competition maybe it's the speed that
we're used to in China people think
about short um so you know this
dichconomy is very very interesting
that's surprising to me
yeah well
it's a surprising idea right so that
there is a kind of uh in the west
conception of Chinese culture Chinese
economy that everything is you say 50
100 200 years out you have this long
vision but you're basically saying that
there's a deep
uh in the business sector uh impatience
about everything
that's it's a transitory phenomena I'd
say but if you look at the cheaper stuff
poor quality that's a reflection of that
the coping it's the same kind of
mentality just get ahead quickly but
again that is all shifting that is all
shifting because China is now in a
different stage of development. If you
ask the younger generation, they really
care about quality. They care about
values. Uh and these companies, these
very successful companies, successful in
5 years, 10 years, found themselves in a
very difficult position after a longer
period of time. So that short flat fast
attitude which was so popular especially
before the pandemic, that's actually
somewhat disappearing. So in some sense
this economic downturn is not that bad
for China because it make it made the
Chinese realize that it's not always
going to go up and uh it made them
really look down deeper into what they
really should be focused on. Uh that
there will be cycles, there will be up
and downs and so these very shorttermist
thinking and opportunistic
way of driving business will ultimately
fail. Um it is it's bad for China that
we're having a sustained economic uh uh
softness sustained economic softness but
I think it's also a very very important
lesson for the Chinese people to go
Let's go if we can a bit to the
personal. So you grew up in China. What
are some moments from childhood that
were maybe defining to your
understanding of Chinese culture and
Chinese economy?
You know, we look back at those moments
when everybody in China was very poor
with a bit of nostalgia.
I remember um no doors were locked. I
was I was in Beijing and I remember
every day in the summer, everybody just
went downstairs and chatted with
everybody else.
Um uh it was very social. It was very
community- based. Uh the neighbors help
each other. uh we had very very little
uh small apartments, very limited access
to certain goods. When I was born, there
were even in Beijing there were there
were you know these these vouchers for
how many eggs you can buy and even
Beijing there were three or four
blackouts per week typically. There was
a sense of community. There was a very
strong bond between people and within
the family because they were going after
a common goal, making your life better,
right? struggling, striving to make your
life better. And I remember being on the
back of my father's bike, uh, getting
up, you know, 6:00 a.m. every day and
going to nursery and, you know, that's
that's the typical day. Uh, not a lot of
material goods, but people had a sense
of purpose and, uh, that's radically a
different uh, it's completely different
now in China. Do you think that if you
go to the human condition, do you think
that that nostalgia has some truth to it
or is it just nostalgia like any other?
Is there some aspect of a intense,
competitive, vibrant economy that loses
some element?
Absolutely.
Of everybody being poor together.
Well, everybody having a common goal and
a sense of community, right? That that
is what's missing in these extremely
individual-based capitalist societies.
And I think what the Chinese government
is striving to do with Chinese
socialistic characteristics is to
somehow try to preserve a bit of that
socialist character while still relying
on markets, market-based incentives. But
if you're an extremely individual-based
society, I think you do you do lose a
lot of that. And I think some of the
backlash that we're are seeing uh from
society is a reflection of that, right?
people being alone more and more uh the
the death of despair in the in the US uh
the addiction you know that um it's
they're lonely right and competition
means that you kind of have to be
somewhat badass and uh you sometimes put
down values and you forsake harmony in
order to get ahead that's certainly the
Chinese society now that was not the
case before
you think that's a natural consequence
of uh of capitalism almost always that
you become more individualized,
you become lonier, you feel lesser if
you're not winning and thereby uh
somehow that breaks down society
community more and more.
I think it's a spectrum, right? And uh
Europe is somewhere in between, I'd say.
Uh but Europe also is not as
technologically and innovative as the
US. But on a social level, there is more
social protection for the people. There
is a stronger sense of community. I I'd
argue it's not perfect. Ultimately, it
is a choice. And this is what I think
that China has to decide, right? Do you
want technological supremacy and radical
breakthroughs? Well, yes. If you do,
then you have to tolerate that there are
going to be some people who are going to
just going to be um uncomfortably rich,
right? like in the United States, you
can't say that you detest the financial
system for its greed uh but then not
accept the fact that it is what fuels
innovation, right? Um risky capital
fuels uh uh uncertain investments which
allows for countries like the United
States to be making these breakthroughs.
That's what China wants. But at the same
time, China can't tolerate these
extremely rich people around and the
power that they is acrewed to them. They
want to to be a leader in technology.
But then the financial system is not
liberalized. Uh it's highly uh
regulated, but you know there's also
intervention. Even if we look back at
the French civil law versus the English
uh common law, well the former protects
uh creditors and the latter is more
friendly towards debtors which gives
them more breathing space to innovate
but also to fail and to innovate again.
Uh and that makes a big difference. So
it's all about a spectrum, right? But
you can't have it both ways. We don't
often enough have that nationwide
conversation about what we want to be as
a country. There's just a group of
people yelling we don't want
billionaires and another group saying we
don't want communists or whatever. It's
a very trivialized kind of chanting. But
there is a balance. There's a spectrum
and you get to decide
uh do you like the nice things, the nice
and the power that the US has
and the power, the geopolitical power,
the military power, cultural power,
influence on the rest of the world.
Yeah, you get to choose which which do
you want?
Um so the first time you went to US,
what was that like? Mentioned Harvard.
How did that change your understanding
of the world?
Um, well, it's funny that we're talking
about this now because I was able to go
to the US on a scholarship to an
American high school because the US at
that time want was open arms, all open
arms towards international students.
They kind of wanted to be the the
country that was going to educate the
future leaders of the world and their
elitist in institutions like Harvard was
really going to be, you know, they're
the center of the world. So they
welcomed students like me and many many
others uh to be exchange students to
study in the US. Um and we thought,
"Wow, we've never seen a more generous
Um, and I was able to uh go to high
school, an American high school and live
with an American family, which was, wow,
can I say a big change uh from from
China, not only because I was plucked
from the Communist Youth League uh party
and then straight to supporting their
Democratic campaign because the host
family was running for state attorney
general in New York. So, I was kind of
going to these conventions and handing
out flyers and trying to get votes and I
don't know in China Chinatown or
something. But, um, but it was it was so
interesting to see that's how the system
worked. Um, but in the course of doing
that, I realized that people had a very
simplistic understanding about China.
And that's probably um even when I was
14, I decided that one thing I wanted to
do was to
dispel some of these deep myths about
China because the China that they knew
and again it was all the three T's back
in the late 1990s,
Taiwan, Tibet, and Tamman Square. That's
that's they thought about China. They
thought about these three things. And I
was like, well, that's strange because
that's not how I'm feeling in China with
all this, you know, bidding for the
Olympics before 2000 and all these
buildings going up and down, all this
excitement about, you know, joining the
WTO, all these radical reforms that are
that are that are taking place and then
all this effervescence that you feel in
the air. You it's not GDP growth as
numbers, you actually see it. I said
this is really, you know, and they're
describing China as if it was a place
shredded with white terror. And so I
thought this that's interesting. Uh
there's a big gap big gap of
understanding. And even today, that many
years later,
um people know China a little bit more,
but the sentiment hasn't profoundly
It's still the three T's. I feel like
some variation of that. Uh so what what
about the level of misunderstanding of
Chinese people of the west? Is there a
similar level of misunderstanding the
other direction as well?
I don't think to the same extent because
there's Hollywood uh that you can see
daily American life although it might
not be totally realistic.
Um there was a huge amount of admiration
of US um technology innovation but also
the American dream.
Uh, I think our newspapers, even though
there's bias everywhere, is not focused
only on reporting the really bad stuff
and portraying a negative side. I think
these few years have been a little bit
different, but so many students went to
the US, right? Um, so many people travel
to the US and this is the interesting
thing. I've rarely met an American who
has been to China and who still goes on
about how bad China is. I think that
going to China makes all the difference.
I feel that's like one of the big gaps
of my life that I need to uh alleviate
is to travel in a real way for a long
time to really experience the people and
the cultures. And China is a big place.
Go dig deep and don't just go to Beijing
and Shanghai.
Um let's go back to the economics. So
can you just
uh dig a little deeper on the
relationship in China between the
government and the companies in the
private sector? So how much freedom do
Another big misunderstanding and a
fundamental one is that people somehow
think that the state suppresses the
private sector. It's not at all as
simple as that. Um, for the most part,
if we look at the local government's
incentive system, they want to help the
best private companies, which are the
most promising because it makes them
look good. It adds to their GDP. It adds
to the jobs, investment. They are so
helpful to these private companies.
Actually, I I I know many of these local
government officials working tirelessly
day and night, especially in bad times
uh to coordinate between debtors and
creditors and to kind of smooth out and
define relationships with banks. They
want to help these private companies
because again their incentives are
aligned. Uh Deepseek is private company
by the way. So it has done the country
proud and why would the state want to go
and suppress these private companies
which ultimately is kind of a beacon
represents a beacon of success for
China. Um,
now on how much freedom they have, it's
really ranged from too much freedom.
That's part of the problem where you
have defense companies buying art
auction houses, real estate companies
like Everrand, buying soccer clubs,
doing EVs, uh, uh, uh, companies uh, uh,
investing in real estate that has
nothing to do with their core business.
That's how much latitude were given to
private companies. And there were
consequences.
uh they were not reigned in. And then
you go to the other extremes where
they're scolded, they're reprimanded,
they're reigned in, and they're kind of
folded into submission. So that that is
the whole spectrum. You have the whole
range. But I guess what we're really
getting at is it is a country that is
moving from a no rule of law or very
little rule of law, very immature
markets to something that is being
um uh uh uh established bankruptcy laws,
you know, corruption laws, uh rules and
regulations on what's possible. uh one
interesting point is that uh in China
you you ask the companies to innovate
first and then you re regulate after
so that has led to things like P2P
platforms that you know it's led to lots
of kind of financial innovations some of
which has actually been very helpful and
good some of which have been disastrous
but the intention to regulate after the
fact is to really not um slow down or
hinder the innovation. This is a very
different approach from Europe. You
regulate first and then you know
companies have to work around that. Um
so the this is why Chinese economy is so
complex. Uh you cannot reduce it to
simply a statement saying the state is
unhelpful for the private or or
something like that. Um there are
certain sectors where the suees dominate
right when it comes to national security
in terms of energy. But let's not focus
on these few sectors. By and large, most
of the economy, if you actually admit to
the fact that China is highly innovative
and highly entrepreneurial, means that
it must be the private sector that is
driving the show.
Innovate first, regulate after. Really
interesting. Uh I also in my mind am
contrasting it with the way the Soviet
Union and Russia since operated. That
doesn't sound at all like this model.
And it's interesting that countries that
at least on the surface had a similar
cultural communist problems. You know,
the bureaucracies that form inside the
communist state. It just seems that um
China broke away from that somehow that
don't understand exactly what happened
in the west. They group these economies
together as if they're the same thing.
No, it's not the same at all. There's so
many differences, uh so much more
flexibility. You can have dynamic
entrepreneuralism at the same time have
socialist characteristics. And I think
this is what China has been able to
shape and mold a unique model that
balances between government industry,
between state coordination and market
mechanisms and between individualism and
communalism. It's not necessarily black
and white. You can have all these things
at the same time.
So what are the pros and cons of being
an entrepreneur in China versus the
west? Like if you get a choice, you have
a dream, you want to build epic things,
what and you get to choose where to
start that business. What are the pros
and cons of each path?
In China, the speed is just all
inspiring. You have a good idea, you
implement it, you realize your dream
very fast because there's also the
support system, right? The
infrastructure there, the digital
infrastructure there, the engineers are
there, the talent is there, and they're
cheap. And the market competition is
there to keep to keep you going. And the
consumers give you a very very fast
feedback. You know, look at Xiaomi. It
was making phones and now it makes one
of the world's best EVs. 270,000 cars
sold in one day a few days ago with a
new model. They were phone makers.
So, there's an advantage to that. Okay.
But I would not feel safe. um not
because of danger of expropriation or
nothing like that but the bank
bankruptcy laws are not there right it's
not necessarily always fair competition
things don't happen necessarily in
orderly manner if you have a competitor
you can have a very evil competitor and
evil competitors are there everywhere in
China they would you know call the
police on you put you in jail uh spread
false rumors about you maybe that
happens also in the US but there's a
different it's a different level uh in
China. Um, and also the mold that you
can have to protect yourself, the IP
protection, right? That's much weaker in
China because the legal system is not
very effective. You have a good idea,
you'll be copied. And there's a lot of
work. You have to you have to dine and
wine with the local governments. I mean,
that's not allowed anymore, by the way.
But you dine and wine, you know,
figuratively speaking, you have to have
a very good relationship with them.
That's a different kind of work. the
wine and dine and the evil competitors
is an interesting challenge that in some
maybe distant ways akin to the problems
of the Soviet Union. I think I guess in
the United States there's less of that
and I don't even know if that's based on
laws cuz there's a lot of lawyers in the
US that could do the same kind of evil
competitor stuff technically.
That's true. the potential negative um
ramifications are there. But I I I think
personal protection is a big difference.
If you make a mistake, if you your
company is not run well, you know, you
go to jail. I think that the US is much
much more tolerant on entrepreneurship,
entrepreneurs on failure. Since we're
talking about it, there was a lot of
controversy around Jack Ma disappearing,
quote unquote, and uh reappearing a bit
later, and there's been sort of rumors
of some tense relationships that he has
with the Chinese government. What is
important to understand about the whole
situation?
Like to what degree is it reflective of
the issues entrepreneurs face in China?
In the US, capital controls politics.
One could argue. In China, it has to be
the other way around. Capital must be
reigned in by politics. As part of the
capitalist class, do not have the
ambition to exceed the powers of the
political class is really at the core of
it. I'd say the biggest difference
between US and China.
Um there are important
details that I think the west has not
fully provided to the public. Um for
instance and financial as innovative as
it was um was doing banking
jobs without being regulated like a
bank. Right? So that obviously poses a
host of financial stability questions
and um and rules and regulations and so
forth. So the fact that IPO was halted
uh you could say that there were strong
economic regulatory grounds uh for that.
But I think more broadly speaking if
you're an entrepreneur part of the
capitalist class
keep your head down make money and
that's fine right? uh do some
philanthropy. There are also many many
other billionaires that are just fine
that are actually very much in favor uh
of the political leadership and um they
do their thing. Now I'm not saying
what's right, what's wrong. It's just a
very very different culture and
different country. In the US it's great
to be colorful. I mean you have a very
very colorful president. He would never
have been able to make it in China. uh
you have the likes of Elon Musk. It's
great to be different. It's great to
stand out. You do not want to stand out
in China.
So the moral of the story is that the
top leadership understands that it needs
these top entrepreneurs, the likes of
and um they have done so many great
things for the country, even for the
world. But in China, garnering too much
influence and power even through social
uh doesn't make you look that great.
It's not a good thing for you
personally. And and there's a saying in
China that you just don't want to be the
tallest tree, right? The tallest tree
gets the most wind. So I don't agree at
all with the western conclusion that
this anecdote, this story has meant that
entrepreneurs don't want to be
entrepreneurs anymore. The young kids
don't aspire to be people like Jackal.
That's not true at all. The incentives
are still there. It's a different kind
of rich elite class in China.
So on on what dimensions do you think
that the height of the tree is measured?
Uh, is it is it more about just
mouththing off in public? So, can you
still be the richest person in China and
actually not
uh clash with the state?
Absolutely. Don't be too outspoken.
Don't try to get too much attention and
too much influence. And just, you know,
again, it's a cultural thing, but just
keep your head down, be humble, uh, you
know, contribute to society, do
philanthropy,
uh, work, uh, collaborate with the
government, and you're kind of okay.
So, the signal the Jackmaw situation
sends to the entrepreneurs in China is
is is not don't be an entrepreneur. It's
more like don't
be too colorful.
Don't be too colorful. And colorful
means you can be colorful about the
technical details of of your technology,
but don't be colorful about Xi Jinping
and and and politics and just stay out.
Yeah. Stay out of politics. But I just
want to say that said, Jack Ma was
really an emblem um of extreme success,
right, for China and the Chinese
entrepreneurs look up to him. That's
really important. It was a signal that
unfortunately was misconstrued
by the side and by also outside world.
Um but it's laid a different path for
what these entrepreneurs should be
What do you think happened to him? So
he's now I think living in Japan.
That's by choice.
By choice. No, he's look he's an
extremely fascinating character which
you know and if he were in the US he'd
thrive funny, witty, smart, wise, uh
creative, uh loves a good life and I
think it's by choice that he's roaming
around the world um given that he has
more free time.
You think he loves China?
All of them do. all of them do because
their lives their their destinies were
totally changed because of China,
because of the government, because of
Deng Xiaoing, because of everything.
So, um you know, I know a lot of people
from the the former Soviet Union and
there's a deep resentment
of broken promises, broken dreams. So,
that is not something you see.
That's not how I would describe that
generation and their feelings towards
China. Of course, you always get
exceptions, right? the ones who have
moved to the US and who who who wants a
democracy. But by and large, people are
deeply grateful to China, the Chinese
government, the Communist Party, if you
want to label it as that, because
they've seen their lives be totally
transformed. I mean, Jack Ma went from
being a school teacher to becoming one
of the most powerful people in the
world. I mean, if you didn't have China,
what what how could that have happened,
right? Uh can you speak to the thing you
mentioned a few times which is the
difference in um American versus Chinese
or maybe western versus Chinese
u approach to entrepreneurship the 0 to
one versus one to n
uh maybe can you explain that and uh
what will it take for China to become a
consistent 0ero to one innovator for the
individual entrepreneurs to create
totally new things versus doing the
things you mentioned about speed and
The US will lead for some time on
breakthroughs on disruptive
technologies, the 0ero to one
technologies
um that ultimately change the world. But
innovation is a process. It goes from
invention to production and
commercialization and diffusion.
Diffusing technology throughout all
parts of the economy. And on those two
stages, I think that China has a unique
advantage even if it still can't do the
0 to1 breakthroughs because in the end
how much this technology is adopted by
the countries and by the various parts
of the economy is fundamentally crucial
to how much productivity will be
unleashed and China's
innovation currently the deepseek is
really one example and I think it's
really the beginning of the scalebased
leading edge technology costcutting
driven kind of innovation model could be
just as powerful maybe even more
effective and powerful than the
breakthroughs
um and it's a very different approach to
innovation the Chinese companies focus
on solutions problem solving again that
comes back to the education system right
you're giving a problem I'm going to
find the answer the Chinese students can
do it you want them to write their own
question they can't do it, right? I'm
exaggerating a little bit, but it's a
little like that, right? They see a
problem, they're going to go after, and
they're going to find the best solution.
Um, and that's really, really useful,
right? Because we don't need or
developing countries especially don't
need these frontier technologies that
they can't use. And China currently has
this AI plus program which is about
pushing AI into every single plausible
sector with the help of the state. So
adoption diffusion is very important.
why China
can't do breakthroughs or can't do 0ero
to one technologies. I think at the root
of it and there are some deeper uh uh we
talked about the the the approximate uh
reasons the short flat fast for instance
right you don't want to spend too much
time on investigating something that you
don't even know if it's commercially
viable so basic research is still weaker
than in the US universities but also
this kind of intrinsic motivation it's
very different right in China it's
driven by exttrinsic motivation you are
rewarded by you know compensation,
financial compensation, all these kind
of extrinsic motivation is what drives
you. But intrinsic motivation, pursuit
of knowledge for knowledge sake, right?
That was deep in the Confucious
philosophies. But of course, you know,
poverty has changed all that. The
profound commitment to scholarship, to
research, which we know is very much
true in the US universities, that's it's
starting. It's starting, but it's not
there. Um so I think these two
approaches are actually quite compatible
with each other. I don't know what all
this fuss is about, right? Uh China uses
technology very well. It can scale up
and reduce costs and then it can spread
it around and the US you know has makes
the highest value added by inventing
these technologies. Um but you know
again diffusion matters. Well, yeah, the
things you mentioned the the scale, the
manufacturing, the diffusion
from a sort of economics perspective,
you wonder which is the more important
skill to have. And it seems like
the cost cutting, the efficient large
scale fast manufacturer, the diffusion
is much more important for the success
and the growth of the economy. I think
where it ultimately leads to an impact
on the economy that's
more important it's this persistent
question we have why don't we see the
productivity in the numbers right you're
in AI AI we had long periods of
investment right you just don't you
haven't you hadn't seen it in the
numbers until maybe even recently and
it's still very slow but China's pushing
that in the sectors you know robotics um
AI cloud industrial internet of things
and even companies like Huawei, I think
it's gotten a little bit of too too bad
of a rep in in the US, but American
engineers working for Huawei said that
it's, you know, they're so happy working
for Huawei. The intent focus on
innovation, but also on solution-driven
innovations in Africa, in rural areas,
really changes people's lives. It
doesn't change the world, but it changes
individuals lives. What's the feeling
that Chinese entrepreneurs have about
copying technology?
Because I think one of the cultural
things in the US is just really not
respected if you copy.
So like that's not seen that's seen as a
big problem.
And is there some degree to where in
China that's not?
No. Unfortunately,
um this is a big cultural difference.
our our sense of property rights is
actually quite different from the US. I
think that will change over time, but
absolutely you're right. Um they are
they have no qualms about copying as
long as it leads to success, right?
That's the difference in values. Uh as
we mentioned in the beginning, you asked
why why the level of competition is so
fierce. Well, they all do the same thing
once they've seen one successful thing.
Everybody does the same thing. You'd
have no respect for doing that in the
US, right? But in China, it's all fine.
But I think that over time it will
change. Just give it a little bit of
So do you fundamentally it's a bad
In the end, if China is all about
innovation technology, you cannot not
have very strict IP protection.
Right. And ultimately, again, we're
still in the short, flat,
fast stage, right? When we graduate from
that stage, you're going to have very
different views about these things. you
know, try to diversify and do different
things. But again, it's a stage. Chinese
people were hungry. They're still a
little bit hungry. They're not going to
be as hungry in the future.
So, can you describe the Deep Seek
moment? And uh Deep Seek because it
represents what China's thinking about
in the space of AI and uh does China
have a chance at outrunning US in the AI
race? Deep Seek was a surprise to the
world, but I don't think it was that
much of a surprise to the same degree to
the Chinese.
Um, and remember that Deep Seek happened
in times of
crisis urgency, not in times of comfort.
A lot of these technological
breakthroughs and leaprogging happens in
times of crisis. This is called crisis
innovation. And you got to thank the US
for that, right? When the Chinese were
comfortably importing chips from the US,
the whole industry stalled for 20 years.
I mean, why would you plow in billions,
tens of billions, and even more when you
can just import the best, right? You
don't want to do your own innovation.
It's because of these export controls,
these sanctions on these companies that
Chinese companies and the Chinese state
felt an existential crisis a few years
ago on being by being cut off from these
critical components. And guess what
happened in a short amount of time? the
degree of domestic capacity ramping up
and catchup has been nothing short of
remarkable again thanks to uh US
tculence on technology.
Now I'm sure there are many aspects of
hypo hyperbole related to deepsek but it
just shows you that the gap is much
smaller between the China and the US on
leading edge technologies than what was
expected that these export controls were
not effective. They may have even
backfired. And it shows you that China
has this relentless focus on taking some
of the existing technologies and using
scale um and um the the advantages to
cut cost and to diffuse. And this is
just the beginning. I think it will
happen in many other industries as well
including in semiconductors.
Um and that's the Chinese approach. Now
there's an interesting dilemma here
which is that this is happening at a in
a time of extreme economic softness
um and missed uncertainty trade wars uh
uh a lack of confidence uh slowdown in
private investment and consumption a
withdrawal of foreign investment from
China especially the US venture um
Imagine what China would have been like,
let's say, if the economy was doing
better, right? But you could also argue
that it's because people feel threatened
that they make more leaves. Now, I wish
the world is not we don't have to, you
know, drive each other to the corners to
do something great, but that is the
reality. And uh I don't think that
there's an easy say between who wins
because I think the winning idea is part
of the old playbook, right? You're all
kind of part of a network. Different
countries, different players have
different choke points on each other. I
don't think it's just about the US and
China. And what's more, you use your
leverage once and that leverage has a
halflife. it becomes a lot less
effective the second time around because
other countries other companies are
going to try to substitute it away. You
know if China uses the rare earth
leverage which I think it is now a
little bit
um there will be alternatives and
substitutes got to be very very careful
of what coercion leverage means. Same
thing with the US right so I think this
is all the old thinking of who wins who
dominates. I think we need a new new
playbook. So to you maybe when you refer
to Biden and Trump if you go back to
Biden it would be the chips act. So the
export controls created unintended
unexpected effect where it had the
geopolitical
it was unintentional otherwise I' you'd
be questioning the level of intelligence
of the US administration right but um I
think that the things they laid out did
the opposite of what was intended
sped up um domestic capacity. It uh uh
motivated the whole country to do this
whole venation program to go after
technologies. It's kind of like the way
they go after Olympics, right? Olympic
gold medals. They wanted to maximize
Olympic gold medals and they put the
whole nation at work and all the
resources and that's what China did.
Huawei, another example, they were
sanctioned. Guess what? They have come
back to life stronger than ever before.
And this is not unique to this episode.
If we look throughout history, these
blockades don't work. the continental
system actually indirectly led to
industrial revolution uh in the UK uh
when the the Spanish uh kind of blockade
the the Portuguese they came up with a
very ferocious forceful naval power um
and you're talking about China here they
just don't lie down and lie flat and say
oh we give up right they're more
motivated than ever before
so the lesson is
uh don't force people or nations into a
Yeah. You make them have a very
comfortable situation and they tend to
become complacent and uh and they they
All right. So, uh so can you talk
through the whole saga of the Trump's
tariffs is still going on uh especially
tariffs on China from your perspective
as an economist? To what degree was it
justified? To what degree was it
effective? To what degree is it bad
policy for for US, for the West, for the
world, also for China?
You know, China has been preparing for
this for the last 5 years and for the
return of Trump and for and for Trump's
uh maniac trade policies. You'd think
that Trump also had five years to
prepare for this battle with China. It
didn't show. Um, you can say that the
Chinese, at least this time around, have
played their hand pretty well when
dealing with Trump's tariff threats and
the trade war. Uh, with a level of
calibrated assertiveness. They have
really thought through everything very
elaborately. Um, and um, look, you know,
this is not good for either country.
Let's just be clear. It's bad for for US
and China and it's bad for the world and
every country has a stake in the US
China trade war because whether you
trade directly or indirectly with China,
you're going to be affected. They are
one of the largest intermediate
exporters in the world and Chinese
manufacturing goods anchor global
manufacturing prices.
the cumulative tariff burdens when you
get to Canada, when you get to Mexico,
when you get to any other final
destination,
these tariffs will affect you, right?
So, it's clearly very very bad for the
um China's core principles and I I think
that this is not well understood uh from
the rest of the world towards the US and
something that they have kept up is
equivalence, reciprocity and realism.
China's not going to lower tariffs
unless the US does, right? Uh you can
kind of stand up to Trump like a man.
That's the only way, you know, to deal
with Trump. That's its view. Um you the
deal has to be realistic. The phase one
deal of the last time wasn't realistic.
And China thinks, look, the US is going
to use this as a leverage, right? That's
not possible. This can't be seen as
political concession. The deal has to be
seen as mutual commerce. So, where China
can have room to negotiate is opening up
things like services. You know, American
banks, American financial institutions
have a lot of business to do in China.
They can buy a limited number of more
goods. They can discuss about
transparency around rules and
regulations on e-commerce, on data. All
that is fine, but don't confound
economic issues with political issues.
Hong Kong, Taiwan is not part of the
deal, by the way, in case anyone was
wondering. Um, trying to change China's
state hybrid private sector model, don't
go there. uh anything that challenges
China's technology security
that's not really part of the
discussion. I think that people have to
be clear about also what China thinks uh
and wants and also the Chinese has to be
clear about what Trump wants although I
I don't know anybody even Trump himself
knows exactly what he wants um in order
for for these very complex negotiations
to actually succeed.
Okay. So, China has a few red lines, so
don't mention Hong Kong or Taiwan.
Don't mix the political issues with the
trade deal,
right? And then is there some degree
maybe you can speak to culturally where
stylistically
there's red lines, meaning don't bully
China, like language- wise
or is that not matter? because there's a
kind of way of speaking in the United
you know I I feel like um in diplomacy
in general
neither side wants to be humiliated
and in great deals even when one side on
paper wins you want to make the other
side especially the side that gets the
short end of the stick feel like they've
won and show the rest of the world that
they're the winner. Well, that's
diplomacy.
We have an absence of diplomacy. But
you're absolutely right. There there
needs to be respect.
The Chinese at least really care about
And I wish there was just a bit more
cultural fluency. And I think a lot of
things would be so much easier um
between the two countries. Just
understanding that because you can
actually push China to do a lot of
things, right? All within reason that
would work in favor of the US. But
understand that respect is vitally
important. Face saving is very very very
important.
To what degree what Xiinping says and
what they're putting out there in the
world represents the truth. So he has a
whole way of being of like let's
deescalate. Let's all make good deals
together. Let's almost like let's be f
like uh Modi a little bit has a similar
way of being like let's just and the
implied thing is like uh forgive the
French but if you fuck with us we won't
be nice but let's just all be nice
together is he speaking the truth
thing is not Putin right um and uh there
is a genuine desire on China's part to
deescalate again coming back to the
level of pragmatism
uh under economic strain in China, you
don't really want to be picking fights.
Um they don't agree at all with Trump's
economic views and world vision. Let's
just put it simply. So
understanding that a lot of this is also
driven by American internal politics
which they are aware of helps a bit. But
there's a genuine desire to take the
temperature down with the US even if the
weather doesn't fundamentally change.
What is a good diplomacy look like here
for both sides? What is the best
possible on the just strictly on the
economics on the on the on the trade,
the tariffs? What's the best possible
outcome for the world?
I think that Trump can show to the
American consumers that he has gotten
some sort of a deal, right? that the
Chinese have bought more American goods
were promised to buy American goods and
then the American companies can come
into China and then a lot of the
previously restricted investment
opportunities are now not restricted and
American banks can make in make money in
he can say that and and I think that
that is that could be part of a really
realistic deal uh that somehow American
companies will be better protected
through IP protection and again that's
in China's interest as well. So I don't
see a fundamental conflict here and at
the same time they lower the tariffs
right not to the rates where they were
before but lower and you don't prohibit
trade and then for China that would also
be a success. So you can actually have
success for both both places but being
realistic is is part of the game.
Is tariffs question to you as an
economist is tariffs a useful uh
effective tool for uh uh global trade?
No, I think that there is a real problem
in global trading system and
globalization in general that is not
going to be resolved by tariffs. we do
need to think about
more harmony
um between countries
uh where let's say not one country
dominates and here I would I' I'd push
back on China and say yes you have
amazing companies and competitive
companies but you just can't dominate
everything that would not be good for
global harmony you need to give other
countries an opportunity
uh you need to develop your own internal
economy right rely on your consumers as
part of the
tariffs. This kind of highly
protectionist method is very
distortionary and it's going to be bad
for the US. I'd actually argue that both
China and the US have totally taken
advantage and also enjoyed uh uh the
economic realm under the US liberal
order. I think that China quite likes it
actually. you know, US kept a peace and
during this peaceful times, things were
working very well economically,
technologically. Um, they kept the sea
lanes open. They did their part to
peace to the extent they they can, I
guess. But China wants peace, right?
Only with peace can they do what they
can. And actually, US, despite saying
they've been victimized, not look,
they've had a very very good time,
right? never have quality of life,
standards of living, technology risen as
much as the US did under its own liberal
order than it has ever before and the
amount of influence and power. Yes, of
course, um you can blame the US for lots
of things that happened, but it actually
had a really good time and China as
well. So now they're going to take this
apart. They think that they're going to
be somehow better off, that American
people and Chinese people are going to
be better off under more disorderly,
fragmented rule of a jungle kind of
world. That's an illusion. That's what
politicians tell their people. But
that's not the truth.
So what are if not tariffs ways to
incentivize
countries like the United States to
build internally? So to build
semiconductor ships internally, for
Well, exactly. Tariffs is a way to
punish foreigners, but what you really
want to do is to strengthen your own
domestic competitiveness. And I want to
draw um an analogy to the US Japan
competition in the 1980s. Uh Japan
actually took over in many parts of the
semiconductors industry even though the
microchip was invented in the US. But
guess what happened? Well, it actually
drove more competition and more
mobilization in the US. actually
creating this innovation system changed
a few really critical laws that helped
with US innovation and the consumers
benefited. The US took over again as the
leader of the semiconductors industry.
There's no better way than to strengthen
yourself to be competitive because
ultimately tariffs have not done
anything to help the US. The trade
deficits have have widened since Trump,
right? they haven't closed uh the
imbalance with with China with the rest
of the world uh because ultimately the
US saves less than it invests and that's
a macro phenomenon. It's not a trade
phenomenon. But I I I fear that the US
by kind of dropping off of this global
um trading network and system, it will
lose more and more of its power. You
have power when you're deeply engaged
and embedded with a country. Once you've
left it, you actually lose any sort of
So there there's got to be ways to
incentivize industrial policy building
more stuff in internally without
tariffs, right? So you just invest from
a federal perspective. You've invest in
maybe like car more carrot than carrot
towards the domestic versus stick versus
the foreigner. all kinds of subsidies
that are justified for the green
transition, for innovation, R&amp;D, support
for the university system. You know,
that the US is the world leader in terms
of attracting talent. It has everything
going for it, but it was a little bit
complacent. Um, and by dropping off of
that global network, uh, it's going to
do itself more disservice. Yeah, tariffs
don't quite make sense to me, but maybe
I'm dumb, but it just doesn't make
It doesn't make sense to economists
either, and economists are not all dumb.
All right. Um, you did mention
immigration a little bit. I think that's
a component of it also.
You said when your own experience was
that US was much more open to
immigration in the past. What do you
think about this on the human side, the
protectionism, the the closing of the
borders that the US is doing? Um, is
that what are the pros and cons of that
from an economics perspective
on US immigration?
Well, you see, I I understand both sides
of the story to be very honest and I
also understand a bit of the
protectionist streak, not only coming
from the US, but also from Europe and
various parts of the world, which is
going to be a trend. I understand that
before you care about people in the
rural villages in Indonesia, you really
care about, you know, the northern Brits
in this country and they have not fared
well. I understand that your jobs may be
under threat because of this
uncontrolled uh influx of of you know
illegal immigrants. Uh from a purely
economic and rational level, you'd say
immigration is very important because it
keeps the prices down, keeps inflation
down, uh it keeps up the supply, uh
which is very important when you have
that much demand. And look, you know,
the standards of living have also
improved for many people who can afford
it, right? The the lowcost workers being
able to um sustain the service economy.
So I understand both sides of the story.
I think that in the end it is a balance
and I do believe even as an economist
that social harmony and I come back to
this word harmony repeatedly even though
as an economist this thing doesn't even
is becoming ever more important.
Um and as a as a nation uh you know some
kinds of skilled immigration is actually
what makes the US the most
technologically
um advanced country in the world. At the
same time you do have to think about
your own citizens the ones that have had
generations and been around and you have
to think about their livelihoods.
Yeah. The puzzle of social harmony is a
fascinating one because you spoke to the
the long history of China how they
Yeah. That was Confucious.
Yeah that's Confucious. And then there
is a kind of social harmony a very
different set of ideologies in the
United States and in the west broadly
and it's all a puzzle and you do want to
have some cohesion but in the United
States one of its beautiful aspects is
the diversity of humans
and so the continued influx of diversity
is you know feeds the machine that makes
America great also.
But too much
breaks the fabric of that society. So it
say such an interesting puzzle and some
of it is like we humans can't balance.
So you go one extreme the other you just
oscillate back and forth and then um
also politics especially in the United
States there's a red team and and a blue
team and they they when when the when
the red team is at the top the blue team
just pulls all the way to the other
direction and vice versa. We just kind
of oscillate back and forth in this way
and hopefully make progress over time.
But I want to come back to the point of
choice, right? What makes America so
great is that
it tolerates instability. It tolerates
clashes. It tolerates volatility. Think
about the financial crisis, right? The
financial volatility. Again the US
dollar is where it is because of this
deep liquid financial system in the US
that no other country has been managed
to build. Um there are clashes
everywhere in society but it is a very
diverse country with all the benefits to
that. Uh it is a highly highly unequal
uh country economically speaking. uh
these the CEO pays, right? The the the
businessmen being able to be in top
political positions, you you kind of
bulk at that that level of um uh uh
cronyism, if you will. But, you know,
the US is the technological leadership
and it kind of is able to stomach that
volatility and clash without breaking
apart. and other countries don't have
the capacity of the institutions the
culture to be able to tolerate and still
uh to keep the society together. So I
think it is a very interesting um but um
yeah it's a puzzle.
So we talked about the economic side of
tariffs and you mentioned the other red
line and the three T's.
Can we talk about Taiwan? So, how
important is Taiwan to the Chinese
economy and the and the global economy?
Taiwan has, among other things, TSMC,
which is vitally important for the
global economy.
It's also very important for the Chinese
leadership and the Chinese people. You
don't want to ask what I think, ask the
Chinese young generation. They would one
day like to see unification.
It's part of the patriotic, the dream,
if you will.
So, and it's it's a chip right between
the US and China. So, everybody is
watching Taiwan. But I'd say that this
attention is not necessarily good for
Taiwan because all this uncertainty, all
the political risk has meant that
investment there has dramatically been
and um mainland China is a very very
important economic partner to the
Taiwanese economy.
I think that I don't have a lot of views
about around this, but I just say this.
I think there's more political wisdom of
the Chinese government side than we
assume outside of China in that
strategic ambiguity but also strategic
patience especially given China's
economic situation currently
means that more likely or not I think
that if China does really well
economically
and Taiwan is not doing as well
economically as we've seen that over
time. This is still the best strategy
from China's point of view um to resolve
these differences. I think any military
use and action would be
actually quite detrimental to China.
So, what's a way to avoid military
conflict here? It seems like a red line.
unification is the red line for um the
United States
and it just feels like a very tense
situation.
So is there a path forward here that
avoids any military conflict where
everybody's happy from an economics
perspective from a semiconductor
manufacturer perspective also?
Well, first of all, you have to keep the
communication channel open, right? There
was a risk of that being shut off during
the Biden administration. And that's
highly highly dangerous.
You meaning US China communication.
Yeah. There's also something that I
think people miss um which is that the
the soldiers in mainland China that's
part of the one child policy generation,
right? There's only one son. Families
have only one son. And I think to assume
that the Chinese people desire and would
be able to forsake that generation for
unification purposes or be able to
tolerate lost lives for this I think is
also a bit of of an exaggeration and
stress. And I think Chinese people also
they really care about peace and
stability.
chaos is just not part of what they
think is good for them. Um the role that
TSMC plays is so critical given the
choke point they have on the rest of the
world um in the semiconductors industry
which we know is one of the most
important industries uh sustaining the
economy not to mention things like AI
and um technologies.
Look, you know, the US has been trying
to to build another uh TSMC outside of
Taiwan. It's very very very slow, right?
Um there are a lot of cumulative uh uh
knowledge, experience,
and skills that are involved. It's not
that easy. The Chinese don't want to see
an eruption of TSMC either. um because
again it's vitally important for
everybody. Uh whilst I don't think that
this is really necessarily a bargaining
chip because if you
really see what the Chinese thinks about
Taiwan, it goes beyond economics. It
goes beyond the logical. It is about um
you know realizing a dream which
even I I I tended to um
not place enough importance. But when I
talk to the young people in China, I
realize that it's still their dream.
It's just unfortunate that this dream is
mixed up in the fact that Taiwan with
TSMC has been incredibly good at
manufacturing. It's just like a
interesting puzzle of why it's so
at low cost at scale to manufacture
chips. And it's just
incredible that they were able to do it.
And it's a interesting puzzle for how
China can do it domestically and how US
can do it domestically.
And it seems like there's increasing
urgency on that. And I think if we look
out in the next 100 years,
uh the urgency is good because it's
probably good for each individual
country to be manufacturing majority of
their chips, right? It's just it's less
likely to lead to conflict.
Well, this is the trend that you need to
manufacturing things that are important
for national security. Um it's not
efficient but it's so-called
strategically safer.
You mentioned one child policy. So can
we speak a little bit more to that? Like
what broadly what impact has it had on
the Chinese society on culture? You
already mentioned some of it uh uh some
of the impact on the economics on the
culture on the demographics of China.
It's probably one of the most radical
policies that China has enacted through
in its history.
And the enforcement was very strict.
In my class, nobody had a sibling except
my friend who was a we were. Uh 98% of
urban households had only one child. The
other 2% are twins, which you're allowed
to keep, thank goodness. um if you had
the good fortune of giving birth to
it had lots of unintended consequences
on the economy and society as well. Uh
maybe on the good side,
it's actually a golden age for Chinese
women because the Chinese girls never
had as much education investment aortion
to them as they've had after being the
only child in the family. and you raised
a daughter like a son. And if we look at
all the skill gaps and uh the education
gaps and the returns to education,
actually girls fared better apart from
the top top top leadership in the
Chinese political class. Um you look at
the CEOs, the major companies,
uh the in the ministry, civil servants,
there are a lot of Chinese women. And
actually recently, if you look at the
surveys, the Chinese families would
prefer to have a daughter than a son
because they've seen how much bargaining
um you as a Chinese woman and as a rare
bride uh or a scarce supply of brides
goes, you have raised your bargaining
power and you can command high amounts
of dowy. That was the unintended thing
about uh the one child policy. And uh uh
to the opposite, the recent relaxation
of the one child policy actually women
are now encouraged to have many as many
kids as they possibly can. The flip side
of the one child policy has not
necessarily been good for to women in
the job dark market because they think,
"Oh, well, you've only had one child.
Oh, guess what? You can have another
child. So that's not necessarily good
for long-term employability.
but uh on the economic side, I've
written about this in my academic
papers. It's been one of the very
important causes of high saving rate.
You know, I always tell people, you want
to stimulate consumption, we'll have
more kids. You know how much one of
those costs, right?
Especially in China, the tutorial ships,
education, and they have to buy a house.
you have to buy a house for them so that
they can get married eventually.
Um so it's very very expensive to have a
have a child. If have more children
uh you spend more but maybe people don't
want to have more children because the
the cost of having a child is so high.
And this is driven by the competition.
And why is there so much competition?
Because there's a one child policy
generation, right? You want your child
to be the dragon or the phoenix and you
put everything into that one child. That
makes the child more anxious, makes the
whole environment more competitive and
in the end these one child policy
children don't want to have a lot of
kids because they don't want to them to
see them suffer what they have suffered.
Right? So there are all these kind of uh
uh unexpected consequences but also
changing the social fabric. I'd like to
say that it broke the hierarchy of the
family where the parents had the
dominant role. Now the kids are the
boss. They they boss everybody around.
They boss the grandparents around.
Uh uh there it relates to the puzzle,
the housing puzzle. Uh how is it
possible that the Chinese youth can
afford these really expensive real
estate with their meager income? Well,
one common saying is that they have six
wallets, right? you and your spouse
together with the parents and maybe even
the grandparents would chip in. So
there's this kind of intergenerational
family dynamics
that makes our models focused on the
individual consumption just completely
inappropriate to describe these
Um but the demographic side is the other
challenge which is they were so strict
about the one child policy and they kept
it in for too long. So that once they
decide to loosen it and decided that uh
fertility rates were way too low to
sustain the Chinese economy and its
future, it was already too late. And now
they're all they're kind of finding all
kinds of creative ways to make people
have more kids. This is not something
that they can demand and command in ways
that they can demand and command uh
emerging strategic sectors, right? Um so
all these really interesting social
anecdotes where they're encouraging even
single women in a highly conservative
society encouraging single women to
raise children. Nothing to be afraid
about that. Lots of support system going
going there. I mean they're radically
changing the whole you know thinking
around these kind of issues.
Well it seems like even the west a lot
of the developed countries
are have a demographics problem. Seems
like a lot of countries not having
enough babies.
South Korea uh South Korea very very
very low fertility rate. It's just that
for China's stage of development it
should be having more babies than it is
currently having. So the one top policy
accelerated that demographic transition,
right? It really squeezed in many many
decades into two. Um but my view about
the demographic aspects for the economy
is not as pessimistic as most people
meanwhile we're talking about aging
um there are also high rates of
unemployment right um when we're talking
is there enough people to do the jobs we
have things like AI and not enough jobs
and these kind of questions that are
first order.
We haven't even figured out the
relationship between labor force
productivity you know what are the
factors of production that will be most
important for future economy
and so we shouldn't be terrified that
there's a looming aging problem because
I think the more important question is
that skill gap right what kind of skills
do we actually need the in the economy
what kind of education system should we
design in the economy to better suit the
country to an ever evolving and
transformative technological society
because if that's successful then we'll
be able to respond to whatever puzzle
the demographic situation creates.
Yeah. If you look at the most recent
evidence on this issue they found that
post 1990
aging economies became richer
not the other way around which was true
for the pre990 sample. And the reason is
that these aging societies much more
rapidly adopted new technologies
uh automation that actually helped the
entire economy. Uh so should we be
panicking about this now when we're
actually also panicking about the fact
there are not enough jobs around? Um
there are other issues that are more
relevant for the Chinese economy today.
There are constant predictions of
China's economy collapsing. You have
pushed against that narrative. what um
but you've also spoken some of the
challenges
it's going through. What's the GDP going
to look like? Uh is the Chinese economy
going to collapse? Is it going to
flourish? What do you think?
Collapse is such a strong word and the
west has been using this word repeatedly
if I remember correctly maybe four to
five times maybe even six times since
1980s during the period of China's
fastest growth.
Um I tend to not think that Chinese
economy will collapse but will the
slowdown continue? Will it be able to
lift up again? Will it be able to come
out of this cycle um soon? Uh I think
that's more relevant and
the Chinese economy has a lot of
potential because the fundamentals are
still there. All right. When we talk
about the fundamentals, it's the skills,
it's the human capital, it's the
physical capital, it's the macroeconomic
stability and political stability.
That's a lot going for a country if you
look around the world right now, right?
And this is why the entrepreneurialism
is still there because the fundamentals
are there. Even though the economy is
weak, consumers are not confident and
private investment is insufficient, the
fundamentals are there. Is China where
it should be? far far far from it
because China's potential based on the
fundamentals is a much higher level of
per capita income than where it is
currently. It's kind of currently in a
$10,000 bracket. And this is also a
puzzle because you're a $10,000 per
capita income country that can actually
do leading edge technology and can be
neck-to-neck with US companies on these
high-tech. That's the first time in
history. Even the Soviet Union which was
very technologically advanced did not
have the extent of commercializable
civilian technology and the the
technologies that were pervasive
throughout the economy.
But fundamentally we have to understand
how much of this real estate crisis has
impeding on the economy and explains the
persistent slowdown.
Can you explain the real estate crisis?
A few years ago,
uh there was a crackdown on the real
estate sector and uh again it comes back
to the a lot of the social issues we
were discussing. You know, why aren't
people having kids? Well, maybe it's
because housing is too expensive. Maybe
it's because education system is too
competitive. Uh the speculative bubbles
in the real estate is making housing
unaffordable and that's not part of the
Chinese social characteristics, right?
Um and so when they decided that uh the
property investors were going to be
reigned in that housing was to be lived
in not speculated it really brought down
the whole sector in terms of investment
in terms of the financing of the sector.
But ultimately it made such a massive
impact or such a massive dent on the
economy because it really embodied the
two fundamental pillars of the economy.
One is the fiscal system and one is a
financial system. So coming back to our
local mayor economy, what where did you
think the local mayors got their funds?
Right? Through real estate. They sold
land. Um real estate property developers
came in. they can develop the entire
local economy because the services will
come in, the jobs will come in and by
the way you're an equity owner of the
entire city. So you want these property
developers around.
many countries throughout history all
have this property transition, right?
You need to wean the economy off of
In a good situation, it takes 3 to 5
years. In a bad situation, it can take
10 years. I don't know where China
belongs currently. But
the real estate collapse also meant the
local finances, local government
finances also shrunk dramatically. Uh
real estate uh was a really important
part of the financial industry. It
brought that down. together it really
had a major impact on the economy but
also from the consumer side their wealth
was primarily tied into real estate not
the stock market not other kind of
investment opportunities it was real
estate so they felt poor they consumed
less so in the spirit of understanding
China better uh maybe to to get a bit of
your advice if I were to visit China
what's the right way to visit to
experience it
to see the people to talk to other
people maybe outside of the big cities.
Is there any advice you can give to
somebody going to China?
Check out speed.
Um his travels into China.
I think they represent
um a more uh dynamic reality than just
visiting Beijing and Shanghai and
Shenzhen, the big cities. I actually
think a lot of the opportunities,
especially economic opportunities are in
the second, third tier cities now.
uh in China and there's a return of
You know, these companies um
PopMart, they're coming from these
second tier cities that care about the
local economy, about fun entertainment.
That's what the new generation is about.
They they don't want to be lining up
some factory, you know, doing
manufacturing jobs. If you think that
the Chinese New Generation is still all
about that, you know, you you should
really study them a little bit more. Um,
they're all about making their lives
more fun and more interesting, right?
That's the cycle, right? In the
beginning, Chinese people are hungry.
They want to look for jobs and they find
these jobs in manufacturing. Now, they
want a work life balance. Uh, they are
uh uh spearheading fashion, right? They
spent so much more on entertainment,
clothing, restaurants. Uh they have come
out with these amazing coffee chains
that have beaten completely Starbucks
within a very short amount of time. This
is all the new generation.
Where are the opportunities? It's in the
local areas. It's all about localism,
not globalism, localism. being rooted in
your local economy, you will actually
find so many more opportunities. Um, you
go to Chongqing, I actually was watching
a video about Chong. I thought we were
in Shanghai. I was so surprised and uh
you go to Chungdu, it's fun, you know,
people work a little bit less, but uh
it's really exciting. It's very fun.
People are really nice. Go to take a
look for yourself. there's ski resorts
being open there. Um, you you have a
very interesting, colorful, dynamic,
complex country and it's not defined by
Beijing and Shanghai.
So, the small cities are flourishing and
and are developing a personality of
their own.
They are flourishing more than the first
major tier cities.
Interesting. What is uh what's the most
beautiful thing to you about China and
its people that you wish more people
Behind all this competition and the
you have a very genuine group of people.
Uh they are funny. They are
they are community- based. Uh they are
authentic. Actually, it's it's it's not
contradictory, right? you have a society
which is heavily controlled but they
find ways to be truly truly authentic.
Um and
ultimately they're just a very social
group. Right? Again I keep on coming to
this being lonely aspect of the western
society and increasingly living alone.
That is not China. Still very very warm
country. Um and uh they're warm to
foreigners and they are friendly.
Well, I'm very grateful for you being a
voice of balance, a voice of reason in
this world and for the book you've
written on China that a lot of people
deeply respect and for talking today.
Ku, thank you so much. This is an honor.
Great to be with you. It's a pleasure.
Thanks for listening to this
conversation with Ku Jin. To support
this podcast, please check out our
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subscribing to the channel. And now let
me leave you with some words from
Confucious.
It does not matter how slowly you go as
long as you do not stop.
Thank you for listening and hope to see
you next time.
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