中国経済の何が壊れているのか／中国を締め出すコスト｜メグ・リスマイア

On China Talk, we talk a lot about the leading lights of the Chinese economy and emerging technologies, the mini-maxes, bike dances, unitries, and BYDs of the world. But what about that whole side of the Chinese ecosystem, which, like, is leading to zero or, you know, zero to two percent growth and, like, really struggling to get with the times to discuss? We have on today Meg Rithmeyer, professor of UBS, to talk about not just what's effective, but what is broken about the Chinese economy and political economy more broadly, how that bleeds into the kind of like leading lights that she and the international press are so interested and focused on. might do a little bit of U.S.-China corruption comparison, as well as talk about her new piece in Foreign Affairs,

The Cost of Keeping China Out, which argues that for those, for select members of the Chinese leading light category, doing like a 1980s style, let Toyota build in America, or say a 1980s, 90s, 2000s, or even 2010 style Chinese, oh, let's let Tesla and Apple set up shop. And China is the right path for the U.S. when it comes to thinking about letting China manufacture on U.S. soil. Meg. Welcome to China Talk. Thanks for having me, Jordan. Long-time listener. First-time caller. Great to be here. Honored. So our first segment, we're going to be picking off some themes in your recent book, Precarious Ties. The Business and the State in Authoritarian Asia, which has some fun case studies about Malaysia and Indonesia, but a big deep dive into reform and opening and beyond and corporate state relations, which, you know, what was my big takeaway?

I was very sympathetic for Xi. Yeah, that's not an incorrect reading. Yeah. Like the the the the mess that he was staring down in the early 2010s, I think, is underappreciated. So let's maybe start with this idea of mafia firms, why they existed and why they were so scary to the party in general and she in particular as he took office. Sure. So the mafia term, you know, is a bit bold. And initially, to your point, you felt empathy for C. You know, he has this famous quote where he said it's, you know, we have to stop the disorderly expansion of capital, disorderly deployment of capital. And a lot of people read that as super Marxist. Right. Oh, he's really, really a socialist. And I really think it's the disorder rather than the capital. That's the most interesting in that. Right. Which is that he was picking up on the fact that, you know, within the party state itself, obviously corruption was endemic and a problem, which is why his his first major thing is an anti-corruption campaign.

But then also within the corporate sector, things are a mess. Corporate governance is a mess. Right. These massive companies are a mess. Let's talk about let's talk about the scale of the mess and why it was a big deal, because we had, you know, corruption. You know, who doesn't in the 80s, 90s and 2000s? But you also have rapid growth and like, you know, you got to break a few eggs. Right. It's like everyone's getting richer. It's fine. And corruption was a solution to the problem of, you know, very difficult formal institutions in China. So you have formal institutions. I like to say, you know, in 2008, China was like the 172nd worst country in the world for getting a construction permit. But also in 2008, half of the world's construction cranes were in China. And we see with our eyes that, you know, someone's building buildings, whether they have a construction permit or not. So to your point, some of this corruption is sort of necessary to get around the way that the Chinese formal institutions work. But then there's a scale of it that is totally different.

So if you go back to that period and you think about some of the most prominent Chinese companies that were investing in the United States at that time, right, we have Anbang Insurance, you know, Hainan Airlines, right? We have Wangda, these huge companies, right, that were buying up the Waldorf Astoria. They were purchasing insurance companies in Europe and the United States. They bought Club Med in Europe, right? And once you look into the corporate governance structures of these companies, which, you know, I'm not the first to do. David Barboza at The New York Times, you know, looked into all of these corporate records as well. But you find that they have subsidiaries in the thousands and that the corporate structures are very confusing. Why are these five companies listed, but they actually are, you know, they're listed on Chinese stock exchanges or, in fact, on international stock exchanges? They're collecting investor capital and then what we call in finance is tunneling those assets back to non-listed companies and then doing who knows what with it.

And so the scale of all of this and the enmeshment within the financial sector, right, what they were doing with different financial instruments, but also with real estate, was on a scale that really was astronomical at the time. And the relationship with different party state members was part of that as well. And so just these huge networks of businesses that actually weren't really producing anything. Like they don't make anything. They don't really do anything, right? It's a lot of what I call financial alchemy and corporate governance alchemy, where when you look behind the hood, it's just assets moving back and forth and kind of being stolen from the states and from citizens. And it is a huge scale of corruption. Sounds not great. How does this become a, like, macroeconomic problem as well as, like, a party system problem if you're she staring at it in, you know, 2012, 2013? Okay. So I'll try to be precise about it because you said correctly.

You know, the book goes back to reform and opening. It goes back before that, too, even to the 50s, right, when you think about this historic relationship. And, you know, what irritates me sometimes is when people are like, oh, the crackdown on Chinese business started in 2020 with the Ant financial IPO. It did not. Right. How about 53? Correct. So it goes way back. These cycles of what I call in the book accommodation and reprisal. So even in the 50s, you know, Mao, et cetera, knew, OK, well, we have to rebuild this country. Turns out we are communist guerrillas and we don't know how to think about a balance sheet or running a factory. So we need to find someone to do that. And then all is well and good until a few years later. and you get, you know, the five aunties, the three aunties, the anti-rightist crackdown, and then, you know, things are kind of fine, and then you get the culture revolution. And then, you know, things are kind of good in the 80s, then you get a corruption crackdown. So these cycles, the argument that I make is there's a kind of learned behavior among private sector people in China

that you've got to keep your head down, you've got to stay close to the party to know what's coming, not because you love it, but because you need to know what it's going to do. So, you know, that particular political element of it, which is, I argue, contributes to these short time horizons, right? Companies are not being built with thinking of, you know, what are we going to do in 20, 30 years? It's like, what's the policy environment for the next three to five years, and how do I align myself with that so I can get what I can get? And then there's this weird perverse incentive, right, where when you start to see it turn, you go from, you know, Your time horizon goes from three years to like six months. And what you do in that six months, you try to get your money abroad. Yes. You loot as much as you can and you expatriate as much as you can. And you make use of what I call mutual endangerment. How much dirt do you have on these people? How much can you prevent them from going after you?

You call in your favors, basically, and you take what you've got. So that's exactly right. And this becomes a macro, like, clearly it's like a micro problem when you're running the country and like, okay, you've made your money. You want people to be focused on like your political and economic goals, not enriching yourselves. But this also becomes a macro problem because these firms are like double digit percentages of the entire economy. And they're not doing anything to like grow and be productive. They are just these vehicles for, like, people to enrich themselves and, like, you know, trade favors and buy houses in Vienna. That's right. And so when it really becomes a problem, I mean, you said, you know, corruption is kind of good in the 80s and 90s. I agree with that. I mean, it's not ideal, right? But in the context of these institutions, you've got to have something. But then what really happens is a combination of things. First, the huge growth of real estate as a driver in the Chinese economy, right?

And we've focused a lot on, okay, it's how households, you know, see their wealth accumulate and their wealth grow. But also, you know, real estate was 20% of China's GDP for most of the 2000s. And that's an asset, right, that is very close to the state. It's easy for connected firms to access and trade and borrow against. And then at the same time, you have the massive kind of expansion of private access to the financial system. And so not, you know, regularized access, not transparent access, not, you know, clear credit, you know, scores and open lending practices. But, you know, private firms can list on the Chinese Stock Exchange. Private firms can get loans from banks as long as they have what's called a jie xiao ren, an introductory person who takes the cut of those kinds of things. And so then, you know, there's no real discipline within the financial system because there's not accountability. There's not really minority shareholder protections.

There's not really a clear bankruptcy law. And so as a result, you get privileged access to the financial sector. And because the state owns the land, only privileged actors have access to the land system and the real estate system. And so you get this kind of huge growth of these gigantic firms. And it becomes a systemic problem because it's financially unstable. Both the real estate sector was financially unstable and the financial sector becomes financially unstable. So then, to your point, the 2015 national security law that C promulgates, you know, indicates financial stability as part of national security. And that's partly because they had seen these, you know, the growth of what they called gray rhinos. If you remember that back in 2015, 2016, these huge, you know, kind of gray risks that once they start moving very quickly become quite catastrophically destructive. And so they're worried about the scale of debt. They're worried about the scale of asset control. But it's really about the systemic changes with land and finance. You published this book two years ago.

You ended it on a bit of an ambiguous note of like, good luck, man. Like, this is going to be harder than it seems. You know, how is he doing? And like, what is the hangover that the country is still working through from trying to work out of this? I would say we're in another cycle of accommodation and reprisal, right? So it feels like the scale feels different to people, right, partly because people like Jack Ma are so powerful or, you know, Xiao Jianhua, some of these people who have been detained and tried and all these things, like these big name kind of international financial figures, everyone was so shocked that they started to fall. And they started to fall in 2015, 2016, 2017, not in 2020. But it's the same cycle. And so the way that they're addressing the corruption is the same way they've always addressed the corruption, which is with a campaign, right? And the campaign then it proceeds, you know, first it's officials or first it's a military, then it's officials. And then it goes, you know, starts to morph into the private sector itself, where just look what happened with the large real estate companies,

right? They were kind of allowed to go bankrupt, literally, but actually their assets were mostly nationalized and the government starts to bail it out just under a different name. The principals of those companies were detained and treated through kind of the punitive system of the party rather than, you know, the way that bankruptcy might work. And, you know, so then, you know, what ends up happening is that it's the same logic over again. And so my, you know, like it's not earth shattering what I'm about to say, but it seems to me it's very hard to have a modern financial system without the rule of law. I know it's shocking and economists will be like, obviously, right? But then we get lured into this technocratic fantasy all the time that actually you can have a great financial sector. You just have to have, you know, good technocrats to regulate it, right? You have to have good, you know, as long as you have good financial instruments and good technocrats, but actually it takes kind of political safety for people. It takes, you know, proper transparency

and accountability. And you can't have half the economy owned by the state with no minority shareholder protections, no transparency into what the bottom line is, and then say, but the other half of the economy, the private sector has to work according to the rule of law. We do rule of the party. You guys do rule of law, right? It's the same economy. It's the same stock market. So it's really difficult to do that. So you can hear I'm very pessimistic about this. And I have wonderful friends in China who have been those technocrats. I admire their work and what they've tried to build. I'm not dismissing their efforts, but I don't think the Chinese system or any authoritarian system is going to build a modern financial sector that's going to be free of corruption and instability on this kind of scale. Yeah. There is a brilliant book by Ling Li that came out last year called The Governance of a Party State, Corruption Law and the Modus Operandi of the CCP, and she does a bit of a microcosm of this, looking in particular about judicial

reforms. And look, it's not like smart people haven't tried, and it's not like there aren't people with power who are uncomfortable with this. But the problem, the rub that you keep getting back to is the party wants to be able to decide court cases. Correct. Okay, so if the party wants to be able to decide court cases, there needs to be something, there needs to be some way that things get decided, which is not above board by the books. Okay, we're just going to go by the law. It's going to be transparent and we're comfortable with it. And once you open up this sort of like back door, more things than just like, you know, the lay feng reading of like what the party's interests are is going to walk through that. And that applies to, you know, little land dealings. And then it kind of goes and builds and builds up. And all of a sudden it's infecting, you know, your chip fund that's delivering 100, you know, dropping 100 billion dollars on an industry and supposed to, you know, give you renewal.

Right. And I mean, I'm glad you bring up that book because there's a huge analogy that I make in the book and subsequent work where, you know, and the legal scholars have this thing, you know, rule by law. We're not rule of law, right? We don't submit ourselves to the discipline of law, right, as an impartial judiciary. And rule by market is the argument I would make for the economy. We want markets to do certain things. We want them to give us information about who is doing well and who is doing badly. You know, we want them to collect funds for different things. But the party state doesn't want to be disciplined by markets any more than it wants to be disciplined by judicial decisions. And so that's why the bankruptcy proceedings are not, you know, regularized and formalized because they want to decide how are these assets going to be dealt with, who's going to be a winner and loser here. And the same works, you know, they have, you know, if you think about how the basic factors of production, land, labor, capital, right, all of them have some kind of mix of market activity, but ultimately the party decides how things are allocated. And so I don't think that there's any end to that without some sort of seismic change in how China works, either on the law side, which I'm not an expert on, or on the economic side.

But I think that's the right analogy. And then, you know, you also mentioned, you know, a huge chip industry. And the interesting part kind of is in overseas terms how some of the lack of discipline that came from real estate and finance, you find it actually even in the industrial policy. So even here, you know, what's the best way to get capital if you're a small firm in, you know, Hebei in 2015? Say you're a semiconductor fab, right? Say, you know, basically protect you or were you a Chinese medicine company? No problem. Say you're a semiconductor fab, you know, get a ton of local government investments and then go ahead, abscond to Japan. That literally happened, right? And so it's not just as if it's only in real estate and only in, you know, finance. It's everywhere because that's what the moral economy of the incentives look like within China. So what's the counterargument? Like, look, it's annoying. People are going to take their percentages, but free market, look where it got America.

You know, they've outsourced all of their production. There's this shell of them, of their, you know, industrial might circa 1960. 60. And the party, even though it's not, you know, even though whiny Western academics can point to all of the dirty stuff going on, is actually building the industries of the future. We've been able to make these concentrated bets and pour capital into things. Yeah, you know, some people end up in Japan, but at the end of the day, you're going to be left with an economy that is more set up to conquer the future than you would have had otherwise. So let me say two things in response to that, right, which when you say what's the counter argument, you know, academics think theoretical, but what you're saying is, so what is this a bad system? Why is this such a bad system, actually? And I guess there are two responses I would have there, which is one, I'm not actually trying to say the system is all bad in a way. I want people to understand that it is extraordinarily wasteful and hugely distorted, which I think almost no one would argue with, right?

And so, yeah, you can make amazing things if you spend, you know, $2 trillion, you know, from basically subsidizing from households to firms. You can make a lot of things. You can generate a lot of competition. but it's not disciplined in any sense. And then, you know, some people may say, okay, HBS professor, why do we need market discipline? That's a different argument. I don't want to get into it, right? But basically it's a very distorted system with a lot of problems and a lot of successes. Can we bucket the Chinese economy? Like what is our pie chart currently of SOEs, like sad zombie mafia firms, like actual, you know, functional BYDs and Huales of the world. Yeah. And I guess farmers and, you know, long tail everything. Yeah, there's, I mean, there's certainly a lot of productive Chinese farms. And I would say, look to what they make and where the discipline comes from, right? So, for example, when you say the BYDs of the world, you know, those companies are highly

disciplined in many ways. And that's because they want to access export markets, right? And you kind of have to be disciplined in order to do that. That's always been the case in China. So you've always had a lot of discipline in internationalized sectors within China. It tends to be, you know, the financial firms, the land firms that are the ones that are more focused domestically that have that have, you know, less discipline. But, you know, when you look at it now, right, the way that SOEs work and the way that private companies work, the delineation we used to be able to make is very difficult to make. Right. And there's a bunch of interesting academic work on this. You know, some of it mine, much of it other people's where, you know, you take any given firm in China and it's not hard to trace some of its, you know, whether it's its financial relationships, its contract relationships with a state owned company. And so that particular delineation doesn't work as well anymore. But I would say this like the scale of what you might call the crony sector is much smaller than it was several years ago.

Right. It's much smaller. But then so is, you know, so everything, all of the resources in the Chinese economy are going toward industrial policy. And those companies are getting a lot of resources, but they don't generate much in profit. Some of them, you know, are famously, you know, negative, right, in what they generate. And so that's why you have this kind of mix in China right now where growth is slower, although the achievements in terms of what they are able to do technologically is kind of extraordinary because their resources are going to these firms. There are and will always be private sector firms in China who are normal business firms, right? They are always going to be there. They're always just going to care about doing their business. But the kind of grand scale corruption and theft and looting that I describe in the book, I think for now that's a much smaller part of the Chinese economy because there's been a sort of redirection of resources into industrial policy and away from land.

And it's harder to steal on the margin in industrial policy or the scale you can get to is just different? Like, what is it? Why has this push been relatively cleaner than what you saw in the past decades? Yeah, well, when you say zombie firms, right, so, you know, sad zombie firms, There were these mafia firms, which weren't exactly zombies. I mean, they weren't making anything or doing anything, but, boy, they were getting really rich, right, and kind of reconfiguring their assets. Now the zombie firms are in advanced industrial sectors, and they're called zombie firms because they continue to produce things. Actually, they do make things. They just don't make any profits, actually. And they keep producing things. And my argument here would be actually with the anti-involution campaign, which I'm sure your listeners know about, right? So the kind of Chinese strategy, which is to roll out a lot of, you know, subsidies to companies or, you know, capital to companies and then see who makes it. And then if it's too much competition.

Okay. I asked Claude for the pie chart. Here's what the pie chart gave me. You think it's going to be a nice little pretty chart? It might be. You never know with Claude. Okay. So he's trying to do a percentage of share of corporate credit versus share of GDP. It an interesting contrast actually because you would imagine I mean so yeah when you say percentage of the economy it depends on what you mean Percentage of output percentage of resources consumed right Because the percentage of output is very much going to be coming from competitive private firms And then all of the credit and the financial resources within the Chinese economy are still going to these kinds of, you know, they're not the same mafia firms as they were in the past because once again, it's not about massive, you know, land projects and, you know, weird financial trust instruments, but it is about industrial policy. And some of the same players are there. Yeah.

So I think like the, the, maybe this isn't the right chart. Cause, cause the question I want to ask is like, what percentage of the economy is just the sad dead weight? And how is that weighing on the, you know, to what extent does that like impact the BYDs and DJIs of the world? Yeah, that's, in some ways, I think it's kind of the wrong question, which is, you know, what's the sad dead weight? It's a different kind of dead weight, right? So, I mean, the thing I would say that people need to understand about the Chinese economy is that it's not as if we have brilliant people sitting in Beijing managing the Chinese macroeconomy, right? What we have is people who are actually much more reactive to a lot of the problems than, you know, or they are as much reactive as they are proactive, right? So they're proactive in things like, gosh, I think batteries, you know, large-scale batteries might be really important to the future. Let's see what kind of minerals we need and how we can get that sector started.

But then when it comes to, okay, oh, look, oh, whoops, so 20% of our economy is now real estate, and half of those firms are so impossibly indebted and overextended that this is a systemic problem. then they react to it by restricting resource flow into those sectors and pushing resource flow into industrial sectors. And so it's that the kinds of zombie firms have changed from large scale make nothing, do nothing firms to large scale make a lot of things, but make no money firms. And so, you know, what percentage of the economy is the dead weight of that? it's hard to put a number on it, but I do think that they're gobbling up a lot of resources and then driving competition and involution, making it even worse, right, for the companies that are competitive at doing things so that they have no choice, right? BYD, you know, a bunch of these solar companies, like, they have no choice except for to produce at greater and greater and greater scale and compete on, you know, with the EV sector, you know, there's some amazing stuff,

But they're also competing on massage chairs and things like that because that's the only differentiation. They can't compete on price. And so all of those dynamics are still highly distorting within the Chinese economy. It's just different than it was in the era I was describing in my book. And, okay, so just like ballpark for the folks out there. We're talking about we've got still like 30% of the economy is local SOEs or central SOEs. We still have something like 20% of the economy, which is property real estate development, which is basically flat lines and no one expects to have any life in it for like, you know, a decade or more. And so that is like a big chunk of your economy, which just like has no productivity growth or like even like negative productivity growth baked into that. And then within that, you have sort of, you know, 10 or 15 percent of like happy Internet platform companies or the manufacturing firms that are actually doing a good job.

And then you have like long tail, like household farms, restaurants or whatnot, which is another, say, 25 percent. And then this other, like, new, I guess you would say 15% is, like, the exhaust of the industrial policy, like, not the winning firms which have done great, but the ones which are just sort of, like, out there hoping that, you know, they'll strike gold or, like, get bailed out or saved or bought. Yeah, mostly get acquired at a good price by one of the winners. Yeah. Yeah. That's what they think. But I think, I mean, what's interesting about all of that is that there's very few avenues for the Chinese household to participate in an exciting way in the exciting part of the contemporary Chinese economy, right? So, I mean, they can buy a BYD. Many of them have, right? They can buy a Rowewe or whatever that brand is pronounced. They can buy these things, right? But those companies don't employ that many people. They don't, you know, DGI doesn't employ that many people, right?

So it's not the kind of dynamism that even though it was massively corrupt and even like systemically ill, but real estate and, you know, household participation in the financial sector, what that gave people as a sense of hope for the future, they just don't have that right now. And so that transition, I think, also has kind of these macro political and economic consequences that are quite interesting. But look, I'm see. My game was to end poverty, which like, yeah, more or less. Sure. Why not? It's bureaucratically ended. We know that. Yes. And then, okay, we got that out of the way. So the game now is maximizing national power. And if I think that the correct way to maximize national power is invest in all of this kind of, you know, industries of the future, industrial manufacturing, which is going to drive the 21st century, whatever. Who cares? about the person who has, like, slightly worse health care or social security

or the economy, which, like, look, I've done the thing which I wanted to do. We're not, like, I'm not building the future by building more condos. I'm building the future by building cars and solar panels and biotech. And he doesn't care what it costs people, actually. Like, if it costs us a lot to do those things, it doesn't matter. And there are some similarities, I think, with the U.S. in that way, where it's like, I don't care how much it costs to eliminate a national security risk. That's not a cost-benefit calculus that we have, right, in many governments, including the United States and China. And so, I mean, I think that I don't know, you know, and there are a lot of people who are very focused on, okay, well, actually these distortions in China is all very debt-driven, right, or actually it's extraction from the household sector, or it only depends on whether global export markets are willing to absorb a lot of what China is producing. I think the answer to all of that is yes, right? There are debt problems that it is extracted from the household sector. It does depend on the availability of external demand. So how does that end?

I honestly have no idea, right? How long can China go on doing those things? It doesn't seem like closing export markets is going to be some multilateral coordinated effort at this point. That doesn't seem realistic. does it seem realistic that the debt is going to trigger some you know huge policy change it doesn't seem that way either right it's more slow burning domestic problems and then I think the question is up to households how long are they willing to do this right how long are they willing to say I don't care what kind of health care I get you know or how long do they think they have to put up with it right and so that's a much more Chinese domestic politics question which I think the national security people haven't really focused on very much. I mean, the answer is probably a really long time, right? Yeah, I think that's right. Because, look, you need to have a comparison or an expectation. And your comparison is, my grandparents, like, you know, were starving.

And so, like, if the baseline is, like, this expectation of precarity, then, all right, where like the social like the you know it's all about relative trends and if you can just have like a little bit of positive relative change then and the other relative change right is how do things look on the outside of the world right and so what i've noticed in traveling to china over the last couple of years as opposed to like 2023 2024 is that people are staying the same they have the same assessment of their lives which is like i drive a dd car it's not great i don't expect anything good to happen in the next 10 years. But also, the rest of the world seems awful. So, you know, I don't really want to be, you know, like the mirror, right, the American mirror is making us actually be more willing, right, to stomach this transition. And I think they do have a theory, like maybe in several years, the way the economy works is more service sector based on, you know, internationalized, you know, sales of all of this technology, etc. I think they have,

And there are people who've talked about that. And, I mean, I think they think of that, which is why we're hearing C talk about investment in capital and those kinds of things, right? But I think it's a long project. And the worse the rest of the world looks, the more Chinese people are like, all right, it's not so bad. At least I can live super cheaply and conveniently in China. And they do. yeah um the yeah that's the other thing is just like there are a lot of ancillary benefits um from uh uh you know your your middle your middle class urban dweller of like okay maybe i don't have these problems but like i can just hire someone to you know care one-on-one for my parent Yeah, exactly. And, like, the availability of that is, like, there is another version of the safety net, which is just, like, paying people individually to solve your problems. And, like, if the most risk to the system is just that, you know, swath of, like, 75 million, like, moderately affluent city dwellers in the top 15 cities,

then, like, as long as we keep them okay, you're probably going to be fine. It's probably fine. I mean, and here's the thing where I do think the comparison to Japan is kind of interesting because, you know, if you talk to any macroeconomists, I say bless their hearts because I'm from the South and we don't mean that nicely. Right. But macroeconomists are just freaking out all the time. Right. Oh, Japan is such a mess. You know, so many years of deflation. Right. We just count it out completely. Then I'm always like, well, have you ever been to Japan? Because it's actually kind of fine. It's fine there. Everyone's fine. Right. and so yes they don't spend a lot of money you know the macroeconomics don't make a lot of sense but day-to-day life in japan is like totally fine and day-to-day life in china i mean you can get around on the subway in any city in china and eat and you know it's very cheap to do those things so no wonder they don't spend a lot of money they don't have to whereas i live in boston where wow you know if i can get through the day on less than 150 with a family of four it's like a very a day, right? And that's not possible. So, you know, when you think about some of these things,

you know, okay, well, you know, this is a cataclysmic macroeconomic problem, but the macroeconomics we've had in the largest three countries in the world, the U.S., China, and Japan for the last 10 years don't really make any sense anyway macroeconomically. And so, you know, I think it's just sort of interesting to think about how that micro world and the macro world might intersect or might not um i heard this from a friend who was talking to some employees and uh japanese companies about why they're not having children and the most uh the the take that stuck with me was one woman uh who has a partner that they love and they just decided not to have kids being like look I am living in the like total consumer paradise like there has never been a human being able to eat better than me drink better coffee just like enjoy their life outside of work more than in East Asia in the 21st century so like yeah there's gonna be like

Like, yes, there can be these macro problems. You can have inflation or whatever. But if you're doing okay professionally, like the life that you have at the malls and the restaurants and the, you know, personal trainer and whatever. It's fine. It's fine. Yeah. My favorite example for Japan is also when people are like, oh, you know, there's this great report. The Japanese healthcare sector is totally a source of, like, low productivity. Hmm. let's look at Japanese lifespans. Let's look at, like, all of the, you know, preventative and infectious disease and, you know, basically long-term problems. Like, all of the outcomes are so much better than the productive healthcare systems. It's just like, what are we really trying to measure here? And so, you know, what we might be on the verge of, in the same way that we're kind of rethinking all the geopolitics we thought we took for granted for the last 20 years is I think economists have some, macro economists have some work to do in thinking about what the end of the great moderation for the West means as at the same time,

prices in East Asia for everything are just so low. All right, back to the topic at hand. We have these gems of Chinese emerging technology, productivity. Claude, Fable.1 says 5% of the economy, our export discipline champion, like BYD, CATL, Huawei, SMIC, what have you. But the sort of the arc that these firms have gone on in their relationship to the state, I think, has been really interesting over the past 10 years. Ren Zhengfei famously built Huawei, not taking government contracts, not taking government money, and being extremely export disciplined. Every product he wanted to make, he wanted to be able to sell abroad because then he would be sure that people weren't just playing the, you know, guanxi, like, take 5% off the top game.

The state has seen that, but also doesn't want these firms to be growing and existing without, you know uh ability to sort of bend them in whatever directions they seem that's right um what is your take on golden shares the increased kind of state direct investment into firms which i think 10 or 15 years ago just would have been totally privately held or even you know funded by god forbid foreigners um yeah and uh what is this a prosaz for the future it's a really interesting time because actually part of the reason why they have government investment is that, you know, prior to Made in China 2025 and in the shaping of that policy, the thinking was really actually the state-owned companies are not going to be at the bleeding edge of technology anymore. We've got to figure out how to get capital to the right kinds of companies. And they got capital to some of the right kinds of companies. They also got a lot of capital to the wrong kinds of companies, but they don't really care, right, because they have a lot of resources to spend and they don't

mind if that capital is allocated efficiently or inefficiently as long as it is effective in getting the technologies that they want. But now, as you say correctly, you know, some of these private companies, which have deep ties to the state in some ways, they're not directed by the CCP. In fact, I think that relationship is very complicated. And they can't say publicly, they probably want, and I know many of them do, no state intervention for the reason that they want to say, no, I'm just a normal drone maker. I'm just a normal robotics producer. I'm not going to spy on you. I'm not going to do these things. So when you look at what C has done over the last 10 years, right? So one of the most puzzling things is something like the national intelligence law or, you know, the national security law, the national counter espionage law, which basically compels these firms to do what the state wants them to do if it's in national security in very vague terms. You have to ask yourself, like, why would the government even make such a law? It's not clear that it invokes that law in the courts when it goes into a company to do something like

that. Why do you even have such a law, right? It only freaks everyone out, which it totally did, right? The West sees these laws and is like, I can't be sure that you're not going to hand over data to the Chinese government, right? You might be compelled to. So I think there is a sense of anxiety within China. And we often don't think about that, right? The way that the Chinese Communist Party is actually nervous about whether it can control these companies or whether it can't control these companies. And it's much more, I think, paranoid about that and nervous about it than the Western media thinks, which is that it can just straightforwardly control any company it wants. I don't think it thinks that, and I don't think it's true. And so this, you know, what I describe in the book as like a dance of trying to give the private sector enough space to grow, and then also trying to control it and hold it really close, and then you have to give it more space to grow. I think we're just in a different kind of cycle of that dance, and we're going to see that back and forth over and over again. Have they learned their lesson, though? Is it possible? But you can't learn your lesson, right? You can't learn your lesson. That's your

system. That's the system, right? There's no like, I mean, you know, what's the lesson to be learned, right? If you want a fully privatized sector where private capital allocates, you know, all of the resources in society and accumulates the resources of society, then, you know, in their view, they end up looking like the United States, which is, oh, gosh, all the capital went overseas. Oh, no, we're deindustrialized. You know, we're now beholden to large tech companies and financial industries. And then you don't have state power that's independent of, you know, business and they're not going to live in that world. And so it is this dance. And if you're, you know, if you're Chinese and you're building a large company and you are one of these, you know, super, super smart, competitive, wants global esteem, wants global market companies, you're still going to build what you build, right? You're not going to say, oh, there's no point in doing what I'm doing because one day the government might take my assets, right? They're still going to do what they're going to do. And, you know, they're going to maneuver back and forth. But, you know, what does it mean for, you know, the U.S.-China relationship?

What does it mean for the long-term viability of China's tech sector? You know, it means a lot of things, but I wouldn't say anything definitively, actually. It's just not a new pattern. It's a very old one. Yeah. And I sort of conflated two buckets, I think. There are like actual state champions and then the export discipline champions. So you have, you know, the chip manufacturers, MIX, USMT, YMTC, which are like, are very much sort of state directives. And I think folks are, you know, they've overperformed my expectations, given that as a sort of like model and incentive structure. And then you have like the export discipline champions, which are like much more on the sort of like private side of the ledger of BYD, CATL, Huawei, and whatnot, that are just trying to like kind of do their own thing. but like a little, you know, making sure that the government doesn't get mad at them in a way that would that would really threaten, you know, their business or the leadership.

It's existential, actually. Right. And so, you know. Yeah. So I guess I guess like the to what extent, like if we're looking at like where have they learned the lesson? It does seem to me that if you can actually figure out how to have state, you know, hardware forward state champions really succeed, which is not something that you really saw take off in the 90s and 2000s with like, you know, state car manufacturers kind of sucking and like, you know, it takes 40 years to build a airplane or whatnot. But I guess that'd be the slice that I'd be most curious about of how they've kind of rejiggered things. Yeah, I think, I mean, and to your point about, you know, what Xi Jinping wants to do, right, it's a total mobilization of resources around what they see as a security imperative. Like, and what, you know, why YMTC and, you know, CMXC, like these companies, you know, why throw so many resources at these companies and insist that they succeed? They have to, right? It's an existential threat. I mean, we can't get these resources elsewhere, right?

The chips have to, we have to get the chips. And so somebody's got to make the chips and we don't care how much it costs for them to make it. And so, you know, that imperative, I think, means a lot for, you know, whether these kinds of companies succeed. And, you know, I guess I would say there are going to be surprises in different places about what they're able to do and also surprises about what they're not going to be able to do. And the whole time, we just have to hold in our heads that, yes, it's going to be a lot of a mess, as well as see some companies really succeed. And so the Chinese economy, you know, to go back to our discussion about the pie chart, right, it's just made up of a lot of different kinds of companies who have very different incentives. And if we see them all as directed by the party state, it's a mistake. And if we see them all as, you know, totally competitive, divorced from the party state, that's also a mistake. All right. So let's come to my final bucket. Like, I don't think SMIC is going to be setting up FABs in Arizona anytime soon.

I don't think so. But the CATLs and BYDs of the world, I mean, there's already been a lot of demonstrated interest. We had this Ford deal, which kind of got blown up. I think we've heard the argument on China Talk to not allow this manufacturing to come into the U.S. Sure have. Loud and clear over the course of many episodes. You have a different take. I do. Why is everyone wrong? I do. And everyone is wrong because, no, not everyone's wrong. Look, there are legitimate issues, right? There are legitimate problems. And let me just say two things. So, you know, two arguments that I hear. So, you know, one argument is why should we let these companies into the United States? They are so unfair, right? They have gone to this size because they're unfair. CATL has been subsidized, right? BYD has been subsidized, right? Like Xiaomi is, you know, doing things that Western companies can't compete with these companies.

It's not fair to let them in. Then the second argument is that there's a national security issue, right? And that's like the logic behind the connected vehicles ban. That's the logic behind, you know, the recent, I guess, FCC regulations you had a good episode on about drones and robots, right? Which is that, okay, they could be turned into remote weapons. They could be surveilling Americans, all of these things. I think the first argument doesn solve any problems like oh we can let them play because they not playing fairly what does that mean for anything they everywhere else in the world how are we going to have companies fair fair fair nothing to do with it yeah But the strongest argument is like the alternative is having no industry having only a Chinese one So what's your – So I think there is – it's not an easy way to solve this, but I feel like the debate has been a little bit uncreative because they envision either blanket bans on these Chinese companies, keeping them out of the United States through tariffs and bans on investment?

Or why don't we just open the floodgates and decimate all of Detroit and, you know, decimate all of Houston by letting the Chinese companies come in and compete? There is a lot that is in between that that can be quite smart and solve a lot of problems, actually, both on the national security side and on the competitive side. And so, you know, you mentioned the foreign affairs article. So Peter Cowie and I have been part of a task force that has looked at this, and our report will be out soon. And I just want to clarify, I'm not speaking for the entire task force. I'm speaking for myself, and that is it. But basically, you know, what we've looked at is what is a possible suite of policies that you could have that would address these different elements of concern, such as if you don't want them to compete and decimate the entire industry, that's fine, right? Make them produce in the United States. Make them have joint ventures. They're open to doing this, right? Make them have localized supply chains, have mechanisms for monitoring whether they localize supply chain and diversify vendors from Chinese supply chains.

If you're worried about surveillance, no problem. I mean, not no problem. It's not very easy, right? But there could be, I don't need to be breezy about it. It takes some serious bureaucratic capacity. But, you know, divorce the hardware and software the same way that Tesla had to in China, right? They had to use Baidu for mapping and storing data. And now Baidu has developed some of those capabilities with robo-taxis and autonomous vehicles. So basically, find some intermediary solutions to have the Chinese have access to the U.S. market, which I think would be good for the U.S. market, good for a lot of things, good for the competitive future of American industry, right? But have some creative solutions to this that address the specific problems that are in between a blanket ban and some sort of opening of a floodgate. The dream which you allude to in your piece is sort of like a reverse Tesla. The story of Tesla in China being that Tesla was allowed to operate there, but they didn't even have to do the JV thing.

But they had to use Chinese suppliers. They had to use Chinese software. and by dint of being there, they helped to sort of inspire and pace this entire industry. And like what the, so what the, you know, US EV ecosystem currently is missing now is someone who knows how to make these cars for 15 grand. And knows how to make the batteries, right. I mean, all of these things, like the whole. Cars are the stand-in for many emerging technologies of the future. Correct. Before we – lots of questions. The first one is, like, do we think she is stupid or these firms? I mean, it's like they know – like, China knows this playbook better than anyone on the planet. I mean, if I was she and I was trying to calibrate this, you know, what are the pros and cons of allowing a version of a deal that you could sell to American policymakers or that would kind of like lead to future domestic industrial flourishing,

which Beijing doesn't look at and say, yeah, no, thank you. We're not here. Absolutely. This is a totally legitimate question. It's one we do not address in the piece. It's one I do not address in general, partly because I have absolutely no control over what the Chinese government is going to do. I cannot make any recommendations to Xi Jinping. I cannot, you know, write any piece that would convince them to do anything. So my argument would be I have no control over that. We have no control over that. Yes, they're putting in mechanisms for reviewing their own outward bound. You know, they've always reviewed outbound investment in China. But, you know, it's now under an export control regime where they would actually have to have party state approval in order to, you know, enter in a JV or transfer technology or even set up globalized production, even if they had a wholly foreign own thing. Right. I can't control what Xi Jinping is going to do about that. My argument would be we should just make a policy regime in the United States that makes sense. Right. That makes sense. That's fair. Fair enough. right, for Chinese companies. Yes, you can access the U.S. market, but we have national security concerns. We have supply chain concerns. You have to make some concessions on supply chains,

and you have to make some concessions on continuous monitoring. In the past, Chinese companies have done this. I mean, there's no crazier thing than imagining that it was only in 2018 that ZTE was agreeing to, you know, judicial review in the United States of all of its, you know, of all of its, you know, corporate activities in order to access the U.S. market. I mean, that was before. This is now. So I would say set up the regime. I know that the Chinese businesses want to do it. And then someone said to me recently, isn't that so naive? You just think that the business can convince the government to allow them to do things? And I said, no, it's cynical, actually. But I do believe that. So, I mean, I can't, I'm not going to, you know, tell you this will happen. I'm just saying in the United States, we ought to be more creative about how we think about it and, you know, and have a regime that does make sense rather than what I think now is a regime, an investment regime that doesn't make sense, actually. It's, I mean, I think CFIUS is an incredible mechanism. Actually, I'm very impressed with how the United States has managed that over the last

several decades. But right now, our strategy for dealing with these Chinese competitive export-driven companies is just to try our best to ignore them. and I don't think that's going to get us anywhere. So I would say we make the regime that makes sense for us and leave C to do C's thing. I can't control that. So I guess part of your argument, though, was also that this idea of allied scale is like a bit of a fool's errand, that these Chinese firms are so advanced, or at least in some industries, are sort of so developed and advanced that, you know, you can't beat them, so you might as well join them and learn from them and then, you know, hope you're in a different place 15 years from now. I love Allied scale. I would love a world of Allied scale. I would love a world, and we tried it, right? We tried it in a bunch of different places. You know, I would love a world where the United States and Canada and Europe and Australia and India and Southeast Asia got together and said, China, you can't keep doing this, right?

You can't keep doing this to us, and we're going to have a common external tariff on, you know, these goods from China, and we're going to have, you know, rules of origin. And I mean, it's very complicated. Right. And we've tried it. I think the idea in 2026 that we're going to be able to somehow wait until 2029 when someone else is in office and then restore everyone's belief that, you know, that first of all, that the intervening years are not going to mean that those economies are already used to Chinese technology and have started to pragmatically deal with these problems. And I also think basically the idea, I mean, you know, I don't want to get too geopolitical about it, but like what is an alliance, right? What is an alliance? An allied scale means alliances. What do alliances mean? They're not transactional relationships about things, right? That is like, you know, even if this hurts me a little bit, I'll do it. The idea that somehow in some beautiful future everyone's going to be willing to do that with the United States again in a timescale that matters I think is just unrealistic.

I'm sad about it. But it's true, I think. Okay. There's a counterargument here, right, which is that you're seeing, like, Germany's freaking out. France is freaking out. You're seeing sort of more tariffs bubble up. You know, this Canadian deal to let EVs in, it's like 10,000 cars a year. Yeah, it's going to go up to 61,000, right? But I actually think we should have something like that, right? It seems small scale, but it's the kick in the pants, I think, that a lot of, you know, our sector may need to understand that we don't have to read the New York Times articles every two months about how good the Chinese EVs are. We need to see them on the roads. Like, people need to understand, actually, this is what's happening in the world, and we have to do something about it that's more mature than just ignoring it. But, yes, I see what you're saying. There's a counterargument, which is that it is true that everyone in the world is fed up, right, with China's exports. They're fed up with the overcapacity. They're fed up with, you know, all these things, but they're being creative about how to solve these problems.

And so can we. The idea that we're going to agree with a bunch of countries to commonly exclude China or a common external tariff, I just don't think it's realistic in the next few years. I don't. I want to come back to the Xi question because, like, I don't want to say it was a super dodge. But my take of that, look, like you pointed to TikTok as an example. What was so interesting to me about the whole saga was how little she seemed to care about what happened to this company. You know why? Because it's not actually a national security concern. If it were, you would care. So that's my view. Or it's just like a shitty software company and like, you know, who cares about it. Some dumb algorithm for people's attention. It doesn't matter. So the – well, it's also – I mean, even – well, the national security center. Once you start freaking out about it, then that's kind of like the biggest tell there is.

So you can be a little strategic. But my point being is, like, I think any deal – well, let's come back to the domestic political economy of this. I don't see the constituency for this, aside from the consumers who know that Chinese cars are really good and cheap, to be super excited about it. I mean, maybe it's like the firms that want to do the partnerships that sort of like see an opportunity to upgrade. Yeah, I think they do. I think they really do. But again, to get politicians on board with letting Chinese investment into the U.S., like the deal is going to need to be really good and really defensible. and my sense is the way that she sees the world, he will look at this as more like selling the crown jewels than like a good way to kind of get out of our overcapacity crunch and like, you know, expand abroad.

So maybe, I mean, this is like, it is not, I do not think that this is a deal or this is a path that like a Chinese leader could take in the future. but it doesn't seem like she's one and maybe just maybe maybe your your push for like okay let's just like put some rules of the road out there and kind of um uh you know just like have this be that have this be something that someone can use as like a jongnan high talking point when they're like doing their like battle of the long knives in 2034 um may not be the worst thing but um when when you know there's opportunity costs for political attention and time to like put stuff forward and um my main takeaway from this is like given the low probability of this being something that like actually manifests in a real way i would um i would just like be putting my energy elsewhere but uh maybe i'll be so you're gonna say it's a super dodge yeah you're gonna say it's a

Superdodge. I am just a lowly academic who has thought in the weeds for years and years and years about how do you manage very specific problems. Like, so you have a problem, which is you're worried about letting this company come in and then just replicate its supply chain and then replicate the dependencies. Oh, you're worried about surveillance. Oh, you're worried about remote activation, right? In the weeds, there are policy solutions to this, okay? Whether it's politically viable, I don't make those decisions, right? I'm just saying we could have a creative policy. But you read the newspaper? I mean, come on. Like, this is a... I do. I think, actually, I mean, I think generally the anti-China sentiment is thinner than what people think, right? So this bipartisan consensus on anti-China, like, I think it's, I don't, I mean, look, and I'm not saying, like, China is, you know, amazing. We should, I personally welcome any Chinese, that's not what I'm saying, and that's not what Peter and I are saying, right? What we're saying is, how should the resources of American

government be directed to deal with the problems that are real versus the problems that are maybe a bit of a distraction? What would make for a reasonable American society that could prosper in the context of what I think is a very difficult to deny Chinese technological powerhouse, right, That is inevitably already there. So instead of, you know, it's really not about what's politically practical. That's like not what I care about as much or I can't control that. But I do think, right, when you when you think about how we think about threats from China or anywhere, for that matter, there is a lot of, I think, chaotic thinking about, you know, blowing up home robots or smashing all the cars together at the same time. or wide-scale monitoring of people's commutes and mapping critical infrastructure? And do we want to have policy regimes that are taking those risks and organizing our whole society around really far-fetched risk scenarios,

or do we want to think about costs and benefits? And I think thinking about costs and benefits is a good way to do it, regardless of whether it's, like, politically viable or not. That's not what I'm here to do. I'm here to think about what good regulation might be able to look like. I share your concerns like about the feasibility of any of this but that shouldn't stop us from putting what we think are good ideas out there about how to do things yeah I mean my even if you want to take the the you know remote takeover surveillance stuff off the table like where where I'm at on this is like I want to have the stuff be made domestically by non-Chinese firms in 10 years and then is is are you going to be able to craft something that gives you the tacit knowledge that gives you the supply chains yeah what have you and the tacit knowledge is super important yes and sort of what i what i see and particularly i think in like chinese export controls right is they exactly lies to this right yeah like and especially with the rare earths one

which I think is the most, which is like even more acute than, than the cars and consumer electronics is them stopping technicians from leaving the country, like stopping the export of particular sort of machinery. Machinery. Yeah. Like they're like, like they know these choke points is real and don't want to kind of give the, give the, the adversary. Well, they are. And we've done the same thing. We've done the same thing with semiconductor machinery. and, you know, IP over who can make semiconductors and those kinds of things. So I guess what I would say there is two things that, you know, may sound provocative. But right now, you know, the dialogue is always like right now, who's going to have escalation dominance? Who is going to – is the U.S. going to be able to disintermediate China and rare earths and permanent magnets faster? Or is China going to be able to disintermediate the U.S. in high-end chipmaking faster? As if that's the end, right? As if, like, once we come to that point, whatever country does whatever faster has permanent escalation dominance over the other country.

These economies are so intertwined. There's a next set of industries. There's a next set of choke points. I think China fell on rare earths as a choke point, not from, like, some premeditated plan, but, you know, eventually they realized what it was and then learned how to activate it. And, yes, I think you say correctly, control it, right? The same with, you know, semiconductor design for us. It's not like we set out to do these kinds of things. And so my concern is more when you think about, you know, not even just as you say, EVs and consumer electronics. If we want to have an American economy that's capable of production, right, it's going to have to be with the tacit knowledge and the advanced production that I think does come with, you know, even if it's not like forced technology transfer and forced JVs. But having companies make things in the United States is going to be critical to whatever next sectors there are. And I just don't see how we get there, right, by trying to ignore the Chinese companies that do really want to come to the United States. Many of them do, right? And it's not just EVs. It's not just batteries. It's, you know, biotech.

It's pharma. It's all kinds of life sciences. It's robotics, you know, industrial robotics, all of these kinds of things. And I think there's just an opportunity there that we ought not squander. um there is a so so my best guess for the way the political dynamics in the u.s change such that this becomes a lot more salient is once china has things which are don't have you know we which which we don't have which are even you know more remarkable and better like buying cars cheaper like cheaper car now no one needs cheaper no one needs flying cars like cheaper cars and evs are fine most people who want a car have one and can probably afford one you know there are used cars which are as cheap as chinese evs that exists in america um when you start to get things like cancer treatments um there you go then i think the dynamic starts to be really different

because it's like and that moment is here like it's here right i mean chinese companies chinese biotech companies are now licensing these things and that's part of i think why biosecure ended up being a bit more of a thud than a bang right because you have a bunch of people in the u.s who are like actually i would really like uh you know totally new standard of care that prolongs life in certain types of small cell lung cancers or non-small cell lung cancers like yeah yeah that's what people want. I mean, the cancer cure is a really interesting one because like the only place you really make money selling drugs is in America. So like the entire business model of Chinese biotech is predicated on doing that access. And I think my sense is like the time, like the way America becomes more open to a trade, which becomes more comfortable for China is when there is leverage there from the Chinese side of like, we're not going to sell this thing to you.

Right. And by the way, it's something which is like absolutely mind blowing and incredible and either going to extend your life by 10 years or is like a robot, which is going to do all your chores in your house for $5,000 something. Right. And it's something that like either the U.S. government is banning or the Chinese government is not letting is not allowing to be exported. And I don't think that's the cancer cure just because, like, there seems to be enough understanding in the, like, China's not paying for these drugs, right? No, all these companies are like, well, the best I can hope for is, like, a super subsidized, you know, procurement price from Chinese hospitals. And so I'm setting up my manufacturing so that I can access European and American markets. Like, that's from the beginning, from the beginning. And so, I mean, I think you're smart to say that, actually, that when they have things you really want. And what is that thing? I mean, I guess it'll be some robot thing. That'd be my... You don't want to hear my take on the humanoid robots,

but I feel like it might be those things. Yeah, it might be. I mean, there's just a whole array of things that China is going to be capable of doing. And also, to be clear, there is going to be things they want from us, right, other than high-end GPUs. Like this is not, you know, we think of this as like the only, the end battle is rare earths and high end chips, right? There's going to be stuff after that that both countries need from each other. They're not going away. They're both large economies with a lot of like, you know, creative and hardworking people. They're not going away. So there's going to be, I think, future episodes of all of this. And for us, it was worth putting out at least the idea. It doesn't have to be a choice between blanket openness and blanket bans. You can have an in-between that is like weedy and a little bureaucratic and sometimes boring to people. But there are mechanisms to ensure monitoring of technology. There are mechanisms to ensure vendor diversification and supply chain resilience.

There are mechanisms to deal with whether the U.S. economy benefits from these. And it's worth considering those as we consider what's possible politically. Yeah. And let's. OK, so who knows what's going to happen post fee on the U.S. side going down the prediction markets. We've got J.D. Vance at 25 percent. Is he going to buy this? OK. Maybe probably not. I don't know. Maybe this is. I don't know. I was going to go on the list. Do you want to take all of them? Okay, J.D., where do you think J.D.? Is J.D. going to take the V.I.D. to revitalize Eastern Ohio? I have no idea. I mean, I've said this about Trump, who, you know, I don't want to be misread as, like, some sort of MAGA person. I am not. Right. But he said, come build in America. He said this before, right? And, you know, we have the Nixon in China is like a meme, right? You know, it had to be Nixon because it's the toughest guy on communism that invites the Chinese.

Kind of had to be Clinton in, you know, 92 because it was the person who is the most leftist on human rights that's able to bring China back into the fold after Tiananmen. And then I think, you know, you can you can really imagine how, you know, some of the change on China takes place within, you know, an unlikely source right within U.S. politics. I don't think it's impossible to imagine, but I have no idea. I have no idea what J.D. Vance thinks, but all I know is that there are a lot of the, like, sacred kind of parts of, oh, well, we do this and we just hate China. You know, I think all of those things are a little bit up for grabs right now in American politics. But I am not a specialist in American politics. I'm just an American. Stop doing that. You're a person. Okay. You don't do that. I haven't written four papers on this thing, so I'm not allowed to. opinion i know um but no i mean but like look we we're kind of running the experiment right like isn't trump trying to be she's friend yeah like make nice something like that yeah and just to be

clear none of us are recommending some sort of japan or korea style deal where there's like a huge pledge of investment that runs through howard lutnik office like that is not what anyone is envisioning Like this is you know we envisioning a good regulatory regime that facilitates commercial investments not CITIC making a trillion pledge That is not what we're here for. All right. So just squinting, you've got John Ossoff at 11%, maybe AOC, probably not. Rubio, I mean, who the fuck knows what he's about nowadays. Gavin Newsom, 10 percent. Sure. Yeah. I think he'd be into it. Josh Shapiro. I wouldn't think so. And then we're down to Kamala and Donald Trump with Kamala. Oh, boy. Three percent. Jesus Christ. Yeah. Yeah. You mentioned Lutnick. I think now's the time to bring us to the U.S.-China corruption comparison. Meg, where do you want to start with that?

Yeah. Yeah. So, I mean, I think there's an interesting thing, which is not perhaps that surprising. And, you know, I talked to this guy many years ago. His name is Jim Shin. He's, you know, had a huge career in the private sector, some public sector work. And he said this thing to me. You know, he worked in the first Trump administration on some of the anti-Qualway efforts. And he said this thing to me. This is 2020, 2021. But he said, look, I am an open economy macro guy. I was trained by Ben Bernanke or, you know, but I we are being pushed into a much more state activist set of policies to deal with China. There is some truth to that. Right. So, I mean, you can't just say no problem. We're going to soldier on as we always have. Right. You have to deal with both the defense, the kind of export controls, you know, some of that, you know, that the investment review is as well as the offense. Right. How are we going to have industrial policy in the United States to compete with some of these things? And then there's all the special deals, right, that you're describing. And, you know, let me just say, I know I said earlier I have a lot of respect for CFIUS, and I do.

And let me clarify, you know, the couple of big flashpoint deals that we've had, right, that have seen these kinds of golden shares or very particular U.S. government intervention arrangements, TikTok and Nippon Steel, right, both the TikTok deal and the Nippon Steel deal were originally exactly the deals that the companies proposed before everything became such a disaster, right? And that's two different administrations, right? So, you know, the TikTok deal became a disaster, but we basically got back to exactly where we were, which is like, you know, U.S. oversight over what's happening, U.S. housing of data. Those were all the creative solutions that were proposed to CFIUS in the first place. And on Nippon Steel, you know, my view is very strongly that it's the same thing. the U.S. government is not benefiting financially from any of this, you know, in terms of a golden share. It's just kind of the embodiment of the national security agreement that Nippon Steel and U.S. Steel originally proposed in the Biden administration before they got stonewalled. So I would say, you know, where we are, what I'm most nervous about in terms of, you know,

as you say, corruption is the deals that go directly through different parts of the White house and, you know, that go through particular individuals that are being, you know, kind of dealt out to different firms, right? Okay, we've got this much money pledged in Korean funding, who wants what? And, you know, all of that makes me very nervous, right? I mean, call me like a little bit of a capitalist. I can have to be where I work, but I think firms should make decisions, you know, about how they allocate resources, yes, in the context of public policy, but in the context of market incentives. And so it does make me a little bit nervous. What I think is even, you know, more interesting, and just to bring us back to the beginning, is the financial system, right, element of it, which is that, you know, we used to have unshakable faith in the U.S. judicial system and the U.S. financial system for there not to be random interventions that would be judged unfairly. You know, the U.S. dollar was a kind of, you know, a medium of exchange, partly because we expected that it would be, you know, it would be kind of tendered fairly and there wouldn't be interventions that benefited, you know, just the United States or there wouldn't be interventions that benefited just a group of people.

I'm not sure how long we can sustain that without a reconstruction of American institutions. And so it's a long winded way of saying I think we're I think there are some things that make me nervous, but they're not the things that everyone, I think, points to. in terms of flashy, you know, deals. The flashy deals are not that interesting to me. It's the more daily erosion of our institutions that makes us look more interesting. Let me give you two points of contrast that I think are sort of relevant. So building off your flashy deal thing, you know, we had this whole conversation about, you know, 30% of the Chinese government is SOE. And then we have, you know, another 25, another 30%, which is like zombie run or like basically exists only because of backroom dealing of industrial policy. That's not the case with what Trump has been able to accomplish. I mean, these are like, you know, one eighth of a percent of GDP is like directly touched by any of this.

So from a perspective of scale, even if you want to say everything that every deal that the Trump administration has done is like fundamentally a corrupt thing, which I think is also not entirely the case. Like we're still we're still not close to like causing a financial crisis because the firms that have been blessed by the White House have gotten, you know, have gotten a nod. Let me tell you what makes me more nervous. Can I can I tell you what makes me the most nervous is that the idea, right? The argument I make for China is that it's a moral economy argument. It's how people think, like what they expect about the world. Like, you know, everyone's scamming. So I might as well scam. Right. And now we have just a ton of scams in the United States. Like everything's in the last few years. It just feels like there are scams everywhere. There's, you know, very little scrutiny. Everyone's betting on calci, on small things. Like, there's a way in which I feel like the moral economy erodes where it's like, what's the point of not participating in these things if people in the White House are participating in these things?

And that, I think, is more corrosive than any of the actual money. And this gets to my second point. So, like, the most money that Trump has made is by making a Trump coin, right? Like meme coins, yeah, right. A meme coin. Correct. And I think that kind of goes to a really central jurisdiction I see in the way Chinese corruption manifests and the way it manifests in the U.S. Like in China, you've got to be subtle about it. Like if you do this in an outward way and you flaunt your wealth and you drive around with fancy cars and you talk about all the connections you have, like this means you are on the road to ruin. Like, Guo Wengui started doing this after he had already lost everything and had nothing to lose and was already in the U.S. He did it from a New York penthouse. He did it from a New York penthouse, right? Like, if you are playing the game in China, you are having meals and you are doing people's favors and helping folks get into colleges and giving people, you know, tasteful gifts of, like, very expensive, you know, calligraphy and wine.

If you're even doing any of that anymore. Yeah. I mean, if you're even doing that anymore. Correct. But the way the Trump administration has gone about it is just – is, like, exactly – it's, like, the most – like, for the scale of it, which is relatively small, you get the most kind of, like, cultural erosion because they're so fine with it. And it's so upfront. And everyone knows it's happening. And the president's bragging about it. And it's like, look, like you have children and nephews who are signing deals in China. And that's how that's how the game is played in the PRC, just like how it's played in the U.S. with the with the Trump kids and the Lutnik kids. Right. But it's not like it's not like if those kids are like loud and proud about it, there's a problem. It's all a little QVC here, is like what I would say. It's all a little QVC in a way that feels like especially especially gross and especially pointless. And, you know, there are other parts of it. You know, I think institutionally, like you have, you know, a lot of attorneys general's office in the United States who are doing things like suing the Trump administration on, you know, all of the immigration stuff or suing the Trump administration for this.

Nobody has time to sue anyone for all the scams that are happening in like local states. Right. So the resources are reconfigured and, you know, the the the like the level, the what's the right term for it? But, like, the bar is just getting, like, lower and lower and lower of, like, what's acceptable behavior. And it does make me really nervous. It makes me really nervous for the future of the U.S. financial system. And it makes me really nervous for, you know, how much faith we have in commerce that's fair in the United States. It makes me very nervous. But I agree that the QVC quality of all of it makes it kind of especially gross, I guess, actually, especially gross. Yeah, I mean, it's just it's sort of hard for like like you you talk in your book about this idea that even when you try to tighten up and even when the rules change, It is like so ingrained that people are just expecting it to revert back to the way the games used to be played, that you have these sort of like shorter time, you know, that it falls down to the companies that have shorter time horizons and are more stressed about the policies.

And just like, you know, you have these great quotes about like CEOs like are spend all their time socializing and they literally decide to emigrate because they like can't be bothered with spending all their time socializing with like, you know, local officials anymore. And we're just we're very far from that, I think, as a society. And yes, it's like it's like we've gone from a zero percent risk of, you know, the rot manifesting in a really dramatic way to maybe, you know, cranking up to one to two percent. But it just it feels pretty abhorrent, the whole thing, and pretty personalist. And going down our list of presidential candidates, like, who of those strikes me as, like, a deeply corrupt individual who's going to be totally fine with their kids, like, running giant businesses and making money off their name? Like, not a lot of them. Yeah, not a lot of them. Yeah. So I don't think – I wouldn't say, like, we're at – we're not even – I mean, we still have rule of law, I hope.

Like, we still have, right, these things. And so, I mean, my argument is that it's systemic, not personal. actually and so it's really a question of american institutions rather than anything else but you know maybe the more interesting thing is just thinking about as the world is shifting and the kind of where the kings of capital and queens of capital are you know it's now shifting much more to the east right not i mean it's in the gulf states it's everywhere else and so what are the what is that going to look like is it going to look more like china is going to look more like the United States. And, you know, I think that's all very interesting for people to consider as they think about what the world might look like in 2050 or after. That's a crazy big thought. I don't want to quote it on the Gulf. The Gulf bums me out. Can we close with that? Let's do a little Malaysia-Indonesia pitch. Why should folks be interested in these countries? What did you get by dipping your toe into them? Look, I think it's obvious from the book, China takes up half of the

real estate, if not more, right? And so the book is really an attempt to understand China by understanding other places. And so here are two other places that have had or had longtime, you know, authoritarian regimes that have both tried to modernize their financial sectors. And they interestingly failed in like similar and different ways. And so the phenomenon that became most fascinating to me in Indonesia was in the 90s, right, when all these companies started to kind of eat themselves alive, right? Why were they doing these things? And I think the answer is because they never felt secure in Indonesia. And actually, their behaviors looked very similar to how Chinese capitalists were behaving at the time. And so, you know, and I'll just say that the cover of the book is like, you know, a financial sector building in Shanghai with, you know, the CCP symbol at the top. And actually, the building itself is built on land that an Indonesian Chinese billionaire bought in the 1990s to expatriate his assets from the Suharto regime, right, in the end,

because he could. And so, you know, there's some irony there. But I think there's something, there's a particular type of economic behavior that I just felt that people had yet to really explain, which is why do people loot their own businesses? Why do they expatriate their assets really rapidly, right? How do they do these things? And under what systemic conditions? And so the comparison kind of gave me that. the end of the book is kind of like it was it did look a lot like Indonesia. Now it looks a little bit like Malaysia in the sense that the state is monitoring every all of the and taking a stake in all of the companies. Right. And that has a different set of consequences that are more like stagnation, especially financially than cataclysmic collapse, which is what Indonesia experienced. And so to me, the comparison helped me understand China better. People don't people don't do that much. Right. China is so huge. It's unique in its political system. But we can learn something by comparing it to other places including the united states i guess um i got one more for you so okay uh you know we we brought up david barboza and the you know 2012 like tracing everyone's money

through reading all these records and whatnot yep um and and i was also kind of going through your book and there were these you know nice little charts you gotta categorize like uh what corruptions and what type of company and whatnot um it's 2026 we have ai now like i know have you tried um to just be like find me some shady stuff uh i mean maybe you kind of need you need the actual databases you can't just like find this stuff all online but the sort of like the really painful journalistic work of like lining up this thing in the panama papers to that thing and this right it's all pre-ai that's a pre-ai book right there you just you just you just press the button so i mean yeah there there are two there are two like vectors of this right like one if i am the corruption in investigator like trying to do the cases and find where the money is and what's going on like that seems like that can be solved and also from a from an outside investigatory perspective

like if i want to write stories or or you know understand corporate ownership or whatever like We're getting close to these being solved problems as long as like you have actually had to document something at some point. Yeah. Right. So I am I love this question. I'm going to try and be disciplined in how I answer it, because this is kind of what I'm working on now, which is like this question of resilience. Right. Because now, you know, we have the U.S. government and many governments who are all like, oh, gosh, all the national security shocks are economic. We need to monitor all the supply chains. We need to monitor who owns everything. We can use AI to do that. Right. Can I use AI to generate the answers of who controls these supply chains? How does this work? And so this is the kind of work I'm doing now. The thing I will say is that it would have taken me many fewer years to complete that book if I had started the tools that we have available now, right? And even over the course of writing that book, like in the beginning, I was also pulling the records myself. And then I, you know, got access to Barbosa's database. And then it became, you know, something that took me three weeks, took me five seconds.

And then so, you know, I was witnessing some of that change, but not necessarily AI-enabled. What I will tell you, what I think is most interesting about all of this is that you have to have some intuition for how things work in a kind of qualitative sense to know how to make any sense of what you're seeing in some of the patterns. And people may say I'm being naive about what AI can accomplish, but I've yet to see, and, you know, I'm not super steeped in it, but I really think there's a difference between data and metadata. data. There's a difference between, you know, patterns and then testing hypotheses, hypotheses through intuition. And where the book really comes from, where all my work really comes from, whether for better or for worse, people may hate it, whatever. But where it comes from is like having some good conversations with people about how, how something works and then knowing what data to look at and, and then how to query that data and how to construct those stories. But based on the intuition I get from a kind of deep knowledge about how things work qualitatively. And so, you know, in our search for, you know, data and AI to give us answers to all the problems of economic security and resilience, I don't want what's lost is like company intuition about how these supply chains actually work and, you know, government intuition about what is and is not possible.

And so these are kinds of interesting questions about, you know, where we get conclusions from data and where we use data to help us understand what we think we know about the world or see if we're right or wrong. And I think we'll call it there. I don't know. I'm personally pretty excited for our AI-driven anti-corruption panopticon. Oh, great. I'm glad you welcome that. Maybe we can catch all the tax cheats as well. Well, that's certainly – or, like, look, money laundering, right, is super – but, hey, I think I'm with you. If we can catch more tax cheats than money launders, I'm with you. It's just a question of how precise will we be, and we'll see. But I'm glad you welcome this AI-driven surveillance feature. Good. Well, you know, it's like the Chinese government right now. They're shaking down all these firms for old tax payments. Yeah, the deep sea fishing. It's easier to do. You don't have to go to the other province if you can just figure out who owes what.

But anyway. All right, let's call it there. Meg Rithmeyer, thank you so much for being. Thanks, Jordan. It's been a pleasure. It's been a pleasure. My toilet plate, the water falls, so no one has to hear me pee. It warms the seat, it lifts the lid, it's more attentive than my kid would ever be. Mama calls from Saitama, Sunday 7 on the dot, Akachan Omada. Mama, reservations, what I've got? She nailed me a fertility charm from a shrine, a little bell. I hung it on the cat, he's been so productive, he's doing well. Baby, no baby, even I.

Got a cat named Rowan, he's the only mouse I see. Baby, no baby, even I. The sexy door opens by itself. What more could a woman need? Who wants a kiss? Got somebody inside, someone. And she's calling on the other line Baby, no baby He's a 94 million people in this town And not a single one is mine Kenji is my baby, he's 38 He pays half the rent He feeds himself, he sleeps through the night Best six years I've ever spent. The Akitori karaoke stand and sushi home by three. Okidee. The only thing that's ever kept me up all night was me.

So, so, so, so. The governor built a dating app. It's official. It's got a deal. I matched with Kenji six years and so I guess it's the real deal. They gave the civil servants Friday's off to go make babies at home. Can't you work for the war? Took you Friday. We went to Costco for a gnome. Baby, no baby, eat a night. Got a cat named Ron and he's the only mouthful seed. Baby, no baby, eat a night. The taxi door opens by itself. What more could a woman need? Who wants a kid? Da-da-da-da-da-da-da. 14 million people in this town. And not a single one is mine, mine, mine, mine. The TV says the birth rate's 1.1, a record low. I turned it up, comp 5 is the number. I took that little credit though, nah. There's a stroller on the Yamano at rush hour blocking up the door. I got some other styles, got a summer.

What you do that for? I know the country's shrinking. I can't read a chart, I'm not a fool By 2100, we're down to half Think about the lines, that's cool Nothing broke, the train still came The snow still filled at dawn Shogunite, we built this paradise So nice, nobody's coming after we're gone Tony Kaka, reservations at nine. Baby, no baby, in a night. Got a cat named Roman, he's the only mouth I feed. Baby, no baby, iranai

The taxi door opens by itself What more could a woman need? Who wants a kid? 誰が,誰が, somebody inside And she's outside with the baby name book Baby, no baby, iranai We're going out the back And we are not gonna look I'm not going to go to the door I'm going to get out of the way No, no, I will not check it out