Why China Builds Faster Than America & The Rest of the World | Dan Wang

Summary

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Podcast Summary: Why China Builds Faster Than America & The Rest of the World

Podcast: Bankless
Guest: Dan Wang (Author of "Breakneck: China's Quest to Engineer the Future")
Date: October 8, 2025

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Overview

This episode of Bankless features Dan Wang, a technology analyst and author, exploring why China outpaces the U.S. (and most of the world) in building infrastructure, manufacturing, and scaling new industries. Wang presents the core argument from his book: the U.S. is run by "lawyerly" elites who block and regulate, while China is dominated by "engineer" technocrats who build relentlessly. The discussion dives deep into both societies’ political economies, cultural mindsets, innovation models, comparative strengths and weaknesses, and what both could learn from each other.

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Main Themes

• Contrasting "Lawyerly" vs. "Engineering" Societies
• Paths to Wealth and Power: U.S. vs. China
• Entrepreneurialism, State Control, and Capital Markets
• Misconceptions about Life in China
• China’s Innovation Model: Copycat or World Leader?
• Censorship, Surveillance, and the "Social Credit" Narrative
• Manufacturing, Technology, and the Future of Superpowers
• Opportunities for Reform and Mutual Learning

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Key Discussion Points and Insights

1. Lawyers vs. Engineers: Who Runs the World?

[00:45–04:44]

• Wang’s Thesis: U.S. elites tend to be lawyers; Chinese elites are engineers.

  • “The U.S. is really run by lawyers... by contrast, in China, much more of the leadership had degrees in mechanical engineering, electrical engineering, thermal engineering, whatever else. And they really treat society... as just a giant engineering project.” (Dan Wang, 01:08)
  • Lawyers block and regulate; engineers build, sometimes to excess.

• Implications for Society:

  • The U.S. lawyerly culture protects property rights and the wealthy, but makes infrastructure-building slow and costly.
  • China’s engineering class builds aggressively, often redistributing from elites to public goods, but can be heavy-handed or make technocratic mistakes.

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2. Paths to Power and Wealth: Comparing Social Ladders

[04:54–14:55]

• U.S. Model: Path to wealth is typically through entrepreneurship, adding value, and shareholder gains; politics is less clear.

• China’s Model: Three primary paths—land/property booms, export entrepreneurship, and climbing the Communist Party technocratic ladder.

  • “In China... the process is really straightforward. If you’re a bright kid, maybe even starting in middle school and especially in high school, your teachers will give you a tap... to consider joining the Communist party... and if you want to be a cadre... you’d be sent to a village... promoted up into a city... run a state owned enterprise... then you have a shot of making it into the Central Committee.” (Dan Wang, 11:08)

• Technocratic Meritocracy: Up to a point, advancement in China is transparent and competence-based—but at the highest levels, it becomes opaque and political.

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3. Entrepreneurialism and Capital Markets: Myths and Realities

[17:04–22:40]

• Competition in China: Fiercer in some sectors than the U.S.—especially manufacturing, electric vehicles, solar.

  • “The U.S. is far less capitalist in terms of red-blooded competition than a lot of Chinese companies.” (Dan Wang, 17:38)

• State vs. Free Market:

  • China has huge state-owned sectors (airlines, energy, telecom), but also a vast, growing, and ruthlessly competitive entrepreneurial landscape.
  • “In a couple of ways, China is relatively free market, along with a big state sector that governs very closely what it does govern.” (Dan Wang, 20:45)

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4. Constraints on Authoritarianism and Limits to State Power

[22:40–25:58]

• Despite perceptions, Chinese authorities do face consumer pushback—property tax, retirement age increases, NIMBY protests.
• Protests are “allowed” if they do not threaten the political system or CCP legitimacy.
  • “You can protest the rules, but not the rulemakers.” (Host, 25:55)

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5. Innovation, Execution, and “Copycat” China

[25:59–27:59]

• It's true that “foundational” innovation lags, but China excels at execution, scale, and iterative improvement.

  • “We overrate the importance of this founding moment of invention. What really matters is diffusion, scale-up, production... the Chinese have become much better than the Americans at that.” (Dan Wang, 27:32)

• China now leads the world in fields like solar, drones, electric vehicles – even if it didn’t invent them.

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6. Censorship, Surveillance, and the Social Credit Meme

[28:27–36:50]

• The Chinese internet is censored; political dissent is not tolerated online; social identity is tied to digital access.

• The “social credit” system is mostly a Western exaggeration—controls exist, but there’s no fine-toothed dystopian score.

  • “There is no functional nationwide fine-toothed social credit score that is getting a lot of people ensnared.” (Dan Wang, 35:35)

• Self-Censorship Analogy:

  • Perry Link’s “anaconda in the chandelier”—the ever-present threat of consequence creates a culture of elliptical speech.

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7. China’s Weak Capital Markets and American Over-Financialization

[47:59–54:29]

• China discourages large, open capital markets; prefers control and sovereignty over inflows/outflows of capital.

• Despite rapid economic growth, the Shanghai/Shenzhen exchanges have been essentially flat for decades.

  • “Most Chinese stocks are shitcoins... a couple do very well, but on average, a lot of things don’t grow very well.” (Dan Wang, 49:02)

• The middle class in China face daunting obstacles to wealth accumulation; property is expensive, stocks are unreliable.

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8. America’s Superpower—Capital Markets and Property Rights

[54:29–62:35]

• U.S. equities dominate global markets (70% worldwide).

• This is rooted in rule of law and property rights; the status as a “lawyerly” society is both strength and weakness.

• Memorable Comparison: Apple (U.S.) vs. Xiaomi (China):

  • Apple (3.5T market cap) failed to build an EV; Xiaomi (much smaller) successfully built and launched a record-setting EV in a few years.

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9. Why America Fell Behind on Building

[62:35–66:49]

• Shift rooted in the 1960s: overbuilding, environmental backlash, rise of litigation and regulatory culture, skepticism of technocratic authority.
  • “People fell out of love with the technocrats... all of these factors kind of came together for Yale Law School to turn into regulators and litigators.” (Dan Wang, 63:43)
• The “abundance agenda” is seen as a corrective—building more infrastructure, housing, and clean energy.

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10. Cycles, Culture, and Superpower Succession

[66:50–70:52]

• Ray Dalio’s “big cycle” thesis is viewed as deterministic (and oddly Marxist) but deindustrialization is also a political and cultural choice.
• The U.S. could look more like Germany or Japan—richer, higher-quality manufacturing—if it chose to.

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11. Inverted Strengths: U.S. vs. China

[70:52–73:43]

• “America has all this latent power in our capital markets... and it’s a shame we can’t connect it to manufacturing. China... plenty of manufacturing skills... weak capital markets. Are we just the inverse of each other?” (Host, 72:00)

• Both countries' strengths are the other's weakness; collaboration seems logical, but geopolitics and security anxieties prevent it.

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12. Policy and Industrial Strategy

[76:16–80:20]

• China’s centralized plans (e.g., "Made in China 2025") effectively scale up key industries.
• Wang advocates for “industrial policy with American characteristics”—using state support where it helps but maintaining U.S. strengths in openness and innovation.

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13. Immigration and Talent Magnetism

[80:20–82:57]

• U.S. remains attractive for global talent, including top Chinese researchers, but changes in immigration policy, anti-foreigner sentiment, and quality-of-life issues threaten this advantage.

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14. Can the U.S. Regain Its Builder Mojo?

[82:57–85:07]

• America doesn’t need to sacrifice political freedoms to build more dynamically; other democracies (e.g., Japan, Spain) show you can have both.
• The NIMBY mindset is a bigger obstacle than inherent system design.

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15. Mutual Misconceptions and Future Prospects

[85:07–86:44]

• Chinese see Western democracy as chaotic, unstable.
• Both sides underestimate each other; these blind spots are dangerous.

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Most Notable Quotes & Moments

On the core difference between the U.S. and China:

“The issue with engineers is that they build a ton of shit... The lawyers are really good at blocking things. So you don’t have the crypto being outlawed... but you also don’t have, I would say, functional infrastructure anywhere.”
— Dan Wang [01:57]

Regarding Chinese society:

“Society is a series of pipes to be optimized and engineered... Whereas the Western way of life is more of a living organism.”
— Host [40:14]

On self-censorship in China:

“You never really know if you’ll say something that makes the anaconda [in the chandelier] wake up and decide to come strangle you... a lot of it is just self-censorship that prevents people from speaking the truth.”
— Dan Wang [33:42]

On innovation and execution:

“We overrate the importance of this founding moment of invention. What really matters is some degree of diffusion, scale-up, production. And that’s something that the Chinese have become much better than the Americans at.”
— Dan Wang [27:32]

Comparing Apple vs. Xiaomi:

“Apple is just something like 30 times bigger than Xiaomi... Apple could not pull off an EV... Xiaomi did make EVs, its cars are now being driven around in Beijing... Which company is better? I mean, I kind of want to bet on the company that is able to achieve the things that it wants to achieve.”
— Dan Wang [57:34]

On the U.S. lawyerly system as superpower (and liability):

“Maybe equity values is not the right way to think about a lot of what’s most important in life.”
— Dan Wang [56:24]

On what each country should learn from the other:

“I would like for the US to be 20% more engineering... And I want China to be 50% more lawyerly because... creative impulses have been strangled by the state. And I really wish that individual rights in China could be respected.”
— Dan Wang [87:21]

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Timestamps for Major Segments

• 00:45 – 04:44: Lawyers vs. Engineers: Elite mindsets and how they shape society
• 11:08 – 14:55: How to rise in China vs. the U.S.; party ladder and meritocracy
• 17:04 – 20:24: Entrepreneurialism, competition, and market myths
• 22:40 – 25:58: Protests, state constraint, and authoritarian limits
• 25:59 – 27:59: “Copycat” China – myth and reality of innovation
• 28:27 – 36:50: Censorship, surveillance, and the “anaconda” of self-censorship
• 47:59 – 54:29: China’s weak capital markets and wealth-building challenges
• 54:29 – 62:35: American capital markets and comparative case (Apple vs Xiaomi)
• 62:35 – 66:49: Why the U.S. stopped building—regulations, 1960s legacy, lawyerly blockade
• 73:43 – 76:16: Is China a real security threat? US-China tensions, Taiwan
• 76:16 – 80:20: Industrial policy debate and potential U.S. responses
• 80:20 – 82:57: Talent, immigration, and global competition
• 87:21 – 89:14: The optimistic future—20% more engineering for the U.S., 50% more lawyering for China

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Closing

Dan Wang calls for both societies to learn from each other: the U.S. to recover its builder ethos, and China to temper its engineering ambitions with respect for individual rights and legal protections. The future, he suggests, will hinge on which system can better balance these crucial elements—building efficiently, innovating wisely, while protecting freedom and unleashing creativity.

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Transcript

[A]

I would like for the US to be 20% more engineering. I think that it, you know, that's how you get a few more homes constructed and wind turbines and solar and mass transit as well. And to recover some of this engineering muscle that has, it has lacked for quite a while.

[B]

Just 20% and that's not bad.

[C]

Seems low.

[A]

Just 20%. That's good enough. I'll take it.

[B]

We're close, right? I guess we're. We still have that DNA here. We just need to polish it.

[A]

We just need to, you know, work out and, you know, work out these muscles and get stronger again.

[B]

Bankless Station Dan Wong is the author of Breakneck. It's China's Quest to engineer the Future. We've got a lot of questions about China here today. Dan, welcome to Bankless.

[A]

Hey, Ryan, Good to be here.

[B]

Okay, so the central idea of your book is that the US is kind of a lawyerly type of society, that China is more of a builder, engineer society. Can you break that down for us? What do you mean by this?

[A]

Take a look especially at the elites of both countries. I used to be a fellow at the Yale Law School when I was really felt like I was surrounded by all the future aspirants of the White House who really want to become president one day. And so these are people who are very smart, fun, interesting in all sorts of ways, but especially very ambitious. And indeed, the US is really run by lawyers. First 16 presidents from Washington to Lincoln, 13 of them were lawyers. Every single nominee of the Democratic Party between 1980-2024, most recently with Harris, had gone to law school. Much of the U.S. senate has law degrees. Only one of them is an engineer. And by contrast, in China, much more of the leadership had degrees in mechanical engineering, electrical engineering, thermal engineering, whatever else. And they really treat society, the economy and the environment as just a giant engineering project. So the issue with engineers is that they build a ton of shit, whether that's homes or roads or hyperscalers or coal plants, whatever. They are also really willing to completely shut down, let's say most crypto miners over the course of a few years last decade. The lawyers are really good at blocking things. So you don't have the crypto being outlawed. Exactly. You don't have stupid ideas like the one child policy, but you also don't have, I would say, functional infrastructure anywhere.

[C]

In the US and part of the argument of your book, Dan, is that this turns into the respective like way of life, like the United States way of life is kind of downstream of the fact that we have lawyerly political elites and then respectively in China, that whatever the Chinese way of life is, of which me and Ryan are very unfamiliar, or at least we haven't experienced it ourselves. So whatever the Chinese way of life is, is downstream of the fact that Chinese leadership has always just been engineering coded for decades now. Would you, could you elaborate on that perspective as well?

[B]

Yeah.

[A]

I'm speaking to you from San Francisco, which is obviously one of the generators of innovation and wealth over the past few decades. SF is a. I used to live here between 2015 and 2016 and for the most part, you know, San Francisco as a city does not work all that well. The, the city works really well. You're super rich. If you're a $4 trillion company, namely Nvidia. If you're one of the rich VCs living in Atherton, life is pretty good. You don't have to suffer through some of these issues of, you know, poor mass transit, very expensive homes, a lot of homeless folks who are wandering distressingly throughout the streets. You're kind of immune from that. In New York, you know, the rich don't necessarily have to take the subways. They have these skinny skyscrapers that are available to them. And I think that what the lawyerly society does is that it rewards the rich and they protect the rich really well. Whereas in China the rich are sometimes, you know, chopped down and often in very public and humiliating ways. And what the state really tries to do is to take the resources and sort of build stuff as its redistribution scheme. So you know, I walking around Shanghai, it's a very functional city, excellent subways, much better than New York. You have excellent infrastructure everywhere. You have excellent infrastructure even in really deep rural countryside areas where people are really poor. But they have new bridges, they have high speed rail, they have a lot of airports. And so that's kind of one fundamental difference between how lawyers run things and how engineers run things.

[B]

Dan, so you said in the US the rich are more protected. In China, is it the case that those in political power are the protected members of society?

[A]

Sometimes it depends on whether you are running afoul of Xi Jinping thought in some way. And so I think this is part of the challenge of authoritarian systems is that the rich, the political elites, are not necessarily protected. So you know, if you are an elite in Beijing, let's say you work at a tech company. Well, maybe. Hopefully you're not working at one of the tech companies that Xi Jinping smashed a couple of years ago as a broader sort of a crackdown. Maybe you're working in finance and banking. The Communist Party last year introduced a salary cap of I think $300,000. And so if you've made over that, sometimes you have to give back your back pay because the party has instituted this limit. And you might be riding high in the party, but then if your patron is taken down in some sort of a corruption scandal, then the entire network unravels and everyone kind of goes down with him. And so it is kind of just slightly more precarious, slightly more apocalyptic. Living in Beijing, even if you're one.

[C]

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[D]

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[C]

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[B]

How do you raise ranks in the political circles in Beijing and in China in general? So it, you know, in the US it's kind of clear how you do this, how you become wealthy. Not always easy, but it is clear generally you have to build something of tremendous value that is useful to large portion of the world or the US population. You're basically playing capitalist game of, you know, creating shares, increasing shareholder value and building products off of that. And suddenly one day you two can become Elon Musk. Right. And this is the, the story of, of capitalism in the US and the West. It's not clear to me how you become an elite member of Chinese political society. How does that even work?

[A]

Yeah, well, Elon Musk is no longer being very good at being Elon Musk. So I hope that Elon Musk can be Elon Musk one day. That would be positive. I mean, it's interesting you say that Ryan, that the mechanism for becoming an American political elite, at least your example, was mostly in business, which I agree with. Yeah.

[B]

And I don't mean so much political elite. Maybe that's less clear. But, but certainly among the the wealthy that you said was like more untouchable in the US that That path that, at least to me seems clear.

[A]

Yeah, well, I guess there's probably three broad ways of getting rich in China. I mean, what have been the big drivers of wealth in China over the last basically four decades? One of them is just land. Chinese didn't really much own much land. And then if you had much claim to land and property values skyrocketed, as it has as China became like a much richer country. This is how you get the phenomenon of a family in Shanghai could be just kind of a normal family. They would be given three apartment units by the state and you could liquidate one of them, and then you could send your kid to college at USC and buy her a Mercedes on top of it. And that is just one path. The other way of getting really rich in China is to tap into the export economy. And so if you are an early factory owner in Guangdong Province, making a lot of goods for exports, maybe you built a lot of wealth that way. There's also the standard American ways of building wealth by working in the tech industry, working in the finance industry, and trying to get claim to assets that way. Or maybe you're within the party elite, making a lot of money, skimming a bit off of state projects on the side, you know, skirting the risk that you are going to be netted in some sort of a corruption crackdown. But that is kind of the pathway. But I think it's actually the, I do want to poke a little bit at this difference of, you know, how do we, how do we become, how does the US become a political, how does an American become a political elite? Because in China, by contrast, the process is really straightforward. If you're a bright kid, maybe even starting in middle school and especially in high school, your teachers will give you a tap on the shoulder and say, hey, do you maybe want to consider joining the Communist Party? Maybe you do so by the time of university. And if you want to be a cadre, an administrator, you'd be sent to a village, like some poor village to govern this place and to show that you know what a, you know how to govern a, a pretty poor place. And then you would get promoted up into a township, and then you would get promoted up into a city. Then maybe you get to run a state owned enterprise, maybe you run some sort of a government think tank proposing policies, and then you have a shot of making it into the Central Committee, which means that you might be one of the future general secretaries. Whereas in the US a lot of things are pretty unclear. Joe Biden spent his Entire life representing the state of Delaware, he was matched against Donald Trump, who kind of came out of nowhere in politics until recently. So in this case, you know, the Chinese are really transparent and the Americans are not.

[B]

Yeah. So it seems like rising the ranks in the Chinese political capital circles. It sounds like you're describing something that is fairly meritocratic and you're describing sort of a technocracy which is sort of this engineering centric culture. I guess if I think about how does someone in the US Accrue political capital? You could say it's based on the. Their ideas. Right. Certainly in a democracy, one would hope that the best ideas sort of win or the most popular ideas win. Increasingly, it seems like the political game in the US is a. An attention game as well. I mean, if we have converted fully to like this attention economy, it's sort of the politician that can accrue the most attention kind of wins. Is that how you contrast how it works in the US Like, I guess I've not really thought about how a US Politician accrues political capital, but it has to be eyeballs attention ideas that people support. And these levers are not so much at work in China. It sounds like in China it's kind of political elites lending a hand in bringing up the, you know, future generations through this technocratic ladder, I suppose.

[A]

Yeah, well, China is pretty technocratic up until a certain level. Once you reach the elites, namely the Central Committee, which has about 400 people, then you have a shot of making it within the politburo, which has 25 people, and then one of those will be the General Secretary. And within the Central Committee, that is obviously total backroom dealing. It's politics. It's really. They're selecting the next pope. And so that is pure backroom process. But it is, I would say, mostly pretty technocratic up until you get that point. Whereas the US Is very confusing. You know, how much does the Democratic Party decide? How much do the people decide? People sort of have a say, but, you know, it's, it's. There's no ladder that you really climb like in China.

[C]

I want to continue doing a little bit more of like a compare and contrast of like the, I want to call it the, the economy, the political economy of these two respective ways of life. Like in, in America, we know, as Ryan kind of illustrated, the American, like, ideal is you are the founder of this thing and it becomes very useful to society and you have this exit and you become very rich as a result. That's like the ideal. The ideal isn't necessarily to go into politics. And over the arc of United States, there's been like different phases in where like becoming the president is, is an ideal. And I, I think over the last like 20 or 30 years, we're kind of in a low point of where how high that in American culture. Whereas being a Mark Zuckerberg, being an Elon Musk, being an entrepreneur and being a billionaire billion dollar exit entrepreneur is kind of like the ideal. And when we call the United States world that, that, that kind of style, it's just all capitalism. It's all the entrepreneurial spirit. It's all, and it's, it's downstream of this whole lawyerly economy that you've kind of illustrated. We once had Hernando De Soto on the podcast and he talked about, he illustrated for us like, why are, why is the American capital market so different than everywhere else in the world? Why, what about American capital markets are so unique? And he said it's the rule of law. It's the court system that is willing to protect your property rights if you do ever get rich. It's the place to keep your money, to keep your capital, because property rights are going to be protected no matter what. And perhaps that lends itself to America's entrepreneurial spirit or the idea of like you can get rich in America and why that's kind of the highest ideal. What's the equivalent on the Chinese side? Like, what's the motivating force for somebody to climb the social ladder in, in China? Is it politics? Is like, I want to be as high up in the political ladder as possible. Is there entrepreneurialism? Because there's definitely a free market economy in China, so you can definitely get rich in China. But like, what, what's that motivating force that people dream about? About like this is how I'm going to climb the ranks of, of China, just the Chinese society?

[A]

Yeah, well, I think it is exactly the same as the U.S. i mean, there's plenty of people who want to become president or a US Senator. Come hang out at Yale Law School with me sometime. You know, you'll, you'll find plenty of those who, who don't necessarily want to be Zuckerberg or, or Elon Musk. So. And in China, there's some people who really want to become high in the party, and that is just a common endeavor almost anywhere in the world. And there is a lot of hustlers who really want to become rich. And so there's plenty of people who, you know, set out creating a Great company. They, they really want to make a lot of money. They have, you know, insanely competitive business instincts. I think that the US is far less capitalist in terms of, you know, red blooded competition than a lot of Chinese companies. You know, there's something like a hundred or dozens of big electric vehicle makers, there's something like dozens of big solar photovoltaic makers. They are competing fiercely every day and being really ruthless about it. And I'm sure you guys have amazing stories from crypto folks who are shanking each other three times a day before breakfast in China as well. Right. So, I mean, those stories are real and they are competitive. They're very much driven by money. And so this is where I think the US and China are actually pretty alike. You know, everybody likes donuts.

[B]

Can you say more about this, Stan? So I wanted to get into kind of a list of maybe, you know, things that the typical, a typical American listener might think. And I want you to bet whether this is a misconception or maybe there's some level of accuracy in it. So, like one is, I think there's this idea that China is very much a centrally managed society. It's not quite the same free market capitalism that the US has. Zach? I think there is this idea that we tend to sort of think of China as kind of like the Soviet Union, right? Centrally controlled, centrally managed. And Americans are like, oh, we've seen this before. Like we. The private way of doing things. Capitalism is better. To what? To what extent is that right? Is China centrally managed versus, you know, free market?

[A]

Mostly wrong that China is, you know, what China does have is what Marx advocated for, government ownership of a lot of the means of production. So China does have a pretty large state owned sector that is formally state owned. So a lot of these upstream sectors, strategic sectors of the economy, everything that includes airlines or energy or telecommunications, essentially. It's a lot of, or just something like three big state owned enterprises and maybe some entrepreneurship entrepreneurial firms. But a lot of that is centrally managed. But otherwise, you know, aside from that, there's a lot of regulations in China, of course, as there is anywhere else. The state has a lot of discretion to do things in the economy. If it wants to regulate this or it wants to push away that it has the ability to do so. And not everyone's able to resist. But I think this is just really sitting on top of a large and thriving entrepreneurial economy that is growing larger. As a share of China's economy, rather.

[B]

Than declining, would you say it's even more Free market than the U.S. yeah.

[A]

I think it is in terms of being ruthlessly competitive. I think if you want to appreciate, let's say, the greatness of Detroit, you shouldn't go to Detroit today, you should go to Shenzhen today because there's just so much hardware and automation and industrial firms competing against themselves. In a lot of ways, Chinese taxes are much lower than American taxes. They don't have a property tax, for example, which they've been trying to institute for a very long time, just, you know, average tax rates among normal people. It's a pretty regressive taxation system in which a lot of it is consumption taxes and that falls on the poor harder than the rich. And so in a couple of ways, I don't want to push this too far, but in a couple of ways, China is relatively free market, along with a big state sector that governs very closely what it does govern. Something like all the airlines, all the telecommunications companies are state owned. But I would say that there's a much bigger sea out there and that sea is growing and shrinking the relative share of the state sector.

[B]

You said they've been trying to implement a property tax for some time, and it sounds like that's been unsuccessful. Why? That confuses me.

[A]

Yeah, well, first it's just kind of logistically been difficult to try to assess the value of a lot of homes and then tell people that they're going to tax it. And we're all familiar with this phrase, no taxation without representation. And I think there's something about the Chinese that they understand this phrase too. What they do not have is political representation that's pretty straightforward. They cannot vote. And therefore, I think the government has decided, well, therefore we're not going to tax you all that heavily. Otherwise you might start demanding political representation of what are you doing with our. With our tax money. And I think there's. There's been. And so, like, politically, it is in the 21st century, it is really difficult to institute a new property tax. It's much easier to have done this 100 years ago whenever the US did is like one of the most unpopular things that, that really frightening a lot of homeowners.

[B]

Now, that's so fascinating to me because I think a typical Western listener might think, well, doesn't the Chinese government have the ability and the authority to do basically whatever it wants? Which brings me to the second. Like, you know, is this a misconception or is this accurate authoritarian control? The idea that there are very limited civil political freedoms in China for Chinese citizens, the idea that it's some form of a dictatorship. To what extent is this true?

[A]

Yeah, well, dictatorship is a loaded term. And what exactly does that mean? It's definitely an authoritarian system. But as we can go into with the example of the property tax, there's definitely limits on China's power. You can see this with there's been occasionally more protests, for example, of like Shanghai residents protesting a trash incinerator right in their backyard. And after some protests, the government kind of threw in the towel and said, okay, well we'll place this elsewhere. There is a tradition of some protest in China and sometimes the government does. Listen, I'll give you just one more example of like a technocratic fix which they haven't been able to make, even though they should have made it long ago. The average retirement age In China is 60 for men and 55 for women. They've raised it very slightly, but this is like way too low. Like imagine if our moms had retired by age 55. For a lot of women, this is still kind of the prime of their career, but essentially they're forced out of the labor force and they should have raised this retirement age long ago because life expectancy had already long surpassed any reasonable levels. But because such a thing is actually still kind of unpopular, they have a lot of reluctance and they're only raising it very, very incrementally and steadily. So you can definitely see all sorts of constraints on their power.

[C]

It seems that the Chinese have the ability to protest about things and that the leadership of China responds to the.

[A]

Will of the people.

[C]

But are there things that people can't protest about? Just like sensitive subjects? They're like, yes, you can totally protest about the retirement age. Please feel free to go protest that, but don't protest about, you know, something a little bit more sensitive. Is there, is there kind of like a push pulls like. Yeah, you guys can protest about that. And because we gave you that, we can't protest about this. Is there something like that?

[A]

Yeah, absolutely. You can't protest anything to do with the legitimacy of the Communist Party. Don't go out and say that the Communist Party needs to become a, you know, a multi party. It needs to accept a multi party democracy. You can't protest about like the basic nature of the Chinese system, the Chinese political system. That's absolutely not allowed.

[C]

You can't get too foundational.

[A]

No, not, not foundational. And so, you know, anything that a regulatory agency might do, like some sort of a banking regulation or some sort of a environmental regulation. Yeah, you know, knock yourself out Go, go do some protests. Can't get out of hand, it can't snowball into political demands. But there are some protests and these are kind of recorded and you see them, you see a lot of videos. Police abuse. That's protestable.

[C]

So you can protest the rules, but not the rulemakers.

[A]

Yeah, that's a good way of putting it.

[C]

Yeah. Yeah. Well, checks out. What about another misconception, copying other people's breakthroughs, mainly the United States breakthroughs like the Chinese economy or like market is at least in the west understood to be just a bunch of copycats. Right. They don't actually make true innovation, they just take other people's innovations and start iterating on it marginally to make it marginally better. Marginally better. Marginally better. And that's, that's the market that comes out of China. Is that accurate? Less accurate. How would you amend it is true.

[A]

But overstated in importance. So I think for the most part you have not seen a bunch of great fundamental scientific breakthroughs out of China that turned into big commercial products. And they have indeed. You know, early on Samsung copied Apple, Apple iPhones, and then all these Chinese companies were on Android and they copied the Samsung phones. But now I think they have been able to make, once you gradually improve bit by bit, like that ship of Theseus, you change this ship plank by plank, a while later you can get a whole new ship and they've upgraded into in some cases like a battle cruiser. Sorry, that's a bad metaphor. But you know this idea that they are kind of innovators in a lot of consumer drones, did they invent it? I think technically not. I think that was a Silicon Valley invention. But they fully own this industry now. They did not invent the solar photovoltaic cell that was invented by Bell Labs in 1954 in New Jersey. But you know, the Americans did not build that much solar, became the Germans that were more interested and now solar is like a completely Chinese product. And so this is where I think that at least we overrate the importance of this founding moment of invention. What really matters is some degree of diffusion scale up production. And that's something that the Chinese have become much better than the Americans have.

[B]

It's not so much the idea, it's more about the execution. How about this idea? Misconception or accurate? The idea that China or living in China is like being in a digital totalitarian state. So Internet is censored. You post something you're not supposed to, maybe someone deletes your account, shows up at your house, something bad could happen. Social credit system kind of controlling. There's really no freedom because everything is digitally surveilled. To what extent is that true?

[A]

Again, maybe true, but also overstated. I think it is definitely the case that the Chinese Internet is pretty extensively censored. They don't block that many websites, but they block all the useful websites. So something like Wikipedia or Facebook or Wall Street Journal, you can't access a lot of these different websites. And so they kind of have alternatives that are much more extensively censored. And I think that, you know, it. You know, maybe the. The Chinese argument would be something like, are we surveilling a lot? Yes, maybe. But, you know, after the Snowden revelations, it seems like the Americans are also surveilling a lot as well. Right. NSA has a lot of data on people. We don't really know how much data it has. After Snowden, it turned out to have been quite a lot. And you know, as in the. Like just with the US as well, as in. In the US as in China, maybe the government has the ability to figure out exactly everything that you're doing online and on your phone and everything else, but it doesn't necessarily mean that they're going to do anything with it. And so there's surveillance, but that doesn't mean that they're controlling absolutely everything.

[B]

Okay, so just getting into the kind of the nuts and bolts of something like this. So in the US I have an ex account. I feel okay right now. I know the political environment is changing rapidly as. Even as we record this, but I still feel okay tweeting something critical about the current president, like, in fact, insulting the current president and posting that publicly online.

[A]

Great. Let's have a mean tweet right now.

[B]

Okay, so maybe after this episode, just as a test, and even as I say that, I'm just. Actually, it's interesting. I'm less comfortable doing that than I was a few years ago, which maybe says something about America that we could talk about. Anyway, said that's still true. What would be the equivalent in China? Would a citizen ever be able to do that on kind of the equivalent x type platform? WeChat, something like this in China, just post something publicly against Xi or what could they expect to happen if they did that?

[A]

Yeah, almost certainly not. Would they have the ability to do something like that? That the Chinese equivalent of X Weibo, and that platform is censored very, very extensively. There is something, I think, digitally totalitarian about this, which is that for a lot of people, to maybe able to go online and register for the Internet, you need to provide your social, your national identity card, which is essentially a.

[B]

Driver'S license to register to get on the Internet, you have to have a national id. In China.

[A]

Yeah, there's some subtleties here. It's like, I think if you register for, if you have like a cable connection, you have to show who you are and that IP address might be tied to your real name. If you try to get a SIM card from a telecommunications company, your local T mobile, they will want your national ID card before they can give you a SIM card or a telephone number.

[B]

So what that means is all Internet traffic or all Internet activity is traced to individual citizens. And so an individual citizen can be accountable for what they do do in accessing this.

[A]

Yes, I, I, I think that there are gaps, I think there are holes in all sorts of ways, but that's very much the idea that they like to move towards such that you're unable to, you know, say mean things about Xi Jinping on Weibo.

[C]

And so I also wait when I sign up for Internet on my phone. So with Verizon or my Internet provider, whatever it is in New York, so Spectrum or whatever, I have to give them my id. Uh, but the difference is that that is a company that could be like served by the government, but it is not the government.

[B]

And it's a different to give them your id. Why do you have to give them your id, David?

[A]

Yeah, I'm surprised about that.

[B]

You don't have to give me your.

[C]

ID for, for my phone data.

[B]

Nah, just give me your phone name, address, credit card.

[C]

I'm pretty sure I gave rise to my id. I might be wrong about this.

[B]

I mean, opening a bank account. Yeah, it's like what I think what Dan is subscribing is similar to the, the American experience of opening a bank account where it's full kind of national id, aml, KYC type.

[C]

Okay.

[B]

That doesn't exist to my knowledge, to just get access to the Internet via an isp, maybe I'm not mistaken.

[A]

All right, yeah, I mean, I mean maybe they ask you for some sort of identity documents, but it might not be absolutely necessary. And maybe they don't give it to the, to the nypd. But in China, you know, it's really hard to say mean things. People are generally able to talk about it at the dinner table and sometimes they self censor a little bit and they speak a little bit in circles and elliptically before they, you know, mention the name. So there's Definitely like a lot of fear in China. And the, the best analogy to think about with censorship in China is that there's a sinologist, Perry Link, who came up with this metaphor of the anaconda and the chandelier. So imagine we're all at a dinner table. There's a chandelier above us. There's also an anaconda inside. And you never really know if you'll say something that makes the anaconda wake up and decide to come strangle you. So you kind of self censor and so you, you know, you don't want to wake up the anaconda. It doesn't mean that the anaconda will come after you if you say the slightest thing. But a lot of it is just self censorship that prevents people from speaking the truth.

[C]

I was getting lunch with two people from Hong Kong a while ago and we were talking about subjects similar to what we're talking about right now. And I was asking them just about the nature of living in Hong Kong and, and under the like, Chinese sphere of influence. And the person I was talking to flipped their phone upside down and moved it very far away from her as she was talking. And I was like, I just. The fact that she did that just like stuck out to me.

[A]

Yeah. And who knows if. And I. Probably no one was listening, I bet. But you know, that she feels the fear. That's very real. And that will create some sort of self censorship.

[B]

That was the anaconda in your.

[C]

That was the anaconda. The anaconda was there getting lunch with us. Yeah.

[B]

Dan, I want to ask this. There are these kind of nightmare type scenarios often painted in Western media about China, central bank, digital currency, some sort of money type address, tying that to a social credit system. And to what extent is that sort of Western extrapolation of what's going on in China, and to what extent is that true? Is there like a, you know, social credit system in China that's active and working such that if you do anything, you could be economically locked out? That there's like a whole reciprocity score system and sort of a. A database on every citizen and there's a list of the good citizens and the bad ones. You can kind of rise the ranks. Is that stuff real?

[A]

Mostly not. I think the, the social credits score is, I think, one of the most weirdly overstated themes in China.

[B]

It's kind of like a Western meme, would you say?

[A]

It was mostly a Western meme. I mean, I think there are some kernels of this in which they try to begin and they gestured at to try to implement because broadly speaking, Chinese don't have credit scores. And this is just kind of too new. People didn't have any credit in the past, so you can't generate a credit score. And so people kind of had this more ambitious idea. But you know, some people have been banned from taking the train to Beijing because they protested that their bank failed and then they need to get their deposits back. But broadly speaking, there is no functional nationwide fine toothed social credit score that is getting a lot of people ensnared. And last I checked, the central bank currency was not broadly used, but everybody has an Alipay Account or a WeChat Pay account. And so effectively, given that your whole life is already online and both of these companies are deeply, deeply enmeshed in the government, I don't think you need CBDC plus a social credit score system. If the government wants, it has the discretion to reach in and get a lot of your info.

[B]

How about this last idea on misconceptions versus accuracies? So I feel like sometimes the U.S. and the west oscillates between China's already defeated the U.S. you're like, it's over. You know, China is now the, the strongest country, sorry, the U.S. is the, you know, the diminished empire now. And China is about to collapse. Like whether it's like a, you know, demographic collapse, whether it's currency manipulation, whether it's the ghost cities and you know, the Chinese economy is based on nothing. What about this idea of China's about to collapse? How true is that versus misconception?

[A]

A misconception again, mostly for the most part. There's always a kernel of truth. Nobody predicted, almost nobody predicted the collapse of the Soviet Union when it took place basically by 1989. And then it unraveled really, really quickly. And then afterwards it seemed inevitable that such a thing was going to fall apart. But after having lived there for six years, it doesn't seem like a society that's right on the brink of completely unraveling. You know, their economy is weakening right now, but it is still growing decently. Well, the people there are creating amazing companies, they're making better and better electric vehicles, industrial robotics, all sorts of goods. They're totally dominant in solar. People there, I think are broadly, you know, for the most part, pretty supportive of the regime. They get better cafes, they get better parks, they get better bubble tea, they get better noodles, whatever it is. I think the cities function pretty well. And at least in the early days Of COVID the Chinese were able to organize a response that looked really effective for a while, let's call it two years before it all fell apart. But they had the capacity to do something like that and the US did not have the capacity to organize much of anything at all. But I definitely agree with you that this narrative on China tends to seesaw. So after, you know, being in China for six years, I left to my job as an investment research analyst and I became a fellow at the Yale Law School. And you know, that was all, you know, at the time that I moved there was like just such triumphalism from America. You know, we had MRNA and China did not. We had Chachi BT and China did not. And the war in Ukraine wasn't going well. And so it looked like autocracies broadly were failing and democracies were winning. Right now the narrative is much more complicated here in sf. I hear a lot of people in tech saying, yeah, China has already won, it's already defeated, it's already defeated the US And I think that's both narratives are overstated. And I think we should just, you know, keep in mind that both countries are going to be around. They're probably going to be both going to be around for a very long time and both have to get much better than they are in all sorts of ways.

[C]

Going back to the notion that China, this top down, centrally planned economy, is on the brink of collapse because we've seen this once before, the biggest reason why that strikes me as far fetched is no one really seems to be dissatisfied. Any Chinese expat or Chinese citizen that I run into during my travels in.

[A]

The crypto world, everyone seems pretty happy.

[C]

About the state of China. And one comment that you've made or one line that you've made, Dan, is in a, in a. The City Journal is where this quote comes from, that the Communist Party treats society not as a living organism, but as an engineered system. You know, society is a series of pipes to be optimized and engineered. Whereas I think on, in the Western way of life in the United States it's more of a living organism where you have this minimum viable rule set right, you have this constitution and so long as you follow the rules, we're just going to emergently allow this organism to blossom. And that just again goes back to like this whole way of life, perspective, difference. And so like I, I think in order to be a satisfied, check me on this, I think that in order to be an, a satisfied citizen of China, it's like you Just have to be okay with like the set of pipes that you live in. And then if those pipes work well for you, you're probably pretty happy. And without any sort of like growing crescendoing of discontent from, from the Chinese, why would they upend the system that seems to be working for them?

[A]

Yeah, well, I want to push back a little bit. I think I agree with this idea that, you know, you need to be able to fit into the pipes. And I think that, yes, the pipes are getting better and better. They're working well in all sorts of ways, but there's plenty of people who don't fit in the pipes. And so, you know, the groups that I. There's three groups of people that come to mind. There's plenty of rich people that have fled China, including, as I understand, a lot of crypto people. I mean, they moved to Singapore, they moved to Japan, US whatever. And there's a lot of creative types who've decided that censorship in China is growing. It's way too annoying. And they move to Thailand, they move to Japan, they moved to the U.S. whatever. And there's been like, you know, one of the most surprising things over the last couple of years has been that the US border was picking up a lot of Chinese nationals trying to walk across the border. They fly to Ecuador, then they walk around, walk through the Darien Gap like a lot of other folks from Central America. And the US and CBP, Customs and Border Patrol were picking up something like 30, 40,000 of these people.

[B]

And would these be like middle class Chinese citizens?

[A]

It's very hard to tell. It's a big mix of people, but mostly I would say less educated people, less creative people, but some middle class people also there. But here's where I want to ask both of you. What's going on in China's crypto community right now? I mean, there was a big crackdown, like people weren't arrested, but a lot of things did close. How do your friends who are Chinese, Chinese nationals, not necessarily Hong Kongers, how do they feel about crypto? Are they really not upset about anything?

[B]

David is maybe more well traveled, so I'll allow him to answer. But my perception is China's kind of a black box with respect to crypto. It's basically every couple of years we'll get some indication that China has cracked down on crypto. Something has happened, it's banned, and it's kind of the end of crypto in China. Miners move, exchanges shut down, and then things will relax for a while and some of that energy comes back and then there'll be another crackdown. It's certainly not the crypto capital of the world. I mean, most of the big exchanges and founders and projects have moved away from mainland China. And so crypto, you know, there's people that use and leverage crypto in China, Chinese citizens, but it's not leading the pack with respect to innovation, that's for sure. And I think that's largely because of the crackdowns. But it's also hard. There's not a lot of visibility. I don't feel like we have a lot of visibility in the way that we have visibility into other countries, you know, globally and what they're doing in crypto. What would you say, David?

[C]

Yeah, the instances that I have of talking to someone who is, you know, mainland China are very few. It's very dominantly in Hong Kong. One instance was we did a podcast with an American expat who lived in China who reported on the Chinese central bank digital currency project and gave it.

[D]

A, like a fair, like shot. I was like, yeah, this is actually.

[C]

Doing a very good job banking a lot of unbanked people in China. And so this one individual said like, hey, I really appreciated you and Ryan like not coming in with like your American Western hammer and being like, this is bad. And we, we like heard that time of day. And they appreciated that. He was a mainland Chinese person. Another mainland Chinese person I was talking to, just talking about the Chinese crypto conference. Like, I won't call it a sector because it's outlawed, but the vibe that I was getting, the story that they were telling me is that you can organize a crypto conference in China. You kind of just do it on the DL. You send out the address at the very last minute into like this network on of people on WeChat. And then people all go for the day. It's like a pop up conference, very in and out and then it shuts down, it closes down before the Chinese central government really hears wind of it. And that's understood. And they are just okay with that. And they don't, it doesn't really bother anyone, but they just kind of do it very quietly, pop it up, pop it down. And then that's, that's what the Chinese like, crypto conference like, looks like. Other, other than that, like everyone has left, right?

[A]

So everyone has left. That's not an endorsement of the regime, Right? You're saying that you don't hear people being very unsatisfied, but then they left, right? That, that sounds That's a pretty strong voting with your feet, right?

[B]

Yes.

[C]

Yes.

[B]

Dan, why do you think that? What's really interesting is China is at the forefront of a lot of different technologies. You know, we could talk about AI, we could talk about energy, we could talk about drones, we could talk about batteries, the full electric stack, let's say. Not crypto, though. Is this because crypto is sort of an open markets, capital type of technology? It's almost like a political technology of a sort. Is that the explainer to you?

[A]

Yeah, there's plenty of things that Xi Jinping really seems to dislike or people around him. And this is kind of just all rolled up in Xi Jinping thoughts. But he has expressed a lot of dissatisfaction with a couple of sectors. I'm not sure if he's ever weighed in exactly on cryptos in particular, but I think there's definitely a fear that this is kind of open and blockchain is going to make it more difficult for the state to control the money supply. And I think that is kind of just a conventional thing. In the early days, it was all used to buy trucks. And you know, the Americans had that thought, and I'm pretty sure the Chinese had that thought as well. And so they care about sovereignty. They want to be able to control absolutely everything. Again, it doesn't mean that they will control everything, but they want to have the discretion and the muscle to be able to control things if things get out of hand. But Xi actually has announced something like the financialization of the economy as well as a lot of sectors of consumer Internet. Here's where he would say something like, he has said stuff like this before, that the financial industry is not creating enough value. He has kind of a very Soviet model of what finance needs to do. There's a broad sense that's frankly shared by a lot of Americans and a lot of people around the world, that a lot of consumer tech is not terribly useful, that we're sending our best physicists from MIT to design better ads for better algorithms for consumer tech. And that's not fundamentally useful. And so this is kind of not necessarily a view that is unshared by global elites, that kids need to play fewer video games, we should have fewer smart minds building alternative currencies. And so that is just kind of an elite view of things to try to really re engineer the economy.

[C]

How does China's elite view capital markets? Or maybe specifically just like Chinese capital markets? Because as I understand it, China's capital markets are just very weak and very weak in comparison to the ratio of the actual economy, economy very strong, capital markets very weak. Is that an intentional choice? Is that a byproduct of the governance style? What's downstream of that?

[A]

Well, it is mostly policy choice. You know, they have very extensive capital controls and again this is a kind of a function of their need for discretion and sovereignty over absolutely everything. They don't. They want to be able to control foreign money flowing in as well as out. China's capital markets have been discouraged, to put it lightly, when Xi delivered these beatings on a lot of tech unicorns. And so a lot of VCs were pretty discouraged. And it's been harder for VCs to raise money from their LPs. And there is something really strange about the Chinese stock market where essentially this country has averaged, let's say 8% growth over the last 30 years. And what has the Shanghai and Shenzhen stock exchanges done? It's been essentially flat over this period. And that's because of these very strange quirks with the Chinese stock market. It doesn't mean that every stock is bad. I mean you among the stock pickers, if you pick a couple of good stocks, you can really be do well. But you know, I again, I know nothing about crypto, but you know, maybe to bring borrow an analogy here, most Chinese stocks are shitcoins. They're going to do really well here. So you know, a couple do very well. But on average, you know, a lot of things don't, don't grow very well. Very well.

[B]

Huh.

[C]

So the median person in the United States, middle class, median person makes, saves more money than they spend on a monthly basis. They take that money and they put it into the stock market. They buy an index and do something. They put in their 401k and they do that for 5, 10, 20 years, enough until they have some amount of lump sum that they put on a down payment for a house. And now they have so many in the stock market, now they have a down payment on a house. And that's the known path to wealth for the middle class in America. What is it like in China? If I'm a middle class median person, what do I do?

[A]

It's much more challenging because I think the goal is for everyone to buy their own home and buy their own property. It's just a lot of East Asians really need to feel the need out of this cultural expectation to own a home and the mortgages over there. And what's really difficult is that that could be extremely expensive to actually purchase a home relative to your income, it might take you something like 30 years of very intensive saving to get a mortgage. Sometimes the down payment could be something as high as 50% of the value of the home. And so you really up with a high down payment. In the US it's something like 20%, right? So as a share on a much higher price relative to our income, it's much more challenging in China. And so I think this is also part of where the despair among youths come in. You know, you're making, let's say two, $3,000 would be a pretty good salary in China, but then the homes cost, you know, something like $400,000. And so the economics of that could be pretty challenging. You may want to try to put your money in the stock market, but essentially it is flat for the average stock. And you know, I think that is one of these reasons that some people do feel dissatisfied. And youth unemployment right now is high. So there's plenty of things wrong with the engineering state if we, we take a look through, you know, some of the choices that people have.

[D]

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[B]

That is so strange too. With the Chinese economy booming, why more of those gains aren't reflected in the stock market? It does sound like for the average Chinese citizen really, the store of value is maybe their house or their property and they have to work up to that. Maybe to look at another thing that seems weird, which is the the portion of the US capital market share of the world, something like 70% of all US of all equities are in US capital markets, right? It's incredible relative to the size of the US economy and I almost wonder, going back to kind of your original thesis, if there are some things that are products of the lawyerly state and there are other things which are better products of the engineer and the builder state. One of the things that might be a product of the lawyerly state is property rights. For instance and maybe this is why US capital markets being kind of open and free and with kind of very clear rule of law. I mean, David alluded to this earlier. Maybe this explains why 70% of all equities are in the US. It explains perhaps why the US has global reserve currency status at least right now with the dollar and assets as well. Is that basically our, the strength of US capital markets is that sort of a. It seems very clear. It's a way where the, it's a area where the US is ahead. But is that just chiefly because it's a, it's a pure lawyerly product? I mean you don't have to build something. It's just like it's literally legal documents all the way down.

[A]

Yeah, partly. I think that, I mean, yeah, it is kind of stunning. I think 10 years ago any American investor would be stunned that US equities are 70% of the global total. That is pretty surprising. And I think it is fair to say that the rich feel comfortable to create amazing businesses in the us. They feel the protection over property rights, intellectual property rights. That is all very fair. And I think the other big superpower is that still a lot of the world's smartest people would really like to go build their companies in the US because it's much easier doing that than it is in Germany for example, or Japan, whatever. But I want to put a slight caveat here and I want to offer a provocation which is that maybe equity values is not the right way to think about a lot of what's most important in life. So let's take a look at a company like Apple. It's three and a half trillion dollar company by market cap. And compare that with Xiaomi, which is kind of another phone maker. And Xiaomi is about, last I checked, about $200 billion in market cap. So Apple is just something like 30 times bigger than Xiaomi. Apple, for it's publicly reported for over a decade, considered trying to build an ev, try to build a car. And they thought about it for a really long time and then they canceled the project and threw in the towel a couple of years ago.

[B]

Wow.

[A]

Xiaomi, which is also a phone maker, also makes like, you know, rice cookers and a lot of household consumer goods. You know, five years ago the CEO declared, we're going to be an EV maker. This is going to be the last great entrepreneurial venture of my life and I'm going to invest $10 billion into building, making Xiaomi an EV. What has happened? Well, Xiaomi did make EVs its cars are now being driven around in Beijing. It keeps raising its production targets because these cars are really good. So good that last year their first SUV set a speed record in Germany in one of these German auto race courses called Nurburgring. So this is a really challenging race course. It's nicknamed the Green Hell. It's set in the mountains of western Germany. And Xiaomi and its like very first automobile set a speed record in one of the big races in the world. And so again this is a company where Apple is something like 15 times larger than Xiaomi. But Apple could not pull off an EV and it decided to surrender and throw in the towel, but Xiaomi could. And you know, I, you know which company is better? I, I mean I kind of want to bet on the company that is able to achieve the things that it wants to achieve.

[B]

Yeah, I hear that. And I mean I hear like Apple hasn't even responded to the current thing, which is AI in a very effective way. I mean there's a lot of sleepiness over there but I guess maybe if Xiaomi was is a stronger company in a lot of ways. What explains the 15x premium that Apple has is that sort of a product of there's some kind of a American capital markets premium that our equities have and our, and our capital has in general. And there's maybe like almost a, a negative premium right now in China. Is that because we have a lawyerly society?

[A]

Yeah, well I think there's, it's both a positive premium for Apple and also a negative premium for China writ large. I mean Apple is famously capital light. It doesn't own its factories. It outsources that to Foxconn. It basically exists as a giant software and marketing hub in Cupertino, whereas Xiaomi decided to own a lot of equipment and it treats inventory seriously and it has a pretty giant workforce relative to Apple. And so I mean, I guess this is where I'm pretty skeptical of the American approach which doesn't value workers, which overvalues profit, which is, you know, about cutting prices to the bone. And Tim Cook is the one who I think came up with the phrase inventory is evil. You know, just have just in time production all the time. And so, you know, I think this is where I'm more in favor of the Chinese approach which builds redundancies, which has a slightly larger workforce than it needs and is able to, you know, get the job done.

[C]

Why is China like that again? Is that another top down decision by the political elite or what to what characteristics was that the just a property of the Chinese economy that emerged.

[A]

I think the most important thing that I would cite is that China just has a lot of industrial expertise, something I call process knowledge. So, you know, technology is not just, you know, tooling and equipment. It's not just patents and blueprints and other written instruction. A lot of it is what, you know, kind of exists in our, our heads that can't really easily be written down and is, you know, just has to be practiced and maintained for it to grow. And so the US keeps losing manufacturing workers. China has a manufacturing workforce of about 70 million people. And so, you know, if they're just, you know, building iPhones all day long and then they're building drones, they're building electric vehicle batteries too. You know, there's just a giant workforce that is solving problems, three new problems a day before breakfast, right? So they are able to just keep pumping and learning things incrementally growing, and then probably at the front edge of developing new products in the future as well. So that's on their side of the story. There's also just a giant spree of investments made by the government. So the Chinese government invests a lot more in power production, whether that's solar or wind or coal or nuclear, than the US does. They have much better traditional sorts of infrastructure writ large. They have much better ports, much better railways than the U.S. and so there's a lot more public investment there. And there's a lot more. There's a much better workforce that they can tap into. There's a much more sophisticated electronics ecosystem that they can also tap into. And so, you know, I find it strange, you know, Apple, worth three and a half trillion dollars, can't easily tap into a lot of these sort of things. Frankly, you know, is Xiaomi undervalued or Apple overvalued? You know, I would say is, you know, Apple is. Seems to be overvalued. When we compare it head to head against Xiaomi.

[B]

Do you have a thesis or like a reason why America became weak on the builder side? Because, I mean, there's an argument that it wasn't always this way. I mean, there was a time where America was not only a lawyerly society, it was also a builder society too, an engineering society. I mean, World War II, that was kind of the story of the 1940s. And then coming out of that, so something has happened and really something has changed. Part of it is the rise of China, but there's another part, like how did America become so weak? What's the explanatory force behind that, the.

[A]

1960S, that's the explanatory force behind a lot of different things. So first, I agree that the US Used to be an engineering state, built a lot of canal systems, built skyscrapers in Manhattan and Chicago. It built the transcontinental railroad, interstate highway system, and especially Manhattan and Apollo. But then I think the US did substantially overbuild. You had a lot of urban planners that rammed a lot of highways through dense urban neighborhoods, most infamously Robert Moses in New York City. And you had the Department of Agriculture spraying DDT and pesticides absolutely everywhere throughout the country. The Army Corps of Engineers dammed essentially every river in the West. And so there's a bunch of disasters that America made in terms of over construction. People fell out of love with the technocrats who were prosecuting something like the Vietnam War. And so, you know, all of these factors kind of came together for the Yale Law School to turn into, you know, students there to turn into regulators and litigators. So people, they decided that you had to restrain the government. You had to stop the government from polluting or tearing things down. And I think that right now we are still, most law students are still in that mindset that we need to use environmental law to block a lot of projects. We need to use all sorts of laws, whatever we can use to block Donald Trump. And I'm generally sympathetic to a lot of these types of arguments, but I think that has been too much. And we can't keep beating up on the problems of the 1960s when the US right now has a housing shortage, mass transit shortage, and needs to build a lot more solar and wind too.

[B]

Is this similar, Dan, to the argument that Ezra Klein and Derek Thompson put out in their book Abundance? Which is actually, it's interesting that this is coming from kind of more of the left side of the political spectrum, but it's basically the argument that we've let regulators say no to everything. And what we need is a mindset shift. What we need is an abundance agenda. I think he was mainly speaking to the Democratic Party. But are you articulating. Would you endorse that argument?

[A]

Yeah, I am a partisan for abundance. I think that the left needs to build shit. And I think that, you know, I was, I was. I spoke at the abundance conference in D.C. last month. So I'm a partisan for abundance. I think it has the answer. We don't have to become like China, but let's just build more homes and infrastructure where people really need these things.

[B]

We had A regulator of the sec, Gary Gensler. And I'm not sure if you're as familiar with his adventures in crypto, but it's very much that lawyerly. No, you can't do this. No, you can't do that. No, no, no, no. Every token is a security. You know, the 1940s act was, was perfect. US has the best capital markets. We don't need anything in crypto. He is now.

[A]

I did episodes too, you know, it was terrible.

[B]

It was terrible for crypto innovation, it was terrible for builders. It was. What ended up happening is a lot of the crypto industry started to move offshore and that is completely reversed once a new SEC regulator came in. But I think it's that type of mindset. When I read the Abundance book I was like, oh my God, this is Gary Gensler. This is exactly what he was doing. He was just a no fairy. His seemed like his whole job was to say no to everything that happened in crypto and to not like it. And he was very good at that. And I think we're doing that in a lot of areas. I mean we had, we had an up close and personal event in crypto, but it seems like we're doing that in a lot of places.

[A]

Yeah, absolutely.

[B]

There's another explainer that people in crypto use and I'm wondering if you give it any credence, right. Which is like, like they answered the question of why is America weak. There's sort of the Ray Dalio type of explanation which is like this is big cycles, this is changing world orders. What happens is every empire kind of has a, you know, crescendo, has a apex and then it has a decline. And this happens over every 80 to you know, 150 year time period. And he maps this to like long term debt cycle and that kind of thing. There's also the idea which is primarily a financial idea that's related to this, which is the Triffin dilemma basically is once you become a world reserve currency, you sort of hollow out your middle class, you hollow out your manufacturing base. And so some people would say, dan. Yeah, the 1960s and regulators saying no in lawyerly society. I agree with some of that. But the big driving factor is actually like the US became a financial center world reserve currency and our, our export became dollars instead of actually goods. And then there's another related kind of cultural explanation which is just like, you know, the whole hard times create strong men, strong men create good times, you know, et cetera, et cetera. Right. To what extent do you Think these are reasons for why the US has been weak relative to China. And I say weak relative to China because it's actually been strong compared to some other western democracies, I would say, but like weak relative to China.

[A]

Yeah, great. A lot of great questions there. First, you know who Ray Dalio sounds like. All the Marxists in Beijing, you know, all these like world historical grand cycles there and you can't resist these giant waves of history. That's like, that's kind of how Marxists speak. I find that kind of hilarious.

[B]

Do you think they're right though? Do you think there's an element of this is true or do you think it's fiction?

[A]

What I would acknowledge is more of your other point, which is that, you know, as the US gets richer, it's inevitable that people feel the need to defend their property rights. I think that, you know, as American society matures, there's this manceral stuff of, you know, interest groups really starting to take shape and it becomes much more difficult to do things. And the US is a relatively rich, expensive country and it is just not going to be competitive on China on something like solar panels, to say nothing of SOCs. Right. So I mean, I think all of that is real and valid. But for me what I find important is to think about technology as essentially a political project as well as an aesthetic project that, you know, like why doesn't the US have a little bit more self confidence in believing that we're the richest country in the world, we should be producing some of the most, most high end goods and we should be exporting some more of these sort of things. I understand there are some restraints here, but you know, manufacturing as a share of American GDP is something like 11% of GDP. For Germany and Japan it's something closer to 20%. And you know, I think that, you know, the US should look a little bit more like Germany and Japan. I think that would be quite a lot better. And so, you know, de. Industrializing is in part a cultural choice, it is in part a political choice. And I think what I want is for people to just be excited about manufacturing again. And yes, even though the US has all of these pretty good advantages with let's say, AI, let's say a lot of biotech, like a lot of its apex manufacturers have been weak relative to frankly the Europeans or the Japanese as well. So intel has really fallen on hard times, Boeing has really fallen on hard times, Detroit has been having a hard time for decades, and even Tesla seems to be falling on a Hard time. And so I wish that there was more of an ethic to say we are a rich and powerful country and the rest of the world ought to feel that there are products here worth buying.

[C]

Would you agree with a broad strokes idea that America has this superpower which is the capital markets. You can go get a loan, you can go finance things, you can go to the venture capital market, you can get investments. And it's a shame that we don't have the manufacturing arm of the United States to really point that very strong capital markets towards. We have all this latent power in our capital markets and we're kind of just doing an over financialization thing to really unlock growth inside of America. And it's a shame that we can't connect it to manufacturing on the Chinese side. Plenty of manufacturing skills, labor expertise, a politically inclined, an engineering inclined political elite. So all of the industrial industry that you need in order to do that. Weak capital markets though, doesn't really have the strong capital markets to be able to really invest in these things. Or I'm assuming here because again, I don't know but like you, I see just this like inversion here where China.

[D]

China's got the engineering, doesn't have the.

[C]

Capital, does have the capital markets, whereas America's got the capital markets, doesn't have the engineering. I mean like, are we just, can't we just like come together here and like put these puzzle pieces together? Like what's going on here?

[A]

Yeah, I don't know, David. What are you, a commie? It's like what sort of hand hugger are you to try to make everyone come together? I mean, yeah, I mean there's all of these like wonderful inversions between the two countries where like a housing crisis in America means that house prices are soaring and they're unaffordable. Housing crisis in China means that they've overbuilt and you know, confidence is weak and it's like collapsing in value. And so, you know, there's all sorts of ways in which I feel like if the Chinese could just build a lot more homes in America, that would be positive. You know, I sign on to that. If the Chinese could build more like solar and EV plants here, that's good and that's positive. But you know, I spend quite a bit of time in Washington D.C. and my, my friends in D.C. will not, well, not let me get away with, you know, answering the, the panda hugging unchallenged, which is that, you know, folks in D.C. feel like China is a security threat because they want to dominate their side of the Pacific. They feel that China is an economic threat because they don't want more American manufacturing jobs to disappear. Where the semiconductor industry goes the way of the, you know, solar industry, which entirely is a Chinese product. They don't like a lot of these human rights issues that are facing a lot of Chinese. So I think that we should figure out some terms of coexistence. But the frictions up at the top political levels, I think are absolutely real and they have to be resolved.

[B]

Dan, to what extent do you think China is an actual security threat to the us?

[A]

Beijing absolutely wants the island nation of Taiwan. That is kind of a direct stated aim. And there's. They, they would absolutely like to have it back, you know, by hook or by crook at some point. You know, they, they, I don't think they're in a hurry to do something like that. And they also want to dominate the Near Pacific. I know all these countries in the East Asian Pacific. And so, you know, some of these are American protectorates and treaty allies like the Philippines or Japan or South Korea. And you know, the US doesn't want allies to get in trouble. I don't see any scenario in which the Chinese will ever want to like, invade mainland America or even Hawaii. And I don't think that American troops will ever want to occupy, you know, coastal China either. But there are, you know, a couple of these flashpoints out there. There's a lot of cyber attacks between the two sides. And so, you know, there's plenty of grievances if you, if we want to poke at them in Washington D.C. dan.

[B]

I want to go back to the building for a second and what America can do to get its mojo back on, on that score and maybe just to talk about the, the scorecard, because I think a lot of listeners are not aware in, at the level that China is ahead in some of these areas. So China's manufacturing capacity versus the US as 2x electricity generation, 2x US gigawatt output, auto automobile production. This is skewed towards EVs. It's now 3x the US a steel output, 11x cement production, 20x shipbuilding capacity, 230x batteries, China's 80% of global supply. EV production, about 75% of global supply. Drones, 90% of global production. And I remind folks how useful drones are from a military perspective. I could go on. We've talked about solar in other areas. People look at those stats or they hear those stats and a certain amount of fatalism I think sets in, which is like the US can never catch China at this point in time. Like maybe they've been sleeping on China's growing manufacturing ability and not investing at home for so long that it now feels impossible to catch China. How can us actually reverse course on that? Is there are a set of policy prescriptions that you have around this.

[A]

Yeah, I was pretty deliberate in not writing a policy book. I didn't want to say, you know, we need to change this law or that regulation. I think that a lot of what I want to do is to actually introduce some of these facts. I mean, I write pretty extensively in my book about how much China is building, how they are winning crucial industries of the future. I moved to China in 2017 in part to study one of their major industrial plans, namely Made in China 2025, which they announced in 2015. 10 major industries that they really want to dominate in the future. Something that includes semiconductors and clean technology and maritime technologies and even agricultural technologies. They've really listed a lot of these things there. And I would say that a lot of what I've been writing about is that they have been successful in all sorts of ways and reaching some degree of much stronger capability in doing these sort of things really, really well. And why they have been able to do that, starting with some help from the government. Sometimes the government is hurting them, but mostly this is about process knowledge and the industrial expertise and people just solving their problems on a day to day. And what I would want is for the US to have a little bit of an ethic itself of doing some of these sort of things, you know, to really value technology as important, to really try to pursue these sort of things, to recognize that manufacturing in particular is important and that, you know, if something like force technology transfer, which the US complains about with China, if it worked for the Chinese, why don't we do it to that now? Why don't we get a lot of Chinese EV battery makers over to the US and take their technology and make them train in the way that Apple trained a lot of Chinese workers. And so I think these are the sort of questions that we should be asking. Why are they successful? Is there anything that the US should do to study and copy them perhaps? Or should we really just give up our hands and be fatalist and say there's absolutely nothing to be done? And I don't think that we should quite do that.

[B]

Some of this might require rethinking assumptions that we've had in the past. I think industrial policy, government, you know, federal level industrial policy has had Sort of a, I guess a. It's been a dirty word in the US before. Private markets always do it better and certainly there's a time and the place. But our private markets and tech companies have given us basically consumer social media. Right. They have not given us 90% of worldwide drone capacity. Do you think this will require a shift in some of these core assumptions, say around industrial policy like China is able to call something that they want to be good at and then within five years be really good at that thing through some central direction of funds. Now there is market based competition at the bottom layer of this, so you might have dozens of companies competing, but they have wide sweeping industrial policy. The US doesn't do that. Should we.

[A]

I think I'm in favor of something like an industrial policy with American characteristics and just, you know, understand what it is that America would be able to do very well and try to fund that and try to produce better technologies and try to produce better workforces. Because I think it is the, you know, a shame that, you know, we threw a lot of capital at Silicon Valley, we got a lot of social media which is. Doesn't seem to be making people happy. You know, we have a lot of these ad algorithms. Some would say that cryptocurrencies is not as super useful part of the tech stack as well. And I think that.

[B]

Not us though, Dan, to be clear.

[A]

Not us to be clear. Yes. But I think there should be some effort at thinking through like how do we get smart people interested in chips and aviation and chemistry again because they seem like pretty fundamental technologies and sectors that has been neglected in favor of the social media.

[B]

Well, speaking of the. Some of the strengths that America has traditionally had, you mentioned sort of people leaving China and kind of the high net worth class and coming to the U.S. traditionally this has been a superpower of the U.S. being sort of a global talent hub. Right. The U.S. model of kind of this, this melting pot of talent where if we can attract the top 1% of capable people around the world and they want to come to America and build in America, then we all benefit. Right. And this is historically how our talent class has really been built. To what extent is that going to be a superpower for us moving forward?

[A]

It's.

[B]

It seems like China does not certainly have that right. They're mainly leveraging the talent of Chinese native born citizen. They don't have an immigration. Is this something that the US can capitalize on more and a strength we can double down on?

[A]

Well, I hope so. I mean I am a Canadian citizen. I was attracted to the US Just as many Canadians have been. But I think that to say that we should be more attracted to immigrants seems pretty out of sync with Trump administration's policies. And so they are deporting a lot of folks. They are humiliating a lot of South Korean engineers who are building a factory in Georgia and deporting them back home in chains. And so I think a lot of that is not very positive. And I think that it is still the case that a lot of the world's smartest people, including many of the smartest Chinese, really want to move to America. And I think, you know, this is actually pretty pertinent because when it comes to something like AI, a lot of the top researchers in Silicon Valley are of Chinese nationality. They went to Chinese schools, and they were hired at Meta or Xai or whatever else. And a lot of these people are, you know, not necessarily very impressed with San Francisco. I think that could be one way to put it in which they feel like, you know, their standard of life in Shanghai may well be much higher than their standard of life in San Francisco, even if Chinese companies aren't able to match Meta's salary packages. And they could move because they feel like their quality of life would be better. They don't like Trump's rhetoric and the way that Trump is messing up the immigration system, maybe because they just miss the noodles or they miss their mom. You know, that's totally valid of a reason to move. So, you know, I think what the US should do is to probably keep the high end talent, but that doesn't seem like that's where the administration's mindset really is.

[B]

I think part of the fear that the US has had on things like industrial policy or maybe to a lesser extent like immigration, and really doubling down on this whole builder thing is that if you start going down the path of kind of centralized control, then you inevitably become more totalitarian. Right. And this might also explain all the kind of regulatory naysayers and lawyers who are just constantly saying no to things. You want to give the people, the community, the option to have a vetotalkracy, right? The ability to say no to things. You don't want to impinge your will on the people. Is there a way to build an engineering builder society yet preserve the political freedoms that the US has historically enjoyed, or do you have to sacrifice political freedoms to get the engineering stuff?

[A]

I don't think you have to sacrifice political freedoms in a big extent. I think about other countries like, like, let's say Japan Or Spain. You know, both Japan and Spain have built a lot more homes for people. They built a lot of mass transit. Both of them have excellent, you know, high speed rail networks. They have much cheaper subway stations built out and they're not known for trampling all over the rights of the people. Right. So I think, you know, we don't need to get to China. China is definitely too far in all sorts of ways. But let's at least get to Spain, right? Spain is working pretty well. You know, Denmark is building more subway stations. Again, I think there has to be a recognition that people need infrastructure. And it's impossible to build infrastructure without upsetting someone through either the construction or the noise or the property rights or whatever. But over the longer run, people should be able to believe that better infrastructure is coming, it is on net, making everyone better off. And it is positive. And so I think that is an ethic that exists in China that I want that I wish that, frankly, more Californians and more New Yorkers could be less NIMBY and just accept a physically dynamic society. And that will feel pretty exciting as well.

[B]

So much of this episode has been talking about the misconceptions Americans and Western listeners have about China. What are some of the misconceptions that, that China has about the US I.

[A]

Think there is kind of this conception, which I would say is a misconception, that democracies are necessarily rowdy and that they're necessarily weak, that they are eventually going to tear each other apart. I think that is a classic line that all authoritarians have about democracy. And at various points this looks more true than others. But still, I think that what is important is that the US looks weak in a couple of pretty crucial ways right now. It is frankly a little bit rowdy. There's a worrying level of political violence and there is all sorts of problems with the US But I think that democracies have been strong and democracies can be strong. But the first way to really demonstrate is to have the proof in the pudding, such that when you land at JFK in New York or at, you know, in San Francisco, it doesn't really feel like, you know, you're going through this awful, decrepit infrastructure to get into town, which is kind of empty, at least in San Francisco at night anyway. And so I think there, there has to be like a demonstration that the US can, you know, produce, manufacture things and make things that people need.

[B]

I think we've shown throughout this episode that there are a lot of ways that Americans underestimate China. Is that true on the other side too? Do you think China underestimates America?

[A]

I think both are true and both are dangerous. And that it is really important for us to understand that they are pretty innovative in all sorts of ways, that they are winning in all sorts of ways. But also that America has a lot of strengths and needs to do much better than it currently is doing.

[B]

Dan, this has been a pleasure last question for you. And I want you to maybe end by painting a happy picture for the world for US and China, these two rivals over the next 50 years. What's the happy case scenario where the US is the best that it can be and China is the best that it could be as well?

[A]

I would like for the US to be 20% more engineering. I think that's how you get a few more homes constructed and wind turbines and solar and mass transit as well. And to recover some of this engineering muscle that has lacked for quite a.

[B]

While, just 20% and that's not bad.

[C]

Seems low.

[A]

20%, that's good enough. I'll take it.

[B]

We're close, right? I guess we still have that DNA here. We just need to polish it.

[A]

We just need to work out and work out these muscles and get stronger again. And I want China to be 50% more lawyerly because I feel like a lot of Chinese are really creative and their creative impulses have been strangled by the state. And I really wish that individual rights in China could be respected and I wish that the, the Chinese government could frankly leave its people alone for a little bit rather than treating them as just another social engineering exercise.

[C]

So if you think that the United States is 20% off the mark off of what their optimum is, and then China is 50% of off of their mark, does that mean you think the United States has a better shot at continuing to be the dominant superpower in the future?

[A]

Maybe. What I'll say is that I think that this is kind of a dynamic process and it's not going to be stable because the more ahead that one country is, the more that it's going to grow overconfident, overplay its hand, and make a lot of mistakes. And we saw this in China when they smashed a lot of tech companies in 2020, when Xi Jinping felt like he was on the top of the world because he got the pandemic under control. And the more that a country is behind, the more that it will hustle to really try to catch up and to try to fix its mistakes. And so I think that this is going to be like a long rolling race for a really long time. It's not just one country with all the advantages, because these things change moment to moment throughout the dynamic process.

[B]

There's always that succession thing too, isn't there, Dan? Like what happens after Xi? And you can sort of get good emperors of China and you can get very bad emperors of China. And a lot hinges on that, doesn't it?

[A]

Yeah, a lot of good emperors produce bad emperors, you know, so, you know, we gotta. It is cyclical. I mean, here's where I agree with the Marxist, Ray Dalio.

[B]

Dan Wang. Thank you so much for joining us, guys. The book is Breakneck China's Quest to Engineer the Future. Thank you so much. It's been a pleasure.

[A]

It's been a lot of fun. Thanks, guys.

[B]

Guys, gotta let you know, even though we didn't talk about it too much, it was more geopolitics. Crypto is risky. None of this has been financial advice. You could lose what you put in. But we're headed west. In this case, we're headed a little bit east too. This is the frontier. It's not for everyone. But we're glad you're with us on the Bakeless journey. Thanks a lot.