B (2:57)

Well, I'd say it's a combination of two things. Extraordinary scaling. We've never seen two companies, in the case of OpenAI, scale users and scale revenue as fast as they are. But definitely, you're absolutely right. The private markets are there to meet them. And we're seeing the depth and the breadth of capital and investment in the private markets, I think unlike anything we've ever seen. But we're going to save that for.

A (3:20)

Yeah, save it for the end. Let's save it.

B (3:22)

We're going to save it. Let's save that for another day. We're going to do something a little different today. You know, one topic that I think we've hit on time and time again, but we're gonna really just try to dedicate the show to it today, and that's China. You know, you just got back from China. It's one of the hottest, in many ways, most consequential and also most controversial debates, I think, in Silicon Valley and in Washington. You know, on the one hand you have, I think, national security, economic hawks, you know, who, who are in this camp that we should decouple. It's a little bit more Cold War 2.0, a great power struggle. This is the Mearsheimer perspective. You know, maybe in the middle you have, you know, tech pragmatists, I guess I, I might call them, you know, like Jensen Huang or Tim Cook. I'd probably put myself in this camp who thinks we, we have to compete, we have to re onshore industry. You probably should have some tariffs in order to achieve that. But you, you definitely can't decouple or ignore or, or antagonize. And then maybe on the other end you have kind of the globalists, I don't know, Jeff Sachs, Jeffrey Sachs is probably in this camp. It's free trade, open science, collaboration. And you know, there's, this is of tremendous consequence to issues around tariffs and trade, issues around military issues, around AI. And there's this new book out by Dan Wang that I want to talk about, you know, where, where he really takes on the differences between the two countries. But why don't we, with, you know, this trip that you recently took, you know, you, you just got back from China. Why did, why did you go? You know, and frankly, especially given all the, you know, blowback you've gotten personally, benchmarks gotten with respect to China maybe for having too soft a view on China, give me your inspiration for wanting to go and Spend as much time as you did studying China.

A (5:15)

Yeah, so I've, I've probably been four or five times before this trip, but I hadn't been since COVID And I've been reading, you know, about everyone that's been going. We had talked about Thomas Friedman's comments from his last trip. And you hear about all the things that are different. You know, personally, my, My daughter's an Asian Studies major, so she went on the trip with, with myself and my wife. And so, you know, with her studying that topic, this is. I thought it'd be a great chance for her to see things too much younger than us, but I wanted her to go around. And the fact that she speaks Mandarin was helpful on, on the trip as well. But you, you know, you just said something, right? You said this is probably the most consequential, you know, other nation when it comes to thinking about America or thinking about our stock markets or thinking about how technology companies are evolving. And so I just wanted to learn, like, like, like why wouldn't you want to know more? I don't understand how you, if it is the most consequential relationship for a country, why you'd want to know less. Right. And so I've always enjoyed going over there. I've always enjoyed learning things that I don't know. And I really wanted to see it up close and personal. One thing that was super helpful was Dan Wang, who you just mentioned, gave me an early copy of his book. So I read it on the way.

B (6:47)

Tell us, tell us a little bit. Who is Dan Wang?

A (6:50)

So it's a gentleman that lived over there. He lived over there during COVID You know, he's a. He's a policy analyst, and he recently moved back to the US Is that the Hoover Institute?

B (7:03)

Been studying China for a long time. Looks at it through the lens of technology and innovation.

A (7:07)

And the book's titled Breakneck, and it's really talking about some of the acceleration that we've seen in, in building, you know, inside of China. But, but it. I would suggest the two things about the book that are really interesting. One, he kind of uses as a mirror back on the US So it's really about both countries. It's not just about China. And then two, he's balanced. Like, he talks about the pros, you know, and the cons of what have happened over there. He starts with, with this chapter that was recently republished in the Atlantic, where he highlights that the vast majority of the politburo are former engineers. So this is the, the ruling party within China and that the vast majority of the people in Washington D.C. are former lawyers. And you know, the, he uses that lens to say this is why they're great at building things and maybe why they're not so great at social things. I think he gives the edge to having the lawyers, to protecting free speech, personal rights. He did not enjoy the lockdown in Shanghai which was fairly abrupt. He's very negative on the one child policy. And for those people that don't know, the, the Chinese government's now trying to encourage people to have three children. Not successfully, but that's the new program. So they've completely flipped from where they were. But, but it's a fascinating read. It's very personal read. You can tell that you know his life journey, his parents were born there and left, you know, and went Canada and that's how he grew up in the west. And then he went back and so he has, it's, I think it's a really interesting lens but it's very, very current. One of the things he really dives into and this is something that, that people that I talk to that know China have known this for some time, but I don't think the general people understand this. So one of the things that's led to the vast build out. So we've read about high speed trains, we've read, read about overnight cities, we've read about their number of companies in the solar space, in the EV space. One of the reasons that happens is the provincial leaders compete with each other. So the provinces are very competitive with one another. Not in the same way the states are. Really one of the reasons this is true is if you run a province and do well, you put yourself in really good standings to move up in the federal government.

B (9:36)

But wouldn't you say that's, I mean that seems to me like Gavin Newsom competing, you know, with Desantis in Florida on, you know, who is more business friendly, who is tougher on immigration. It seems a little bit the same way.

A (9:48)

I think it's a little bit the same way. But the difference is that because there's a singular government that's going to make choices like, like in the US if you do well as a governor, you might get elected.

B (10:00)

Got it.

A (10:00)

But in this case it's more like divisions of a company and if you run one well, you might get the CEO job. And so that competition, you know, leads to overbuild in certain cases. So there's several ghost cities that are buildings that are empty, you know, where they've built too fast, are now facing problems even though they're the world leader in EVs and the world leader in solar panels, where some of these companies need to go bankrupt and a province may not want them to because of employment issues. Right. And so those are, those are flip, you know, two sides of a coin. You get one benefit, you get hyper competition. We talked about the thousand flowers bloom. So the, the, the federal government publishes every five years. This, this mandate of the things, these are the things that are important and you need to go work on. And then the provinces, you know, go, go at it like they go right against those initiatives. And that's, that's how they've got, taken a lead in those things we mentioned. And energy production, right. You wonder we talk about all the number of nuclear plants that they have, new nuclear starts, solar farms, wind farms.

B (11:15)

I want to dig into that Bill. I think there's this general view that China's good at building things, building iPhones, but perhaps not at innovating. Right. And then, you know, Jensen Huang reminded US recently that 50% of the world's AI researchers are in China and they're indeed innovating and not copying, you know, on the ground. When you look at the things happening in auto, when you look at the things happening in AI, when you look at that things happening in space or energy, et cetera. How would you compare contrast as a venture capitalist, the level of rigor and innovation and excitement, enthusiasm and investment, I guess, going on against these, you know, critical future industries?

A (12:00)

Well, if you're over there, you, you know that the ByteDance founder is just remarkably unique. You know, Lejeune at Xiaomi is remarkably unique. And if you spend time studying those people, I just, I don't know how you would possibly think that they can't innovate. I mean, TikTok was there first, right? And then it came here and then Reels copied TikTok. One thing that doesn't seem like innovation, but I was surprised by Pop mart is a 40, $50 billion public company, which is a children's toy company that started in China and is everywhere over there. But like just the idea that, that there is no innovation. You know, one, one of my favorite meetings and I promised I would protect the innocent, so I'm not going to share who it was with. But over lunch, this individual told me, you know, every founder and every VC in China studies the west at a nauseating level. So they listen to all the podcasts, they read everything they possibly can, they study any speech, they look at the financials. And he said the west doesn't do that of China. And you know, maybe this goes back to my main motivation for going over there to learn, but I thought that was a very provocative statement that he made, you know, and maybe we should be, maybe we should be studying the best and the brightest over there.

B (13:32)

Well, let's, let's dive into, you know, maybe one industry, I guess, as a lens. Yeah, I know you spent a bunch of time in the auto industry. Yeah, right. Looking at all of these new entrants. And I help us understand the innovation that's happening. There are two dimensions. One on just electric vehicles, number two on maybe autonomy. And then number three, I'm just curious how Tesla is able to compete so effectively in a market where you have this hyper competition for electric vehicles.

A (14:04)

Yeah, so I had a number of auto experiences when I was over there. First of all, I was invited to visit byd. This is my, they gave me a nice coat. I, I met with Stella Lee, who is their number one executive, I think facing outside of China. She runs all their Europe initiatives. For those people that don't know, BYD is the largest EV manufacturer in the world at about 4 million vehicles. They started in batteries. They, they, you know, they compete with Foxconn to build mobile phones. They bought Jabil Circuit. You remember that old company? I do. And they make lots of things. They make buses and subways and all kinds of different things. But they got into cars over, I don't know, about five to 10 years ago. They have a number of models. They gave me this one. This is, you know, a very kind of high end sports car. In fact, I met a public company CEO that was proudly showing me this was his favorite car that he drives around. They make an SUV you can drive into the water. I don't know exactly why you'd want to do that, but we rode it into the water, drove around in the water and drove out. They have cars at 10 to 15 grand price point. On the entry side, they've hired a European designer. It's just how they're building stuff like this on the higher end. And they're very aggressive from a cost perspective. I think BYD more than anyone on the cost side, it's not preventing them from building higher end cars as well. So that's byd. I also had a chance to visit Xiaomi. They also gave me a car. The, the Xiaomi is a super interesting story if people don't know. So I, I was, I was fortunate enough to meet Lei jun back in 03 04. But about 13, 10 to 13 years ago, he started a phone company. And that's what Xiaomi is. And that company's now third, I think around the globe in handsets sold heavy in Europe, heavy in South America, not just China. And three to four years ago, I think around 2021, he decided to build a car. And it was about the same time Apple said they were going to build a car. And mind you, this guy was back in 03, ran an E commerce company called Joyo. Like he's, he wasn't. There's no reason he should be able to build a phone and then build a car.

B (16:42)

So what do you attribute that to, Bill? Like why, you know, when you see that, you know, again, going back to Dan Wang's book, he's like, this is an engineering culture that has built these technological ecosystems that gives rise to a higher velocity of innovation, you know, than we see in the United States. That Dan would argue is bogged down by, you know, regulatory capture and lawyers, etc. Why do you think, you know, Xiaomi is so successful?

A (17:10)

And by the way, let me just share with you some numbers. So, so they're making a thousand of these a day. They just came out with a kind of a kind.

B (17:19)

A thousand cars a day.

A (17:21)

Yeah, in, in this, in the factory that I went to, they're sold out. They have like a 30 to 40 week backlog. You have to pay five grand to get on the waiting list. The factory, this is an interesting data point. The factory makes a thousand cars a day with 2,000 employees. It was highly automated, like really highly automated. I imagine that they plan to improve that number over the next five years. Let's say they took it to a thousand employees for a thousand cars that'd be employed per car per day. That number is like at 6 in the US and that's super interesting for a number of things. Like if you want to bring the jobs back there, by the time you get the jobs back, there may not be any jobs like, like at one, because of automation. The entire global, you know, potential for car manufacturing in 5 or 10 years from now could be like 400k total. And so, you know, we need, we just need to be really thoughtful about those things. But back to Leun, he gave a talk in 2024. We're talking about maybe people should be watching and learning in both directions that I would encourage people to watch. It's on YouTube. It's his State of the Union from 2024 and he spends about an hour talking about his approach to building a car and it sounded like so ridiculously, I don't like, like you ask about entrepreneurial. He, he, he decided that he hadn't been driving a car for 10 years because he had had a driver. So he immediately switched seats with his driver. And then he, he went through the parking lot at his company and if there was ever a car he had not driven, he'd leave a note on it and ask to borrow it. And then he would have the, the owner of the car tell him what they liked and didn't like. So he claimed he drove 170 cars that way. And then he also like BYD, they hired a European designer that came in and helped him out. But for an entrepreneur who had never been in the car business to build a factory in a three year window and look the same thing was true. Our friend Omid built a factory in Texas, you know, under 40, like just spectacular that, that these entrepreneurs are capable of doing these things. But it just kind of blows my mind like when I was being driven in this golf cart through this factory, just thinking that this person wasn't in the business three or four years ago. And for, for people that don't know, I'd encourage you to go online. And, and so the CEO of Ford, Farley, he went over there and I think had the exact same tour I did. And he insisted they ship him one back to Chicago. And he's been driving it around and he's made some pretty extreme statements after having experienced John me this car sells for about 40k. But he said it's the most humbling thing I've ever seen. And he says even beyond that, their cost, their quality of vehicles is far superior to what I see in the West. We are in a global competition with China. And it's not just evs. If we do not, if we lose this, we do not have a future at Ford. You know that, that's Farley at Ford. You know, and I, by the way, I would take a pause after mentioning that to the people that are gonna accuse, just because I went over there to learn, accused me of somehow being like an agent for the ccp. Is that also true of the CEO of Ford? You know, like, why is he saying these things? Like we're just witnessing what's happening on the ground.

B (21:00)

One of my observations is, and you hear this from Elon, you hear this from Jensen Huang, you hear this from Tim Cook, you hear it from Farley. It's extreme respect for the level of innovation, for the focus for the engineering led culture that exists in China. And that to me, one of the reasons I wanted to do this pod on China is because I think it's as much a reflection about what the United States needs to do to re engineer its own society. It's not enough to say that we want to re onshore critical manufacturing. It really is about, you know, this movement around American exceptionalism. America builds. It's about making the reforms necessary, whether it's regulatory capture, whether it's the, you know, tort reform, legal reform required to frankly allow, you know, this level of innovation and recognize that we're in this global competition, you know, and there are two ways in which you can, you can approach this bill. One is we can build barriers, we can try to decouple and we can pretend the rest of the world somehow won't buy China's goods. You know, but if you look at it today, the US only represents about 14% of China's exports. The US only represents about 3% of China's GDP.

A (22:22)

Yep.

B (22:22)

Right. So like, we're just not that important to China. I, I don't want to understate, like, you know, we're still very significant. But China has found a market in Europe, they found a market in Africa, they found a market in South America. Right. And it seems to me that the harder pill for the US to swallow, and this is where I think that, you know, I'm in the camp of, of those in the middle who say we need to engage, we need to compete. There is a competition, we want to win the competition. But this is about focusing on us and winning and running a faster race. We have a lot of reforms. I think a lot are occurring now. I think we're doing the type of things that we need to be doing in order to get more globally competitive. There are industries that are critical to our national security. You know, things like rare earth magnets, things like, you know, steel productions, things like pharmaceuticals, where I think it is appropriate to have both an industrial policy and a tariff policy that's going to provide the incentives to those industries. But it's, you know, to me, you know, the reflection on what I hear you saying about China when I read Dan's book is that China is putting the accelerator to the floor in terms of innovation. And it's in every single industry. It's powered by, you know, the, this provincial competition you talked about. It's powered by people who are just, you know, naturally entrepreneurial and hardworking. And there's no escaping that. And there's no putting that Genie back in the box would you know, what are your thoughts on that?

A (24:03)

Yeah, no, I think it's exactly right. I mean BYD has a big presence in Hungary and they have a fact they're building a factory in or already have one in Mexico. And why, if you're Mexico would you not buy the 10 to 20 grand EV? Why would you buy the 50 grand one from America? It just doesn't make any sense, right. Like you're if for any country around the world and I could reflect this on the US as well. If you're not going to buy, you know, domestically, you, you should certainly buy from the low cost producer. Right. It goes back to, to comparative advantage. Right. If you, if you can't produce a globally competitive product and you close your import border, your people are forced to buy a product that is overpriced and, and, and not. And, and so from a, from a standard of living perspective, they're worse off than they would be if you had opened the import door. And so I don't, you know, I'll give you another example of this. So this is the, the byd, this is the Apollo competitor to Waymo. So we, we've, we've seen the Waymos around Austin and San Francisco. We've written in them. This is, I've written in this. Now it's a little bigger, I think a little roomier than, than, than the Jaguar for sure. It's more of an suv. But this is on the streets, you know and Apollo is kind of interesting. It's inside of Baidu, which is a search engine company. While people are simultaneous, while people are saying that, that the Waymos should be worth 170 billion inside of, of Google you can buy shares of Baidu for zero enterprise value. It's a 30 billion market cap. 30 billion in cash on the books. And from a global perspective, I don't know why, if this is 30k why you'd want to deploy Waymos which people say are over 150k partially due to the MIMS solid state LIDAR advantage that China has, which we've talked about previously. So yeah, I think rest of world is a really interesting thing to think about, you know, when you compare the two countries. Because I don't think that I, I personally and I, I don't have a ton of data on this, but I would, I personally don't think all the other countries in the world share the same level of hawkishness that at least part of the members of our national government have. And so I don't think they're going to be as afraid of their technologies.

B (26:39)

Let's think about this in the context of, you know, what you've seen. If you were giving advice to Trump on export controls, for example, Bill, you know, whether it's on, you know, AI chips or other things, you know, would you be, you know, what would your advice be?

A (27:04)

Well, I mean, I think you hit on some of it around the red tape and, you know, there's a couple different things in certain industries where we're really behind. I would be very open minded to JVs coming towards us. You know, for the past 50 years, you know, European car manufacturers, US car manufacturers, they opened facilities in China. Some of them were forced to be 49% owned, 51% owned. I'd be very open to that kind of thing. There was some positive news out this past week following Trump's engagement with Korea around nuclear, which we have talked about before. Korea can build a nuclear plant for 1/4 the price that we can. Why don't you invite them to come help us build a few in the US and see what we can learn? And I wonder if we should allow for. There's going to be. There are so many EV companies I didn't even mention, you know, NIO and Zeekr and some of these other things. They're all innovating in different ways. But some of those are going to have financial trouble. Neil's public, you can see that, that the stock's not doing all that well. But would we let a Ford or a GM buy one of those companies? Right. Maybe we should. I don't know if the China government would let them. Would we let one of those companies open a JV with Ford or GM in the US I think we should. If we'd learned from it. And you could say the same thing about solar or any of these technologies where they have a lead, solar, nuclear. So I would be open minded to those types of things. I would be really big on trying to get regulation out of the way and recognizing that an autocratic country that has specific goals can move so much faster in any industry than you ever could in the US because we've created so many people whose jobs that are to block things. And we're seeing, I think we're seeing that type of behavior in certain states, which is why TSMC is in Arizona, which is why Tesla's in Texas. I would give Governor Shapiro a lot of credit for reopening Three Mile island and what he did with i95. Like, like all those things are signs of recognizing that we've built mud, you know, in, in our system that prevents building. And how do you, how do you get, how do you start to remove that and move in the opposite direction?

B (29:29)

Specifically, you know, thinking about the tariff. So, you know, I think that the president tweeted yesterday morning if, you know, if we don't get. It was appearing that we're on a glide path and making a lot of progress with China, we may very well be. I think he tweeted yesterday morning that if we don't get rare earth magnets from China, he could raise the tariff rate to 200%. There was some talk that he was going to visit China in the first week of September. So that's, you know, right around the corner. I said on a couple pods ago, I thought that, you know, the way to understand this president is that he's a self described deal junkie. He's a pragmatist, he's not an ideologue. It seems to me that when he's talking with Jensen Huang and others, he falls in that kind of pragmatic centrist category. He certainly wants to rebuild stuff in the United States, but at the same time it appears to me he wants to get a big deal done on China. Where do you come down again if you were advisor on the tariff side of things, Bill, do you think he's going to get a big deal done with China? Do you think that's the right thing to do? And how do you think that influences some of the building that you're talking about?

A (30:41)

Okay, this is, I have zero insight. I didn't, I didn't, I didn't meet with anyone in the, in the CCP or the government. So I have no idea what, what their mindset. This is pure speculation. On my, my point, my part. You already brought up the fact that that weary much smaller percentage of their exports than people realize and people think about. And as a result, you know, I think that they're going to be, China is going to be far more biased by what they view as, as fair and, and face saving than they are necessarily like numeric. And so I think if we, if someone were to approach them in a pragmatic way, I think a pragmatic deal could easily get done. I, you know, if they are engineers, as Dan Wang said, I, it's not like, you know, they wouldn't accept a pragmatic outcome. I think they would. But if we, if we're intent on being derogatory in our language and, and by the way, that's the thing that I just really don't understand that you see in Washington, you see it on that select committee of the CCP and you see it from some of the, the, the people in Silicon Valley. I just don't understand the value of being belligerent and, but, but many people clearly are. I mean they have four times the number of citizens on this earth than we do and none. Everybody's, you know, country of birth is something that happens to them outside of their control. So I, I just don't know why vilifying a billion people is a good idea. So I think it's possible, I think there's a, I think they would do a deal and I just don't know if, if we get caught up in a silly tit for tat verbal war, what the benefit of that is and anything like that. And this is one of the points Sachs makes, Jeffrey Sachs, not David, you might provoke World War three. So what do you, what do you, what's, how do you put that into your NPV calculation?

B (32:58)

Is it fair to say that, you know, I think if you look at tariffs heading into this year, they basically doubled on China, but if we put tariffs on particular industries in order to incent building industries in the United States, imagine it was a deal, a bit like Japan, Bill, where we also cut a deal with the Chinese that they had a trillion dollars of investment the way we have with other companies that go into the US into some of these industries and that we perhaps get some reciprocity and reduction of barriers to some Chinese goods into, into China. Where how would you handicap that? Did you get any sense or, or, or, you know, do you get any sense from the, the stuff you read in the United States as to the, the probability that. I think it's one of the biggest influences as we look at growth in the back half of this year, as we look at market sentiment in the back half of this year. Just curious where you stand on that.

A (33:59)

Ironically, one of the things that I mean, like I said, I met with, I met with companies and founders and, and, and a few academicians, but I did, and some journalists, but I didn't meet with, with the government. But in general there's just not any hostility from their side from that group of people that I met with. In fact most of those, most of those people look up to the US Founders that have done great things, the jobs and the Elon's and most of them aspire to compete globally the same way a founder in the US would like. And so they would like to see all this rhetoric die down. And they would like to have the opportunity to come to the US market. They'd like the opportunity to compete in Europe and South America. Many are. Xiaomi and BYD already are. And so I think, like I said, I think there's a pragmatic deal to do to the extent and, and if, if that led to the types of programs that I just talked about, this kind of JV thing where there's a market there, a leader in, and we, you know, have that company come to the US and help us understand how to compete in some of these technologies and get to lower price points, I think that'd be fantastic.

B (35:13)

Do you feel like over the last 20 years, who do you think's gotten the best out of the relationship?

A (35:18)

Bill, you know, I haven't read this Apple China book. It's it. A lot of people have been talking about it and I, and I aim to. I think the problem with looking at it that way is, you know, you and I have talked about this finite versus infinite game is, you know, where are we in the time of the planet and what do you think the planet's going to look like, you know, 15, 20, 30 years from now? I mean, I think it'd be very easy to say, you know, using your framing to say US took advantage of Europe post World War II and a lot of the manufacturing that existed prior to World War II shifted to America. And so you could then with that same frame say, yeah, China, you know, grew on the back of America and, and you know, from, from that time. But I kind of look at it another way, which is there have been different periods where these different countries have industrialized. You know, we were a huge beneficiary post World War II because most of Asia and Europe had been blown up and there was no production capability whatsoever. And a lot of the kind of glory day mindset that we have about what life and generational change should be like in the US come from that time, which is a bit unfair I think, from a global perspective. But there's a ton of hard working people over there. You know, Deng Xiaoping brought capitalism underneath the, the Chinese government and led to the biggest, you know, increase in standard of living of any. It's like 500 million people came out of poverty as a result of that. And you know, when people say, oh, we should have never let the jobs go over there, I, I don't think they really want to say, well, we shouldn't have let 500 million people out of poverty. You know, it's the same people that, that want to talk about aid in Africa and whatnot. So a lot of people benefited in China, but they're also hard working people. And, and, and we, we talk a lot about meritocracies, right? And some of the same people that talk about meritocracies are anti China. And so that, that's a hard thing to square because if someone's willing to work twice as hard, you know, as you and you know, willing to study harder and, and all that kind of stuff, are they, do they not deserve a chance at a life like you have?

B (37:50)

I think the bigger complaint is that we were naive in our trade policy and therefore we allowed huge advantages to flow to other areas. And you know, by the way, as Dan says in his book, at the same time we were actually moving to more of a regulatory state in the United States. So you know, like our companies were getting less competitive at the same time we were helping their companies get more competitive and there was a lot of collateral damage in the United States during that period of time. And I think right now people are saying, okay, we're moving into this age of AI, but we have to get back to driving reform in the United States that levels that playing field a bit. And so, you know, you can't undo the past. But I do think there's a recognition that, you know, we need to do the things in order to incentivize US industry to compete more effectively in a lot of these different categories. I think it is going, I think it is going to be tricky though. You know, if you say, you know, you've got 100 competitors in the EV industry in China, they're all willing to work on razor thin margins and they're willing to sell cars into Europe at $20,000 or $25,000 today, as Farley said, there is not a US manufacturer, sans perhaps Tesla that comes anywhere close to being able to compete in that way on a global basis.

A (39:21)

Correct. One thing I've been studying a bit is I, I do think that the Chinese government's more, has more scrutinist of monopolies. You know, I don't think that they, I think they would consider it a negative if there were seven companies worth $3 trillion or whatever. Like I don't think they care about market cap. I think they care more about employment and global competitiveness which would cause you to support low margin companies and, and you know, they, they get to choose to make that choice. I'm not judging it, but it would result in this outcome you know, there's in addition to the Farley quote, the Mercedes CEO said we need a reality check when he was Talking about Chinese EVs and then Stellantis, I guess is the new who who rolled up a bunch of other car companies. They said Chinese EVs are quote, possibly the biggest risk facing his car maker and Tesla. And he criticized, this is Carlos Tavares, he publicly criticized EU tariffs on Chinese electric vehicles, calling them a major trap for automakers. And this is, this is, you know, you talk about what policy would fix things. I'll tell you what policy will make things worse. You know, you start protecting U.S. industries by putting export tariffs on the most competitive products around the world, which I talked about earlier. Now your consumers don't have access to those price points and so you're buying inferior goods at inflated prices. And that's going to lead to inflation and prosperity and standard of living levels dropping in the U.S. so there's a lot of variables.

B (41:04)

I would say that's generally true. I think if there's a moment, you know, if there was a national strategy to improve competitiveness in an industry that had been, you know, let's just say had an unfair playing field for a period of time, like I could see a national strategy. For example, we talked about pharmaceutical manufacturing, we talked about chip manufacturing, we talked about rare earths where you would say, okay, we're going to actually impose a tariff because these other goods are flooding and it deprives us of the ability to build our own domestic industry. But I think we have to be very careful when you do that. Bill, to your point, we know that unfettered competition will lead to, you know, is going to lead to much better products, much lower prices. And when you start protecting these industries, what I worry about is you protect the regulatory grift and the over lawyering that Dan talks about in his book, right. We gotta face up to this fact that we have to reform some of these, you know, basic things in the United States. And that's why you see companies like Tesla moving to Texas where those reforms are moving forward. And I think, you know, I think we are making progress on that. But I, you know, I think you, there is a rationale for those critical national industries. But I generally agree with you that if we move to high levels of protection because we simply can't compete, because it takes, you know, us, you know, 10 people in an auto plant to do what they do with one person in an auto plant, I think that's unsustainable.

A (42:39)

And I think we need to be careful with the rhetoric we throw around. So, so I'll give you an example. So if you read what comes out of the biggest talks, they say, well, everyone in China just steals things and the government subsidizes everything. So I brought that up with, I brought up the subsidization with Stella Lee of byd, and she said, she said, if I'm getting all this government subsidy money, can you please find it and show it to me? We're, we're a public company. Come show me the money I'm getting from the government. She's like, say I'm getting nothing. And, and, and then, you know, you look at the U.S. like, we give companies subsidies all the time to build factories. We've had EV credits for the past 10 years, both at a state and a federal level. Intel's getting money from the US government. Like, I don't understand where we're saying, like, like, it's very unclear to me, like what we're pointing at and accusing and why it doesn't. Isn't the same thing here. And then lastly, you know, Elon's published all the Tesla patents. Okay. So there's free IP for Ford and gm. And I would ask you, with that free ip, if we gave Ford and GM subsidies, do you think they'd immediately be competitive with China?

B (43:55)

No, sir.

A (43:56)

Okay. And if I ask a hundred smart investors that question, what would they say?

B (44:01)

I, I think they'd agree with me.

A (44:03)

Yeah. So, so, so, so the thing we're accusing them of being the reason they're succeeding. If you flipped and gave that to the US companies, none of us have confidence that would work. So that's what I'm saying. You just gotta try and get as much information as you can, learn as much as you can so that you. I just want people to have a pragmatic view and an accurate view as they make decisions. I, I did a deep dive on, on your favorite product chat GBT$300 version deep research, and on the 24 members of the select committee for the CCP. And I think all but four have never been to China. Right. And the ones that went, it was seven years ago. I just encourage them to go visit if they're going to sit there and have such strong opinions. It'd be good if they were educated. I wouldn't want, if you were putting together a committee inside of your corporation that's going to be in charge of something, wouldn't you want the most educated people on that committee?

B (45:03)

I can already hear the criticism.

A (45:05)

Oh, yeah.

B (45:09)

You know, of course, people would say, well, we don't expect the CEO of BYD to tell you the truth necessarily about government subsidies or things like this. But here's the one thing I want to get across in, you know, kind of this pragmatist camp. We do have to be self reflective, right? I mean, if we have this, if we have this view that the only reason China's competitive or winning is, is because they're, they're stealing or they're subsidized, I think what that view does is it allows us to delude ourselves into believing we don't need to get better ourselves. Yeah, like, it's like if you're playing a competition and, you know, your, your kids out there playing in a football game or a swimming race, and they lose the race and they come back to you and they say, well, the only reason that person won was, you know, they cheated. Your advice, I think, is, no, you've got to get better yourself. We've got to get better. How can we get better? And I think that's why cultivating this balanced and realistic view of China, what's actually happening on the ground, how hard folks are working, what the level of innovation is, the fact that the United States is a diminishing part of their trade, of their gdp, et cetera. I think that should cause us to look a little bit inward about how the hell do we accelerate, how do we build more, how do we invest more, how do we, you know, get more globally competitive? Why does it cost us four to five times to build a fission reactor in this country? Why are we building no nuclear reactors in this country? And so the good news is this. I feel like there's a lot of momentum under this administration that was building before this administration around investing in America getting more globally competitive. Right. A lot of people want to build things here again, you know, and, and you got, you have somebody like Jensen Huang who says both can be true. We need to sell H20s and B30s into China. We need to stay relevant in their ecosystem, but at the same time, we need to build plants in Arizona and we need to rehabilitate and invest aggressively in our own domestic chip program. Those things can be simultaneously true. And it's interesting that all of those CEOs who spend the most time competing in China, you know, they all fall in that pragmatist, realist camp, you know, in the center about, you know, the United States needs to get serious about the work that it needs to do if it wants to remain globally competitive. With that said, Bill, can we shift for a second? I want to, I want to, you know, look at this through the lens of kind of just what's going on in AI. You know, I know you spent a bunch of time over there looking at the key players on the model side, on the, you know, thinking about the chip side, etc, so maybe just round out that other conversation and then shift there.

A (48:02)

Yeah, so, so one thing, one thing to note that that isn't in the Dan Wang book, but I, I think that we can infer from it. The government every five years publishes this five year plan. The last one was the 14th, and I think the next one will be coming out soon. I would encourage everyone to read that because that's where they tell the provinces what's important to work on. And that historically has led to these areas where they're investing heavily and they might make a mistake in what they say to focus on, but when they've gotten it right, it's led to a lot of global competitiveness. So I would watch that. But in the, in the last one, in the 14th, they literally talked about open source. And so, you know, I'll put a link in. I found a document that covers all the history of Chinese open source, but it goes back 20 years. This isn't an overnight thing. And our government recently said they were pro open source in this new AI executive order, but this was kind of pushed out to the provinces. And so two things I would say about the AI market there. First of all, no one's particularly concerned about there being a, a monopolist because there's so many open models. So there's in general, I think from the entrepreneur's perspective, a more relaxed, you know, opinion because they can work on products and they can take in all these different models. I think, I think Deep Seek has the most kind of intellectual brand because of how that arrived and, and, and almost the, the, the national pride that came along with it. Quinn is a really important player, mainly because Alibaba leads in the cloud market over there. They're about a. You, you may, you and your team may know more of these stats than me, Brad, but I think they're like a 70% player in the cloud market. And so that just gives them a natural place to deliver models from. That makes them important. And then on the consumer side, you know, bytedance seems to be the company to watch on anything consumer. And they already have an app. If someone said, whose app is closest to OpenAI guys in China, it's already an app from Bite Dance that's out there. People on the watch list, people are very curious if 10 cent's going to do something. You know, obviously they wechat still extremely important in China and so that's a great asset if they were to bring something. But they haven't been particularly aggressive. And then Xiaomi, because of Lejun, everybody wonders what he might do. And you know, owning the phone and that big a market share might give you some advantages. And we've talked about that with the US players. So that's kind of, that's what I would say is the state of affairs over there when it comes to AI.

B (50:51)

On the model layer is do you think there's an acknowledgment or a belief that they're basically, they have the tools, they have the chips, you know, with Huawei, etc. To be competitive? Like is there a sense in China that, you know, Quincode is going to be competitive with Claude code? You know, we know they're all open source. Do you think there is a sense that they all stay at the frontier?

A (51:19)

I had that sense before I went just because of the number of competitive open source models and the way they can trade train each other. You just have a much more natural environment to have this kind of hyper competition that we Talked about in EVs or solar, like having that many open source providers gives you that. I would say even maybe more because of the way the models can help one another. At least in the EV case you can't take someone else's EV and make yours better, but here you can.

B (51:50)

Can we talk about that? Just open for a second? Let me double click on this. You know, Obviously we saw OpenAI open source, you know, a model a few weeks back. Now we have comments this week out of Elon. They're, they're getting back to more aggressively open sourcing. You've obviously got meta already, you know, with Llama out there on the open source front. And I saw you had a tweet yesterday, maybe Bill, just on you were surprised that Google had not taken a more aggressive position with respect to open sourcing? Gemini, do you think they will? Why do you think they haven't and why do you think it would be the right thing for them to do that?

A (52:29)

Well, I, I had some replies to that tweet to get into this, but this goes back to where you started the podcast. I don't think public companies understand or I don't think they've internalized and, and really come to terms with the fact that the private Markets are willing to bet so aggressively on these new players. And I, you know, we're talking about AI today, but this could be true of any new disruption in the future. When I was going through the, the Uber Lyft wars and you know, we'd be in board meetings and look at these burn rates and all this money we're spending, you talk about whether or not to raise another round and certainly thought about doing what Sam did and trying to talk capital out of the market, which never seems to work. But you get frustrated with that game and you want to, you know, but, but you're dealing with business decisions that you would never see in another industry. And so getting back to the question you ask, you know, I just don't know like if everything's at stake for Google, should they be willing to lose 5 or 10 billion dollars because the startup that's attacking their space is willing to lose that amount of money? And I think it's, it's an ironic situation we're in where the private markets and the startups are willing to be more aggressive perhaps and more risk seeking than the public incumbents are. And I think, you know, our friend Rich Barton took a lot of heat at Zillow when he, when he chased open door. But he was faced with a situation where a private company was claiming it was going to out innovate him and disrupt his game and, and some of Wall street had come to believe that and so he engaged and he played that game on the field. Now that eventually turned out to not be true and maybe if he hadn't engaged competitively with Opendoor, maybe they wouldn't have kind of tripped and fallen, but it was probably the right thing to do. And I don't think a lot of public companies think that way. Now Google, historically when it came to aws, open source kubernetes and went after them, when it came to Apple, they open sourced Android and certainly some of their lower models are open sourced and competitive on open router. But maybe they should be more aggressive even still because of what's at stake. That was my point.

B (54:49)

Okay, shifting back real quick and we'll round up here on China, the VC market in China, we just rewind the clock. Not that long ago, Bill, and there was a lot of US enthusiasm, there were a lot of US firms investing directly in China from Sequoia to ggv. A lot of those firms either shut down or spread, spun off their operations. You know, in China, Benchmark has taken a lot of, you know, heat for doing an investment Manus that, you know, I've, I've read Benchmark Explained really isn't even, you know, based in China. What do you see? You know, when you were there, do you see a lot of US investors actively investing on the venture side in China? And then what does the Chinese venture ecosystem look like?

A (55:40)

So a couple different things. So first of all there's a real lack of Westerners. For all my trips, this was the, the fewest westerners that I've ever seen and the high end hotels and the high end restaurants were fairly empty. And I think that it just has to do with the thawing of the relationship that's caused less travel from westerners. The VC market is in a bit of a lull because when, when these policies all changed and when you know, the Jack Ma thing happened, when DD got pulled back from the U S markets, when the for profit education companies got taken out and when you know, WeChat went, I mean 10 cent went flat for a couple years because of games reforms, all those things took a lot of air out of the system and caused a lot of people to reconsider. And then you also had, and I don't even know if this is more led by the US government or the China government. You had the splitting of the venture capital firms, Sequoia split in half, GGV split in half. And, and so there are much fewer western dollars available to invest in China. And so you know, there are a few firms that have stayed, you know, Neil Shin at Hongshan had raised a ton of money right before all this happened. He's very active, has a huge staff of people. Anna Fang and Zen Fund, which is a angel group are very active and IDG is highly present and has been active but that's only three firms. And compared to where things were six years ago when every one of our competitors in the venture industry were making an annual trip, it's kind of night and day. And then there's not that many R B dollars available to the venture market. A lot of the, you don't have the foundations in and university endowments that you do here. And the billionaires that have made wealth typically are looking to diversify offshore and so you just don't have a lot of R and B dollars seeking a home. And now you have the provinces entering the investment space which is an uncomfortable reality for some of the VCs. They're ask, I hear they're asking for terms that you and I would consider non starters, you know, and so that's, it's all A little bit messy. It's funny because it's simultaneously with some of these markets, evs, autonomous robotics, where they're, where the country is doing extremely well. So I found those things off a little bit. And it's very, everyone's very aware that if the government decides your company is doing something that's not in the best interest of the citizenry, that that's going to get corrected. And so there's a phrase, I don't know if it was in Dan's book or I read somewhere else, called don't be the tallest tree.

B (58:41)

That's a problem for you.

A (58:43)

Yeah, exactly.

B (58:46)

Yeah. In that regard, do you think, you know, that's what I was wondering. You know, there seems to be a ton of entrepreneurial activity. Despite the fact that, you know, VCs have retreated, that you have companies that are not going public and have been shut down, you have entrepreneurs that have gone missing. It doesn't really seem to have diminished, you know, the activity around, you know, around AI, as we were talking about.

A (59:16)

Clearly, or startups or entrepreneurism. And in fact, a lot of the locals heavily dispute that. That Financial Times graph that was going around about the number of startups, they said it just mismeasured the whole thing. And so no, I, I don't sense that there's any lack of enthusiasm from entrepreneurs. And towns like Shenzhen, where, where DGI and BYD and Huawei are all located, I mean, that town is a new, young, 20 million people, highly energetic, you know, town with lots of stuff happening. You know, lots of stuff.

B (59:52)

You said something to me well before, before we wrapped. Is there anything else, anything else that we, we didn't cover that you want to, you want to hit on?

A (60:01)

There's two, there's two things I would hit on. You know, you talked about innovation. One thing, one thing that you notice very quickly as a Westerner, is no one takes credit cards. They used to like the last time I went, but, but it's almost 100% WeChat Pay and AliPay. And if you can't get those to work on your phone, you're screwed, man. You can't pay for anything.

B (60:26)

What's the government's position on crypto?

A (60:28)

I don't know the answer to that question. I don't. But because they've been using these apps for so long, you've started to see incremental innovation around that. So most restaurants you go to, not the very high end ones, there's a QR code on your table. That QR code not only represents the restaurant, but it represents the table. And you can order from that, you can pay from that. Like, like. So if you are done eating and want to pay and leave, you just scan and pay and go, you walk right out. And you know, we, we're far away from that in the US that amount of, of automation around payment and it's just interesting. And, and that goes from, you know, the high end hotel and restaurant will take WeChat Pay and the street vendor will take it. Right? It's, it's, it's universal. So that's one thing. The other thing that I would just mention, very recently China announced something called the K visa. And one of the, one of the things that's happened recently because of, I'd say an increased agitation between the two countries is there have been a number of very recent policies in America that are impacting skilled immigration, especially at the university level. And I did hear stories over there of groups of 50 or 100 PhD students who had been admitted into a university and we're now being told they can't attend. And you and I and everyone have talked about skilled immigration and how that's been kept flat in the U.S. and now, you know, at least with regard to China, we're starting to put up blockers. And on top of that you've seen these other charts where like 50% of the AI researchers in America are Chinese. And so that, that's something that's super interesting to watch. And this K visa thing, which they've never done before, says if you are studying technology, you know, I don't know the exact rules, you don't even have to have a job. So this isn't like a, in the US you need a, you're welcome to come, they're going to give you a visa. So China's basically inviting everyone to come to their university systems from around the globe. I don't know how successful they'll be, I don't know if Europeans will go there, but it's an interesting thing to see.

B (62:54)

Again, it's just a reminder to me, like I, I continue to think that the US is in an incredible position on a global basis, an incredible position vis a vis China. But decisions matter. And we talked about stapling a green card to every diploma, as the President did as part of the presidential race. And certainly I think there's ample opportunity for upside, to accelerate, to attract, to build in the US And I hope that one of the takeaways of this conversation, the many conversations we ought to have, and it's why I think being overly dogmatic leads us astray is we gotta reflect on the things that we can be doing better to run a faster race ourselves. Right. And I've heard you say this before, you know, the old quote from the Godfather, never hate your enemies. You know, it clouds. It affects your judgment. And I think there's a lot of that going on in Silicon Valley and other places that, you know, we're going to be a lot better off if we're very pragmatic about. There's no slowing down in China. They're going to be there in AI. They're going to build chips at Huawei, they're going to build models at Deep Seq. And the way to beat them is not to, you know, try to cut them off at the knees. We don't need to make it easy on them. But the United States needs to accelerate our race. And I think by, if we focus too much on how do we slow down China, we take the eye off the ball on how to accelerate our own race. So it's fun spending one of these just digging deep on a. On a particular topic. It sounds like an incredible trip.

A (64:34)

Yeah. And I would just echo what you said, like, like, especially just on learning. Like, my, my main point to anyone that's interested in this topic would be just make sure you have the exact right information as you then go to make decisions, especially around policy. And, you know, talk, read, read what these global car CEOs are telling you. They've been over there. They're seeing it with their own eyes. They don't, they don't have a reason to be as candid as they're being necessarily, but they are. And then read Dan Wang's book. I think it's fabulous. Like Tyler Cowan said, it might be one. It might be the best book of the year. It's very well written and, and a joy to read. And I would encourage everyone to go pick it up. It's called Breakneck. I think it's out now, today.

B (65:24)

No, you literally can go on ChatGPT and just ask it. You know what your favorite CEO, what's Jensen Wang think about the level of competition in China? What's Tim Cook think? What's Elon Musk think? The reality is the people who spend the most time on the ground in China have the most respect for the innate capabilities and ongoing competition that we're going to see with China. And I thought that Dan had a really balanced view at the end, which is we shouldn't go out of our way to make it really easy on China. But at the same time, we got to engage. We got to be pragmatic. We can't stick our head in the sand. And we have to know that we got to reform ourselves. We got to run a faster race ourselves. Bill, it's great seeing you. I'm glad we're kind of getting back in the swing of things and look forward to continuing the conversation. As a reminder to everybody, just our opinions, not investment advice.