China Decode: China's Renewable Energy Dominance in the AI Race

Summary

Podcast Summary: China Decode – "China’s Renewable Energy Dominance in the AI Race"

Podcast: The Prof G Pod with Scott Galloway
Episode Date: November 11, 2025
Co-Hosts: Alice Han, James Kynge
Topic: Examining China’s strengths in renewable energy and its bearing on the global AI race, China’s military modernization (with focus on the new Fujian aircraft carrier), and the imminent reality of flying taxis.

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Episode Overview

This episode unpacks how China’s dominance in renewables and aggressive energy policy are shaping its position in the AI race with the U.S. The hosts analyze the significance of data center buildouts, hardware supply chains, and energy strategies unique to both superpowers. They also address recent advancements in Chinese military hardware—highlighting the debut of the domestically produced Fujian aircraft carrier—and what this signals for regional security dynamics. Finally, Alice and James scrutinize the arrival of autonomous air taxis and the rapidly developing "low-altitude economy" in China, along with predictions on broader trade friction between China and Europe.

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1. The Data Center Arms Race & AI Competition

(01:41–15:20)

Key Points:

• The Scale of the AI Infrastructure Battle:

  • Both the U.S. and China are in a high-stakes race to establish vast AI data centers powered by advanced GPUs. These facilities are exceptionally power- and water-intensive.
  • While the U.S. currently outstrips China in the number of operational data centers (5,000+ vs. ~450), the Chinese government has ramped up support for further expansion, with focus areas including renewable energy and cost efficiency. ([02:58], [05:31])

• China’s Energy Advantage:

  • China produces more than 10,000 terawatt-hours of electricity annually—over double that of the U.S.—driven by massive investments in renewables and new hydroelectric projects.
  • Data centers located in China’s sun-drenched deserts (like the Taklamakan) leverage highly efficient, cheap solar electricity: “The power that China is generating through these solar panels is actually the cheapest power anywhere in the world… about 2 US cents per kilowatt hour” ([06:40] – James King)

• Subsidies and Superclusters:

  • The Chinese government subsidizes energy costs for data centers, making operational expenses less than half of what’s typical elsewhere.
  • While the U.S. leads in sophisticated chip design (e.g., Nvidia’s Blackwell), China uses “superclusters”—massive arrays of domestic, less-advanced chips (e.g., Huawei-made)—to multiply computational power and close the performance gap. ([08:40])

• AI Model Efficiency:

  • Chinese tech companies, such as Alibaba, are developing AI models that require substantially fewer (and less advanced) GPUs, potentially lowering capital and energy requirements by up to 82%. ([11:47])

Notable Quotes:

• James King ([05:31]):
  “It’s inside these data centers that the machines that train artificial intelligence models actually work. And so without big data centers, you can’t train your AI algorithms to get better and better… the race between the US and China on artificial intelligence to a large extent comes down to these data centers.”

• Alice Han ([10:14]):
  “Whereas a lot of the internet revolution was about bytes, I think in some respects, we’re returning to the world of atoms. And China has been very good at indigenizing and securitizing its energy supply chains.”

• James King on Open Source Models ([12:41]):
  “As of October, nine of the 10 top open source artificial intelligence models are Chinese… China’s going cheap power, superclusters of semiconductors, fewer data centers, but probably cheaper.”

• Alice Han ([14:14]):
  “China is going to do AI with Chinese characteristics. It’s going to do it in a way that’s quite different from the US… In many ways, they are competing for different things, is my conclusion.”

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2. China’s New Aircraft Carrier and Shifting Military Balance

(16:27–26:40)

Key Points:

• Debut of the Fujian Aircraft Carrier:

  • China launches the Fujian, its first domestically designed and built aircraft carrier, as part of a larger push to modernize and assert military strength in the Asia-Pacific.
  • The Fujiian’s commissioning follows a grand military parade showcasing Chinese advancements in missile, drone, and nuclear hardware.

• Regional and Strategic Implications:

  • Despite rapid modernization, China remains behind the U.S. in terms of both quantity (three Chinese carriers vs. 11 American) and quality (U.S carriers are nuclear-powered, while China’s use diesel).
  • However, China’s navy is quickly catching up in size—expected to surpass the U.S. fleet in ship numbers by 2030.

• Deterrence, Not Provocation:

  • The display of new hardware is interpreted more as strategic deterrence than explicit intent for military confrontation, especially regarding Taiwan.

• Military Spending Trends:

  • China is ramping up military spending, while the U.S. is more constrained—raising long-term questions about the superpower military equilibrium.

Notable Quotes:

• James King ([18:16]):
  “The big picture for China is that China wants to build what it calls a modernized military force by 2035… by 2050, it hopes to be able to take on the U.S. if it needs to.”

• Alice Han ([21:09]):
  “At the end of the day, these images are Potemkin villages in a way… It’s one thing to have cutting-edge equipment… but it’s another thing to have the battle experience.”

• James King ([22:31]):
  “My sense on Taiwan particularly is that China would very much like to reabsorb Taiwan without fighting. It knows that if it was to launch a military adventure… there would be catastrophic consequences for the global economy, and that would include China.”

• Alice Han citing Niall Ferguson ([23:57]):
  “Ferguson’s Law: Any country that spends more on debt servicing rather than the military… loses its superpower status, and the US hit that threshold a few years ago. China is increasing its military spending… at a time when the US is doing the opposite.”

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3. The “Low-Altitude Economy”: Flying Taxis & Drones

(27:15–35:09)

Key Points:

• Arrival of EHang’s Autonomous Air Taxi:

  • Guangzhou-based EHang has developed a battery-powered, fully autonomous flying taxi (EVTOL). The vehicle, resembling a giant passenger drone, has regulatory approval in China and aims for commercial operations within three years.
  • Price points are accessible (approx. $30–$40 per ride). Over 40,000 test flights in 19 countries show the system’s growing viability.

• Broader Drone Delivery Disruption:

  • “Low-altitude economy” includes not only passenger air taxis but also autonomous drone delivery services.
  • Deliveries by drone in China are surging (5M packages projected this year, up from 2.7M last year), mainly due to drastic last-mile cost reductions.

• Adoption and Regulation:

  • China leads global commercialization of this sector, as Europe and the U.S. lag in regulatory frameworks for similar services.

Notable Quotes:

• James King ([28:15]):
  “Getting into like an oversized drone and sitting in it and trusting this thing to take you from A to B without crashing to me is a totally different kettle of fish. But… EHang has got a license now from the Chinese authorities.”

• Alice Han ([30:52]):
  “People in China are so ready for tech adoption. They’re a lot more daring when it comes to these newfangled technologies.”

• James King ([33:45]):
  “The key thing about delivering packages is that…it’s quite costly in what they call the last mile… Having a drone that can literally come to your front door… is going to be a lot cheaper. And that’s why we’re seeing such a big uptick in the drone delivery market in China.”

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4. Predictions & What’s Next

(33:39–36:51)

Hosts’ Forecasts:

• James King:
  Drone delivery market in China will exceed 5 million packages delivered by drone this year, due to last-mile efficiency and mass adoption. ([33:45])

• Alice Han:
  Predicts increased EU-China trade friction, citing recent French crackdown on China’s Shein and growing European resentment after rare-earth sanctions. Foresees more investigations and sanctions on Chinese goods and companies by the EU. ([35:09])

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Noteworthy Quotes & Timestamps

• James King ([05:31]):
  “It’s inside these data centers that the machines that train artificial intelligence models actually work… without big data centers, you can’t train your AI algorithms to get better and better.”

• Alice Han ([10:14]):
  “The consensus at the time was that China is screwed… That consensus has shifted a great deal.”

• James King ([28:15]):
  “Getting into like an oversized drone and sitting in it and trusting this thing to take you from A to B without crashing to me is a totally different kettle of fish.”

• Alice Han ([21:09]):
  “It's one thing to have cutting edge equipment and parity with the US, but it's another thing to have the battle experience that say Russia is having in Ukraine.”

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Conclusion

Tone & Style:
The hosts combine on-the-ground expertise and policy insight with lively, sometimes skeptical banter (e.g., Alice’s “Potemkin villages” jab at Chinese parade hardware, and James’ fear of pilotless drones). Their analysis balances facts, stats, and geopolitics, with a thematic focus on how physical infrastructure (energy, data centers, military hardware) is as critical as digital or algorithmic leadership in the modern U.S.–China rivalry.

Key Takeaways:

• China’s abundance of cheap, renewable energy and government backing afford it unique leverage in the AI infrastructure race.
• The U.S. retains a lead in cutting-edge hardware and operational military credibility, though China is closing gaps in raw industrial capacity, model efficiency, and navy size.
• China is pushing boundaries in autonomous tech (both military and civil), with the West slower to match commercial rollouts or regulatory support.
• Rising EU-China tensions show the global AI and industrial competition is triangular, not merely bilateral.

Practical for Listeners Who Haven’t Tuned In:
This summary provides a detailed roadmap of the episode’s multifaceted discussion, highlighting shifts in global tech leadership, the underlying hard-power contest, and the emergent future of urban mobility and logistics.

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Transcript

[Alice Han]

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[James King]

It's inside these data centers that the machines that train artificial intelligence actually work. Without big data centers, you can't train your AI algorithms to get better and better. And data centers, as you mentioned, are really power hungry. And they also need a lot of air conditioning and they need a lot of water. And so the race between the US And China on artificial intelligence to a large extent comes down to these data centers.

[Alice Han]

Welcome to China Decode. I'm Alice Han.

[James King]

And I'm James King.

[Alice Han]

In today's episode of China Decode, we are discussing the build out of AI data centers. How the US And China are taking different approaches. The Chinese Navy's debut of a new aircraft carrier and what that means for tensions in the region and the dream of flying taxis. It might be closer than you think.

[James King]

Where are you today Alice?

[Alice Han]

Well, I am in Sicily and this is actually going to amuse you, James. I just came back from climbing Mount Etna, so talk about dancing on a volcano. And hopefully you can't hear the wailing sirens on the street. It's fairly noisy here.

[James King]

I'll keep an ear out for them as the podcast goes on.

[Alice Han]

Thanks, James. All right, James, let's get straight into it. In this great race that's developing over capable AI tools, both China and the US are building out massive data centers. Generative AI models lean on a massive amount of powerful GPUs, which need both a lot of electricity to perform and a great deal of water to stay cool. So given the high cost and the vast energy implications of these data centers, let's talk a little bit about how these things are getting paid for and getting power in both the Chinese and the American context. So James, I think you know, now that we've turned the page on the trade conflict and it seems that we're back into a detente period. What straight struck me over the last week as being quite interesting was the Jensen Huang piece in the FT where you used to work, in which he says that China is quote, unquote, nanoseconds behind America in the AI race, primarily because electricity generation is so much more abundant in China and a great deal cheaper. And so he, I think, has issued a clarion call within the American context to showcase to Americans that China actually has some tools in its toolkit in this broader AI competition. And I would love to get into the minutiae of it in terms of the comparison, but what struck me as interesting is the fact that the US and when you look at CapEx cycle, is clearly orders of magnitude ahead, not only in terms of just raw capex that we've seen by the big tech companies, the big AI Frontier Labs and the tech companies, but also in the fact that you have, from a policy standpoint, the U.S. stargate project, which is $500 billion deployed over four years. I think the Chinese equivalent Stargate, which was announced by Alibaba this year, is only 53 billion over three years. But I think this is going to incite a reaction from China probably in the next March NPC when the five Year Plan is unveiled, to really, I think, increase the amount of expenditure for data centers. And again, as I alluded to, China is a country that leads in power generation. It basically produces 10,000 terawatts per hour in terms of energy. That's more than double what the US produces. But certainly it has, as we've talked about in previous podcast episodes, a semiconductor disadvantage in the sense that it doesn't have access to the energy efficient, cutting edge, leading edge semiconductors that are produced, say for instance, by Nvidia. But James, what's Your take on this AI competition that is ballooning.

[James King]

Well, as you say, Alice, I think the key point is around these data centers, because it's in data centers, you know, which you wouldn't really look twice at. I mean, they're sort of big square buildings on the side of the road. But it's inside these data centers that the machines that train artificial intelligence models actually work. And so without big data centers, you can't train your AI algorithms to get better and better. So that's the key aspect of why data centers are important. And data centers, as you mentioned, are really power hungry. And they also need a lot of air conditioning and they need a lot of water. And so the race between the US and China on artificial intelligence to a large extent comes down to these data centers. And as you said at the beginning, I think it's really interesting that Jensen Huang, the CEO of Nvidia, said this month that he thought that China will win the AI race. Then he slightly backpedaled and said, oh, well, China's only nanoseconds behind. But I think this allows us to really look into the constituent parts of who is likely to win the AI race, because, of course, the stakes are enormous. AI is going to power all kinds of applications. It's going to power all kinds of technologies, and it already is. So the question of who wins is really crucial to the technology economy. Now, as you mentioned, Alice, each country has different assets. The first thing to be said is that at the moment, the US is way ahead in terms of the number of data centers it has. The US has got well over 5,000 data centers, as things stand. And China, according to statistics that I've been able to find, has only about 450. But this might not stay that way. And we also need to look at the cost structures involved. The remarkable thing about China's data centers is where they're located. They tend to be in the deserts in the far north of China. Some of them are in a desert called the Taklamakan, which actually I've been to. I went through it on a bus. I wish I could say I went on a camel, but on a bus it took four days to cross. And the name of the Taklamakan actually means if you go in, you never come out. And it is one of the most inhospitable places on Earth. The temperature is often nudging 50 degrees Celsius, about 120 degrees Fahrenheit. But the reason it's there and the reason that China's putting so many of these data centers in deserts is because the sun beats the down, and the power for these data centers is generated by solar panels. And the power that China is generating through these solar panels is actually the cheapest power anywhere in the world. It costs about 2 cents, 2 US cents per kilowatt hour, just to give you an example. That is about one fifth of the cheapest cost of electricity generated in the UK through coal. So China's got this natural advantage in terms of building data centers in the desert, but it also has a couple of other strategies, one of which is big subsidies by the government. Subsidies in terms of the energy bills that the data centers have to pay. The government is subsidizing that so that it means that a lot of these data centers in China are paying just half of what you would normally pay for the data centers. And the other big advantage that China has is called super clusters. I won't go into this in great detail, but just suffice it to say that the US is far ahead when it comes to the power of individual computer chips. So the Blackwell chip is far more powerful than anything that China has. But China is perfecting a way of putting lots and lots of its own indigenous chips, mostly made by Huawei, into what's called a supercluster. Some of these Superclusters have like 380 chips in them. But China wants to go much, much bigger than that. It wants to have a supercluster of more than 8,000 chips. And so it hopes that it can increase the compute power by using many, many more chips. So I think that's the contours of the competition that we see. What are you hearing, Alice? I mean, do you think China can make it, or do you think the US is just in an unassailable lead?

[Alice Han]

So the way that I think about this is that if you recall, during the Biden administration, there were a great amount of export controls on Chinese chips, or rather Chinese import chips, coming out of America and elsewhere. And the consensus at the time was that China is screwed. China will not be able to find an option. AI will severely be impaired in terms of its development in China as a result of this hardware constraint. That consensus has shifted a great deal. And I sense that the consensus around AI has also shifted in the sense that people no longer think that China is down and out. China has, as you allude to and referenced, James, its own distinction, advantages, and disadvantages. The way that I think about the future is that whereas a lot of the Internet revolution was about bytes, I think in some respects, we're returning to the world of atoms. And China has been very good at indigenizing and securitizing its energy supply chains. As I referenced, it is the world's biggest producer of electricity, and it has even more projects that it's going to bring online, like the hydroelectric damage in Tibet, which could put even more energy on the grid. I think that this is something that people are starting to realize is an important aspect, this energy aspect in the AI competition. It's not just about chips. It's not just about the trillions of capex that the US seems to be dedicating over the next few years in terms of CapEx outlays for AI data centers. It's also about energy production and energy efficiency. So on the production front, China is leading in energy. On the efficiency front, as you allude to, James, there's interesting ways in which they can cluster. But even the tech companies themselves, when they design their LLMs, which we could get into, they are designing more energy efficient LLMs that in theory could lead to an 82% drop in the number of Nvidia GPUs that they would require to power the AI models. And so, just to give people a sense of the numbers, what would normally take 1,192 GPUs, apparently the researchers at Alibaba are able to do with just 213 Nvidia H20 GPUs. That's the difference between spending 2.5 million on Nvidia GPUs and spending way over $14 million. And again, if you think about it from an energy perspective, the power savings could also be massive as well. So I think there's an interesting thing that's happening on the energy production front and the energy efficiency front that I think people are starting to cotton onto.

[James King]

Yeah, I mean, I think we kind of got to bring it back to why Jensen Huang is saying that China will win. And I think a lot of the reasons are the ones you just cited, plus the fact that China has gone for an open source model in all of these large language models that it's coming out with. So as of October, nine of the 10 top open source artificial intelligence models are Chinese. This is in contrast to many of the American models, such as OpenAI's ChatGPT, which is not open source. So China's going really quite a different route from the us China's going cheap power, super clusters of semiconductors, fewer data centers, but probably cheaper. Cheaper to build, and then trying to make the artificial intelligence models that it brings out open source so that a lot of companies in China can then start to build their applications based on those models and start to make money by deploying AI in the economy. I think that's China's approach. It still doesn't quite explain to me why Jensen Huang would say that he thinks China will win. Because if you look at the us, they've got better chips, far more powerful chips, and they've got many more data centers to train the AI models. So I don't know. I don't know which side of this I come down on, actually. Tell you the truth, Alice, I. I think the US is a formidable competitor.

[Alice Han]

Yeah, I still agree. It's too early to tell. And as we've been saying in previous podcasts, China is going to do AI with Chinese characteristics. No doubt about it. It's going to do it in a way that's quite different from the us. And as we were talking about in previous episodes, the US is chasing AGI areas that might be more compute intensive, whereas China is not just making energy cheap in the support of AI models, but it's also making models cheap. I mean, I was looking at some of the numbers. The Deep Seq Chat model, the cost per million output tokens is only $1.10. QN plus from Alibaba, it's $1.20. And for reference, GPT5 from OpenAI, it's $10. Claude Sonnet from Anthropic Claude Sonnet 4.5 is $15. So they are making these LLMs cheaper along with energy, and I think with massive implications when we think about the AI competition, in many ways they are competing for different things, is my conclusion. Okay, we'll be back with more after a quick break, so stay with us.

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[Alice Han]

Every day millions of customers engage with AI agents like me. We resolve queries fast, we work 247 and we're helpful, knowledgeable and empathetic. We're built to be the voice of the brands we serve. Sierra is the platform for building better, more human customer experiences with AI. No hold music, no generic answers, no frustration. Visit Sierra AI to learn more Foreign welcome back. Last week China revealed that it had commissioned a massive new aircraft carrier, the Fujian, and it's the first one that it designed and built all by itself. This comes a short time after Chinese President Xi Jinping's massive military parade in September for the 80th anniversary, which drew a lot of attention on how recent advancements in homegrown Chinese hardware have raised the capabilities of China's military inching closer to parity with the U.S. james, you are more of an expert in this area, so I really want to listen to what you have to say. But I was actually in Beijing during the week of the military parade, and what was interesting, not only was the patriotism around it, but the fact that China really was, so to speak, bringing out the big guns. It was showing a new nuclear triad in terms of equipment, military drones, new ICBMs, intercontinental ballistic missiles, hypersonic missiles, you name it. But it was very clear to me watching this that this was a big sign to Washington and the region that China had key deterrence capabilities when it comes to its military hardware and equipment. James, you're very close to this. How big of a deal is this Fujian carry and what does it mean for China's broader military goals?

[James King]

I think it's a big deal because it helps us to kind of understand the military balance between the US And China. China. There's no question that China is catching up the US and this is part of a bigger topic of the geopolitics between the two superpowers, and it particularly relates to potential theaters of warfare. I use the word potential underlined and stressed because I'm not predicting any kind of a conflagration between the US And China, but let's say around Taiwan, also the South China Sea, and there are other areas where the US and China kind of contest each other already in a geopolitical sense. So the emergence of China's third aircraft carrier, which as you mentioned was designed and built entirely by China, that is important. The big picture for China is that China wants to build what it calls a modernized military force by 2035. So that's 10 years from now. And it wants to build what it calls a world class military force by 2050. And what people understand by the words world class means that by that time it hopes to be able to take on the US if it needs to. As things stand purely in terms of aircraft carriers, China is a long way behind the U.S. now that China has three aircraft carriers, the U.S. has 11. So China has the second largest number of aircraft carriers of any country in the world. But clearly it's still far behind. And I think it's true to say that the technology of the US carriers is far superior to those in China. For instance, the US carriers are nuclear powered, whereas the Chinese carriers at the moment all run on diesel. And of course nuclear power is much more self sustaining than diesel. However, when we look at other aspects of the military balance, you know, China is already a formidable competitor. The Chinese navy is now far larger than that of the US. They're projected to have about 50% more ships than the US by 2030. So already, I think we can't sort of underestimate what China can do in terms of military projection. Just coming back to this aircraft carrier itself, I mean, is absolutely enormous. It's more than 300 meters long. I mean, the scale of these things is just incredible. That means it can carry about 60 aircraft and it cost well over US$6 billion to make. So, you know, it's a pretty amazing thing, I must say. What did you think when you saw pictures of this carrier, Alice?

[Alice Han]

Well, firstly, I mean, they definitely were putting their best foot forward. Everything that came out on the parade was extremely, extremely impress. But at the end of the day, these images are Potemkin villages in a way. They're not battle tested and battle ready. And that I think has been the enduring concern about the PLA's capabilities. It's one thing to have cutting edge equipment and parity with the us but it's another thing to have the battle experience that say Russia is having in Ukraine. And I think that one of the big concerns for Xi Jinping, especially after the Russia Ukraine conflict emerged, is whether or not the PLA has the ability and battle readiness to take a stance on Taiwan to either Launch an amphibious assault or salami, slice it through a quarantine and blockade, and I'm not so sure. And people have different views on whether or not these military equipment are designed to deter the US from aggression in the Asia Pacific or to help launch Xi Jinping's ambitions when it comes to what he would call a reunification of China, taking Taiwan into the fold. But when I think about this, I think a lot about both capabilities and intentions. And it's not clear to me, especially after the military purges that we saw at the fourth plenum, whether or not Xi Jinping feels that he is ready for primetime when it comes to using these carriers for a Taiwan showdown.

[James King]

Yeah, I mean, you know, the whole question of Taiwan and whether or not China would make a move to try to retake Taiwan is one of those things that China experts spend a long time thinking about and talking about. And, you know, everybody has their own opinion. There really is no evidence. That's why you find such a diversity of opinion among people of our trade, Alice. But my own take on this is that China wants to build up a military that is so forbiddingly huge that the US would think twice or think more than twice about ever taking China on in any kind of a military theater. And my sense on Taiwan particularly is that China would very much like to reabsorb Taiwan without fighting. It knows that if it was to launch a military adventure against Taiwan, there would be catastrophic consequences for the global economy, and that would include China. So I think it's its aim is probably to build up its military force by showing off new hardware, such as this huge new aircraft carrier, such as the military parade in Beijing that you mentioned, and then hope that everybody is kind of cowed and overawed and Taiwan meekly returns to the motherland at some point in the future. That's my sort of summary of what I think China's aiming at.

[Alice Han]

Well, when you were talking, I was thinking of two things. The first is the fact that this aircraft carrier is run on diesel, not nuclear. The US Is still at the state of supremacy when it comes to nuclear powered submarines and operational nuclear warheads. The figure is quite stunning. China has 600 operational nuclear warheads, and you compare to that US with well over 5,000. The US is leading. In fact, I think the second largest stockpile is held by Russia. That gives you a sense of how much China needs to do to catch up. It's Projected they'll reach 1,000 warheads China by 2030, its stockpile of ICBMs the Intercontinental Ballistic missiles is roughly on parity with the US's. But there are certain key areas, and I've heard from military experts in the realm of submarine technology, especially where China is a great degree behind the us. But the second point I wanted to make, and to quote my boss and mentor Neil Ferguson, he has this law called Ferguson's Law in which any country that spends more on debt servicing rather than the military throughout history has been on a downturn trajectory. It loses its superpower status and the US hit that threshold a few years ago. I think that that is quite material when we think about the superpower struggle between China and the us. China is increasing its military spending massively ramping up its military arsenal at a time when the US is doing it in the opposite direction. That's, I think, quite material when we think about the future of US China in the region.

[James King]

Oh, that's great. I hadn't heard of Ferguson's Law before. I really like that. I guess the problem with China is though that China keeps its military spending deeply secret. I mean, it does come out with figures, but nobody trusts them. So we don't really know whether China is spending more or less on debt servicing than on its military.

[Alice Han]

So that's a very fair point.

[James King]

But that's a great metric. I really like that.

[Alice Han]

Yeah, and we'll have to see in the March NPC what they say because every year in the March npc, in the government work report, they will issue a statement about how much they want to increase military spending by. To your point, James? So much of this is smoke and mirrors. We don't know what is actually being spent and where it's being spent spent. And I think Ukraine is a great example of the fact that money isn't everything. You've got to be able to tactically deploy it well and spend it on the right things and use for instance, drones in an operational manner. Ukrainians have been very lean but very successful. So that's something to keep in mind as well. Well, let's take a quick break. So stay with us.

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[Alice Han]

Welcome back. When you imagine the future if you imagine flying around in a car sized flying vessel, then much of the 21st century must have been very, very disappointing to you as flying cars. I mean, I watched Back to the Future. I don't know if you have, James, but they have proved still very much elusive. That is until now perhaps. The company Yihang based in Guangzhou, China, says it has developed a flying air taxi. It is battery powered and completely autonomous. It flies without a pilot inside. Ehang says it plans to deploy these unmanned EVTOLs. That stands for electric vertical takeoff and Landing. It's a mouthful between airports and some cities in China within three years and they say that flights will be offered cheap, only 200 to 300 yuan, or about the equivalent of 30 to 40 US dollars. James, this. When I came across this story, thanks to you, I was very much surprised. Is this for real or is it all hype?

[James King]

Well, it's definitely for real. I've been following these guys for a few years actually. But I must say, Alice, when it comes to this kind of thing, I'm personally a complete wimp. You know, I have a friend, for instance, who has a helicopter. He's been badgering me for years to get into it and I've only ever caved in once. I'm kind of terrified by these things personally, but, but I'm really interested in Ehang. And as you say, the evtol, it sort of looks a bit like a doodle bug, you know, it's got a small cabin, enough room for maybe two people, and then it's got these drone like rotor blades that sort of spin round. And the really scary aspect of these EVTOLs is that they're autonomously driven, so there is no pilot. So you're sitting there and you're completely at the mercy of the AI algorithm that takes you from A to B. And I must say I would find that very scary indeed. I have been in autonomously driven cars. I was in one in Shenzhen last year. I was slightly nervous about that, but it was totally fine. Getting into like an oversized drone and sitting in it and trusting this thing to take you from A to B without crashing to me is a totally different kettle of fish. But as you say, this has got a license now from the Chinese authorities and they reckon that they're going to be working commercially within about three years. And given that these types of projections in China are always padded out, they normally happen quicker than is projected. I reckon, you know, we could be seeing these vehicles a couple of years from now, maybe in certain areas, you know, not in general use, but in certain areas. And I'm very interested to read that Morgan Stanley, the investment bank, reckons that the market for These vehicles, these EVTOLs, could reach about a trillion US dollars by 2040 and even 9 trillion by 2050. So obviously Morgan Stanley is impressed. They reckon that this is going to become a big part of the way we get around. So maybe it will happen. The last thing I'd say is that China's clearly imbibed this. They've clearly decided that this is gonna be something that the future revolves around. And they've come up with a name for this type of technology. They call it the low altitude economy. So maybe the low altitude economy is gonna be a big deal.

[Alice Han]

Yeah. When I first saw the image of this, I just thought this looks like a giant version of a drone and something that I'd imagine Tom Cruise and Mission Impossible to sit into. Hopefully that it doesn't get tapped into by an enemy agent. But it seems very futuristic and it points to the fact that I think people in China are so ready for tech adoption. They're, I think, a lot more daring when it comes to these newfangled technologies. My, I guess, concern would be as you go into different airspaces, what are going to be the rules of the road and how are you going to regulate this? I think the government is happy for this to be another way in which Chinese manufacturing capacity can be exported to the rest of the world in the future. But I think technology is moving, as often is the case, much more quickly than the regulation can keep up or even regulators can conceive of regulating it. So it's not clear to me how Chinese local governments or the central government will think about regulating this space when it really becomes viable. But I was reading that one of these taxi vehicles that Ehang is rolling out can fly over 100 miles on a single charge, and it's taken a cumulative 40,000 flights in 19 countries to date. So it seems viable for now. But it's going to be interesting to see how this unveils in China as adoption becomes more widespread. But I haven't seen anything. I don't know if you have, James, in the US context, that's comparable. I don't think they have truly autonomous flying cars. Have you heard of this?

[James King]

Yeah, this is what I was just about to say. I spent a bit of time Googling various countries in Europe and the US to see whether or not they've got a licensing process for these EVtols, and I couldn't find any but the fact, as you mentioned, that Ehang has had flights in 19 different countries to date suggests to me that they're trying to convince the authorities, no doubt in Europe and the US and elsewhere that this is a viable technology, that these flying vehicles are not just going to drop from the sky. And so maybe they will prevail in certain areas and maybe they'll be licensed in other countries as well. I guess it's all a matter of safety, really. If Ehang can prove that these are safe, then, well, why not, you know?

[Alice Han]

Yeah, this is definitely going to change the way that we move around. I wonder what the first use cases will be. If it's people doing this for fun or if they're actually using it to commute or if they're using it to send packages. I think it'll be really interesting to see how they quickly commercialize this. And so definitely watch this space. But at least I think they should change the name because it's a mouthful. E V T O L as an acronym. So we're going to have to find a different one.

[James King]

You're definitely right there.

[Alice Han]

Okay, James, it is prediction time. What's your prediction for the future as you look into your crystal ball?

[James King]

Okay, well, I'm gonna stay with the low altitude economy. I'm not talking about these flying taxis. I'm talking now about drones. Because the other thing that's happening in China in the low altitude economy is that the drone delivery market is really taking off, excuse the pun. And it look like this year maybe there could be more than 5 million packages delivered by drone in China. That would be up from 2.7 million packages delivered last year. The important thing about this is that, as I'm sure you're aware, Alice, the key thing about delivering packages is that it's quite costly in what they call the last mile. So, you know, the last stage of the delivery process where the delivery person has to find your house and then post your package through your letterbox, or if you're not there or you don't have a letterbox, do something else. That's the costly bit of delivery. So having a drone that can literally come to your front door and just drop the package on your doorstep is going to be a lot cheaper. And that's why we're seeing such a big uptick in the drone delivery market in China. So my prediction is 5 million packages delivered this year in China by drone.

[Alice Han]

It sounds like we're going to have a lot of drone overcapacity. There's going to be drones everywhere. So, James, my prediction is more left field, and it's centered in France, where the French fraud watchdog has suspended Shein from operating in France. Now, Shein, as many will recall, is China's fast fashion retailer platform. And apparently it seems that on the Shein platform there were illegal sales of these sex dolls that resembled children. These listings have been taken off of Shein and Shein has confirmed this. But I think this is symptomatic of a larger issue that is rising between the EU and China, which centers around trade and technology. Whereas in previous episodes we discussed a great deal of tension between Washington and Beijing, I think what we are starting to see is more storm clouds emerging between Brussels and China. My own sense in talking to people from Europe is that they were very unhappy with the way in which China basically used the rare earth's export controls, even though China has since walked that back. And I think that that move engendered a great deal of mistrust from the policymakers in Europe. So my sense is that there's going to be more investigations in the next few months on Chinese goods, not just the ones that they've listed, for instance, on Chinese tires. And there may be more, I think, sanctions on Chinese companies in Europe, in addition to what we're seeing with Nixperia, for instance, the Chinese semiconductor company based in the Netherlands. This, I think, is a tide that is ultimately symptomatic of worsening trade relations between Europe and China.

[James King]

A very interesting call. I have a hunch that you're right about that. I think the Europe may well get a bit tougher.

[Alice Han]

All right, that's all for this episode. Thank you so much for listening to China Decode. This is a production of Prof. G Media. Our producer is David Toledo. Our associate producer is Eric Chanikis. Our video editor is Ness Smith Savadoff. Our research associate is Dan Shalan. Our technical director is Drew Burrows, our engineer is William Flynn, and our executive producer is Katherine Dillon. Make sure to follow us wherever you get your podcast so you don't miss an episode. Talk to you again next week.

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[Alice Han]

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