Alice Han (2:16)

Welcome to China Decode. I'm Alice Han.

James King (2:18)

And I'm James King.

Alice Han (2:20)

In today's episode of China Decode, we're discussing China's strategy to compete with Nvidia, why the renminbi remains so undervalued. And later we'll speak with Patrick McGee, author of the fascinating book Apple and the Capture of the World's Greatest Company, about Apple's complex relationship with China. That's all coming up, but first let's Do a quick check in with how the Chinese markets are starting the week. On Monday, the Shanghai A share index rose 0.5%. The Hang Seng H share index closed down 1.2%, its largest loss in over two weeks. Pop Mart International closed down over 8% on continued fears over North American sales trends. And Chinese chip maker SMIC increased 3% as investors look to profit off of the budding domestic chip race. But more on that in just a moment. All right, let's get right into it, James. China's chip race just opened up a new front. More Threads, a startup founded by a former Nvidia executive in China, exploded more than 400% on its first trading day in Shanghai, raising over a billion dollars and instantly becoming Beijing's latest chip champion in its push to build homegrown alternative to Nvidia. The company isn't profitable yet. It's under US Sanctions, and it's still nowhere near the cutting edge relative to, say, Taiwan or the States. But its Munster IPO signals something larger. China is pouring unprecedented capital and political muscle into manufacturing graphic processing units, or GPUs, hoping to close the gap and secure another pillar of technological independence. James, beyond this name being great, More Threads, what strikes me as being fascinating is the fact that you have such a huge gain on its frustrating day. I looked it up relative to, say, Nvidia or even SMIC, and this is orders of magnitude larger. SMIC opened 64% on its IPO day stock surge. Camber corn was 230%. This is 425%. Now, we can talk about whether or not it's overvalued, but what is clear is that there's a ton of enthusiasm on the mainland for Chinese chip makers. This is something that we flagged in the past. But what's your take very, very quickly on whether or not this is an overvalued stock and why we've seen so much frenzy for this new entrant into the domain that is really trying to be the Nvidia of China.

James King (4:45)

Yeah, Alice, I mean, it's really hard to know whether this frenzy is justified at the moment, but what I think it does speak to is the size of the Chinese semiconductor industry, the size of the sector.

James King (4:59)

You know, the prospects that this sector has already. China is the world's biggest market for semiconductors this year. Maybe there's going to be more than US$200 billion spent in buying semiconductors in China. And this company, Moore's Threads, basically wants to replace Nvidia. I mean, this sounds like A big aim. And it may be that, you know, Moore's Threads will never be the Nvidia of China. But at the moment it looks like the market is betting on, well, maybe that it will partly replace some of Nvidia's sales in China. So that's a very big thing to say straight off because Nvidia sells about US$17 billion in China this year. That's about 13% of its global revenues. And as we all know, Nvidia is the world's biggest company. So as usual in our discussions, Alice, we're painting on a huge canvas here. The implications of what may or may not happen here are really enormous. The other thing is that as you've already mentioned, China has a clear and explicit policy to boost sales of domestic chips. That's domestically made chips and not imported chips. And as we've seen, China is putting its money where it's mouth is. It's got something called the Big Fund to give it its proper name. It's called the National Integrated Circuit Industry Investment Fund. It's basically around US$100 billion.

James King (6:41)

In three tranches that are given as subsidies to promising Chinese semiconductor companies. And the latest tranche is about US$50 billion. So the Chinese state is very.

James King (6:59)

Companies like Moore's Threads that are aiming to replace foreign companies selling semiconductors into China. So at the moment, although things seem to be sort of stacked against this small Chinese company or well, relatively small. I mean it's starting from a low base, it doesn't make a profit, it's on the US export control list. So there's a lot of things that are not necessarily auguring that well for it, but the big picture, the size of the market, the size of the government support and the fact that it makes a product or makes so called GPUs which are intended to directly replace quite a few of Nvidia's sales in China. All of those things I think are behind this enormous valuation and the way in which obviously investors in China are getting behind it. But overall I'd say at the moment it's too early to say whether this company will be successful. What's your take?

Alice Han (8:01)

Yeah, I think it's too early to say. And just some details about this. To your point, James, they've really expedited the IPO for this company. They obtained the IPO approval from the Shanghai stock exchange in 88 days and that's a record in SSE history. And then we've got other listings that are coming down the pipeline as well. That's Worth watching. Apparently the Shanghai Stock Exchange has approved applications from other chip makers like Med X Integrated Circuits, SJ Semiconductor, Xiaoman ux, ic. So there's a whole host, as you're rightly mentioning, James, within an ecosystem that they're really trying to rapidly build in chips. But the bullish case is that it's going to end up being something like cameracon, which is a chip maker for AI accelerators. And that's seen a 14 fold surge in revenues in Q3. Now the company's finally profitable after running losses. But you know, we were doing the maths together the in the first three quarters of this year, revenues are up 181% year on year. But still in the last three years, More Threads has run 6 billion of losses. It's still not yet profitable. And as we mentioned previously, at the top of this episode 20, 23 October 2023, more threads was added to the US's entity listing. So there's a ban on what it can import. And right now, to your point, James, they're trying to offer these GPUs within a full stack of chips, networking and software that is used to run the chips in data centers. So the goal really is to help in AI training, 3D graphics rendering and physical simulation. Whether or not they can get there and be competitive in Nvidia remains to be seen, but it certainly is a compelling story, not just because of the government push, but even the background of the founder. This is a guy who worked at Nvidia, the China desk, for 15 years. He was the head of China. He was a computer science graduate from Nanjing University of Science and Technology, worked for HP and Dell before Nvidia, and now is a newly minted billionaire along with a lot of his other colleagues. So we'll see whether or not he can be the new Jensen Huang of China. But certainly I think we agree, James, that there's a lot of government backing behind this guy as well as the other companies that are coming up behind them.

James King (10:11)

That's it. Absolutely. And I think quite a few people in the US will be looking at the fact that the founder of this company, Moore's Threads, used to head up the operations of Nvidia in China. And thinking, you know, how much American technology and know how is kind of going out the back door to Chinese companies. I'm not saying this is illegal, but you know, as China begins to catch up, and you've mentioned some of the cases there, you mentioned Cambricon, and of course Huawei has got some chips which are now competing and gaining some big contracts in the China market, now competing also with Nvidia. I think quite a lot of people in the US Are wondering, you know, how do we stop know how and technology going out of the back door of some of our biggest companies to Chinese competitors? And I think that this is another case that really will concentrate the minds of policymakers in Washington and other people in the industry as well.

Alice Han (11:12)

Okay, we'll be back with more just after a quick break. Stay with US.

Patrick McGee (11:17)

Foreign.

Podcast Host (Ad Read) (11:22)

For today's show comes from Apollo Global Management. What if we're clinging to a status quo that no longer exists? What if public markets no longer reflect the economy? What if your portfolio has hundreds of public holdings but only one story? What if growth lives where the index doesn't? What if large scale projects outlast the capital intended to fuel them? What if private markets power over 80% of US lending? What if a silver tsunami is no longer on the horizon? It's here. What if there's a hole in traditional retirement plans? What if we've constantly underestimated the impact of change? What if the financial world doesn't work the way you think it does? These aren't just hypotheticals. In a world moving forward, your thinking can't sit still. Reserve your first edition at Apollo.com/ask what if.

Podcast Host (Ad Read) (12:22)

In business they say you can have better, cheaper or faster, but you only get to pick two. What if you could have all three at the same time? That's exactly what Cohere, Thomson Reuters and Specialized Bikes have since they upgraded to the next generation of the cloud. Oracle Cloud Infrastructure OCI is the blazing fast platform for your infrastructure, database, application development and AI needs where you can run any workload in a high availability, consistently high performance environment and spend less than you would with other clouds. How is it faster? OCI's block storage gives you more operations per second cheaper. OCI costs up to 50% less for compute, 70% less for storage and 80% less for networking better. In test after test, OCI customers report lower latency and higher bandwidth versus other clouds. This is the cloud built for AI and all your biggest workloads right now with zero commitment. Try OCI for free. Head to oracle.com Vox that's oracle.com Vox Foreign.

Alice Han (13:32)

Welcome back. As we head into 2026, one of the biggest open questions in global markets is whether China is finally ready to let the renminbi strengthen in a meaningful way. On paper, the currency is deeply undervalued and historically so by as much as 40 to 50% depending on the metric you use. And economists inside and outside China say a stronger yuan could boost household spending, ease trade tensions with the rest of the world and help Beijing pivot away from its export led growth model. But politically, Xi Jinping's team is caught between wanting global credibility for the yuan and wanting tight control over the exchange rate at a time of deflation, weak domestic demand and a fragile property sector. Just to walk this back to first principles, the reason a currency's value matters relative to other currencies is that it decides the trade competitiveness or cheapness simply relative to other currencies. So if China is, and it has been devaluing its currency relative to other currencies around the world, it effectively is making its good cheaper relative to other goods around the world. So that's why this currency issue remains salient when we're talking about trade imbalances. You know, we've done some internal calculations over the last few years and it seems that the currency could be devalued by as much as 20% if you are accounting for internal and external dynamics in the balance of payments. We can go into the nitty gritty of the balance of payments and why they diverge so much from the customs data that the Chinese government officially present. But I found compelling Brad Setz's point, and Brad says is really someone I rate highly in this space. Based on the IMF data, we could see the currency being devalued between 18 to 30%. So as much as 30%. And the reason this matters is because it is fundamental to China's trade surplus with America, with Europe, with many countries in the rest of the world. And it's fundamental to the fact that Chinese economy remains structurally very imbalanced. You know, when you have a weak currency it benefits the exporters, it benefits China's export led growth model, but it does not benefit everyday households, everyday Chinese who are buying and choosing to use the CNY to purchase say foreign goods that are relatively then more expensive. So it's baffling I think to a lot of Western observers why as China wants to rebalance its economy, it remains still wedded to a low CNY model because at the end of the day it seems to be at a disservice to the rebalancing efforts to support the household, to support domestic demand. But my own take, and I want to get yours very quickly James, is that at the end of the day, as much as they talk about rebalancing, this whole economic model is, is still highly dependent on exports, it's still highly dependent on the manufacturing sector. And if anything, the five year plan that we'll see unveiled fully in March seems to suggest that they want to double down on this manufacturing led growth. So I think even although they want to talk about more recently in domestic China, a stronger cny, it's hard for me to see them let go of this weaker CNY policy. But I looked at the data of China's currency devaluation. Since about 2021, we've seen it go down 18%, whereas the other currencies like the dollar and the Euro have risen since the end of 2021. And more importantly than that, actually what we saw this year, in spite of the fact that the currency has been relatively strong to the dollar, if you look at the trade weighted basket, and this is important, the cf, ETS and MMB index, that's China's currency relative to a basket of other trade related foreign currencies, it's been going down since the beginning of this year. It's been depreciating relative to the euro, to the gpy, to a lot of these other trading currencies. And this is excluding the US where obviously we've seen this weak dollar story that's driven some degree of relative CNY strength this year. But James, enough of my rambling about this. What's your hot take on the CNY and why it matters?

James King (17:44)

Yeah, no, I mean, we're speaking just a few hours after China announced its trade surplus for November. And that means that in the first 11 months of this year, the Chinese trade surplus for goods already is in excess of US$1 trillion. And that means that for the full year it might be about US$1.2 trillion, which according to various estimates that I've been looking at, means that this could be one of the highest trade surpluses in history, roughly equivalent to some of the huge surpluses we saw the US have in the last years of the Second World War. So we're really talking about exceptionally high trade surpluses. And one of the reasons for that, of course, is that the renminbi, the yuan, the cny, whatever we call it, is undervalued. That means that all of China's exports to the world are much cheaper than they should be according to various different estimates that economists make. And I think the reason that this is so key right now is that some people, just a few, not that many inside China, are starting to talk about a window for renminbi appreciation. So the person that really came onto my radar was A man called Mao Yanliang. He is chief strategist at the China International Capital Corporation, which is a famous investment bank in China. Some people call it the Goldman Sachs of China. And he said that because China's manufacturing competitiveness is so strong, a window for renminbi appreciation is opening. And then another quite influential Chinese voice, Weijian Shan, who is chief executive of a private equity company called pag, he's based in Hong Kong. He said, and this is even more dramatic, that a gradual appreciation of at least 50% in the value of the renminbi over the next five years would be both feasible and beneficial to China. So I don't know if we agree on his estimate there of over 50%. But you know, in the minds of several economists and some of the data that you've just been quoting, the renminbi is severely undervalued. We're talking 20, 30. And so if this really does change now, even if there's a gradual appreciation that goes on for several years to come, so many things will change. China's appetite for imports may well change because it means that imports will become cheaper to Chinese people. Maybe investors all over the world will say, oh, Chinese assets are going to become more valuable relative to the US dollar as the renminbi climbs against the US dollar. And so therefore let's buy some of these Chinese stocks. I mean, I remember I was in Japan in the 80s, I remember that happening in such a massive way in the 80s, after the yen began to appreciate post the plaza accord in 1985, I think it was, and huge tidal waves of capital inflows into the Japanese market. I'm not saying that's going to happen this time. I don't think that history will repeat itself, but it could rhyme. We could get a situation in which Chinese assets become more popular, more attractive to investors around the world. So the last thing I'd mention, which is a slightly humorous thing, is the so called Big Mac. This is the Economist magazine's kind of back of the envelope calculation on whether or not a currency is overvalued or undervalued. And it basically compares the price of a Big Mac sold at McDonald's in the US let's say compared to, in this case China. And currently a Big Mac in McDonald's in the US costs 6.

James King (22:01)

Whereas in China it costs the equivalent of 3.6 US dollars. So you can see that even according to the Big Mac index of the Economist, the renminbi is severely undervalued. So let's see how this goes. But there really is no more important price in the whole economy than the price of its currency relative to other currencies. So if the renminbi does start to appreciate, a lot of things will change.

Alice Han (22:31)

Yeah, I'm somewhat skeptical that the voices that you mentioned will be the dominant ones in this debate. As you know, James, for the better part of a decade we've heard a lot of talk about China needing a stronger currency to promote RMB internationalization. But when we look at the figures, they haven't really moved that much in terms of the share of global FX reserves in terms of the share of global payments. Now they've marginally increased in the share of global payments. But if you look at the share of FX reserves, the US is still at about 56%. China's is about 2% share of global FX reserves. And look, if they really cared about strengthening the cny, this could help actually make CNY more attractive for payments in trade invoicing and for an FX reserve in the share of other countries global FX reserves. So we'll have to watch this space. I'm a bit more on the skeptical side. One thing that I will add as we're still in the midst of this phase two of a trade deal between the US and China. When I was in China in November, there was some discussion about a quiet Plaza Accord, you know, a la 80s between Japan and the US where Japan quietly appreciated its currency, facing pressure from the Americans to do so. Similarly, we saw something happen between China and the US in 2016, there was discussion about a Shanghai accord. Look, I think this could be a way in which China helps in the trade negotiations because ultimately Trump wants a weaker dollar and he believes that currencies really drive trade imbalances, rightly or wrongly. So again, we should watch this space because I think it's politically salient in the ongoing trade talks between Washington and beij. Certainly this administration in the US cares a lot about currencies. So we'll have to see if there is pressure put on the cny.

James King (24:26)

Well, finally, we disagree on something. Alice, you're not buying this story of renminbi appreciation as much as me, I think. But that's interesting. I mean, let's see how it goes. I fully get your point. This is the dog that didn't bark on so many occasions. On so many occasions in the last 20, 30 years. I can remember when everybody outside China was getting really excited about the renminbi appreciation. And often it never happened. And in some cases the opposite happened. The renminbi Depreciated. So, you know, maybe you're right. But I'm gonna stick my neck out this time. I think it might happen this time. And I also note that President Emmanuel Macron of France, who was in China just recently, was talking about the threat of potential protectionism in Europe and, you know, things like that. So maybe it's on China's radar that unless it allows the Renminbi to appreciate, it could be storing up quite a bit more pressure from some of its most important export markets.

Alice Han (25:30)

Yeah, definitely. Okay, let's take one last quick break and we'll be back with Patrick McGee. So stay with us.

Podcast Host (Ad Read) (25:40)

Zoe, the mall's about to close.

Patrick McGee (25:42)

It's impossible to do anything in 15 minutes.

Podcast Host (Ad Read) (25:44)

Oh, it's possible, Harvey. I mean, you can switch to T mobile in just 15 minutes. So you think you can find your auntie a sweater?

Patrick McGee (25:49)

Come on, you spent an hour buying jelly beans.

Podcast Host (Ad Read) (25:51)

I know. I do love jelly beans.

Alice Han (25:53)

Trust me. Now you can switch to T mobile.

Podcast Host (Ad Read) (25:54)

In just 15 minutes. Plus you'll get America's best network. No, no, 15.

Patrick McGee (25:59)

Maybe I should switch to T Mobile right now.

James King (26:01)

This holidays.

Patrick McGee (26:02)

Switch to T mobile in just 15 minutes from your phone. Check out in 15 minutes or less per line. T Mobile is the best mobile network in the US based on analysis by Ooklo speed test intelligence data 1H 2025.

Podcast Host (Interviewer) (26:12)

Well, welcome back. We're joined now by journalist Patrick McGee. He is the author of the fascinating book Apple in China, the Capture of the World's Greatest Company, which was published earlier this year to widespread acclaim. Patrick, thanks so much for joining us. It seems quite fitting that you are our first guest. I believe there is a NFT connection with James as, but you are the honorary first guest. So welcome to China Decode.

Patrick McGee (26:37)

Amazing. Huge honor. Thank you, Alice. Thank you, James.

Podcast Host (Interviewer) (26:39)

Well, let's go straight into your book, which I am midway reading and I am absolutely loving it. Your book takes a reader through the recent history of Apple's incredible investment in China. What's striking to me is that Apple, as a company earning $400 billion in revenues, is unlike most U.S. tech companies. It is very hardware dependent and very China dependent. And in fact, in the course of its evolution and relationship with China, it's actually doubled down on its China dependency. And the iPhone is still its most important product with huge vulnerabilities because of its relationship and ties to China. Why, to your mind, has China doubled down on this strategy that's made it even more reliant on China in the last few years?

Patrick McGee (27:23)

Not less well, the subtitle of the book is the Capture of the World's Greatest Company. And it's because there just is no other place on the planet where Apple can build products in the quality it needs, but especially at the quantity it needs and of course, at the cost that it requires. They've been making, you know, investments in China across hundreds of factories for 25 years. There's just no other place where those investments would have the same return on investment. And there's no other place just capable of achieving what Apple has demanded. And so the history really is a narrative of how Apple and China sort of came to be partners. Right? There's sort of a marriage here of skill and scale. And I think there's a bit of hubris within Apple that thinks, look at what we did the last 25 years. Now we can do that in India. And for a bunch of reasons that, like, I wish were incorrect, because I would love to see things take off in India, I just don't think that copy and paste strategy is really going to work. I think their fate is really tied to China for a host of reasons. And, you know, ideas that they're going to move production or diversified production to the United States, for instance, I think are fanciful. And we're going to have a whole host of bad policies if we think that's a realistic opportunity.

Podcast Host (Interviewer) (28:28)

And just a quick follow up. Why is it that it's so hard to get off this China dependency? What is it that's so sui generous and unique about the China case that makes it so captive?

Patrick McGee (28:39)

Apple's products are just really complicated and they're doing so at huge scale. So if you remember the first iPhone in 2007, they only made about 5 million of them. And it was only a US product, right. It didn't even work outside of AT&T networks in the United States. By 2015, they were building 230 million of them a year. Right? There are a thousand components within each iPhone. If you're building up to a million a day in peak season, you're operating with a billion components per day. I mean, America just doesn't have factories to really make any of those components, let alone all of them. And China introduces in the early 2000s, sort of something called next door manufacturing. Where in the previous years Apple would be building in Taiwan, but relying on a network that would be in Singapore, Thailand, Malaysia, China would be part of it, and Japan and Korea. And you know, when you were prototyping something, you were literally crossing bodies of water, right, to sort of do the assembly and then make things work and then crossing all the way back to California to show it to Steve Jobs. Right. This is sort of in the early chapters, China made that instead of crossing bodies of water and going through customs and all this sort of stuff, it made it a walk down the street. Right. The way that they introduced world leading ports, eight lane highways, high speed rail. The efficiencies in China just aren't seen on a similar scale anywhere else on the planet. I mean, I've talked to people really senior at Apple in the 2000s who would say even if we knew Xi Jinping was coming when the iPhone was birthed, where else would you have us go? There was just no place where you had the sort of what Kyle Chan has called absorption capacity to understand and deploy Apple's lessons. So, I mean, there's probably other reasons, but I hope that's a decent overview as to just why China's so dominant and why Apple has no other choice.

James King (30:19)

Absolutely. And terrific to have you on. Patrick. I'm just interested a little bit in the political context of this. I mean, you started off by showing us how Apple has been captured by China. Does China's holdover Apple give China any kind of political influence in Washington or other forms of influence? What do you think about that?

Patrick McGee (30:42)

Well, yes, I mean, obviously China's holdover Apple is just one of many factors. So maybe it's difficult to pinpoint that expressly, but I just think when Donald Trump went after China in Trump 2.0, right. In just the recent months, Beijing didn't have to do a lot, right. Sort of lifted its sleeves just to show the muscle. I mean, the policy of, you know, licensing rare earth minerals for any sort of product wasn't even something that took effect. But the mere threat of that essentially was considered a break the glass moment. And Washington complained about it. But essentially Trump had to back down. I mean, I think he's deploying a strategy that might have worked in 2016 and 17, not realizing just how more prepared for it China is this time round. Right. I mean, you think of policies like the Belt and Road initiative. I mean, I mean, that is many things, but one thing it is, it's an initiative to make sure that there are thriving markets outside of Europe, outside of America, where China can send its exports to made in China. 2015, I think, has been a wildly successful plan on the part of China to become dominant across 10 different industries. And the book makes the case that Apple, however inadvertently, is the biggest supporter of Made in China 2015, which is a fairly stunning claim, but I think one that's pretty well backed up in the 400 page narrative.

Podcast Host (Interviewer) (31:54)

Well, another thing that struck me as interesting, Patrick, in your book is the fact that in a way, and I'm inferring it, you can't have Huawei and Xiaomi in China without Apple in China. That there were in some of these contracts embedded within the relationship between the OEM suppliers and Apple, that they couldn't be the suppliers too dependent on Apple. Can you walk us through that a little bit? Because I find that fascinating when we think about the introduction of these western companies like Apple and Tesla, that in a way they kind of kickstart a domestic ecosystem that wouldn't have existed without them.

Patrick McGee (32:26)

Yeah, I mean, this is sort of like a second order, third order impact of what it means to have Apple operations in your country, which is that like the biggest contribution I think the book makes to Apple history is that Apple doesn't outsource in the traditional way. Right. If you and I build a product together or design a product together, the idea of finding an outsourcer is, you know, someone that's competent in the wherewithal of how to actually build something. The assumption is that there is a producer available to do that. China's narrative or Apple in China's narrative, they don't find the competence in China, they build the competence in China. Literally just engineering 101 with so many Apple engineers that, you know, among the industries Apple disrupts is the airline industry. Right. United begins flying to places like Hangzhou and Chengdu, places that are as furthest away, like as as is possible in United's entire network. And they begin flying there three times a week with the understanding that Apple will buy so many first class tickets that it doesn't matter if the rest of the plane is empty. Right. So they are having an enormous contribution building up the competencies, in fact purchasing the machinery and installing it on the production line of all these factories. And so, you know, that's just like sort of the biggest takeaway of the book, that Apple had this massive influence on all of these factories. So once Apple has built up these competencies, what they experience is that, you know, if you remember the first 567 iPhone, there were pretty major changes to those designs. And so what would happen basically is if they obviated the need for certain components, ipso facto they were obviating the need for that entire supplier. And because Apple's such a secretive company, that supplier would find out sort of at the last possible second and again, if you remember going from 5 million iPhones in 2007 to 230 million by 2015, imagine you're on the ground floor of that sort of exponential growth and then Apple just cuts you off off after you've made all sorts of investment and you've got all sorts of people in real estate and machinery, I mean you would just go bankrupt. I mean so this was just happening kind of all the time where if Apple made that sort of turn it was causing all sorts of sort of political problems because they'd be working with, you know, the Alexa Foxhond would be working with who's on the politics and the grounds there. And so Apple instituted this rule called the 50% rule which was that they would tell their supplier however fast you were growing without us, you need to grow that fast with somebody else. So it was a self interested reason. It gave Apple flexibility, right? They felt like they could pivot without sort of causing such damage. But if I'm lens technology and Shenzhen and Apple's been telling me and teaching me and co creating to be clear, you know, facilities and processes to take Corning glass that's cut by the meter and then cut it, temper it, you know, help etch it with multi touch technology, well what am I going to do with that? With those ideas I'm going to teach the local homegrown suppliers. I'm going to teach Huawei and Oppo and Vivo and Xiaomi. So Apple in a sense built up its own competitors who were able to rely on the very competencies that Apple had brought to the country. My sort of quip about this is that in the west we often think that Apple killed Nokia, right? Nokia wasn't able to keep up with multi touch technology and software, the iOS. I think it's much more of a hardware story. But if it's a hardware story, Apple was never big enough to kill Nokia. Nokia often had 50% penetration in certain markets. Apple's never had more than 20% globally. So who killed Nokia? And the answer is the Chinese competitors that Apple had made so good by building up a supply chain that they could all rely on.

Podcast Host (Interviewer) (35:52)

Fascinating.

James King (35:53)

Just looking forward a little bit Patrick, I mean if we try to think forward maybe a decade or five years or something like that, what hope do you think the rest of the world, I mean the west has to loosen? China's capture of Apple and other big tech companies, not just Apple. I mean in the case of Apple there is this attempt to get manufacturing going in India. I've seen various Numbers, but there are quite a few iPhones now being made in India. Do you think that's a long term strategy? Do you think it's something that could bear fruit over a 5, 10 year timescale? Or are we basically in a world in which China captures Apple, dominates the supply chain for smartphones for the foreseeable future?

Patrick McGee (36:43)

It's such a pessimistic outlook at the end of the book and it's unfortunately the one that I still have now. I'm always hoping that some expert is able to shake me out of my pessimism and I've sort of been asking that, you know, adamantly of all sorts of people that I've been meeting over the last six months and basically just nobody has been able to do it and they're not really even trying. I mean, sort of the more you know about the fields, the more you understand about China's dominance in these sectors and how incapable other places are, not least of which America, but unfortunately India for a host of reasons as well. So, I mean, look, it's basically, you know, engineers and executives that are working in India on behalf of Apple or its suppliers like Foxconn and Tata that are the ones that are saying like, this isn't working the way that we need it to. Right. If you talk about India speed, you're not talking about as the equivalent of Shenzhen or China speed. It's unfortunately a pejorative term. India just doesn't have the same next door facilities or ecosystems. They want to have the higher value add added stuff, the sort of things that the Koreans, for instance, are really great at, but they don't quite get that. What makes China so good is having everything right. Deeply skilled PhDs at Foxconn coupled with migrant labor, where the job can literally be taught to you in 20 minutes on a Monday and by Friday you're already at the peak of your strength, your abilities to be able to pull that off. India sort of doesn't want to play those roles, or rather the ministers driving the change in certain provinces like Tamil Nadu and Karnataka don't want to play those roles. And yet if they don't, they're never going to compete with with China. So unfortunately, I'm quite pessimistic about our chances and I would maybe just point to basic statistics and projections like from the United nations that would say China today has roughly one third of the value added in manufacturing. And their projection for 2030 is that China will have 45% of it. I want to be more optimistic, but when that's the sort of broader paradigm that we're working in. Where is the optimism coming from?

James King (38:31)

Absolutely. If I could just have a quick follow up. I mean, what kind of geopolitical power does this give China? I mean, if China's making 45% of the world's manufacturing value added by 2035, was it? And there's another reference to a scholar calling China the OPEC of intermediate products. Cause it makes so many of the components that the world needs to make. Just about everything. What sort of geopolitical power does that give China going forward? I mean, does that mean that China can basically hold everybody to ransom, indulge in a big of economic coercion when it wants to get its way in the world, either politically or in economic matters?

Patrick McGee (39:15)

Yeah, I mean, aren't we already seeing that? I mean, that's sort of the lesson, I think, over the last six months or so. So I would sort of say we're just watching that play out. Right. I mean, Even before Trump 2.0, it was Biden that put 100% tariffs on EVs coming from China. And if Europe sort of doesn't impose that sort of policy, you're just going to see more and more electric vehicles taking over. There's this line from Noah Smith that I really like. You know, the, the economist who talks about how overcapacity is seen as a problem from a Western lens, but through China's lens, this is just something where by producing more than they need and then exporting it at cutthroat prices or even losing money in certain respects, I mean, they're just de industrializing other nations and that's not good for sort of capitalism in the process. But if you're using this as industrial statecraft, if not war profit is not the goal.

Podcast Host (Interviewer) (40:06)

That's a great way to think about it. Patrick McGee, thank you so much. This is a great case study for how hard it is to actually decouple from China. Patrick McGee is the author of Apple in China. Patrick, thank you so much for your time.

Patrick McGee (40:17)

Thank you. Appreciate it.

Alice Han (40:21)

All right, James, it's predictions time. What's your prediction for the week?

James King (40:25)

Well, I'm gonna stick with the renminbi and as I say, I'm gonna nail my colors to the mast. I' most certainly be wrong because I think every currency prediction I've ever come across has been wrong in some way. But I'd like to say because I think it's so important that I think next year 2026, the renminbi will appreciate by 10% against the US dollar. And this will have enormous impacts all over the world, both in flows of capital into China and, and potentially, you know, the interest that Chinese people show in buying foreign imports as well. So that's my prediction, Alice. I know it's a bold one. I may not be right, but I do think that, you know, what I'm trying to get at is the direction that I think this is going to take. I do think the renminbi will appreciate.

Alice Han (41:17)

Well, James, it's good to put your money where your mouth is. And so we'll see at the end of next year whether or not we drink a toast to that trophy. Okay, so my prediction is more on the back of French President Emmanuel Macron's recent trip to China, which felt very Gaulist. You know, if you're a student of history and the 60s, you'll understand why the fandom that he received in China was pretty incredible. But I think it's paint over a relationship that is deteriorating between Europe and China. Europe runs a huge deficit with China to the tune of $350 billion in 2024. I could see the Chinese offer olive branches, so to speak. There were Airbus officials there now in the past they've had Airbus officials in previous trade meetings. But I think that the Chinese could potentially offer the olive branch of buying more Airbus planes. I could see them dropping certain investigations into say, European pork again to help the relationship. They've certainly started to do this French cognac. But on the flip side, I sense in Europe, and I want to get your quick take on this too, my prediction in the European context is that we're going to see a lot more in the form of trade investigations, tariffs and non tariff barriers against Chinese goods and a more concerted effort to de risk from China. I think the critical minerals part is a big part of this as well. So I think we're going to have a two pronged nature to this relationship. On the one hand, China trying to make nice. On the other hand, the Europeans on a totally different planet where they're very, very concerned about the dependency on China.

James King (42:52)

Yeah, I mean, I think that Europe is certainly getting very hot under the collar about the size of its deficit with China, its trade deficit in particular. But I think tariffs will be difficult for Europe. What will be easier and what I expect to see much more of is non tariff barriers. And I think 2026, you know, which chimes with your prediction, may well be the year of non tariff barriers in Europe aimed at keeping these super hyper competitive Chinese exports out to some degree.

Alice Han (43:25)

Definitely watch this space. And I know you're heading to Europe, so we'll definitely touch base next week. 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 Janikis, our video editor is 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 podcasts so you don't miss an episode. Talk to you again next week.

Podcast Host (Ad Read) (44:12)

No matter how many times we say we're going to have our holiday shopping done by December 1st, some of us are just December 24th shoppers. But with Aura Frames, you can give your loved ones a personal gift that will make them think you had it planned since last year without even leaving the house. Just plug it in, install the free app, connect to Wi Fi, and you can preload photos straight from from your phone to a beautiful Aura frame for a limited time. Save on the perfect gift by visiting auraframes.com to get $35 off Aura's best selling carver map frames using promo code vox at checkout. That's a U R A frames.com promo code Vox terms and conditions apply.

Patrick McGee (45:00)

What do walking 10,000 steps every day.

Podcast Host (Ad Read) (45:02)

Eating five servings of fruits and veggies, and getting eight hours of sleep have in common?

Patrick McGee (45:07)

They're all healthy choices, but do all healthier choices really pay off with prescription plans from CVS Caremark? They do.

Podcast Host (Ad Read) (45:15)

Their plan designs give your members more choice, which gives your members more ways.

Patrick McGee (45:20)

To get on, stay on and manage their meds. And that helps your business control your costs because healthier members are better for business. Go to CMK Co Access to learn.

Podcast Host (Ad Read) (45:32)

More about helping your members stay at home. Kieran that's CMK Co Access.

Podcast Host (Ad Read) (45:41)

Support for this show comes from Neiman Marcus. This holiday season, Neiman Marcus is your home for the most exceptional gifts. From the ultimate stocking stuffers to statement bags made for celebration to their legendary fantasy gifts that surpass every expectation, Neiman Marcus has something extraordinary for everyone and with style advisors to guide you, finding the perfect gift at every price point is effortless. So head to Neiman Marcus for a truly unforgettable holiday.