AI transcript
0:00:05 Hello, this is Scott Galloway from Prop G Media. We try to bring you podcasts that both educate
0:00:10 and entertain that are data-driven. We’ve found a space in the market and we want to test a pilot
0:00:17 here. Simply put, every second-order effect or near the center of every major geopolitical
0:00:23 occurrence or economic occurrence is one entity, China. And if, like me, one day you’re convinced
0:00:27 China is doomed due to a demographic collapse and over-leverage in the real estate market,
0:00:31 and then the next day you think they’re an unstoppable power because of their manufacturing
0:00:37 prowess and scooping up alliances that the United States has decided to forego, we have a difficult
0:00:43 time finding really good information on China. And that’s what we see as the white space. So we found
0:00:50 two very talented people, Alice Hand, who you likely recognize from our Prop G Markets podcast. She’s one
0:00:56 of our most celebrated guests. And also James King, who was the European and Asia correspondent for the
0:01:04 Financial Times. So with that, please give us your feedback on this pilot podcast of China Watch and
0:01:09 let us know what you think at hey at propgmedia.com. Again, we’d really appreciate your feedback
0:01:18 at hey at propgmedia.com. Or you can just drop a comment on Spotify. So with that, here is China Watch.
0:01:26 And to my mind, the real winner, I think, of that Alaska summit wasn’t Washington or Moscow, it was
0:01:37 actually Beijing. Welcome to China Watch. I’m Alice Hand. And I’m James King. Today’s episode of China
0:01:44 Watch, we’re discussing three main topics in the news. Number one, China’s reaction to the US-Russia summit in
0:01:51 Alaska. Number two, Trump taking a page potentially from Xi Jinping’s state-run capitalism. And number
0:01:58 three, China’s first ever robot Olympics. I wanted to start off with the Alaska summit between Trump
0:02:04 and Putin because I think Beijing has an important perspective on that relationship, given its outsized
0:02:11 influence both on Russia and America. So last week’s Alaska summit didn’t quite deliver the ceasefire in
0:02:16 Ukraine that some countries and some leaders wanted, and certainly that the White House itself was hoping
0:02:22 for. Trump himself called it great progress, quote unquote. But when he was pressed, he admitted that
0:02:29 there is no deal until there is a deal. And to my mind, the real winner, I think, of that Alaska summit
0:02:35 wasn’t Washington or Moscow. It was actually Beijing. I think what’s worth mentioning, and I remember seeing
0:02:41 this in the Chinese state-run media in advance of the summit was that China was welcoming this bilateral
0:02:46 meeting and saying that it would be good for global peace. And while China didn’t actually call for a
0:02:53 ceasefire, it has been in the camp of supporting both sides negotiating. And certainly, to my mind,
0:02:58 and this is something that I want to get your opinion on, James, Beijing doesn’t, in effect, want Russia to
0:03:04 lose. And actually, it stands to gain from the Ukraine conflict continuing. And certainly, I think
0:03:10 that this relationship between Russia and China will continue to impact China-US and even China-Taiwan
0:03:16 relations moving forward. So just a quick question, James, what was your sort of takeaway from the
0:03:18 Alaska summit? And how do you think it will impact China?
0:03:24 Well, one of the revealing things that Trump said was that President Biden did something
0:03:35 unthinkable. He drove China and Russia together. That’s not good. If you are just a minor student of
0:03:40 history, it’s the one thing you didn’t want to do. Because they’re basically natural enemies. Russia has…
0:03:46 So I think that there is an interesting angle on this, and that is that the US is clearly thinking that the
0:03:53 closeness of Russia and China, those two great powers, are huge in terms of territory and population that
0:04:00 bestride Asia. Having those two countries so closely aligned is not in the interest of the United States.
0:04:06 I thought that was a very interesting aspect to what happened in Alaska. And so I think a lot of
0:04:13 people are wondering whether or not the US can drive a wedge between Russia and China, whether or not it
0:04:21 could even perhaps break up the China-Russia axis. And from my perspective, I have to say, I think this could
0:04:29 well be US wishful thinking. You know, I went to the Russian border with China about 10 years ago. And
0:04:37 while I was there, I stood at this very becalmed city called Hege. And you’re just sort of looking
0:04:46 north into the wide expanses of Siberia. It’s almost like a place that time forgot. And it’s a very evocative
0:04:51 place. The river that you’re standing by is called the Amor in Russian. But in Chinese, it’s called
0:04:59 Heilongjiang, which means the Black Dragon River. And indeed, the flow of that river is so strong and dark
0:05:05 that it conjures up the idea that there could be somehow a dragon lurking there. But that was 10 years
0:05:10 ago, really nothing happening on the Russian border, very little commerce, very little trade,
0:05:19 and not a single bridge across 1000 miles of this Amor River that flows between the countries and forms
0:05:26 the borders between them. But if you go there today, what you find, I think, supplies the reason why
0:05:34 Russia and China will be very difficult for the US to prise apart. That reason is that there’s so much going
0:05:40 on now. There’s huge border trade. There are three bridges over the river now that have been recently
0:05:52 built. China is a big customer for Russian natural gas. Trade is now about 220 billion US dollars a year.
0:06:01 And the most important glue between Russia and China now is geopolitics. China supports Russia in terms of its
0:06:07 war in Ukraine. And the reason it does that primarily is because, as you mentioned, Alice,
0:06:10 China’s biggest geostrategic
0:06:18 priority these days is to make sure that if it has to fight a war in Taiwan on its south and southeast
0:06:24 border regions down there, then it can do so. It doesn’t have to worry about its northern border
0:06:32 with Russia becoming unstable. And so for this crucial geopolitical reason, I think that the Russia-China
0:06:42 axis will remain pretty strong, probably for some time to come. And that, I reckon, makes Trump’s idea
0:06:48 that somehow Russia and China being so closely aligned could be a problem and perhaps that the US could
0:06:52 drive a wedge between them. I think that’s probably wishful thinking.
0:06:55 LESLIE KENDRICK I completely agree with that. I think for structural reasons,
0:07:01 let’s start with those. Russia, energy-rich country, but lacks capital and technology. China,
0:07:07 rich in capital and technology. And I’ve just been looking into some of the data of massive FDI flows
0:07:12 in the last few years going into Russian infrastructure, Russian construction. On top of that,
0:07:18 we’ve also got massive tech sales and automobile sales going from China to Russia as well.
0:07:24 LESLIE KENDRICK I think it’s worth mentioning at a personal level the relationship between Putin and Xi.
0:07:30 Xi has met with Putin as a global leader more than any other leader in his time in office. I think he has
0:07:37 obviously attached a great deal of personal value to this relationship. And although you hear grumblings
0:07:42 at the ministerial level when I go to China for instance and talk to people who are policy advisors to Beijing,
0:07:46 grumblings that Russia historically hasn’t been
0:07:53 a strategic ally, there has been a history of border conflicts even as early and more recently in the 60s.
0:07:59 But certainly I think this relationship on personal grounds has become very, very important to Xi Jinping.
0:08:05 I would also mention that while I thought that Trump had a narrow window of opportunity at the beginning of
0:08:10 his administration to do a reverse Nixon, meaning get closer to Russia at the expense of China,
0:08:16 I think he’s blown that with his foreign policy both on Ukraine, but also his trade policy.
0:08:24 And I think by basically giving this trade detente to China, which we’ve seen since the Stockholm meeting,
0:08:33 it’s effectively, I think, prioritized improved relations with China over really trying to cripple China and get closer to Russia.
0:08:38 So I think even although Trump had an opportunity at the beginning of his administration,
0:08:40 China and Russia seem to have gotten even closer.
0:08:45 What I will have to flag, and I’m curious if you have thoughts on this too, James, is that
0:08:48 North Korea has a degree of participation in this conflict too.
0:08:52 We’ve seen North Korean troops going into the conflict in Ukraine.
0:08:55 They seem to be profiting from the conflict as well.
0:09:00 And this begs the question, how is the axis of ill will these authoritarian countries from
0:09:04 Russia to China to Iran to North Korea faring in Trump 2.0?
0:09:10 And how do you think that these authoritarian powers are testing American resolve and American primacy?
0:09:16 Yes. I mean, there does seem, as you say, to be a view out there that we’re facing a kind of
0:09:25 concerted axis of authoritarian powers against the West. To me, this really is very overblown. I think that
0:09:31 each of the powers that are involved in Ukraine are there for their own reasons. Russia, because it
0:09:38 covets Ukrainian territory, and because of the character of Vladimir Putin, who sees himself
0:09:45 in terms of restoring Russia’s historical pride, China’s involved, as I mentioned, because it
0:09:53 prioritizes its geopolitical relationship with Russia, because it really needs to shore up its southern and
0:10:01 southeastern border so that it can, if it comes to it, it can fight over Taiwan. And I think North Korea,
0:10:09 in a very sad way, to be honest, is there because it needs to earn the money. I’ve read that for each of
0:10:19 the soldiers that North Korea sends to Ukraine. It’s earning about US$2,000 a month. And there are other
0:10:26 statistics saying that Pyongyang, the capital of North Korea, has earned more than US$20 billion from
0:10:34 sending arms and military assistance to the Ukraine theatre. So it seems to me that really North Korea’s
0:10:41 interest in this is not geostrategic. It’s not trying to form some kind of an axis of authoritarian powers
0:10:47 against the West. It’s just there to make money. And we all know that North Korea is one of the poorest
0:10:54 countries on the planet. I myself have been there. It’s really a kind of grinding poverty everywhere you
0:10:58 look. So I personally think that those are the main issues in play.
0:11:04 Yeah. And one other data point that I think is worth mentioning is just that since Russia, Ukraine,
0:11:09 the increase in trade dependency between Moscow and Beijing, you know, there’s a statistic that
0:11:15 in the late 90s and early 2000s, about 10% of Russian exports were destined to China. Now that figure
0:11:21 more recently in the last few years has reached 30%. I wouldn’t be surprised if that grows as an ongoing
0:11:28 trend. And it seems that the majority of Chinese imports from Russia are in the form of oil and gas,
0:11:34 so about 75%. And, you know, this is maybe a separate discussion we can have later on about
0:11:39 China’s energy transition. But it brings about interesting questions about China trying to reduce
0:11:45 its energy dependence, trying to create more homegrown varieties, some of them renewable, some of them
0:11:50 coal, some of them nuclear. That’s a separate discussion, but certainly I think still a timely and a lively one.
0:11:51 Yeah.
0:11:56 Well, let’s take a break and stay with us. We’ll talk to you soon.
0:12:10 Welcome back. We’re going to talk about the second item on the agenda, and that is how Trump may be
0:12:16 learning from Xi Jinping and taking a leaf out of his playbook. What seems interesting to me,
0:12:21 as somebody who studied Chinese political economy for quite a bit of time, is the way in which Trump
0:12:28 seems to have been adopting a lot of the techniques that Xi has refined over the last decade or more.
0:12:34 Intel was the biggest, most powerful chip company in the world. And then
0:12:41 they started leaving and they started going to foreign countries, in particular Taiwan. Now, with
0:12:46 that, they’ve had some bad management over the years and they got lost. And I said, I think you
0:12:53 should pay us 10% of your company. And they said, yes, that’s about $10 billion. I don’t get it.
0:13:00 Whether it’s nationalization of certain companies and industrial policy when it comes to semiconductors,
0:13:05 even to some extent crypto. And more recently, I thought this was quite amusing, James, grabbing
0:13:12 a golden share in US steel. And he seems to be personally directing the tech bros and a lot of these
0:13:20 CEOs to do foreign investment pledges, both domestic CEOs and foreign CEOs. There’s been obviously
0:13:28 pressure in the last few years on TSMC to grow its Arizona plan and potentially expand its presence in
0:13:34 America. And so some people have hailed this as state capitalism with American characteristics, which is
0:13:41 very tongue-in-cheek. But I think it’s worth mentioning that in a way, Biden continued what
0:13:46 Trump 1.0 did with the IRA. He launched these subsidies for clean energy and semiconductors.
0:13:53 And Trump has just been using the executive authority to push this agenda more aggressively. And you’re
0:13:58 starting to see an impact on the way that foreign investors are treating America. I sense from my
0:14:04 clients that people are a little bit unsure and worried and apprehensive, especially my European
0:14:10 clients about where to invest in America, given the state largesse and uncertainty about where Trump
0:14:15 is actually going to direct his attention. So James, you know, somebody who has followed America closely
0:14:22 too, is Washington’s turn towards state capitalism, you think, a smart correction, or is it a risky power
0:14:26 grab by Trump? Can he ultimately be as successful as she has been?
0:14:31 Like you, Alice, I really like this phrase that people are using about the US adopting state
0:14:39 capitalism with American characteristics. As anyone who studied China knows, this is a direct echo from
0:14:46 Deng Xiaoping’s phrase about what the Chinese economy would do, which was adopt socialism with Chinese
0:14:53 characteristics. And of course, that opened the door for all of the capitalist reforms that set China onto its
0:15:01 current path. So to sort of be using that in a backhanded way about Trump’s policies is really highly ironic.
0:15:12 But I must say, I have a bit of a personal reflection on this because I went to the TSMC plant in Arizona last
0:15:21 year. And I was really blown away by it. Of course, this plant costs about 65 billion US dollars to
0:15:28 create. And now the full price tag for the whole series of plants that are going to be built there
0:15:35 could be as much as 165 billion US dollars. Now, that would be the biggest foreign investment in American
0:15:46 history. And it was to a significant extent lured to come to Arizona to Phoenix from Taiwan by the funding
0:15:55 from the US chips and science act. I think the TSMC plant in Phoenix got about 6.6 billion in direct
0:16:03 funding and it’s able to get about another 5 billion in low cost government loans. So this was a massive
0:16:10 achievement. However, when I was there in Arizona, looking at the clean rooms being taken around this
0:16:16 this factory that’s going to be making close to the cutting edge computer chips that can be made anywhere
0:16:23 in the world, there was one really big question that hangs over the longer term viability of this plant.
0:16:33 And that was, how much will it cost TSMC to make an advanced chip in Arizona compared to how much it
0:16:39 would cost to make the same chip back in Taipei in Taiwan? And the answer that we heard sort of off
0:16:46 the record from scientists who’d worked at TSMC was probably about double. In other words, it will be
0:16:54 twice as expensive to make those chips in Arizona as it is back in Taiwan. And I think that raises a big question
0:17:02 over the viability of US industrial policy going forward. We’ll have to see how it all pans out. Maybe the bigger
0:17:10 the plant gets, the more the economies of scale start to click in. But back to your question, you know, it really is
0:17:18 curious to look from here in Europe, I’m based in London now, at the way US policy is turning towards
0:17:25 industrial policy and towards this much more state directed form of capitalism. We’ve just spent the last
0:17:32 really post-war period doing exactly the opposite and looking at countries like China and thinking, oh, well,
0:17:39 they can never be successful doing state capitalism. And now it looks like the US is at least flirting
0:17:44 with this idea. How do you feel about that, Alice? I mean, do you feel this is sort of very kind of
0:17:48 mind warping moment? Well, I have a lot of thoughts about this. So let’s just take it in a quick
0:17:54 suggestion. When you were talking about TSMC, it reminded me of what my colleague Chris Miller has been
0:18:00 saying, Chris Miller who wrote Chipple. And he was saying recently that cost is definitely an issue.
0:18:07 It is way more cost efficient to produce cutting edge semiconductors in Taiwan versus Arizona.
0:18:13 That might be true for many years to come. But the bigger issue actually, and oftentimes is the case
0:18:19 when it comes to cutting edge technologies, human capital. So the leading engineers are still mainly
0:18:26 in Taiwan. There are not enough bodies, so to speak, to basically bring over to Arizona without compromising
0:18:32 the fabs back in Taiwan. So I think that’s going to be a key bottleneck for any kind of American
0:18:41 domestication of semiconductor production, even although Trump and his coterie are putting pressure
0:18:47 on TSMC to expand production in America. I also think that what is interesting to me when you look
0:18:52 at the numbers, even although you’ve got big statements about, for instance, the Stargate
0:18:59 partnership over $500 billion for AI integration and infrastructure over the next four years being
0:19:05 committed by a number of big tech companies. If you add all these red, I would call it red carpet
0:19:11 sums together, it’s still orders of magnitude smaller than what China is committing to its infrastructure
0:19:19 manufacturing powerhouse. The IMF estimates that about 4.4% of Chinese GDP is spent on industrial
0:19:26 policy across subsidies, tax benefits, and land. That is about $700 to $800 billion a year. And the
0:19:32 CHIPS Act, by comparison, is only about $75 billion that’s just dedicated to semiconductor industry. But
0:19:38 even if you sum up all, I think, the red carpet, and I did it back in the envelope, pledges,
0:19:43 it’s still much smaller than China. And I think that the IMF some probably understates the extent to
0:19:49 which policy banks and local government banks are actually financing and subsidizing these firms to
0:19:54 continue to grow. I think EVs are a great example of the way in which local governments competed with
0:20:03 each other to offer subsidies, low rents, basically free land to these EV manufacturers. A great book on
0:20:09 this is obviously Kiyu Jun’s work in which he looks at mayor capitalism, the way in which mayors compete
0:20:15 for companies to come and basically domicile in particular localities. So I think it’s going to be
0:20:22 very hard for Trump to steer the whole behemoth that is America towards a sort of Xi-style industrial
0:20:28 policy. But my last thought on this, James, as a historian, is that America has flirted with
0:20:33 protectionism throughout its history. You know, you only look back to the founding fathers. Hamilton
0:20:40 was a big proponent of America being a manufacturing, a domestic manufacturing powerhouse. He wasn’t so
0:20:48 keen about free trade. And then when you move further on into the early 20th century, you also see moves,
0:20:53 whether it’s the Smoot-Hawley tariffs that were put into place, you know, huge protectionist barriers
0:21:00 against imports coming into America, or even FDR in the 30s, where you did actually see a
0:21:07 great degree of fiscal stimulus in industrial policy. So I think America has had its history of trade
0:21:13 protectionism, of industrial policy, but it’s hard to see it ever compete at the level at which China has attained.
0:21:15 And a lot of that is structural, I think.
0:21:22 Yes, I agree. And also sitting here in the UK, it strikes me that what the US is doing, it may not
0:21:30 be optimal, it may be somewhat wasteful, and possibly the US is creating big cost structures in manufacturing,
0:21:35 but at least it’s better than what we’re doing here in Europe, which is virtually nothing. There is no
0:21:42 industrial policy here in a country like the UK, there is no government funding of our chip companies
0:21:49 and our tech companies. So perhaps what we have now is China leading the way in industrial policy,
0:21:56 as you said, spending hundreds and hundreds of billions on this, and then the US starting to move
0:22:05 after it. And at least the US has a highly advanced chip factory there in Phoenix, Arizona. And then
0:22:07 Europe really lagging far, far behind.
0:22:13 Yeah, that’s definitely a conversation for another podcast, because I think it, to my mind,
0:22:20 is quite baffling that Germany, for instance, that was a front runner in manufacturing industry 4.0,
0:22:27 which China tried to copy, has really fallen behind in a lot of key manufacturing sectors,
0:22:33 not in the least EVs and automobiles. But that’s definitely a topic that we can pick up at a later
0:22:38 date. I’ll end with a thought, and I’m curious again to hear what you think about this. I’ve been
0:22:45 toying with writing this op-ed about Trump’s tributary system. I think that Trump’s way of holding on to
0:22:53 power and treating the rest of the world reminds me of late-stage Qing Empire, China, in the way that
0:22:59 the Qing Empire is trying to address these “unequal treaties” with foreign countries during the opium
0:23:05 wars, and in the way in which Trump sees a kind of tributary system in which other countries should
0:23:09 pay tribute through tariffs. That’s something that I’ve been toying with as a concept. I think,
0:23:16 in some respects, yes, he is learning from Xi, but I think he’s learning from some of the 19th-century
0:23:19 pathologies of late-stage Qing Empire.
0:23:25 Well, I mean, you certainly had the right photographs to back up that thesis with all of the, well,
0:23:32 many of the European heads of state sitting there in front of Trump in the White House as supplicants,
0:23:38 really, listening to whatever instructions Trump wanted to hand out. I thought that was a very,
0:23:44 very big moment in terms of, well, certainly the visuals in our relationship.
0:23:49 And what was it that Tim Cook gave him? A gold plate in his Oval Office recently?
0:23:51 That’s right, yeah. Yeah, that’s right.
0:23:55 Quite literally paying tribute to Emperor Trump.
0:24:00 Yeah. Well, let’s take a break here. Stay with us. We’ll come back and discuss more on China.
0:24:15 Welcome back. Last weekend in Beijing, robots ran, kicked, and well, some of them fell over a lot
0:24:22 at the world’s first human node robot games. We saw some of these robots playing soccer,
0:24:28 even scoring goals, some of them failing to score goals. We saw some kickboxing bots flailing in
0:24:33 midair and a sprinter robot that accidentally knocked over a human. There was much laughter,
0:24:38 a lot of clapping. And honestly, it was actually quite impressive, if not a little bit strange and
0:24:44 curious. But here’s the thing. Engineers say that the crashes aren’t failures. They’re testing effectively
0:24:50 for agility, endurance, battery life. Before these robots basically hit the factories and reach
0:24:58 consumers in hotels and even our homes. And it’s not just fun and games. China is racing the US to lead
0:25:04 the future of AI and robotics. And I think this is an interesting story to look into the way in which
0:25:11 China’s maybe race to AI is going to be different from the US’s. To my mind, when you talk to people in
0:25:16 Silicon Valley, they’re fixated on AGI, artificial general intelligence, basically reaching a level of
0:25:22 super intelligence in which bots will exceed human intelligence. But in China, it seems like they have
0:25:26 a more practical, earthy approach. They want to see a way in which they can commercialize
0:25:33 LLMs, but as well as LLMs or robots in a form of embodied AI in which people interface with real life
0:25:40 robots in real time. So James, you first drew my attention to this. Please tell us what you thought about
0:25:46 these robot games. Are you an AI believer? And do you think China could be leading this race?
0:25:54 Well, thanks, Alice. Yeah. I mean, I thought it was just so engrossing. The world humanoid robot games.
0:26:03 The first one ever held in Beijing. There were 280 teams that came from 16 countries around the world. And
0:26:09 to me, the absolute key moment was when, as you mentioned it, one of the robots that was running the
0:26:17 1,500 meters fell over and then lost an arm. And then it kind of picked itself up and dusted itself
0:26:25 off. And it ran sort of staggering from side to side to the finish line with one of the wires from its sort of
0:26:33 missing arm dangling and flapping in the wind. And to me, the absolute amazing moment was as it crossed the
0:26:41 line, the crowd erupted into cheers and clapping. It was a very human moment for a humanoid robot.
0:26:50 And I guess that everybody loves a plucky loser, whether it’s a robot or an actual human being. And I just think
0:26:59 that this raises quite a big philosophical question. To what extent are humanoid robots pieces of sort of
0:27:06 metal and wire? And to what extent are they kind of taking on human characteristics? Or maybe we are
0:27:13 investing in them human characteristics? That certainly seemed to be happening there at the humanoid games.
0:27:20 But in terms of economics, this is really a key moment in a very different way. The thing I’d like
0:27:27 to point to is that China has now begun mass production of humanoid robots. This is the first
0:27:33 country in the world to do this. There are some very advanced humanoid robots companies in the US,
0:27:41 like Boston Dynamics. But moving to mass production, and we’ve seen this movie so many times before,
0:27:48 when China gets moving on mass production, the prices come down. And I was really gobsmacked
0:27:55 this week to learn that the cheapest humanoid robot made by Unitary, which is the same company that won
0:28:02 many of the races at the humanoid robot games, the cheapest humanoid robot made by Unitary is called the
0:28:14 R1. And that now sells for US$6,000. So that means to me that if you’re a wealthy family, a wealthy person,
0:28:19 you can afford to have one of these guys hanging around in your front room or serving your guests
0:28:25 at dinner or doing any number of other things that you might want it to do. Or maybe it’s going to be in
0:28:33 a hospital fetching and carrying or doing some kind of simple medical procedure. I think that the price
0:28:40 point really changes everything. China’s shift to mass production is probably going to create a market
0:28:47 that will not just be in China, it will be all over the world. So my main reflection on this is that this is
0:28:56 yet another example of China now taking the global leadership in many different technologies. And we
0:29:02 can talk about many other things such as factory robots or different forms of AI, as you’ve mentioned,
0:29:10 or even maybe the trend in China these days towards young women having AI boyfriends. And this is
0:29:16 something that is really catching on as far as I’m aware. There was a prediction I read the other day in
0:29:23 Chinese media that there might be 10 million AI boyfriends to keep, you know, young ladies company
0:29:30 in China. So this is all moving into what some people might think is kind of a brave new world.
0:29:35 I would probably have a slightly more positive reflection on it. I don’t know what you think,
0:29:40 Alice. I mean, are you finding this deeply scary? Or do you think this is sort of just what the future
0:29:46 is going to be? Well, I mean, James, I’m a Luddite. So even using my cell phone gets me a
0:29:51 little bit anxious. I prefer writing letters, to be honest. So probably I’m the wrong youngish person
0:29:56 to ask. But you raised something that was quite interesting when you talked about the AI boyfriends.
0:30:03 My first reaction was this is definitely not going to help she’s demographic drive to get people to
0:30:08 have more babies, which she’s really been pushing. And I wouldn’t be surprised if that’s part of the next
0:30:15 five year plan in October. And number two, I get a sense. And again, because you’ve lived there,
0:30:21 please tell me what you think. I get a sense that the Chinese adopt technology and will adopt AI more
0:30:28 quickly. I mean, domestic Chinese consumers, their uptake will probably be quicker than those certainly
0:30:34 in Europe and maybe even in the US. And my first reaction when you told me about this humanoid games
0:30:41 was the fact that in the US, maybe it was last year, Kim Kardashian came out with an ad with one of
0:30:48 Tesla’s robots. I think it was the Optimus robot. And it wasn’t clear to me if these robots that
0:30:54 that Elon is selling, which are high end robots and very expensive, would be as widespread as the
0:31:01 robots that are currently, as you say in China, orders of magnitude cheaper than their rivals overseas.
0:31:07 And so maybe in the next five, 10 years, we see a future in which in the States, only wealthy people
0:31:13 can afford these humanoid robots, doing their laundry, making their martinis, mowing their lawns.
0:31:19 And in China, you’ll get maybe more basic humanoid robots, but they are more integrated and widespread.
0:31:25 It could be a tale of two different robots, so to speak, and the ways in which consumers
0:31:27 interface and use those robots.
0:31:33 I’m sure somebody will write the book, A Tale of Two Different Robots, pretty soon. I personally
0:31:40 find this pretty dystopian, to be honest. You know, I just look at the capabilities of these robots,
0:31:48 and I just wonder how many people are going to be left with a job when this extraordinary shift in
0:31:54 capacity actually becomes more and more widespread around the world. I mean, we’re now talking in Beijing,
0:32:01 there’s an AI hospital where people are treated by robots entirely. There isn’t a single human being
0:32:08 in the hospital. You know, the children are some of my friends are just starting their careers as nurses.
0:32:14 How long will they have a job if humanoid robots are everywhere? To be honest with you, I sort of feel
0:32:22 that, as you rightly say, the kind of early adopter verve that you see in China all over the place is
0:32:29 pushing ahead so quickly, without due consideration for the human impact of all of this. Of course, we can
0:32:35 all love it when, you know, an armless humanoid robot wins a running race, and we can sort of
0:32:42 feel an empathy with that robot as it crosses the finish line. But do those robots feel an empathy with
0:32:50 us when we lose our jobs? Clearly not. I think we’re heading into really uncharted territory, and I would just
0:32:57 hope that somewhere, some think tank, some respected source starts to think about the human impact of this
0:33:05 technological headlong race, such great points. I also think that, you know, modern China has this pathology
0:33:13 of overcapacity, it’s sort of built in the DNA, that you need to have a supply-side push, depress prices,
0:33:19 so that you can keep the manufacturing engine going. And so, invariably, what we have seen with PVs,
0:33:24 solar panels, wind turbines, more recently EVs, will be applied to humanoid robots.
0:33:29 And that will have massive implications, not just for China, but globally. I think it’s interesting
0:33:35 and worth mentioning that Didi is investing a lot of money and attention towards autonomous driving.
0:33:44 And we could see very, very soon a rollout of these autonomous vehicles that supplant taxi drivers,
0:33:50 gig economy drivers that do deliveries through Meituan, for instance. That is going to have massive
0:33:54 implications for unemployment at a time in which we’ve already seen with this trade war,
0:34:00 youth unemployment went up back up again to 17.8% more recently in July. This is going to be a very,
0:34:06 very difficult job market, I think, for highly educated Chinese youths. And we’ve never had a more
0:34:13 educated Chinese youth in China’s history. I think James Leung, who’s the CEO of Ctrip, is also a
0:34:19 demographer, has mentioned that the current generation of graduate students going to the workforce are going
0:34:26 to be the most educated in China’s history. And so we’re meeting this inflection point in which we are
0:34:33 unraveling more and more of these AI applications. At the same time, you’ve got a huge glut of these
0:34:38 educated Chinese youths that need to figure out where to go. And I think that the Tangping, as you know,
0:34:46 the lying flat trend is going to be an ongoing one, as we try to navigate where these Chinese employees
0:34:52 go. One thing that struck me when I was doing some research was the fact that China has overtaken
0:34:58 Japan in the last few years as being the number one robot producer. Now, as much as 40% of robotic
0:35:05 installations are produced by China, the number two producer is Japan at 10% of global installations.
0:35:10 So if you think about that, that’s a massive market share that is dominated by China. And
0:35:15 I wouldn’t be surprised that they use their manufacturing engine to push that force into
0:35:20 other markets in the EU, where we’ll probably see more concerns about Chinese flooding of AI
0:35:25 applications and robotics, as well as the rest of the world. So it’ll be interesting because it’s not
0:35:31 just a China shock, it’s a China AI shock, which I think could be a sort of round two of
0:35:38 of sort of the global implications of China’s manufacturing machine. It again shows you how
0:35:44 China is so unique, not just in the system and the way that it approaches manufacturing,
0:35:50 but also in the way that consumers, you know, interact with technology. In China, there’s a sense
0:35:55 that consumers get very, very excited about these newfangled technologies. And maybe that’s not the case
0:36:00 in Europe where I think people are more wedded to legacy institutions.
0:36:06 Yeah. The regulators have really got to catch up with the technologists on this one. I think we need,
0:36:12 we desperately need regulations quickly on what we’re allowing these robots to do and protection of our
0:36:19 data, protection of our privacy and protection of our jobs. But we’re certainly entering really
0:36:23 uncharted territory, it’s going to be interesting and bracing to watch, I think.
0:36:26 Well, James, would you ever get a humanoid robot yourself?
0:36:38 Never. Okay, so let me tell you a story. One of the guys we interviewed in China was the head of
0:36:47 a big robotics company in Shenzhen. And he is making factory robots mostly, but he’s starting to make
0:36:54 humanoid robots as well. And he said, you know, it’s my dream that when I’m old, my daughter will
0:36:59 not have to take care of me, that I can be taken care of by a humanoid robot or maybe two or three
0:37:05 humanoid robots. And he said, you know, when my mother was old, I took care of her and I was happy
0:37:11 to do that. But my dream is that when my daughter comes to visit me, she won’t be giving me medical
0:37:17 assistance. She’ll be talking to me, we’ll be having fun, we’ll be interacting, you know, in a more
0:37:25 positive way. And, you know, I thought, wow, that’s quite different from what I had ever imagined.
0:37:31 And so I think I’m persuadable. I think I would also like to spend more time having fun with my
0:37:38 daughter, let’s say when I’m old, rather than her kind of having to work hard to attend to me. Perhaps
0:37:43 if that can be done by a humanoid robot, maybe I’m in the same boat as the guy I interviewed who was
0:37:48 running this robotics factory in Shenzhen. You know, it’s a tough one. This raises a lot of really
0:37:53 interesting questions. Yeah, time will definitely tell. We should definitely keep an eye on this.
0:38:00 In China things, as you know, happen very, very quickly. Before we go, I wanted to talk a little
0:38:05 bit of history. I’m actually heading to China in a couple of days, and it was very difficult to get
0:38:11 meetings in September 3. I don’t know if you’re aware of this, James, but it’s the 80th anniversary
0:38:17 of the end of World War II of basically the Sino-Japanese War and Japanese “aggression” in
0:38:25 mainland China on September 3rd, 2025. And so I was told that a lot of the streets will be closed off.
0:38:31 Ministry officials have been told that they are supposed to participate in the parade, as well as
0:38:37 some of the organization of the parade. But this is a big episode, I think, in Chinese history.
0:38:43 And it’s a form of, I think, nationalistic pride, which again taps into what Xi has been trying to do
0:38:48 in his revival of a lot of nationalistic elements of China’s history. So I thought that was interesting
0:38:53 to think about as I head there in the next few days. And that will definitely be top of mind,
0:38:58 the way in which Xi is implementing his ideological vision of China at the ground level.
0:39:05 If we fast forward to today and the future, one thing that I would love to do moving forward on
0:39:10 this podcast is to get a prediction from each of us about what we think will happen in China,
0:39:16 either in the immediate run or in the long term. So James, do you have a prediction of where China’s
0:39:20 heading anything as small as a humanoid robot or as big as macro data?
0:39:28 Yeah, I’m afraid I haven’t got a cute prediction. I wish I did. But I’m going to go for one of the
0:39:35 big elephants in the room. And that is that I think this year, the Chinese trade surplus will be the
0:39:42 biggest trade surplus in recorded history by any country. And it will exceed a trillion US dollars.
0:39:49 And the reason I make this prediction is because I think this shows how out of kilter
0:39:53 the global economy is. I mean, we’ve been talking back and forth about, you know,
0:39:58 what America is doing to try to counter Chinese competition. We’ve mentioned that Europe is already
0:40:07 far behind China in terms of technology these days. And this glaring trade surplus of a trillion US dollars,
0:40:15 if my prediction comes true this year, shows how much of global activity China has amassed
0:40:21 within its own border. And I think that countries around the world will struggle to deal with this,
0:40:27 not just this year, next year, but, you know, in decades to come. So that’s the kind of big picture
0:40:31 prediction that I’m going to go for. How about you, Alice? What are you, what are you looking at?
0:40:36 Well, firstly, I, I shouldn’t say this because we should try to disagree more often because,
0:40:40 you know, it’s an interesting exercise to be contrarian, but I completely agree. I mean,
0:40:46 looking at the data, we’ve seen a lot of front loading. You’ve seen a lot of rerouting that ultimately
0:40:52 gets destined to the US. So rerouting through third party countries, but ultimately the Chinese
0:40:57 surplus keeps growing. So I completely agree with you. I think we’ll end up with a massive record
0:41:03 Chinese trade surplus because of these tariffs. And for many of these goods, I think rare earths
0:41:07 being a great example, magnets being a great example, many of these goods are hard to substitute out of
0:41:14 China at scale. My own prediction, I think is probably more of a micro one. And, and it was sort of inspired by
0:41:20 an article I read recently about how Manus, the Chinese agentic AI has moved its headquarters to
0:41:26 Singapore. And that drew some degree of eye, I think, from Beijing. But I sensed that this is
0:41:30 going to be an ongoing trend. There’s now speculation that Sheen will do the same. I think there’s an
0:41:38 ongoing trend in which Chinese companies feel as though they need to drop, for lack of a better word,
0:41:43 the yoke of being a Chinese company and wanting to be a more global company. And so Singapore ends up
0:41:49 being a natural, I think, watering hole for these companies. I think even though we’re seeing
0:41:55 a policy pivot where she has been more supportive of Chinese tech, I think Chinese tech companies are
0:42:01 still wanting to rebrand themselves as, as global companies and not just Chinese companies, because
0:42:06 they’re fully aware of, of the backlash that is continuing from many countries against China.
0:42:07 Yeah.
0:42:12 All right. Well, that’s all for this episode. Thank you for listening to China Watch. Our producers are
0:42:19 David Toledo and Eric Janikis. Our researcher and fact checker is Dan Schulen. Our technical director
0:42:25 is Drew Burrows. And our executive producer of Prof G Media is Catherine Dillon. Make sure to follow us
0:42:38 wherever you get your podcasts so you don’t miss an episode. Talk to you again next week.
0:00:10 and entertain that are data-driven. We’ve found a space in the market and we want to test a pilot
0:00:17 here. Simply put, every second-order effect or near the center of every major geopolitical
0:00:23 occurrence or economic occurrence is one entity, China. And if, like me, one day you’re convinced
0:00:27 China is doomed due to a demographic collapse and over-leverage in the real estate market,
0:00:31 and then the next day you think they’re an unstoppable power because of their manufacturing
0:00:37 prowess and scooping up alliances that the United States has decided to forego, we have a difficult
0:00:43 time finding really good information on China. And that’s what we see as the white space. So we found
0:00:50 two very talented people, Alice Hand, who you likely recognize from our Prop G Markets podcast. She’s one
0:00:56 of our most celebrated guests. And also James King, who was the European and Asia correspondent for the
0:01:04 Financial Times. So with that, please give us your feedback on this pilot podcast of China Watch and
0:01:09 let us know what you think at hey at propgmedia.com. Again, we’d really appreciate your feedback
0:01:18 at hey at propgmedia.com. Or you can just drop a comment on Spotify. So with that, here is China Watch.
0:01:26 And to my mind, the real winner, I think, of that Alaska summit wasn’t Washington or Moscow, it was
0:01:37 actually Beijing. Welcome to China Watch. I’m Alice Hand. And I’m James King. Today’s episode of China
0:01:44 Watch, we’re discussing three main topics in the news. Number one, China’s reaction to the US-Russia summit in
0:01:51 Alaska. Number two, Trump taking a page potentially from Xi Jinping’s state-run capitalism. And number
0:01:58 three, China’s first ever robot Olympics. I wanted to start off with the Alaska summit between Trump
0:02:04 and Putin because I think Beijing has an important perspective on that relationship, given its outsized
0:02:11 influence both on Russia and America. So last week’s Alaska summit didn’t quite deliver the ceasefire in
0:02:16 Ukraine that some countries and some leaders wanted, and certainly that the White House itself was hoping
0:02:22 for. Trump himself called it great progress, quote unquote. But when he was pressed, he admitted that
0:02:29 there is no deal until there is a deal. And to my mind, the real winner, I think, of that Alaska summit
0:02:35 wasn’t Washington or Moscow. It was actually Beijing. I think what’s worth mentioning, and I remember seeing
0:02:41 this in the Chinese state-run media in advance of the summit was that China was welcoming this bilateral
0:02:46 meeting and saying that it would be good for global peace. And while China didn’t actually call for a
0:02:53 ceasefire, it has been in the camp of supporting both sides negotiating. And certainly, to my mind,
0:02:58 and this is something that I want to get your opinion on, James, Beijing doesn’t, in effect, want Russia to
0:03:04 lose. And actually, it stands to gain from the Ukraine conflict continuing. And certainly, I think
0:03:10 that this relationship between Russia and China will continue to impact China-US and even China-Taiwan
0:03:16 relations moving forward. So just a quick question, James, what was your sort of takeaway from the
0:03:18 Alaska summit? And how do you think it will impact China?
0:03:24 Well, one of the revealing things that Trump said was that President Biden did something
0:03:35 unthinkable. He drove China and Russia together. That’s not good. If you are just a minor student of
0:03:40 history, it’s the one thing you didn’t want to do. Because they’re basically natural enemies. Russia has…
0:03:46 So I think that there is an interesting angle on this, and that is that the US is clearly thinking that the
0:03:53 closeness of Russia and China, those two great powers, are huge in terms of territory and population that
0:04:00 bestride Asia. Having those two countries so closely aligned is not in the interest of the United States.
0:04:06 I thought that was a very interesting aspect to what happened in Alaska. And so I think a lot of
0:04:13 people are wondering whether or not the US can drive a wedge between Russia and China, whether or not it
0:04:21 could even perhaps break up the China-Russia axis. And from my perspective, I have to say, I think this could
0:04:29 well be US wishful thinking. You know, I went to the Russian border with China about 10 years ago. And
0:04:37 while I was there, I stood at this very becalmed city called Hege. And you’re just sort of looking
0:04:46 north into the wide expanses of Siberia. It’s almost like a place that time forgot. And it’s a very evocative
0:04:51 place. The river that you’re standing by is called the Amor in Russian. But in Chinese, it’s called
0:04:59 Heilongjiang, which means the Black Dragon River. And indeed, the flow of that river is so strong and dark
0:05:05 that it conjures up the idea that there could be somehow a dragon lurking there. But that was 10 years
0:05:10 ago, really nothing happening on the Russian border, very little commerce, very little trade,
0:05:19 and not a single bridge across 1000 miles of this Amor River that flows between the countries and forms
0:05:26 the borders between them. But if you go there today, what you find, I think, supplies the reason why
0:05:34 Russia and China will be very difficult for the US to prise apart. That reason is that there’s so much going
0:05:40 on now. There’s huge border trade. There are three bridges over the river now that have been recently
0:05:52 built. China is a big customer for Russian natural gas. Trade is now about 220 billion US dollars a year.
0:06:01 And the most important glue between Russia and China now is geopolitics. China supports Russia in terms of its
0:06:07 war in Ukraine. And the reason it does that primarily is because, as you mentioned, Alice,
0:06:10 China’s biggest geostrategic
0:06:18 priority these days is to make sure that if it has to fight a war in Taiwan on its south and southeast
0:06:24 border regions down there, then it can do so. It doesn’t have to worry about its northern border
0:06:32 with Russia becoming unstable. And so for this crucial geopolitical reason, I think that the Russia-China
0:06:42 axis will remain pretty strong, probably for some time to come. And that, I reckon, makes Trump’s idea
0:06:48 that somehow Russia and China being so closely aligned could be a problem and perhaps that the US could
0:06:52 drive a wedge between them. I think that’s probably wishful thinking.
0:06:55 LESLIE KENDRICK I completely agree with that. I think for structural reasons,
0:07:01 let’s start with those. Russia, energy-rich country, but lacks capital and technology. China,
0:07:07 rich in capital and technology. And I’ve just been looking into some of the data of massive FDI flows
0:07:12 in the last few years going into Russian infrastructure, Russian construction. On top of that,
0:07:18 we’ve also got massive tech sales and automobile sales going from China to Russia as well.
0:07:24 LESLIE KENDRICK I think it’s worth mentioning at a personal level the relationship between Putin and Xi.
0:07:30 Xi has met with Putin as a global leader more than any other leader in his time in office. I think he has
0:07:37 obviously attached a great deal of personal value to this relationship. And although you hear grumblings
0:07:42 at the ministerial level when I go to China for instance and talk to people who are policy advisors to Beijing,
0:07:46 grumblings that Russia historically hasn’t been
0:07:53 a strategic ally, there has been a history of border conflicts even as early and more recently in the 60s.
0:07:59 But certainly I think this relationship on personal grounds has become very, very important to Xi Jinping.
0:08:05 I would also mention that while I thought that Trump had a narrow window of opportunity at the beginning of
0:08:10 his administration to do a reverse Nixon, meaning get closer to Russia at the expense of China,
0:08:16 I think he’s blown that with his foreign policy both on Ukraine, but also his trade policy.
0:08:24 And I think by basically giving this trade detente to China, which we’ve seen since the Stockholm meeting,
0:08:33 it’s effectively, I think, prioritized improved relations with China over really trying to cripple China and get closer to Russia.
0:08:38 So I think even although Trump had an opportunity at the beginning of his administration,
0:08:40 China and Russia seem to have gotten even closer.
0:08:45 What I will have to flag, and I’m curious if you have thoughts on this too, James, is that
0:08:48 North Korea has a degree of participation in this conflict too.
0:08:52 We’ve seen North Korean troops going into the conflict in Ukraine.
0:08:55 They seem to be profiting from the conflict as well.
0:09:00 And this begs the question, how is the axis of ill will these authoritarian countries from
0:09:04 Russia to China to Iran to North Korea faring in Trump 2.0?
0:09:10 And how do you think that these authoritarian powers are testing American resolve and American primacy?
0:09:16 Yes. I mean, there does seem, as you say, to be a view out there that we’re facing a kind of
0:09:25 concerted axis of authoritarian powers against the West. To me, this really is very overblown. I think that
0:09:31 each of the powers that are involved in Ukraine are there for their own reasons. Russia, because it
0:09:38 covets Ukrainian territory, and because of the character of Vladimir Putin, who sees himself
0:09:45 in terms of restoring Russia’s historical pride, China’s involved, as I mentioned, because it
0:09:53 prioritizes its geopolitical relationship with Russia, because it really needs to shore up its southern and
0:10:01 southeastern border so that it can, if it comes to it, it can fight over Taiwan. And I think North Korea,
0:10:09 in a very sad way, to be honest, is there because it needs to earn the money. I’ve read that for each of
0:10:19 the soldiers that North Korea sends to Ukraine. It’s earning about US$2,000 a month. And there are other
0:10:26 statistics saying that Pyongyang, the capital of North Korea, has earned more than US$20 billion from
0:10:34 sending arms and military assistance to the Ukraine theatre. So it seems to me that really North Korea’s
0:10:41 interest in this is not geostrategic. It’s not trying to form some kind of an axis of authoritarian powers
0:10:47 against the West. It’s just there to make money. And we all know that North Korea is one of the poorest
0:10:54 countries on the planet. I myself have been there. It’s really a kind of grinding poverty everywhere you
0:10:58 look. So I personally think that those are the main issues in play.
0:11:04 Yeah. And one other data point that I think is worth mentioning is just that since Russia, Ukraine,
0:11:09 the increase in trade dependency between Moscow and Beijing, you know, there’s a statistic that
0:11:15 in the late 90s and early 2000s, about 10% of Russian exports were destined to China. Now that figure
0:11:21 more recently in the last few years has reached 30%. I wouldn’t be surprised if that grows as an ongoing
0:11:28 trend. And it seems that the majority of Chinese imports from Russia are in the form of oil and gas,
0:11:34 so about 75%. And, you know, this is maybe a separate discussion we can have later on about
0:11:39 China’s energy transition. But it brings about interesting questions about China trying to reduce
0:11:45 its energy dependence, trying to create more homegrown varieties, some of them renewable, some of them
0:11:50 coal, some of them nuclear. That’s a separate discussion, but certainly I think still a timely and a lively one.
0:11:51 Yeah.
0:11:56 Well, let’s take a break and stay with us. We’ll talk to you soon.
0:12:10 Welcome back. We’re going to talk about the second item on the agenda, and that is how Trump may be
0:12:16 learning from Xi Jinping and taking a leaf out of his playbook. What seems interesting to me,
0:12:21 as somebody who studied Chinese political economy for quite a bit of time, is the way in which Trump
0:12:28 seems to have been adopting a lot of the techniques that Xi has refined over the last decade or more.
0:12:34 Intel was the biggest, most powerful chip company in the world. And then
0:12:41 they started leaving and they started going to foreign countries, in particular Taiwan. Now, with
0:12:46 that, they’ve had some bad management over the years and they got lost. And I said, I think you
0:12:53 should pay us 10% of your company. And they said, yes, that’s about $10 billion. I don’t get it.
0:13:00 Whether it’s nationalization of certain companies and industrial policy when it comes to semiconductors,
0:13:05 even to some extent crypto. And more recently, I thought this was quite amusing, James, grabbing
0:13:12 a golden share in US steel. And he seems to be personally directing the tech bros and a lot of these
0:13:20 CEOs to do foreign investment pledges, both domestic CEOs and foreign CEOs. There’s been obviously
0:13:28 pressure in the last few years on TSMC to grow its Arizona plan and potentially expand its presence in
0:13:34 America. And so some people have hailed this as state capitalism with American characteristics, which is
0:13:41 very tongue-in-cheek. But I think it’s worth mentioning that in a way, Biden continued what
0:13:46 Trump 1.0 did with the IRA. He launched these subsidies for clean energy and semiconductors.
0:13:53 And Trump has just been using the executive authority to push this agenda more aggressively. And you’re
0:13:58 starting to see an impact on the way that foreign investors are treating America. I sense from my
0:14:04 clients that people are a little bit unsure and worried and apprehensive, especially my European
0:14:10 clients about where to invest in America, given the state largesse and uncertainty about where Trump
0:14:15 is actually going to direct his attention. So James, you know, somebody who has followed America closely
0:14:22 too, is Washington’s turn towards state capitalism, you think, a smart correction, or is it a risky power
0:14:26 grab by Trump? Can he ultimately be as successful as she has been?
0:14:31 Like you, Alice, I really like this phrase that people are using about the US adopting state
0:14:39 capitalism with American characteristics. As anyone who studied China knows, this is a direct echo from
0:14:46 Deng Xiaoping’s phrase about what the Chinese economy would do, which was adopt socialism with Chinese
0:14:53 characteristics. And of course, that opened the door for all of the capitalist reforms that set China onto its
0:15:01 current path. So to sort of be using that in a backhanded way about Trump’s policies is really highly ironic.
0:15:12 But I must say, I have a bit of a personal reflection on this because I went to the TSMC plant in Arizona last
0:15:21 year. And I was really blown away by it. Of course, this plant costs about 65 billion US dollars to
0:15:28 create. And now the full price tag for the whole series of plants that are going to be built there
0:15:35 could be as much as 165 billion US dollars. Now, that would be the biggest foreign investment in American
0:15:46 history. And it was to a significant extent lured to come to Arizona to Phoenix from Taiwan by the funding
0:15:55 from the US chips and science act. I think the TSMC plant in Phoenix got about 6.6 billion in direct
0:16:03 funding and it’s able to get about another 5 billion in low cost government loans. So this was a massive
0:16:10 achievement. However, when I was there in Arizona, looking at the clean rooms being taken around this
0:16:16 this factory that’s going to be making close to the cutting edge computer chips that can be made anywhere
0:16:23 in the world, there was one really big question that hangs over the longer term viability of this plant.
0:16:33 And that was, how much will it cost TSMC to make an advanced chip in Arizona compared to how much it
0:16:39 would cost to make the same chip back in Taipei in Taiwan? And the answer that we heard sort of off
0:16:46 the record from scientists who’d worked at TSMC was probably about double. In other words, it will be
0:16:54 twice as expensive to make those chips in Arizona as it is back in Taiwan. And I think that raises a big question
0:17:02 over the viability of US industrial policy going forward. We’ll have to see how it all pans out. Maybe the bigger
0:17:10 the plant gets, the more the economies of scale start to click in. But back to your question, you know, it really is
0:17:18 curious to look from here in Europe, I’m based in London now, at the way US policy is turning towards
0:17:25 industrial policy and towards this much more state directed form of capitalism. We’ve just spent the last
0:17:32 really post-war period doing exactly the opposite and looking at countries like China and thinking, oh, well,
0:17:39 they can never be successful doing state capitalism. And now it looks like the US is at least flirting
0:17:44 with this idea. How do you feel about that, Alice? I mean, do you feel this is sort of very kind of
0:17:48 mind warping moment? Well, I have a lot of thoughts about this. So let’s just take it in a quick
0:17:54 suggestion. When you were talking about TSMC, it reminded me of what my colleague Chris Miller has been
0:18:00 saying, Chris Miller who wrote Chipple. And he was saying recently that cost is definitely an issue.
0:18:07 It is way more cost efficient to produce cutting edge semiconductors in Taiwan versus Arizona.
0:18:13 That might be true for many years to come. But the bigger issue actually, and oftentimes is the case
0:18:19 when it comes to cutting edge technologies, human capital. So the leading engineers are still mainly
0:18:26 in Taiwan. There are not enough bodies, so to speak, to basically bring over to Arizona without compromising
0:18:32 the fabs back in Taiwan. So I think that’s going to be a key bottleneck for any kind of American
0:18:41 domestication of semiconductor production, even although Trump and his coterie are putting pressure
0:18:47 on TSMC to expand production in America. I also think that what is interesting to me when you look
0:18:52 at the numbers, even although you’ve got big statements about, for instance, the Stargate
0:18:59 partnership over $500 billion for AI integration and infrastructure over the next four years being
0:19:05 committed by a number of big tech companies. If you add all these red, I would call it red carpet
0:19:11 sums together, it’s still orders of magnitude smaller than what China is committing to its infrastructure
0:19:19 manufacturing powerhouse. The IMF estimates that about 4.4% of Chinese GDP is spent on industrial
0:19:26 policy across subsidies, tax benefits, and land. That is about $700 to $800 billion a year. And the
0:19:32 CHIPS Act, by comparison, is only about $75 billion that’s just dedicated to semiconductor industry. But
0:19:38 even if you sum up all, I think, the red carpet, and I did it back in the envelope, pledges,
0:19:43 it’s still much smaller than China. And I think that the IMF some probably understates the extent to
0:19:49 which policy banks and local government banks are actually financing and subsidizing these firms to
0:19:54 continue to grow. I think EVs are a great example of the way in which local governments competed with
0:20:03 each other to offer subsidies, low rents, basically free land to these EV manufacturers. A great book on
0:20:09 this is obviously Kiyu Jun’s work in which he looks at mayor capitalism, the way in which mayors compete
0:20:15 for companies to come and basically domicile in particular localities. So I think it’s going to be
0:20:22 very hard for Trump to steer the whole behemoth that is America towards a sort of Xi-style industrial
0:20:28 policy. But my last thought on this, James, as a historian, is that America has flirted with
0:20:33 protectionism throughout its history. You know, you only look back to the founding fathers. Hamilton
0:20:40 was a big proponent of America being a manufacturing, a domestic manufacturing powerhouse. He wasn’t so
0:20:48 keen about free trade. And then when you move further on into the early 20th century, you also see moves,
0:20:53 whether it’s the Smoot-Hawley tariffs that were put into place, you know, huge protectionist barriers
0:21:00 against imports coming into America, or even FDR in the 30s, where you did actually see a
0:21:07 great degree of fiscal stimulus in industrial policy. So I think America has had its history of trade
0:21:13 protectionism, of industrial policy, but it’s hard to see it ever compete at the level at which China has attained.
0:21:15 And a lot of that is structural, I think.
0:21:22 Yes, I agree. And also sitting here in the UK, it strikes me that what the US is doing, it may not
0:21:30 be optimal, it may be somewhat wasteful, and possibly the US is creating big cost structures in manufacturing,
0:21:35 but at least it’s better than what we’re doing here in Europe, which is virtually nothing. There is no
0:21:42 industrial policy here in a country like the UK, there is no government funding of our chip companies
0:21:49 and our tech companies. So perhaps what we have now is China leading the way in industrial policy,
0:21:56 as you said, spending hundreds and hundreds of billions on this, and then the US starting to move
0:22:05 after it. And at least the US has a highly advanced chip factory there in Phoenix, Arizona. And then
0:22:07 Europe really lagging far, far behind.
0:22:13 Yeah, that’s definitely a conversation for another podcast, because I think it, to my mind,
0:22:20 is quite baffling that Germany, for instance, that was a front runner in manufacturing industry 4.0,
0:22:27 which China tried to copy, has really fallen behind in a lot of key manufacturing sectors,
0:22:33 not in the least EVs and automobiles. But that’s definitely a topic that we can pick up at a later
0:22:38 date. I’ll end with a thought, and I’m curious again to hear what you think about this. I’ve been
0:22:45 toying with writing this op-ed about Trump’s tributary system. I think that Trump’s way of holding on to
0:22:53 power and treating the rest of the world reminds me of late-stage Qing Empire, China, in the way that
0:22:59 the Qing Empire is trying to address these “unequal treaties” with foreign countries during the opium
0:23:05 wars, and in the way in which Trump sees a kind of tributary system in which other countries should
0:23:09 pay tribute through tariffs. That’s something that I’ve been toying with as a concept. I think,
0:23:16 in some respects, yes, he is learning from Xi, but I think he’s learning from some of the 19th-century
0:23:19 pathologies of late-stage Qing Empire.
0:23:25 Well, I mean, you certainly had the right photographs to back up that thesis with all of the, well,
0:23:32 many of the European heads of state sitting there in front of Trump in the White House as supplicants,
0:23:38 really, listening to whatever instructions Trump wanted to hand out. I thought that was a very,
0:23:44 very big moment in terms of, well, certainly the visuals in our relationship.
0:23:49 And what was it that Tim Cook gave him? A gold plate in his Oval Office recently?
0:23:51 That’s right, yeah. Yeah, that’s right.
0:23:55 Quite literally paying tribute to Emperor Trump.
0:24:00 Yeah. Well, let’s take a break here. Stay with us. We’ll come back and discuss more on China.
0:24:15 Welcome back. Last weekend in Beijing, robots ran, kicked, and well, some of them fell over a lot
0:24:22 at the world’s first human node robot games. We saw some of these robots playing soccer,
0:24:28 even scoring goals, some of them failing to score goals. We saw some kickboxing bots flailing in
0:24:33 midair and a sprinter robot that accidentally knocked over a human. There was much laughter,
0:24:38 a lot of clapping. And honestly, it was actually quite impressive, if not a little bit strange and
0:24:44 curious. But here’s the thing. Engineers say that the crashes aren’t failures. They’re testing effectively
0:24:50 for agility, endurance, battery life. Before these robots basically hit the factories and reach
0:24:58 consumers in hotels and even our homes. And it’s not just fun and games. China is racing the US to lead
0:25:04 the future of AI and robotics. And I think this is an interesting story to look into the way in which
0:25:11 China’s maybe race to AI is going to be different from the US’s. To my mind, when you talk to people in
0:25:16 Silicon Valley, they’re fixated on AGI, artificial general intelligence, basically reaching a level of
0:25:22 super intelligence in which bots will exceed human intelligence. But in China, it seems like they have
0:25:26 a more practical, earthy approach. They want to see a way in which they can commercialize
0:25:33 LLMs, but as well as LLMs or robots in a form of embodied AI in which people interface with real life
0:25:40 robots in real time. So James, you first drew my attention to this. Please tell us what you thought about
0:25:46 these robot games. Are you an AI believer? And do you think China could be leading this race?
0:25:54 Well, thanks, Alice. Yeah. I mean, I thought it was just so engrossing. The world humanoid robot games.
0:26:03 The first one ever held in Beijing. There were 280 teams that came from 16 countries around the world. And
0:26:09 to me, the absolute key moment was when, as you mentioned it, one of the robots that was running the
0:26:17 1,500 meters fell over and then lost an arm. And then it kind of picked itself up and dusted itself
0:26:25 off. And it ran sort of staggering from side to side to the finish line with one of the wires from its sort of
0:26:33 missing arm dangling and flapping in the wind. And to me, the absolute amazing moment was as it crossed the
0:26:41 line, the crowd erupted into cheers and clapping. It was a very human moment for a humanoid robot.
0:26:50 And I guess that everybody loves a plucky loser, whether it’s a robot or an actual human being. And I just think
0:26:59 that this raises quite a big philosophical question. To what extent are humanoid robots pieces of sort of
0:27:06 metal and wire? And to what extent are they kind of taking on human characteristics? Or maybe we are
0:27:13 investing in them human characteristics? That certainly seemed to be happening there at the humanoid games.
0:27:20 But in terms of economics, this is really a key moment in a very different way. The thing I’d like
0:27:27 to point to is that China has now begun mass production of humanoid robots. This is the first
0:27:33 country in the world to do this. There are some very advanced humanoid robots companies in the US,
0:27:41 like Boston Dynamics. But moving to mass production, and we’ve seen this movie so many times before,
0:27:48 when China gets moving on mass production, the prices come down. And I was really gobsmacked
0:27:55 this week to learn that the cheapest humanoid robot made by Unitary, which is the same company that won
0:28:02 many of the races at the humanoid robot games, the cheapest humanoid robot made by Unitary is called the
0:28:14 R1. And that now sells for US$6,000. So that means to me that if you’re a wealthy family, a wealthy person,
0:28:19 you can afford to have one of these guys hanging around in your front room or serving your guests
0:28:25 at dinner or doing any number of other things that you might want it to do. Or maybe it’s going to be in
0:28:33 a hospital fetching and carrying or doing some kind of simple medical procedure. I think that the price
0:28:40 point really changes everything. China’s shift to mass production is probably going to create a market
0:28:47 that will not just be in China, it will be all over the world. So my main reflection on this is that this is
0:28:56 yet another example of China now taking the global leadership in many different technologies. And we
0:29:02 can talk about many other things such as factory robots or different forms of AI, as you’ve mentioned,
0:29:10 or even maybe the trend in China these days towards young women having AI boyfriends. And this is
0:29:16 something that is really catching on as far as I’m aware. There was a prediction I read the other day in
0:29:23 Chinese media that there might be 10 million AI boyfriends to keep, you know, young ladies company
0:29:30 in China. So this is all moving into what some people might think is kind of a brave new world.
0:29:35 I would probably have a slightly more positive reflection on it. I don’t know what you think,
0:29:40 Alice. I mean, are you finding this deeply scary? Or do you think this is sort of just what the future
0:29:46 is going to be? Well, I mean, James, I’m a Luddite. So even using my cell phone gets me a
0:29:51 little bit anxious. I prefer writing letters, to be honest. So probably I’m the wrong youngish person
0:29:56 to ask. But you raised something that was quite interesting when you talked about the AI boyfriends.
0:30:03 My first reaction was this is definitely not going to help she’s demographic drive to get people to
0:30:08 have more babies, which she’s really been pushing. And I wouldn’t be surprised if that’s part of the next
0:30:15 five year plan in October. And number two, I get a sense. And again, because you’ve lived there,
0:30:21 please tell me what you think. I get a sense that the Chinese adopt technology and will adopt AI more
0:30:28 quickly. I mean, domestic Chinese consumers, their uptake will probably be quicker than those certainly
0:30:34 in Europe and maybe even in the US. And my first reaction when you told me about this humanoid games
0:30:41 was the fact that in the US, maybe it was last year, Kim Kardashian came out with an ad with one of
0:30:48 Tesla’s robots. I think it was the Optimus robot. And it wasn’t clear to me if these robots that
0:30:54 that Elon is selling, which are high end robots and very expensive, would be as widespread as the
0:31:01 robots that are currently, as you say in China, orders of magnitude cheaper than their rivals overseas.
0:31:07 And so maybe in the next five, 10 years, we see a future in which in the States, only wealthy people
0:31:13 can afford these humanoid robots, doing their laundry, making their martinis, mowing their lawns.
0:31:19 And in China, you’ll get maybe more basic humanoid robots, but they are more integrated and widespread.
0:31:25 It could be a tale of two different robots, so to speak, and the ways in which consumers
0:31:27 interface and use those robots.
0:31:33 I’m sure somebody will write the book, A Tale of Two Different Robots, pretty soon. I personally
0:31:40 find this pretty dystopian, to be honest. You know, I just look at the capabilities of these robots,
0:31:48 and I just wonder how many people are going to be left with a job when this extraordinary shift in
0:31:54 capacity actually becomes more and more widespread around the world. I mean, we’re now talking in Beijing,
0:32:01 there’s an AI hospital where people are treated by robots entirely. There isn’t a single human being
0:32:08 in the hospital. You know, the children are some of my friends are just starting their careers as nurses.
0:32:14 How long will they have a job if humanoid robots are everywhere? To be honest with you, I sort of feel
0:32:22 that, as you rightly say, the kind of early adopter verve that you see in China all over the place is
0:32:29 pushing ahead so quickly, without due consideration for the human impact of all of this. Of course, we can
0:32:35 all love it when, you know, an armless humanoid robot wins a running race, and we can sort of
0:32:42 feel an empathy with that robot as it crosses the finish line. But do those robots feel an empathy with
0:32:50 us when we lose our jobs? Clearly not. I think we’re heading into really uncharted territory, and I would just
0:32:57 hope that somewhere, some think tank, some respected source starts to think about the human impact of this
0:33:05 technological headlong race, such great points. I also think that, you know, modern China has this pathology
0:33:13 of overcapacity, it’s sort of built in the DNA, that you need to have a supply-side push, depress prices,
0:33:19 so that you can keep the manufacturing engine going. And so, invariably, what we have seen with PVs,
0:33:24 solar panels, wind turbines, more recently EVs, will be applied to humanoid robots.
0:33:29 And that will have massive implications, not just for China, but globally. I think it’s interesting
0:33:35 and worth mentioning that Didi is investing a lot of money and attention towards autonomous driving.
0:33:44 And we could see very, very soon a rollout of these autonomous vehicles that supplant taxi drivers,
0:33:50 gig economy drivers that do deliveries through Meituan, for instance. That is going to have massive
0:33:54 implications for unemployment at a time in which we’ve already seen with this trade war,
0:34:00 youth unemployment went up back up again to 17.8% more recently in July. This is going to be a very,
0:34:06 very difficult job market, I think, for highly educated Chinese youths. And we’ve never had a more
0:34:13 educated Chinese youth in China’s history. I think James Leung, who’s the CEO of Ctrip, is also a
0:34:19 demographer, has mentioned that the current generation of graduate students going to the workforce are going
0:34:26 to be the most educated in China’s history. And so we’re meeting this inflection point in which we are
0:34:33 unraveling more and more of these AI applications. At the same time, you’ve got a huge glut of these
0:34:38 educated Chinese youths that need to figure out where to go. And I think that the Tangping, as you know,
0:34:46 the lying flat trend is going to be an ongoing one, as we try to navigate where these Chinese employees
0:34:52 go. One thing that struck me when I was doing some research was the fact that China has overtaken
0:34:58 Japan in the last few years as being the number one robot producer. Now, as much as 40% of robotic
0:35:05 installations are produced by China, the number two producer is Japan at 10% of global installations.
0:35:10 So if you think about that, that’s a massive market share that is dominated by China. And
0:35:15 I wouldn’t be surprised that they use their manufacturing engine to push that force into
0:35:20 other markets in the EU, where we’ll probably see more concerns about Chinese flooding of AI
0:35:25 applications and robotics, as well as the rest of the world. So it’ll be interesting because it’s not
0:35:31 just a China shock, it’s a China AI shock, which I think could be a sort of round two of
0:35:38 of sort of the global implications of China’s manufacturing machine. It again shows you how
0:35:44 China is so unique, not just in the system and the way that it approaches manufacturing,
0:35:50 but also in the way that consumers, you know, interact with technology. In China, there’s a sense
0:35:55 that consumers get very, very excited about these newfangled technologies. And maybe that’s not the case
0:36:00 in Europe where I think people are more wedded to legacy institutions.
0:36:06 Yeah. The regulators have really got to catch up with the technologists on this one. I think we need,
0:36:12 we desperately need regulations quickly on what we’re allowing these robots to do and protection of our
0:36:19 data, protection of our privacy and protection of our jobs. But we’re certainly entering really
0:36:23 uncharted territory, it’s going to be interesting and bracing to watch, I think.
0:36:26 Well, James, would you ever get a humanoid robot yourself?
0:36:38 Never. Okay, so let me tell you a story. One of the guys we interviewed in China was the head of
0:36:47 a big robotics company in Shenzhen. And he is making factory robots mostly, but he’s starting to make
0:36:54 humanoid robots as well. And he said, you know, it’s my dream that when I’m old, my daughter will
0:36:59 not have to take care of me, that I can be taken care of by a humanoid robot or maybe two or three
0:37:05 humanoid robots. And he said, you know, when my mother was old, I took care of her and I was happy
0:37:11 to do that. But my dream is that when my daughter comes to visit me, she won’t be giving me medical
0:37:17 assistance. She’ll be talking to me, we’ll be having fun, we’ll be interacting, you know, in a more
0:37:25 positive way. And, you know, I thought, wow, that’s quite different from what I had ever imagined.
0:37:31 And so I think I’m persuadable. I think I would also like to spend more time having fun with my
0:37:38 daughter, let’s say when I’m old, rather than her kind of having to work hard to attend to me. Perhaps
0:37:43 if that can be done by a humanoid robot, maybe I’m in the same boat as the guy I interviewed who was
0:37:48 running this robotics factory in Shenzhen. You know, it’s a tough one. This raises a lot of really
0:37:53 interesting questions. Yeah, time will definitely tell. We should definitely keep an eye on this.
0:38:00 In China things, as you know, happen very, very quickly. Before we go, I wanted to talk a little
0:38:05 bit of history. I’m actually heading to China in a couple of days, and it was very difficult to get
0:38:11 meetings in September 3. I don’t know if you’re aware of this, James, but it’s the 80th anniversary
0:38:17 of the end of World War II of basically the Sino-Japanese War and Japanese “aggression” in
0:38:25 mainland China on September 3rd, 2025. And so I was told that a lot of the streets will be closed off.
0:38:31 Ministry officials have been told that they are supposed to participate in the parade, as well as
0:38:37 some of the organization of the parade. But this is a big episode, I think, in Chinese history.
0:38:43 And it’s a form of, I think, nationalistic pride, which again taps into what Xi has been trying to do
0:38:48 in his revival of a lot of nationalistic elements of China’s history. So I thought that was interesting
0:38:53 to think about as I head there in the next few days. And that will definitely be top of mind,
0:38:58 the way in which Xi is implementing his ideological vision of China at the ground level.
0:39:05 If we fast forward to today and the future, one thing that I would love to do moving forward on
0:39:10 this podcast is to get a prediction from each of us about what we think will happen in China,
0:39:16 either in the immediate run or in the long term. So James, do you have a prediction of where China’s
0:39:20 heading anything as small as a humanoid robot or as big as macro data?
0:39:28 Yeah, I’m afraid I haven’t got a cute prediction. I wish I did. But I’m going to go for one of the
0:39:35 big elephants in the room. And that is that I think this year, the Chinese trade surplus will be the
0:39:42 biggest trade surplus in recorded history by any country. And it will exceed a trillion US dollars.
0:39:49 And the reason I make this prediction is because I think this shows how out of kilter
0:39:53 the global economy is. I mean, we’ve been talking back and forth about, you know,
0:39:58 what America is doing to try to counter Chinese competition. We’ve mentioned that Europe is already
0:40:07 far behind China in terms of technology these days. And this glaring trade surplus of a trillion US dollars,
0:40:15 if my prediction comes true this year, shows how much of global activity China has amassed
0:40:21 within its own border. And I think that countries around the world will struggle to deal with this,
0:40:27 not just this year, next year, but, you know, in decades to come. So that’s the kind of big picture
0:40:31 prediction that I’m going to go for. How about you, Alice? What are you, what are you looking at?
0:40:36 Well, firstly, I, I shouldn’t say this because we should try to disagree more often because,
0:40:40 you know, it’s an interesting exercise to be contrarian, but I completely agree. I mean,
0:40:46 looking at the data, we’ve seen a lot of front loading. You’ve seen a lot of rerouting that ultimately
0:40:52 gets destined to the US. So rerouting through third party countries, but ultimately the Chinese
0:40:57 surplus keeps growing. So I completely agree with you. I think we’ll end up with a massive record
0:41:03 Chinese trade surplus because of these tariffs. And for many of these goods, I think rare earths
0:41:07 being a great example, magnets being a great example, many of these goods are hard to substitute out of
0:41:14 China at scale. My own prediction, I think is probably more of a micro one. And, and it was sort of inspired by
0:41:20 an article I read recently about how Manus, the Chinese agentic AI has moved its headquarters to
0:41:26 Singapore. And that drew some degree of eye, I think, from Beijing. But I sensed that this is
0:41:30 going to be an ongoing trend. There’s now speculation that Sheen will do the same. I think there’s an
0:41:38 ongoing trend in which Chinese companies feel as though they need to drop, for lack of a better word,
0:41:43 the yoke of being a Chinese company and wanting to be a more global company. And so Singapore ends up
0:41:49 being a natural, I think, watering hole for these companies. I think even though we’re seeing
0:41:55 a policy pivot where she has been more supportive of Chinese tech, I think Chinese tech companies are
0:42:01 still wanting to rebrand themselves as, as global companies and not just Chinese companies, because
0:42:06 they’re fully aware of, of the backlash that is continuing from many countries against China.
0:42:07 Yeah.
0:42:12 All right. Well, that’s all for this episode. Thank you for listening to China Watch. Our producers are
0:42:19 David Toledo and Eric Janikis. Our researcher and fact checker is Dan Schulen. Our technical director
0:42:25 is Drew Burrows. And our executive producer of Prof G Media is Catherine Dillon. Make sure to follow us
0:42:38 wherever you get your podcasts so you don’t miss an episode. Talk to you again next week.
In the pilot of China Watch, Alice Han and James Kynge break down how Beijing is positioning itself after the Trump–Putin summit — and why China might quietly prefer a long war in Ukraine. Then, they unpack Trump’s embrace of state-style capitalism and what it means for U.S. allies and rivals alike. Finally, they take you inside Beijing’s first-ever humanoid robot games — a spectacle that’s part comedy, part preview of China’s AI ambitions.
We’d love your feedback. Send us your thoughts to hey@profgmedia.com and let us know if this is something you’d like to hear more of.
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