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0:00:47 Support for this show comes from the Audible original, the downloaded two, ghosts in the machine.
0:00:56 Quantum computers, the next great frontier of technology, offering endless possibilities that stretch the human mind.
0:01:04 But for Roscoe Kodoulian and the Phoenix Colony, quantum computing uploads the human mind with life-altering consequences.
0:01:15 Audible’s hit sci-fi thriller, The Downloaded, returns with Oscar winner Brendan Fraser, reprising his role as Roscoe Kodoulian in The Downloaded 2, Ghosts in the Machine.
0:01:18 This thought-provoking sequel from Robert J.
0:01:18 This thought-provoking sequel from Robert J.
0:01:22 Sawyer takes listeners on a captivating sci-fi journey.
0:01:25 A mind-bending must-listen that asks,
0:01:28 What are you willing to lose to save the ones you love?
0:01:31 The Downloaded 2, Ghosts in the Machine.
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0:01:50 The Earth only has a few days left.
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0:02:01 But a new threat has arisen that could destroy their stored consciousness forever.
0:02:10 Listen to Oscar winner Brendan Fraser reprise his role as Roscoe Kodoulian in this follow-up to the Audible original blockbuster, The Downloaded.
0:02:16 It’s a thought-provoking sci-fi journey where identity, memory, and morality collide.
0:02:21 Robert J. Sawyer does it again with this much-anticipated sequel that leaves you asking,
0:02:24 What are you willing to lose to save the ones you love?
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0:02:30 Available now, only from Audible.
0:02:43 Chinese parents spend five times more on education than the global average.
0:02:49 And I think that’s around 17% of their household income is apportioned to education.
0:02:51 I mean, these figures are really staggering.
0:02:56 And I love this story because it shows you, at a cultural, economic, and social level,
0:03:03 how Chinese society is built and how people are rewarded, what these incentives are from an economic standpoint.
0:03:10 Welcome to China Decode. I’m Alice Han.
0:03:12 And I’m James King.
0:03:20 In today’s episode of China Decode, we’re discussing why Nixperia halted shipments to China amid payment and ownership disputes,
0:03:26 how the Chinese girl call exam shapes access to top universities, jobs, and social mobility in China,
0:03:30 and why Trump and Xi’s trade truce remains murky.
0:03:33 All right, let’s get right into it. James, how are you?
0:03:38 Very good. We’ve had Halloween, so it’s very dark outside. It’s wet.
0:03:40 We’re heading into winter now, Alice.
0:03:43 Definitely. I mean, in London, you’re starting to see the Christmas lights.
0:03:47 But certainly, there’s a lot happening towards the end of this year.
0:03:49 We’re not quite yet in holiday mode.
0:03:55 One of the top issues, to my mind, I think, in the last few weeks has been this Nixperia issue.
0:03:57 And I think it’s somewhat confusing.
0:04:00 So we’ll try to break down the complexities of this story.
0:04:04 So a fresh crisis is rippling through the global auto industry.
0:04:11 And this time, it’s not COVID, strikes, but actually chips, and chips mainly coming out of China.
0:04:18 The Dutch chipmaker Nixperia has suspended wafer shipments to its Chinese factory after a payment dispute,
0:04:24 escalating a geopolitical standoff that’s already got automakers like Honda, Volkswagen, and Stellantis
0:04:28 bracing for production slowdowns and capacity cuts.
0:04:33 This drama started after the Dutch government seized control of Nixperia from its Chinese
0:04:39 owner, Wingtech, citing national security concerns, a move that prompted China to then block exports
0:04:41 from Nixperia’s factories.
0:04:46 Now, as factories on both sides of the world grind closer to a halt, the European and Chinese
0:04:50 governments are scrambling for a diplomatic off-ramp and de-escalation.
0:04:56 For car makers already scarred by years of semiconductor shortages and, more recently, rare-earth shortages,
0:05:02 this could be a painful deja vu, especially since the affected chips aren’t just the fancy AI ones,
0:05:08 but the cheaper everyday components that make windows roll and airbags deploy.
0:05:11 James, there’s so many different characters in this plot.
0:05:18 It seems quite convoluted, but to my mind, it seems that the Chinese are trying to extract some
0:05:19 concessions from the Europeans.
0:05:23 They’re unhappy with the state of play, and certainly with the way in which the Dutch government
0:05:27 has come in and seized control of a company where China has ownership.
0:05:29 What’s your take on this?
0:05:30 I’m curious to hear.
0:05:32 Well, thanks, Alex.
0:05:36 Yes, I’m going to try and break it down to its simple constituent parts.
0:05:40 But before I do that, I think it’s as well to focus on the really big picture here,
0:05:48 because what this, I think, is all about is how the US-China trade war and tech war,
0:05:52 which we’re all so familiar with, is now blowing back onto Europe.
0:05:57 And that really is key, because obviously, Europe is a huge place.
0:06:03 This is also important because China is one of Europe’s biggest trade partners and it’s
0:06:05 Europe’s biggest source of imports.
0:06:12 European countries import many of the industrial components that their own companies cannot do
0:06:12 without.
0:06:21 So that’s why this spat between a Dutch semiconductor company and China is really key, because it shows
0:06:27 what might happen more in the future if relations between Europe and China continue to deteriorate.
0:06:31 It all started rather kind of left field.
0:06:38 As you’ve mentioned, Alice, this is a little-known Dutch semiconductor maker, and it doesn’t make
0:06:39 high-tech chips.
0:06:44 It makes mid-tech chips, the sort of thing that you would need in your car to make the airbag
0:06:47 work, to make the windows go up and down.
0:06:54 So we’re not talking about the cutting edge of technology, but it really has blown up since
0:06:56 about October.
0:07:04 And I think this shows how Europe is being drawn more and more into the US-China tech wars.
0:07:11 It’s also really significant in itself in a very practical way, because it shows how the lack
0:07:18 of these chips that are made by this Dutch company can severely affect European car makers.
0:07:23 Many of those car makers, we’ll come to this more in a minute, have been predicting potential
0:07:26 halts in their ability to produce cars.
0:07:29 So it’s got a very practical side to it as well.
0:07:36 But just as a recap, Nexperia, which is, as you said, a Dutch company, was bought by a
0:07:40 Chinese company, which is called Wingtech, in 2019.
0:07:48 And then last year, the US government put Wingtech on the so-called entity list, which is a blacklist
0:07:53 that restricts the Chinese company’s access to US technology.
0:08:02 Then, in September this year, a new rule from the US meant that the subsidiaries of Wingtech
0:08:07 would also be put on the blacklist, and that included Nexperia.
0:08:16 So the Dutch government acted immediately and seized control over Nexperia that’s based in
0:08:17 the Netherlands.
0:08:23 And it did so by citing a law that came right out of the old Cold War.
0:08:26 So an extraordinary situation followed.
0:08:32 Nexperia in the Netherlands stopped supplying its former Chinese parent company with the
0:08:34 wafers that it needs to make chips.
0:08:37 And of course, then Beijing retaliated.
0:08:42 It blocked Nexperia from getting the products that are made in China.
0:08:47 So in other words, Nexperia back in the Netherlands didn’t have anything to sell.
0:08:54 All of this was really important because suddenly the biggest car makers in Europe, Volkswagen,
0:09:03 BMW, Mercedes-Benz, Stellantis, Fiat, Peugeot, and Volvo, all started to signal that they were
0:09:08 really worried that they wouldn’t be able to get the chips that they need to maintain production
0:09:09 of their cars.
0:09:12 So that’s basically the story as it is.
0:09:14 This is the last little twist.
0:09:22 Just on Saturday, China said it could consider some exemptions from the controls for Nexperia
0:09:23 chip exports.
0:09:30 So in other words, it could be that Nexperia in the Netherlands might be able to get supplies
0:09:36 again from its Chinese company and might be able to start supplying European car makers.
0:09:38 But we’re not sure about that.
0:09:40 Thanks for that, James.
0:09:45 What I find so puzzling about this whole saga is the fact that you basically have the Dutch
0:09:49 government, as you rightly say, James, citing these small Cold War national security concerns,
0:09:53 basically ousting the Chinese CEO of Nexperia.
0:09:58 And basically, according to the South China Morning Post, as I was reading this, the Dutch
0:10:02 government feared that Chinese owners of Nexperia wanted to basically move manufacturing out
0:10:07 of the Netherlands into China, where around 70 percent of the packaging happens anyway.
0:10:12 And this, I think, led Nexperia to be a bit of a collateral damage object in between the
0:10:12 EU.
0:10:14 China brought a trade spat.
0:10:20 But I think from the Chinese perspective, this has obviously motivated the desire for more
0:10:26 export controls, that you can have a more controlled way to respond to these threats that Europe
0:10:28 or America may pose.
0:10:33 I think it’s not a coincidence that you have the rare earth export controls happen at the
0:10:37 same time coming out of China as the export controls for Nexperia.
0:10:43 So in a way, I think the two, the trade spat between EU and China over Nexperia and the trade
0:10:48 spat between the US and China over a host of issues are somewhat related and probably incentivizing
0:10:53 Beijing to take a more controlled stance on a lot of these technologies.
0:11:00 But I mean, the story itself is fascinating because in a way, it’s pretty unprecedented that you have
0:11:06 a European government intervening in a private company, let alone a Chinese company, to oust a CEO
0:11:11 and effectively tell all the employees that they should halt business.
0:11:13 And again, the saga was so fascinating.
0:11:19 It was reading about how in Chinese language social media, the Nexperia headquarters management
0:11:24 basically sent multiple messages to the employees telling them not to listen to the Dutch government
0:11:25 authorities.
0:11:30 So I definitely think that this is a great representation of the fact that a lot of
0:11:36 companies are going to be involved as collateral damage in ongoing trade and technology related
0:11:36 disputes.
0:11:38 And it’s not just a US-China story.
0:11:40 It’s also an EU-China story.
0:11:45 I sense that we’re going to get more stories like this because invariably, we’re seeing China
0:11:50 get more and more access into the European market by buying a lot of players in the high
0:11:50 tech space.
0:11:56 So I think for a lot of companies that are involved in trade or technology between those
0:11:58 two regions, this I think is going to be an ongoing threat.
0:12:02 But what’s your take on the auto implications as well, James?
0:12:08 Because it seems to my mind, just like earlier in the year, a lot of these car companies, when
0:12:13 you see their stocks plummet in response to this, are very much susceptible and at risk
0:12:18 to these supply shortages on chips, even if they’re cheap, as you say, medium-tier chips.
0:12:18 Yeah.
0:12:24 I mean, this is just another classic example of the long arm of Chinese coercive policies.
0:12:31 As you mentioned, Alice, China is able to effectively exert huge leverage over the United States by
0:12:37 restricting rare earth exports to all kinds of American companies that need those rare earths.
0:12:44 And in this case, China can keep these big car companies, wherever they may be, Japan, Europe,
0:12:54 the US, kind of dangling on a string because China controls the supply of the chips that Nexperia
0:12:55 in China makes.
0:13:03 So, really, China is showing yet again that it can cripple a global and very important industry
0:13:08 simply by restricting the supply of a crucial component.
0:13:15 In this case, these mid-tech chips that were made by this previously Dutch company.
0:13:23 So, yeah, I mean, it just shows how China has the whip hand over the global economy in so many
0:13:23 different ways.
0:13:28 And I feel, we’ll get to the prediction part of the program later, but I feel that this
0:13:31 is not going to be the last thing we hear about this.
0:13:38 There are other industries that China can move to control in this kind of coercive way as well.
0:13:39 Yeah.
0:13:44 And if I’m sitting in Brussels or I’m a European government, I’m very worried about the trend
0:13:48 because, you know, part of, I think, why the Dutch government was concerned was that they
0:13:53 were concerned that the manufacturer would get fully moved from the Netherlands to
0:13:53 China.
0:13:57 Currently, they produce these chips.
0:13:58 They’re called foundation chips.
0:14:00 Billions of these foundation chips in Europe.
0:14:05 They assemble and then test them in China where there’s a growing industry of assembly and testing.
0:14:08 And then they re-export them to other markets, including customers in Europe.
0:14:15 Around 70% of the chips made in the Netherlands are sent to China to be assembled and tested and
0:14:15 then re-exported.
0:14:21 So if all these chips basically cut out the Netherlands and are fully produced and assembled
0:14:25 and tested in China, that, I think, bodes ill for the Netherlands.
0:14:30 But I think broadening out, this is an ongoing trend that I’m seeing for a lot of European
0:14:35 countries, including key industrial countries like Germany, where, you know, they once had a
0:14:39 degree of dominance in the supply chain, especially at the high value end.
0:14:44 China is getting even more competitive, cost competitive and logistics competitive.
0:14:48 I think that this is going to paint a very bleak picture for Europe unless it gets its act
0:14:49 together.
0:14:51 That’s my sense and my hot take.
0:14:57 But just very quickly, James, as somebody who lives in the UK but goes frequently to Europe
0:15:00 and talks to people in the region, what’s your sense of this ongoing trend?
0:15:03 Yeah, I mean, you’re absolutely right, Alice.
0:15:05 This is part of a much bigger story.
0:15:11 Part of the issue is that China has a huge trade surplus with the EU.
0:15:15 That was about 304 billion US dollars last year.
0:15:20 So the EU is very much dependent on many of these industrial inputs.
0:15:27 But the other part of it is that China’s has sent up the tech ladder to, I would say, global
0:15:29 preeminence right now.
0:15:32 I said this before on this podcast.
0:15:39 I personally think that China has now overtaken the US in technology and it’s left Europe far
0:15:39 behind.
0:15:46 This has meant that many of the big companies, whether they be in the Netherlands or in Germany
0:15:52 or France or Spain or here in the UK, are feeling like China has moved ahead.
0:15:59 And therefore, more and more companies and more and more importers are dependent on Chinese
0:15:59 products.
0:16:06 And that makes it very difficult for the EU to retaliate against China because Chinese products
0:16:10 are mopping up markets all over the world and they’re mopping up markets here in Europe as
0:16:11 well.
0:16:18 So I think that what we’re experiencing here with this chip spat is basically the foothills
0:16:21 of the tensions that we have coming down the track.
0:16:29 We’re going to get into a much more fractious relationship between the EU and China over technology,
0:16:34 over China moving ahead and over the huge Chinese trade surplus with Europe.
0:16:40 Yeah, and just to round out this discussion, the EU has confirmed that China is suspending
0:16:43 the October export controls for the EU when it comes to these chips.
0:16:48 So it seems that there may be exemptions for the next period chip imports.
0:16:53 And some of the big order makers in Europe, their stocks rose quite a bit on Monday in response.
0:16:57 OK, we’ll be back with more after a quick break.
0:16:57 So stay with us.
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0:19:55 Every June, China comes to a standstill for two days.
0:19:59 Flights are rerouted, traffic is silenced, and millions of families hold their breath.
0:20:06 It’s Gaokou Week, China’s great entrance exam into universities, where more than 10 million
0:20:10 students take the National College entrance exam that defines their futures.
0:20:12 But Gaokou isn’t just a test.
0:20:18 It’s a sorting system that decides who gets into China’s top universities and, by extension,
0:20:22 who gets the best jobs, the best housing, and even social status.
0:20:26 A single point, quite literally, can change the course of a life.
0:20:31 A new book that has just come out, The Highest Exam, How the Gaokou Shapes China, digs into
0:20:37 how this marathon exam became both a ladder of opportunity and a tool of state control in China.
0:20:43 It reveals a system that’s supposed to reward merit, but often mirrors and enhances inequality,
0:20:49 where wealthy Chinese families buy homes in elite school districts or pay for private tutoring
0:20:53 that poorer students just simply can’t afford, despite government crackdowns.
0:20:59 James, this is one of the topics that I find personally fascinating for a number of reasons.
0:21:03 I have a couple of cousins in China who recently went through the Gaokou system.
0:21:09 So I feel as though I’ve vicariously gotten to know how stressful this exam really is.
0:21:13 And I don’t think it can be understated how stressful this exam really is.
0:21:17 Because unlike in the U.S., for instance, where I went to college,
0:21:23 your application has a sum of different criteria or different inputs,
0:21:28 whether it’s the SATs, your extracurricular activities, your school grades.
0:21:30 You’re treated as a holistic package.
0:21:37 In China, quite literally, it all comes down to the score that you achieve at this big entrance exam.
0:21:43 And China has a history of being an exam-oriented culture.
0:21:48 If we look back to the imperial examination system, which purportedly was supposed to be meritocratic,
0:21:53 it quite literally brought young scholars from around China, from the furthest,
0:22:01 most remote places of China, to do an exam where they could get the chance to be a scholar gentry in the imperial court,
0:22:03 a Mandarin in Beijing.
0:22:06 The Gaokou is still, I think, part of that historical legacy.
0:22:09 The figures are honestly quite staggering.
0:22:13 More than 10 million Chinese students take this exam every year.
0:22:18 Last year, there was a record 13.4 million people registered to take it.
0:22:24 And they’re competing mainly for the top 100 universities, of which there are only 500,000 spots.
0:22:27 I was looking at some of the admissions ratios.
0:22:29 Tsinghua is reportedly under 2%.
0:22:35 And just for reference, Harvard, where I went to, I think last year was 3.5%.
0:22:39 So it creates an environment that is deeply high-pressured.
0:22:48 But at the same time, as this book alludes to, and rightly so, it enhances and amplifies the existing inequalities in Chinese society.
0:22:54 And I think it was part of the reason why, much to the dismay and surprise of a lot of shareholders,
0:22:58 the Chinese government cracked down in 2021 on private tutoring companies,
0:23:01 the big private tutoring companies that were involved in cram schools,
0:23:06 because part of the reason was they believed it was leading to these economic inequalities,
0:23:10 but it was also increasing the economic burdens for parents.
0:23:13 You know, one statistic is also surprising to me,
0:23:20 that Chinese parents spend five times more on education than the global average.
0:23:26 And I think that’s around 17% of their household income is a portion to education.
0:23:28 I mean, these figures are really staggering.
0:23:33 And I love this story because it shows you, at a cultural, economic, and social level,
0:23:37 how Chinese society is built and how people are rewarded,
0:23:40 what these incentives are from an economic standpoint.
0:23:45 But James, what was your experience of this when you were in China?
0:23:50 You know, Alice, I always sort of thought that in the UK, if you want to have a conversation,
0:23:52 you ask somebody about the weather.
0:23:54 In China, if you want to have a long conversation,
0:23:58 you ask people about their experiences with the Gaokao.
0:24:08 I think it’s true that every Chinese person I ever spoke to about Gaokao could remember to the exact point what their score was in Gaokao.
0:24:11 It’s something that people carry around with them.
0:24:17 And I must say, I very much want to sympathize with exam takers all over the world.
0:24:24 Although my exam-taking experiences are decades in the past, I can tell you, I still wake up with cold sweats.
0:24:29 My recurring nightmare is that I pick up the envelope in which the exam is,
0:24:33 and I take out one of the papers, and I do the exam on that,
0:24:38 forgetting that there’s a whole other sheet of questions that I didn’t notice left in the envelope.
0:24:40 That’s the one I always think about.
0:24:43 But in different countries, we all have our big exams.
0:24:46 But in China, this is sort of next level.
0:24:53 And I think that it isn’t too much of an exaggeration to say that destiny in China is,
0:25:02 to a large extent, set by your scores in an exam that you take when you’re, you know, 16, 17 years old.
0:25:07 I’ve had so many anguished conversations with people, Chinese friends, who say,
0:25:10 you know, on Gaokao, I was ill.
0:25:12 I didn’t get the score that I should have got.
0:25:17 Or on Gaokao, my parents were getting divorced, and I didn’t get the score I should have got.
0:25:19 There was too much stress in the house.
0:25:24 And therefore, I went to a university that wasn’t as great as the one I should have gone to.
0:25:28 And then you kind of move on for the rest of their lives like that.
0:25:31 I’ve been doing a little bit of research.
0:25:37 It seems that there are a maximum of 750 points on Gaokao.
0:25:45 And if you want to get into the top, top universities in China, which is Peking University or Tsinghua University,
0:25:50 you need to be getting above 670 points.
0:25:58 That puts you in the fraction of the top percent of all of the 13 million odd people who are taking it.
0:26:11 But also, as you said, Alice, I think, you know, people abroad don’t quite recognize the extent to which Gaokao feeds inequality within the Chinese system.
0:26:25 You know, the main way in which this happens is that in Beijing and Shanghai, where the big top universities are, they allocate more places to people who have local residence permits.
0:26:38 That means if you live in a far-flung part of rural China or in an inland province, you’re much less likely to be able to access the allocations to the top universities.
0:26:53 So, my kind of rule of thumb when I was living in China is if you meet somebody who went to Peking University or Tsinghua University and they came from a far-flung, poorer inland province, then that person must be extremely smart.
0:26:56 But how did your relatives experience of it?
0:27:01 I mean, are they mentally scarred or psychologically scarred by the process or did they do okay?
0:27:08 Yeah, I think I’ve had some relatives who have been somewhat mentally and emotionally scarred by it.
0:27:19 I think, you know, when you’re 16, 17, 18, cramming for a university that will decide the fate of your life at a single point, that, I think, can be deeply harrowing.
0:27:26 And I worry at a local but also a national level what this means for Chinese youth.
0:27:31 So, this is happening at a time where youth unemployment is still quite elevated.
0:27:33 In August, it was 18.9%.
0:27:37 That’s the highest since they changed the metrics for it back in 2023.
0:27:43 This year, apparently, there’ll be 12.22 million graduates coming out of China.
0:27:50 That number over the next decade is, by the way, is going to increase because only as of a couple of years ago did we see birth rates start to decline.
0:27:57 So, we’ll invariably see continued growth in graduate levels over the next 10, 15 years.
0:28:09 That means you are having a glut of hyper-educated students in a slowing economy, in an economy where there’s going to be a lot of AI disruption and automation.
0:28:17 When I put all those factors together, it makes me very worried about China’s demographic and educational challenge.
0:28:20 And I think that the policymakers are aware of this.
0:28:22 I think this is going to come up in the five-year plan.
0:28:29 But to take a somewhat different tack, James, from what you alluded to earlier in terms of China’s technological rise,
0:28:39 I worry very much about the productivity and demographic challenges when you have these educated youths that don’t really know where to go into the workforce.
0:28:44 And that could pose a societal, political challenge for Beijing as well.
0:28:54 I mean, you only need to study history to realize what happens when you have a huge glut of highly educated youths with nowhere to go in terms of the workforce.
0:28:59 Yeah, it’s a deeply worrying picture of where China is heading over the next generation.
0:29:07 And another point that I want to make, and this is based on my aunt who’s a teacher actually at an international school, one of the big ones in Shanghai,
0:29:14 is the way in which societally students are rewarded mainly for their exam-taking capacity.
0:29:24 And when you take that at an economic level or an innovative level, that is also worrying for China’s future innovative capabilities.
0:29:31 Because as we know, when it comes to some of the vibrancy of the American economy, it’s not just based on getting great grades.
0:29:38 It’s based on individuals that are out there pushing the boundaries, having imaginative moonshot, disruptive ideas.
0:29:45 And many of the big CEOs in the MAG-7, let alone the big tech companies, didn’t necessarily study engineering or STEM.
0:29:52 I mean, you’ve got some big names like Reid Hoffman and Peter Thiel out there who mainly studied the social sciences.
0:30:03 So I think that this is going to be another challenge for Chinese top talents is how do you end up being innovative in a system that rewards exam-taking capabilities?
0:30:08 That’s a big question that I have for the Chinese economy.
0:30:14 And just to end on this, what I think is also interesting as a trend, and I hope that this is the trend moving forward,
0:30:22 is that individuals are starting to realize that getting into Tsinghua or Peking, which are the Harvard and Yale of China, isn’t the be-all and end-all.
0:30:28 You’ve got great names out there, for instance, like a deep-seek CEO who went to Zhejiang University.
0:30:38 Now, that’s a top university, but it’s growing its reputation as a great place for people who want to start startups and be in the AI space and the innovation and research space.
0:30:43 But I think that that’s a good example of how maybe the narrative is starting to shift a little bit.
0:30:51 I think certainly people like Jack Ma helped that a lot because he wasn’t seen as, you know, your traditional Tsinghua, Peking-educated graduate.
0:31:03 So, you know, my hope is that the Chinese system probably changes to be less fixated on getting into those top universities and more about a holistic version of education outcomes.
0:31:05 All right, let’s take a quick break.
0:31:06 So stay with us.
0:31:19 Support for this show comes from the Audible original, The Downloaded 2, Ghosts and the Machine.
0:31:22 The Earth only has a few days left.
0:31:28 Roscoe Cadoulian and the rest of the Phoenix Colony have to re-upload their minds into the quantum computer.
0:31:33 But a new threat has arisen that could destroy their stored consciousness forever.
0:31:42 Listen to Oscar winner Brendan Fraser reprise his role as Roscoe Cadoulian in this follow-up to the Audible original blockbuster, The Downloaded.
0:31:48 It’s a thought-provoking sci-fi journey where identity, memory, and morality collide.
0:31:53 Robert J. Sawyer does it again with this much-anticipated sequel that leaves you asking,
0:31:56 What are you willing to lose to save the ones you love?
0:32:00 The Downloaded 2, Ghosts and the Machine.
0:32:02 Available now, only from Audible.
0:32:13 Welcome back.
0:32:18 President Donald Trump and President Xi Jinping have agreed to a one-year trade truce,
0:32:25 with China pledging to buy a lot more soybeans, delay rare-earth export controls, and crack down on fentanyl,
0:32:30 while the U.S. itself rolls back tariffs and delays export restrictions.
0:32:34 But the deal’s key details remain very, very unclear,
0:32:39 and both leaders’ track records raise great questions about whether or not these promises will actually stick.
0:32:47 From agriculture to tech to drugs, this trade truce, or pause, touches critical parts of the global economy,
0:32:50 and businesses are watching very, very closely.
0:32:53 James, I want to go right into it.
0:32:59 There’s a lot of enthusiasm about the fact that Xi and Trump met and seemed to have solved a lot of their issues.
0:33:03 But I need to remind everyone that no deal has been inked,
0:33:08 that they’re still discussing the fine print of what they verbally agreed to,
0:33:14 and there’s still a lot of groundwork that Besson and Greer and their Chinese counterparts
0:33:20 need to basically agree to in order to get to a trade deal.
0:33:26 And if history’s any guide, the last trade deal, the phase one trade agreement,
0:33:29 took over a year from start to finish to agree to.
0:33:33 And even then, much of it wasn’t actually adhered to.
0:33:35 I know COVID was part of the exacerbating factor,
0:33:40 but certainly just because Xi and Trump met doesn’t mean anything really has materially changed.
0:33:44 So I want to get your take on this because, you know,
0:33:47 obviously this was the big news of the last week,
0:33:52 and a lot of people waiting with bated breath to see what both sides will actually deliver.
0:33:54 Yes, I’m in the same camp.
0:33:58 I mean, I’m getting an almost eerie sense now,
0:34:03 because China has yet to acknowledge that there was a deal.
0:34:05 Trump came out of the meeting and saying,
0:34:07 we had a fantastic meeting.
0:34:08 It was a 12 out of 10,
0:34:11 and then kept on using the word deal.
0:34:16 Actually, when we look at the fine print of what the Americans have announced,
0:34:20 it looks much more like a temporary truce than an actual deal.
0:34:24 And to this moment, I mean, I’ve searched high and low.
0:34:31 I have not been able to find a single official statement from the Chinese side that says there
0:34:31 was a deal.
0:34:37 What I have been able to find is a People’s Daily article that says,
0:34:38 and I’m quoting now,
0:34:45 the two sides need to work out and finalize the follow-up steps as soon as possible.
0:34:52 And that really sets the tone of all the articles that I can find in the Chinese official media.
0:34:54 Another sort of typical quote is,
0:35:02 the two teams can continue their talks in the spirit of equality, mutual respect, and mutual benefit.
0:35:10 I think what’s happening is that the Chinese, having been burnt before by, you know,
0:35:15 apparently making a deal with the U.S. and then being harshly criticized by the U.S.
0:35:18 and then the U.S. putting extra controls on China.
0:35:21 I think China is watching and waiting at this point.
0:35:28 And I think if they start to see the same template emerge from the U.S.,
0:35:30 i.e. the U.S. being very critical of China,
0:35:37 or let’s say putting more Chinese companies on the entity blacklist that we were mentioning earlier,
0:35:44 then it may be possible that China will start to recede or resile from aspects of
0:35:48 what the Americans say the Chinese agreed to during the talk.
0:35:55 So, like you, Alice, I really think that this is a lot more flimsy than the American side is currently claiming.
0:35:58 Just to give you one concrete example,
0:36:04 I mean, there are more than a thousand Chinese companies that are on the U.S. entity list,
0:36:09 meaning that those companies cannot import specific U.S. technologies.
0:36:14 But it looks like that list may well be expanded in the U.S.
0:36:19 And so if that was to happen, then what would the Chinese side say?
0:36:27 Would they say, you know, well, the Americans spoke to us in South Korea and now they’re doing this.
0:36:32 So that means that the deal doesn’t hold or aspects of the deal doesn’t hold, etc.
0:36:37 The last point I would make is that even some of the statements coming out of the U.S.,
0:36:46 particularly I’m talking about Scott Besson’s statement that China is set to buy 12 million metric tons of American soy beans
0:36:56 during the current season that that runs until the end of January seem to be a little bit tentative to me and a little bit critical of China.
0:37:01 All right. Well, James, let’s just go very quickly line by line to see where we’re at.
0:37:03 I think this is going to be a helpful exercise.
0:37:10 So on soybeans, as you’ve already mentioned, I think there have been some concrete concessions from the Chinese side.
0:37:18 They’ve committed to buy 12 million tons of soybeans in the last two months of this year and then 25 million metric tons in the following three years.
0:37:22 That’s around the average of where we were at during the Biden administration.
0:37:29 And then we’ve got a delay, a one-year delay on the rarest export controls that China announced several weeks ago.
0:37:39 An agreement, it seems, to cooperate on fentanyl, on the precursors of fentanyl, which led Trump to decrease the tariffs, the fentanyl tariffs on China.
0:37:43 So now we only have a 10% additional fentanyl tariff on China.
0:37:52 And then similarly, the U.S. verbally is saying that it’s delaying export restrictions on chips and other technologies
0:38:03 and may have some flexibility over the 50% subsidiary rule, which basically meant that subsidiaries that had at least 50% ownership from a Chinese company
0:38:09 could be part of the entity’s list for export bans or export controls.
0:38:13 I think that that issue in itself was actually quite important for China.
0:38:14 But I think that’s where we’re at.
0:38:16 Am I missing anything, James?
0:38:18 No, I think that’s about it.
0:38:23 I would just reiterate that this is all according to American officials.
0:38:28 And I’m really not sure that the Chinese have signed off on any of this.
0:38:35 Or if they have signed off on the big picture, then, as you said right at the top, the details are yet to be worked out.
0:38:45 And as we always know, the devil is in the detail, especially between two trade partners like the U.S. and China that simply don’t trust each other.
0:38:46 Yeah, I know you’re completely right.
0:38:55 And this is going to be a very difficult, I think, series of negotiations between the two sides going into 2026.
0:39:05 But it seems that at least Trump has committed to going to China in April and Xi visiting Mar-a-Lago or the other parts of the U.S. right afterwards.
0:39:11 So we may tee up two, I think, high-level meetings between the two leaders in 2026.
0:39:15 But there’s a lot that needs to be figured out between now and then.
0:39:20 And meanwhile, China’s trade surplus is going to ever expand.
0:39:32 I think the $295 billion trade imbalance between the two countries is somewhat, I think, largely unchanged, actually, because these tariffs and their exemptions haven’t actually addressed the deeper underlying structural issues.
0:39:37 So I think that right now we’re right to breathe a sigh of relief.
0:39:44 But there’s, I think, going to be a bumpy road ahead or rocky road ahead in terms of trade discussions.
0:39:49 But it’s been surprising to me that we didn’t see much mention of the geopolitical issues.
0:39:55 I think that the U.S. vaguely mentioned Russia-Ukraine, that there could be areas of collaboration.
0:39:57 Taiwan didn’t come up at all.
0:40:03 What’s your view on the geopolitical angle and how it will rev up, I think, in 2026?
0:40:08 Because there’s already some inklings of concerns about China’s territorial ambitions in the South China Sea.
0:40:14 That happens quite periodically, I think, when people are concerned about Chinese aggressive foreign policy.
0:40:18 But I’ve noticed in the last few weeks that there’s been more media articles about this issue as well.
0:40:19 Yeah.
0:40:29 I mean, my sense of the talks in South Korea was that the U.S. and China both wanted to make some kind of progress on these very crucial trade and investment deals.
0:40:33 Therefore, they didn’t want to overload it with geopolitical talks as well.
0:40:41 Once you start talking about issues such as South China Sea or Taiwan, you immediately start pressing on very raw nerves.
0:40:50 And so, I think that the fear was that if you tried to go there, you might scupper the trade and investment aspects of the deal as well.
0:40:52 But you’re right to point this out, Alice.
0:40:57 Politically, the U.S. and China are no closer together than they ever were.
0:41:09 And as we also know, it’s geopolitics that forms the bedrock of the disagreements between them that then filter into the trade and investment relationships.
0:41:14 So, the fundamental problem between the U.S. and China is geopolitical.
0:41:15 It’s not economic.
0:41:21 And therefore, just by leaving geopolitics aside does not solve the geopolitical problems.
0:41:26 So, it’s highly likely that these tensions will rear their head again in the coming months.
0:41:31 You know, there’s any number of scenarios of things that can go wrong, unfortunately.
0:41:33 I really like that point that you made.
0:41:42 But just for the sake of argument, I think as an economist, I would take the other side of it, which is that I think it’s the trade imbalances that China runs with Europe and America.
0:42:01 Running these massive surpluses, which, by the way, I think will get bigger, that lead to these political spats will lead to both sides basically mistrusting China and finding ways to, you know, either through export controls, through means, fair or foul, to stop or rather cauterize China’s massive export.
0:42:04 So, as an economist, I’ll take a different side to that.
0:42:05 But I completely hear you.
0:42:10 I think that in 2026, geopolitics, I think, will be important again.
0:42:13 It’s probably reserved for a later discussion.
0:42:18 But certainly, I think you’re right on the money when you say that right now they’re focused on trade and investment.
0:42:21 All right, James, it’s prediction time.
0:42:25 What’s your prediction for this week or in the near future?
0:42:33 Okay, Alice, we’ve just been talking about frictions and geopolitics and things that could go wrong in the future.
0:42:37 I hate to be so gloomy, but my prediction concerns that.
0:42:47 I think that pharmaceuticals may be one of the next focuses of US-China tensions at some point, let’s say, over the next six months.
0:43:00 My prediction is that China may threaten to restrict supply or actually restrict supply of key pharmaceuticals at some point over the next six months.
0:43:21 This choke point is another piece of leverage that China holds because, according to US Pharmacopoeia, which is an industry standards body, nearly 700 US medicines are made using at least one key ingredient that is only sourced from China.
0:43:28 So China’s, you know, situation in the pharmaceutical supply chain allows it this leverage.
0:43:35 And to my mind, it may either threaten to use that leverage or actually use that leverage going forward.
0:43:40 So do you think that that will mean we get supply shortages, prices go up?
0:43:45 Well, if it’s a threat, then it may not have an immediate sort of price impact.
0:44:00 But if China starts to really restrict the inputs into pharmaceuticals or actual pharmaceutical products that it exports around the world, then I think we could well see some increases in the prices of these pharmaceuticals,
0:44:07 just as we did in rare earth prices or more recently in prices of these chips that Nexperia makes in China.
0:44:13 So, yeah, we could see a very similar template of stresses coming forward.
0:44:15 But what’s your prediction, Alice?
0:44:16 Well, thanks, James.
0:44:17 Firstly, that’s really interesting.
0:44:26 And I think whereas we talked about egg prices going up early on in the Trump term, this could be the next hot button domestic political issue in America.
0:44:32 If you see pharmacy products, drug products go up in price, that could be, I think, quite important politically as a saline issue.
0:44:44 My prediction, you know, going back to this education issue, I think in the next five-year plan, there may be some more loosening on private tutoring and education.
0:44:54 2021, we basically saw this massive crackdown that took out pretty much the operations of the top private tutoring and education companies and platforms.
0:44:59 I think that they’re starting to realize that they need to do more to support the job market.
0:45:02 And this is actually a key hirer.
0:45:05 This industry employs millions of people.
0:45:07 So I think that there may be loosening on that.
0:45:11 And we could see more companies getting into the private tutoring space.
0:45:14 That’s my hot take for early 2026.
0:45:17 All right, that’s all for this episode.
0:45:19 Thank you for listening to China Decode.
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0:00:47 Support for this show comes from the Audible original, the downloaded two, ghosts in the machine.
0:00:56 Quantum computers, the next great frontier of technology, offering endless possibilities that stretch the human mind.
0:01:04 But for Roscoe Kodoulian and the Phoenix Colony, quantum computing uploads the human mind with life-altering consequences.
0:01:15 Audible’s hit sci-fi thriller, The Downloaded, returns with Oscar winner Brendan Fraser, reprising his role as Roscoe Kodoulian in The Downloaded 2, Ghosts in the Machine.
0:01:18 This thought-provoking sequel from Robert J.
0:01:18 This thought-provoking sequel from Robert J.
0:01:22 Sawyer takes listeners on a captivating sci-fi journey.
0:01:25 A mind-bending must-listen that asks,
0:01:28 What are you willing to lose to save the ones you love?
0:01:31 The Downloaded 2, Ghosts in the Machine.
0:01:34 Available now, only from Audible.
0:01:47 Support for this show comes from the Audible original, The Downloaded 2, Ghosts in the Machine.
0:01:50 The Earth only has a few days left.
0:01:56 Roscoe Kodoulian and the rest of the Phoenix Colony have to re-upload their minds into the quantum computer.
0:02:01 But a new threat has arisen that could destroy their stored consciousness forever.
0:02:10 Listen to Oscar winner Brendan Fraser reprise his role as Roscoe Kodoulian in this follow-up to the Audible original blockbuster, The Downloaded.
0:02:16 It’s a thought-provoking sci-fi journey where identity, memory, and morality collide.
0:02:21 Robert J. Sawyer does it again with this much-anticipated sequel that leaves you asking,
0:02:24 What are you willing to lose to save the ones you love?
0:02:28 The Downloaded 2, Ghosts in the Machine.
0:02:30 Available now, only from Audible.
0:02:43 Chinese parents spend five times more on education than the global average.
0:02:49 And I think that’s around 17% of their household income is apportioned to education.
0:02:51 I mean, these figures are really staggering.
0:02:56 And I love this story because it shows you, at a cultural, economic, and social level,
0:03:03 how Chinese society is built and how people are rewarded, what these incentives are from an economic standpoint.
0:03:10 Welcome to China Decode. I’m Alice Han.
0:03:12 And I’m James King.
0:03:20 In today’s episode of China Decode, we’re discussing why Nixperia halted shipments to China amid payment and ownership disputes,
0:03:26 how the Chinese girl call exam shapes access to top universities, jobs, and social mobility in China,
0:03:30 and why Trump and Xi’s trade truce remains murky.
0:03:33 All right, let’s get right into it. James, how are you?
0:03:38 Very good. We’ve had Halloween, so it’s very dark outside. It’s wet.
0:03:40 We’re heading into winter now, Alice.
0:03:43 Definitely. I mean, in London, you’re starting to see the Christmas lights.
0:03:47 But certainly, there’s a lot happening towards the end of this year.
0:03:49 We’re not quite yet in holiday mode.
0:03:55 One of the top issues, to my mind, I think, in the last few weeks has been this Nixperia issue.
0:03:57 And I think it’s somewhat confusing.
0:04:00 So we’ll try to break down the complexities of this story.
0:04:04 So a fresh crisis is rippling through the global auto industry.
0:04:11 And this time, it’s not COVID, strikes, but actually chips, and chips mainly coming out of China.
0:04:18 The Dutch chipmaker Nixperia has suspended wafer shipments to its Chinese factory after a payment dispute,
0:04:24 escalating a geopolitical standoff that’s already got automakers like Honda, Volkswagen, and Stellantis
0:04:28 bracing for production slowdowns and capacity cuts.
0:04:33 This drama started after the Dutch government seized control of Nixperia from its Chinese
0:04:39 owner, Wingtech, citing national security concerns, a move that prompted China to then block exports
0:04:41 from Nixperia’s factories.
0:04:46 Now, as factories on both sides of the world grind closer to a halt, the European and Chinese
0:04:50 governments are scrambling for a diplomatic off-ramp and de-escalation.
0:04:56 For car makers already scarred by years of semiconductor shortages and, more recently, rare-earth shortages,
0:05:02 this could be a painful deja vu, especially since the affected chips aren’t just the fancy AI ones,
0:05:08 but the cheaper everyday components that make windows roll and airbags deploy.
0:05:11 James, there’s so many different characters in this plot.
0:05:18 It seems quite convoluted, but to my mind, it seems that the Chinese are trying to extract some
0:05:19 concessions from the Europeans.
0:05:23 They’re unhappy with the state of play, and certainly with the way in which the Dutch government
0:05:27 has come in and seized control of a company where China has ownership.
0:05:29 What’s your take on this?
0:05:30 I’m curious to hear.
0:05:32 Well, thanks, Alex.
0:05:36 Yes, I’m going to try and break it down to its simple constituent parts.
0:05:40 But before I do that, I think it’s as well to focus on the really big picture here,
0:05:48 because what this, I think, is all about is how the US-China trade war and tech war,
0:05:52 which we’re all so familiar with, is now blowing back onto Europe.
0:05:57 And that really is key, because obviously, Europe is a huge place.
0:06:03 This is also important because China is one of Europe’s biggest trade partners and it’s
0:06:05 Europe’s biggest source of imports.
0:06:12 European countries import many of the industrial components that their own companies cannot do
0:06:12 without.
0:06:21 So that’s why this spat between a Dutch semiconductor company and China is really key, because it shows
0:06:27 what might happen more in the future if relations between Europe and China continue to deteriorate.
0:06:31 It all started rather kind of left field.
0:06:38 As you’ve mentioned, Alice, this is a little-known Dutch semiconductor maker, and it doesn’t make
0:06:39 high-tech chips.
0:06:44 It makes mid-tech chips, the sort of thing that you would need in your car to make the airbag
0:06:47 work, to make the windows go up and down.
0:06:54 So we’re not talking about the cutting edge of technology, but it really has blown up since
0:06:56 about October.
0:07:04 And I think this shows how Europe is being drawn more and more into the US-China tech wars.
0:07:11 It’s also really significant in itself in a very practical way, because it shows how the lack
0:07:18 of these chips that are made by this Dutch company can severely affect European car makers.
0:07:23 Many of those car makers, we’ll come to this more in a minute, have been predicting potential
0:07:26 halts in their ability to produce cars.
0:07:29 So it’s got a very practical side to it as well.
0:07:36 But just as a recap, Nexperia, which is, as you said, a Dutch company, was bought by a
0:07:40 Chinese company, which is called Wingtech, in 2019.
0:07:48 And then last year, the US government put Wingtech on the so-called entity list, which is a blacklist
0:07:53 that restricts the Chinese company’s access to US technology.
0:08:02 Then, in September this year, a new rule from the US meant that the subsidiaries of Wingtech
0:08:07 would also be put on the blacklist, and that included Nexperia.
0:08:16 So the Dutch government acted immediately and seized control over Nexperia that’s based in
0:08:17 the Netherlands.
0:08:23 And it did so by citing a law that came right out of the old Cold War.
0:08:26 So an extraordinary situation followed.
0:08:32 Nexperia in the Netherlands stopped supplying its former Chinese parent company with the
0:08:34 wafers that it needs to make chips.
0:08:37 And of course, then Beijing retaliated.
0:08:42 It blocked Nexperia from getting the products that are made in China.
0:08:47 So in other words, Nexperia back in the Netherlands didn’t have anything to sell.
0:08:54 All of this was really important because suddenly the biggest car makers in Europe, Volkswagen,
0:09:03 BMW, Mercedes-Benz, Stellantis, Fiat, Peugeot, and Volvo, all started to signal that they were
0:09:08 really worried that they wouldn’t be able to get the chips that they need to maintain production
0:09:09 of their cars.
0:09:12 So that’s basically the story as it is.
0:09:14 This is the last little twist.
0:09:22 Just on Saturday, China said it could consider some exemptions from the controls for Nexperia
0:09:23 chip exports.
0:09:30 So in other words, it could be that Nexperia in the Netherlands might be able to get supplies
0:09:36 again from its Chinese company and might be able to start supplying European car makers.
0:09:38 But we’re not sure about that.
0:09:40 Thanks for that, James.
0:09:45 What I find so puzzling about this whole saga is the fact that you basically have the Dutch
0:09:49 government, as you rightly say, James, citing these small Cold War national security concerns,
0:09:53 basically ousting the Chinese CEO of Nexperia.
0:09:58 And basically, according to the South China Morning Post, as I was reading this, the Dutch
0:10:02 government feared that Chinese owners of Nexperia wanted to basically move manufacturing out
0:10:07 of the Netherlands into China, where around 70 percent of the packaging happens anyway.
0:10:12 And this, I think, led Nexperia to be a bit of a collateral damage object in between the
0:10:12 EU.
0:10:14 China brought a trade spat.
0:10:20 But I think from the Chinese perspective, this has obviously motivated the desire for more
0:10:26 export controls, that you can have a more controlled way to respond to these threats that Europe
0:10:28 or America may pose.
0:10:33 I think it’s not a coincidence that you have the rare earth export controls happen at the
0:10:37 same time coming out of China as the export controls for Nexperia.
0:10:43 So in a way, I think the two, the trade spat between EU and China over Nexperia and the trade
0:10:48 spat between the US and China over a host of issues are somewhat related and probably incentivizing
0:10:53 Beijing to take a more controlled stance on a lot of these technologies.
0:11:00 But I mean, the story itself is fascinating because in a way, it’s pretty unprecedented that you have
0:11:06 a European government intervening in a private company, let alone a Chinese company, to oust a CEO
0:11:11 and effectively tell all the employees that they should halt business.
0:11:13 And again, the saga was so fascinating.
0:11:19 It was reading about how in Chinese language social media, the Nexperia headquarters management
0:11:24 basically sent multiple messages to the employees telling them not to listen to the Dutch government
0:11:25 authorities.
0:11:30 So I definitely think that this is a great representation of the fact that a lot of
0:11:36 companies are going to be involved as collateral damage in ongoing trade and technology related
0:11:36 disputes.
0:11:38 And it’s not just a US-China story.
0:11:40 It’s also an EU-China story.
0:11:45 I sense that we’re going to get more stories like this because invariably, we’re seeing China
0:11:50 get more and more access into the European market by buying a lot of players in the high
0:11:50 tech space.
0:11:56 So I think for a lot of companies that are involved in trade or technology between those
0:11:58 two regions, this I think is going to be an ongoing threat.
0:12:02 But what’s your take on the auto implications as well, James?
0:12:08 Because it seems to my mind, just like earlier in the year, a lot of these car companies, when
0:12:13 you see their stocks plummet in response to this, are very much susceptible and at risk
0:12:18 to these supply shortages on chips, even if they’re cheap, as you say, medium-tier chips.
0:12:18 Yeah.
0:12:24 I mean, this is just another classic example of the long arm of Chinese coercive policies.
0:12:31 As you mentioned, Alice, China is able to effectively exert huge leverage over the United States by
0:12:37 restricting rare earth exports to all kinds of American companies that need those rare earths.
0:12:44 And in this case, China can keep these big car companies, wherever they may be, Japan, Europe,
0:12:54 the US, kind of dangling on a string because China controls the supply of the chips that Nexperia
0:12:55 in China makes.
0:13:03 So, really, China is showing yet again that it can cripple a global and very important industry
0:13:08 simply by restricting the supply of a crucial component.
0:13:15 In this case, these mid-tech chips that were made by this previously Dutch company.
0:13:23 So, yeah, I mean, it just shows how China has the whip hand over the global economy in so many
0:13:23 different ways.
0:13:28 And I feel, we’ll get to the prediction part of the program later, but I feel that this
0:13:31 is not going to be the last thing we hear about this.
0:13:38 There are other industries that China can move to control in this kind of coercive way as well.
0:13:39 Yeah.
0:13:44 And if I’m sitting in Brussels or I’m a European government, I’m very worried about the trend
0:13:48 because, you know, part of, I think, why the Dutch government was concerned was that they
0:13:53 were concerned that the manufacturer would get fully moved from the Netherlands to
0:13:53 China.
0:13:57 Currently, they produce these chips.
0:13:58 They’re called foundation chips.
0:14:00 Billions of these foundation chips in Europe.
0:14:05 They assemble and then test them in China where there’s a growing industry of assembly and testing.
0:14:08 And then they re-export them to other markets, including customers in Europe.
0:14:15 Around 70% of the chips made in the Netherlands are sent to China to be assembled and tested and
0:14:15 then re-exported.
0:14:21 So if all these chips basically cut out the Netherlands and are fully produced and assembled
0:14:25 and tested in China, that, I think, bodes ill for the Netherlands.
0:14:30 But I think broadening out, this is an ongoing trend that I’m seeing for a lot of European
0:14:35 countries, including key industrial countries like Germany, where, you know, they once had a
0:14:39 degree of dominance in the supply chain, especially at the high value end.
0:14:44 China is getting even more competitive, cost competitive and logistics competitive.
0:14:48 I think that this is going to paint a very bleak picture for Europe unless it gets its act
0:14:49 together.
0:14:51 That’s my sense and my hot take.
0:14:57 But just very quickly, James, as somebody who lives in the UK but goes frequently to Europe
0:15:00 and talks to people in the region, what’s your sense of this ongoing trend?
0:15:03 Yeah, I mean, you’re absolutely right, Alice.
0:15:05 This is part of a much bigger story.
0:15:11 Part of the issue is that China has a huge trade surplus with the EU.
0:15:15 That was about 304 billion US dollars last year.
0:15:20 So the EU is very much dependent on many of these industrial inputs.
0:15:27 But the other part of it is that China’s has sent up the tech ladder to, I would say, global
0:15:29 preeminence right now.
0:15:32 I said this before on this podcast.
0:15:39 I personally think that China has now overtaken the US in technology and it’s left Europe far
0:15:39 behind.
0:15:46 This has meant that many of the big companies, whether they be in the Netherlands or in Germany
0:15:52 or France or Spain or here in the UK, are feeling like China has moved ahead.
0:15:59 And therefore, more and more companies and more and more importers are dependent on Chinese
0:15:59 products.
0:16:06 And that makes it very difficult for the EU to retaliate against China because Chinese products
0:16:10 are mopping up markets all over the world and they’re mopping up markets here in Europe as
0:16:11 well.
0:16:18 So I think that what we’re experiencing here with this chip spat is basically the foothills
0:16:21 of the tensions that we have coming down the track.
0:16:29 We’re going to get into a much more fractious relationship between the EU and China over technology,
0:16:34 over China moving ahead and over the huge Chinese trade surplus with Europe.
0:16:40 Yeah, and just to round out this discussion, the EU has confirmed that China is suspending
0:16:43 the October export controls for the EU when it comes to these chips.
0:16:48 So it seems that there may be exemptions for the next period chip imports.
0:16:53 And some of the big order makers in Europe, their stocks rose quite a bit on Monday in response.
0:16:57 OK, we’ll be back with more after a quick break.
0:16:57 So stay with us.
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0:19:55 Every June, China comes to a standstill for two days.
0:19:59 Flights are rerouted, traffic is silenced, and millions of families hold their breath.
0:20:06 It’s Gaokou Week, China’s great entrance exam into universities, where more than 10 million
0:20:10 students take the National College entrance exam that defines their futures.
0:20:12 But Gaokou isn’t just a test.
0:20:18 It’s a sorting system that decides who gets into China’s top universities and, by extension,
0:20:22 who gets the best jobs, the best housing, and even social status.
0:20:26 A single point, quite literally, can change the course of a life.
0:20:31 A new book that has just come out, The Highest Exam, How the Gaokou Shapes China, digs into
0:20:37 how this marathon exam became both a ladder of opportunity and a tool of state control in China.
0:20:43 It reveals a system that’s supposed to reward merit, but often mirrors and enhances inequality,
0:20:49 where wealthy Chinese families buy homes in elite school districts or pay for private tutoring
0:20:53 that poorer students just simply can’t afford, despite government crackdowns.
0:20:59 James, this is one of the topics that I find personally fascinating for a number of reasons.
0:21:03 I have a couple of cousins in China who recently went through the Gaokou system.
0:21:09 So I feel as though I’ve vicariously gotten to know how stressful this exam really is.
0:21:13 And I don’t think it can be understated how stressful this exam really is.
0:21:17 Because unlike in the U.S., for instance, where I went to college,
0:21:23 your application has a sum of different criteria or different inputs,
0:21:28 whether it’s the SATs, your extracurricular activities, your school grades.
0:21:30 You’re treated as a holistic package.
0:21:37 In China, quite literally, it all comes down to the score that you achieve at this big entrance exam.
0:21:43 And China has a history of being an exam-oriented culture.
0:21:48 If we look back to the imperial examination system, which purportedly was supposed to be meritocratic,
0:21:53 it quite literally brought young scholars from around China, from the furthest,
0:22:01 most remote places of China, to do an exam where they could get the chance to be a scholar gentry in the imperial court,
0:22:03 a Mandarin in Beijing.
0:22:06 The Gaokou is still, I think, part of that historical legacy.
0:22:09 The figures are honestly quite staggering.
0:22:13 More than 10 million Chinese students take this exam every year.
0:22:18 Last year, there was a record 13.4 million people registered to take it.
0:22:24 And they’re competing mainly for the top 100 universities, of which there are only 500,000 spots.
0:22:27 I was looking at some of the admissions ratios.
0:22:29 Tsinghua is reportedly under 2%.
0:22:35 And just for reference, Harvard, where I went to, I think last year was 3.5%.
0:22:39 So it creates an environment that is deeply high-pressured.
0:22:48 But at the same time, as this book alludes to, and rightly so, it enhances and amplifies the existing inequalities in Chinese society.
0:22:54 And I think it was part of the reason why, much to the dismay and surprise of a lot of shareholders,
0:22:58 the Chinese government cracked down in 2021 on private tutoring companies,
0:23:01 the big private tutoring companies that were involved in cram schools,
0:23:06 because part of the reason was they believed it was leading to these economic inequalities,
0:23:10 but it was also increasing the economic burdens for parents.
0:23:13 You know, one statistic is also surprising to me,
0:23:20 that Chinese parents spend five times more on education than the global average.
0:23:26 And I think that’s around 17% of their household income is a portion to education.
0:23:28 I mean, these figures are really staggering.
0:23:33 And I love this story because it shows you, at a cultural, economic, and social level,
0:23:37 how Chinese society is built and how people are rewarded,
0:23:40 what these incentives are from an economic standpoint.
0:23:45 But James, what was your experience of this when you were in China?
0:23:50 You know, Alice, I always sort of thought that in the UK, if you want to have a conversation,
0:23:52 you ask somebody about the weather.
0:23:54 In China, if you want to have a long conversation,
0:23:58 you ask people about their experiences with the Gaokao.
0:24:08 I think it’s true that every Chinese person I ever spoke to about Gaokao could remember to the exact point what their score was in Gaokao.
0:24:11 It’s something that people carry around with them.
0:24:17 And I must say, I very much want to sympathize with exam takers all over the world.
0:24:24 Although my exam-taking experiences are decades in the past, I can tell you, I still wake up with cold sweats.
0:24:29 My recurring nightmare is that I pick up the envelope in which the exam is,
0:24:33 and I take out one of the papers, and I do the exam on that,
0:24:38 forgetting that there’s a whole other sheet of questions that I didn’t notice left in the envelope.
0:24:40 That’s the one I always think about.
0:24:43 But in different countries, we all have our big exams.
0:24:46 But in China, this is sort of next level.
0:24:53 And I think that it isn’t too much of an exaggeration to say that destiny in China is,
0:25:02 to a large extent, set by your scores in an exam that you take when you’re, you know, 16, 17 years old.
0:25:07 I’ve had so many anguished conversations with people, Chinese friends, who say,
0:25:10 you know, on Gaokao, I was ill.
0:25:12 I didn’t get the score that I should have got.
0:25:17 Or on Gaokao, my parents were getting divorced, and I didn’t get the score I should have got.
0:25:19 There was too much stress in the house.
0:25:24 And therefore, I went to a university that wasn’t as great as the one I should have gone to.
0:25:28 And then you kind of move on for the rest of their lives like that.
0:25:31 I’ve been doing a little bit of research.
0:25:37 It seems that there are a maximum of 750 points on Gaokao.
0:25:45 And if you want to get into the top, top universities in China, which is Peking University or Tsinghua University,
0:25:50 you need to be getting above 670 points.
0:25:58 That puts you in the fraction of the top percent of all of the 13 million odd people who are taking it.
0:26:11 But also, as you said, Alice, I think, you know, people abroad don’t quite recognize the extent to which Gaokao feeds inequality within the Chinese system.
0:26:25 You know, the main way in which this happens is that in Beijing and Shanghai, where the big top universities are, they allocate more places to people who have local residence permits.
0:26:38 That means if you live in a far-flung part of rural China or in an inland province, you’re much less likely to be able to access the allocations to the top universities.
0:26:53 So, my kind of rule of thumb when I was living in China is if you meet somebody who went to Peking University or Tsinghua University and they came from a far-flung, poorer inland province, then that person must be extremely smart.
0:26:56 But how did your relatives experience of it?
0:27:01 I mean, are they mentally scarred or psychologically scarred by the process or did they do okay?
0:27:08 Yeah, I think I’ve had some relatives who have been somewhat mentally and emotionally scarred by it.
0:27:19 I think, you know, when you’re 16, 17, 18, cramming for a university that will decide the fate of your life at a single point, that, I think, can be deeply harrowing.
0:27:26 And I worry at a local but also a national level what this means for Chinese youth.
0:27:31 So, this is happening at a time where youth unemployment is still quite elevated.
0:27:33 In August, it was 18.9%.
0:27:37 That’s the highest since they changed the metrics for it back in 2023.
0:27:43 This year, apparently, there’ll be 12.22 million graduates coming out of China.
0:27:50 That number over the next decade is, by the way, is going to increase because only as of a couple of years ago did we see birth rates start to decline.
0:27:57 So, we’ll invariably see continued growth in graduate levels over the next 10, 15 years.
0:28:09 That means you are having a glut of hyper-educated students in a slowing economy, in an economy where there’s going to be a lot of AI disruption and automation.
0:28:17 When I put all those factors together, it makes me very worried about China’s demographic and educational challenge.
0:28:20 And I think that the policymakers are aware of this.
0:28:22 I think this is going to come up in the five-year plan.
0:28:29 But to take a somewhat different tack, James, from what you alluded to earlier in terms of China’s technological rise,
0:28:39 I worry very much about the productivity and demographic challenges when you have these educated youths that don’t really know where to go into the workforce.
0:28:44 And that could pose a societal, political challenge for Beijing as well.
0:28:54 I mean, you only need to study history to realize what happens when you have a huge glut of highly educated youths with nowhere to go in terms of the workforce.
0:28:59 Yeah, it’s a deeply worrying picture of where China is heading over the next generation.
0:29:07 And another point that I want to make, and this is based on my aunt who’s a teacher actually at an international school, one of the big ones in Shanghai,
0:29:14 is the way in which societally students are rewarded mainly for their exam-taking capacity.
0:29:24 And when you take that at an economic level or an innovative level, that is also worrying for China’s future innovative capabilities.
0:29:31 Because as we know, when it comes to some of the vibrancy of the American economy, it’s not just based on getting great grades.
0:29:38 It’s based on individuals that are out there pushing the boundaries, having imaginative moonshot, disruptive ideas.
0:29:45 And many of the big CEOs in the MAG-7, let alone the big tech companies, didn’t necessarily study engineering or STEM.
0:29:52 I mean, you’ve got some big names like Reid Hoffman and Peter Thiel out there who mainly studied the social sciences.
0:30:03 So I think that this is going to be another challenge for Chinese top talents is how do you end up being innovative in a system that rewards exam-taking capabilities?
0:30:08 That’s a big question that I have for the Chinese economy.
0:30:14 And just to end on this, what I think is also interesting as a trend, and I hope that this is the trend moving forward,
0:30:22 is that individuals are starting to realize that getting into Tsinghua or Peking, which are the Harvard and Yale of China, isn’t the be-all and end-all.
0:30:28 You’ve got great names out there, for instance, like a deep-seek CEO who went to Zhejiang University.
0:30:38 Now, that’s a top university, but it’s growing its reputation as a great place for people who want to start startups and be in the AI space and the innovation and research space.
0:30:43 But I think that that’s a good example of how maybe the narrative is starting to shift a little bit.
0:30:51 I think certainly people like Jack Ma helped that a lot because he wasn’t seen as, you know, your traditional Tsinghua, Peking-educated graduate.
0:31:03 So, you know, my hope is that the Chinese system probably changes to be less fixated on getting into those top universities and more about a holistic version of education outcomes.
0:31:05 All right, let’s take a quick break.
0:31:06 So stay with us.
0:31:19 Support for this show comes from the Audible original, The Downloaded 2, Ghosts and the Machine.
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0:32:18 President Donald Trump and President Xi Jinping have agreed to a one-year trade truce,
0:32:25 with China pledging to buy a lot more soybeans, delay rare-earth export controls, and crack down on fentanyl,
0:32:30 while the U.S. itself rolls back tariffs and delays export restrictions.
0:32:34 But the deal’s key details remain very, very unclear,
0:32:39 and both leaders’ track records raise great questions about whether or not these promises will actually stick.
0:32:47 From agriculture to tech to drugs, this trade truce, or pause, touches critical parts of the global economy,
0:32:50 and businesses are watching very, very closely.
0:32:53 James, I want to go right into it.
0:32:59 There’s a lot of enthusiasm about the fact that Xi and Trump met and seemed to have solved a lot of their issues.
0:33:03 But I need to remind everyone that no deal has been inked,
0:33:08 that they’re still discussing the fine print of what they verbally agreed to,
0:33:14 and there’s still a lot of groundwork that Besson and Greer and their Chinese counterparts
0:33:20 need to basically agree to in order to get to a trade deal.
0:33:26 And if history’s any guide, the last trade deal, the phase one trade agreement,
0:33:29 took over a year from start to finish to agree to.
0:33:33 And even then, much of it wasn’t actually adhered to.
0:33:35 I know COVID was part of the exacerbating factor,
0:33:40 but certainly just because Xi and Trump met doesn’t mean anything really has materially changed.
0:33:44 So I want to get your take on this because, you know,
0:33:47 obviously this was the big news of the last week,
0:33:52 and a lot of people waiting with bated breath to see what both sides will actually deliver.
0:33:54 Yes, I’m in the same camp.
0:33:58 I mean, I’m getting an almost eerie sense now,
0:34:03 because China has yet to acknowledge that there was a deal.
0:34:05 Trump came out of the meeting and saying,
0:34:07 we had a fantastic meeting.
0:34:08 It was a 12 out of 10,
0:34:11 and then kept on using the word deal.
0:34:16 Actually, when we look at the fine print of what the Americans have announced,
0:34:20 it looks much more like a temporary truce than an actual deal.
0:34:24 And to this moment, I mean, I’ve searched high and low.
0:34:31 I have not been able to find a single official statement from the Chinese side that says there
0:34:31 was a deal.
0:34:37 What I have been able to find is a People’s Daily article that says,
0:34:38 and I’m quoting now,
0:34:45 the two sides need to work out and finalize the follow-up steps as soon as possible.
0:34:52 And that really sets the tone of all the articles that I can find in the Chinese official media.
0:34:54 Another sort of typical quote is,
0:35:02 the two teams can continue their talks in the spirit of equality, mutual respect, and mutual benefit.
0:35:10 I think what’s happening is that the Chinese, having been burnt before by, you know,
0:35:15 apparently making a deal with the U.S. and then being harshly criticized by the U.S.
0:35:18 and then the U.S. putting extra controls on China.
0:35:21 I think China is watching and waiting at this point.
0:35:28 And I think if they start to see the same template emerge from the U.S.,
0:35:30 i.e. the U.S. being very critical of China,
0:35:37 or let’s say putting more Chinese companies on the entity blacklist that we were mentioning earlier,
0:35:44 then it may be possible that China will start to recede or resile from aspects of
0:35:48 what the Americans say the Chinese agreed to during the talk.
0:35:55 So, like you, Alice, I really think that this is a lot more flimsy than the American side is currently claiming.
0:35:58 Just to give you one concrete example,
0:36:04 I mean, there are more than a thousand Chinese companies that are on the U.S. entity list,
0:36:09 meaning that those companies cannot import specific U.S. technologies.
0:36:14 But it looks like that list may well be expanded in the U.S.
0:36:19 And so if that was to happen, then what would the Chinese side say?
0:36:27 Would they say, you know, well, the Americans spoke to us in South Korea and now they’re doing this.
0:36:32 So that means that the deal doesn’t hold or aspects of the deal doesn’t hold, etc.
0:36:37 The last point I would make is that even some of the statements coming out of the U.S.,
0:36:46 particularly I’m talking about Scott Besson’s statement that China is set to buy 12 million metric tons of American soy beans
0:36:56 during the current season that that runs until the end of January seem to be a little bit tentative to me and a little bit critical of China.
0:37:01 All right. Well, James, let’s just go very quickly line by line to see where we’re at.
0:37:03 I think this is going to be a helpful exercise.
0:37:10 So on soybeans, as you’ve already mentioned, I think there have been some concrete concessions from the Chinese side.
0:37:18 They’ve committed to buy 12 million tons of soybeans in the last two months of this year and then 25 million metric tons in the following three years.
0:37:22 That’s around the average of where we were at during the Biden administration.
0:37:29 And then we’ve got a delay, a one-year delay on the rarest export controls that China announced several weeks ago.
0:37:39 An agreement, it seems, to cooperate on fentanyl, on the precursors of fentanyl, which led Trump to decrease the tariffs, the fentanyl tariffs on China.
0:37:43 So now we only have a 10% additional fentanyl tariff on China.
0:37:52 And then similarly, the U.S. verbally is saying that it’s delaying export restrictions on chips and other technologies
0:38:03 and may have some flexibility over the 50% subsidiary rule, which basically meant that subsidiaries that had at least 50% ownership from a Chinese company
0:38:09 could be part of the entity’s list for export bans or export controls.
0:38:13 I think that that issue in itself was actually quite important for China.
0:38:14 But I think that’s where we’re at.
0:38:16 Am I missing anything, James?
0:38:18 No, I think that’s about it.
0:38:23 I would just reiterate that this is all according to American officials.
0:38:28 And I’m really not sure that the Chinese have signed off on any of this.
0:38:35 Or if they have signed off on the big picture, then, as you said right at the top, the details are yet to be worked out.
0:38:45 And as we always know, the devil is in the detail, especially between two trade partners like the U.S. and China that simply don’t trust each other.
0:38:46 Yeah, I know you’re completely right.
0:38:55 And this is going to be a very difficult, I think, series of negotiations between the two sides going into 2026.
0:39:05 But it seems that at least Trump has committed to going to China in April and Xi visiting Mar-a-Lago or the other parts of the U.S. right afterwards.
0:39:11 So we may tee up two, I think, high-level meetings between the two leaders in 2026.
0:39:15 But there’s a lot that needs to be figured out between now and then.
0:39:20 And meanwhile, China’s trade surplus is going to ever expand.
0:39:32 I think the $295 billion trade imbalance between the two countries is somewhat, I think, largely unchanged, actually, because these tariffs and their exemptions haven’t actually addressed the deeper underlying structural issues.
0:39:37 So I think that right now we’re right to breathe a sigh of relief.
0:39:44 But there’s, I think, going to be a bumpy road ahead or rocky road ahead in terms of trade discussions.
0:39:49 But it’s been surprising to me that we didn’t see much mention of the geopolitical issues.
0:39:55 I think that the U.S. vaguely mentioned Russia-Ukraine, that there could be areas of collaboration.
0:39:57 Taiwan didn’t come up at all.
0:40:03 What’s your view on the geopolitical angle and how it will rev up, I think, in 2026?
0:40:08 Because there’s already some inklings of concerns about China’s territorial ambitions in the South China Sea.
0:40:14 That happens quite periodically, I think, when people are concerned about Chinese aggressive foreign policy.
0:40:18 But I’ve noticed in the last few weeks that there’s been more media articles about this issue as well.
0:40:19 Yeah.
0:40:29 I mean, my sense of the talks in South Korea was that the U.S. and China both wanted to make some kind of progress on these very crucial trade and investment deals.
0:40:33 Therefore, they didn’t want to overload it with geopolitical talks as well.
0:40:41 Once you start talking about issues such as South China Sea or Taiwan, you immediately start pressing on very raw nerves.
0:40:50 And so, I think that the fear was that if you tried to go there, you might scupper the trade and investment aspects of the deal as well.
0:40:52 But you’re right to point this out, Alice.
0:40:57 Politically, the U.S. and China are no closer together than they ever were.
0:41:09 And as we also know, it’s geopolitics that forms the bedrock of the disagreements between them that then filter into the trade and investment relationships.
0:41:14 So, the fundamental problem between the U.S. and China is geopolitical.
0:41:15 It’s not economic.
0:41:21 And therefore, just by leaving geopolitics aside does not solve the geopolitical problems.
0:41:26 So, it’s highly likely that these tensions will rear their head again in the coming months.
0:41:31 You know, there’s any number of scenarios of things that can go wrong, unfortunately.
0:41:33 I really like that point that you made.
0:41:42 But just for the sake of argument, I think as an economist, I would take the other side of it, which is that I think it’s the trade imbalances that China runs with Europe and America.
0:42:01 Running these massive surpluses, which, by the way, I think will get bigger, that lead to these political spats will lead to both sides basically mistrusting China and finding ways to, you know, either through export controls, through means, fair or foul, to stop or rather cauterize China’s massive export.
0:42:04 So, as an economist, I’ll take a different side to that.
0:42:05 But I completely hear you.
0:42:10 I think that in 2026, geopolitics, I think, will be important again.
0:42:13 It’s probably reserved for a later discussion.
0:42:18 But certainly, I think you’re right on the money when you say that right now they’re focused on trade and investment.
0:42:21 All right, James, it’s prediction time.
0:42:25 What’s your prediction for this week or in the near future?
0:42:33 Okay, Alice, we’ve just been talking about frictions and geopolitics and things that could go wrong in the future.
0:42:37 I hate to be so gloomy, but my prediction concerns that.
0:42:47 I think that pharmaceuticals may be one of the next focuses of US-China tensions at some point, let’s say, over the next six months.
0:43:00 My prediction is that China may threaten to restrict supply or actually restrict supply of key pharmaceuticals at some point over the next six months.
0:43:21 This choke point is another piece of leverage that China holds because, according to US Pharmacopoeia, which is an industry standards body, nearly 700 US medicines are made using at least one key ingredient that is only sourced from China.
0:43:28 So China’s, you know, situation in the pharmaceutical supply chain allows it this leverage.
0:43:35 And to my mind, it may either threaten to use that leverage or actually use that leverage going forward.
0:43:40 So do you think that that will mean we get supply shortages, prices go up?
0:43:45 Well, if it’s a threat, then it may not have an immediate sort of price impact.
0:44:00 But if China starts to really restrict the inputs into pharmaceuticals or actual pharmaceutical products that it exports around the world, then I think we could well see some increases in the prices of these pharmaceuticals,
0:44:07 just as we did in rare earth prices or more recently in prices of these chips that Nexperia makes in China.
0:44:13 So, yeah, we could see a very similar template of stresses coming forward.
0:44:15 But what’s your prediction, Alice?
0:44:16 Well, thanks, James.
0:44:17 Firstly, that’s really interesting.
0:44:26 And I think whereas we talked about egg prices going up early on in the Trump term, this could be the next hot button domestic political issue in America.
0:44:32 If you see pharmacy products, drug products go up in price, that could be, I think, quite important politically as a saline issue.
0:44:44 My prediction, you know, going back to this education issue, I think in the next five-year plan, there may be some more loosening on private tutoring and education.
0:44:54 2021, we basically saw this massive crackdown that took out pretty much the operations of the top private tutoring and education companies and platforms.
0:44:59 I think that they’re starting to realize that they need to do more to support the job market.
0:45:02 And this is actually a key hirer.
0:45:05 This industry employs millions of people.
0:45:07 So I think that there may be loosening on that.
0:45:11 And we could see more companies getting into the private tutoring space.
0:45:14 That’s my hot take for early 2026.
0:45:17 All right, that’s all for this episode.
0:45:19 Thank you for listening to China Decode.
0:45:21 This is a production of Prof G Media.
0:45:24 Our producer is David Toledo.
0:45:26 Our associate producer is Eric Janikis.
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0:45:38 And our executive producer is Catherine Dillon.
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0:46:26 From season kickoff to the championships.
In this episode of China Decode, hosts Alice Han and James Kynge unpack how the global auto industry is facing a new chip crisis. Dutch chipmaker Nexperia has halted shipments to China after a payment and ownership dispute, forcing carmakers like Honda and Volkswagen to scramble for crucial semiconductor parts. They explain how a fight over factory control became the latest flashpoint in the U.S.–China tech rivalry — and why Europe is caught in the middle. Then, they turn to China’s most pressure-packed test: the Gaokao. With more than 10 million students vying for spots at top universities, the exam has long promised meritocracy but increasingly reflects inequality. Alice and James explore how this high-stakes system shapes opportunity, status, and ambition in modern China — and why reform remains so elusive. Finally, Trump and Xi agree to a one-year trade truce, pledging to ease tariffs, restart soybean purchases, and cool tensions over rare earths and fentanyl. But can either side really trust the other to follow through? The hosts break down what’s at stake — and whether this pause is a real breakthrough or just a political timeout.
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