AI transcript
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0:01:13 Hi! Welcome to McDonald’s. Can I take your order?
0:01:17 Hi. Oh, wow. Um, can I get a…
0:01:18 Yup.
0:01:23 The McValue menu has a lot of delicious options for under $4 each plus tax.
0:01:28 Like a cheeseburger deluxe, sweet chili junior chicken, McDouble, and chicken snack wrap.
0:01:30 So it’s okay to take…
0:01:49 Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world.
0:02:02 We’ve left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world.
0:02:09 All of that rhetoric, well, and it was a lot more than rhetoric, really, from Reagan’s time until now.
0:02:12 It’s been followed up with military might and economic muscle.
0:02:15 This is the world that Pax Americana has created.
0:02:21 So if this holds, and that is a big if, then it really is a big change.
0:02:28 Welcome to China Decode. I’m Alice Han.
0:02:29 And I’m James King.
0:02:38 In today’s episode of China Decode, we are discussing Trump’s new China playbook, why China’s baby bust meets a condom tax.
0:02:42 Plus, we’ll chat with Chris Miller about Trump’s big AI chip reversal.
0:02:48 That’s all coming up, but first, let’s do a quick check-in with how the Chinese markets are starting the week.
0:03:01 On Monday, the Shanghai A-share index fell 0.6%, and the Hang Seng H-share index fell 1.3% after key economic data were released, which revealed that China’s slowdown lasted into November.
0:03:06 Social media company Kuai Shou Technology closed down 5%.
0:03:15 Search giant by door slid 6%, and Alibaba fell 4%, as investors are increasingly anxious about the fragile Chinese economy.
0:03:17 You’re over in Australia, right, Alice?
0:03:21 Yeah, I just got here a couple of days ago in Sydney, and it’s been pretty awful.
0:03:30 As many listeners will know from following the news, we had one of the biggest shootings in Australian recent history, and it seems to have been a terrorist attack.
0:03:33 So it’s at a beach that many of us go to.
0:03:36 It’s been a bit of a shock to the nation, and it seems to the rest of the world as well.
0:03:38 It’s a very, very sad turn of events.
0:03:39 Absolutely.
0:03:41 It looks so sad from here.
0:03:53 But the silver lining, and a lot of media attention is being paid to this right now, is one Australian hero, Ahmed Al-Ahmed, a Syrian migrant who became an Australian national.
0:03:59 It was the guy, I don’t know if you saw the video, James, who tackled one of the shooters and took his gun away from him.
0:04:06 He’s in hospital, but certainly has gotten a lot of attention, including from Trump himself, who has called him a hero, too.
0:04:11 And so on that note, we’ll talk a bit about the Trump administration’s approach to national security.
0:04:21 The Trump administration just dropped its new national security strategy, and the biggest headline isn’t what’s in it, but what’s missing.
0:04:26 The fire and brimstone language about China being America’s top threat, gone.
0:04:36 Instead, Trump is framing China mostly as an economic rival, softening his previous position on trade, security, and even cybersecurity issues.
0:04:40 Beijing’s reacting positively so far, at least publicly.
0:04:49 So are we looking at a real reset in the relationship here, or just a tactical pause, a detente, in a long and bumpy relationship?
0:05:00 James, I’ll start with my take, because I’ve been following this very closely, and it’s worth mentioning to listeners that the national security strategy is a congressionally mandated report in the U.S.
0:05:05 United States, the executive branch’s national security goals and how it intends to achieve them.
0:05:16 And what was interesting to me is in the first Trump administration, its NSS, which was first released in 2017, had a way more hawkish tone vis-a-vis China.
0:05:23 It identified China as a great power competitor and a primary challenge to American statecraft.
0:05:32 In many ways, I think that this new national security strategy document is a product of internecine conflict within the Trump administration.
0:05:53 You’ve got hawks and doves, and clearly what I sense and what I’ve heard is that the doves, mainly Secretary Besant, Treasury Secretary Besant, clearly want this document not to be incendiary, so that they can continue to have relatively stable negotiations with the Chinese counterparts in advance of Trump’s potential April visit to China.
0:06:09 And one thing I will add, when I looked at the document itself, and Chinese media finally reflected on this too, is the fact that the Taiwan issue, which is critical to this relationship, was only mentioned three times in this document versus eight times in the 2017 document.
0:06:21 The Chinese media picked up on that quite intently, again, a sign that potentially on the Taiwan issue, the Trump administration has a more, I would say, protectionist bent, a bent towards retrenchment.
0:06:36 And certainly the rhetoric in the document about burden sharing with the Koreans and the Japanese seem to indicate that they want the allies in the region to foot the bill more and to be more on the front line when it comes to the first island chain response.
0:06:40 That is, you know, an issue that obviously pertains to Taiwan.
0:06:53 So what I sense from this document, and again, want to hear what you have to say, James, is that China really feels like it has a bit of a victory lap because the Trump administration isn’t firing full cylinder on China.
0:07:02 But again, I think that reading between the lines, there are clear, I think, hawkish voices in the administration that want to take a more hawkish position on China.
0:07:06 It remains to be seen in 2026 if they are on the ascendant.
0:07:10 But I still think that that is worth flagging because it’s definitely in the backdrop of this document.
0:07:12 But James, do you disagree or agree?
0:07:15 No, I very much agree with you.
0:07:30 I mean, I also seized on the fact that missing is this phrase of great power competition that was very prominent in the national security strategy of the first Trump administration and also President Biden’s NSS.
0:07:42 I mean, it’s a little bit like suddenly the Yankees admitting to mention that they want to beat the Red Sox or in soccer, Real Madrid going soft on Barcelona.
0:07:55 I mean, China was the main competitor, the main strategic adversary to the United States in both the first Trump and Biden administration and this Trump administration until now.
0:08:08 So it is certainly a fundamental change, whether it’s a sustainable long term pivot, as you’ve just been talking about, Alice, is much more difficult to say.
0:08:14 If you want my kind of heads up straight off the bat, which may turn out to be incorrect.
0:08:30 But my sense of this is that the reason that the White House’s China policy has shifted to one of stability and emphasizing economics, as you’ve just said, is because America wants to bide its time.
0:08:42 It wants to wean itself off its complete dependence on China for rare earth minerals and other types of critical minerals until it does that.
0:08:54 It wants to go easy on China so that it doesn’t provoke China into cutting off these rare earth mineral supplies, because as we all know, the rare earth minerals are crucial to all types of American industry.
0:09:04 And even more crucially, they are used in making weapons, so without these rare earths, it will be difficult for America to make the weapons it needs to defend itself.
0:09:12 And so that’s why I think we’re going to see this calmer, more stable, less adversarial U.S. policy towards China.
0:09:30 And unless something big happens, my hunch is that this may set the tone for the next few years, because, of course, it will take, I would say, a minimum of five years before the U.S. can wean itself off its dependence on China’s rare earth minerals.
0:09:32 Do you think that call is a bit left of field?
0:09:34 Do you think it’s a bit sort of out there?
0:09:35 Maybe there’s more going on.
0:09:41 Maybe it’s to do with Trump not wanting to jeopardize his planned visit to Beijing next day for a lot of this.
0:09:42 What’s your sense?
0:09:52 Well, my own sense is that Besant is in the driving seat, and he clearly wants the relationship to go well in advance of Trump’s visit.
0:10:06 And what I had heard, and I think this is public information, too, what is clear is that the document had been first drafted by the State Department Director of Policy Planning, Michael Anton, before he left his position in August.
0:10:16 And then it went through many different figures, through a chain of people, Secretary of State Mark Rubio, Treasury Secretary Scott Besson, even the Vice President J.D. Vance.
0:10:25 And it’s very clear, you know, in this sort of team of rivals, so to speak, that these people have different positions on China and national security writ large.
0:10:37 My own sense was that it was really the doves who won the argument because they convinced Trump that he wanted, he needed to have a good relationship in advance of a China trip.
0:10:44 But I’m very convinced, as you talk, James, about this rare earths argument, because as I was reading it, I think many people will have missed it.
0:10:51 In the Africa section, there is some description about securitizing supply chains of rare earths in Africa.
0:10:57 And I think that that, again, speaks to what you’re saying, James, which is potentially the Trump administration is buying time.
0:11:05 And I similarly heard that for weapons-grade rare earths, so military applications of rare earths, it’ll take three years.
0:11:13 But for the rest of the supply chain, at least five, maybe even up to 10 years for the U.S. to have its own secured supply chain.
0:11:18 So I’m, as you speak, I’m more convinced by your argument, James, that it is a strategy of buying time.
0:11:25 But certainly, I think that it is a bit of a change from the Biden administration and Trump 1.0.
0:11:35 I’m not entirely convinced, and here I’m probably sitting on the fence, that this document is going to be the letter of the law when it comes to the Trump administration’s approach to China.
0:11:38 I think a lot can happen in the next year or so.
0:11:42 But certainly, this has been a big shift, and it’s worth people reading.
0:11:46 One last thing that I’ll add is a section on Latin America.
0:11:55 There was a huge amount of attention paid to Latin America and the hemispheric defense approach to Trump’s foreign policy.
0:12:06 Again, one line I think that’s worth mentioning, and it might be a slight dig to China or a reference to China, is countering non-hemispheric influences in Latin America.
0:12:18 That could also be, I think, a pointed reference to China’s trade and investment relationships in Latin America, not just Venezuela and keeping that regime afloat.
0:12:25 But certainly, other countries like Brazil or Argentina, where there’s significant amounts of trade that China is involved in.
0:12:30 So, again, I think when you read between the lines, there are some references to China.
0:12:41 But clearly, from a PR standpoint, the doves in the administration have won the argument, and they wanted to make this document less incendiary than it could have been, than it certainly had been in the first Trump administration.
0:12:45 James, how do you think the Chinese government is viewing this document?
0:12:48 Because they definitely have dedicated teams that specialize in this.
0:13:01 I think they’re absolutely delighted, and I have been talking to Chinese, well, think tank people last week in London, and I think they are really very pleased about this.
0:13:10 Because the previous two national security strategies mentioned that the U.S. wanted to oppose China’s desire to, quote,
0:13:15 shape a world antithetical to U.S. values and interests.
0:13:23 This version dropped that completely, and as you mentioned earlier, it started to talk about economics a great deal more.
0:13:30 And so, the key sentence in this one was that America wanted to be working to, quote,
0:13:35 rebalance America’s economic relationship with China.
0:13:42 Just look at how much more mild that sentence is compared to describing China as, you know,
0:13:45 antithetical to U.S. values and interests around the world.
0:13:57 So, what I think is happening is that Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world.
0:14:10 We’ve left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world.
0:14:15 All of that rhetoric, well, and it was a lot more than rhetoric, really.
0:14:19 From Reagan’s time until now, it’s been a great deal more than rhetoric.
0:14:22 It’s been followed up with military might and economic muscle.
0:14:25 This is the world that Pax Americana has created.
0:14:32 And now we’re just talking about doing better deals and America focusing on its economic interests in the world.
0:14:38 So, if this holds, and that is a big if, then it really is a big change.
0:14:46 And I must just say, Alice, that I think your phrase of non-hemispheric influences is going to be a zeitgeist for 2026.
0:14:55 I think that we are going to be talking about re-hemisphering the world a lot more over the coming months.
0:15:03 It’s a bit like the Monroe Doctrine of old is going to get reborn in some shape or form, or at least rhetorically reborn.
0:15:11 I have a feeling I’m already seeing several think tank articles about re-hemisphering and non-hemispheric influences and all of this.
0:15:16 So, I think that’s going to be more of the lens through which America looks at the world.
0:15:22 And very clearly, China is not in America’s hemisphere, at least not in their own reckoning.
0:15:28 So, I think there’s going to be a lot to pick up on and a lot to focus on on this topic.
0:15:33 Yeah, I love the way that you described, James, Trump’s foreign policy of serving deals and not ideals.
0:15:36 I think that’s a great way to view it.
0:15:47 The administration gives a good diagnosis to the Chinese economy, saying that they wanted to encourage other countries to adopt trade policies that, quote-unquote, rebalance China’s economy towards household consumption.
0:15:51 It’s certainly something that, you know, we’ve been waiting for the Chinese economy to do.
0:16:01 But I think, again, if we read between the lines, it’s clear even in the economic section of the relationship, yes, it is milder than the previous documents.
0:16:16 But it’s clear that they reserve the right and give themselves a policy space to keep using tariffs or non-tariff barriers or even pressure other trading partners, I’m thinking about Europe in particular, to put tariffs on China and enforce tougher rules of origin.
0:16:23 I think this will be particularly germane to, say, a Mexico or a Vietnam, where China does a lot of rerouting of trade.
0:16:38 Certainly, I could foresee in 2026 that Besson and Greer, if the relationship doesn’t pan out well, decides to opt for, I think, a more protectionist strategy enforcing rules of origin through these other third-party countries.
0:16:46 It’s not my base case, but definitely I think this document gives them the policy space to use that tool or lever to apply more pressure on China.
0:16:54 So I don’t think it’s all rosy, but certainly it is, at a rhetorical level, quite a bit of an improvement to previous NSS documents.
0:16:57 But, James, are we missing anything?
0:17:02 Is there a danger to the Trump administration’s seemingly more dovish position on China?
0:17:08 Certainly, you know, when we speak to some of the national security experts, they’re very worried about China’s cybersecurity risk.
0:17:10 James, what’s your take on this?
0:17:21 Well, it’s hard to know cause and effect, but perhaps it’s too much of a coincidence that just the day before the new US national security strategy was announced,
0:17:32 the Financial Times had an article which says that the US plans to halt its intention to impose sanctions on China’s Ministry of State Security.
0:17:35 That is, of course, China’s, of course, China’s spy ministry.
0:17:49 And this is over a massive cyber espionage campaign that was being waged by a group called Salt Typhoon and other advanced persistent threat groups.
0:17:59 These are called APT groups that the US believes has been responsible for targeting United States infrastructure and government agencies
0:18:07 and really hacking the phones of many high-level individuals in the United States through US telecoms networks.
0:18:15 And so this was a really big cause for concern in the US all the way from 2019 until now.
0:18:24 And now the Trump administration is saying that it wants to, well, halt the plans to impose sanctions on the Ministry of State Security.
0:18:27 Of course, it could go back on that.
0:18:28 It could change its mind.
0:18:38 But at the moment, that seems to be potentially part of this softening towards China ahead of Trump’s meeting with Xi Jinping in April.
0:18:43 And perhaps because, you know, the US is now taking a softer tone on China altogether.
0:18:45 Very interesting, James.
0:18:52 We are going to talk more about a seemingly dovish turn on policy related to chips with Chris Miller after the break.
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0:21:22 Well, welcome back.
0:21:30 Last week, President Trump announced that he was reversing a years-long policy banning U.S. chipmakers from selling their powerful AI chips to China.
0:21:40 In a social media post, Trump indicated that NVIDIA would be allowed to sell their H200 chips in China, the second most powerful AI chips the company makes.
0:21:52 This marks a major shift in policy and implicates the whole AI industry as the engine driving the global economy, as well as putting a spotlight on the ongoing tensions between the U.S. and China.
0:21:56 Joining me to talk through all of this is Chris Miller.
0:22:06 He is a professor of international history at Tufts University and is the author of the critically acclaimed 2022 book, Chip War, The Fight for the World’s Most Critical Technology.
0:22:11 Chris, there’s nobody better to speak on this topic, so thank you so much for joining me today on China Decode.
0:22:12 Thank you for having me.
0:22:16 Let’s start with the export controls and how that we’ve seen a major shift.
0:22:23 Certainly, people who have been watching this closely are disheartened to some extent with Trump relaxing on H200s.
0:22:33 But maybe from the ground up, can you walk us through why this actually matters and why this has been a big shift to, say, go from the H20s, where he relaxed, to the H200s?
0:22:35 What is the quantum leap, so to speak, between the two?
0:22:44 If you start by looking at the goal that the U.S. government has been trying to accomplish since it began imposing controls on AI chips in 2022,
0:22:51 the theory was that if you want to build big AI systems, you need lots and lots of high-end chips.
0:22:59 And almost all of these chips are manufactured at TSMC in Taiwan and largely designed by U.S. companies, including NVIDIA.
0:23:03 So the U.S. and Taiwan have this unique choke point over AI processors.
0:23:13 And the U.S. wanted to give U.S. firms and firms from allied countries a leg up in the AI race by giving them privileged access to AI computational capabilities.
0:23:15 And that was the origin of this control regime.
0:23:27 And Trump has now decided for the first time since the controls were put in place to actually reduce some of the controls and allow more chips at the high end of the spectrum to flow to China.
0:23:31 And why is he issuing this policy shift?
0:23:38 Because to my mind, he was really the first to issue this clarin call in his first Trump administration about the need to do export controls.
0:23:44 This year, I think we’ve seen a move towards being dovish on some of these chips issues.
0:23:49 And certainly people point to David Sachs being the crypto and AIs are as being one proponent of this.
0:23:55 But what is the rationale from Trump’s perspective in basically reducing these export controls?
0:23:57 You know, I think you’re right.
0:24:04 This is a big reversal, of course, relative to the policy of the first Trump administration, which was very tight on technology controlling.
0:24:09 There are two rationales that you hear from the administration on why this changed now.
0:24:12 The first is financial in focus.
0:24:17 NVIDIA, obviously, a critically important company for the U.S., a driver of the stock market.
0:24:22 And so there’s a straightforward rationale to let NVIDIA sell more chips to China.
0:24:23 So that’s part one.
0:24:31 There’s a second argument that suggests if you sell chips to China, China won’t want to build out its own AI chip ecosystem.
0:24:38 And we’ve seen Chinese firms like Huawei, most importantly, become important designers and manufacturers of AI chips.
0:24:45 So they’re still far behind what NVIDIA plus TSMC can do in terms of quality and quantity.
0:24:57 But there are some people in the administration, including, I think, David Sachs, who you mentioned, who argue that if you sell more chips to China, you’ll take some of the air out of the effort to build up China’s own self-sufficient AI ecosystem.
0:25:02 And to grab onto that second point that you mentioned, do you think it’s plausible, that argument?
0:25:11 Because to my mind, at least, people who will follow the Chinese chip industry are saying that this could actually give China more of an edge in the broader AI competition.
0:25:18 Certainly, it raises China’s compute capabilities and it reduces the gap between the U.S. and China on compute alone.
0:25:27 There was a great piece published by the think tank IFP that seems to suggest that now with the H200s, we could go from the U.S. having a 30x advantage on compute to 6x.
0:25:32 And, you know, the second part of my question is, will China accept all these chips?
0:25:44 Because certainly, there is an argument that you’re seeing in the mainland, in media, amongst people who follow this closely, that they need to limit the amount of NVIDIA chips that they bring in because they want to kickstart their own industry.
0:25:48 So walk me through a little bit whether or not this has a compute advantage for China.
0:25:51 And secondly, whether or not China will actually take these chips.
0:26:01 Well, I think it is a key question right now because the Chinese government, as you know as well as anyone, has been fixated on self-sufficiency in semiconductors for over a decade.
0:26:04 And they’ve made a lot of progress in many types of chips.
0:26:07 But when it comes to cutting-edge AI chips, they’re not there yet.
0:26:21 And this is why, from the Chinese government’s perspective, there’s actually a rationale for keeping these chips out of the market because it opens up space for Huawei and the other AI chip designers in China to sell to China’s own AI firms.
0:26:32 I think if you’re in the shoes of the Chinese internet sector or the AI sector, companies like ByteDance or Alibaba, they’d actually probably prefer to just get the best chips on the market, which are NVIDIA’s.
0:26:37 And so you probably have a bit of a gap between what the tech sector wants and what the Chinese government wants.
0:26:40 But I think this is a space where the Chinese government usually wins these arguments.
0:26:52 And so I think we are going to see some limitations on the number of H-200s, rather, that flow into China because the Chinese government does want to support Huawei and support this self-sufficiency drive to the extent that it can.
0:27:06 Great point. And looking to the Chinese industry as a whole, you know, your book, really, if anybody hasn’t read it, they need to read it, it really lays the foundation for this ongoing competition between the U.S. and China over semiconductors.
0:27:11 How do you assess the Chinese semiconductor industry today versus when you wrote that book?
0:27:15 Because certainly there’s a lot of hype about Chinese homegrown talent.
0:27:19 You just mentioned a couple, Huawei, Canbera Corn, Morse Threads more recently.
0:27:23 How are you looking at their capabilities when it comes to the ground up?
0:27:26 Because there’s a lot of attention being paid to the sector right now.
0:27:32 You know, I think China has made real strides in catching up in many segments of the chip industry.
0:27:36 But there are also a number of areas where they’re far away from the cutting edge.
0:27:46 If you look first off at the manufacturing of semiconductors, what you find is that TSMC in Taiwan is not only able to produce significantly better chips.
0:27:55 And we know this because the capabilities of the leading Chinese chip maker, SMIC, basically track along TSMC at a five or six year delay.
0:27:57 And that delay has been relatively steady over time.
0:28:00 So there’s a meaningful delay in terms of quality.
0:28:05 And there’s a huge gap in terms of quantity because TSMC can access the tools that are used to make chips.
0:28:13 Machines that are produced by companies like ASML or applied materials in ways that China can’t because of export control.
0:28:17 So on manufacturing quality and quantity, there’s a very big gap.
0:28:29 When it comes to chip design, the gap is much, much less significant, which is why Huawei, for example, is a top-notch designer of semiconductors, both for smartphones and also increasingly for AI chips.
0:28:31 But design only matters if you can get them manufactured.
0:28:36 And that’s the challenge that Huawei and the other Chinese chip designers have faced.
0:28:43 And so I think if you look at the startup ecosystem in China, for example, companies like MoreThreads, which you just mentioned, had an IPO earlier this month.
0:28:46 Very successful IPO, valuing it at around $50 billion.
0:28:47 That’s a lot.
0:28:55 But it’s only 1% of NVIDIA’s valuation, precisely because they can’t manufacture enough chips to sell them at volume right now.
0:29:02 So they really do need to rely on U.S. imports or imports from other countries, especially as they gear up on AI capacity.
0:29:07 Maybe we can talk a little bit about the AI implications, because I know you follow this very, very closely.
0:29:17 And certainly one argument that you hear is that the chip side is a critical hardware constraint for China as it tries to compete with the U.S. on compute, on training, and ultimately on AI models.
0:29:22 How are you seeing this AI broader competition between the U.S. and China?
0:29:28 And do you think this recent announcement of the H-200s really changes the dynamic in this AI competition between the two powers?
0:29:36 I think one of the debates that the AI world was having in the first half of this year is whether the scaling laws were still holding.
0:29:39 The idea that you build a bigger AI system, you get a better AI system.
0:29:47 In the last couple of months, we’ve seen a number of important data points that suggest, yes, it still is true that quality follows size.
0:29:54 Gemini 3, for example, is, I think, a strong data point in that direction, Opus 4.5 from Anthropic.
0:29:58 But the best is actually DeepSeq, which released a new model earlier this month.
0:30:08 And the paper that accompanied that release explicitly said, we, DeepSeq, are actually struggling to pre-train at the scale we want because we don’t have access to enough chips.
0:30:18 So that’s why I think there’s so much at stake in the decision by the U.S. to allow H-200 sales to China and by the decision by the Chinese government, what volume to actually accept.
0:30:31 My guess, and there’s a ton of uncertainty here, my guess is actually that the volumes that ship are smaller than many people think, both because of uncertainty on the U.S. side as to what exactly the security concerns will be that need to be addressed.
0:30:34 And the Trump administration has promised some sort of security check.
0:30:41 And also because China’s government wants to provide a space for Huawei and other firms to sell to a protected market.
0:30:46 And so there may be less H-200 sales than I think some of the headlines suggest.
0:30:53 And if that’s true, we might not see as big of a reversal in the balance in computing power as we’ve got today.
0:31:01 But it’s worth tracking very closely because the U.S. advantage in compute has been a core facet of its leadership in AI over the past couple of years.
0:31:16 And if I hear you correctly, you’re saying that the chip side still remains significant in this broader AI competition, because if the Chinese can’t create its own homegrown versions that are as efficient and as productive, then that’s seriously going to be a limitation on their compute capabilities.
0:31:20 And we’re seeing that knock-on effect with the models that have been coming out of China.
0:31:21 Is that correct?
0:31:22 Yeah, I think that’s right.
0:31:36 DeepSeq trying to disassemble NVIDIA servers that were in Southeast Asia, ship them into China and reassemble them is a data point just how far Chinese firms are going to get access to the compute that they realize they need.
0:31:45 And if your AI supply chain requires disassembling, smuggling and reassembling, you know, that’s not the kind of supply chain you want to rely on to produce your most sensitive and advanced technology.
0:31:46 Fascinating.
0:31:55 Well, let’s shift to the U.S., where we’re talking a lot about an AI bubble, and there’s a lot of speculation as to whether or not NVIDIA GPUs have been oversold.
0:32:04 You’ve got a famous American hedge fund manager, Michael Burry, who famously predicted the 2008 housing market crash, who’s saying that there were way too many NVIDIA GPUs that have been sold.
0:32:17 You have also been following this very close to the data center rollout, where you’ve got trillions going into data center rollouts throughout America, the GPUs being used to power those data centers and ultimately power models like open AIs.
0:32:21 Do you think we’re in an AI infrastructure boom bubble?
0:32:30 And more broadly, is the U.S. style of approach to AI being seriously disrupted by these cheaper, more efficient and energy efficient models coming out of China?
0:32:42 I think to start with the second part of the question first on open source, we’ve now begun to get some reasonable data on whether cheaper or often free open source models from China are winning market share.
0:32:55 And the answer is not really, at least from what we can tell, closed source models had roughly 70% of the market 12 months ago, and it looks like they’ve got 70% of the market today from some of the latest data that I’ve seen.
0:33:03 Most of the evidence suggests that most AI startups in Silicon Valley are building their startups on closed models because of the performance gap.
0:33:05 They’re just better in terms of their quality.
0:33:09 So we haven’t seen the commodification of AI at all.
0:33:15 I think the big question is, will we see the continued revenue growth that we’ve seen over the past couple of years?
0:33:25 You know, when you look at Anthropic going from $100 million to $1 billion to almost $10 billion in revenue the last three years, that is staggering growth, and it can’t continue at that rate for a long time.
0:33:29 But even if the rate slows somewhat, that implies a ton of new revenue coming in.
0:33:40 And I guess I remain on the optimistic side that, yes, we’re investing a lot, but I’d rather be investing a lot than not investing in a technology that has the potential to be so transformative across so many different sectors.
0:33:46 And just to continue this line of questioning, Jeffrey Ding writes a lot about technology diffusion.
0:33:52 You know, technology is one thing, but you need to know how to diffuse it throughout the economy to unleash the productivity gains.
0:34:00 And I think a broader debate within the U.S.-China AI competition is which country is going to diffuse the gains of AI better.
0:34:10 You know, having studied both countries and the way that they approach technology, what is your sense of the two different pathways and who’s ultimately going to diffuse technology better within the real economy?
0:34:13 You know, I think, Jeff, it’s a key question.
0:34:17 It’s also a very, very hard question to know how to begin to measure.
0:34:31 I guess my theory would be that the first era of AI will be primarily applying AI to the enterprise space, making companies more efficient, finding ways to automate legal services and accounting services and coding already happening.
0:34:35 And there, I think the empirics are that the U.S. has done really well.
0:34:39 Most enterprise software firms around the world are based in the U.S.
0:34:45 The U.S. has always been a leader in applying enterprise software to other sectors, to financial services, for example.
0:34:52 And so if that holds, I think you should expect to see U.S. firms be early adopters of AI and enterprise as well.
0:35:03 And I would posit that I think we’re beginning to see that the number of private equity firms, for example, that are actively integrating AI transformation into their investment strategies.
0:35:08 That, to me, is a very positive sign that we’re going to get this broad diffusion across the corporate sector.
0:35:17 I think when you listen to non-technology companies, they’re increasingly talking about finding ways that AI is actually impacting their businesses.
0:35:25 And then we’re already seeing a whole new generation of AI-native enterprise software tools, which I think are going to be very powerful and spread very rapidly.
0:35:34 So I would be optimistic about the U.S. ability to apply quite rapidly, though, of course, I think none of us would ever underestimate the capacity of the Chinese tech sector either.
0:35:40 Well, one last question I have for you is more about the military dual-use implications of AI.
0:35:46 Certainly, we saw the military parade in September where China was literally and metaphorically bringing out the big guns.
0:35:52 And there’s a lot of talk about China’s AI-enabled systems when it comes to, say, a Taiwan showdown.
0:35:55 You know, you talk a lot with folks in Washington.
0:36:06 I think it’d be very interesting for us to hear a little bit about how the state, the deep state, but also Washington writ large, is thinking about the way it wants to use AI in dual-use technologies in military hardware.
0:36:08 Can you speak to that a bit?
0:36:12 Well, I would flag two, I think, immediate applications.
0:36:15 One is in interpreting and sifting through intelligence.
0:36:21 We’ve already heard publicly, for example, from the director of the National Geospatial Intelligence Agency,
0:36:24 the role that AI plays in identifying images or detecting patterns.
0:36:32 And when you think of the vast quantities of data that any large intelligence agency is getting from their satellite photos and their signals intelligence,
0:36:34 making sense of that is a real challenge.
0:36:37 And AI is already having an impact there from what we’ve heard publicly.
0:36:44 I think second is if you look at drones and autonomous systems, and Russia, Ukraine is a testbed, tragically, for this.
0:36:47 We’re already seeing increasingly autonomous systems being deployed.
0:36:57 And I think both the U.S. and China are actively exploring ways to accelerate that across drones in the air, drones in sea, drones under sea, drones on land.
0:37:04 One last cheeky question to end on, if I can, Chris.
0:37:09 What is your prediction in any area of chips or AI for next year that you think we should be tracking?
0:37:19 I’m just continually surprised by how many conversations I have about the AI bubble, which makes me think that everyone expects the AI bubble to burst,
0:37:23 but also makes me puzzled because if everyone expects it to burst, can we really be in a bubble?
0:37:31 My prediction is that we’re going to get continued technological progress and continued new products driven by AI.
0:37:39 And I think relative to everything I hear from my friends in the investing community, to be sure, I think there’s a lot more pessimism that is warranted by the technological progress.
0:37:41 Great. Thanks so much, Chris.
0:37:42 I know you’re a very busy man.
0:37:46 On top of being an AI chip expert, you’re also a Russia expert, so really appreciate your insights.
0:37:48 We’ll leave things here for now.
0:37:49 Thank you so much.
0:37:51 And thanks for joining me today on China Decode.
0:37:52 Thank you.
0:37:53 Okay.
0:37:55 We’ll be back with more after a quick break.
0:37:56 So stay with us.
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0:38:45 Welcome back.
0:38:51 China is trying to reverse its baby bust, and its latest move has people doing a double-take.
0:38:58 Starting January 1st next year, the government is putting a 13% tax on condoms and other contraceptives,
0:39:02 ending an exemption that’s been in place since the one-child policy era.
0:39:10 Officials say it’s just a technical tax change, but many Chinese citizens see it as another attempt to nudge people into having kids.
0:39:16 Critics argue it won’t boost birth rates, which are continuing to decline, and could actually make things worse,
0:39:24 especially for young Chinese people already squeezed by high costs, long work hours, and an increasingly shaky economy.
0:39:26 James, what’s your hard take on this?
0:39:28 Do you think this is actually going to work?
0:39:33 Well, I mean, they say that two things in life are certain, death and taxes.
0:39:41 And I also think it’s the case that you can really see what a country intends for its people by looking how it taxes them.
0:39:48 So although the authorities in China have not said that this tax on contraceptives, including condoms,
0:39:54 is part of its pro-natal policies, it certainly looks like that,
0:40:05 because there will be value-added tax imposed on condoms and other contraceptives up to the usual 13% from next year.
0:40:11 And actually, if you look at the context around this, it really does look like this is an intentional move
0:40:14 to boost the number of kids being born in China.
0:40:25 It will end a 33-year tax exemption on contraceptives that was first introduced under China’s one-child policy.
0:40:31 And conversely, while they’re putting taxes on contraceptives,
0:40:35 they’re taking taxes off matchmaking services.
0:40:38 So it looks to me like this is all of a package.
0:40:47 It looks to me like basically China is going as full speed ahead as possible to get women to have more kids.
0:40:51 And I think the reasons for that are so abundantly clear.
0:40:54 And Alice, you have many friends in China.
0:40:57 You will know the stories there really well.
0:41:07 But just the very stark statistic at the top is that China’s fertility rate is now about one birth per woman.
0:41:09 That was in 2024.
0:41:13 That’s far below the replacement level of 2.1.
0:41:16 It’s not actually the very lowest in the world,
0:41:21 because I think that dubious distinction goes to either Macau or South Korea.
0:41:26 But it is very close to the lowest birth rate in the world.
0:41:29 What are you hearing, Alice?
0:41:35 I mean, you must have heard several stories from your friends in China about why people are not having babies
0:41:37 and the government efforts to get them to have babies.
0:41:41 Well, first, I want to take it in a personal direction and then take it in a structural direction.
0:41:46 On a personal level, my grandfather’s generation, his father had three wives.
0:41:51 And this is just to give people a sense of China in the early 1900s and late 1800s.
0:41:52 He had three wives.
0:41:58 My grandfather was the first son and the 12th child of the third wife.
0:42:02 And then his generation had three kids.
0:42:05 And my father then had two kids in Australia.
0:42:10 But our generation, so my generation of cousins in China, none of us have kids yet.
0:42:15 And so it’s a great consternation to my grandfather who’s 95 in Shanghai and hope he’s listening to this.
0:42:18 Because every time I see him, he says, why don’t you have kids yet?
0:42:22 But that’s just to give people a sense of where China has evolved over time.
0:42:25 You know, it used to be a society that valued many kids.
0:42:27 You know, you have an expression in Chinese,
0:42:32 which is the more children, especially male children you have, the more prosperity you have.
0:42:38 That radically shifted in 1971, the year my aunt was born, when they introduced the one-child policy.
0:42:39 And I ran the numbers, James.
0:42:40 It’s startling.
0:42:45 In 1963, when my mother was born, 7.51 births per woman.
0:42:46 That’s the fertility rate.
0:42:50 It is, in 2023, one birth per woman, as you mentioned, James.
0:42:55 In the U.S., the peak was 1959, 3.75 births per woman.
0:42:59 Today, in 2023, 1.62 births per woman.
0:43:02 So the decline is less severe in the U.S.
0:43:05 And U.S. is obviously helped by immigration, which China does not benefit from.
0:43:09 But it’s clear to me that these are structural issues at play.
0:43:13 And to bring it to the structural domain, I’ve been reading a lot of Claudia Golden’s work.
0:43:18 She is a Nobel Prize-winning economist who’s specialized in labor market economics.
0:43:25 And one of the points that she makes is that as women become more educated and professionalized,
0:43:30 they encounter a mismatch in the temporal and financial costs of having children.
0:43:36 So as women get more educated and professionalized and have higher-paying jobs, the men aren’t stepping
0:43:38 up in the same way.
0:43:43 And so women oftentimes decide not to have kids because it becomes too much of a burden financially
0:43:44 to them.
0:43:50 I think a similar thing is happening in China, where the women who benefited, I would say,
0:43:55 from the reform and opening up, so the 80s onwards, and benefited from the expansion of
0:43:59 college education in 1999, have built financial wealth and stability.
0:44:01 And they don’t really need a man.
0:44:03 They don’t really feel the incentive to have kids.
0:44:06 The other flip side to this, James, is the declining marriage rate.
0:44:08 I don’t think this gets enough attention.
0:44:14 Last year, 6.1 million marriages registered, 20% decline year-on-year from 2023.
0:44:17 And that is half of what it was at its peak in 2013.
0:44:23 And the lowest it’s been since, I think, the 80s, just to give people a sense of the numbers.
0:44:28 And on Chinese social media, but also I see this whenever I go to China, there’s a huge,
0:44:33 I think, glorification of the single woman in a way that I don’t think existed, I think,
0:44:37 even a decade or two decades ago, you had this concept of the leftover woman or the spinster,
0:44:41 you know, woman past her late 20s who was unmarried and didn’t have kids.
0:44:46 There’s been a bit of a cultural movement to glorify them in some ways and say that they
0:44:52 can have this great life as a professional, financially well-off single woman without kids.
0:44:56 So I’m shocked by this, and I think people really should pay attention to it because it has
0:44:59 massive, obviously, economic implications.
0:45:05 If China’s fertility rate is less than half the replacement rate, which is 2.1, it is
0:45:07 rapidly shrinking its labor force.
0:45:11 And so how is China going to pay its debts in the long term?
0:45:15 How is China going to grow out of its problems in the long term?
0:45:20 I think these all hinge around these tectonic plates of fertility, which is why this is actually
0:45:22 quite an important issue.
0:45:27 I’m in the camp of being very skeptical that this actually works, you know, putting a 13%
0:45:28 tax on condoms.
0:45:32 I think more importantly, it’s, you’ve seen this in the Scandinavian countries, aside from
0:45:36 immigration, you’ve got to have strong maternity leave policies.
0:45:41 You’ve got to make it financially better for women to take some time off and have kids without
0:45:43 being penalized for it.
0:45:47 But some of the numbers, James, and maybe you can run us through this, of how much it costs
0:45:51 to raise a child in China relative to the rest of the world are pretty shocking.
0:45:53 Yeah, I’m with you, Alice.
0:45:55 I don’t think this tax change is going to work either.
0:46:01 My friends in China also are saying, you know, high costs of housing, education, childcare,
0:46:07 intense pressures of the workplace, very long working hours, all of that kind of thing.
0:46:16 By 2040, China will have a huge elderly population of over 400 million people.
0:46:22 That means that from now until then, the number of elderly people, that’s people above 60 years
0:46:26 old, will rise by about 150 million.
0:46:32 So that is the population of Russia between now and 2040.
0:46:38 And simultaneously, the number of Chinese people overall will be falling.
0:46:43 And by 2050, that will also have declined by 150 million.
0:46:46 So again, a population the size of Russia.
0:46:51 So, you know, as you mentioned, we’re dealing with really, really big pressures here.
0:46:53 This is big stuff.
0:46:59 So there was a think tank in Beijing, the Yua Population Research Institute, that calculated
0:47:04 that the cost of raising a child until the age of 18 was over $76,000.
0:47:08 And I think that that is about 13, 14 times per capita GDP.
0:47:13 There are some other economists out there that say that could it be double that amount because
0:47:18 that research doesn’t take into account the indirect cost or the parenthood penalty of having
0:47:20 kids, meaning the cost to, say, your salary.
0:47:27 But I think regardless, it shows you the enormity of childcare as an economic burden to households.
0:47:32 And households are having a rational approach to this, which is they’re having less kids or
0:47:33 they’re not having kids at all.
0:47:39 And again, James, I think you paint a great picture of the implications at a demographic level
0:47:41 of this position.
0:47:46 And if demography is destiny, I think China may be in a worse position than the U.S.,
0:47:49 certainly, which continues to benefit from immigration.
0:47:55 But James, when you were there in China, was this something that you sensed or was it a concern that
0:47:56 people voiced?
0:47:57 Oh, hugely.
0:48:05 I mean, I had female colleagues who were late 20s, 30s, just having kids or just getting married.
0:48:09 And the sense of foreboding was really quite palpable.
0:48:14 People talking about moving into cramped apartments they couldn’t afford, borrowing huge amounts of
0:48:19 money to buy those apartments, having to repay the debt on that for decades to come.
0:48:24 And then the grandparents move into the cramped apartment and then the child arrives and it’s
0:48:26 really stressful.
0:48:31 And then they have to work, you know, nine in the morning till nine in the evening in really
0:48:35 high-pressure jobs and then put their kids into child care.
0:48:38 And then the cost of the child care is so huge.
0:48:41 It really sounded, you know, a stressful situation.
0:48:48 And many of the colleagues and friends I had that were around that age, they were just sort
0:48:54 of either trying to move to America or somewhere in Europe, or they were just saying, you know,
0:48:55 this is just too much.
0:48:58 I think we’ll move to an outlying city where the pace is slower.
0:49:04 We can afford cheaper accommodation and we’ll move out of the fast lane of the big cities
0:49:05 like Beijing and Shanghai.
0:49:07 Very interesting.
0:49:09 All right, James, it is prediction time.
0:49:11 What’s your prediction for the week?
0:49:16 Well, I tried to choose one that is related, although tangentially, to the population issue.
0:49:21 Of course, as China, well, I’m not going to say runs out of people, but as the number of
0:49:28 Chinese people declines and as the number of people who are willing to do labor in factories
0:49:37 also declines, I think Chinese factory robots this year will exceed a market share domestically,
0:49:41 that’s inside China, of 60%.
0:49:45 That compares to last year, 57%.
0:49:50 It may not sound like a huge increase, but we’re talking about market share that Chinese
0:49:57 factory robot makers are taking away from foreign brands such as Fanuc, ABB, Yasakawa, etc.
0:50:06 And I also think that Chinese exports of factory robots this year will grow at around 60% again.
0:50:10 That’s a growth rate compared to last year.
0:50:13 By the way, these factory robots, we’re not talking about humanoid robots.
0:50:16 These are really production line robots.
0:50:22 So they’d be like an automated arm moving things from one place to another or doing some other
0:50:22 type of manipulation.
0:50:26 So that’s my prediction.
0:50:27 Alice, what about you?
0:50:31 Well, we didn’t mention the China Economic Work Conference, which is an important December
0:50:31 meeting.
0:50:33 And that happened last week.
0:50:36 And I’ve been sort of reading the tea leaf, so to speak.
0:50:43 And my prediction is that the real estate slump will continue in most of 2026.
0:50:48 I’m not sure if there are signs that it’s bottoming out quite as yet.
0:50:56 We saw negative 14.7% growth in the latest October data on real estate investment, just for reference.
0:51:02 And when I read the CEWC readout, which talks a lot about stabilizing the real estate market,
0:51:07 It seems to me that Beijing isn’t too concerned about trying to bail out the property sector.
0:51:15 In fact, it will just use, I think, more locality-based policies to reduce some of the constraints and
0:51:16 restrictions on purchasing.
0:51:22 And maybe on the margin, offer some financing, reviving the whitelist financing project, for
0:51:27 instance, to help the sales of these completed homes.
0:51:33 But I don’t sense that Beijing is going to intervene and seriously try to boost the property
0:51:36 market, even though the data look pretty dismal.
0:51:42 So that’s my hot take, is that the real estate investment growth remains a huge drag on fixed
0:51:44 asset investment through most of 2026.
0:51:46 That’s a very interesting and big call.
0:51:46 Yeah.
0:51:51 Definitely has implications for commodities and for other sectors that are sensitive to the
0:51:52 real estate sector.
0:51:53 All right.
0:51:54 That’s all for this episode.
0:51:57 Thank you so much for listening to China Decode.
0:51:59 This is a production of Prof G Media.
0:52:01 Our producer is David Toledo.
0:52:04 Our associate producer is Eric Janikas.
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0:52:22 Make sure to follow us wherever you get your podcasts so you don’t miss an episode.
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0:00:45 Is it the matcha, or am I this energized from scoring three Sephora holiday gift sets?
0:00:46 Definitely the sets.
0:00:49 Full size and minis bundled together? What a steal.
0:00:52 And that packaging, so cute. It practically wraps itself.
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0:01:13 Hi! Welcome to McDonald’s. Can I take your order?
0:01:17 Hi. Oh, wow. Um, can I get a…
0:01:18 Yup.
0:01:23 The McValue menu has a lot of delicious options for under $4 each plus tax.
0:01:28 Like a cheeseburger deluxe, sweet chili junior chicken, McDouble, and chicken snack wrap.
0:01:30 So it’s okay to take…
0:01:49 Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world.
0:02:02 We’ve left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world.
0:02:09 All of that rhetoric, well, and it was a lot more than rhetoric, really, from Reagan’s time until now.
0:02:12 It’s been followed up with military might and economic muscle.
0:02:15 This is the world that Pax Americana has created.
0:02:21 So if this holds, and that is a big if, then it really is a big change.
0:02:28 Welcome to China Decode. I’m Alice Han.
0:02:29 And I’m James King.
0:02:38 In today’s episode of China Decode, we are discussing Trump’s new China playbook, why China’s baby bust meets a condom tax.
0:02:42 Plus, we’ll chat with Chris Miller about Trump’s big AI chip reversal.
0:02:48 That’s all coming up, but first, let’s do a quick check-in with how the Chinese markets are starting the week.
0:03:01 On Monday, the Shanghai A-share index fell 0.6%, and the Hang Seng H-share index fell 1.3% after key economic data were released, which revealed that China’s slowdown lasted into November.
0:03:06 Social media company Kuai Shou Technology closed down 5%.
0:03:15 Search giant by door slid 6%, and Alibaba fell 4%, as investors are increasingly anxious about the fragile Chinese economy.
0:03:17 You’re over in Australia, right, Alice?
0:03:21 Yeah, I just got here a couple of days ago in Sydney, and it’s been pretty awful.
0:03:30 As many listeners will know from following the news, we had one of the biggest shootings in Australian recent history, and it seems to have been a terrorist attack.
0:03:33 So it’s at a beach that many of us go to.
0:03:36 It’s been a bit of a shock to the nation, and it seems to the rest of the world as well.
0:03:38 It’s a very, very sad turn of events.
0:03:39 Absolutely.
0:03:41 It looks so sad from here.
0:03:53 But the silver lining, and a lot of media attention is being paid to this right now, is one Australian hero, Ahmed Al-Ahmed, a Syrian migrant who became an Australian national.
0:03:59 It was the guy, I don’t know if you saw the video, James, who tackled one of the shooters and took his gun away from him.
0:04:06 He’s in hospital, but certainly has gotten a lot of attention, including from Trump himself, who has called him a hero, too.
0:04:11 And so on that note, we’ll talk a bit about the Trump administration’s approach to national security.
0:04:21 The Trump administration just dropped its new national security strategy, and the biggest headline isn’t what’s in it, but what’s missing.
0:04:26 The fire and brimstone language about China being America’s top threat, gone.
0:04:36 Instead, Trump is framing China mostly as an economic rival, softening his previous position on trade, security, and even cybersecurity issues.
0:04:40 Beijing’s reacting positively so far, at least publicly.
0:04:49 So are we looking at a real reset in the relationship here, or just a tactical pause, a detente, in a long and bumpy relationship?
0:05:00 James, I’ll start with my take, because I’ve been following this very closely, and it’s worth mentioning to listeners that the national security strategy is a congressionally mandated report in the U.S.
0:05:05 United States, the executive branch’s national security goals and how it intends to achieve them.
0:05:16 And what was interesting to me is in the first Trump administration, its NSS, which was first released in 2017, had a way more hawkish tone vis-a-vis China.
0:05:23 It identified China as a great power competitor and a primary challenge to American statecraft.
0:05:32 In many ways, I think that this new national security strategy document is a product of internecine conflict within the Trump administration.
0:05:53 You’ve got hawks and doves, and clearly what I sense and what I’ve heard is that the doves, mainly Secretary Besant, Treasury Secretary Besant, clearly want this document not to be incendiary, so that they can continue to have relatively stable negotiations with the Chinese counterparts in advance of Trump’s potential April visit to China.
0:06:09 And one thing I will add, when I looked at the document itself, and Chinese media finally reflected on this too, is the fact that the Taiwan issue, which is critical to this relationship, was only mentioned three times in this document versus eight times in the 2017 document.
0:06:21 The Chinese media picked up on that quite intently, again, a sign that potentially on the Taiwan issue, the Trump administration has a more, I would say, protectionist bent, a bent towards retrenchment.
0:06:36 And certainly the rhetoric in the document about burden sharing with the Koreans and the Japanese seem to indicate that they want the allies in the region to foot the bill more and to be more on the front line when it comes to the first island chain response.
0:06:40 That is, you know, an issue that obviously pertains to Taiwan.
0:06:53 So what I sense from this document, and again, want to hear what you have to say, James, is that China really feels like it has a bit of a victory lap because the Trump administration isn’t firing full cylinder on China.
0:07:02 But again, I think that reading between the lines, there are clear, I think, hawkish voices in the administration that want to take a more hawkish position on China.
0:07:06 It remains to be seen in 2026 if they are on the ascendant.
0:07:10 But I still think that that is worth flagging because it’s definitely in the backdrop of this document.
0:07:12 But James, do you disagree or agree?
0:07:15 No, I very much agree with you.
0:07:30 I mean, I also seized on the fact that missing is this phrase of great power competition that was very prominent in the national security strategy of the first Trump administration and also President Biden’s NSS.
0:07:42 I mean, it’s a little bit like suddenly the Yankees admitting to mention that they want to beat the Red Sox or in soccer, Real Madrid going soft on Barcelona.
0:07:55 I mean, China was the main competitor, the main strategic adversary to the United States in both the first Trump and Biden administration and this Trump administration until now.
0:08:08 So it is certainly a fundamental change, whether it’s a sustainable long term pivot, as you’ve just been talking about, Alice, is much more difficult to say.
0:08:14 If you want my kind of heads up straight off the bat, which may turn out to be incorrect.
0:08:30 But my sense of this is that the reason that the White House’s China policy has shifted to one of stability and emphasizing economics, as you’ve just said, is because America wants to bide its time.
0:08:42 It wants to wean itself off its complete dependence on China for rare earth minerals and other types of critical minerals until it does that.
0:08:54 It wants to go easy on China so that it doesn’t provoke China into cutting off these rare earth mineral supplies, because as we all know, the rare earth minerals are crucial to all types of American industry.
0:09:04 And even more crucially, they are used in making weapons, so without these rare earths, it will be difficult for America to make the weapons it needs to defend itself.
0:09:12 And so that’s why I think we’re going to see this calmer, more stable, less adversarial U.S. policy towards China.
0:09:30 And unless something big happens, my hunch is that this may set the tone for the next few years, because, of course, it will take, I would say, a minimum of five years before the U.S. can wean itself off its dependence on China’s rare earth minerals.
0:09:32 Do you think that call is a bit left of field?
0:09:34 Do you think it’s a bit sort of out there?
0:09:35 Maybe there’s more going on.
0:09:41 Maybe it’s to do with Trump not wanting to jeopardize his planned visit to Beijing next day for a lot of this.
0:09:42 What’s your sense?
0:09:52 Well, my own sense is that Besant is in the driving seat, and he clearly wants the relationship to go well in advance of Trump’s visit.
0:10:06 And what I had heard, and I think this is public information, too, what is clear is that the document had been first drafted by the State Department Director of Policy Planning, Michael Anton, before he left his position in August.
0:10:16 And then it went through many different figures, through a chain of people, Secretary of State Mark Rubio, Treasury Secretary Scott Besson, even the Vice President J.D. Vance.
0:10:25 And it’s very clear, you know, in this sort of team of rivals, so to speak, that these people have different positions on China and national security writ large.
0:10:37 My own sense was that it was really the doves who won the argument because they convinced Trump that he wanted, he needed to have a good relationship in advance of a China trip.
0:10:44 But I’m very convinced, as you talk, James, about this rare earths argument, because as I was reading it, I think many people will have missed it.
0:10:51 In the Africa section, there is some description about securitizing supply chains of rare earths in Africa.
0:10:57 And I think that that, again, speaks to what you’re saying, James, which is potentially the Trump administration is buying time.
0:11:05 And I similarly heard that for weapons-grade rare earths, so military applications of rare earths, it’ll take three years.
0:11:13 But for the rest of the supply chain, at least five, maybe even up to 10 years for the U.S. to have its own secured supply chain.
0:11:18 So I’m, as you speak, I’m more convinced by your argument, James, that it is a strategy of buying time.
0:11:25 But certainly, I think that it is a bit of a change from the Biden administration and Trump 1.0.
0:11:35 I’m not entirely convinced, and here I’m probably sitting on the fence, that this document is going to be the letter of the law when it comes to the Trump administration’s approach to China.
0:11:38 I think a lot can happen in the next year or so.
0:11:42 But certainly, this has been a big shift, and it’s worth people reading.
0:11:46 One last thing that I’ll add is a section on Latin America.
0:11:55 There was a huge amount of attention paid to Latin America and the hemispheric defense approach to Trump’s foreign policy.
0:12:06 Again, one line I think that’s worth mentioning, and it might be a slight dig to China or a reference to China, is countering non-hemispheric influences in Latin America.
0:12:18 That could also be, I think, a pointed reference to China’s trade and investment relationships in Latin America, not just Venezuela and keeping that regime afloat.
0:12:25 But certainly, other countries like Brazil or Argentina, where there’s significant amounts of trade that China is involved in.
0:12:30 So, again, I think when you read between the lines, there are some references to China.
0:12:41 But clearly, from a PR standpoint, the doves in the administration have won the argument, and they wanted to make this document less incendiary than it could have been, than it certainly had been in the first Trump administration.
0:12:45 James, how do you think the Chinese government is viewing this document?
0:12:48 Because they definitely have dedicated teams that specialize in this.
0:13:01 I think they’re absolutely delighted, and I have been talking to Chinese, well, think tank people last week in London, and I think they are really very pleased about this.
0:13:10 Because the previous two national security strategies mentioned that the U.S. wanted to oppose China’s desire to, quote,
0:13:15 shape a world antithetical to U.S. values and interests.
0:13:23 This version dropped that completely, and as you mentioned earlier, it started to talk about economics a great deal more.
0:13:30 And so, the key sentence in this one was that America wanted to be working to, quote,
0:13:35 rebalance America’s economic relationship with China.
0:13:42 Just look at how much more mild that sentence is compared to describing China as, you know,
0:13:45 antithetical to U.S. values and interests around the world.
0:13:57 So, what I think is happening is that Trump is focusing more on doing deals and a lot less on American ideals, you know, for the world.
0:14:10 We’ve left that Reagan-esque type of America as a shining city on the hill, a beacon for mankind, an ideal for global aspirations, the leader of the free world.
0:14:15 All of that rhetoric, well, and it was a lot more than rhetoric, really.
0:14:19 From Reagan’s time until now, it’s been a great deal more than rhetoric.
0:14:22 It’s been followed up with military might and economic muscle.
0:14:25 This is the world that Pax Americana has created.
0:14:32 And now we’re just talking about doing better deals and America focusing on its economic interests in the world.
0:14:38 So, if this holds, and that is a big if, then it really is a big change.
0:14:46 And I must just say, Alice, that I think your phrase of non-hemispheric influences is going to be a zeitgeist for 2026.
0:14:55 I think that we are going to be talking about re-hemisphering the world a lot more over the coming months.
0:15:03 It’s a bit like the Monroe Doctrine of old is going to get reborn in some shape or form, or at least rhetorically reborn.
0:15:11 I have a feeling I’m already seeing several think tank articles about re-hemisphering and non-hemispheric influences and all of this.
0:15:16 So, I think that’s going to be more of the lens through which America looks at the world.
0:15:22 And very clearly, China is not in America’s hemisphere, at least not in their own reckoning.
0:15:28 So, I think there’s going to be a lot to pick up on and a lot to focus on on this topic.
0:15:33 Yeah, I love the way that you described, James, Trump’s foreign policy of serving deals and not ideals.
0:15:36 I think that’s a great way to view it.
0:15:47 The administration gives a good diagnosis to the Chinese economy, saying that they wanted to encourage other countries to adopt trade policies that, quote-unquote, rebalance China’s economy towards household consumption.
0:15:51 It’s certainly something that, you know, we’ve been waiting for the Chinese economy to do.
0:16:01 But I think, again, if we read between the lines, it’s clear even in the economic section of the relationship, yes, it is milder than the previous documents.
0:16:16 But it’s clear that they reserve the right and give themselves a policy space to keep using tariffs or non-tariff barriers or even pressure other trading partners, I’m thinking about Europe in particular, to put tariffs on China and enforce tougher rules of origin.
0:16:23 I think this will be particularly germane to, say, a Mexico or a Vietnam, where China does a lot of rerouting of trade.
0:16:38 Certainly, I could foresee in 2026 that Besson and Greer, if the relationship doesn’t pan out well, decides to opt for, I think, a more protectionist strategy enforcing rules of origin through these other third-party countries.
0:16:46 It’s not my base case, but definitely I think this document gives them the policy space to use that tool or lever to apply more pressure on China.
0:16:54 So I don’t think it’s all rosy, but certainly it is, at a rhetorical level, quite a bit of an improvement to previous NSS documents.
0:16:57 But, James, are we missing anything?
0:17:02 Is there a danger to the Trump administration’s seemingly more dovish position on China?
0:17:08 Certainly, you know, when we speak to some of the national security experts, they’re very worried about China’s cybersecurity risk.
0:17:10 James, what’s your take on this?
0:17:21 Well, it’s hard to know cause and effect, but perhaps it’s too much of a coincidence that just the day before the new US national security strategy was announced,
0:17:32 the Financial Times had an article which says that the US plans to halt its intention to impose sanctions on China’s Ministry of State Security.
0:17:35 That is, of course, China’s, of course, China’s spy ministry.
0:17:49 And this is over a massive cyber espionage campaign that was being waged by a group called Salt Typhoon and other advanced persistent threat groups.
0:17:59 These are called APT groups that the US believes has been responsible for targeting United States infrastructure and government agencies
0:18:07 and really hacking the phones of many high-level individuals in the United States through US telecoms networks.
0:18:15 And so this was a really big cause for concern in the US all the way from 2019 until now.
0:18:24 And now the Trump administration is saying that it wants to, well, halt the plans to impose sanctions on the Ministry of State Security.
0:18:27 Of course, it could go back on that.
0:18:28 It could change its mind.
0:18:38 But at the moment, that seems to be potentially part of this softening towards China ahead of Trump’s meeting with Xi Jinping in April.
0:18:43 And perhaps because, you know, the US is now taking a softer tone on China altogether.
0:18:45 Very interesting, James.
0:18:52 We are going to talk more about a seemingly dovish turn on policy related to chips with Chris Miller after the break.
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0:21:22 Well, welcome back.
0:21:30 Last week, President Trump announced that he was reversing a years-long policy banning U.S. chipmakers from selling their powerful AI chips to China.
0:21:40 In a social media post, Trump indicated that NVIDIA would be allowed to sell their H200 chips in China, the second most powerful AI chips the company makes.
0:21:52 This marks a major shift in policy and implicates the whole AI industry as the engine driving the global economy, as well as putting a spotlight on the ongoing tensions between the U.S. and China.
0:21:56 Joining me to talk through all of this is Chris Miller.
0:22:06 He is a professor of international history at Tufts University and is the author of the critically acclaimed 2022 book, Chip War, The Fight for the World’s Most Critical Technology.
0:22:11 Chris, there’s nobody better to speak on this topic, so thank you so much for joining me today on China Decode.
0:22:12 Thank you for having me.
0:22:16 Let’s start with the export controls and how that we’ve seen a major shift.
0:22:23 Certainly, people who have been watching this closely are disheartened to some extent with Trump relaxing on H200s.
0:22:33 But maybe from the ground up, can you walk us through why this actually matters and why this has been a big shift to, say, go from the H20s, where he relaxed, to the H200s?
0:22:35 What is the quantum leap, so to speak, between the two?
0:22:44 If you start by looking at the goal that the U.S. government has been trying to accomplish since it began imposing controls on AI chips in 2022,
0:22:51 the theory was that if you want to build big AI systems, you need lots and lots of high-end chips.
0:22:59 And almost all of these chips are manufactured at TSMC in Taiwan and largely designed by U.S. companies, including NVIDIA.
0:23:03 So the U.S. and Taiwan have this unique choke point over AI processors.
0:23:13 And the U.S. wanted to give U.S. firms and firms from allied countries a leg up in the AI race by giving them privileged access to AI computational capabilities.
0:23:15 And that was the origin of this control regime.
0:23:27 And Trump has now decided for the first time since the controls were put in place to actually reduce some of the controls and allow more chips at the high end of the spectrum to flow to China.
0:23:31 And why is he issuing this policy shift?
0:23:38 Because to my mind, he was really the first to issue this clarin call in his first Trump administration about the need to do export controls.
0:23:44 This year, I think we’ve seen a move towards being dovish on some of these chips issues.
0:23:49 And certainly people point to David Sachs being the crypto and AIs are as being one proponent of this.
0:23:55 But what is the rationale from Trump’s perspective in basically reducing these export controls?
0:23:57 You know, I think you’re right.
0:24:04 This is a big reversal, of course, relative to the policy of the first Trump administration, which was very tight on technology controlling.
0:24:09 There are two rationales that you hear from the administration on why this changed now.
0:24:12 The first is financial in focus.
0:24:17 NVIDIA, obviously, a critically important company for the U.S., a driver of the stock market.
0:24:22 And so there’s a straightforward rationale to let NVIDIA sell more chips to China.
0:24:23 So that’s part one.
0:24:31 There’s a second argument that suggests if you sell chips to China, China won’t want to build out its own AI chip ecosystem.
0:24:38 And we’ve seen Chinese firms like Huawei, most importantly, become important designers and manufacturers of AI chips.
0:24:45 So they’re still far behind what NVIDIA plus TSMC can do in terms of quality and quantity.
0:24:57 But there are some people in the administration, including, I think, David Sachs, who you mentioned, who argue that if you sell more chips to China, you’ll take some of the air out of the effort to build up China’s own self-sufficient AI ecosystem.
0:25:02 And to grab onto that second point that you mentioned, do you think it’s plausible, that argument?
0:25:11 Because to my mind, at least, people who will follow the Chinese chip industry are saying that this could actually give China more of an edge in the broader AI competition.
0:25:18 Certainly, it raises China’s compute capabilities and it reduces the gap between the U.S. and China on compute alone.
0:25:27 There was a great piece published by the think tank IFP that seems to suggest that now with the H200s, we could go from the U.S. having a 30x advantage on compute to 6x.
0:25:32 And, you know, the second part of my question is, will China accept all these chips?
0:25:44 Because certainly, there is an argument that you’re seeing in the mainland, in media, amongst people who follow this closely, that they need to limit the amount of NVIDIA chips that they bring in because they want to kickstart their own industry.
0:25:48 So walk me through a little bit whether or not this has a compute advantage for China.
0:25:51 And secondly, whether or not China will actually take these chips.
0:26:01 Well, I think it is a key question right now because the Chinese government, as you know as well as anyone, has been fixated on self-sufficiency in semiconductors for over a decade.
0:26:04 And they’ve made a lot of progress in many types of chips.
0:26:07 But when it comes to cutting-edge AI chips, they’re not there yet.
0:26:21 And this is why, from the Chinese government’s perspective, there’s actually a rationale for keeping these chips out of the market because it opens up space for Huawei and the other AI chip designers in China to sell to China’s own AI firms.
0:26:32 I think if you’re in the shoes of the Chinese internet sector or the AI sector, companies like ByteDance or Alibaba, they’d actually probably prefer to just get the best chips on the market, which are NVIDIA’s.
0:26:37 And so you probably have a bit of a gap between what the tech sector wants and what the Chinese government wants.
0:26:40 But I think this is a space where the Chinese government usually wins these arguments.
0:26:52 And so I think we are going to see some limitations on the number of H-200s, rather, that flow into China because the Chinese government does want to support Huawei and support this self-sufficiency drive to the extent that it can.
0:27:06 Great point. And looking to the Chinese industry as a whole, you know, your book, really, if anybody hasn’t read it, they need to read it, it really lays the foundation for this ongoing competition between the U.S. and China over semiconductors.
0:27:11 How do you assess the Chinese semiconductor industry today versus when you wrote that book?
0:27:15 Because certainly there’s a lot of hype about Chinese homegrown talent.
0:27:19 You just mentioned a couple, Huawei, Canbera Corn, Morse Threads more recently.
0:27:23 How are you looking at their capabilities when it comes to the ground up?
0:27:26 Because there’s a lot of attention being paid to the sector right now.
0:27:32 You know, I think China has made real strides in catching up in many segments of the chip industry.
0:27:36 But there are also a number of areas where they’re far away from the cutting edge.
0:27:46 If you look first off at the manufacturing of semiconductors, what you find is that TSMC in Taiwan is not only able to produce significantly better chips.
0:27:55 And we know this because the capabilities of the leading Chinese chip maker, SMIC, basically track along TSMC at a five or six year delay.
0:27:57 And that delay has been relatively steady over time.
0:28:00 So there’s a meaningful delay in terms of quality.
0:28:05 And there’s a huge gap in terms of quantity because TSMC can access the tools that are used to make chips.
0:28:13 Machines that are produced by companies like ASML or applied materials in ways that China can’t because of export control.
0:28:17 So on manufacturing quality and quantity, there’s a very big gap.
0:28:29 When it comes to chip design, the gap is much, much less significant, which is why Huawei, for example, is a top-notch designer of semiconductors, both for smartphones and also increasingly for AI chips.
0:28:31 But design only matters if you can get them manufactured.
0:28:36 And that’s the challenge that Huawei and the other Chinese chip designers have faced.
0:28:43 And so I think if you look at the startup ecosystem in China, for example, companies like MoreThreads, which you just mentioned, had an IPO earlier this month.
0:28:46 Very successful IPO, valuing it at around $50 billion.
0:28:47 That’s a lot.
0:28:55 But it’s only 1% of NVIDIA’s valuation, precisely because they can’t manufacture enough chips to sell them at volume right now.
0:29:02 So they really do need to rely on U.S. imports or imports from other countries, especially as they gear up on AI capacity.
0:29:07 Maybe we can talk a little bit about the AI implications, because I know you follow this very, very closely.
0:29:17 And certainly one argument that you hear is that the chip side is a critical hardware constraint for China as it tries to compete with the U.S. on compute, on training, and ultimately on AI models.
0:29:22 How are you seeing this AI broader competition between the U.S. and China?
0:29:28 And do you think this recent announcement of the H-200s really changes the dynamic in this AI competition between the two powers?
0:29:36 I think one of the debates that the AI world was having in the first half of this year is whether the scaling laws were still holding.
0:29:39 The idea that you build a bigger AI system, you get a better AI system.
0:29:47 In the last couple of months, we’ve seen a number of important data points that suggest, yes, it still is true that quality follows size.
0:29:54 Gemini 3, for example, is, I think, a strong data point in that direction, Opus 4.5 from Anthropic.
0:29:58 But the best is actually DeepSeq, which released a new model earlier this month.
0:30:08 And the paper that accompanied that release explicitly said, we, DeepSeq, are actually struggling to pre-train at the scale we want because we don’t have access to enough chips.
0:30:18 So that’s why I think there’s so much at stake in the decision by the U.S. to allow H-200 sales to China and by the decision by the Chinese government, what volume to actually accept.
0:30:31 My guess, and there’s a ton of uncertainty here, my guess is actually that the volumes that ship are smaller than many people think, both because of uncertainty on the U.S. side as to what exactly the security concerns will be that need to be addressed.
0:30:34 And the Trump administration has promised some sort of security check.
0:30:41 And also because China’s government wants to provide a space for Huawei and other firms to sell to a protected market.
0:30:46 And so there may be less H-200 sales than I think some of the headlines suggest.
0:30:53 And if that’s true, we might not see as big of a reversal in the balance in computing power as we’ve got today.
0:31:01 But it’s worth tracking very closely because the U.S. advantage in compute has been a core facet of its leadership in AI over the past couple of years.
0:31:16 And if I hear you correctly, you’re saying that the chip side still remains significant in this broader AI competition, because if the Chinese can’t create its own homegrown versions that are as efficient and as productive, then that’s seriously going to be a limitation on their compute capabilities.
0:31:20 And we’re seeing that knock-on effect with the models that have been coming out of China.
0:31:21 Is that correct?
0:31:22 Yeah, I think that’s right.
0:31:36 DeepSeq trying to disassemble NVIDIA servers that were in Southeast Asia, ship them into China and reassemble them is a data point just how far Chinese firms are going to get access to the compute that they realize they need.
0:31:45 And if your AI supply chain requires disassembling, smuggling and reassembling, you know, that’s not the kind of supply chain you want to rely on to produce your most sensitive and advanced technology.
0:31:46 Fascinating.
0:31:55 Well, let’s shift to the U.S., where we’re talking a lot about an AI bubble, and there’s a lot of speculation as to whether or not NVIDIA GPUs have been oversold.
0:32:04 You’ve got a famous American hedge fund manager, Michael Burry, who famously predicted the 2008 housing market crash, who’s saying that there were way too many NVIDIA GPUs that have been sold.
0:32:17 You have also been following this very close to the data center rollout, where you’ve got trillions going into data center rollouts throughout America, the GPUs being used to power those data centers and ultimately power models like open AIs.
0:32:21 Do you think we’re in an AI infrastructure boom bubble?
0:32:30 And more broadly, is the U.S. style of approach to AI being seriously disrupted by these cheaper, more efficient and energy efficient models coming out of China?
0:32:42 I think to start with the second part of the question first on open source, we’ve now begun to get some reasonable data on whether cheaper or often free open source models from China are winning market share.
0:32:55 And the answer is not really, at least from what we can tell, closed source models had roughly 70% of the market 12 months ago, and it looks like they’ve got 70% of the market today from some of the latest data that I’ve seen.
0:33:03 Most of the evidence suggests that most AI startups in Silicon Valley are building their startups on closed models because of the performance gap.
0:33:05 They’re just better in terms of their quality.
0:33:09 So we haven’t seen the commodification of AI at all.
0:33:15 I think the big question is, will we see the continued revenue growth that we’ve seen over the past couple of years?
0:33:25 You know, when you look at Anthropic going from $100 million to $1 billion to almost $10 billion in revenue the last three years, that is staggering growth, and it can’t continue at that rate for a long time.
0:33:29 But even if the rate slows somewhat, that implies a ton of new revenue coming in.
0:33:40 And I guess I remain on the optimistic side that, yes, we’re investing a lot, but I’d rather be investing a lot than not investing in a technology that has the potential to be so transformative across so many different sectors.
0:33:46 And just to continue this line of questioning, Jeffrey Ding writes a lot about technology diffusion.
0:33:52 You know, technology is one thing, but you need to know how to diffuse it throughout the economy to unleash the productivity gains.
0:34:00 And I think a broader debate within the U.S.-China AI competition is which country is going to diffuse the gains of AI better.
0:34:10 You know, having studied both countries and the way that they approach technology, what is your sense of the two different pathways and who’s ultimately going to diffuse technology better within the real economy?
0:34:13 You know, I think, Jeff, it’s a key question.
0:34:17 It’s also a very, very hard question to know how to begin to measure.
0:34:31 I guess my theory would be that the first era of AI will be primarily applying AI to the enterprise space, making companies more efficient, finding ways to automate legal services and accounting services and coding already happening.
0:34:35 And there, I think the empirics are that the U.S. has done really well.
0:34:39 Most enterprise software firms around the world are based in the U.S.
0:34:45 The U.S. has always been a leader in applying enterprise software to other sectors, to financial services, for example.
0:34:52 And so if that holds, I think you should expect to see U.S. firms be early adopters of AI and enterprise as well.
0:35:03 And I would posit that I think we’re beginning to see that the number of private equity firms, for example, that are actively integrating AI transformation into their investment strategies.
0:35:08 That, to me, is a very positive sign that we’re going to get this broad diffusion across the corporate sector.
0:35:17 I think when you listen to non-technology companies, they’re increasingly talking about finding ways that AI is actually impacting their businesses.
0:35:25 And then we’re already seeing a whole new generation of AI-native enterprise software tools, which I think are going to be very powerful and spread very rapidly.
0:35:34 So I would be optimistic about the U.S. ability to apply quite rapidly, though, of course, I think none of us would ever underestimate the capacity of the Chinese tech sector either.
0:35:40 Well, one last question I have for you is more about the military dual-use implications of AI.
0:35:46 Certainly, we saw the military parade in September where China was literally and metaphorically bringing out the big guns.
0:35:52 And there’s a lot of talk about China’s AI-enabled systems when it comes to, say, a Taiwan showdown.
0:35:55 You know, you talk a lot with folks in Washington.
0:36:06 I think it’d be very interesting for us to hear a little bit about how the state, the deep state, but also Washington writ large, is thinking about the way it wants to use AI in dual-use technologies in military hardware.
0:36:08 Can you speak to that a bit?
0:36:12 Well, I would flag two, I think, immediate applications.
0:36:15 One is in interpreting and sifting through intelligence.
0:36:21 We’ve already heard publicly, for example, from the director of the National Geospatial Intelligence Agency,
0:36:24 the role that AI plays in identifying images or detecting patterns.
0:36:32 And when you think of the vast quantities of data that any large intelligence agency is getting from their satellite photos and their signals intelligence,
0:36:34 making sense of that is a real challenge.
0:36:37 And AI is already having an impact there from what we’ve heard publicly.
0:36:44 I think second is if you look at drones and autonomous systems, and Russia, Ukraine is a testbed, tragically, for this.
0:36:47 We’re already seeing increasingly autonomous systems being deployed.
0:36:57 And I think both the U.S. and China are actively exploring ways to accelerate that across drones in the air, drones in sea, drones under sea, drones on land.
0:37:04 One last cheeky question to end on, if I can, Chris.
0:37:09 What is your prediction in any area of chips or AI for next year that you think we should be tracking?
0:37:19 I’m just continually surprised by how many conversations I have about the AI bubble, which makes me think that everyone expects the AI bubble to burst,
0:37:23 but also makes me puzzled because if everyone expects it to burst, can we really be in a bubble?
0:37:31 My prediction is that we’re going to get continued technological progress and continued new products driven by AI.
0:37:39 And I think relative to everything I hear from my friends in the investing community, to be sure, I think there’s a lot more pessimism that is warranted by the technological progress.
0:37:41 Great. Thanks so much, Chris.
0:37:42 I know you’re a very busy man.
0:37:46 On top of being an AI chip expert, you’re also a Russia expert, so really appreciate your insights.
0:37:48 We’ll leave things here for now.
0:37:49 Thank you so much.
0:37:51 And thanks for joining me today on China Decode.
0:37:52 Thank you.
0:37:53 Okay.
0:37:55 We’ll be back with more after a quick break.
0:37:56 So stay with us.
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0:38:51 China is trying to reverse its baby bust, and its latest move has people doing a double-take.
0:38:58 Starting January 1st next year, the government is putting a 13% tax on condoms and other contraceptives,
0:39:02 ending an exemption that’s been in place since the one-child policy era.
0:39:10 Officials say it’s just a technical tax change, but many Chinese citizens see it as another attempt to nudge people into having kids.
0:39:16 Critics argue it won’t boost birth rates, which are continuing to decline, and could actually make things worse,
0:39:24 especially for young Chinese people already squeezed by high costs, long work hours, and an increasingly shaky economy.
0:39:26 James, what’s your hard take on this?
0:39:28 Do you think this is actually going to work?
0:39:33 Well, I mean, they say that two things in life are certain, death and taxes.
0:39:41 And I also think it’s the case that you can really see what a country intends for its people by looking how it taxes them.
0:39:48 So although the authorities in China have not said that this tax on contraceptives, including condoms,
0:39:54 is part of its pro-natal policies, it certainly looks like that,
0:40:05 because there will be value-added tax imposed on condoms and other contraceptives up to the usual 13% from next year.
0:40:11 And actually, if you look at the context around this, it really does look like this is an intentional move
0:40:14 to boost the number of kids being born in China.
0:40:25 It will end a 33-year tax exemption on contraceptives that was first introduced under China’s one-child policy.
0:40:31 And conversely, while they’re putting taxes on contraceptives,
0:40:35 they’re taking taxes off matchmaking services.
0:40:38 So it looks to me like this is all of a package.
0:40:47 It looks to me like basically China is going as full speed ahead as possible to get women to have more kids.
0:40:51 And I think the reasons for that are so abundantly clear.
0:40:54 And Alice, you have many friends in China.
0:40:57 You will know the stories there really well.
0:41:07 But just the very stark statistic at the top is that China’s fertility rate is now about one birth per woman.
0:41:09 That was in 2024.
0:41:13 That’s far below the replacement level of 2.1.
0:41:16 It’s not actually the very lowest in the world,
0:41:21 because I think that dubious distinction goes to either Macau or South Korea.
0:41:26 But it is very close to the lowest birth rate in the world.
0:41:29 What are you hearing, Alice?
0:41:35 I mean, you must have heard several stories from your friends in China about why people are not having babies
0:41:37 and the government efforts to get them to have babies.
0:41:41 Well, first, I want to take it in a personal direction and then take it in a structural direction.
0:41:46 On a personal level, my grandfather’s generation, his father had three wives.
0:41:51 And this is just to give people a sense of China in the early 1900s and late 1800s.
0:41:52 He had three wives.
0:41:58 My grandfather was the first son and the 12th child of the third wife.
0:42:02 And then his generation had three kids.
0:42:05 And my father then had two kids in Australia.
0:42:10 But our generation, so my generation of cousins in China, none of us have kids yet.
0:42:15 And so it’s a great consternation to my grandfather who’s 95 in Shanghai and hope he’s listening to this.
0:42:18 Because every time I see him, he says, why don’t you have kids yet?
0:42:22 But that’s just to give people a sense of where China has evolved over time.
0:42:25 You know, it used to be a society that valued many kids.
0:42:27 You know, you have an expression in Chinese,
0:42:32 which is the more children, especially male children you have, the more prosperity you have.
0:42:38 That radically shifted in 1971, the year my aunt was born, when they introduced the one-child policy.
0:42:39 And I ran the numbers, James.
0:42:40 It’s startling.
0:42:45 In 1963, when my mother was born, 7.51 births per woman.
0:42:46 That’s the fertility rate.
0:42:50 It is, in 2023, one birth per woman, as you mentioned, James.
0:42:55 In the U.S., the peak was 1959, 3.75 births per woman.
0:42:59 Today, in 2023, 1.62 births per woman.
0:43:02 So the decline is less severe in the U.S.
0:43:05 And U.S. is obviously helped by immigration, which China does not benefit from.
0:43:09 But it’s clear to me that these are structural issues at play.
0:43:13 And to bring it to the structural domain, I’ve been reading a lot of Claudia Golden’s work.
0:43:18 She is a Nobel Prize-winning economist who’s specialized in labor market economics.
0:43:25 And one of the points that she makes is that as women become more educated and professionalized,
0:43:30 they encounter a mismatch in the temporal and financial costs of having children.
0:43:36 So as women get more educated and professionalized and have higher-paying jobs, the men aren’t stepping
0:43:38 up in the same way.
0:43:43 And so women oftentimes decide not to have kids because it becomes too much of a burden financially
0:43:44 to them.
0:43:50 I think a similar thing is happening in China, where the women who benefited, I would say,
0:43:55 from the reform and opening up, so the 80s onwards, and benefited from the expansion of
0:43:59 college education in 1999, have built financial wealth and stability.
0:44:01 And they don’t really need a man.
0:44:03 They don’t really feel the incentive to have kids.
0:44:06 The other flip side to this, James, is the declining marriage rate.
0:44:08 I don’t think this gets enough attention.
0:44:14 Last year, 6.1 million marriages registered, 20% decline year-on-year from 2023.
0:44:17 And that is half of what it was at its peak in 2013.
0:44:23 And the lowest it’s been since, I think, the 80s, just to give people a sense of the numbers.
0:44:28 And on Chinese social media, but also I see this whenever I go to China, there’s a huge,
0:44:33 I think, glorification of the single woman in a way that I don’t think existed, I think,
0:44:37 even a decade or two decades ago, you had this concept of the leftover woman or the spinster,
0:44:41 you know, woman past her late 20s who was unmarried and didn’t have kids.
0:44:46 There’s been a bit of a cultural movement to glorify them in some ways and say that they
0:44:52 can have this great life as a professional, financially well-off single woman without kids.
0:44:56 So I’m shocked by this, and I think people really should pay attention to it because it has
0:44:59 massive, obviously, economic implications.
0:45:05 If China’s fertility rate is less than half the replacement rate, which is 2.1, it is
0:45:07 rapidly shrinking its labor force.
0:45:11 And so how is China going to pay its debts in the long term?
0:45:15 How is China going to grow out of its problems in the long term?
0:45:20 I think these all hinge around these tectonic plates of fertility, which is why this is actually
0:45:22 quite an important issue.
0:45:27 I’m in the camp of being very skeptical that this actually works, you know, putting a 13%
0:45:28 tax on condoms.
0:45:32 I think more importantly, it’s, you’ve seen this in the Scandinavian countries, aside from
0:45:36 immigration, you’ve got to have strong maternity leave policies.
0:45:41 You’ve got to make it financially better for women to take some time off and have kids without
0:45:43 being penalized for it.
0:45:47 But some of the numbers, James, and maybe you can run us through this, of how much it costs
0:45:51 to raise a child in China relative to the rest of the world are pretty shocking.
0:45:53 Yeah, I’m with you, Alice.
0:45:55 I don’t think this tax change is going to work either.
0:46:01 My friends in China also are saying, you know, high costs of housing, education, childcare,
0:46:07 intense pressures of the workplace, very long working hours, all of that kind of thing.
0:46:16 By 2040, China will have a huge elderly population of over 400 million people.
0:46:22 That means that from now until then, the number of elderly people, that’s people above 60 years
0:46:26 old, will rise by about 150 million.
0:46:32 So that is the population of Russia between now and 2040.
0:46:38 And simultaneously, the number of Chinese people overall will be falling.
0:46:43 And by 2050, that will also have declined by 150 million.
0:46:46 So again, a population the size of Russia.
0:46:51 So, you know, as you mentioned, we’re dealing with really, really big pressures here.
0:46:53 This is big stuff.
0:46:59 So there was a think tank in Beijing, the Yua Population Research Institute, that calculated
0:47:04 that the cost of raising a child until the age of 18 was over $76,000.
0:47:08 And I think that that is about 13, 14 times per capita GDP.
0:47:13 There are some other economists out there that say that could it be double that amount because
0:47:18 that research doesn’t take into account the indirect cost or the parenthood penalty of having
0:47:20 kids, meaning the cost to, say, your salary.
0:47:27 But I think regardless, it shows you the enormity of childcare as an economic burden to households.
0:47:32 And households are having a rational approach to this, which is they’re having less kids or
0:47:33 they’re not having kids at all.
0:47:39 And again, James, I think you paint a great picture of the implications at a demographic level
0:47:41 of this position.
0:47:46 And if demography is destiny, I think China may be in a worse position than the U.S.,
0:47:49 certainly, which continues to benefit from immigration.
0:47:55 But James, when you were there in China, was this something that you sensed or was it a concern that
0:47:56 people voiced?
0:47:57 Oh, hugely.
0:48:05 I mean, I had female colleagues who were late 20s, 30s, just having kids or just getting married.
0:48:09 And the sense of foreboding was really quite palpable.
0:48:14 People talking about moving into cramped apartments they couldn’t afford, borrowing huge amounts of
0:48:19 money to buy those apartments, having to repay the debt on that for decades to come.
0:48:24 And then the grandparents move into the cramped apartment and then the child arrives and it’s
0:48:26 really stressful.
0:48:31 And then they have to work, you know, nine in the morning till nine in the evening in really
0:48:35 high-pressure jobs and then put their kids into child care.
0:48:38 And then the cost of the child care is so huge.
0:48:41 It really sounded, you know, a stressful situation.
0:48:48 And many of the colleagues and friends I had that were around that age, they were just sort
0:48:54 of either trying to move to America or somewhere in Europe, or they were just saying, you know,
0:48:55 this is just too much.
0:48:58 I think we’ll move to an outlying city where the pace is slower.
0:49:04 We can afford cheaper accommodation and we’ll move out of the fast lane of the big cities
0:49:05 like Beijing and Shanghai.
0:49:07 Very interesting.
0:49:09 All right, James, it is prediction time.
0:49:11 What’s your prediction for the week?
0:49:16 Well, I tried to choose one that is related, although tangentially, to the population issue.
0:49:21 Of course, as China, well, I’m not going to say runs out of people, but as the number of
0:49:28 Chinese people declines and as the number of people who are willing to do labor in factories
0:49:37 also declines, I think Chinese factory robots this year will exceed a market share domestically,
0:49:41 that’s inside China, of 60%.
0:49:45 That compares to last year, 57%.
0:49:50 It may not sound like a huge increase, but we’re talking about market share that Chinese
0:49:57 factory robot makers are taking away from foreign brands such as Fanuc, ABB, Yasakawa, etc.
0:50:06 And I also think that Chinese exports of factory robots this year will grow at around 60% again.
0:50:10 That’s a growth rate compared to last year.
0:50:13 By the way, these factory robots, we’re not talking about humanoid robots.
0:50:16 These are really production line robots.
0:50:22 So they’d be like an automated arm moving things from one place to another or doing some other
0:50:22 type of manipulation.
0:50:26 So that’s my prediction.
0:50:27 Alice, what about you?
0:50:31 Well, we didn’t mention the China Economic Work Conference, which is an important December
0:50:31 meeting.
0:50:33 And that happened last week.
0:50:36 And I’ve been sort of reading the tea leaf, so to speak.
0:50:43 And my prediction is that the real estate slump will continue in most of 2026.
0:50:48 I’m not sure if there are signs that it’s bottoming out quite as yet.
0:50:56 We saw negative 14.7% growth in the latest October data on real estate investment, just for reference.
0:51:02 And when I read the CEWC readout, which talks a lot about stabilizing the real estate market,
0:51:07 It seems to me that Beijing isn’t too concerned about trying to bail out the property sector.
0:51:15 In fact, it will just use, I think, more locality-based policies to reduce some of the constraints and
0:51:16 restrictions on purchasing.
0:51:22 And maybe on the margin, offer some financing, reviving the whitelist financing project, for
0:51:27 instance, to help the sales of these completed homes.
0:51:33 But I don’t sense that Beijing is going to intervene and seriously try to boost the property
0:51:36 market, even though the data look pretty dismal.
0:51:42 So that’s my hot take, is that the real estate investment growth remains a huge drag on fixed
0:51:44 asset investment through most of 2026.
0:51:46 That’s a very interesting and big call.
0:51:46 Yeah.
0:51:51 Definitely has implications for commodities and for other sectors that are sensitive to the
0:51:52 real estate sector.
0:51:53 All right.
0:51:54 That’s all for this episode.
0:51:57 Thank you so much for listening to China Decode.
0:51:59 This is a production of Prof G Media.
0:52:01 Our producer is David Toledo.
0:52:04 Our associate producer is Eric Janikas.
0:52:07 Our video editor is Ness Smith-Savidoff.
0:52:10 Our research associate is Dan Shalan.
0:52:12 Our technical director is Drew Burrows.
0:52:14 Our engineer is William Flynn.
0:52:17 And our executive producer is Catherine Dillon.
0:52:22 Make sure to follow us wherever you get your podcasts so you don’t miss an episode.
0:52:23 Talk to you again next year.
In this episode of China Decode, Alice Han and James Kynge break down a quieter but consequential shift in Washington’s China strategy. They unpack Trump’s new national security playbook, why Beijing is suddenly sounding upbeat, and whether this signals a real reset or just a tactical pause in U.S.-China tensions. They also dig into China’s baby bust — and the backlash to a new tax on condoms — as policymakers search for answers to falling birth rates. Plus, Alice sits down with Chip War author Chris Miller to discuss Trump’s surprise reversal on AI chip exports to China, what it means for NVIDIA, and why semiconductors are now at the center of global power politics.
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