China vs America: The Battle for Global Dominance Explained | Dan Wang interview

The Communist Party resembles something like the God of the Old Testament: very generous sometimes, but then randomly smiting you. China's major advantage in being a technological superpower is that it can just wait for the Americans to invent a lot of stuff. They're the prairie fire that uses the American spark.

What should the US do that it's not doing?

The future is made up of a series of short runs. If China is really able to do super well in the next 5 years, 15 years might be enough to subdue America in pretty substantial ways. Why is there no sense of crisis? Patrick, riddle me this.

1. The Engineering State

What was the title of your book before Breakneck?

We had a series of titles, and the one that I thought would make the most sense was Move Fast and Break People: China's Quest to Engineer the Future. The publisher did not like that one—too much like Facebook, they thought. And they were right.

I think Breakneck is a nice, snappy title. I love that it mostly has a positive connotation. We made the vaccines at breakneck speed. We build the bridges at breakneck speed. Yeah, look at that coil of violence inside the title. I think this one worked.

What about breaking people is relevant, though?

I think the part of China that I object to the most is that, for the most part, there is physical dynamism in building a lot of new things: bridges, subways, highways, new homes, hyperscalers, whatever else. There are some problems there, but it's mostly pretty positive.

The fundamental problem with China is that they're not just physical engineers. They're also social engineers, and they treat society as if it were just another building material. I object strongly to their practices around ethnoreligious minorities in Tibet as well as Xinjiang. I object strongly to the one-child policy, and I thought that the zero-COVID policy was also a disaster.

When they feel the need to run roughshod over people—whether that's to build a giant dam, like the Three Gorges Dam, which displaced around 1 million people; to build a really great train track; or to stop overpopulation, as they imagined it throughout the 1980s—they barely hesitate to take some pretty brutal measures.

Can you teach us the origins of that aspect of their society?

2. Historical Roots of China's Mindset

China is a country I call the engineering state because they want to engineer the physical environment, the economy, and the people as well. I want to be pretty playful with this framework that they're a country of engineers. In part, the roots are in the fact that, in recent years, if you take a look at the most senior leadership, the entirety of the Standing Committee of the Politburo had degrees in engineering.

I also draw this back to slightly older roots. If we take a look at the Chinese emperors way back in the past—let's say 1,500 years—2 of China's biggest projects include the Great Wall as well as the Grand Canal: a fortification system in the first case, and then a big water-management system in the second case. That is a country that has built a lot of big projects in the past.

A lot of the emperors barely hesitated to completely reorder a peasant's relationship to the land. Throughout Chinese history, they've really moved a lot of people around to settle the frontiers here or defeat the nomadic tribes over there. That's my playful framework for saying that China is really ruled by this engineering mindset that really wants to build.

They're often very liberal-minded about governing society as if people were just a series of chess pieces to be moved around. That extends from the imperial times all the way to the modern day.

What do you think the greatest aspect of the US system is that you have the hardest time imagining getting truly adopted in China?

3. The Key US Advantage: Pluralism

Pluralism. I spent 6 years living in China. I moved to China at the start of 2017 to be a technology analyst at an economic investment research firm called Gavekal Dragonomics.

At the time that I moved there, at the start of 2017, Trump had just taken office. I remember watching these strange confirmation hearings for his cabinet officials right when I left. I lived through this period when Trump launched a trade war that quickly morphed into a tech war, and I wrote a lot of research notes about what exactly was happening to companies like Huawei and other sanctioned entities.

Throughout this time, I was open to the idea—I didn't necessarily believe it, but I was open to the idea—that we were at the start of something like an Asian century, in which China and India were going to become much bigger powers. By the time that I'd left in 2023, when I returned to the US to be a fellow—not too far away from here—at Yale Law School's Paul Tsai China Center in Connecticut, I thought that the experiences I lived through—some incredible technological successes, along with worsening repression, along with a worsening geopolitical environment for China, along with the centerpiece of zero-COVID, all 3 years of which I was there—made me skeptical that China could tolerate debate, could really encourage some measure of useful dissent inside the official system, or that they were going to be able to figure out these persistent problems with autocratic systems in terms of succession planning, for example.

They were capable of a great number of successes. But because there is this official voice that is meant to speak over everyone else, because that official voice is a little bit idiosyncratic in terms of all of the values that it really cares about—some degree of national power, some degree of sovereignty, and some thin skin about anything that could be critical of the regime—I don't feel like the Communist Party has mastered some autocratic formula in order to really build the future, because they cannot have anything like debate, discussion, and a long-term stable society.

You have this great Andy Grove quote in the book about the difference between the mythical, magical moment of creation and innovation that the US has so dominated and this ability to innovate on the factory floor—the scaling up that China has done so well. Based on everything you just said, how do you relate to their ability to do more innovation in the future?

There's that famous statistic of, like, only 1 Nobel laureate has ever been from China or something. I think it's that low. Say a little bit about your conclusions around their current ability to innovate and how that might change in the future.

4. Deconstructing Innovation: US Spark vs. China's Prairie Fire

One of the things I want to do in this book is try to tackle this idea of what innovation is. I think we here in the US—and I, as someone who spends a lot of time in Silicon Valley as a research fellow at the Hoover Institution—I think there is this mythical moment of invention in which you have an amazing genius like Steve Jobs hanging out in a garage, or many other geniuses hanging out in garages, and some incredible product pops out of the garage. A world-leading product takes shape, and I think that is certainly an American strength.

What the Chinese have been able to do was become a technological superpower without taking this Silicon Valley view of, “We need to just be in nature, take a lot of LSD, go into our garages, and then Apple Computer comes out.” That's not the way that they tend to do things.

The way they tend to do things is to import a lot of managerial expertise, including from Apple, work with Apple's standards, put together and assemble a lot of other components from the US, Japan, Germany, whatever else, and then slowly iterate and learn a million and 1 things on the shop floor. Then they build a highly sophisticated product that America is no longer really able to build.

Still, most iPhones are being built in China, with an increasing share in India and Vietnam, but most iPhones in the world are still being built in China. I think the Chinese method for becoming a technological superpower is to take this vast manufacturing workforce. There are about 70 million manufacturing workers in China versus about 12 million in the US.

The 70 million manufacturing workers in China are working with some of these high-end products that cannot be built here in the US. They're learning to solve 3 new problems a day before breakfast, and they are really at the cutting edge of figuring out how to do new things and do them better. They build up ecosystems of suppliers, build up new ecosystems of labor, and generate all of this process knowledge, which can't easily be written down and can't easily be encoded in tools and equipment, and just use that to catapult into new forms of products.

If you are an iPhone manufacturing worker who was there at the original assembly lines in Shenzhen in 2008, it's no accident that Shenzhen is now the hardware-industry capital of the world. That worker might be able to start building a Huawei phone in the next year, and a few years after that maybe start a drone company.

Shenzhen is also the center of the drone business in the world. Then maybe, a few years after that, they start an electric-vehicle battery business, which is also highly complex and something that the US isn't building very much of today.

I want to try to dissolve this idea that innovation is something that's holding back China too substantially. I think the statistic about Nobel Prize winners—only a handful of Nobel Prize winners in the sciences have emerged from China—is a true statistic. But a lot of these Nobel Prizes are backwards-looking by decades. We're still giving out prizes for work in Japan or the US in the 1970s. It is pretty arbitrary.

It’s very rate-limited. What I want to propose is that China’s other major advantage in being a technological superpower is that it can just wait for the Americans to invent a lot of—

The spark.

Be the spark, right? And then they set the fire. They’re the prairie fire that uses the American spark. So I think about something like solar photovoltaics, which was invented in New Jersey by Bell Labs in 1954. The US mostly treated it as a scientific project and not a giant manufacturing industry.

Now about 90% of the solar industry is in China, everything from the polysilicon processing down to the final module assembly. China can just wait for a lot of these labs in the US, Germany, and Japan to figure out these new sparks, and then they set off the prairie fire.

This is also one of the crucial points in the classic Andy Grove essay published in Bloomberg Businessweek in, I believe, 2010: the US, in my words, is really great at setting a lot of ladders in place, but its firms are no longer really great at climbing these ladders. It is really the Chinese firms that are able to climb all of these big technological ladders.

5. Who Will Adapt Faster?

If I oversimplify this to: the US is the leader in zero-to-one, and China is the leader in one-to-N scale-up in manufacturing, which would be harder for the other to get? Would it be harder for the US to get really good at the scale-up in manufacturing, or harder for China to get good at zero-to-one, based on everything you know about both? What’s more likely?

I think that it is harder for the US. The task is comparatively simpler for China, and China has already gotten significantly better at a lot of these scientific projects that used to be only the preserve of American universities and a few other places. By most metrics that we can identify, Chinese scientists are producing better-quality work, not just quantity. If we take a look at some of the top 1% most-cited scientific papers, Chinese researchers are producing an increasing share of many of these top papers. We can see that China has produced a lot of really good scientific projects.

To say nothing of the Moon missions, I think there’s a pretty strong sense now that China will get to the Moon by the end of the 2020s, and America might not be able to get back to the Moon—that it has forgotten a lot of these skills. China has invested a huge amount in trying to improve its universities. We can see that a lot of American researchers, often American researchers of Chinese descent, have decided to move to China because there’s better funding, there are more graduate students they can work with, and there’s a more stable environment for them to do their science.

Conversely, I think we have not seen that the US is really learning the hard parts of manufacturing very well. I think there are some successes. We can see that the TSMC fab in Arizona is actually doing fairly well now, according to the latest reporting. But if we take a look at many of America’s apex manufacturers—companies like Boeing making aviation, Intel making chips, Detroit and Tesla making vehicles—mostly, that’s been going downhill.

The US isn’t making a huge number of iPhones. It’s barely making a huge number of Apple’s desktop computers. I feel like the Chinese are learning at a much faster rate to patch up their deficiencies than the Americans have.

6. How the US Can Revive Manufacturing

What should the US do that it’s not doing? If you were the dictator of the US economy and your goal was to make it catch up in this regard as much as possible, because it seems like the consensus is, wouldn’t it be great—and there are some people who are trying to do this, in small ways so far—if we had manufacturing excellence back here again and controlled, vertically, our whole destiny? We have the spark covered. What would you do if you were fully in control?

I am against being fully in control. I want no dictator in China, and so therefore I renounce being dictator of the US.

What I am really thinking about for this particular book project, as well as my broader writing over the past 10 years on China, is to be less focused on policy prescriptions—fixing statutes, fixing regulations. What I really want to do is inspire Americans to treat technology as a political project as well as an aesthetic project.

I think this is one of the things that China really does well: it takes manufacturing super seriously, and the US has not taken it super seriously since various points in the 1980s. I’m fond of quoting a former chairman of the Council of Economic Advisers who said in the 1990s, in this glib quip, which is quite funny, “Computer chips, potato chips—what’s the difference?” As if these things could all be fungibly measured in quantities of dollars.

I think there is something qualitatively different between high-end semiconductors and a spud. Various parts of the American elite have decided that manufacturing is not so important. We don’t need to manufacture socks and T-shirts. Fine. We don’t need to manufacture televisions.

Here’s where I start getting a little bit nervous: we don’t need to start manufacturing iPhones or munitions or all sorts of other goods. That is where I get really nervous. What I really want is for Americans to feel the importance of having a robust manufacturing base, feel the need to try to recover some of that, and err more on the side of doing more manufacturing rather than less.

Again, I have no great policy prescriptions. I am critical of some of the policies of the present administration, but I think that if we are all much more committed to just building out and recognizing some of these problems that we have, and recognizing China’s trends, then the conversation flows much more naturally about what we need to do and which statutes and regulations we need to fix.

Can you imagine that happening without some sort of visceral crisis? Can that happen slowly and organically? In the 1950s—I think it was in 1957—there was the Sputnik moment in which a kind of—

Exactly what I’m thinking of.

7. America's Many "Sputnik Moments"

—toy satellite emerged from the Soviet Union. Over the last 15 years, the number of politicians citing whatever new breakthrough as a Sputnik moment for the US has grown. I once cataloged this. I found a half-dozen instances of major figures, including Barack Obama and various other US senators, citing this thing or that as a Sputnik moment. I think Obama cited high-speed rail in China as the Sputnik moment. Some other senators cited Huawei’s lead in 5G telecommunications equipment.

Just 2 weeks ago, there was a Harvard professor, Stephen Greenblatt, who wrote in The New York Times that Chinese universities are really rising in global rankings in part because they’re doing better and better science. “If that’s not a Sputnik moment, I don’t know what will,” I’m essentially quoting him.

What I’m actually kind of afraid of is that the more we use this term “Sputnik moment,” which Americans are using quite often, and the less that it is actually accompanied by real action—as the original moment in the 1950s was—the more that this term is just bandied about—

Boy who cried wolf.

—glibly, crying wolf about this or that, and actually there’s no fundamental action.

What I’m often really surprised about is just the lack of a real sense of crisis among a lot of Americans with the rusting manufacturing base. We’re chatting together in New York City. The Second Avenue subway extension cost about $2 billion per mile. Almost everything in the US, in terms of major infrastructure, especially in big cities, ends up being over budget and over time.

Voters originally approved the California high-speed rail by referendum in 2008. I think they said, “This must be finished by 2020.” Right now, we’re in 2025. How many people have actually ridden California high-speed rail? The answer is zero, because the first segment is supposed to start operating between 2030 and 2033, between Bakersfield and Merced.

There are just these rampant failures all the time in America, and somehow I don’t really see many heads rolling—from the heads of agencies, or US senators stepping down because they failed at a transportation project. That is something that is more common in Asia. So why is there no sense of crisis? Patrick, riddle me this.

I remember this idea from The Hundred-Year Marathon, the book about the very long-term planning of China to be resurgent and then be dominant: maybe it’s quite deliberate that there is some line below which no one notices the compounding that’s happening in China, with no spikiness to their progress, just more smooth and steady.

All of a sudden, we’re going to wake up in 2050 and be like, “Oh my God, what happened? How did this happen?” And it’s been happening for, you know, forever—for 100 years. What do you think of that? That it’s just been deliberately quiet and below the radar, and that’s a big reason Americans haven’t noticed?

They don’t go to China. They don’t visit. They don’t see it. They don’t go around Shenzhen. They don’t go anywhere. It’s just completely invisible to them, and they’re used to the status quo here.

Well, it sounds like a problem with Americans rather than with the Chinese. They are really happy to broadcast all of their achievements. They have these amazing trains they love to highlight. They’re constantly inviting Americans to come check out these glimmering cities.

China’s infrastructure gleams, and you only have to go over there to take a look at it. There are plenty of people ringing the alarm, but it does feel a little bit like the boy who cries wolf.

I think this is not just the sense of crisis with China. There’s also a sense of crisis in California and New York, where even people here kind of just shrug after such obscene cost overruns.

What are the biggest similarities between the two peoples, between Americans and Chinese? Obviously, you’ve talked about some of the differences, but what’s most similar between the two countries?

A lot. What I really enjoy is that I start my book, in my very first paragraph, by saying that Chinese and Americans are more alike than any other people. Among people who have spent any time in China, they’re always congratulating me and saying, “Yeah, that’s exactly right. Chinese and Americans are so alike.”

8. Surprising Similarities Between Americans and Chinese

So how are they alike? They’re the two great founts of entrepreneurial dynamism in the world. It is Shenzhen and Silicon Valley that are inventing the future, and not so much Europe and Japan any longer. There’s a kind of hustle energy. There’s a hastiness. There’s a sense of taking shortcuts, and a lot of that manifests in some things that don’t work very well. But you need a lot of hustle and dynamism, and you see that among these people.

Both countries have a sense of the technological sublime. They have this awe of grand projects like the Golden Gate Bridge, the Manhattan Project, or Apollo that the Americans have and the Chinese also share. Both countries are filled with elites and masses that really believe themselves to be really important great powers in the world. If other countries don’t get in line—whether that is the Philippines or South Korea on that side of the Pacific, or the Canadians or the Danes with Greenland—then they also need to be muscled around a little bit. I see far more similarities than differences between these two peoples.

What would be something that you would have put in the book if the book was designed to be a bit more out there, speculative, or unhinged? What was on the cutting-room floor that you would talk about with your friends over beers more than you’d put in a New York Times bestselling book?

Well, Patrick, is this book not unhinged enough for you?

What’s the Spinal Tap version? I’ve gone off the deep end here.

If we had to turn it up to 11, then I think I would talk a little bit more about all of the ways that China believes in the future. I think that’s another similarity between the US and China: they’re often very future-oriented. They have a sense of optimism, much more so than the Europeans, who have a sense of optimism only about the past. Both countries see themselves as pursuing some sort of destiny, and they’re driving really hard toward it.

Something that I’m quite interested in is the path of Chinese futurism. I think there are a lot of ways in which the Chinese are much more pro-technology than Americans are. China hasn’t experienced this broad techlash that has come across the big tech companies in the US. There’s no sense that tech is partisan because nothing in China is allowed to be partisan. There’s no sense of a tech right and a tech left.

If we take a look at technology by technology, whether that is something like e-commerce, the rate of e-commerce purchases in China is, I believe, last I checked, something like twice as high as in the US. They have much more of a sense that artificial intelligence could be a friend and something that is not threatening. They don’t worry about it taking away all of their jobs, and they spend a lot more time on their phones.

This is not positive. This is one of the things that most bugs me about Chinese society today. The last time I went to Shanghai, at the end of 2024, you could just see people being on their phones all the time. You could be with a lot of friends at a restaurant, and people could be on their phones the entire time. You could be in a business meeting, and people are on their phones.

On the one hand, that speaks to some sort of social dysfunction in social interactions. On the other hand, it also speaks to the fact that they’re not very concerned about what smartphones may be doing to their lives and their brains. I would also want to try to write a little bit about how the Communist Party sees itself modernizing the country and how it feels about various technologies, including space missions going to the Moon, then Mars, and the moons of Saturn.

I’d also want to write about how they view themselves as much more of an industrial civilization relative to the Americans, whom they often denounce in terms of a fictitious economy or a bubble economy—not in the financial-bubble sense, but in the sense of a bubble that pops very easily. I think there are various strands of Chinese science fiction that could also be really worth exploring.

What feels like the very bleeding-edge frontier if I were to take a month and travel around China? Maybe you could pick the 4 cities I would visit to learn the most and see the bleeding-edge frontier of everything you just described. What does that feel like today that people might not fully appreciate?

Shanghai is my favorite city in China, and maybe my favorite city in the world.

Wow.

9. A Tour of China's Bleeding-Edge Cities

It feels a lot like New York. Both have been port cities with industrial pasts that have significantly moved away from them. Shanghai has a ton of Art Deco buildings because the time of its great boom in the 1920s and 1930s was also a time when Art Deco really boomed. There’s a river that runs through both cities, and there’s a sense of hustle and ambition that one can see.

It is really comfortable. It’s a little bit like New York if the French managed significant parts of it. They put in a lot of beautiful plane trees as well as cafes. I think it’s perhaps not the bleeding edge of technology as such, but I think Shanghai represents a bleeding edge of some element of consumption.

You can just order food really easily in Shanghai. Most of the Uber-like DD taxis that you would get into are electric. There are parts of the city that are superbly well managed in terms of traffic flow. You can always tell how much time a red light is going to be on, and you can see this in the apps. There are all sorts of ways in which the city is very well managed. It has a subway system that doesn’t screech with the metallic noise you get in New York City. As a place for consumption, Shanghai is really wonderful.

I would then hop on the high-speed rail from Shanghai to go to the city of Hefei in the province of Anhui, which is pretty close by. Hefei is probably, let’s say, 2 hours away by train from Shanghai. Historically, Hefei has been significantly poorer and is much more mountainous. But now Hefei is the center of China’s electric-vehicle industry. Several big EV makers are headquartered there or have their operations there.

As a city, it has been growing pretty consistently. There are a lot of Chinese first-tier cities that haven’t been growing quite as fast anymore, but there are plenty of these second-tier cities that are growing really well.

I think it is always worthwhile going to Shenzhen, which is in the south, pretty close to Hong Kong. I find Shenzhen probably the most boring city in China. It’s a lot of big office parks, and a lot of it is meant for driving. The city layout is actually kind of weird. There are several big hubs connected by highways that are pretty distant from each other. There’s not that much interesting culture going on. People are there to hustle and to work.

But it is the headquarters of companies like Huawei, Tencent, and DJI. A lot of China’s most innovative companies are there, and you can find a lot of really interesting electronics.

You asked for 4 cities, so I guess the fourth one that I’ll offer is Chongqing, which is also in the southwest. I’ve learned that Chongqing is really big among TikTok influencers. You can see a lot of very futuristic architecture carved essentially into cliffs.

Very futuristic.

Very futuristic, with shimmering lights. There’s this really well-known subway station that goes through the bottom of an apartment building on one side and then out to the other side. That is really wonderful imagery.

It’s in the southwest, which is where my family is from. I like southwesterners. They have, I think, the best sense of humor in China. People there tend to just sit over tea and chat. They have great food. It’s often very spicy, and it’s also really dramatic. What else could you want than great food and great people?

Of all these places—or in a different city—if you were to send an envoy of US technology entrepreneurs somewhere, where would you send them so that when they emerged from the trip, they would be the most inspired to come back and do things differently than they were planning to?

I think maybe the places to visit are not necessarily in these big cities. I think it would be better to try to go to a few factories and anchor your trip around them. These factories might be something like electric-vehicle manufacturers in Hefei. It might be something like battery manufacturers in Shenzhen. Wherever you can go to find sophisticated factories making advanced-manufacturing products, just go there, and drop by the cities along the way to see how consumers live.

I’m aware of several teams of envoys that have been traveling to China in the recent past. There have been a bunch of European cleantech investors who’ve just gone to China, and in California I know of something like 2 trips that have gone on this year and 3 more trips that are being planned. People are visiting, and I think there are these marvels out there, and it’s only on us that we’re not going out to discover them.

If you have the chance to visit, if you have the chance to go inside a factory, definitely take it. I strongly believe that it doesn’t matter what a factory is making; it is always fascinating. Whatever it is, it could be the most boring product—they could be making brake pads—and I’ve visited a superbly interesting brake pad factory. I had no idea how these things were made.

When I was in China, every time I had the chance to do a factory tour, perhaps eat with the workers, I always took it. I’d tell the factory managers, “I’ll put away all my electronic devices. I’ll sign whatever you need me to sign, but just walk me through the factory floor.” That’s always a ravishing experience.

Can you compare and contrast the work ethic of the 2 countries? I’m especially curious at the very highest end. If you took America’s most productive people, maybe in the technology sector, working all the time to build new AI companies or whatever, and compared them to a similar set in China, how do the 2 compare and contrast? More broadly, I’m curious how they compare and contrast, but especially at the very high end.

10. Comparing Work Ethic

Yeah. If we’re taking a look at, let’s say, the top 0.01% to 0.1% of entrepreneurs, I feel like there are a lot of similarities. When I chat with people who interact with their counterparts—Silicon Valley folks chatting with their counterparts in Beijing—they tend to respect each other and look upon each other as peers.

I think there are some ways in which Silicon Valley folks are a little bit more philosophical. They’re a little bit more engaged with policy and trends, and with what the impacts of their companies and technologies are on society, often because the employees make them. I think maybe the Chinese entrepreneurs are a little bit more involved with thinking about political trends, often because the Communist Party makes them. At a work-ethic level, I think they’re probably pretty comparable.

But if we broaden it out a little bit more, let’s say the top 10% of workers, maybe, again, there are more similarities than dissimilarities. I would suspect that the Chinese are putting in more hours, just trying to work harder. If we take a look at the median engineer or median worker between the U.S. and China, I strongly suspect the Chinese are putting in much, much more hours relative to the median worker in the U.S.

In California, we’d love to make fun of the Google offices, which clear out by 3 p.m. on a Friday. Everyone’s at the yoga studios, and not really working super hard, in particular because it’s Google. That sort of thing is pretty unimaginable in China, which invented this phrase, “996”—working from 9 a.m. to 9 p.m., 6 days a week.

Maybe inspiration is really important, and working smart is really important, but I think working hard is also very, very important. According to the statistics that are out there, it takes an automaker from the U.S., Japan, or Germany roughly 6 years to conceptualize a new model and actually get a new vehicle out on the roads. In China, it’s something more like 18 months to 2 years. At a first approximation, they’re probably working at least 3 times faster than the Americans are.

There are some founding myths of companies like Meituan. I visited Meituan with my friend Eugene Wei, who is also a big fan and who has been on this show. We went to visit their offices in Beijing in 2018. Part of the story that Meituan tells about itself is that it survived 5,000 other competitors, all of which were Groupon clones that started at around the same time, in something like 2015.

Meituan was a big company back then, and it’s now one of China’s biggest tech companies. Just imagine how ruthless and cutthroat the executive team has to be to survive this battle royale of 5,000 companies. I think there are some ways in which maybe inspiration is still better here, and maybe the sparks are still better here, but I do often feel that the Chinese are just comprehensively outworking the Americans in some big ways. Maybe that doesn’t matter for technologies like AI, but for pretty much everything else, it pays to just work at much faster cycles and learn much more.

I’d love to ask some investing questions, given that this is an investing audience. If I were to shrink down the investing debate about China to a single common debate, it would be around ByteDance, because it’s a company that produces crazy amounts of free cash flow. Its equity trades at a tiny fraction of the multiple of that free cash flow that it would have if you could just take the exact same financials and put them in America. It might be 10 times more valuable or something like this.

11. The Investor's Dilemma: The ByteDance Paradox

People use this as an example of, “What do you think about ByteDance?” when they’re really asking, “What do you think about the opportunity to invest in China?” Maybe this is the right time to talk about the kneecapping that happened several years ago around some of the Chinese internet giants—what happened, why it happened, and what that tells us about the Party and beyond.

I’d love your general framing on how to think about these companies, which sound really interesting and fantastic and which have produced lots of free cash flow in some cases, as an investment opportunity—or whether they just belong in the too-hard pile for American investors.

Yeah. As a former technology analyst at Gavekal Dragonomics, this question was on our minds every day. Our clients were endowments, pensions, hedge funds, asset allocators of all sorts. From a strictly macro perspective, I never said anything about buying or selling particular stocks, but thinking about these broad trends in China, I think there are several paradoxes.

The first paradox is that Chinese companies are really capable, and China’s economy has grown by an average of something like 9% over the past 20 years. What has been happening to China’s stock market? It’s been essentially flat, with the Shanghai and Shenzhen exchanges not rising very much—nothing commensurate with 9% growth. There are a variety of structural factors that make it really difficult for China’s stock markets to grow at large. That’s one component of the valuation puzzle with a big company like ByteDance or Alibaba.

Another paradox is that, yes, a company like Alibaba or ByteDance could be throwing off so much cash, but the nature of their businesses sometimes entangles them with the Communist Party. The Communist Party, as I think about it, resembles something like the God of the Old Testament, which can be very generous sometimes, but otherwise could just randomly smite you because it is trying to pursue some sort of values-driven belief system.

ByteDance, in 2018—I was living in Beijing at this time—was humiliated by the government when the government said that one of ByteDance’s suite of apps had violated core socialist values because it had a lot of jokes out there. The founder of ByteDance wrote this totally self-flagellating letter saying, “We are so sorry that we did not uphold core socialist values, and I am at fault.” It is just impossible to imagine any tech CEO in America writing something like that.

Alibaba, most famously, was founded by a loudmouth named Jack Ma, who shot off his mouth one too many times in 2020, when he launched a blistering broadside against financial regulators, saying that they were so behind the times. Shortly after that, the Communist Party smashed Ant Financial and prevented it from going public, which is still the case today—Ant Financial is still not public. Shortly after that, the Communist Party started taking the scalps of companies that didn’t just include Alibaba, but also online education and e-commerce companies, with antitrust actions against the entire sector. That part is real as well.

Then there’s a third component of all these risks that I think investors have a hard time putting to bed, which is the suite of geopolitical issues that are particular to China. American investors aren’t even buying Alibaba directly. They’re buying from a Cayman Island entity that has contractual relationships with ByteDance. Are we really sure that we’re getting something real here? It’s hard to lay that fear to bed.

China has capital controls, and that has deterred a lot of investment, including portfolio flows from a lot of investors. Probably the biggest geopolitical puzzle for a lot of people is that Beijing is very clear that it intends to seize the island nation of Taiwan one day.

And if it does so, it is pretty likely that it will face very hard sanctions from especially the US government, as well as probably all Western governments. We saw what happened in 2021 when Russia decided to move on Ukraine. A lot of the central bank reserves in Russia were frozen, and American portfolio managers were no longer able to invest in Russia. Even McDonald’s Corporation had to leave Russia because of American sanctions.

And can anyone really be sure that, a few years from now—sometimes, some people feel like even a few months from now—Beijing is going to initiate some sort of action against Taiwan? This is not really my expectation, that they will do something, but none of us can be sure that they won’t do something. So long as that fear is present, I think that goes some length to explaining why it becomes pretty unappetizing.

Why buy trades for 10 times your cash flow?

Yeah. If you’re a pension or a university endowment, do you really want to hold this and then have the US government Treasury come asking, “What are you doing?”

Thinking about potential future equilibrium states between the 2 superpowers, let’s just assume these are the 2 big, important powers. One of the things that always caught my attention in the US—maybe the reason it’s become less interested in global affairs—is how self-sufficient it is. There’s actually not a huge percentage of the economy that’s relying on the outside. It’s pretty self-sufficient in lots of ways, in terms of major goods.

Understanding that, is one of the future scenarios that these 2 just sort of exist as separate universes from each other? Is that one? What are the other equilibrium states that you could imagine 20 or 30 years from now between the 2 countries?

12. Future Equilibriums for Two Superpowers

Yeah. Well, equilibrium is a really important concept here because it implies that no state really feels the need to shift in a big way. I think the scary thing might be that something upsets the equilibrium, where one country feels under threat in some way.

First, I only partially agree with you that the US feels very self-sufficient at the moment. You’re right that, by a lot of simple conventional measures, imports are something like 12% of US GDP, and it’s not a huge amount. But in a crisis, it turns out that the US actually really needs something like this 12%.

I think a lot about the early days of COVID, which speaks to another difference between China and America. In the early days of COVID, the US struggled to produce anything as simple as masks and cotton swabs. I was living in China, and one of the most instructive little moments I remember was going up to a factory manager around Shanghai. This factory manager marveled to me that American manufacturers didn’t get their act together to produce really important goods.

In this Chinese guy’s formulation, too many of these American companies ask themselves whether making masks and cotton swabs is part of their core competence. For very few companies are those things their core competence, so they don’t make them. Chinese companies say that making money is their core competence. Therefore, they go make what the market demands, which then were masks and cotton swabs.

I was grabbing masks made by Foxcon, which normally makes iPhones, and by JD.com, which is one of China’s biggest e-commerce retailers. They just decided to retool a lot of their factory lines to produce these things that the market needed. There was some complacency and lack of hustle among American manufacturers to actually produce these sorts of things.

In the early days of the pandemic, a lot of consumer goods were in shortage. A lot of furniture was in shortage. Random fruits ran out, depending on which part of Mexico had a COVID outbreak at that time. Generally speaking, I think that the American manufacturing base has not covered itself in glory over the last 20 years. It’s not just Boeing, Intel, Tesla, or Detroit broadly. There’s all sorts of rust and an inability to move.

If we take a look at China’s energy imports, it is importing less and less, in part because it has scaled up so much solar capacity within China. By the end of this year, China is expected to add 500 gigawatts of solar capacity. The US is expected to add about 50 gigawatts, so just 1 order of magnitude more. There are 33 nuclear plants under construction in China right now. There are 0 under construction in the US.

The Chinese have become much more successful in shifting their consumers into buying electric vehicles. At this point, by the end of this year, 1 out of every 2 cars sold in China will be electric. They’ve been able to blunt this dependence that they have on foreign energy. It’s not growing so much, and perhaps it will decline soon enough.

There are all sorts of ways in which they’re also very serious about food self-sufficiency. They’re very serious about semiconductor self-sufficiency. This is again where I see that, if the US and China are in competition, China is being much better at patching up its own problems than the US has.

The factory story—the retooling to make masks and cotton swabs—sounds like a very high-agency thing. Which society do you think is higher-agency?

I think it’s China. I think China is a high-agency, high-trust society where they are really able to, once they decide to do something, build it. Once they decide to build this infrastructure, it comes out and it gleams. Once California decides to build infrastructure, it’s 17 years, and it’s going to be like 20 years before anyone is able to get close to riding high-speed rail.

There are various ways to measure something like social trust in China. By a lot of conventional measures, like if you lose your wallet in the park nearby, will someone return it to you? In China, that share is rather low. But I was thinking of this definition of social trust from the scholar Francis Fukuyama. He says something like social trust is the measure of spontaneous coordination, of people being able to get together quickly, make decisions quickly, and act quickly.

At least in the early days of COVID, that’s something that China really had. Manufacturers were working really well together, tech companies were making it really clear where the fever clinics were on the mapping services, and the government really stepped up in a big way as well. The US, at least in 2020, really did not do any of these sorts of things.

We haven’t talked at all about the lawyerly tendencies of US society. You talk about engineering in China and the sort of US being run by lawyers. What are the pros and cons of that very different orientation?

The pros of the lawyerly society are a guarantee of my favorite value in America, which is pluralism. There is some measure of robust debate that is guaranteed in the US. One of the things that really thrills me about having moved back to the US over the last 2.5 years is that there’s just always energy among Americans to try to diagnose their problems and try to improve on them.

13. The Lawyerly State vs. The Engineering State

Two weeks ago, I went from New York to Washington, DC, to speak at the Abundance Conference in DC. That is just one strand of the recognition that America has lost a lot of crucial abilities to build homes, transit, and all sorts of infrastructure, and we need to get a lot better.

I think that folks in New York—and you’re one of these rallying points—are helping people to understand the world as it is a little bit better, to really try to improve a lot of different things. I am plugged into several conversations at the Hoover Institution, and there’s a tremendous sense that a lot of things in the US are not working and we need to get better.

The problem is that the US is not very good at execution. Even though we’ve realized for a long while that the manufacturing base is quite deeply broken in this country, the US has not really been able to fix this in any compelling ways.

There are complaints among the American left about what should be done. There are complaints among the American right about what should be done. It’s very strange to be in this political system, where elections usually have these razor-thin margins, and then one side takes over, seriously overreaches, and then the other side wins by really thin margins and overreaches again.

I think the fundamental problem among lawyers is that they are, for the most part, protectors of the rich. That is essential in some ways because you can’t build companies worth $4 trillion, like Nvidia, without substantial legal protections. We need a lot of lawyers in place for Nvidia to feel comfortable about doing everything that it’s doing. But I think society won’t work well if it is mostly about serving the rich.

In New York City, where we’re chatting now, the rich don’t really have to worry too much about affordable housing. The rich have access to these skinny skyscrapers that you can see on the skyline. The rich don’t really have to deal with the problems of the subways, which are just, again, screechingly loud, and whose service is really quite bad compared to any European or East Asian country.

I think that the lawyers need to get out of the way a little bit in order for the US to build things for the broader masses. I’ll just offer 2 anecdotes that I think about a lot.

Both relate to trains. When I took the Acela down to Washington, D.C., 2 weeks ago, the Acela worked okay. It's not always very reliable, and I find that it is really, really wobbly. While I was on the Acela, I came across this headline: “Acela Getting an Upgrade.” We were going to get new trains.

I was happy about that until I read deeper into the article. It said that the new trains were going to be something like 11 minutes slower than the old trains. At first approximation, we're moving slower than before. The foam seats are better—they're more comfortable—but we're going to take longer to actually get to D.C.

I substantially wrote this book in my cloistered office at Yale University. Every so often, I was tired of the monastic life and decided to be seduced by the pleasures of New York City. I take the Metro-North train to get from New Haven down to New York City. That train is highly reliable. It's a little bit slow.

I was radicalized when I found a timetable from 1914 in which it was faster to get from Grand Central Terminal in New York to New Haven about 100 years ago than it is today. It's not totally an apples-to-apples comparison because the train now makes many more stops. But again, at first approximation, we're moving slower than 100 years ago.

That is in part because of the lawyerly society in which a lot of homeowners in Connecticut put up their hands and said, “We shall not have a rail line running through our backyard.” The proposed route of Amtrak turned out to be much more squiggly after these homeowners decided to use their very expensive lawyers to sue and say, “No way in our backyard.” That has added quite a lot of time and quite a lot of expense to these projects, which cannot be very technocratically, rationally designed.

This is where I'm hopeful that the lawyers aren't going to get in the way of absolutely everything, especially the sort of broader infrastructure that serves the masses' needs.

It reminds me of this idea that if you study Eastern portraiture versus Western portraiture, in the West, almost all of them are portraits where your face is most of the canvas, whereas in the East, often the portraiture is a small person amidst a bigger landscape, and quite representative of the 2 different styles. I'm curious, just for a side quest for a minute, if you had to write a sequel to the book about a country that's not the US or China, what next country would you be most interested in writing about, and why?

Yeah, I think this would be challenging because I really believe that the future will be determined by these 2 big countries. I think what's most important is for these 2 countries to get along because, on my very first page, I denounce Europe for being a mausoleum economy, where things are very beautiful but things are also very dead. I don't quite yet believe that India and Indonesia are ready to challenge these 2 bigger powers.

But I think this gets back to the broader question of the equilibrium that you brought up, and I think what we don't want is for there to be too much destabilization. What I think most Americans, as well as most Chinese, ought to be thinking about is: How do we avoid a conflagration, and how do we avoid a hot war? World War I took something like 10 million lives. World War II took something like 50 million, and we don't want to get to World War III, in which tens of millions die.

There's a scenario in which I think the US strategy over the last 30 years has been to hope that markets and the internet will change China for the better, and change this communist system into something more like a liberal democracy. That bet has not worked out, and that bet, I think, could be firmly laid to bed. Now we have to ask: Is there some sort of uneasy equilibrium that we can really stumble into to avoid a hot war?

At least my guru at the Hoover Institution, historian Steven Cotkin, would say what we need is a new Cold War, in which the 2 countries decide not to have a very big fight, but rather to compete on the level of systems, to deliver better for the people. Now, I think a lot of people are nervous about this Cold War framing, including me. The Cold War was not very cold for a lot of other countries, say something like Vietnam.

The Cold War created so many crazy abuses within the Soviet Union as well as the US in the name of competition. Maybe Cold War is not the right analogy because there's huge trade and integration between the US and China right now, whereas there was essentially no trade between the US and the Soviet Union in the past. But then we should come up with some new term really to try to understand both of these countries, and to try to keep competition on the level of companies, as well as who's delivering the better vision for their own people, rather than anything bigger involving a conflagration in the Pacific, God forbid.

The USSR collapsed at the end of the Cold War. What is China doing most differently from Russia that you think will not lead to an eventual collapse of the Chinese system?

I think the Chinese are excellent students of history. I think there are maybe several countries that they really study; first and foremost, it is the Soviet Union. They diagnose the problem of the Soviet Union to have been in the late 1980s, when Gorbachev tried to achieve both economic reform as well as political reform at the same time. The story of the Soviet Union is one in which the political system sort of imploded, and then nobody picked up the pieces really to try to get the system back up again. That's the first thing that they try to avoid.

14. Why China Won't Collapse Like the USSR

They also really try to avoid the fate of Japan, which suffered an economic implosion by the late 1980s and also never quite got back up again. I think the first reason to believe that China will not suffer a political collapse like the Soviet Union or an economic collapse like Japan is that there's history here to suggest a better path forward for them, and they want to avoid a lot of these mistakes. Whether they could actually avoid some of these mistakes is a different question. Maybe they'll come up with some whole new, novel, interesting mistake that creates some sort of a collapse in either scenario. But I think history will not repeat in exactly the same way.

China is a Leninist system, like the Soviet Union. But it has a thriving, substantial consumer economy, which is doing superbly well in terms of creating all sorts of products that the Soviet Union never created. All it did was a ton of heavy industry. It produced a lot of steel and chemicals, and very little goods for its people.

China is not like Japan in a variety of ways, but one that's quite pertinent to me is that if we take a look at Japanese exports throughout the 1970s and the 1980s, a product from Nintendo, Mitsubishi, or Toyota was almost entirely Japanese value-added. These were Japanese companies making Japanese products. Part of the complaint of the Reagan administration was that Japan was too closed and Japan needed to open up.

By contrast, China has been much more open than Japan. China is most famously known for building Apple's iPhones and Tesla's vehicles, and the communist system recognized that it was so far behind technological leaders that it mostly threw open the doors, with some restrictions, to Western companies to produce in China. At first, they made mostly foreign goods, only assembling these different components, until, at this point, a great deal of Apple's supply chain is made up of Chinese components as well.

It's not quite the Soviet Union, it's not quite Japan, and I think there are also these ineffable Chinese characteristics thrown in. I think the Chinese people are highly entrepreneurial, much like the Americans. They're highly dynamic. They take shortcuts. There's a million and one hustlers trying to make a dime, trying to profit, and trying to found companies.

Maybe we can say that China right now has some of the control paranoia of the Soviet Union, some of the manufacturing excellence of Japan, and some of the American entrepreneurial hustle. You combine all of that, and I think that is part of the reason that I think China is going to be a pretty formidable power going forward.

What do you think? I think it was Eugene, our friend Eugene, who first gave me the book “Seeing Like a State” by James C. Scott, and the very abstract idea that top-down systems just don't work as well over the very long term as bottom-up ones do. In the near term, they actually can work faster and better, but the roots aren't as deep and as natural, and therefore they're just more fragile—top-down systems than bottom-up ones. Do you think that holds credence in this argument between the US and, arguably, a more bottom-up society and organization than China?

15. Seeing Like a State: Why So Many Are Fleeing China

I do. I love the work of James C. Scott, a former Yale political scientist and anthropologist who very sadly passed away just about a year ago. I've read pretty much all of Scott's works. If I can throw in another Scott work for listeners, it is “The Art of Not Being Governed,” which is about highland Southeast Asia—these very mountainous parts of essentially southwestern China, a region that is about as big as Europe.

It includes southwestern China as well as Vietnam, Laos, Cambodia, and northern Thailand, in which various peoples have decided to run away from the state.

Whether that’s the Burmese state, the Tibetan state, or especially the Han Chinese state, they were wary of conscription. They were wary of taxation, and they didn’t really like assessors coming over to look at their grain all the time, sometimes bearing disease. Scott was really remarkable for having spent quite a lot of time in these zones talking to people who have oral histories, which give them more malleable ethnic identities, and they can run away much more effectively.

I think about this a lot because I’ve spoken to a lot of Chinese who have decided to run away exactly in these highlands. Again, my family origins are in Yunnan province. This is exactly the part of Zomia, Highland Southeast Asia, that James Scott has written about. I feel like people from where I’m from—Yunnan province—have some of the more libertarian attitudes in China. They really don’t like the state looking over their shoulder.

Many of them practice agriculture up in the mountains, which makes it much more difficult for the state to come over and assess. I think part of the problem with the engineering state is that many people have decided to retreat to these different corners of the world.

In 2023, I went on this walk-and-talk with Kevin Kelly around Chiang Mai, and we walked from one of the highest mountains in Thailand down to the city of Chiang Mai. Afterwards, my wife and I spent a lot of time with mostly young Chinese—young Chinese who are in their 20s or early 30s who ran away from China. They decided that the censorious nature of the overbearing state was more than they could bear, and they decided to make art, dabble in crypto, and smoke dope in the mountains around Chiang Mai.

I thought, you know, it is really strange that Xi Jinping is trying to achieve something he calls the great rejuvenation of the Chinese people, and there are a lot of young people who are saying, “No thanks. We’ll give that a pass.” By one count, 14,000 millionaires departed from China in 2023 to move to Singapore, Japan, the U.K., and the U.S., in part because the Communist Party has smashed a lot of their businesses.

There are a lot of people who are not so creative and not necessarily very wealthy who decided to hop on a plane to Ecuador, where they don’t need a visa, and then walk across the Darién Gap into the United States. At its peak in 2024, there were several months in which U.S. Customs and Border Protection was apprehending something like 30,000 to 40,000 Chinese nationals at the Texas border. That, to me, is also really striking—that so many people are willing to do this dangerous trek, essentially to escape from China.

I think that China will not become anything like a cultural superpower, in part because the engineers are so censorious. They’re so thin-skinned. They censor everything they can’t understand, which is a lot. If you take a look at a lot of aspects of cultural production, whether that is books, novels, or films, in China, that has really become much more constricted over the past 12 years of Xi’s rule.

I think that China will not become anything like a big financial superpower, in part because the control tendencies of the engineers are to impose a lot of capital controls. That makes it much more difficult for foreigners to want to hold RMB. Last I checked, RMB still only made up about 4% of global trade volumes.

I think I want to make this narrow case: The engineering state is really good at building stuff. They have the manufacturing workforce, the entrepreneurial enthusiasm, and the government support in order to keep getting better and better at a lot of advanced manufacturing industries.

Even if China pisses off a lot of its own people, a lot of its neighbors, as well as a broader set of people, the very fact that it can make manufactured products better and better is a pretty significant threat to the United States, because there is a chance, I think, that they will do really well on artificial intelligence as well. But even if they just get much better at making vehicles, I don’t want to see the U.S. further deindustrialized.

Right now, there are 12 million manufacturing workers in the U.S. I don’t want to get into a scenario where, a decade from now, we have only 6 million. I think that is going to hurt the economy and introduce greater political dysfunction. Even if the engineering state does very well in the short run for James C. Scott reasons, and even if, in the longer run, it does not do so well in part because people want to leave and in part because of demographic problems, the future is made up of a series of short runs. If China is really able to do super well in the next 5 years, 15 years might be enough to subdue America in pretty substantial ways later on.

One of the things that jumps out is the sensitivity of the Chinese model to the person in charge and the people aligned with him. If we had had this conversation when Deng Xiaoping was running China, or was so important in China, maybe the trajectory we would have projected would have been very different from how it’s ended up being.

I’m curious what you think—the 3, 4, or 5 people who have been the most important, maybe since Mao or something—and how they’ve changed the trajectory of China, and how likely it is that the next person is more like Deng Xiaoping, more liberal, or more pluralist-leaning, or not. It’s such an interesting aspect of this whole trajectory.

Yeah, I would bet not, because, first, I agree with you that the Chinese system is really under the sway of a single leader, and that is almost by design. The authority in China is really meant to vest in the Politburo Standing Committee, which is made up of 7 to 9 people. But it is also possible, as we’ve seen in the case of Xi Jinping, for one person to dominate the entire system. What Xi says, more or less, goes.

The part that I would hesitate to fully imagine is that, when Xi goes away, the system will be different. Even if we have a Deng Xiaoping-like figure, China might still have a lot of dysfunctions, because I would say that Deng Xiaoping introduced a lot of the dysfunctions that carry over to Xi Jinping.

Broadly speaking, Deng Xiaoping ought to be best known for being the architect of reform and opening up, which liberalized the economy. That is a tremendous good, perhaps the most tremendous economic good ever in the history of humanity, because about 1.4 billion people were lifted out of poverty. A few hundred million of those are living very comfortable lives, and a few million of those were living lives on par with some of the best in the United States. That is an extraordinary achievement.

On the other hand, Deng Xiaoping was also very autocratic himself, and he was, in the words of one historian who was quite senior in the Party, half a Mao. He was someone who was really, really ruthless toward his political enemies. He was never quite able to figure out succession planning. He fired 2 of his handpicked successors and almost fired his third one, Jiang Zemin, who ended up running the country.

He was also really famous for ordering tanks into Beijing. For a while throughout the 1990s, people labeled him, as well as a few other Communist Party members, the butchers of Beijing because they ordered in the tanks. Deng Xiaoping did not permit substantial political reform. He promoted tremendous economic reform, but he did not figure out this problem of succession.

We can maybe situate Xi Jinping as a direct analogue of Deng Xiaoping, because he is also grappling with questions of succession—what comes after him—and he has been pretty ruthless toward people he has purged. This is where I’m skeptical that there are deep pluralist genes in China.

I think that China, throughout its imperial history, has substantially lacked a liberal tradition—a liberal tradition meaning one that is interested in restraining the power of the emperor and promoting the power of the individual, the family, or the corporation. My bet would be that the future of China looks politically much more similar to what it is today.

I’ve been a little surprised that, since the original DeepSeek moment—which for at least a week really shook the U.S. in terms of the progress that had been made in AI in China—I haven’t heard more about it. I’m curious about your impression of AI in China: the country’s and the Party’s orientation toward it, the state of the technology relative to the leading U.S. research labs, and so on. What does AI in China feel like to you today?

Yeah, I think for me, what is most important is going to be in the next 5 years. Today, I think the U.S. still has a decisive lead on most aspects of artificial intelligence, mostly because it has the compute resources. It has the leading NVIDIA chips, and China does not. But I think if we are going to have much more AI in our lives, the competition is much more of a toss-up.

Again, looking forward over the next 5 years—which is a lifetime by the standards of a lot of AI, but maybe a shorter time span for the rest of us—this is where I think China actually does have a lot of advantages in AI relative to the U.S.

16. The Race for AI Supremacy

If we have much broader AI in our lives, we’re going to be using AI for all of our queries, and we’re also going to demand much more power than we currently have. The U.S. has not been doing very well on adding new power to the grid. As I said, it is only going to be adding something like 50 gigawatts of solar this year, relative to 500 in China.

No new nuclear plants are under construction. Maybe that will change because the Trump administration is more friendly toward nuclear. But the US has simply not added much by way of power, and China, I think, as a civilization—as an engineering-state civilization—is very interested in making sure that no heavy industry ever goes hungry for power. The scale of electrical production in China is vastly outpacing the US.

The question of talent is always very fluid. Right now, how many researchers really matter for artificial intelligence? I don't know if the figure is more like 10,000 or more like 1,000. Within the 10,000, it seems like China has a lot of really good talent, as represented by DeepSeek earlier this year, which showed that it's not only Silicon Valley that can produce really good reasoning models.

At least from what we can tell from some of the publicly listed hires for Meta's superintelligence lab, a substantial number of these really elite engineers are Chinese. I think there are 11 engineers who have been publicly disclosed, and something like 7 of them had gone to Chinese universities. I believe they're all Chinese nationals. I think there's some sense of nervousness among some folks in Silicon Valley that some of these really elite engineers might pack up their bags and decide to repatriate back to China for a variety of reasons.

Either because ByteDance is offering them a much better, comparable pay package and they can live a much more comfortable life in Beijing or Shanghai, or maybe they just want the better noodles, which California doesn't really have. Or there's some sense in which they feel anti-Asian hostility in the US. They fear the rhetoric of the Trump administration, and there's some nervousness among Asian Americans—even friends I have here—that the Trump administration is going to turn super-populist and drive out all of the Indian engineers as well as the Chinese engineers.

Within this talent pool, if a substantial number of them decide to repatriate, then it's a little bit tough to say exactly who's ahead on talent. But it's possible that the Chinese will have some sort of lead here.

There's also a question of, if AI gets much better, what will Americans use it on? What will the Chinese use it on? America is much more of a services-driven economy. Maybe we have all of the data to automate our healthcare sector as well as our consulting sector, and the Chinese are going to have the data to automate their manufacturing sector.

To be very glib here, I'll say that maybe America gets a much better McKinsey and China gets a much better Foxconn. Then they're going to use this much better AI Foxconn to produce a lot more drones, munitions, and ships as well. The US simply doesn't have the training data or the process knowledge in place to get much better at manufacturing.

Maybe right now we haven't seen another big DeepSeek moment, but I think the future is very much up for grabs. China right now has really good talent and really good reasoning models. It is now chip- and compute-constrained, but it seems like Donald Trump wants to make a deal and impose an export tax of 15% on Nvidia, while giving a lot more compute to China. I think the future is going to be a really tight race between who can get to AGI and who can deploy AGI in a much better way.

What is the most interesting thing to you about Huawei?

I think Huawei represents a Chinese company that is super vertically integrated, which does a little bit of everything. That's part of the founding myth of many Asian companies. I think the founding myth of Foxconn, the Taiwanese manufacturer that makes all the iPhones, is that it started by making something like plastic television knobs before it made desktops, iPods, and iPhones.

I forget what sort of thing Huawei started on—I think something related to switchboards—until it became a company that makes 5G equipment, makes all of these mobile base stations, makes a lot of mobile handsets, and does a million and one things. According to parts of Washington, D.C., it also has a really close relationship with the People's Liberation Army and makes some sensitive military goods for them as well.

17. Lessons from Huawei and Xiaomi

There are a lot of these Chinese companies that decide, “Why not? We're not only going to make all of our electric vehicles; we're also going to make the batteries, and we're also going to make some of the chips that are powering the vehicles as well.” There is this element of vertical integration.

I also want to set up a contrast between 2 of the world's handset companies. First, let's compare Apple. What is Apple's valuation now? It's about $3–4 trillion. Compare that with Xiaomi, whose market cap is not more than 1/10th of Apple's valuation, probably not even 1/20th of Apple's valuation.

Apple has been famously working on a car for about 10 years, nicknamed Project Titan, until they decided to throw in the towel a couple of years ago. Xiaomi, which, let's say, is worth 1/20th as much as Apple, is mostly a handset maker as well as a maker of rice cookers, fans, and all sorts of other household consumer electronics goods.

The CEO of Xiaomi declared in 2021, “I'm going to invest $10 billion in making my car. This is going to be my focus. This is going to be my last great entrepreneurial venture.” What happened afterward? Again, Apple threw in the towel and decided not to make any vehicles. Xiaomi's first electric SU7s are now on the streets in China. They keep raising their production quantities because a lot of people really love these SU7s, and they love these cars.

Most striking to me, a few months ago, there was this very well-known German racecourse in Western Germany called the Norberg Ring, which has a racetrack named the Green Hell because it twists through the mountains in Western Germany. Xiaomi, the first time it entered this race with its very first car, won one of the speed records, beating established companies like Porsche and BMW.

This is a company that had the manufacturing workforce, the ecosystems of suppliers, and, to some extent, government support. It was really able to do something that a much richer company was unable to do. This is where I come back to this idea: Are we undervaluing China?

Should we really be looking at some of these measures, like Nobel Prizes? Are we undervaluing China because we are thinking too much about the market valuations of big companies like Nvidia and Apple? Maybe what actually matters is a company saying that it's going to do something and actually achieving it. Once it achieves it, it is making some really good products that are pretty world-beating.

That's something that we see with Huawei, we see with Xiaomi, and we see with a lot of other companies living in this fiercely dynamic entrepreneurial environment, tearing each other apart through market competition—sometimes underhanded—and producing great technology champions along the way.

Are there any other companies that you would point to? Again, putting my investor hat on, Huawei is a great example, Xiaomi is a great example, and Foxconn is a good example.

Are there any other companies that you think are the most interesting to study for people who are interested in what's working so well in China and may want to go visit one of their factories or whatnot? What's the canon of the other couple of companies that should be studied in detail, in addition to the ones that we've talked about so far?

I would love to get to know a company like Meituan better, which, again, is one of these octopus-like conglomerates. When I visited Meituan in Beijing in 2018, they told me, “We have about 50 core business lines.” And we went, “What?” How can you have 50 core business lines? But I think they really meant it. There are a lot of managers, and they're really intent on making a lot of these different things work.

There is a great book about Huawei written by my friend Eva Dou, a former reporter with The Wall Street Journal and now a reporter at The Washington Post, called House of Huawei, released earlier this year. I endorsed it, and I think it is really good. I would like to try to understand companies like Alibaba and BYD better, as well as plenty of up-and-coming companies that I've never heard of, which I think are working on some pretty interesting things.

DeepSeek—you know, I think all of these companies deserve much better profiles than what the Chinese government has allowed any reporters or writers really to have access to. These companies generally don't like to talk to foreigners at the best of times, and then you have an overbearing state that, in some cases, forbids DeepSeek from chatting with foreigners. But if we can get some real understanding of these companies, that would be amazing.

Do you think that that's in the cards? Do you think there's a version of the world where those profiles are really good for China if they're true, honest, and high-access?

I think it would be great for China. I want the US to be 20% more engineering-oriented, and I want China to be 50% more lawyerly. I think it would be amazing if the Chinese state actually respected the creative impulses of its own people. I think it would be amazing if individual rights could actually be respected.

I think there's a general Asian reticence toward a real press, and you can see this among the Koreans as well as the Japanese. But right now, in this environment, I don't really see it in the cards, because the US and China are in some form of an adversarial relationship. Maybe Donald Trump will change that once he visits Beijing, as he's likely to do later this year. I'm not really counting on it.

I think these 2 countries are pretty adversarial, and I don't see either the Chinese state or the American state really waking up one day and deciding that we're going to trust the other party and then we're going to be friends.

I wouldn't ask you to give me a probability or something of a hot war, because it's just too freaking hard. It's too complicated. But if your life depended on creating that probability, what are the variables that you think will most influence whether or not one happens?

I think that the flash points would most likely be something over Taiwan. That's the obvious one. If the Chinese ever decide that their window is closing on actually reunifying the island—or, in their words, liberating the island into socialism—either because the US is going to be much more militarily strong, the Taiwanese are going to be much more militarily strong, or there's some sort of crisis in China, then perhaps they decide to move.

Right now, I see the status quo persisting because the status quo works well for the Chinese, the Taiwanese, and the Americans. But if there's some big shift in strategic calculations, then that's always a sign of nervousness. Maybe there's a flash point in the South China Sea, where the Philippines and China right now have really been ramming each other's ships, and the Philippines has historically been a US protectorate and US ally.

In 2020, shortly after the pandemic broke out in Wuhan and the world was really nervous about this respiratory virus, the icing on the cake was that there was a minor border conflict between China and India way up in the Himalayas, which was fatal for a number of Chinese as well as Indian troops. China is surrounded by something like 25 countries. It just has a lot of neighbors, some of whom, like North Korea and Russia, are not very nice, and they don't fully trust each other. So maybe there's some sort of border conflict that erupts with one of China's near neighbors.

What I wouldn't think is likely is for the Americans to try to invade mainland China. I don't see the Chinese trying to seize Oregon. What would they do with Oregon? It would be some sort of conflict somewhere in the Pacific that erupts into a bigger war. And for something like Taiwan, that's not one of the things that really keeps me up at night right now. Maybe it could happen, but generally, if you bet on peace, that's been a pretty good bet, and I expect that will continue.

The scary things are some sort of totally unpredictable border conflict, as we saw in 2020 with India, or something like a ship sinking with respect to the Philippines that then escalates from there.

So you've been writing about China for a long time. Your annual letters have been some of my favorite things to read for many, many years, and your research, too, back when you were doing that. In the process of writing this specific book, did your mind change in any major or surprising ways?

I feel more strongly that China will be a tech superpower, as it arguably already is. Mostly, that came as I wrote my chapter about Shenzhen and process knowledge, and I really tried to conceptualize Shenzhen as an ecosystem in which university professors, VCs, factory managers, and workers are rubbing shoulders with each other. They're solving a lot of new problems every single day. They're not necessarily affected by policies from either Beijing or DC.

That gave me this metaphor of an engine of technological momentum that I think will not be derailed very easily, because a lot of these investments have been in place for 10 years, some for 15 years. There's no easy thing—not even export controls—that will derail this tech engine very easily.

At the same time, I think I appreciated how traumatic the second half of the 20th century has been for so many Chinese. You thought you were done with the misrule of the Mao years, the famine of the Great Leap Forward, and the total insanity of the Cultural Revolution. Deng Xiaoping comes along, starts to make everyone richer through reform and opening, and then unleashes the one-child policy, which I describe as a campaign of rural terror meted out against overwhelmingly female bodies in the countryside.

This was something that I never quite realized just how awful it was to so many people. You think of “one child,” and that sounds nice and clean, but you don't associate the 300 million abortions that China conducted throughout this period, or the 100 million sterilizations throughout this period. You don't associate tens of thousands of Chinese girls being adopted by American couples who are living here because their parents had to give them up.

This was also the time period when I was writing this book that my wife suffered a miscarriage. It was exactly during this time, when I was writing about the traumas of other female bodies, that something like that happened. So I think I'm always trying to communicate that China could be very powerful and is extremely capable. At the same time, it is also highly capable not just of technological achievement, but of inflicting these traumas and horrors upon the population.

We can and should recognize both of these things: repression can grow worse while technological dynamism grows richer. I always feel that I have to fight this 2-front war against people who think that China will collapse because of all the repression, or that because China's economic growth has been so impressive and has lifted so many millions of people out of poverty, that gives the Communist Party a free pass on all of the sorts of violations that it has inflicted upon the people.

I think we can acknowledge that both things are true: the Communist Party has grown repressive in more novel ways over the past 10 to 30 years. At the same time, it has grown richer and more technologically capable.

What a paradox. How do you think this book and this experience will change your relationship to China, the place, and Chinese nationals more generally? And was any part of it risky? Did it feel risky to you to write the book, given that you lived there for so long and may want to live there again in the future?

I decided over the course of writing this book that I wanted to write the truest story that I know, and I decided to try to do the best job that I possibly can. Part of the reason I moved out of China to Yale Law School, where I substantially wrote this book, was to tear myself away from the headlines, so that I wouldn't have to be living in Shanghai and feel like I'm living through a lot of headlines.

Partly, it is because the Chinese state is overwhelmingly censorious. In China, my personal site, danwang.co, has been blocked. I found that, to my surprise and some degree of distress, one day in 2022. I had to go see the Canadian consul general to ask whether I needed to leave in a hurry.

Usually, they block big sites like The New York Times, Facebook, or Wikipedia—not rinky-dink websites like mine. I have friends in China who have been detained by the Chinese state arbitrarily for a number of years, based on who they were and alleged activities that we don’t believe are true.

I decided that I wasn’t going to give in to any sort of hard or soft censorship. There’s a wonderful analogy about China’s censorship by a psychologist named Perry Link called “The Anaconda in the Chandelier.” Imagine that we’re sitting around a dinner table, all of us chatting over dinner. The censorship isn’t necessarily very direct, but above us hangs a chandelier in which a giant anaconda lies sleeping.

You never really know when the anaconda might wake up and decide to strangle you, but you’re aware that the anaconda is there, and you start censoring yourself in all sorts of ways. I decided I didn’t need to live in China and have that.

Now I wonder whether the Chinese state will like my book. I try to write the truest story I can, which meant capturing the successes as well as the traumas of the Chinese state. What I plan to do is, when I submit my visa application in a couple of months, they’ll have some time to think about it. They’ll have had time to react to my book.

No surprises: If they give me a visa to go to my favorite city in the world, Shanghai, and my favorite region of the world, southwest China, along with all those wonderful mountains and wonderful pickles and bowls of noodles in Guizhou, I would be delighted to visit. If they do not give me a visa, then I cannot visit. I think my life is really quite simple.

What’s next for you? Having completed this really epic project, which I think will be seen as the definitive account of what’s going on in China, and having been in the US for a long time, what do you do next?

I’ll curl up on my couch and read some great novels. Everyone’s reading Middlemarch. I haven’t read Middlemarch yet, so that’s something that’s quite exciting for me.

I want to be engaged with the broader Chinese diaspora—people who have decided to move to Thailand. There’s a set of people who have moved to New York and host feminist stand-up comedy in Mandarin, and I want to be supportive of these sorts of efforts.

The sort of engineers I know in Silicon Valley, I want to help integrate them into society and help them appreciate the good parts of America that I enjoy the most. If there’s anything that they can’t necessarily access very easily, I want to be helpful in trying to give them a little bit of community. Otherwise, as I always do, I’ll think big thoughts and then write them down in my letters.

The closing question I ask everybody is the same: What is the kindest thing that anyone’s ever done for you?

There’s a quote I really like from Ursula K. Le Guin, which is that love is not like a stone that only sits there. Love has to be continuously made, like bread, and remade once again. That’s something I think about with kindness. I think we can substitute kindness for love here. The way that I think about kindness is not only as a single act. I think it is more a disposition and a spirit of generosity.

I brought up Tyler Cowen earlier, who has been a mentor of mine for over the past decade. We’ve traveled together in Asia, in Yunnan and Taiwan. We’ve gone to the opera together here in New York. We’ve seen a great Brahms concert here in New York. Tyler has been very generous in helping me orient and tweak my thinking, and in giving me some degree of ambition, because that is something Tyler is really good at: raising people’s ambitions at crucial times.

18. Kindest Thing

Because I bring up Ursula K. Le Guin, I have to think about my other guru, Arthur Kroeber, who is the founder of Gavekal Dragonomics. We were having lunch near the end of 2016 when he told me about Made in China 2025, a big industrial plan that I hadn’t heard of at the time. A few months afterward, I moved to Hong Kong to work for Gavekal Dragonomics. Two years after that, I moved to Beijing, and then I moved to Shanghai.

Two hours from now, I’m going to go to Arthur’s home for a book launch party, which he is very kindly hosting for me. I find Arthur not only very wise about China, but very wise about all things. For me, kindness is an act that has to be performed again and again.

This is something I want to try to do for other younger people: to have these sorts of long-lasting relationships in which we try to help each other, mentor each other, guide each other, and raise our ambitions at crucial periods.

A beautiful closing definition. I’ve never heard that quote, despite having read many of her books. Wonderful place to close. Dan, thank you so much for your time.

Thank you very much, Patrick.