中国，中国，中国。拆解中国科技跃升 | BG2 与 Bill Gurley、Brad Gerstner 对谈

Over lunch, this individual told me, “Every founder and every VC in China studies the West at a nauseating level. They listen to all the podcasts, read everything they possibly can, study any speech, and look at the financials.” And he said, “The West doesn’t do that with China.” Maybe we should be studying the best and brightest over there.

Hey, Bill. Great to see you.

Summer has just blown past. It’s almost football season. How are the Longhorns looking this year?

They’re ranked pretty high.

What’s that mean? Come on, give me the scoop. I know, I know. You’re all people who know, but—

They have the dangerous starting position of being ranked number 1 in the country.

Oh, wow. Any big games coming up?

They play the number 2 team in the country this Saturday, so we’re going to find out. Oh, back to Buckeye country.

Yeah, exactly.

1. OpenAI, Anthropic, Private Market Overheating

It’s been really incredible. I just got back to Silicon Valley after being away for a few weeks. These OpenAI and Anthropic deals—I was just looking at these—I think these are bigger private IPOs than any public IPO done in the last 5 years in the tech market, right? You had Sam Altman say the other day that 2 things can be simultaneously true: 1, this is the biggest thing to ever happen in technology; but 2, in the short run, things become overheated and people can get a little bit ahead of themselves. Where are you on that?

Look, there’s just no denying that the amount of capital that is going into these companies earlier in their life, the scale of hiring, and their willingness to take on risk are unprecedented. I think you can use cash burn as just a proxy for risk because you get further away from knowing unit economics and you’re more threatened.

I think those numbers are unprecedented. Even against the Uber–DoorDash wars and all this, they’re bigger than that. And so I think it’s part of a systematic trend we’ve talked about, where investors are aware of network effects. They’ve watched companies that get the initial conditions right go on to really big outcomes, and they’re willing to bet ahead of the curve. As they get more confident over more time, they’re more willing to make that bet ahead of time. It is what it is. We’re seeing massive numbers.

Well, I’d say it’s a combination of 2 things. Extraordinary scaling. We’ve never seen 2 companies—in the case of OpenAI—scale users and revenue as fast as they are. But definitely, you’re absolutely right: the private markets are there to meet them. We’re going to save that for—

Yeah, save it. Let’s save it.

2. China's Role in the Global Tech Order

We’re going to save that for another day. We’re going to do something a little different today. One topic that I think we’ve hit on time and time again, but we’re really just going to dedicate the show to it today, and that’s China.

You just got back from China. It’s one of the hottest, in many ways most consequential, and also most controversial debates, I think, in Silicon Valley and in Washington. On the one hand, you have national-security and economic hawks who are in the camp that we should decouple. It’s a little bit more Cold War 2.0, a great-power struggle. This is the Mearsheimer perspective.

Maybe in the middle you have tech pragmatists, I guess I might call them, like Jensen Huang or Tim Cook. I’d probably put myself in this camp. They think we have to compete, we have to re-onshore industry, and you probably should have some tariffs in order to achieve that. But you definitely can’t decouple, ignore, or antagonize.

3. Why Bill Went to China

And then maybe on the other end you have the globalists—Jeffrey Sachs is probably in this camp—who favor free trade, open science, and collaboration. This is of tremendous consequence to issues around tariffs and trade, the military, and AI. There’s also this new book out by Dan Wang that I want to talk about, where he really takes on the differences between the 2 countries.

Why don’t we start with this trip that you recently took? You just got back from China. Why did you go, frankly, especially given all the blowback you’ve gotten personally—and Benchmark has gotten—with respect to China, maybe for having too soft a view on China? Give me your inspiration for wanting to go and spend as much time as you did studying China.

I’ve probably been 4 or 5 times before this trip, but I hadn’t been since COVID. I’ve been reading about everyone who’s been going. We had talked about Thomas Friedman’s comments from his last trip, and you hear about all the things that are different.

Personally, my daughter’s an Asian studies major, so she went on the trip with my wife and me. With her studying that topic, I thought this would be a great chance for her to see things, too. She’s much younger than us, but I wanted her to go around, and the fact that she speaks Mandarin was helpful on the trip as well.

You just said something, right? You said this is probably the most consequential other nation when it comes to thinking about America, our stock markets, or how technology companies are evolving. I just wanted to learn. Why wouldn’t you want to know more? I don’t understand how, if it is the most consequential relationship for our country, you’d want to know less.

4. Dan Wang's Breakneck: Engineers vs Lawyers

I’ve always enjoyed going over there. I’ve always enjoyed learning things that I don’t know, and I really wanted to see it up close and personal. One thing that was super helpful was that Dan Wang, who you just mentioned, gave me an early copy of his book, so I read it on the way over there.

Tell us a little bit about who Dan Wang is.

He’s a gentleman who lived over there during COVID. He’s a policy analyst, and he recently moved back to the United States.

He’s at the Hoover Institution. He’s been studying China for a long time and looks at it through the lens of technology and innovation.

The book is titled “Breakneck: China’s Quest to Engineer the Future,” and it’s really talking about some of the acceleration we’ve seen in building inside China.

I would suggest 2 things about the book that are really interesting. First, he kind of uses it as a mirror back on the United States, so it’s really about both countries, not just China. Second, he’s balanced. He talks about the pros and cons of what’s happened over there.

He starts with a chapter that was recently republished in The Atlantic, where he highlights that the vast majority of the Politburo are former engineers. This is the ruling party within China, and the vast majority of the people in Washington, D.C., are former lawyers. He uses that lens to say this is why they’re great at building things and maybe why they’re not so great at social things.

I think he gives the edge to the lawyers when it comes to protecting free speech and personal rights. He did not enjoy the lockdown in Shanghai, which was fairly abrupt. He’s very negative on the one-child policy, and for those people who don’t know, the Chinese government is now trying to encourage people to have 3 children—not successfully, but that’s the new program. They’ve completely flipped from where they were.

It’s a fascinating read. It’s a very personal read. You can tell that his life journey—his parents were born there and left and went to Canada, and that’s how he grew up in the West—gives him a really interesting lens. It’s very current.

One of the things he really dives into—and this is something that people who know China have known for some time, but I don’t think the general public understands—is what’s led to the vast build-out. We’ve read about high-speed trains, overnight cities, and the number of companies in the solar and EV spaces. One of the reasons that happens is that the provincial leaders compete with each other. The provinces are very competitive with one another.

But wouldn’t you say that’s a little like Gavin Newsom competing with Ron DeSantis in Florida over who is more business-friendly and who is tougher on immigration? It seems a little bit the same way.

I think it’s a little bit the same way, but the difference is that, because there’s a singular government that’s going to make choices, it’s more like divisions of a company. In the United States, if you do well as a governor, you might get elected. But in this case, it’s more like divisions of a company: if you run one well, you might get the CEO job.

5. Xiaomi, BYD, and Auto Innovation

That competition leads to overbuilding in certain cases. There are several ghost cities—buildings that are empty—where they’ve built too fast and are now facing problems. Even though they’re the world leader in EVs and the world leader in solar panels, some of these companies need to go bankrupt, and a province may not want them to because of employment issues. Those are 2 sides of a coin.

You get one benefit: hypercompetition. We talked about a thousand flowers blooming. The federal government publishes every 5 years this mandate of the things—these are the things that are important, and you need to go work on—and then the provinces go at it. They go right against those initiatives, and that's how they've taken a lead in those things we mentioned, like energy production. You wonder, when we talk about all the nuclear plants that they have—new nuclear starts, solar farms, wind farms—

I want to dig into that. I think there's this general view that China is good at building things—building iPhones—but perhaps not at innovating, right? Jensen Huang reminded us recently that 50% of the world's AI researchers are in China, and they're indeed innovating and not copying.

On the ground, when you look at the things happening in autos, AI, space, energy, and so on, how would you compare and contrast, as a venture capitalist, the level of rigor and innovation, excitement, enthusiasm, and investment, I guess, going on in these critical future industries?

Well, if you're over there, you know that the ByteDance founder is just remarkably unique. Lei Jun at Xiaomi is remarkably unique. If you spend time studying those people, I just don't know how you would possibly think that they can't innovate. TikTok was there first, right? Then it came here, and then Reels copied TikTok.

One thing that doesn't seem like innovation, but I was surprised by Pop Mart, is that it's a $40–50 billion public company, a children's toy company that started in China and is everywhere over there. But the idea that there is no innovation—one of my favorite meetings, and I promised I would protect the innocent, so I'm not going to share who it was with, but over lunch this individual told me, “Every founder and every VC in China studies the West at a nauseating level. They listen to all the podcasts, they read everything they possibly can, they study every speech, they look at the financials.” And he said the West doesn't do that with China.

Maybe this goes back to my main motivation for going over there to learn, but I thought that was a very provocative statement that he made. Maybe we should be studying the best and brightest over there.

6. Factory Productivity, Automation, and the Jobs Debate

Well, let's dive into maybe 1 industry, I guess, as a lens. I know you spent a bunch of time in the auto industry, looking at all of these new entrants, and help us understand the innovation that's happening there on 2 dimensions: 1, just electric vehicles; 2, maybe autonomy; and 3, I'm just curious how Tesla is able to compete so effectively in a market where you have this hypercompetition for electric vehicles.

I had a number of auto experiences when I was over there. First of all, I was invited to visit BYD. They gave me a nice coat. I met with Stella Li, who is their number-one executive, I think, facing outside of China. She runs all their Europe initiatives.

For those people who don't know, BYD is the largest EV manufacturer in the world, at about 4 million vehicles. They started in batteries. They compete with Foxconn to build mobile phones. They bought what sounds like Jabil Circuit. You remember that old company?

I do.

They make lots of things. They make buses and subways and all kinds of different things, but they got into cars about 5 to 10 years ago. They have a number of models. They gave me this one. This is a very high-end sports car. In fact, I met a public-company CEO who was proudly showing me that this was his favorite car to drive around.

7. Open Source Model Culture in China

They make an SUV you can drive into the water. I don't know exactly why you'd want to do that, but we rode it into the water, drove around in the water, and drove out. They have cars at the $10,000–15,000 price point on the entry side. They've hired a European designer, which is how they're building stuff like this on the higher end. They're very aggressive from a cost perspective. I think BYD is more aggressive than anyone on the cost side. It's not preventing them from building higher-end cars as well.

So that's BYD. I also had a chance to visit what is likely Xiaomi. They also gave me a car. Xiaomi is a super interesting story, if people don't know. I was fortunate enough to meet Lei Jun back in 2003–04, but about 10 to 13 years ago he started a phone company, and that's what Xiaomi is. That company is now 3rd, I think, around the globe in handsets sold—heavy in Europe, heavy in South America, not just China.

Three or 4 years ago, I think around 2021, he decided to build a car. It was about the same time Apple said they were going to build a car. And mind you, this guy, back in '03, ran an e-commerce company called Joyo. There's no reason he should be able to build a phone and then build a car.

What do you attribute that to, Bill? Why, when you see that—again, going back to Dan Wang's book, he's like, this is an engineering culture that has built these technological ecosystems that gives rise to a higher velocity of innovation than we see in the United States, which Dan would argue is bogged down by regulatory capture and lawyers, et cetera. Why do you think Xiaomi is so successful?

And, by the way, let me just share with you some numbers. They're making 1,000 of these a day. They just came out with a kind of a Cayenne—

1,000 cars a day?

Yeah. In this factory that I went to, they're sold out. They have a 30- to 40-week backlog. You have to pay $5,000 to get on the waiting list.

The factory—this is an interesting data point—makes 1,000 cars a day with 2,000 employees. It was highly automated, really highly automated. I imagine that they plan to improve that number over the next 5 years. Let's say they took it to 1,000 employees for 1,000 cars. That'd be an employee per car per day. That number is like 6 in the US.

And that's super interesting for a number of reasons. It's like, if you want to bring the jobs back, by the time you get the jobs back, there may not be any jobs—

Because of automation.

The entire global potential for car manufacturing in 5 to 10 years from now could be like 400K total.

But back to Lei Jun: he gave a talk in 2024 that I would encourage people to watch and learn from in both directions. It's on YouTube. It's his State of the Union from 2024, and he spends about an hour talking about his approach to building a car. It sounded so ridiculously entrepreneurial.

He decided that he hadn't been driving a car for 10 years because he had had a driver. So he immediately switched seats with his driver, and then he went through the parking lot at his company. If there was ever a car he had not driven, he'd leave a note on it and ask to borrow it. Then he would have the owner of the car tell him what they liked and didn't like. He claimed he drove 170 cars that way.

8. Can the US Compete Without Reform?

Also, like BYD, they hired a European designer who came in and helped him out. But for an entrepreneur who had never been in the car business to build a factory in a 3-year window—and look, the same thing was true: our friend Elon built a factory in Texas under 4 years. It's just spectacular that these entrepreneurs are capable of doing these things.

It just kind of blows my mind. When I was being driven in this golf cart through this factory, I was thinking that this person wasn't in the business 3 or 4 years ago. The CEO of Ford, Jim Farley, went over there and, I think, had the exact same tour I did. He insisted they ship him one back to Chicago, and he's been driving it around. He's made some pretty extreme statements after having experienced it.

This car sells for about $40K, but he said, “It's the most humbling thing I've ever seen.” He says even beyond that, their costs and the quality of their vehicles are far superior to what I see in the West. “We are in a global competition with China, and it's not just EVs. If we lose this, we do not have a future at Ford.”

That's Farley at Ford. And, by the way, I would take a pause after mentioning that for the people who are going to accuse me—just because I went over there to learn—of somehow being an agent for the CCP. Is that also true of the CEO of Ford? Why is he saying these things? We're just witnessing what's happening on the ground.

9. Tariffs, Trade Deals, and a Path to Cooperation

One of my observations is—and you hear this from Elon, you hear it from Jensen Huang, you hear it from Tim Cook, you hear it from Farley—it's extreme respect for the level of innovation, for the focus, for the engineering culture that exists in China. And that, to me, is one of the reasons I wanted to do this pod on China, because I think it's as much a reflection of what the United States needs to do to re-engineer its own society, right?

It's not enough to say that we want to re-onshore critical manufacturing. It really is about this movement around American exceptionalism, America builds. It's about making the reforms necessary—whether it's regulatory capture, whether it's the tort reform and legal reform required—to, frankly, allow this level of innovation and recognize that we're in this global competition.

There are 2 ways in which you can approach this, Bill. One is we can build barriers, we can try to decouple, and we can pretend the rest of the world somehow won't buy China's goods. But if you look at it today, the US only represents about 14% of China's exports.

The US only represents about 3% of China's GDP.

Yep.

Right. We're just not that important to China. I don't want to understate it—we're still very significant—but China has found a market in Europe. They've found a market in Africa. They've found a market in South America.

It seems to me that the harder pill for the US to swallow—and this is where I think I'm in the camp of those in the middle—is that we need to engage. We need to compete. There is a competition, and we want to win the competition. But this is about focusing on us and winning, and running a faster race.

We have a lot of reforms. I think a lot are occurring now, and I think we're doing the type of things that we need to be doing in order to get more globally competitive. There are industries that are critical to our national security—things like rare-earth magnets, steel production, and pharmaceuticals—where I think it is appropriate to have both an industrial policy and a tariff policy that's going to provide incentives to those industries.

To me, the reflection on what I hear you saying about China, when I read Dan's book, is that China is putting the accelerator to the floor in terms of innovation, and it's in every single industry. It's powered by the provincial competition you talked about. It's powered by people who are naturally entrepreneurial and hardworking. There's no escaping that, and there's no putting that genie back in the box. What are your thoughts on that?

Yeah. No, I think it's exactly right. BYD has a big presence in Hungary, and they're building a factory in—or already have one in—Mexico. Why, if you're Mexico, would you not buy the $10,000 to $20,000 EV? Why would you buy the $50,000 one from America? It just doesn't make any sense.

For any country around the world—and I could reflect this on the US as well—if you're not going to buy domestically, you should certainly buy from the low-cost producer. It goes back to comparative advantage. If you can't produce a globally competitive product and you close your import border, your people are forced to buy a product that is overpriced. From a standard-of-living perspective, they're worse off than they would be if you had opened the import door.

I'll give you another example of this. This is likely the Baidu Apollo competitor to Waymo. We've seen the Waymos around Austin and San Francisco. We've ridden in them. I've ridden in this now. It's a little bigger, I think, and a little roomier than the Jaguar, for sure. It's more of an SUV.

This is on the streets, and Apollo is kind of interesting. It's likely inside Baidu, which is a search-engine company. While people are simultaneously saying that Waymo should be worth $170 billion inside of Google, you can buy shares of Baidu for zero enterprise value. It's a $30 billion market cap with $30 billion in cash on the books.

From a global perspective, I don't know why, if this costs $30,000, you'd want to deploy Waymos, which people say are over $150,000, partially due to the MEMS solid-state LiDAR advantage that China has, which we've talked about previously.

I think the rest of the world is a really interesting thing to think about when you compare the 2 countries, because I personally don't think all the other countries in the world share the same level of hawkishness that at least some members of our national government have. I don't think they're going to be as afraid of their technologies.

Let's think about this in the context of what you've seen. If you were giving advice to Trump on export controls, for example, Bill—whether it's on AI chips or other things—what would your advice be?

I think you hit on some of it around the red tape. There are a couple of different things in certain industries where we're really behind. I would be very open-minded to JVs coming toward us.

For the past 50 years, European car manufacturers and US car manufacturers opened facilities in China. Some of them were forced to be 49% owned, 51% owned. I'd be very open to that kind of thing.

There was some positive news out this past week following Trump's engagement with Korea around nuclear, which we have talked about before. Korea can build a nuclear plant for 1/4 the price that we can. Why don't you invite them to come help us build a few in the US and see what we can learn?

10. Waymo, Baidu, and Cost Innovation

I wonder if we should allow Ford or GM to buy one of those companies. There are so many EV companies. I didn't even mention NIO and Zeekr and some of these other things. They're all innovating in different ways, but some of those are going to have financial trouble. NIO is public. You can see that the stock's not doing all that well. But would we let a Ford or a GM buy one of those companies? Maybe we should. I don't know if the Chinese government would let them.

Would we let one of those companies open a JV with Ford or GM in the US? I think we should if we'd learn from it. You could say the same thing about solar or any of these technologies where they have a lead—solar, nuclear.

I would be open-minded to those types of things. I would be really big on trying to get regulation out of the way and recognizing that an autocratic country that has specific goals can move so much faster in any industry than you ever could in the US, because we've created so many people whose jobs it is to block things.

We're seeing that type of behavior in certain states, which is why TSMC's in Arizona and Tesla's in Texas. I would give Governor Shapiro a lot of credit for reopening Three Mile Island and for what he did with I-95. All those things are signs of recognizing that we've built mud into our system that prevents building. How do you start to remove that and move in the opposite direction?

Specifically thinking about the tariff, I think the president tweeted yesterday morning that if we don't get rare-earth magnets from China, he could raise the tariff rate to 200%. It appeared that we were on a glide path and making a lot of progress with China, and we may very well be.

There was some talk that he was going to visit China in the first week of September, so that's right around the corner. I said on a couple of pods ago that I thought the way to understand this president is that he's a self-described deal junkie. He's a pragmatist. He's not an ideologue.

It seems to me that when he's talking with Jensen Huang and others, he falls in that kind of pragmatic, centrist category. He certainly wants to rebuild stuff in the United States, but at the same time, it appears to me he wants to get a big deal done on China.

Where do you come down? Again, if you were an adviser on the tariff side of things, Bill, do you think he's going to get a big deal done with China? Do you think that's the right thing to do? And how do you think that influences some of the building that you're talking about?

Okay, I have zero insight. I didn't meet with anyone in the CCP or the government, so I have no idea what their mindset is. This is pure speculation on my part.

You already brought up the fact that we're a much smaller percentage of their exports than people realize and people think about. As a result, I think China is going to be far more influenced by what they view as fair and face-saving than by numbers.

If someone were to approach them in a pragmatic way, I think a pragmatic deal could easily get done. If they're engineers, as Dan Wang said, it's not like they wouldn't accept a pragmatic outcome. I think they would.

But if we're intent on being derogatory in our language—and, by the way, that's the thing that I just really don't understand—you see it in Washington, you see it on that Select Committee on the CCP, and you see it from some of the people in Silicon Valley. I just don't understand the value of being belligerent, but plenty of people clearly are.

They have 4 times as many citizens on this earth as we do. Everybody's country of birth is something that happens to them outside of their control. I just don't know why vilifying a billion people is a good idea.

I think it's possible. I think they would do a deal. I just don't know what the benefit is if we get caught up in a silly tit-for-tat verbal war.

This is one of the points Sachs makes—Jeffrey Sachs, not David: you might provoke World War III. How do you put that into your NPV calculation?

11. Is China Winning Global Trade?

Is it fair to say that, if you look at tariffs heading into this year, they've basically doubled on China, but if we put tariffs on particular industries in order to incentivize building in the United States—imagine it was a deal a bit like Japan, Bill, where we also cut a deal with the Chinese that they had $1 trillion of investment, the way we have with other companies that go into the US and into some of these industries, and that we perhaps get some reciprocity and a reduction of barriers to some US goods into China—how would you handicap that?

Did you get any sense from the stuff you read in the United States as to the probability of that? I think it's one of the biggest influences as we look at growth in the back half of this year and market sentiment in the back half of this year.

Ironically, like I said, I met with companies and founders, a few academicians, and some journalists, but I did not meet with the government. In general, there’s just not any hostility from that group of people that I met with. In fact, most of those people look up to US founders who have done great things—Steve Jobs and Elon Musk—and most of them aspire to compete globally the same way a founder in the US would like to.

They would like to see all this rhetoric die down, and they would like to have the opportunity to come to the US market. They’d like the opportunity to compete in Europe and South America. Many are; Xiaomi and BYD already are. So, like I said, I think there’s a pragmatic deal to do, to the extent that it led to the types of programs that I just talked about—this kind of JV thing where there’s a market they’re a leader in, and we have that company come to the US and help us understand how to compete in some of these technologies and get to lower price points. I think that’d be fantastic.

Do you feel like, over the last 20 years, who do you think’s gotten the best out of the relationship, Bill?

I haven’t read this Apple in China: The Capture of the World’s Greatest Company book. A lot of people have been talking about it, and I aim to. I think the problem with looking at it that way is that you and I have talked about this finite versus infinite game. Where are we in the time of the planet, and what do you think the planet’s going to look like 15, 20, or 30 years from now?

I think it’d be very easy to say, using your framing, that the US took advantage of Europe post-World War II, and a lot of the manufacturing that existed prior to World War II shifted to America. You could then, with that same frame, say, “Yeah, China grew on the back of America.” But I look at it another way, which is that there have been different periods where these different countries have industrialized.

12. Debunking the Subsidy Narrative

We were a huge beneficiary post-World War II because most of Asia and Europe had been blown up, and there was no production capability whatsoever. A lot of the glory-day mindset that we have about what life and generational change should be like in the US comes from that time, which is a bit unfair, I think, from a global perspective. But there are a ton of hardworking people over there.

Deng Xiaoping brought capitalism underneath the Chinese government and led to the biggest increase in standard of living of any country. It’s like 500 million people came out of poverty as a result of that. When people say, “Oh, we should have never let the jobs go over there,” I don’t think they really want to say, “Well, we shouldn’t have let 500 million people out of poverty.” They’re the same people that want to talk about aid in Africa and whatnot.

A lot of people benefited in China, but they’re also hardworking people. We talk a lot about meritocracies, right? Some of the same people that talk about meritocracies are anti-China, and that’s a hard thing to square. If someone’s willing to work twice as hard as you, willing to study harder, and all that kind of stuff, do they not deserve a chance at a life like you have?

13. What the CEOs Who Visit China Actually Say

I think the bigger complaint is that we were naive in our trade policy, and therefore we allowed huge advantages to flow to other areas. By the way, as Dan says in his book, at the same time we were actually moving to more of a regulatory state in the United States. Our companies were getting less competitive at the same time we were helping their companies get more competitive. There was a lot of collateral damage in the United States during that period of time, and I think right now people are saying, “Okay, we’re moving into this age of AI, but we have to get back to driving reform in the United States that levels that playing field a bit.”

You can’t undo the past, but I do think there’s a recognition that we need to do the things necessary to incentivize US industry to compete more effectively in a lot of these different categories. I think it is going to be tricky, though. If you say you’ve got 100 competitors in the EV industry in China, they’re all willing to work on razor-thin margins, and they’re willing to sell cars into Europe at $20,000 or $25,000, today, as Farley said, there is not a US manufacturer—save perhaps Tesla—that comes anywhere close to being able to compete in that way on a global basis.

Correct. One thing I’ve been studying a bit is that I do think the Chinese government has more scrutiny of monopolies. I don’t think they would consider it a negative if there were 7 companies worth $3 trillion or whatever. I don’t think they care about market cap. I think they care more about employment and global competitiveness, which would cause you to support low-margin companies. They get to choose to make that choice. I’m not judging it, but it would result in this outcome.

In addition to the Farley quote, the Mercedes CEO said, “We need a reality check,” when he was talking about Chinese EVs. Then Stellantis, I guess is the new name—Stellantis, who rolled up a bunch of other car companies—they said Chinese EVs are, quote, “possibly the biggest risk facing this carmaker and Tesla.” This is Carlos Tavares. He publicly criticized EU tariffs on Chinese electric vehicles, calling them a major trap for automakers.

You talk about what policy would fix things. I’ll tell you what policy will make things worse. You start protecting US industries by putting import tariffs on the most competitive products around the world, which I talked about earlier. Now your consumers don’t have access to those price points, and so you’re buying inferior goods at inflated prices. That’s going to lead to inflation, and prosperity and standard-of-living levels dropping in the US.

14. China's AI Ecosystem: DeepSeek, Qwen, Alibaba Cloud

There are a lot of variables. I would say that’s generally true. I think if there were a national strategy to improve competitiveness in an industry that had, let’s just say, had an unfair playing field for a period of time, I could see a national strategy. For example, we talked about pharmaceutical manufacturing, chip manufacturing, and rare earths, where you would say, “Okay, we’re going to actually impose a tariff because these other goods are flooding the market and depriving us of the ability to build our own domestic industry.”

But I think we have to be very careful when we do that, Bill. To your point, we know that unfettered competition is going to lead to much better products and much lower prices. When you start protecting these industries, what I worry about is that you protect the regulatory grift and the over-lawyering that Dan talks about in his book. We have to face up to the fact that we have to reform some of these basic things in the United States.

That’s why you see companies like Tesla moving to Texas, where those reforms are moving forward. I think we are making progress on that. I think there is a rationale for those critical national industries. But I generally agree with you that if we move to high levels of protection because we simply can’t compete—because it takes us 10 people in an auto plant to do what they do with 1 person in an auto plant—I think that’s unsustainable.

You and I, I think, need to be careful with the rhetoric we throw around. If you read what comes out of the biggest hawks, they say, “Well, everyone in China just steals things and the government subsidizes everything.” When I brought up the subsidization with Stella Li at BYD, she said, “If I’m getting all this government subsidy money, can you please find it and show it to me? We’re a public company. Come show me the money I’m getting from the government.” She’s just saying, “I’m getting nothing.”

Then you look at the US. We give companies subsidies all the time to build factories. We’ve had EV credits for the past 10 years, both at a state and a federal level. Intel’s getting money from the US government. I don’t understand where we’re saying it’s very unclear to me what we’re pointing at and accusing them of, and why it isn’t the same thing here.

Lastly, Elon published all the Tesla patents. There’s free IP for Ford and GM. I would ask you: with that free IP, if we gave Ford and GM subsidies, do you think they’d immediately be competitive with China?

No, sir.

15. Open Source in China and the US: Strategic Choices

Okay. And if I ask 100 smart investors that question, what would they say?

I think they would agree with me.

Yeah. So the thing we’re accusing them of—the reason they’re succeeding—if you flipped it and gave that to the US companies, none of us have confidence that would work. That’s what I’m saying. You just have to try to get as much information as you can and learn as much as you can so that you—I just want people to have a pragmatic view and an accurate view as they make decisions.

I did a deep dive using your favorite product, ChatGPT’s o3 version, Deep Research, on the 24 members of the Select Committee on the CCP, and I think all but 4 have never been to China.

Right. And the ones that went, it was 7 years ago. I'd just encourage them to go visit if they're going to sit there and have such strong opinions. It'd be good if they were educated. If you were putting together a committee inside your corporation that was going to be in charge of something, wouldn't you want the most educated people on that committee?

I can already hear the criticism. Of course, people would say, “Well, we don't expect the CEO of BYD to tell you the truth necessarily about government subsidies or things like this.” But here's the one thing I want to get across in this pragmatist camp: We do have to be self-reflective, right? If we have this view that the only reason China is competitive or winning is because they're stealing or they're subsidized, I think what that view does is it allows us to delude ourselves into believing we don't need to get better ourselves.

Yeah. It's like if you're playing a competition and your kid's out there playing in a football game or a swimming race, and they lose the race, and they come back to you and say, “The only reason that person won was they cheated.” Your advice, I think, is, “No, you've got to get better yourself. We've got to get better. How can we get better?”

And I think that's why cultivating this balanced and realistic view of China—what's actually happening on the ground, how hard folks are working, what the level of innovation is, the fact that the United States is a diminishing part of their trade, of their GDP, et cetera—I think that should cause us to look a little bit inward about how the hell do we accelerate? How do we build more? How do we invest more? How do we get more globally competitive?

Why does it cost us 4 to 5 times to build a fusion reactor in this country? Why are we building no nuclear reactors in this country? And so the good news is this: I feel like there's a lot of momentum under this administration that was building before this administration around investing in America and getting more globally competitive.

A lot of people want to build things here again, and you have somebody like Jensen Huang who says both can be true. We need to sell H20s and B30s into China. We need to stay relevant in their ecosystem, but at the same time, we need to build plants in Arizona. We need to rehabilitate and invest aggressively in our own domestic chip program. Those things can be simultaneously true.

It's interesting that all of those CEOs who spend the most time competing in China all fall in that pragmatist-realist camp.

16. VC Pullback from China & What's Still Happening on the Ground

Yeah. In the sense that the United States needs to get serious about the work that it needs to do if it wants to remain globally competitive. With that said, Bill, can we shift for a second? I want to look at this through the lens of just what's going on in AI. I know you spent a bunch of time over there looking at the key players on the model side, on the chip side, et cetera. So maybe just round out that other conversation and then shift there.

Yeah. So one thing to note that isn't in Dan Wang's book, but I think that we can infer from it: Every 5 years, the government publishes this five-year plan. The last one was the 14th, and I think the next one will be coming out soon. I would encourage everyone to read that, because that's where they tell the provinces what's important to work on, and that historically has led to these areas where they're investing heavily.

They might make a mistake in what they say to focus on, but when they've gotten it right, it's led to a lot of global competitiveness. So I would watch that. But in the last one, the 14th Five-Year Plan, they literally talked about open source. I'll put a link in—I found a document that covers all the history of Chinese open source, but it goes back 20 years. This isn't an overnight thing.

Their government recently said they were pro-open-source in this new AI executive order, but this was pushed out to the provinces. So, 2 things I would say about the AI market there. First of all, no one's particularly concerned about there being a monopolist because there are so many open models.

In general, I think from the entrepreneurs' perspective, there's a more relaxed opinion because they can work on products and take in all these different models. I think DeepSeek has the most intellectual brand because of how that arrived and almost the national pride that came along with it.

Likely Qwen is a really important player, mainly because Alibaba leads in the cloud market over there. They're about—you and your team may know more of these stats than me, Brad—but I think they're like a 70% player in the cloud market. That gives them a natural place to deliver models from, which makes them important.

Then on the consumer side, ByteDance seems to be the company to watch on anything consumer, and they already have an app. If someone said, “Whose app is closest to OpenAI's in China?” it's already an app from ByteDance that's out there. Tencent is on the watch list. People are very curious if Tencent's going to do something.

Obviously, WeChat is still extremely important in China, and so that's a great asset if they were to bring something, but they haven't been particularly aggressive. And then Xiaomi, because of Lei Jun, everybody wonders what he might do. Owning the phone and that big a market share might give you some advantages, and we've talked about that with the US players. So that's what I would say is the state of affairs over there when it comes to AI on the model layer.

On the model layer, do you think there's an acknowledgment or a belief that they basically have the tools and the chips, with Huawei, et cetera, to be competitive? Is there a sense in China that likely Qwen Code is going to be competitive with Claude Code? We know they're all open source. Do you think there is a sense that they all stay at the frontier?

I had that sense before I went, just because of the number of competitive open-source models and the way they can train each other. They just have a much more natural environment to have this kind of hypercompetition that we talked about in EVs or solar. Having that many open-source providers gives you that, I would say, even maybe more because of the way the models can help one another.

At least in the EV case, you can't take someone else's EV and make yours better, but here you can.

Can we talk about that—just open source—for a second? Let me double-click on this. Obviously, we saw OpenAI open-source a model a few weeks back. Now we have comments this week from Elon Musk; they're getting back to more aggressively open-sourcing. You've obviously got Meta already with Llama out there on the open-source front.

And I saw you had a tweet yesterday, maybe, Bill, where you were surprised that Google had not taken a more aggressive position with respect to open-sourcing Gemini. Do you think they will? Why do you think they haven't? And why do you think it would be the right thing for them to do that?

Well, I had some replies to that tweet to get into this, but this goes back to where you started the podcast. I don't think public companies understand—or I don't think they've internalized and really come to terms with—the fact that the private markets are willing to bet so aggressively on these new players. We're talking about AI today, but this could be true of any new disruption in the future.

17. China's New K-Visa vs US Skilled Immigration Policies

When I was going through the Uber-Lyft wars, we'd be in board meetings and look at these burn rates and all this money we're spending. You talk about whether or not to raise another round, and certainly thought about doing what Sam Altman did and trying to talk capital out of the market, which never seems to work. But you're dealing with business decisions that you would never see in another industry.

So, getting back to the question you asked, I just don't know: If everything's at stake for Google, should they be willing to lose $5 or $10 billion because the startup that's attacking their space is willing to lose that amount of money? I think it's an ironic situation we're in where the private markets and the startups are willing to be more aggressive, perhaps, and more risk-seeking than the public incumbents are.

Our friend Rich Barton took a lot of heat at Zillow when he chased Opendoor, but he was faced with a situation where a private company was claiming it was going to out-innovate him and disrupt his game, and some of Wall Street had come to believe that. So he engaged and played that game on the field.

Now, that eventually turned out not to be true. Maybe if he hadn't engaged competitively with Opendoor, maybe they wouldn't have tripped and fallen. But it was probably the right thing to do. I don't think a lot of public companies think that way.

Google historically, when it came to AWS, open-sourced Kubernetes and went after them. When it came to Apple, they open-sourced Android. Certainly, some of their lower models are open-sourced and competitive on OpenRouter, but maybe they should be more aggressive even still because of what's at stake. That was my point.

Okay. Shifting back real quick, and we'll round up here on China.

So, you know, the VC market in China—let’s rewind the clock. Not that long ago, Bill, there was a lot of US enthusiasm. There were a lot of US firms investing directly in China, right from Sequoia to GGV. A lot of those firms either shut down or spun off their operations in China. Benchmark has taken a lot of heat for doing an investment in Manus that, I’ve read, Benchmark explained really isn’t even based in China.

What do you see? When you were there, did you see a lot of US investors actively investing on the venture side in China? And then what does the Chinese venture ecosystem look like?

So, a couple of different things. First of all, there’s a real lack of Westerners. For all my trips, this was the fewest Westerners that I’ve ever seen. The high-end hotels and the high-end restaurants were fairly empty. I think that just has to do with the thawing of the relationship that’s caused less travel from Westerners.

18. Gurley: Read Dan Wang’s Breakneck, Watch the Ground Game

The VC market is in a bit of a lull because when these policies all changed, when the Jack Ma thing happened, when DiDi got pulled back from the US markets, when the for-profit education companies got taken out, and when Tencent went flat for a couple of years because of gaming reforms, all those things took a lot of air out of the system and caused a lot of people to reconsider.

Then you also had—and I don’t even know if this was more led by the US government or the Chinese government—the splitting of the venture capital firms. Sequoia split in half. GGV split in half. And so there are much fewer Western dollars available to invest in China.

There are a few firms that have stayed. Neil Shen at HongShan had raised a ton of money right before all this happened. He’s very active and has a huge staff of people. Anna Fang and ZhenFund, which is an angel group, are very active, and IDG is highly present and has been active. But that’s only 3 firms, compared to where things were 6 years ago, when every one of our competitors in the venture industry was making an annual trip. It’s kind of night and day.

There aren’t that many RMB dollars available to the venture market. You don’t have the foundations and university endowments that you do here, and the billionaires that have made wealth typically are looking to diversify offshore. So you just don’t have a lot of RMB dollars seeking a home.

Now you have the provinces entering the investment space, which is an uncomfortable reality for some of the VCs. I hear they’re asking for terms that you and I would consider nonstarters. So, it’s all a little bit messy.

It’s funny because it’s simultaneous with some of these markets—EVs, autonomous vehicles, and robotics—where the country is doing extremely well. So, I found those things a little bit at odds. Everyone’s very aware that if the government decides your company is doing something that’s not in the best interest of the citizenry, that’s going to get corrected.

There’s a phrase—I don’t know if it was in Dan Wang’s book or I read it somewhere else—called, “Don’t be the tallest tree.”

That’s a problem for you.

Yeah, exactly.

In that regard, do you think—that’s what I was wondering—there seems to be a ton of entrepreneurial activity despite the fact that VCs have retreated, that you have companies that are not going public and have been shut down, and you have entrepreneurs that have gone missing. It doesn’t really seem to have diminished the activity around AI, as we were talking about.

Or startups or entrepreneurism. And, in fact, a lot of the locals heavily dispute that Financial Times graph that was going around about the number of startups. They said it just mismeasured the whole thing.

So, no, I don’t sense that there’s any lack of enthusiasm from entrepreneurs in towns like Shenzhen, where DJI, BYD, and Huawei are all located. I mean, that town is a new, young, 20-million-person, highly energetic town with lots of stuff happening—lots of stuff.

You said something to me well before we wrapped. Is there anything else—anything else that we didn’t cover that you want to hit on?

There are 2 things I’d hit on. You talked about innovation. One thing that you notice very quickly as a Westerner is that no one takes credit cards. They used to, the last time I went, but it’s almost 100% WeChat Pay and Alipay. And if you can’t get those to work on your phone, you’re screwed, man. You can’t pay for anything.

What’s the government’s position on crypto?

I don’t know the answer to that question. But because they’ve been using these apps for so long, you’ve started to see incremental innovation around that.

At most restaurants you go to—not the very high-end ones—there’s a QR code on your table. That QR code not only represents the restaurant, but it represents the table. You can order from that, and you can pay from that. If you’re done eating and want to pay and leave, you just scan and pay and go. You walk right out.

We’re far away from that in the US, that amount of automation around payment. The high-end hotel and restaurant will take WeChat Pay, and the street vendor will take it, right? It’s universal.

So, that’s one thing. The other thing that I would just mention is that, very recently, China announced something called the K visa.

One of the things that’s happened recently because of, I’d say, an increased agitation between the 2 countries is that there have been a number of very recent policies in America that are impacting skilled immigration, especially at the university level. I heard stories over there of groups of 50 or 100 PhD students who had been admitted into a university and were now being told they can’t attend.

You and I and everyone have talked about skilled immigration and how that’s been kept flat in the US. Now, at least with regard to China, we’re starting to put up blockers. On top of that, you’ve seen these other charts where 50% of the AI researchers in America are Chinese. That’s something that’s super interesting to watch.

This K visa thing, which they’ve never done before, says that if you are studying technology—I don’t know the exact rules—you don’t even have to have a job. So, this isn’t like in the US, where you need a job. You’re welcome to come. They’re going to give you a visa.

China’s basically inviting everyone to come to their university systems from around the globe. I don’t know how successful they’ll be. I don’t know if Europeans will go there. But it’s an interesting thing to see.

19. VC Pullback from China

Again, it’s just a reminder to me: I continue to think that the US is in an incredible position on a global basis, an incredible position vis-à-vis China. But decisions matter.

We talked about stapling a green card to every diploma, as the president did as part of the presidential race. Certainly, I think there’s ample opportunity for upside—to accelerate, to attract, to build in the US.

I hope that one of the takeaways of this conversation, the many conversations we ought to have—and it’s why I think being overly dogmatic leads us astray—is that we have to reflect on the things that we can be doing better to run a faster race ourselves, right?

I’ve heard you say this before: the old quote from The Godfather, “Never hate your enemies. It affects your judgment.”

Yep.

And I think there’s a lot of that going on in Silicon Valley and other places. We’re going to be a lot better off if we’re very pragmatic about this: There’s no slowing down in China. They’re going to be there in AI. They’re going to build chips at Huawei. They’re going to build models at DeepSeek.

The way to beat them is not to try to cut them off at the knees. We don’t need to make it easy on them, but the United States needs to accelerate our race. And I think if we focus too much on how to slow down China, we take our eye off the ball on how to accelerate our own race.

So, it’s fun spending one of these just digging deep on a particular topic. It sounds like an incredible trip.

Yeah. And I would just echo what you said, especially on learning. My main point to anyone that’s interested in this topic would be: Just make sure you have the exact right information as you then go to make decisions, especially around policy.

Read what these global car CEOs are telling you. They’ve been over there. They’re seeing it with their own eyes. They don’t have a reason to be as candid as they’re being, necessarily, but they are.

And then read Dan Wang’s book. I think it’s fabulous. Tyler Cowen said it might be one—it might be the best book of the year. It’s very well written and a joy to read, and I would encourage everyone to go pick it up. It’s called Breakneck: China’s Quest to Engineer the Future. I think it’s out today.

You literally can go on ChatGPT and just ask it, “What does Jensen Huang think about the level of competition in China? What does Tim Cook think? What does Elon Musk think?”

The reality is that the people who spend the most time on the ground in China have the most respect for the innate capabilities and ongoing competition that we’re going to see with China.

I thought that Dan had a really balanced view at the end: We shouldn’t go out of our way to make it really easy on China, but at the same time, we’ve got to engage. We’ve got to be pragmatic. We can’t stick our head in the sand, and we have to know that we’ve got to reform ourselves. We’ve got to run a faster race ourselves.

Bill, it’s great seeing you. I’m glad we’re getting back in the swing of things, and I look forward to continuing the conversation.

As a reminder to everybody, these are just our opinions, not investment advice.