Kind: captions
Language: en
The following is a conversation with Ku
Jin, an economist at the London School
of Economics specializing in China's
economy, international macroeconomics,
global trade imbalances, and financial
policy. She wrote the highly lauded book
on China titled The New China Playbook:
Beyond Socialism and Capitalism that
details China's economic transformation
since 1978 to Today. and it dispels a
lot of misconceptions about China's
economy that people in the west have.
This is the Lex Freedman podcast. To
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subscribing to this channel. And now,
dear friends, here's Ku Jin.
What is the single biggest misconception
the West has about China's economy
today? The biggest misunderstanding is
somehow that a group of people or even
just one person runs the entire Chinese
economy. It is far from the reality. It
is a very complex large economy and even
if there is an extreme form of political
centralization, the economy is totally
decentralized. the role that the local
mayors, I call this the mayor economy,
plays in reforms, but also driving the
technological innovation that we're
seeing right now. It is actually not run
by just a handful of people. It's more
decentralized than the US is. And I
think more broadly, a big
misunderstanding is really the
relationship between Chinese people and
authority.
>> Can you elaborate on that?
>> Well, you know, people think that
somehow there's almost blind submission
to authority in China. We have a very
nuanced relationship uh with authority
whether it is you know between kids and
parents or um students and their
teachers or with your bosses and the
Chinese government. It's kind of the
same thing. There's paternalism. Uh they
think that they're responsible for you.
Um but uh deference a certain amount of
deference to authority is not blind
submission. It's been written implicitly
in our contract uh for thousands of
years that in exchange for some
difference uh we are given stability,
security and peace and hopefully
prosperity.
>> So there is some element that we have in
the west of freedom of the individual so
that a little bit of the rebel is
allowed uh in balance with the
difference to authority.
>> Yeah, absolutely. Without that, how can
you have this radical dynamic
entrepreneurism you see in China if you
don't have a sense of self, a sense of
uh the fact that you can find
opportunities, you look for
opportunities, you you you drive
opportunities. Um it's all self
motivated. Is there still a young kid in
China that's able to dream to be sort of
the the stereotypical Steve Jobs in the
garage, start a business and change the
world by doing so?
>> There are millions of young kids like
that in China. They might not be
thinking about changing the world and
this is where the Chinese approach to
innovation is very different from the
Silicon Valley one, I'd say. Um, but
they see opportunity. They see a country
with a billion consumers. They see
scale. They see speed. They see that
with their dreams and the team that you
have in China with engineers and the
digital transformation, you can do so
many things. And this generation of
young people think about transforming
their local economy. I I think we're
going to get into this, but it's no
longer going to just be manufacturing.
The young kids are entrepreneurs.
>> Well, let's uh stay in the big picture a
bit. There's a a perception that China
is a uh communist country. So to what
degree is China a capitalist country and
to what degree is it a communist
country?
I've rarely seen a more capitalist uh
society than China from the pure
economic uh uh side. I've rarely seen
companies that are as competitive as
Chinese companies. uh people as
ambitious and obsessed with making money
as Chinese people uh kind of ruthless
actually uh and look you know consumers
shop firms invest if you invest well
financially you'll get great returns
what is not capitalistic about the
Chinese economy at the same time the
social fabric is highly socialist first
of all the state enterprises dominate in
many of the sectors the state banks s
control the financial system. Uh we
often talk about common prosperity,
about equal opportunity, just and fair
society. But even, you know, daily
stories, a walk in the park behind my my
parents apartment, you're going to find
at least 50 organized social groups on a
daily level, singing, dancing,
exercising, doing whatever these
fantastic idiosyncratic hobbies they
have, getting together every single day.
And three courses for the elderly and
retired, right? That sense of
communalism, that sense of belonging,
uh that strive for harmony at the
societal level is there.
>> So, uh just to go back to something you
said, there is a value for competition
culturally. So, on the business side, on
the economic side, there is sort of a
cultural value of people competing in a
meritocratic way.
Competition is ferocious in China,
especially when it comes to Chinese
companies, but also in education.
I should be thankful that I'm not, you
know, born later than I am because I
thought China was pretty competitive
already, uh, going to the schools and
studying for the exams. It is a
different level today. Competition is
not necessarily in the culture. I'd say
it's driven really by the changing
economic and social circumstances of the
day. The Chinese companies are all
hardworking. They're all going after the
market share. They all kind of want to
do the same thing. You know, it's not
quite like in the US where you open a
coffee shop. Well, next door I'm going
to, you know, open a bagel shop, right?
In China, if the coffee shop does well,
everybody wants to open the same coffee
shop. And I think again, I'm sure we're
going to get to this, but there's a lot
of that kind of competition, which
really drives the world sometimes crazy
um of replication, but it's because it's
not easy, right? It's not easy to make
money in education system. There are not
enough jobs for the young people. So how
do you get ahead? Uh how as let's say if
you're part of a lower stratum society,
how are you going to make sure that your
children are going to have a better life
than you? You invest in education. So
everything is about competition in a
country with 1.3 billion people. That's
uh somewhat to be expected.
>> Let's go back to the roots of that. So
you described that China's economy model
uh is rooted in its history. So can we
talk about Confucianism?
Can you explain to what degree those
roots run back to Confucianism and in
general to other parts of Chinese
history?
>> Yeah, Confucianism is more of a moral
philosophy uh than let's say religion or
a belief system. It prioritizes
um social harmony above anything else.
It's not about metaphysics but more
about ethics and at the individual level
the responsibility the duties are all
meant to preserve that social order. So
it's felop piety
um it is loyalty it is how to be a
Chinese gentleman. Um but things like
saving frugality is part of the moral
discipline. Education is part of the
moral cultivation. So there's a very
strong emphasis that you as a citizen
have a responsibility to contribute to
society as a whole.
>> On the education side, a part of
confusionism is a is a value for
meritocracy. So how does that permeate
the education system in China? You've
already spoken to it a little bit, the
value of competition and that it's
already getting more and more intense,
but it would be very interesting to get
your understanding of the education
system, its history and as it stands
today.
>> If China were relatively successful
economically,
a huge part of the reason is by and
large it's been meritocratic.
That is changing somewhat now, but
the only way that you have still that
many poor people, especially a couple
decades back, still be in harmony with
society, seeing all these rich people,
you know, make tons of money and you're
still belonging to that lower stratum.
The only reason is that you believe that
your children have a future through
meritocracy.
And even though it's imperfect, it's
highly imperfect. standardized testing,
all this competition, all of the the the
hours and the tutorials to studying for
standardized exams. Well, that is a very
realistic um scenario in China because
there that many people, you know, when I
was growing up in school, we had 60
people per class and there were 10
classes in one grade. Now, imagine that
many people applying for colleges
uh in the in the American way. how many
essays would have been written and need
to be scrutinized. Also that gives room
for total corruption if you you know if
you know what I mean just connection
based and actually the standardized
exams as imperfect as it is to select
talent is still by and large fair and um
that's how that whole generation of you
know entrepreneurs but bureaucrats
government officials were selected if
you look at the Chinese premers uh the
presidents of the past they they all
went to great schools you know a lot of
them were engineers years and uh same
thing for civil servants. It has changed
somewhat. You know, the meritocracy I
think is is eroding in China. I'm
worried about that because it is fine
that you get into a good university
based on your own merit, but finding a
job now becomes much less meritocratic.
People with connections get jobs more
easily than than others. Of course, this
is not just a unique Chinese phenomena.
It's actually everywhere. But I guess
what I'm saying is that that meritocracy
which was so fundamental to the Chinese
ancient Chinese education system by the
way civil servants were selected based
on standardized exams in the past that's
always been throughout Chinese history
and that relates to Confucianism. Now
the opportunities and coming back to the
competition point is that the
opportunities getting slimmer and
slimmer and again this is not a unique
Chinese phenomenon. Jobs where are the
jobs going to be right? So, um,
meritocracy has become more of a
problem.
>> Uh, do you have any memories of your own
experience in terms of competition, the
good and the bad of it? Maybe, uh, from
that, can you, uh, pull out the thread
of of the value of that kind of
competition? Basically, you know, uh, I
grew up in the Soviet Union, so there's
a kind of brutality to the competition.
Um, but I think it ultimately molds
really interesting people.
>> There is a good and bad part of
competition. And I remember when I was
going into middle school, every single
midterm exam, final exam, you were
ranked from number one to number 800 in
your entire grade and publicly
displayed.
>> Nice.
>> Nice. Right.
>> Um, imagine, you know, the majority of
people and how they feel.
>> Um, but it it does drive ambition in
part and you don't take anything for
granted. uh and you work hard, you keep,
you know, you keep the spirit up.
But, you know, going to the US, I
finally realize that Americans are
totally competitive. It's just that they
don't display it. It's not as apparent.
I I remember I go I went to a very
competitive high school, but everyone's
like so chill. Oh, I'm not studying. Oh,
you know, they're they're studying. They
are secretly studying. Um when I was
doing my PhD at Harvard, people say,
"Oh, you know, my parents say don't work
too hard." You know, people say, "Don't
say you worked." They're working hard,
right? Just you don't show it. In China,
it's it's kind of um a noble thing to
show that you're working hard and that
you're number one or that you're top of
the class and you want to display it.
You want to let everybody know. But in
the US, everybody's like secretly doing
it.
>> Yeah. Some of it is the is the signaling
the culture emphasizes the signaling of
is it better to be kind of for
everything to come easily thereby
showing that you're a genius it comes
naturally or is it better to show that
you worked extremely hard for the thing
but the ultimate result is there's still
competition but I don't know when you're
visually displaying
and
uh explicitly stating that it's good to
be number one and it's bad to be number
800. I think that permeates throughout
the culture to where
>> you understand
uh first of all you understand that hard
work is the only way to uh improve to to
to succeed in life and second of all you
just create this framework of uh early
on understanding what it means to live a
good life. And a part of that is to uh
to find the thing you're damn good at
and get even better at it, master it,
become hopefully the best person in the
world at that thing. I don't know.
That's a extremely important lesson for
society teach.
>> That's the right I would say the right
kind of competition or the efficient
kind of competition. I feel that in the
Chinese education system it was not
necessarily efficient because it kind of
frames you and molds you to be thinking
in a certain way uh what's been taught
to you. You don't have the bandwidth or
the time or creativ freedom to be more
creative and to think outside the box.
There it's just the box. You maximize
the box and that's it. You don't
actually know what's outside of the box
and you never actually go there. That's
the bad part of Chinese competition. And
when I got to the US, uh, the high
school teachers were asking us to
question authority, to question text.
I'm like, wow, really? You can do that?
So, I started asking why.
>> All right. So, there there has been this
miracle in the Chinese economy from um
after Mao under uh Deng Xiaoing where
the Chinese economy got transformed and
grew incredibly. So can you explain what
happened the different transformations
that happened uh the different reforms
that happened under Deng Xiao Ping?
>> Dang Xiao Ping was by far our most
pragmatic leader and I think everybody
is grateful to Deng Xiaoing. My father's
generation would not have seen
that amount of prosperity and peace and
opportunity without Deng Xiaoing. Uh it
started in the late 1970s when Dung
Xiaoing came out with this open up and
reform mandate and it was very tough.
Again coming back to the big
misunderstanding of China. It's not as
if one leader decides that that's what
we're going to do and then everybody
follows order and does that. No, there
are tons of political barriers, tons of
incentive compatibility problems at the
local level. In the end, you need the
local provincial governors, the mayors
to do the job. And how many perfeurers
are there in China, right? A lot. And um
they have their own interests, right? We
we know this around the world.
Politically is the most difficult thing
to do. Um but somehow Dung Xiaoing was
able to break tradition, break
convention,
um come up with this completely new way
of thinking about society, life and
economy. And it was so transformative. I
remember people of that generation
told me one time that you know society
was going to focus on the economy.
Really? Why would they do that? Wasn't
it politics? Wasn't it everything about
politics and struggle and ideology? So
for them that the whole country and the
government is going to focus on the
economy was just so shocking uh even
though we take it for granted now that
that that shows you that breaking that
that mold was incredibly difficult. Um
but um I think opening up was a really
momentous thing that China did and it
wasn't just joining the debut. I mean
they were doing a decade of work in
preparation leading up to that um uh
what's called you know special economic
zone is really to turn Shenzhen from a
fishing village to an export platform
now to a Chinese style Silicon Valley
right and there was the agricultural
reforms in the 1980s that meant that
farmers could decide what they were
going to grow and keep the surplus
whereas it was a collective system
before you you know that very well and
then of course the ultim Imate
transformation was when China actually
joined the WTO in 2001
and the rest of was history right we're
still talking about the aftermath but
reforms was the single biggest impetus
to Chinese growth and every time there
was a major reform it was followed by a
good decade long growth every time
growth went down there was a new series
of major reforms rolled out and then
oops that you know led to another wave
of good growth. But I'd say that reform
pace has slowed in the last 15 years.
But are there reforms to be done? Yeah,
absolutely. You know, has China reached
even close to its potential? Not at all.
Um, but again, it comes back to
politics. Right now, it's less about
economics. It's more about national
security. It's more about politics. And
I think that is probably the single
biggest barrier to continued good
economic growth.
>> Baby, can you speak to what it takes in
such a large system, in many ways, such
a successful economy to do reform? So
you mentioned pragmatism. Deng shiping
famously said that it doesn't matter
whether the cat is black or white as
long as it catches mice. So there's that
pragmatism.
>> Yeah.
>> That I think underlies a lot of great
reforms. As a contrast to Soviet Union,
uh the Chinese economy as I mentioned
was extremely decentralized. You know in
Soviet Union the ministries were in
charge. It was a central bureaucracy
but a lot of the power were given to
these provincial governors, party
secretaries, mayors of different sorts
and they were incentivized. That's the
key is that these mayors were
incentivized to do a good job. If I were
successful on a radical reform, if I
were successful, I'd be a national hero
and then that reform would be rolled out
in every single city in in the country
over time and I would be promoted to the
higher run of the central government and
who knows I might even become vice
premier, premier president one day. That
was how the individual was motivated to
carry out these really tough reforms.
Now, China has changed a bit, right?
It's not about being radical and
radically successful. It's being it's
about being safe, right? So, when you
shift from basically an entrepreneurial
state to a safe state, then the
objective function changes and you see
it in different economic uh outcomes.
>> So, maybe can you speak to that? What
what are some important things to
understand about the structure of the
Chinese state?
Well, the central leadership politically
is extremely powerful and very
consolidated, but they hold a very
crucial key to the local governments,
which is that they decide their fate. Am
I going to promote them? Am I going to
put them in jail? Am I going to fire
them? Am I going to reward them? Am I
going to p punish them? They they hold
that crucial key. And I think what was
you know very surprising for most of the
western audience is that when I
mentioned about the mayor economy
there's a you know why why don't our
American mayors in each city do these
very radical things and then push for
GDP growth and technology and innovation
it's quite different I think this is
where China's very unique in the world
is that political centralization
economic decentralization and the yard
stick to measure local mayor's
competence
through in the first stage it was GDP
growth. So I am a a mayor of you know
the city of Nanjing in Jangu province.
I'm going to like peak at my neighbors
mayor's uh uh city's GDP growth and I'm
going to be very very competitive. By
the way I forgot about that competition
is extremely competitive among the local
government officials because you are
competing with other mayor for a top
job. Right? So you need to do better
than them. And whether that was
efficient um structure or not, I cannot
comment. But it certainly just fueled
this massive and rapid expansion,
economic expansion. Uh first it was
industrialization. Everybody wanted to
do exports. Then they discovered, oh my
gosh, we can have so much fiscal
revenues coming from land, right?
Selling land and real estate. Let's
let's let's build real estate and let's
urbanize. And then the the money kept
coming in to these local governments and
that they can spend it on on nurturing
more companies or supporting real estate
or supporting investment and they can do
a better job. So then it was geared
towards real estate and that's how the
property cycle became the big thing.
Everything was at double speed because
of what the local government's
incentives um were designed to do. I I I
say now that China's biggest challenge
is consumption, right? It's not
production. We know that China is very
very competitive in production and
supply. China needs to be a consuming
country to be a rich country. Why don't
you put consumption as part of the yard
stick for measuring local governments?
You know, for a while is environmental
protection. Guess what? Very few of them
will really want to do it seriously
because it goes against the uh
incentives of driving growth, right?
They would suffer on GDP growth if they
were very serious about environmental
protection. So for a couple years
nothing happened in China on that front
and then the central government got
really kind of concerned and even angry
and frustrated. So they decide to put
that as a penalizing uh factor and then
guess what happened? Well actually
environmental protection um sped up and
you know in the matter of short short
few years I see blue skies every day in
Beijing. That's how it works.
>> So GDP is a measure of success in
production. What's uh the measure or
what does it mean to be successful on
the consumer side? You said it's
important to improve that. What does it
mean to be a successful consumer nation?
>> The metrics shouldn't be geared just
towards growth alone. GDP growth alone.
It was just singular GDP growth and you
can borrow uh heavily and just spend on
infrastructure. That's not a productive
way to drive the economy. That's what
the local governments were doing for a
long period of time. You know, in the
last few years, innovation unicorns have
kind of been an implicit yard stick for
local governments. That's kind of how
we've seen these great, you know, EV
companies, 80 cities doing EVs. I mean,
do we really need 80 cities to do their
own EVs, right? Solar panels, now
Deepseek has become, you know, a star.
uh semiconductor companies, you know,
each local government wants to have
their own national champion. So
implicitly technology was part of the
yard stick competition as well. But if
you can more accurately have a metric
for consumption measures really focus on
you know making sure that it's coming
from consumption this GDP growth rather
than from investment or infrastructure
then I think that it might focus the
government's objective a bit more on uh
thinking about how to make people feel
more secure uh so that they want to save
more for instance creating more jobs for
instance more on social security
spending on health care uh on elderly
care uh because for the longest period
of time this political economy model was
brilliant at scaling up supply but it
was extremely weak at raising personal
consumption because the incentive does
not lie in consumption it lies in
production. So you shift the objectives
a little bit and maybe local government
will do more to stimulate consumption.
>> Okay. You mentioned uh the mayor
economy. That seems like an incredibly
powerful idea. And you also mentioned
that perhaps uh you're not sure exactly
how perfectly efficient it is and what
efficiency there means. How good are you
at quickly figuring out the best ideas?
That's what an efficient market does.
There's a kind of component to what
you're saying where you're a little bit
critical of do you really need 80 EV
companies? But maybe you do. It seems
like an incredible thing to do, right?
So, what are the pros and cons of this?
Maybe you can speak to it a little bit
more.
>> I think it depends on the timing. If
you're starting something, starting a
new emerging strategic sector like EVs
or batteries or solar panels, you need
the local governments to be involved to
mobilize, right? The big push to
coordinate the supply chains. If you
wait for the markets to develop over
time, it's going to take a long time.
Maybe they don't even want to do it,
right? Look at the US. the US is very
very behind on some of these new
strategic sectors. But once you've
reached a certain level of market
competition, I think the state needs to
to withdraw or to retreat because
ultimately the state is not the best at
allocating resources, picking winners.
You want the private actors, whether
it's the venture funds or the, you know,
through market competition to ultimately
decide who gets the most resources. But
in the beginning that big push is not
not really in any of the canonical
models that I've studied in economics in
the western school of thought state push
state mobilization state initiation
that's not there but I think if you look
at EVs solar panels even just thinking
about the idea of reforms in the first
place um that initial state push was
vitally important uh the other negative
although I think by and large positive
positive aspect is I don't think that we
need 80 cities to do their own EV brands
but to get started maybe that's what it
would have taken to drive that incentive
and then ultimately it's up to the
market to decide who are the last five
remaining EV companies right through
market mechanisms that's Chinese style
industrial policy um industrial policy
was heavily criticized and again if I
talk to my Harvard professors they will
be very very very skeptical
about the the role of the state
especially in such a major way. But if
you look at the Chinese experience, the
evidence for success is all there. The
the cities that have pushed the most on
supporting that particular sector
ultimately did the best in terms of
production but also in terms of
innovation measured by patents. It's all
in the data. Um but the downside is that
a lot of the capital is wasted and this
is what I also discuss in my book is
that it is inefficient although maybe
it's necessary uh the amount of waste of
investment you know plowed into these uh
companies that will ultimately just go
under. um but also the misallocation of
resources because it's led by the state
are some of the downsides. But I guess I
guess on balance it's been positive
because look at China's internal
combustion engine effort nothing right
semiconductors
thanks to Biden thanks to Trump it's
improved dramatically but all these
things that they tried to do before they
couldn't do but when it's a new thing
like something that there's no incumbent
no particular advantage in any country
actually China is really spearheading
these sectors
>> can we linger a little bit more on this
mayor economy it just seems seems like
such a powerful thing where one mayor
looks over to the next and looks even
just a trivially simple number like the
GDP GDP. Why don't we do that in the
United States or in the West more? Just
compete on GDP.
>> Well, you you need to be elected and
reelected, right? Is that what your
electoral base cares about? Right? In
China, it's what the central government,
your boss, cares about. If you ask the
consumers, they rather you spend on
social spending, right? The things we
talked about that stimulates
consumption, on education, on
healthcare, things that stimulate
demand.
So yeah,
>> that's the political it's a difference
of political system.
>> So maybe can you speak to the
difference? Another difference is the
longterm multigenerational thinking
uh that permeates Chinese culture. So
how does that differ from the west sort
of the western style capitalism of uh
quarterly focused thinking?
>> The Chinese are both the most patient
and the most
short-termist
um economic actors I met. The patients I
don't need to explain because I think
the political continuity means that they
can make plans for two decades ahead,
right? Even longer. um uh the investment
of Chinese parents in their children is
a multi-deade long project uh and they
they save you know Chinese people love
to save because they think that they'll
have even more money uh if they save
that money rather than spend it on a ski
vacation. So that I I think it's
patently obvious to uh uh most people
around the world. But I think that most
of them would not have known that there
is a very popular motto in China which
is called short flat fast. That's the
impatient part of the Chinese culture
especially with respect to the economy.
Short flat fast was used to describe a
winning volleyball strategy that
eventually became adapted to describing
the society as a whole and economic
decision-m. If you're an investor, you
only want to invest in things that you
can quickly turn around, make a lot of
money, and don't need to do much work.
Uh it also applies to marriages. So, a
short courtship, a very flat emotional
relationship, and a fast divorce. Um
that that is uh how uh you you see these
um companies rise, you know, within a
very short period of time. of course
investors are only interested in those
companies that can turn around and exit
in a very short period of time making
many many multiples and um so in that
sense people are very very impatient
right I I sit on some boards of these
long-standing companies and the values
are just so different uh even though a
lot of these public companies are
constrained by the quarterly results and
so forth but the values are about
sustaining ing something a company for a
long time thinking about organic growth
thinking about investments for the
future sustainability um maybe it's that
competition maybe it's the speed that
we're used to in China people think
about short um so you know this
dichconomy is very very interesting
>> that's surprising to me
>> yeah well
>> it's a surprising idea right so that
>> there is a kind of uh in the west
conception of Chinese culture Chinese
economy that everything is you say 50
100 200 years out you have this long
vision but you're basically saying that
there's a deep
uh in the business sector uh impatience
about everything
>> that's it's a transitory phenomena I'd
say but if you look at the cheaper stuff
poor quality that's a reflection of that
the coping it's the same kind of
mentality just get ahead quickly but
again that is all shifting that is all
shifting because China is now in a
different stage of development. If you
ask the younger generation, they really
care about quality. They care about
values. Uh and these companies, these
very successful companies, successful in
5 years, 10 years, found themselves in a
very difficult position after a longer
period of time. So that short flat fast
attitude which was so popular especially
before the pandemic, that's actually
somewhat disappearing. So in some sense
this economic downturn is not that bad
for China because it make it made the
Chinese realize that it's not always
going to go up and uh it made them
really look down deeper into what they
really should be focused on. Uh that
there will be cycles, there will be up
and downs and so these very shorttermist
thinking and opportunistic
way of driving business will ultimately
fail. Um it is it's bad for China that
we're having a sustained economic uh uh
softness sustained economic softness but
I think it's also a very very important
lesson for the Chinese people to go
through.
>> Let's go if we can a bit to the
personal. So you grew up in China. What
are some moments from childhood that
were maybe defining to your
understanding of Chinese culture and
Chinese economy?
You know, we look back at those moments
when everybody in China was very poor
with a bit of nostalgia.
I remember um no doors were locked. I
was I was in Beijing and I remember
every day in the summer, everybody just
went downstairs and chatted with
everybody else.
>> Um uh it was very social. It was very
community- based. Uh the neighbors help
each other. uh we had very very little
uh small apartments, very limited access
to certain goods. When I was born, there
were even in Beijing there were there
were you know these these vouchers for
how many eggs you can buy and even
Beijing there were three or four
blackouts per week typically. There was
a sense of community. There was a very
strong bond between people and within
the family because they were going after
a common goal, making your life better,
right? struggling, striving to make your
life better. And I remember being on the
back of my father's bike, uh, getting
up, you know, 6:00 a.m. every day and
going to nursery and, you know, that's
that's the typical day. Uh, not a lot of
material goods, but people had a sense
of purpose and, uh, that's radically a
different uh, it's completely different
now in China. Do you think that if you
go to the human condition, do you think
that that nostalgia has some truth to it
or is it just nostalgia like any other?
Is there some aspect of a intense,
competitive, vibrant economy that loses
some element?
>> Absolutely.
>> Of everybody being poor together.
>> Well, everybody having a common goal and
a sense of community, right? That that
is what's missing in these extremely
individual-based capitalist societies.
And I think what the Chinese government
is striving to do with Chinese
socialistic characteristics is to
somehow try to preserve a bit of that
socialist character while still relying
on markets, market-based incentives. But
if you're an extremely individual-based
society, I think you do you do lose a
lot of that. And I think some of the
backlash that we're are seeing uh from
society is a reflection of that, right?
people being alone more and more uh the
the death of despair in the in the US uh
the addiction you know that um it's
they're lonely right and competition
means that you kind of have to be
somewhat badass and uh you sometimes put
down values and you forsake harmony in
order to get ahead that's certainly the
Chinese society now that was not the
case before
>> you think that's a natural consequence
of uh of capitalism almost always that
you become more individualized,
you become lonier, you feel lesser if
you're not winning and thereby uh
somehow that breaks down society
community more and more.
>> I think it's a spectrum, right? And uh
Europe is somewhere in between, I'd say.
Uh but Europe also is not as
technologically and innovative as the
US. But on a social level, there is more
social protection for the people. There
is a stronger sense of community. I I'd
argue it's not perfect. Ultimately, it
is a choice. And this is what I think
that China has to decide, right? Do you
want technological supremacy and radical
breakthroughs? Well, yes. If you do,
then you have to tolerate that there are
going to be some people who are going to
be
just going to be um uncomfortably rich,
right? like in the United States, you
can't say that you detest the financial
system for its greed uh but then not
accept the fact that it is what fuels
innovation, right? Um risky capital
fuels uh uh uncertain investments which
allows for countries like the United
States to be making these breakthroughs.
That's what China wants. But at the same
time, China can't tolerate these
extremely rich people around and the
power that they is acrewed to them. They
want to to be a leader in technology.
But then the financial system is not
liberalized. Uh it's highly uh
regulated, but you know there's also
intervention. Even if we look back at
the French civil law versus the English
uh common law, well the former protects
uh creditors and the latter is more
friendly towards debtors which gives
them more breathing space to innovate
but also to fail and to innovate again.
Uh and that makes a big difference. So
it's all about a spectrum, right? But
you can't have it both ways. We don't
often enough have that nationwide
conversation about what we want to be as
a country. There's just a group of
people yelling we don't want
billionaires and another group saying we
don't want communists or whatever. It's
a very trivialized kind of chanting. But
there is a balance. There's a spectrum
and you get to decide
uh do you like the nice things, the nice
toys
>> and the power that the US has
>> and the power, the geopolitical power,
the military power, cultural power,
influence on the rest of the world.
Yeah, you get to choose which which do
you want?
Um so the first time you went to US,
what was that like? Mentioned Harvard.
How did that change your understanding
of the world?
Um, well, it's funny that we're talking
about this now because I was able to go
to the US on a scholarship to an
American high school because the US at
that time want was open arms, all open
arms towards international students.
They kind of wanted to be the the
country that was going to educate the
future leaders of the world and their
elitist in institutions like Harvard was
really going to be, you know, they're
the center of the world. So they
welcomed students like me and many many
others uh to be exchange students to
study in the US. Um and we thought,
"Wow, we've never seen a more generous
country."
Um, and I was able to uh go to high
school, an American high school and live
with an American family, which was, wow,
can I say a big change uh from from
China, not only because I was plucked
from the Communist Youth League uh party
and then straight to supporting their
Democratic campaign because the host
family was running for state attorney
general in New York. So, I was kind of
>> going to these conventions and handing
out flyers and trying to get votes and I
don't know in China Chinatown or
something. But, um, but it was it was so
interesting to see that's how the system
worked. Um, but in the course of doing
that, I realized that people had a very
simplistic understanding about China.
And that's probably um even when I was
14, I decided that one thing I wanted to
do was to
dispel some of these deep myths about
China because the China that they knew
and again it was all the three T's back
in the late 1990s,
Taiwan, Tibet, and Tamman Square. That's
that's they thought about China. They
thought about these three things. And I
was like, well, that's strange because
that's not how I'm feeling in China with
all this, you know, bidding for the
Olympics before 2000 and all these
buildings going up and down, all this
excitement about, you know, joining the
WTO, all these radical reforms that are
that are that are taking place and then
all this effervescence that you feel in
the air. You it's not GDP growth as
numbers, you actually see it. I said
this is really, you know, and they're
describing China as if it was a place
shredded with white terror. And so I
thought this that's interesting. Uh
there's a big gap big gap of
understanding. And even today, that many
years later,
um people know China a little bit more,
but the sentiment hasn't profoundly
changed.
>> It's still the three T's. I feel like
>> some variation of that. Uh so what what
about the level of misunderstanding of
Chinese people of the west? Is there a
similar level of misunderstanding the
other direction as well?
>> I don't think to the same extent because
there's Hollywood uh that you can see
daily American life although it might
not be totally realistic.
Um there was a huge amount of admiration
of US um technology innovation but also
the American dream.
Uh, I think our newspapers, even though
there's bias everywhere, is not focused
only on reporting the really bad stuff
and portraying a negative side. I think
these few years have been a little bit
different, but so many students went to
the US, right? Um, so many people travel
to the US and this is the interesting
thing. I've rarely met an American who
has been to China and who still goes on
about how bad China is. I think that
going to China makes all the difference.
>> I feel that's like one of the big gaps
of my life that I need to uh alleviate
is to travel in a real way for a long
time to really experience the people and
the cultures. And China is a big place.
>> Go dig deep and don't just go to Beijing
and Shanghai.
Um let's go back to the economics. So
can you just
uh dig a little deeper on the
relationship in China between the
government and the companies in the
private sector? So how much freedom do
companies
have?
>> Another big misunderstanding and a
fundamental one is that people somehow
think that the state suppresses the
private sector. It's not at all as
simple as that. Um, for the most part,
if we look at the local government's
incentive system, they want to help the
best private companies, which are the
most promising because it makes them
look good. It adds to their GDP. It adds
to the jobs, investment. They are so
helpful to these private companies.
Actually, I I I know many of these local
government officials working tirelessly
day and night, especially in bad times
uh to coordinate between debtors and
creditors and to kind of smooth out and
define relationships with banks. They
want to help these private companies
because again their incentives are
aligned. Uh Deepseek is private company
by the way. So it has done the country
proud and why would the state want to go
and suppress these private companies
which ultimately is kind of a beacon
represents a beacon of success for
China. Um,
now on how much freedom they have, it's
really ranged from too much freedom.
That's part of the problem where you
have defense companies buying art
auction houses, real estate companies
like Everrand, buying soccer clubs,
doing EVs, uh, uh, uh, companies uh, uh,
investing in real estate that has
nothing to do with their core business.
That's how much latitude were given to
private companies. And there were
consequences.
uh they were not reigned in. And then
you go to the other extremes where
they're scolded, they're reprimanded,
they're reigned in, and they're kind of
folded into submission. So that that is
the whole spectrum. You have the whole
range. But I guess what we're really
getting at is it is a country that is
moving from a no rule of law or very
little rule of law, very immature
markets to something that is being
gradually
um uh uh uh established bankruptcy laws,
you know, corruption laws, uh rules and
regulations on what's possible. uh one
interesting point is that uh in China
you you ask the companies to innovate
first and then you re regulate after
right
>> so that has led to things like P2P
platforms that you know it's led to lots
of kind of financial innovations some of
which has actually been very helpful and
good some of which have been disastrous
but the intention to regulate after the
fact is to really not um slow down or
hinder the innovation. This is a very
different approach from Europe. You
regulate first and then you know
companies have to work around that. Um
so the this is why Chinese economy is so
complex. Uh you cannot reduce it to
simply a statement saying the state is
unhelpful for the private or or
something like that. Um there are
certain sectors where the suees dominate
right when it comes to national security
in terms of energy. But let's not focus
on these few sectors. By and large, most
of the economy, if you actually admit to
the fact that China is highly innovative
and highly entrepreneurial, means that
it must be the private sector that is
driving the show.
>> Innovate first, regulate after. Really
interesting. Uh I also in my mind am
contrasting it with the way the Soviet
Union and Russia since operated. That
doesn't sound at all like this model.
And it's interesting that countries that
at least on the surface had a similar
cultural communist problems. You know,
the bureaucracies that form inside the
communist state. It just seems that um
China broke away from that somehow that
don't understand exactly what happened
>> in the west. They group these economies
together as if they're the same thing.
No, it's not the same at all. There's so
many differences, uh so much more
flexibility. You can have dynamic
entrepreneuralism at the same time have
socialist characteristics. And I think
this is what China has been able to
shape and mold a unique model that
balances between government industry,
between state coordination and market
mechanisms and between individualism and
communalism. It's not necessarily black
and white. You can have all these things
at the same time.
>> So what are the pros and cons of being
an entrepreneur in China versus the
west? Like if you get a choice, you have
a dream, you want to build epic things,
what and you get to choose where to
start that business. What are the pros
and cons of each path?
>> In China, the speed is just all
inspiring. You have a good idea, you
implement it, you realize your dream
very fast because there's also the
support system, right? The
infrastructure there, the digital
infrastructure there, the engineers are
there, the talent is there, and they're
cheap. And the market competition is
there to keep to keep you going. And the
consumers give you a very very fast
feedback. You know, look at Xiaomi. It
was making phones and now it makes one
of the world's best EVs. 270,000 cars
sold in one day a few days ago with a
new model. They were phone makers.
>> So, there's an advantage to that. Okay.
But I would not feel safe. um not
because of danger of expropriation or
nothing like that but the bank
bankruptcy laws are not there right it's
not necessarily always fair competition
things don't happen necessarily in
orderly manner if you have a competitor
you can have a very evil competitor and
evil competitors are there everywhere in
China they would you know call the
police on you put you in jail uh spread
false rumors about you maybe that
happens also in the US but there's a
different it's a different level uh in
China. Um, and also the mold that you
can have to protect yourself, the IP
protection, right? That's much weaker in
China because the legal system is not
very effective. You have a good idea,
you'll be copied. And there's a lot of
work. You have to you have to dine and
wine with the local governments. I mean,
that's not allowed anymore, by the way.
But you dine and wine, you know,
figuratively speaking, you have to have
a very good relationship with them.
That's a different kind of work. the
wine and dine and the evil competitors
is an interesting challenge that in some
maybe distant ways akin to the problems
of the Soviet Union. I think I guess in
the United States there's less of that
and I don't even know if that's based on
laws cuz there's a lot of lawyers in the
US that could do the same kind of evil
competitor stuff technically.
>> That's true. the potential negative um
ramifications are there. But I I I think
personal protection is a big difference.
If you make a mistake, if you your
company is not run well, you know, you
go to jail. I think that the US is much
much more tolerant on entrepreneurship,
entrepreneurs on failure. Since we're
talking about it, there was a lot of
controversy around Jack Ma disappearing,
quote unquote, and uh reappearing a bit
later, and there's been sort of rumors
of some tense relationships that he has
with the Chinese government. What is
important to understand about the whole
situation?
Like to what degree is it reflective of
the issues entrepreneurs face in China?
In the US, capital controls politics.
One could argue. In China, it has to be
the other way around. Capital must be
reigned in by politics. As part of the
capitalist class, do not have the
ambition to exceed the powers of the
political class is really at the core of
it. I'd say the biggest difference
between US and China.
Um there are important
details that I think the west has not
fully provided to the public. Um for
instance and financial as innovative as
it was um was doing banking
jobs without being regulated like a
bank. Right? So that obviously poses a
host of financial stability questions
and um and rules and regulations and so
forth. So the fact that IPO was halted
uh you could say that there were strong
economic regulatory grounds uh for that.
But I think more broadly speaking if
you're an entrepreneur part of the
capitalist class
keep your head down make money and
that's fine right? uh do some
philanthropy. There are also many many
other billionaires that are just fine
that are actually very much in favor uh
of the political leadership and um they
do their thing. Now I'm not saying
what's right, what's wrong. It's just a
very very different culture and
different country. In the US it's great
to be colorful. I mean you have a very
very colorful president. He would never
have been able to make it in China. uh
you have the likes of Elon Musk. It's
great to be different. It's great to
stand out. You do not want to stand out
in China.
So the moral of the story is that the
top leadership understands that it needs
these top entrepreneurs, the likes of
Jackmaw,
and um they have done so many great
things for the country, even for the
world. But in China, garnering too much
influence and power even through social
media
uh doesn't make you look that great.
It's not a good thing for you
personally. And and there's a saying in
China that you just don't want to be the
tallest tree, right? The tallest tree
gets the most wind. So I don't agree at
all with the western conclusion that
this anecdote, this story has meant that
entrepreneurs don't want to be
entrepreneurs anymore. The young kids
don't aspire to be people like Jackal.
That's not true at all. The incentives
are still there. It's a different kind
of rich elite class in China.
>> So on on what dimensions do you think
that the height of the tree is measured?
Uh, is it is it more about just
mouththing off in public? So, can you
still be the riches