Speaker 1: Hello, and welcome to another episode of The Odd Lots Podcast.
Speaker 1: I'm Joe Wisntal and I'm Tracy olliwa Tracy. You know,
Speaker 1: sometimes I don't know if it's a joke, but at
Speaker 1: the end of an episode we'll be like, well, we're
Speaker 1: going to have to check back a year from now
Speaker 1: to see how that developed. It's not meant to be
Speaker 1: a joke. It's meant to be it's not a joke.
Speaker 1: But we don't I don't know if we always do
Speaker 1: it or if we really always, you know, follow up
Speaker 1: on those, but it is something we say, all right,
Speaker 1: but we're making good. We're making good on one of
Speaker 1: those comments now though, right we are, we are doing
Speaker 1: it an episode that I think can legitimately be said
Speaker 1: to be a follow up, you know. I think it
Speaker 1: was obviously, like basically a year ago around this time
Speaker 1: that we first sort of became aware of the coronavirus.
Speaker 1: We didn't know how big of a deal it was
Speaker 1: going to be. We didn't know how, you know, we
Speaker 1: knew it was sort of bubbling up. We knew that
Speaker 1: there were cases in Wuhan. We didn't know much though
Speaker 1: about the overall impact and um, you know, one of
Speaker 1: the first people that we discussed it with was was
Speaker 1: was it with our guest today? Right? So, this particular
Speaker 1: guest has been on a few times now and we
Speaker 1: always get requests for him to uh to come back.
Speaker 1: Last year when we spoke to him, it was February.
Speaker 1: As you mentioned, the coronavirus crisis was just really getting underway.
Speaker 1: But we'd already seen a bunch of supply chain disruptions
Speaker 1: and there was a lot of talk at the time
Speaker 1: about what that might mean for tech specifically. So in
Speaker 1: tech you have these really complicated supply chains with lots
Speaker 1: of little components, particularly semiconductors. So we did uh what.
Speaker 1: We had a big conversation about that at the time,
Speaker 1: and now we can check in and see what's actually happened. Yeah,
Speaker 1: I mean, I think it's useful. I think you're framing
Speaker 1: there is really good because at the time we didn't
Speaker 1: know yet that it was going to be this global
Speaker 1: health crisis. We were really at the time we were
Speaker 1: focused on, well, what does this mean for Chinese manufacturing
Speaker 1: because we knew that a lot of factories were shut down,
Speaker 1: including the suppliers. One of the first companies in the
Speaker 1: US to really warn that they were seeing an impact
Speaker 1: from the virus was the Apple, which talked about disruption
Speaker 1: to its suppliers and the attendant disruption that would happen
Speaker 1: with its product rollout. So even you know, in the
Speaker 1: very early days, that still seemed like the angle um
Speaker 1: tech and manufacturing. And then of course it was just
Speaker 1: a few weeks later that we realized we were looking
Speaker 1: at a full blown global health crisis. Right and now,
Speaker 1: of course, UM, I mean this is a little bit
Speaker 1: outside of tech. But now a year later, China's economy
Speaker 1: is actually doing a lot better on a number of
Speaker 1: measures versus places like the US or perhaps Europe. Uh.
Speaker 1: It continues to develop its tech industry, of course, and
Speaker 1: we know the government has really doubled down on its
Speaker 1: attempts to create or improve its domestic tech capabilities. And
Speaker 1: if anything, I guess the tensions with the U S
Speaker 1: over trade, plus the supply chain disruptions from COVID has
Speaker 1: really encouraged UH the leadership in China to look at
Speaker 1: this and to accelerate this idea of tech independence. Yep.
Speaker 1: So in extraordinary year, just sort of on all front,
Speaker 1: as you mentioned, our guest is a recurring odd lots
Speaker 1: guest always one of the most requests, so I'm very
Speaker 1: excited to have him back. We're going to be speaking
Speaker 1: with Dan Wong. He is a technology analyst at gav
Speaker 1: col dragon Omics. Knows a lot about a lot of stuff,
Speaker 1: particularly related to tech and manufacturing, and can speak about
Speaker 1: it in a way that very few people can. So um, Dan,
Speaker 1: thank you very much for coming back on coming back
Speaker 1: on the show. Always a pleasure. Thank you, Joe and Tracy.
Speaker 1: I mean, there's so much to discuss over the over
Speaker 1: the last year, and so many different things, and of course,
Speaker 1: you know, we've been talking a lot about chips on
Speaker 1: the show, and we've been you know, everything, but it's
Speaker 1: the starting big picture. I mean, we we had last
Speaker 1: talked to you about a year ago. You know, what
Speaker 1: is it? What did you learn? What have you learned
Speaker 1: about China and it's manufacturing and business capabilities watching it
Speaker 1: deal with the crisis over the last year. First, I
Speaker 1: learned that China is a lot more brutal than I thought,
Speaker 1: and already from a pretty high level of you know,
Speaker 1: efficiency as well as ruthlessness. And second, I thought that
Speaker 1: China is now the most can do our society in
Speaker 1: the world, just by how quickly it mobilized to really
Speaker 1: try to contain this pandemic and to really try to
Speaker 1: restart production. And let me talk through both aspects of
Speaker 1: that now. I lived in Paiging through the very worst
Speaker 1: of the pandemic. I was in Beijing starting from early February,
Speaker 1: and it was a pretty much a ghost town at
Speaker 1: that time. A lot of restaurants have been closed, a
Speaker 1: lot of workers, a lot of people who left Beijing
Speaker 1: back home. I had not been able to make it
Speaker 1: back to Beijing for about a few weeks to an
Speaker 1: entire month, and uh of the city was mostly lockdown.
Speaker 1: I had a person posted outside my apartment checking for
Speaker 1: apartment passes to make sure that people can come in
Speaker 1: and out. There was basically universal mask wearing, and there's
Speaker 1: still almost is universal mask wearing. About twelve months after
Speaker 1: the start of the pandemic, I had to bring a
Speaker 1: health code app which is embedded into my smartphone everywhere
Speaker 1: that I went, and it's it was very difficult to
Speaker 1: travel within China, and for a lot of foreigners or
Speaker 1: you know, people outside of China, it was very very
Speaker 1: difficult for them to come act. And this is to
Speaker 1: say nothing of the centralized quarantine system that China implemented
Speaker 1: to separate sick people away from families so that they
Speaker 1: don't transmit through an entire household, which basically was a
Speaker 1: very ruthless affair. Now, if you take a look and
Speaker 1: you know at the Chinese COVID numbers, there's always a
Speaker 1: lot of questions about Chinese data. Officially, the country has
Speaker 1: reported something like eighty thousand cases, and even if you
Speaker 1: want to expand that by an order of magnitude, which
Speaker 1: you know, maybe it's something that I can accept. Um
Speaker 1: the trend of the data has shown that COVID was
Speaker 1: pretty much conclusively stomped out in the country by April,
Speaker 1: which lines up very well with our experiences. That's when
Speaker 1: the lockdowns peaked and life slowly started to get back
Speaker 1: to normal, even though there have been a few flare
Speaker 1: ups here and there. And by September. I remember this
Speaker 1: very vividly when I spent a month in Shanghai, which
Speaker 1: had been much more relaxed than Pitching, I was sitting
Speaker 1: shoulder to shoulder with folks in the cinema. All the
Speaker 1: smart restaurant have been very difficult to book. Again. The
Speaker 1: strangest thing was that people were reaching out to shake
Speaker 1: my hand, and I found that kind of a very
Speaker 1: bizarre and gross experience. It was very strange for me
Speaker 1: to think that, you know, a culture that did not
Speaker 1: invent handshaking is now sort of the only place really
Speaker 1: perpetuating this tradition. UM. But you know, this is UM.
Speaker 1: That's a sign that life had been basically normal through
Speaker 1: a period of you know, pretty intense pain for a
Speaker 1: couple of months. Now. The second part of you know,
Speaker 1: the life in China is that, you know, I saw
Speaker 1: how quickly trying to responded to really try to contain
Speaker 1: this UM pandemic. In particular, I'll just highlight that manufacturers
Speaker 1: are really spring into action to try to contain this pandemic.
Speaker 1: I know that Bloomberg put out an article today saying
Speaker 1: that showing that trying to export it's something like two
Speaker 1: hundred forty billion masks last year, which is something like
Speaker 1: forty masks per person in the world. Because it's production
Speaker 1: for abilities were just able to get up and running
Speaker 1: really quickly. Not One of the things I heard from
Speaker 1: a manufacturer in China is that, you know, when they
Speaker 1: take a look at their counterparts in the US, so
Speaker 1: many of them had to ask if making masks as
Speaker 1: part of their core competence. Where yes, the Chinese company
Speaker 1: simply decided that making money is their core competence and
Speaker 1: therefore they should go make masks, and therefore every part
Speaker 1: of the supply chain really sprang up. A lot of
Speaker 1: the consumer internet apps changed their user interfaces to accommodate
Speaker 1: COVID tracking, for example, to make it very easy to
Speaker 1: find a fever clinic or a hospital nearby. And you know,
Speaker 1: China mobilize a really really quickly and very intensely to
Speaker 1: deal with this big threat in a way that hasn't
Speaker 1: necessarily replicated in a lot of parts of the West.
Speaker 1: I have what might be a strange question based on that,
Speaker 1: but how much of this can you attribute to they
Speaker 1: can do spirit of Chinese society, as you put it,
Speaker 1: versus the benefits of having a command economy with a
Speaker 1: centralized authority that can instruct people to do things like
Speaker 1: you know, post attendance outside of buildings and make sure
Speaker 1: that people aren't breaking lockdown, and they can tell factories
Speaker 1: to start manufacturing masks and things like that. I guess
Speaker 1: I'm asking how much of it is spontaneous adaptation versus
Speaker 1: centralized directives. I think it is both. I think it
Speaker 1: is um neither entirely one uh and obviously not entirely
Speaker 1: the other. I think that it is both the case
Speaker 1: that a lot of Chinese folks, first of all, we're
Speaker 1: very careful and complying with government orders, and then second
Speaker 1: of all and figuring out what they can do as
Speaker 1: part of this pandemic. If it were entirely a command economy,
Speaker 1: you know, the Soviet style, this goes there, I don't
Speaker 1: think it could have been quite as effective as a
Speaker 1: lot of Chinese manufacturers just being very nimble, retooling their
Speaker 1: products and then figuring out how to get production back
Speaker 1: online again. Yeah. I thought it was interesting that what
Speaker 1: you said companies identifying their core competent as making money
Speaker 1: is sort of an interesting way to frame it. Could
Speaker 1: you expand on that a little bit more and what
Speaker 1: that process was like? I mean, they're obviously, you know,
Speaker 1: must have been many factories, many companies that had never
Speaker 1: made PPE equipment prior to the spring or prior to
Speaker 1: last winter, suddenly got very good at it. And how
Speaker 1: how did how did how do they do it? Well?
Speaker 1: Then you know, I hastened to add a caveat here
Speaker 1: that many of them were not necessarily very good at it,
Speaker 1: and a lot of Chinese masks turned out to be
Speaker 1: defective early on. Now a lot of these were either
Speaker 1: called by regulatory action or they just learned and figured
Speaker 1: out very quickly how to make better masks and were
Speaker 1: able to explore to quite so many around the world.
Speaker 1: And I think the issue here is that, you know,
Speaker 1: one of the issues with manufacturing in the US early
Speaker 1: on in the pandemic had been that the US government
Speaker 1: did not send out these very clear profit signals that
Speaker 1: we need a ppe, that we need we will pay
Speaker 1: for all of this stuff. And the Chinese government first
Speaker 1: of all established a lot of these clear up pressing
Speaker 1: incentives in these regulated healthcare areas, as well as pretty
Speaker 1: much making masks wearing mandatory, as well as you know,
Speaker 1: sort of frightening people enough into believing that this is
Speaker 1: indeed a very serious virus that everybody needs to take seriously.
Speaker 1: And so once you had all of these things in place,
Speaker 1: and you also had, you know, a lot of sympathy
Speaker 1: for the victims of wind, early on, people felt that, well,
Speaker 1: maybe we need to help out, and a lot of
Speaker 1: companies reacted in a good way to try to contain
Speaker 1: this pandemic. So does that adaptation, or that ability to
Speaker 1: evolve your business model very quickly to adapt to new situations,
Speaker 1: does that extend to more complicated manufacturing things like technology.
Speaker 1: So we've had you on a bunch of times before,
Speaker 1: as Joe and I have both mentioned, and we've talked
Speaker 1: about some of the head winds facing China when it
Speaker 1: comes to developing its own tech base, specifically in semiconductors.
Speaker 1: In we saw new challenges to China's ambitions emerged. So
Speaker 1: we had COVID nineteen messing with the supply chains, and
Speaker 1: we also had the US basically doubling down on its
Speaker 1: trade war with China and issuing a whole bunch of
Speaker 1: new orders that are interfering with Chinese tech in some way.
Speaker 1: How easy is it for China to adapt to that
Speaker 1: new situation? Very good question, Tracy, And I'm not sure
Speaker 1: if it is um that easy at all. I'm not
Speaker 1: sure that these um, you know, the ability to mobilize
Speaker 1: a lot during a pandemic necessarily translates into you know,
Speaker 1: making China a scientific superpower UM in this case. You know,
Speaker 1: I think the one clear area where the US really
Speaker 1: distinguished itself was through its scientific establishment of getting together
Speaker 1: these mRNA accines that have a really superb efficacy out
Speaker 1: in a very awkward speed. Now the rest of the
Speaker 1: US supply chain hasn't unnecessarily reacted very well. Distribution now
Speaker 1: doesn't look like a great success yet. Um. But this
Speaker 1: is where the US did very well, Whereas in China,
Speaker 1: you know, I think the scientific establishment, you know, outside
Speaker 1: of pandemic in the pandemic in general, has never really
Speaker 1: been very well established. China has not after years of
Speaker 1: trying very hard to become a leader in something like semiconductors,
Speaker 1: it has not become a leader in aviation. Um. And
Speaker 1: there are a whole bunch of you know, scientific knowledge
Speaker 1: that I'm not sure that a lot of you know
Speaker 1: folks here really possessed in a very big way. But
Speaker 1: I think it is worth bringing up, as you did, Tracy,
Speaker 1: that the US doubled down on this trade war over
Speaker 1: which you know, was accelerated in some part by a
Speaker 1: negative perception of China in the US. And having spoken
Speaker 1: about a list of China's failures in the past, I
Speaker 1: think one of the point is that I've been making
Speaker 1: much more frequently now is that this time is different
Speaker 1: for Chinese industrial policy, and this time is different for
Speaker 1: Chinese industrial policy because of US actions. Now, if you
Speaker 1: consider the broader history of Chinese industrial policy over the
Speaker 1: last few years, to say nothing of the last few decades,
Speaker 1: when trying to put out its first five year plan
Speaker 1: in nineteen fifty nine, I would say that to the
Speaker 1: broad mass of Chinese industrial policy has mostly been a failure. Now,
Speaker 1: there you can point to some successes and something like
Speaker 1: solar panels and something like high speed rail in certain
Speaker 1: segments of heavy industries UM. For the most part, for
Speaker 1: bigger ticket items, Chinese firms have not been highly distinguished
Speaker 1: in segments like semiconductors or in aviation UM. And I
Speaker 1: think the fundamental problem with Chinese industrial policy in the
Speaker 1: past has been that the Chinese government was forcing basically
Speaker 1: government ministries and state owned firms to buy obviously inferior
Speaker 1: Chinese technologies and then hope that basically the scale of
Speaker 1: the buying as well as interprovincial competition can drive a
Speaker 1: lot of innovation and a lot of you know, high
Speaker 1: quality and products. Now, sometimes that works in the case
Speaker 1: of high speed rail, and also there's a lot of
Speaker 1: different things that don't work, and what's happened after, you know,
Speaker 1: the four years of the Trump administration. You know, a
Speaker 1: lot of the Trump administration has really targeted a lot
Speaker 1: of China's technology leaders leading firms, most of the private
Speaker 1: for awesome form of sanctions. UM. For example, it has
Speaker 1: really put the screws on a Huawei, which I think
Speaker 1: is China's most important technology company, and you may have
Speaker 1: a debate about whether it's private or not. UM. The
Speaker 1: Trump administration has imposed a form of sanction on ten
Speaker 1: Cent as well as on byte Dance, which owns respectively
Speaker 1: each had as well as TikTok It's UM designated off
Speaker 1: China's leading semiconductor maker Smick to the entity list. Really,
Speaker 1: the only Chinese major technology company that hasn't faced some
Speaker 1: form of sanctions has been Ali Baba. But in this case,
Speaker 1: actually it is Beijing that's stepped up to the plate
Speaker 1: to put the screws on Ali Baba. I think the
Speaker 1: issue here is that the US government has entirely aligned
Speaker 1: the incentives of Chinese firms with that of the state,
Speaker 1: which has always tried to pursue self sufficiency as technological
Speaker 1: greatness in the past. These Chinese companies have not always
Speaker 1: tried to sign on to a lot of these UH
Speaker 1: their agendas. If you take a look um Ali, Baba
Speaker 1: and ten Cent in Huawei have always been using very
Speaker 1: substantial amounts of US technologies because they've always been the
Speaker 1: best in class. But now they have a great incentive
Speaker 1: to try to, you know, build up the technological ecosystem
Speaker 1: in China. And to editorialize a little bit here, you know,
Speaker 1: I think the US reacted to the technological rise of
Speaker 1: the U S s R in Japan mostly by trying
Speaker 1: to invest more in itself and building up more of
Speaker 1: its own industries, and it's reacting to the technological rise
Speaker 1: of China mostly by trying to kneecap China's leading firms.
Speaker 1: So instead of realizing it's the splitinic moment, it's really
Speaker 1: triggering one in China. And just to extend the space
Speaker 1: analogy just a little bit further, I think the US
Speaker 1: government has put Huawei into the position that NASA was
Speaker 1: in the nineteen sixties when it was the main buyer
Speaker 1: for semiconductors UH and it was buying chips only on
Speaker 1: the basis of performance, not cost, And so Huawei now
Speaker 1: is a very cash rich, very competent firm that is
Speaker 1: trying to get its hands on Chinese semi conductors just
Speaker 1: as long as they work, without spending too much time
Speaker 1: thinking about, you know, whether this is a launch room
Speaker 1: company or not, simply because it really wants to build
Speaker 1: up more of a reliable ecosystem. That's fascinating. Is there
Speaker 1: some reason why that one can point to to talk
Speaker 1: about the success China has had in solar and high
Speaker 1: speed rail that hasn't translated into semi conductors and aviation
Speaker 1: in terms of what it was about industrial policy or
Speaker 1: demand side policies that made those areas different. Well, Joe,
Speaker 1: a lot of the academics who have un studied this
Speaker 1: exact question have I'm sort of come to the conclusion
Speaker 1: that it's really hard to find patterns here when you
Speaker 1: take a look at Chinese policies in things that include
Speaker 1: you know, the electrical grid and things that include you know,
Speaker 1: solar panels, in high speed rail, which are relative successes,
Speaker 1: and in semiconductors and aviations where they've been a failures.
Speaker 1: It's been a lot of the same policies, including a
Speaker 1: lot of the same people, So it's really difficult to
Speaker 1: figure out you know exactly what's going on here, you can,
Speaker 1: you know, spin out a wonderful story in every particular case. Uh,
Speaker 1: maybe there is just some complexity criterion, which I completely
Speaker 1: believe in taking a look at how complex the semiconductor
Speaker 1: supply chain is. Um. But it's very difficult to find
Speaker 1: easy answers here, Dan, I wanted to go back to
Speaker 1: something you said. You you highlighted this irony. It's pretty
Speaker 1: big irony that almost all the major tech companies in
Speaker 1: China have had some sort of US restriction imposed on
Speaker 1: them in recent years, except for Ali Baba. But of
Speaker 1: course now Beijing has basically done that, done the U
Speaker 1: s S job for it, and and imposed a bunch
Speaker 1: of limitations on the business. Uh, there's some reports of
Speaker 1: Jack Ma having gone missing. People aren't really sure what's
Speaker 1: going on with him. Is that another headwind for Chinese
Speaker 1: tech or would you imagine that that would have a
Speaker 1: sort of cooling effect on entrepreneurs Well, certainly the equity market,
Speaker 1: he has believed. So I believe Ali Baba has at
Speaker 1: this point lost aroundent of its value throughout the year
Speaker 1: as it's been continuously beaten up by the Chinese government.
Speaker 1: Whereas a Tencent has lost around ten percent of its value. Now,
Speaker 1: whether this has a substantial cooling effect on entrepreneurs as well.
Speaker 1: You know, a lot of the aging line is that
Speaker 1: we need to create effective antitrust. This antitrust debate is
Speaker 1: happening very substantially also in uh, you know, Europe as
Speaker 1: well as in the US. We need to regulate marketplace
Speaker 1: that makes life easier for a lot of smaller businesses.
Speaker 1: There's a lot of you know, these financial issues that
Speaker 1: we are concerned about, these financial risks with and financial
Speaker 1: The difficulty for US is to you know, sort of
Speaker 1: disentangle that with UH and obviously in politic speech that
Speaker 1: Jack Moth gave, and so you know, there's probably both
Speaker 1: a component of effective regulatory response to you know, uh
Speaker 1: more complex and more domineering private firms as well as
Speaker 1: this personal issue. So it's it's pretty difficult to disentangle
Speaker 1: these things. Now, to answer your question a little bit
Speaker 1: more directly, what I would generally say is that Chinese
Speaker 1: state has generally been pretty well aware that it's private
Speaker 1: sector has been much more dynamic than this uh, you know,
Speaker 1: stodgy moribon state sector, and it has not shown a
Speaker 1: huge amount of interest yet and really trying to stifle
Speaker 1: out basically a lot of entrepreneurial activity. Now, the Sea
Speaker 1: regime has been continuously more repressive, and it is signaled
Speaker 1: that there are certain things that I will control very strictly.
Speaker 1: But for the most part, I would not say that
Speaker 1: we're in this part of the world where China is
Speaker 1: completely ready now to force the entrepreneurs to be state actors.
Speaker 1: I think we're not quite there yet. I want to
Speaker 1: get in you know, we've obviously been talking a lot
Speaker 1: about semis on the show, and I want to sort
Speaker 1: of get to that specifically soon and the state of
Speaker 1: the state of the art of Chinese semiconductor manufacturing. But
Speaker 1: before we do, I mean, you know, I think one
Speaker 1: of our recent guests talked about chips is sort of
Speaker 1: this obviously incredibly complicated, extremely expensive marriage of chemistry and physics,
Speaker 1: and so before we talk about that, I want to
Speaker 1: get into the point you made about there's still like
Speaker 1: the limits of Chinese um the scientific community or the scientists,
Speaker 1: the leading edge of science in China, and you mentioned
Speaker 1: the US edge, the clear edge that the US has
Speaker 1: had even throughout all this in making vaccines, which of
Speaker 1: course is you know, indicative of the strong U S
Speaker 1: science position. What are what what do you what are
Speaker 1: your observations, what do you perceive as academic observations about
Speaker 1: what it takes and what what it will need for
Speaker 1: that to really grow and become cutting edge in China. Well,
Speaker 1: the first thing I would like to do is I'm
Speaker 1: always trying to beat up on the consumer internet sector
Speaker 1: because I'm not sure how much of that is real technology.
Speaker 1: So many of the consumer internet names that were all
Speaker 1: familiar with, including in China, especially Hollibob and ten Cent,
Speaker 1: seem more to me to be companies that are really
Speaker 1: exploiting network effects, that are innovating on business models that
Speaker 1: are not necessarily creating a great deal of I P.
Speaker 1: And if you take a look at the broader scientific
Speaker 1: establishment in China, basically, you know, according to the government's
Speaker 1: own data, around about five to ten percent of all
Speaker 1: of its R and D spending is going towards fundamental
Speaker 1: scientific research, which is around as a share about I
Speaker 1: think um less than a half or about a third
Speaker 1: of US levels. So it's a completely different scale ball
Speaker 1: park here. I'm not sure how much Chinese firms are
Speaker 1: really doing substantial amounts of very cutting edge technology. According
Speaker 1: to some of the academic studies I've seen, basically the
Speaker 1: only area where China Chinese scientists are publishing the majority
Speaker 1: of the top one percent of scientifically cited papers is
Speaker 1: in materials sciences, where China has always taken a keen
Speaker 1: interest because it feeds into things like semiconductors as well
Speaker 1: as aviation. Um. But what Chinese researchers do have, but
Speaker 1: you know, university cities would tell me is that they
Speaker 1: have a substantial amount of money being thrown at them
Speaker 1: basically to do work. Where Yes, when I talk to
Speaker 1: American researchers, what they would tell me is that, well, look,
Speaker 1: we're spending all of our time filling grants. We are
Speaker 1: spending all of our time preparing very detailed proposals to
Speaker 1: the National Science Foundation, which is pretty conservative and only
Speaker 1: funds very well established our researchers. UM. So you know,
Speaker 1: I think, you know, structurally, I think one of the
Speaker 1: ad mantagers that China would have, if you had to
Speaker 1: push me to say, is that, well, it sort of
Speaker 1: showers money a little bit randomly. Um. But you know,
Speaker 1: top scientists don't really have to keep wondering about whether
Speaker 1: this um, a committee of bureaucrats is going to approve
Speaker 1: their scientific project. So just on that note, one of
Speaker 1: the themes that keeps coming out of our discussions on
Speaker 1: the semiconductor industry specifically is just the amount of money
Speaker 1: it takes to build those factories. UM. I mean, it
Speaker 1: takes a lot of expertise as well. So you can't
Speaker 1: just throw money at the problem, obviously, but when the
Speaker 1: cost of building a new foundry is something like ten
Speaker 1: billion dollars, clearly you need some sort of capital at hand.
Speaker 1: And in certain places the government has really encouraged that
Speaker 1: domestic industry to build up by investing, subsidizing in some way.
Speaker 1: How has China approached the semiconductor industry and what are
Speaker 1: the sort of avenues it can pursue in order to
Speaker 1: boost domestic capacity, mostly in the only way that the
Speaker 1: Chinese government knows how, which is by shoveling a lot
Speaker 1: of subsidy funds on towards state owned companies. That's usually
Speaker 1: been the story that China wants on into order to
Speaker 1: have success. And you know, you're right that semiconductors now
Speaker 1: are incredibly capital intensive. I saw, you know in today
Speaker 1: in the day of recording TSMC has just released its
Speaker 1: latest quarterly results. It's committing something like twenty seven billion
Speaker 1: dollars within this year to basically do more capacts, which
Speaker 1: I think is just an astonishing figure, you know, for
Speaker 1: a single company to commit over the course of one year.
Speaker 1: And so you know, the Chinese industry has never really
Speaker 1: been able to match that, and the I think the
Speaker 1: Chinese government funds have never really been able to push
Speaker 1: these companies to be very competitive. They are still very
Speaker 1: reliant on subsidies in order to have more production. So
Speaker 1: we're talking about the we talked about the Chinese semiconductor
Speaker 1: industry not being top flight. Yet what is the state
Speaker 1: of it? What does it look like, How many important
Speaker 1: companies are there to watch, how advanced are they, how
Speaker 1: many years behind? Like, give us sort of just your
Speaker 1: assessment of worth things stand right now relative to the
Speaker 1: rest of the world. Well, you really had to push
Speaker 1: me to give a single metric um. You know, this
Speaker 1: would broadly be unfair to the industry, but I would say,
Speaker 1: you know, broadly speaking, I would say that China, Chinese
Speaker 1: firms are at the very least five years behind um
Speaker 1: the cutting edge, if not something like closer to fifteen.
Speaker 1: If you know, if you take a look at certain segments. Now,
Speaker 1: my assessment in general of the Chinese semiconductor industry is
Speaker 1: that China has figured out sort of the basics of
Speaker 1: competing in pretty much every segment of the semiconductor value chain,
Speaker 1: but it is leading in none of them. Where it
Speaker 1: is close to being the market leader is something like
Speaker 1: assembling and packaging, which is pretty low value. It's a
Speaker 1: relatively labor intensive UM. There are some successes like Huawei,
Speaker 1: which designs its own phone processors just as Apple does.
Speaker 1: It is putting out some really cutting edge processors. There
Speaker 1: are a lot of Chinese design firms now that are
Speaker 1: designing pretty capable chips as best as I can tell.
Speaker 1: But if you take a look at the act full
Speaker 1: manufacturing of chips, UM, China's leading semiconductor maker has always
Speaker 1: persistently been about five years behind t SMC, and this
Speaker 1: is before it was sanctioned UM earlier last month onto
Speaker 1: the commerce departments and t list. And if you take
Speaker 1: a look basically at all of the inputs that China
Speaker 1: needs to make semi conductors, you know, some of the
Speaker 1: chemicals that can do maybe some of the wafers that
Speaker 1: can do, But where it is very substantially behind is
Speaker 1: in something called E d A tools, which is the
Speaker 1: software that you need to actually design a semiconductor, as
Speaker 1: well as the actual manufacturing equipment, So the lithography machines,
Speaker 1: basically a lot of the testing machines. China is pretty
Speaker 1: much nowhere in a lot of these different segments. So
Speaker 1: China has managed to be UM very far behind Western
Speaker 1: as well as Japanese Howdy's um Korean firms, even when
Speaker 1: it had access to leading tools. Now, when the US
Speaker 1: government has been much more active with sanctions, it's going
Speaker 1: to be much more difficult for them to stay, you know,
Speaker 1: even competitive at this point because they have to wait
Speaker 1: for the rest of the ecosystem to catch up to
Speaker 1: basic competence, which is not white there yet. So a
Speaker 1: lot of your writing UM sort of focused on the
Speaker 1: dynamic between performance and cost when it comes to technology
Speaker 1: and how companies and governments might treat that. Can you
Speaker 1: can you dive into that thesis force because I think
Speaker 1: it explains a lot of what's going in on in
Speaker 1: semiconductors at the moment. So if you take a look
Speaker 1: at a lot of the early products of the technology industry.
Speaker 1: You know a lot of early things simply don't work.
Speaker 1: So you know, the first ever iPhone, people would say
Speaker 1: at this point was barely functional as a phone. Um,
Speaker 1: if you take a look at the earlier semiconductors, you know,
Speaker 1: the early integrated circuits, they had basically a higher failure
Speaker 1: rates than older technology transistor based. But what actually matters
Speaker 1: is that you need to continue investing in these new
Speaker 1: technologies if you have of a bigger market to address
Speaker 1: and you have more money to apply into R and
Speaker 1: D and a lot of this just takes a very serious,
Speaker 1: long term effort to build out basically a lot of
Speaker 1: these capabilities. Now, what the U. S Government has done
Speaker 1: is that it has turned a lot of its firms
Speaker 1: into unreliable suppliers out of I think highly legitimate security concerns.
Speaker 1: The U. S Government has said we don't want Haawei
Speaker 1: uh equipment in our networks. But also it's gone quite
Speaker 1: a lot further by denying a lot of the critical
Speaker 1: components which are mostly made by American companies. To take
Speaker 1: down Huawei, the U S Government has really significantly escalated
Speaker 1: this attack on what I think is China's most important
Speaker 1: technology company, and so Haawei is now in this position
Speaker 1: of trying to find alternative suppliers, whether they are in
Speaker 1: Japan or Korea, or Taiwan or Europe. Best of all,
Speaker 1: there ought to be Chinese and so a lot of
Speaker 1: these smaller suppliers that couldn't have the time of day
Speaker 1: from Haawe are now becoming suppliers to this big company.
Speaker 1: And I think this is going to play out in
Speaker 1: a way that you know, you have a lot of
Speaker 1: just this very patient funding to bring up a lot
Speaker 1: of technology companies up to speed onto you know, the
Speaker 1: technology leaders, and this is going to play out in
Speaker 1: for a lot of these different technologies because China is
Speaker 1: taking this self sufficiency quel much more seriously now. Something
Speaker 1: that interests me, and it goes back to one of
Speaker 1: your first answers, and it's sort of still scratching my
Speaker 1: head on this a lot. Is you know, when you
Speaker 1: were talking about say Um the mask manufacturing in China,
Speaker 1: one of the reasons that it was successful is the
Speaker 1: Chinese government established very early on the profit potential that
Speaker 1: they were a buyer, that there would be buyers of masks.
Speaker 1: You could say one of the reasons that the vaccine
Speaker 1: um rollout in the US or the vaccine development happened
Speaker 1: so fast is operation operation warp speed de risking the process?
Speaker 1: The government risking the process by promising to buy vaccines
Speaker 1: and then going back to chips. As you point out,
Speaker 1: like one of the historical strategies has been the government's
Speaker 1: going to buy a lot, and then of course if
Speaker 1: you look at the US historical semiconductor industry, you came
Speaker 1: out of d O D buying. So obviously the demand
Speaker 1: side is a really important part of the equation, whether
Speaker 1: we're talking about masks, whether we're talking about vaccines, whether
Speaker 1: we're talking about chips. But it doesn't sound like that's enough.
Speaker 1: So what what more needs to be done beyond just
Speaker 1: the sort of getting the demand side right to really
Speaker 1: catalyze the expansion and innovation and develop that. No, how well,
Speaker 1: if you're China, view don't really have to be bound
Speaker 1: by the demand side. You you have the luxury of
Speaker 1: thought not having to choose. Because China doesn't simply manage
Speaker 1: the demand side, it also encourages a lot of producers
Speaker 1: side subsidies. China is very much a supply side economy.
Speaker 1: So the really I can think to me economically in
Speaker 1: was that a lot of Western countries directed a stimulus
Speaker 1: to basically households in the form of checks from the
Speaker 1: government sort of to stimulate consumption. And if you take
Speaker 1: a look at China's government spending this year, it's a
Speaker 1: fiscal stimulus two households has been absolutely minimal. UM. It's
Speaker 1: interest rate cuts has been also minimal, and it focused
Speaker 1: a lot on just getting production back online and then
Speaker 1: trying to you know, focus on helping manufacturers get back
Speaker 1: to their feet. Over the first half of the year,
Speaker 1: I had basically a lot of conversations about how local
Speaker 1: governments as well as the central government were very intimately
Speaker 1: involved and basically trying to scale up and to rebuild
Speaker 1: a lot of these supply chains. And I think that
Speaker 1: effort has continuously paid off if you take a look
Speaker 1: at the continued strength of China's exports. Now China is
Speaker 1: you know, again doesn't have to choose. It is now
Speaker 1: really intent on doing technology. What it has is a
Speaker 1: lot of scale in a way that for example, whole
Speaker 1: Denmark does not. You know, China has a very large
Speaker 1: market to play in UM. They are able to build
Speaker 1: very substantial companies, not necessarily leading companies out of population
Speaker 1: of one point three billion people. And what's been quite
Speaker 1: striking to me the last year was that seeing how
Speaker 1: the Central Party leadership, especially President Seezing King, continuously emphasized
Speaker 1: that China needs to do a lot more technology. So
Speaker 1: he has UH continuously said that we need a secure
Speaker 1: and controllable supply chain, We need to innovate our way
Speaker 1: out of choke point technologies. Um, the most astonishing government
Speaker 1: directive I thought of last year was that at the
Speaker 1: end of the year, UH folks gather and paiging for
Speaker 1: the Central Economic Work Conference, which lists out the economic
Speaker 1: priorities for the next year and in twenty Basically in December,
Speaker 1: the highest economic officials said, our top priority in twenty
Speaker 1: one will be science and technology. As far as I
Speaker 1: can tell, science and technology has never been broken out
Speaker 1: as one of the eight independent items that China will
Speaker 1: really need to figure out and to say, you know,
Speaker 1: and this topped the item for the last major work directive.
Speaker 1: So this is a pretty big whole of society effort
Speaker 1: to figure out a lot more technology. So on that note,
Speaker 1: how do you see this developing in one Are we
Speaker 1: going to see a continuation of China's dedication to building
Speaker 1: out its tech expertise, or perhaps you know, we have
Speaker 1: Joe Biden coming in as the president, a new administration,
Speaker 1: perhaps that takes some of the pressure off. Or is
Speaker 1: this a dynamic that you think is going to be
Speaker 1: going on for a long time. I think it's going
Speaker 1: going to go on for a very long time. And
Speaker 1: I think the Chinese government has realized that it really
Speaker 1: needs to figure out a lot of the indigenous innovation
Speaker 1: projects that it hasn't parked on so that it can't
Speaker 1: be very easily choked off by capricious, soft foreign governments
Speaker 1: on critical technologies. At the same time, I don't necessarily
Speaker 1: think that China will make any immediate breakthroughs um in
Speaker 1: anything like the short term and anything like the next
Speaker 1: two to three years, although there there could be, you know,
Speaker 1: a company level, I'll breakthroughs on smaller technologies, because the
Speaker 1: general trend that I see in China is that you know,
Speaker 1: things get better op but at a very slow rate.
Speaker 1: So if you take a look at you know, the iPhone,
Speaker 1: the very first iPhone um you know, very famously is
Speaker 1: assembled in China and designed in California. The first iPhone
Speaker 1: incorporated something like two percent of Chinese value add in
Speaker 1: its hardware, and that was basically the value of the
Speaker 1: labor in China that gathered to really put together this phone.
Speaker 1: Components that were that came from places like the US
Speaker 1: and Japan and Germany in other places. And now an
Speaker 1: academic that determined the original two percent figure also, uh,
Speaker 1: you know, did an update of the study in twenty eighteen.
Speaker 1: She took apart and iPhone ten and then found that
Speaker 1: the iPhone ten's share of Chinese value added had increased
Speaker 1: to something like twenty five percent. So you had a
Speaker 1: growth of two percent over ten years of a much
Speaker 1: higher value phone. And so you know, that's sort of
Speaker 1: the paradigmatic story to me of a lot of Chinese progress,
Speaker 1: you know, innovating on what is one of the hardest
Speaker 1: electronics products in the world, but at a pretty slow
Speaker 1: and steady pace, um, not necessarily in big breakthroughs, and
Speaker 1: sort of see this Chinese patients sort of you know,
Speaker 1: not overrunning the U semi conductor industry any soon, but
Speaker 1: steadily making a better progress. Why can't China just hire
Speaker 1: the number two person in Taiwan semi conductor who that is?
Speaker 1: Whoever that is? Like, why is it not that easy? Well,
Speaker 1: They certainly have spent quite a lot of effort trying
Speaker 1: to recruit a lot of engineers from especially Taiwan as
Speaker 1: well as Korea. Remember staying at a hotel up close
Speaker 1: to a Chinese um memory chip plant. Koreans are really
Speaker 1: dominant in memory and then the hotel staff told me, well,
Speaker 1: you know, most of our residents are Korean engineers. They
Speaker 1: all have their own private drivers and they get to
Speaker 1: fly home to Seoul on the weekends. I'm currently sitting
Speaker 1: in Shanghai, which is the site of China's most advanced
Speaker 1: semiconductor maker, Smike. I'm told that Smike built a church
Speaker 1: for one of its first executives, which came from t
Speaker 1: SMC in fact, and it's built a street called a
Speaker 1: Little Taipei where you can get really good beef noodles
Speaker 1: as well as bubble tea. So they can constantly make
Speaker 1: efforts to I hire particular people. The issue is that
Speaker 1: you need to hire not just one person, but you
Speaker 1: need to hire entire teams and entire divisions of staff,
Speaker 1: and you also need the cooperation of all of your
Speaker 1: suppliers in order to continue innovating here. And that's not
Speaker 1: really something that Chinese firms have really well established, So
Speaker 1: I have a related question. But we've been talking a
Speaker 1: lot about what China is doing domestically to build up
Speaker 1: its tech expertise, we haven't been talking a lot about
Speaker 1: what it's doing externally. Is there any do you think
Speaker 1: there's any desire or appetite on the part of China
Speaker 1: to try to I guess um complicate other countries tech
Speaker 1: ambitions basically retaliate against the US in the way that
Speaker 1: the US has imposed restrictions on Chinese tech tracy. One
Speaker 1: of these things that we've been thinking about very actively
Speaker 1: is when China, when Beijing would be ready to retaliate
Speaker 1: against US firms. And I've been consistently taking the view
Speaker 1: that China will not broadly retaliate against US firms, and
Speaker 1: so far, I think my view has generally held up
Speaker 1: pretty well. Now, every time the U s Department of
Speaker 1: Commerce does something really mean against Lahwei, I have a
Speaker 1: bunch of folks asking me, well, you know who is
Speaker 1: Beijing going to punish next. It doesn't really calm minds
Speaker 1: in the US. When Global Times, one of the nationalists
Speaker 1: state owned papers, um every time lists a list of
Speaker 1: abc Q of retaliation, it's going to be Apple, Boeing, Cisco,
Speaker 1: and Qualcom that our targets for retaliation, and in fact,
Speaker 1: we haven't really seen any highly visible instances of retaliation
Speaker 1: against US firms. And I think that comes down to
Speaker 1: a couple of different reasons, and broadly speaking, first of all,
Speaker 1: that China really needs American technology, which is highly evident
Speaker 1: in always current struggles because it hasn't been able to
Speaker 1: get its hands on American semiconductors. So US technology firms
Speaker 1: are very important China and you can't lose them. You
Speaker 1: also have basically U S employers, US companies being major
Speaker 1: employers in the Chinese market. Apple employees, you know, over
Speaker 1: a million people directly through manufacturing and retail in China,
Speaker 1: uh through also through contract manufacturers like Fox Con. You
Speaker 1: have American companies like General Motors hiring basically tens of thousands,
Speaker 1: two hundreds of thousands of people. Even Starbucks and McDonald's,
Speaker 1: who are pretty important for urban youth employment, which had
Speaker 1: been looking even a bit shaky before the pandemic. Now,
Speaker 1: folks in Beijing used to tell me that, well, a
Speaker 1: lot of the people who work at Starbucks can just
Speaker 1: go work for luck and coffee instead. But now that
Speaker 1: we all know that Luck and Coffee is a big fraud,
Speaker 1: you know, I think folks are not saying that so
Speaker 1: much anymore. And you know, I think the other reason
Speaker 1: that Beijing has mostly been restrained is that it has
Speaker 1: perceived that, uh it um, you know, the best way
Speaker 1: to retaliate against American firms is not to play into
Speaker 1: the hands of hardliners at the White House or National
Speaker 1: Security Council would like nothing better for American companies to
Speaker 1: pull up their stakes and then move production, if not
Speaker 1: back to the US, then to Vietnam or India or Mexico.
Speaker 1: It is better to um, you know, hug them even closer,
Speaker 1: which is uh the attitude that has been pretty apparent
Speaker 1: under presidency to really try to engage much more with
Speaker 1: American businesses, who are, after all, effectively lobbying Washington d C.
Speaker 1: In order to preserve access to China, which for so
Speaker 1: many companies is their fastest scoring market or expect to
Speaker 1: be one of their largest markets in the next couple
Speaker 1: of years. And broadly, I don't get the sense of
Speaker 1: Aging that they are ready to retaliate against any big
Speaker 1: American company like Apple. Otherwise, you know, a lot of
Speaker 1: the entire business community might leave, and that's not the
Speaker 1: outcome that Aging is ready for it. Yet, the fact
Speaker 1: that you know, talk about replicating Taiwan Semi in China,
Speaker 1: that China can't even replicate Starbucks, that the homegrown Starbucks
Speaker 1: alternative turned out to go proof sort of sort of
Speaker 1: tells you something. Well, you know, so we we haven't
Speaker 1: really talked about Taiwan Semi that much on this episode,
Speaker 1: but of course we've been talking about a lot on
Speaker 1: recent episodes. But talk to us about your view of
Speaker 1: the sort of Chinese government view of the company and
Speaker 1: how that plays into the broader tension over taiwanail Right, Well, Joe,
Speaker 1: one of the frequent questions I got with you know
Speaker 1: Beijing's attitude to t SMC is whether you know there
Speaker 1: might be some sort of hot conflict ur military conflict
Speaker 1: with t s MC if Beijing tries to initiate something. Now,
Speaker 1: I think there might be other reasons to expect that
Speaker 1: Beijing will have military action, but I'm always very skeptical
Speaker 1: that Beijing will take military action over Taiwan for this
Speaker 1: particular reason. And I think the thinking here is that, um,
Speaker 1: you know, first of all, technology exists in people's heads.
Speaker 1: It's not just about the machinery. And if you have
Speaker 1: basically anything like a nasty conflict over Taiwan, I think
Speaker 1: you can't guarantee that a lot of critical engineers won't
Speaker 1: be evacuated ahead of time or will always be perfectly
Speaker 1: safe during you know, some sort of hot conflict. Second
Speaker 1: of all, you know, if you have some sort of
Speaker 1: you know, bigger action, some sort of hot conflict, can
Speaker 1: you really guarantee that these big factories that cost you know,
Speaker 1: tens of billions of dollars now really can be you know,
Speaker 1: safe from some sort of damage. And I think the
Speaker 1: most important factor here is that if Beijing ever escalates
Speaker 1: into you know, any sort of very violine action against Taiwan,
Speaker 1: it will be sanctioned by every Western government that provides it.
Speaker 1: The technology that both the Chinese industry as well as
Speaker 1: t SMC and the Taiwanese industry would need to continue growing.
Speaker 1: So much of the equipment to make some many conductors
Speaker 1: comes from the United States as well as from the Netherlands,
Speaker 1: as well as from Japan, and I think that China
Speaker 1: would not be able to get its hands on pretty
Speaker 1: much so many crucial components. Past that point because the
Speaker 1: foreign governments will just impose a pretty comprehensive embargo or
Speaker 1: you know, highly targeted and margo are semiconductors if the
Speaker 1: situation ever got to that point, so I would I'm
Speaker 1: always very skeptical that this would be a particular reason
Speaker 1: to act. How long can t SMC maintain its lead
Speaker 1: in semiconductor manufacturing. I think that t SMC will have
Speaker 1: a very substantial lead for a pretty long time. But
Speaker 1: you know, I think the comfort for Chinese firms is
Speaker 1: that technology might be moving to a point where you
Speaker 1: don't necessarily always need the cutting edge to you know,
Speaker 1: be a very to be a very successful firm. Now,
Speaker 1: if you take a look at what has driven a
Speaker 1: lot of the technological advancements from you know, fourteen animeters
Speaker 1: to seven animeters to five animeters to three n animeters
Speaker 1: in semiconductor process notes has been the sale of smartphones,
Speaker 1: and smartphones for the last three years has been a
Speaker 1: declining market, which shows that you know, there isn't necessarily
Speaker 1: a huge amount of demand at the very top leve
Speaker 1: holes of technology beyond basically you know, certain iPhone, Apple
Speaker 1: and Qualcom processors. You know, if you believe in all
Speaker 1: of the hype around FI GI, and I'm not sure
Speaker 1: that I do. You know, if we have you know,
Speaker 1: semiconductors in every traffic light, if you have semi conductors
Speaker 1: in um you know, every bookshelf, if I'm having semi
Speaker 1: conductors in my coffee, basically, you know, it doesn't necessarily
Speaker 1: have to be you know, leading edge semiconductors in the
Speaker 1: traffic light. A lot of it will be you know,
Speaker 1: pretty simple stuff of the type that China can mostly
Speaker 1: manufacture today. And even if you take a look at
Speaker 1: the most advanced AI chips, they're not necessarily on the
Speaker 1: cutting edge of five or three natometers. A lot of
Speaker 1: them are trailing edge chips. If you take a look
Speaker 1: at the cloud server chips, these are not necessarily again
Speaker 1: five or three. And so I think the you know,
Speaker 1: the case that China can be a little bit happier
Speaker 1: about is that technology is moving to a point where,
Speaker 1: you know, the whole thing is maturing, but you may
Speaker 1: not necessarily need cutting edge and everything for from now on. Yeah,
Speaker 1: this was something our last guest talking about this also mentioned,
Speaker 1: and so essentially in your view, I mean, we could
Speaker 1: talk a lot about you know, you mentioned earlier t
Speaker 1: SMC spending billion dollars in capex in one year. But
Speaker 1: the risk then is that technological dominance manufacturing dominance is
Speaker 1: not the business that it does not necessarily translate into
Speaker 1: the current into business dominance. A lot of things are
Speaker 1: leading edge once and then commoditized, which is, you know
Speaker 1: where trying to can catch up. And it's possible that
Speaker 1: this will also happen to semiconductors. I want to I
Speaker 1: want to take a different turn. I mean, so much
Speaker 1: of this conversation and something we've talked about, and I'm
Speaker 1: really curious to get your take. I mean, some of
Speaker 1: this conversation is about past chats we've had are about
Speaker 1: this sort of like scientific communities, network effects of tech hubs,
Speaker 1: so to speak, and that that debate is happening here
Speaker 1: in the US quite a bit. And you hear a
Speaker 1: lot of US tech and start up people talking about
Speaker 1: replicating Silicon Valley Silicon Valley elsewhere, whether it's somewhere in
Speaker 1: Texas or Miami, and you have all these vcs tweeting
Speaker 1: about how they're going to move and I know, some
Speaker 1: of the stuff that they're into, as you point out,
Speaker 1: isn't even really technology, especially especially if it's just software,
Speaker 1: internet consumer or exploiting network effects, it's not really tech
Speaker 1: per se. But I am curious what you think about,
Speaker 1: like the prospects of new Silicon valleys opening up somewhere
Speaker 1: in the US, especially planned one. Oh, we're all going
Speaker 1: to move to Miami, Like, how are you thinking about
Speaker 1: some of these these questions future of Silicon Valley and
Speaker 1: future of other U s tech cubs are elsewhere. Well.
Speaker 1: A lot of the thinking about how what makes the
Speaker 1: current Silicon valley work has always been a bit of
Speaker 1: a mystery. Um. You know, I used to live in
Speaker 1: San Francisco. At this point, most of my friends who
Speaker 1: live in San Francisco are quite key to leave, um
Speaker 1: not necessarily to Austin or Miami, but people have always
Speaker 1: dreamed a dreamt about, you know, moving down to Los
Speaker 1: Angeles because of you know, the housing issue in uh
Speaker 1: San Francisco, the higher rate of property crime, the human
Speaker 1: waste on the streets. It's always been a pretty frustrating
Speaker 1: place to live in. But on the other hand, it's
Speaker 1: also where you have fantastic universities doing a lot of
Speaker 1: cutting edge research. It's where the current UM nodes in
Speaker 1: this network are and maybe you know, it has a
Speaker 1: lot to do with whether So you know, Miami and
Speaker 1: Austin in the summer are not necessarily very pleasant places.
Speaker 1: Maybe you know, it all comes down to having a
Speaker 1: cool and pleasant, sunny whether um, I think whether Miami
Speaker 1: or Austin really make it really depends on how quickly
Speaker 1: Silicon Valley and its current form in San Francisco can unravel.
Speaker 1: Does it matter that some of this isn't real tech,
Speaker 1: that a lot of it is not particularly A lot
Speaker 1: of the things that people are excited about are not
Speaker 1: really science based. I don't not necessarily, I think, you know,
Speaker 1: there is a lot of skills involved in building a
Speaker 1: really functional app, and a lot of most other um cities,
Speaker 1: to say nothing of most other countries in the world,
Speaker 1: have not figured out how to build a really good
Speaker 1: intuitive app that consumers are really love to use. And
Speaker 1: so there is quite a lot of process knowledge. There's
Speaker 1: a lot of task and knowledge that goes into how
Speaker 1: to create these wonderful products. There's but you know, I
Speaker 1: would also say there's a lot of marketing involved in
Speaker 1: Silicon Valley to really try to have used for adoption.
Speaker 1: Maybe that sort of sales culture pays off a little
Speaker 1: bit more in Austin or in Miami. UM, But certainly
Speaker 1: there is still quite a lot of real engineering expertise
Speaker 1: in building these different software businesses. What really excites you
Speaker 1: in tech at the moment, semi conductor is Tracy, Okay,
Speaker 1: I'll rephrase it. What's the next big thing in semiconductors?
Speaker 1: And what are we going to be talking to you
Speaker 1: about in January? Well, you know, I think there is
Speaker 1: a lot of very exciting things going on now actually
Speaker 1: outside of semiconductors. UM. So you know, UM, Tyler Cowen,
Speaker 1: who's a Bloomberg columnists, has speculated that maybe the great
Speaker 1: stagnation processes outlined as you know, broadly technological stagnation over
Speaker 1: the last few years, maybe ending. And so he's excited
Speaker 1: about things like the mRNA vaccine being developed in record time,
Speaker 1: the space launches from SpaceX, UM. You know, the lot
Speaker 1: of things have gone very quickly in the US in science,
Speaker 1: you know, And so I'm excited about those things too.
Speaker 1: And it's possible that the Chinese now have some form
Speaker 1: of a proven quantum computing supremacy and not something I
Speaker 1: really understand about. UM. There's also a claim that they
Speaker 1: figured out some aspect of nuclear fusion here. Um, but
Speaker 1: I encourage you to, uh, you know, look at Tyler
Speaker 1: Cowen's work and let's see, you know, maybe we can
Speaker 1: chat about those topics in a follow up episode. You know,
Speaker 1: I realized there's all kinds of when you mentioned that,
Speaker 1: there's all kinds of follow up questions, like we could
Speaker 1: also talk about your view on automotive tech and so forth.
Speaker 1: One quick thing before we go that I realized it
Speaker 1: is kind of big and we haven't really talked about.
Speaker 1: TikTok was a huge thing. I mean, it was kind
Speaker 1: of one of the tech stories of and it seemed
Speaker 1: like the first real like Chinese consumer app that took
Speaker 1: the world by storm and stands toe to toe with
Speaker 1: the consumer apps like Facebook and other stuff. Is that
Speaker 1: How big of a deal is that? And what does
Speaker 1: that tell you about a sort of Chinese consumer internet
Speaker 1: company being able to play on the global scale in
Speaker 1: the way I don't think we've really seen before. I
Speaker 1: think TikTok is a highly innovative company that's done a
Speaker 1: lot of great things, and I'm not sure if China
Speaker 1: will be able to replicate that success saw anytime soon. Now,
Speaker 1: if you take a look at the essays in particular
Speaker 1: of Echen way Um. You know, he's really analyzed a
Speaker 1: lot of the factors of TikTok success, including by trying
Speaker 1: to grab a lot of users and then figuring out
Speaker 1: the right algorithms to recommend the next videos. Certainly, there's
Speaker 1: been a huge amount of consumer Internet innovation there. Now,
Speaker 1: the question for me that's quite interesting with TikTok for
Speaker 1: China is that if TikTok will be the start of
Speaker 1: a trend of just basically marvelous Chinese cultural creations that
Speaker 1: you know, a lot of folks really want to use
Speaker 1: around the world like TikTok, or whether it's more of
Speaker 1: an exception that was able to escape the system in
Speaker 1: a way that China has not produced very compelling cultural
Speaker 1: products over the last four years outside of a few
Speaker 1: art house movies outside of you know, the Three Body Problem,
Speaker 1: which is still again kind of a niche product, and
Speaker 1: I'm not sure that there has been many cultural Chinese successes.
Speaker 1: And I'm sort of leaning towards the way that TikTok
Speaker 1: was something that was able to escape a censorious and
Speaker 1: repressive system instead of, you know, the start of a great,
Speaker 1: big trend of Chinese cultural all outpouring and to you know,
Speaker 1: just to note that Pew surveys of China over the
Speaker 1: last year has really starts, you know, spiked sharply negative
Speaker 1: in pretty much all Western countries, including the US, when
Speaker 1: you have basically a lot of comments from senior US
Speaker 1: officials now designating China as a strategic competitor, when you
Speaker 1: have basically a lot of Western countries closing their markets
Speaker 1: off to Chinese firms, which deprives them of a lot
Speaker 1: of the richest and most disserting customers in the world.
Speaker 1: I think the prospects for generating a splendid Chinese success,
Speaker 1: I would say are are not very high. But let's say,
Speaker 1: let's see how the next decade plays out. We'll have
Speaker 1: to have you on again in a decade. Wonderful looking
Speaker 1: forward to it. Thanks Dad. Yeah, that was great. It's
Speaker 1: always such a it's always such a pleasure to talk
Speaker 1: to and that was it a treat great. Well, thank
Speaker 1: you very much again for the invitation. Tracy. All I'll
Speaker 1: say is there's a reason why I think Dan is
Speaker 1: one of the most requested guests that we have on
Speaker 1: the show. I think there's two reasons. So I think
Speaker 1: one is that he does come up with the very
Speaker 1: original ideas. So his idea about why can't China be
Speaker 1: cool is something that I don't think a lot of
Speaker 1: people necessarily think about. But when it comes to consumer tech,
Speaker 1: coolness is sort of wrapped up in it, right, People
Speaker 1: want a certain smartphone or they want a certain product
Speaker 1: because it's kind of cool. And then the second thing
Speaker 1: about Dan, of course, is that he just explains everything
Speaker 1: very very clearly. You know, sometimes like we wrap things up,
Speaker 1: but it was like a summary of what they said.
Speaker 1: But it's like Dana is so clear, I feel like
Speaker 1: I don't have anything to add, Like it is the
Speaker 1: way he describes the different dynamics going on in different industries.
Speaker 1: It's like I feel like I learned so much so
Speaker 1: I don't even have that much to say. No, neither, joy,
Speaker 1: I feel like what's Dan? The only thing you can
Speaker 1: kind of do is just keep asking him about different topics,
Speaker 1: like just tell me your thoughts on this and then
Speaker 1: this and this. Yeah, that's exactly right. Like at the end,
Speaker 1: I was like, well, we should do get a take
Speaker 1: on automotive tech, and we should get his take on
Speaker 1: space tech and all kinds of stuff like that, because
Speaker 1: I could have just listened to him for a lot longer,
Speaker 1: but I don't have anything to add to add to dance. Well,
Speaker 1: don't worry, Joe, we will have him on again next
Speaker 1: year and probably in ten years as well. Great, Okay,
Speaker 1: shall we leave it there. This has been another episode
Speaker 1: of the All Thoughts Podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe
Speaker 1: Why Isn't All? You can follow me on Twitter at
Speaker 1: the Stalwart. Definitely follow our guest Dan Loong, He's at
Speaker 1: Dan w Wong. Also check out his website, dan wog
Speaker 1: dot c O. He writes a really great annual essay
Speaker 1: about all the things and books she read in the
Speaker 1: last year. This one's the one for really spectacular, so
Speaker 1: check it out. Follow our producer Laura Carlson. She's at
Speaker 1: Laura M. Carlson. Follow the Bloomberg head of podcast Francesco
Speaker 1: Levi at Francesco Today, and check out all of our
Speaker 1: podcasts at Bloomberg under the handle add Podcasts. Thanks for listening.
Speaker 1: Nine