Comparing AI Adoption and Regulation

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CRM, accounting, inventory, e commerce and more And the best part, Odu replaces multiple expensive platforms for a fraction of the cost That's why over thousands of businesses have made the switch. So why not you Try Odoo for free at odoo. com That's ODOo d. com Support for the show comes from Odu. Running a business is hard enough. so why make it harder with a dozen different apps that don't talk to each other Introducing Odu It's the only business software you'll ever need. It's an all in one fully integrated platform that makes your work easier CRM, accounting, inventory, e commerce and more And the best part, Odu replaces multiple expensive platforms for a fraction of the cost That's why over thousands of businesses have made the switch. So why not you Try Odoo for free at odoo. com That's O d oo d. com China has demonstrated a willingness to forego Money in the name of The common good in the name of protecting workers and protecting labor. And so even if China is more structurally exposed to AI. Even if that is the case, my assumption is that the Chinese government will bend the economy to its will in order to protect Chinese workers. What I know about America is that the total opposite is true. M Welcome to China Decode. I'm Alice Han James is off today on a holiday, but we have the amazing Ed Elson from Prof G Markets, Ed. It is so good to have you here Great to be here. Thank you so much for having me, standing in for the other Breit, although I have a lot less knowledge than him, but that's okay because I'll be prompting you as well. So thank you for having me. And today's episode of China Deode, we're discussing how Chinese companies and investors are getting shut out of American markets where the first trillionaire from China could come from and the growing push for workers' rights in an age of AI That's all coming up, but first, let's do a quick check in with how the Chinese markets are starting the week On Monday, markets closed up on the news of a deal being reached between the US and Iran to potentially reopen the Strait of Hormuz The CSI three hundred index closed up two point four percent while the Schenen composite was up three point four percent The Shanghai composite itself was up one point six percent All right, let's get right into it. In addition to the US Iran deal, some of the biggest global economic news in the last few days came in the form of the space X's Mega IPO. And it was an IPO that investors from China and Hong Kong were shut out of. over apparent concerns around U. S. restrictions on exports of critical technology At the same time, the Pentagon has designated a broad range of Chinese firms as Chinese military companies, which means they will be subject to restrictions. The list includes corporate giants from China, including Alibaba, BYD, and Baidou. So Ed, it feels like a very historic week The next one against the sppurs first time it's the seventies. I don't know if you were cheering on. The New York team. We had the biggest IPO in history. Elon Musk is the first trillionaire in history. It feels just like a very historic week. So break it down for us. What is the big takeaway from this huge IPO. And what do you think that that means for the season of IPOs to come? Because obviously we've got anthropic open AI coming down the pipeline Yeah, huge week for M because One thing you missed out there is that the World Cup began. So that's the thing that everyone' talking about. But I noticed China isn't in this year's World Cup. and I was kind of wondering what's going to happen with the Chinese football team? sureurely that needs to show up and become a real player because they're so successful in the Olympics. But then they just, I guess they haven't gotten their act together on football. So that's maybe another conversation for another time SpaceX IPO. Yeah, I think you said it right. This is the most important week for markets in an extremely long time. This is the largest IPO in history they ended up raising about eighty six billion dollars. They were going to raise seventy five, but then there was so much demand for this thing that they ended up pushing it to eighty six billion dollars. So this is the largest IPO by four And by most counts, it was a pretty successful one. The company was price at around one hundred and thirty five dollars per share is the issuance price. And then when it went out to the public markets, it initially rose around tencent to eleven percent, which I thought was a little bit low. My prediction was that it would go out at around twenty five percent higher than the initial price. But then what did we see over the rest of the day? it started to rise, it went up. O twenty five percent above one hundred and thirty five dollars And then starting the week on Monday, june fifteenth, it has continued to rise up around thirty percent. So this has been an extremely successful IPO. It was really a test of the markets, how much demand is there really for these companies? couldould I mean, one of the points that I brought up before is there's so much new equity supply that is being injected into the market, starting with the SpaceX offering, but then you've also got Google with their eighty six billion dollars equity offering. You've got Nvidia now talking about doing an offering of their own. you've got Amazon also considering the same thing, Ma considering the same thing. and then of course you've got open air and anthropic which means Tens of billions of dollars of more equity hitting the markets. In fact, it'll probably go out to around half a trillion dollars in new equity supply. And that will be the test. Is there enough money out there that will actually be willing to go and buy these companies, buy these stocks Or is it so expensive that they're eventually going have to sell some of their existing positions, some of their existing tech and maybe AI company positions in order to go buy these companies. So that will be the question. I think the first week and the first day, we all expected this would be relatively successful, but over the next six months, will SpaceX continue to perform That's the real question for me. My bet is no it won't I think that these lock up expirations are going to be really tough for the stock. I think you're going to see a lot of downward pressure on the stock over the next six months But to relate it back to China And this is I found really interesting. so why I'm glad I'm doing this podcast with you The fact that China has been or Chinese investors have been banned from buying. The SpaceX IVO for some interesting reasons, I'm kind of skeptical of them. So I guess I will just throw this back to you. What do you make of the fact that Chinese investors cannot buy the SaceX IPO. Does that mean that we're going to see the same thing with open AI? with ananthropic? Are we seeing this sort of separation between the Chinese markets and the US markets? What is your take Great question. I don't think it's purely about the US side of things being worried about Chinese capital going into cutting edge models and companies listing in the U.S There was a report earlier this year from the CSRC so the securities regulator in China that they were going to tighten basically these offshore brokerages that were doing cross border security operations So they cracked on a couple of them Tiger brokers for two holdings. And the idea behind that, which I think will pickup inertia in the coming months is that the Beijing government officials don't want to see more Chinese mainland capital going into US tech companies I don't think that this means that they will completely throw away ADRs or that the US will delist ADRs I do think that it means that moving forward, the inevitable truth is that we will see far less Chinese capital in U. S. listed companies, both Chinese US. listed companies and American U. S. listed companies, in particular because this tech war is heating up And it's a tech war that's not just about semiconductors, about models, it's also about capital, as you know. What does that mean for long term developments of Chinese capital in tech and AI? It means that in tandem with what the government wants, more of that mainland money will go to Hong Kong, will go to the mainland. We've got some big IPOs on the mainland coming down the pipeline as well in the semiconductor and AI spaces, we've got Unitry, China's biggest humanoid robotics company that has just given the go ahead in terms of starting a listing process. We've also got two big semiciconductor companies, CXMT and YMTC. These are just a handful of what is coming down the pipeline. I've heard that there's at least about fifty robotics companies that are in process to apply for IPO So just as in the US. we're seeing a bumper crop We're also seeing a bumper crop of tech companies trying to list both in the mainland and in Hong Kong. It's really interesting because You know, I saw this headline that China, Chinese investors aren't allowed to invest in SpaceX IPO. And immediately my assumption is that this is something that is maybe of Trump's doing. likeike, oh, maybe America has set some regulation where we're going to try to separate away from China. You're not allowed to get into this thing And honestly, it wasn't totally clear to me why this happened. but on the other hand, you make a really important point, which is that China is also making it harder for their own investors to invest in US markets. L they have all of these capital controls and they're limiting these foreign currency conversion rules. And they're making it such that if you're an investor in China, they're trying to incentivize you to continue investing in companies at home And so it's this interesting dynamic where it's like Both parties are trying to break up with the other Yeah But the question is who's gonna break up with whom first. And what does that say to the markets about who's really on top? Is it that China said, no, we're not interested in SpaceX, We have our own companies at home, orr is it the US says, no, no, this is our own company, you're not allowed in, you guys are the enemy, so you're not invited to the party Do you know where it stands? likeike whose decision was what on this? and How might it change going forward, I guess. My sense is that we haven't seen legislation or even executive action from Washington to really block Chinese investors in the capital markets and the flows going into stocks Sphus a couple years ago was really weaponized to basically block and highly obstruct Chinese FDI going into MNA activity, going into companies in the U S, but Whether it's Wall Street lobbying or it's some of these companies that are listed that are lobbying, the fact of the matter is that we haven't seen restrictions from the US side further capital market flows. Now, we don't know for sure if there are these offshore subsidiaries and capital that are finding its way ultimately into the SpaceX IPO. I wouldn't be surprised if there are partightner with individuals from the mainland that are able to do this through other loopholes But right now what I am sure of is that the modus operandi and the trend for Beijing is to crack down on border flows going into US. listed stocks because ultimately, they see the capital conflict as being really, really important for the broader tech conflict. Because if too much of Chinese money is ultimately going into boosting valuations and boosting profitability and R and D for U.S companies. that is at a disservice too. government's aim in China, which is to, you know, make sure that capital is allocated to the tech sector at home. Yeah, Really fascinating. Part of the other thing that I found really interesting is that in terms of U.S versus China kind of separating the two out, making sure that there's none of this cross border financing, the Pentagon just updated their Chinese military companies list And it now includes Alibibaba, it now includes BYD, and it now includes Bidu as well. Alibaba is of course, like the China's version of Amazon, Baidu's China's version of Google, BYD is like the Tesla of China. The list has grown significantly this year And I was trying to understand like Okay, if you're if you're put on this Chinese military company list What actually happens to your business? O the answer is fromrom what I understand, not that much actually Basically all it means is that it prohibits you from doing business with the Pentagon and then maybe there is some reputational risk as well. But it doesn't prevent you from operating in the US, for example. You can still do business here. And that's quite interesting because it's almost as if What they're trying to do is create a bad guysy list And if you're on the bad guys list, then that's a problem and we're going to make sure that everyone knows that you're a risk through the M market And in a way you could almost put any Chinese company on that list. I mean if the implication is they are at risk of working with the CCP in some capacity or providing some value to China and China's military I mean, I'm not sure why we're even making list. Why don't we just make it all Chinese companies? They're all highly linked to the CCP. The CCP has massive oversight over all of them. You could make an argument if your view is China equals bad guy then Surely they should h be on the list. I mean, I'm not totally sure if this is actually a substantive policy move or if it's more pererformance art to say China's bad I think you spot on Ed, it's more tactical move as opposed to strategic and it is designed to show Beijing at least from Washington's vantage point Hey, we have a lot of levers at play to make it very difficult for you if you don't play nice with us on ongoing as you know, trade and technology talks You're completely right that if you read the fine print, it only means that they can't be involved in selling to the government, so being part of government contracts. But I do think that the broader impact is to keep corporate America spooked about China. And the reason I say that is because I was just in LA giving a talk to, you know, Hollywood executives people in the industry and you know, just off the record, a few people told me that they are so in awe of what Bite Dance is doing in the video AI space, so CDance in particular, that it is above and beyond what any other company in the world is doing The legal team won't allow them to touch it because they're very worried about the political backlash, what Washington, what Trump may say. So I would say that in a way, the shadow of this entity's listing of these sanctions is greater than the actual list itself in the sense that corporate America American companies across the board will be worried about you know, doing business with Chinese counterparts because they're not sure if In the future, they may be at risk of some kind of Washington's sanctions regime Right. Yeahah. it's almost and this actually relates in a lot of ways to what we're seeing with anthropic at the moment because it seems as though we don't have necessarily in America at least clear legislation on who you can work with and who you can sell to. and this was the problem with NvidDia. We spent all this time trying to figure out is Nvidia allowed to sell chips to China? which types of chips? It went on and off and on and off and over and over again. It wasn't totally clear. But what does seem apparent in the business world is you don't want to become quote unquote friends with the enemy, whoever the enemy might be And Trump has made it pretty clear who his enemies are China seems to be one of them. If you're on that list, you probably don't want to be working with them. othertherwise, you probably won't get some form of favorable regulation or you might get punished out of the blue And then we see what happened with Anthropic last week where Anthropic releases this extremely powerful AI model U Fable five, a variant of mythos And the White House is then told by Amazon of all people that there are some potential security issues. And Thropic then says no it's not a real problem. We've looked at it and actually it's fine And the White House says, no, that's not good enough. We are slapping on an export control. You're not allowed to release this model to anyone outside of the U.S which was a real problem for Athropics's business. Anthropic then decided, okay, we're just going to cut off this model entirely But it seemed as though this all was probably stemming from their previous dispute where Anthropics said, we're going to set the terms and the rules on how we interact with the Pentagon and interact with the Defense Department, which pissed a lot of people off over at the White House. And then Pete Haggsetith goes on Twitter O X Uh and he says You know, this was a long time coming, essentially. And it makes me think, again, this isn't because there was a certain rule that was actually broken. It's because we've decided or at least the White House has decided, these are our friends, these are our enemies. We're going to treat our friends nicely and we're going to treat our enemies harshly. And it seems that Anthropic has been branded as the enemy in this situation. I wonder if you agree. Yeah, I would agree with that. and I think it cuts deeper in the sense that, you know, now that David Sachs has left someomebody who would have been a strong voice lobbying for the Silicon Valley, open AI and anthropic, included got Scott Besson who's probably taken over I think a large amount of that portfolio and he is somebody you know coming out of the financial worlds who is deeply worried about the financial risks of an unbound anthropic anthropic unbound And beyond that, the national security risks, you know, there was some speculation that having the model open would invite the Chinese to distill or to jail brereak into it. I thought it was interesting over the last few days that Anthropic has announced that no Chinese nationals hired by Anthropic will be touch bothoth Mythos and Fable five, clearly that I think is in response to pressure from Washington. But in a way, it reminds me of SpaceX. I remember visiting the SpaceX factory about a decade ago. I'm Australian, so I was able to visit it They made it illegal to or unpermissible to Iranian nationals, Chinese nationals, because increasingly, that technology was seen as a national security technology, a national security risk And AI is in that weird space where it is As you know, Ed very consumer facing, but it also has massive national security cyber implications. And I just think that with Scott Besson now at the helm Those concerns are taking primacy over concerns about innovation and technological preeminence. And it does seem to all go back to China. Like when you ask anyone about why is this a problem? why do we need to be accelerationist when it comes to AI? Why do we need to build out our data centers? Why do we need to up our game on frontier AI technology. The answer is usually because we have to beat China And then the same is true of AI safety. Why do we need to make sure that we put on all these protections? Why do we need to make sure that we have these export controls because we're worried that China will get ahead of us? I tend to be quite Um, sympathetic to that view I'm someone who does believe that we need the U. S. should do what it can to maintain some level of hegemony, maintain its power on the global stage. I do believe that the next compometitor is China And we should probably be doing whatever we can to prevent China from getting ahead of the U.S when it comes to this kinds of technology. But I wonder if that's I don't know, some sort of jinguest element in my mind that is trying to forcing me to think we need to be really protectionist about all of this. And I wonder if that how real that threat actually is from your seat Do you see this as a real threat u in the U. S that if we put enough protections on our AI, then China will indeed go and steal it and potentially use it in ways that could harm the U.S. from a security perspective? Well, I think what we've seen with trade and semiconductor export restrictions is that Actually decoupling or putting barriers to getting access to technology or goods That I gu is very hard to do in practice. In theory, it makes sense. In practice, very hard to do because there are loopholes. China has been smuggling. cutting edge uben chips from third party countries in the Middle East in Malaysia, for instance. And same with trade. There's a way in which China has rerouted very massively trade through Southeast Asia through Latin America, to go back to the US. U so I take I take a view that having these restrictions are not enough becausecause you cannot rest on your laurels that if you tomorrow decide to put in all restrictions in terms of blocking China from access to cutting edge models either by making it very hard to distill or by firing all Chinese nationals employees I find it hard to believe that that seriously kncaps the Chinese because you know history, recent history shows that their countries find ways to around to tinker to make up for lost capabilities. And one last point I have on this is that if they were very serious about the China threat then they would have to put pressure on And this is not by any means my policy advice, I think it's an acute observation nonetheless They'd have to put pressure on the number of Chinese nationals, you know, PhD students, postgrads that they hire Because by far the plurality and that's about thirty eight percent of the top talent AI people come from China. They're not Chinese Americans, they're actually Chinese nationals And anecdotally when I speak to people who work in tech, and I'm sure you have the same view, Ed They will tell me, look, we can't. build the kind of AI models we want to without highigh level AI talent coming from China that wants to stay in America Yes. So I think the administration needs to think long and hard about balancing priorities you know in a way, you cannot avoid it as long as you have some level of China dependence on the talent side. This is why like I actually like making the comparison between AI and the nuclear bomb, which is a comparison that a lot of people have made. Some people complain about it. they say it's kind of a false equivalency Dario Amadeay as an example, is someone who said AI is like a nuke. And the reason that I like it as a comparison is because it I mean, we have a precedent to look at and to examine which is that and you and I have talked about this The U.S builds the nuclear bomb And then the question is, what do we do about it if other people get their hands on this technology? And then everyone does get their hands on the technology because other countries figure out ways to put resources together, invest in their scientists, invest in their research institutions, and they build that technology. One of those nations was China. China figured it out. And so this is a great example. Despite the fact that China does have a nuclear bomb, they haven't dropped it on America. for reasons that are quite obvious to all of us, which is and we've again, we've discussed this, mutually assured destruction We they're not going to do that unless they have a really, really good reason to do it. And so I think when it comes to AI policy When you think about, when I hear the argument, we have to make sure that China doesn't build the equivalent of the nuclear bomb when it comes to AI It seems to me that it's quite obvious that they're going to build it either way They're going to figure it out. They have immense capabilities when it comes to power, actually far greater than our own. They have immense capabilities when it comes to AI research and their models and their model capabilities and their model efficiency. like it's going to happen So then the question becomes from a policy perspective What do we do If China has AI that is as capable or more capable than our own, then what But I feel like that question isn't really being asked in the administration. It's sort of all about how do we prevent them from ever getting to that point? Yeah, I completely agree with that. And history proves your point, Ed is that when it comes to these technologies, we're in a multipar trap The dominant strategy for each player is to assemble as much capability as possible in whatever technology it is that they're pursuing, whether it's nuclear, AI or in the next field quantum. And it's going to be very hard, I think, for the administration to really suppress China's AI rise. And I think that you know history will look at the AI arms race as being very comparable to the nuclear arms race. Yeah. Okay, we'll be back with more after a quick break. Stay with us Support for the show comes from Faragamo. 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Terms and conditions apply Ne to ride higher fast, then this is a job for indeed sponsored jobs Welcome back As Chinese investors are being shut out of major IPOs, including one that's made Elon Musk a trillionaire We wanted to dive into what big Chinese IPO's are on the horizon and whether or not China could in and of itself create the next trillionaire. Ed we've just covered this. We've got a massive wave of tech IPOs in the US What are you most excited about? and do you think that there could be somebody bus on the heels of Elon taking the trillionaire crown. Short answer, no. This guy is not only the richest guy in the world, but potentially the richest guy in history on a relative basis. I mean, we've just from the numbers he's now worth more than a trillion dollars a little bit more now that SpaceX stock has climbed further during the week That is equivalent to three point two percent of US GDP. and I say this a lot. because it's important The richest American in history is known to be widely regarded to be John D. Rockefeller, who at the height of his wealth was worth one point a half percent of US GDP. So on a relative basis, Elon is more than twice as rich as the richest American ever And so we're now getting to a point where we have to like consid I mean, who else do we compare Elon to in terms of his pure wealth? A lot of people say that Mansa Musa was the richest person to ever exist because there are stories of how much gold he had and his control over the trade routes throughout Africa. We're getting to a point where now we need to compare Elon to that. And then compared to everyone else I mean, no, it doesn't it doesn't come close. I mean, Sam Altman is not going to become a trillionaire. Dari Amadee is not going to become a trillionaire. att least not anytime soon. The level of wealth that Elon has accumulated is just Now when you compare this to China Will we see a similar level of wealth out of China I don't think so because the richest man in China is Zhang Yim Ming who's the co founder of Bite Dance, which of course owns TikTok. He's worth a report of ninety three billion dollars, though I guess it's hard to tell because it's a little bit difficult to value B Dance at this point, it's not a publicly traded company Certainly far off from Elon. do you think it's a fun theoretical question is, would China ever have a trillionaire? or more importantly, would China ever let itself have a trillionaire. Because China is a communist nation It would seem to go against all of China's principles, though at the same time, they have allowed themselves to have plenty of billionaires. The rich list in China continues to grow So I would throw that question back to you like would would the CCP ever allow for a Chinese trillionaire I Number one, I think that you spot on It's hard to see and draw out the curves into the future that will ever get a trillionaire in the next decade, let alone the next two decades I don't think Bite Dance will IPO within the decade. I think that they don't need to. They're a highly profitable company. They're worried that if they IPO that they'll be subject to more regulatory scrutiny, both within China and globally So that takes that off the table in terms of his future growth curve of wealth And he's the richest man in China to your point. When I look at other companies, Again, in China, in general, the IPO sizes are a lot less than what you see in America. But as a result, valuations of companies that are comparable In compomparable fields compared to their American counterparts are just orders of magnitude lower than what you get in the US And so by that nature, I would say we won't get the same blockbuster IPOs, you know, just for reference at its height Uh, This was at least six years ago. So in twenty twenty when Alibaba was trying to IPO its Ant group, which is the big financial platform. Right. It was seeking to raise thirty five billion dollars at the time, which was a blockbuster IPO. for mainland China As we know, the way that history played out, Jackmar made a speech that did not play well to the regulators a few months before that IPO was supposed to happen. And then it was shut down almost the night before, in a very, very dramatic fashion And that answers my second point, which is I do suspect and you know this is just a gut instinct, not necessarily based on data that when you get into trillionaire territory, when you get too rich becomes politically problematic. And we've seen a crackdown on high net worth individuals displaying their wealth We've seen a crackdown on the platform companies partly because of the wealth factor and its political implications. But I think mainly because The government was concerned that without regulation, people's data, consumer welfare would be further compromised. You know in a way, it was the worldild west of internet platform companies from the twenty thousand ten s through to the early two twenties. So All in all, I think put simply, we will not get a trillionaire in our lifetime E coming out of China The stock markets in the mainland are just not at the same market cap levels as we see and valuation levels as we see in America. And I think that you're right, there is a political angle to this, which is that it gets problematic when you have a rich person who in the case of Elon Musk, his combined wealth is larger than a country like South Africa that he's from That becomes problematic. That's crazy Yeah, I mean Jack Mar seems to be like the perfect example where you had this larger than life charismatic personality who sort of, you know rags to Rich' story and then he becomes this incredible billionaire and then he gets, I guess too cocky, he flies too close to the sun And I forget exactly what his comments were and maybe you could remind me, but it was something about It was something kind of self involved or self aggrandizing and then there was some slight criticism of the government I believe, which is like just a fraction of the kinds of rhetoric that we hear from Elon, which is basically constantly shitposting the government, constantly saying how the government was getting in his way and he was able to take advantage of the system despite The fact that everyone was against him and Joe Biden didn't invite him to the White House and that was such a problem, etceter And so when that happens in China, it does seem like there is a policy of We're going to shut you down We're not going to let you I mean, we're not going to let you IPO. That was one thing that they were able to do. And then it seemed like they basically just disappeared Jack Ma for several years, then we didn't hear from him for a long time. I think we're starting to hear from him a little bit more, so I guess they didn't just fully take him out, but they they shut him up for sure. To me, it's a very interesting model because Over in the U.S when you compare it to the US. Yes, we have a A glorification of billionaires in a lot of ways The tide does seem to be turning. And we're starting to see a lot of resentment among Americans for the billionaire class. One in five Americans say that it's morally wrong to be a billionaire. They think that that's a problem. If you look at young people, especially if you look at Gen Z Americans Half of us say that there should be no billionaires whatsoever. Billionaires just shouldn't exist which is why we're seeing a lot more interest in the wealth tax, for example. Over in California, they're talking about a wealth tax where they they literally create a cutoff at If you have a billion dollars Then we're going to issue this wealth tax. I'm going to take five percent of your assets. and then that's becoming a lot more popular at the federal level as well, which was introduced by Ro Kanner and Bernie Sanders and it's been co signed by Elizabeth Warren. This is sort of the momentum is growing in America where we say these guys have too much money, they have too much power and this is a problem for the country, which is such an interesting parallel When you look at it compared to China, I'm not totally sure, maybe you can tell me how the population feels about billionaires, how they feel about people like Jack Ma. But my understanding is the government doesn't like them so much or at least they don't like them if they ever get in that way So I guess my question would be what is the sentiment towards billionaires and how does it differ between the population in China and the government in China? Yeah, It's interesting to ponder a hypothetical in which you have in a parallel universe Elon being Chinese and would he have A become a trillion N B been as successful as he has, and I would probably argue no, in a way that Elon relies as much on America as America relies on Elon to drive the kind of growth and innovation and crazy numbers that we see. I would say that I detected in the late twenty eighteen, ninet's going to twenty twenty funnily enough in tandem with the crackdown on the tech platforms on Chinese micro blogs and amongst the Chinese netizen community that people were starting to get very upset about the billionaire class and the tech billionaires So you know, if you think about the recent history, you know, you see the growth from twenty ten s onwards of these huge social media platform companies. you know, ten ccent Alibaba and the search engine byaidul. In these early years people were so keen about the Pony Mars and Jack Mars of the world. they saw them as people to look up to that they represented Chinese heroism and innovation. And then really you start to see this nihilist more skeptical view coming just before twenty twenty online which starting to criticize The fact that they have so much money that they can continue to monetize consumer data that they through MNA activity, very anti trust. you know, they have these monopolistic or duopolistic effects on the internet and digital economies And then fast forward twenty twenty onwards, you see this huge crackdown across tech companies in China. and it's the second part of my answer to your question, Ed, which is that there is a weird I would say tightrope walk that the government has to do. On the one hand, yes, it's politically problematic when you have such wealthy people when your mandate is to achieve common prosperity and to make sure that the everyday people's livelihood standards are good But at the same time, you need these people which is why I think why Jack Ma was brought back into the fold after a brief stint in Japan, you need these people to be driving innovation, to be doing the necessary R and D investments into frontier emerging technologies like AI and semiconductors. So I ultimately come down to the view that, you know, they are kind of tolerated with varying degrees of, you know, tolerance, but generally tolerated because they are seen as really important cavalry for the Chinese competition with the Americans over technology. Yeah. sometometimes I wonder X Jinping actually thinks. like if it were if it were up to Mao There would be no billionaires, I don't think. I don't think that he would be happy with learning that almost a hundred years later You have A guy who started a tech company is worth ninety three billion dollars The guy started ten cent Mahatang It's worth sixty three billion dollars. The guy started PDD, formerly known as Pinduo Oduo, which now owns Timo, of course Colin Huang he's worth forty five billion dollars. L these numbers would make Mao sick to hear. And I'm sure Season Ping knows that and understands that But at the same time, he clearly has an understanding of the benefits of these kinds of people, the benefits of capapitalism, the fact that it creates these incredibly wealthy people, which does incentivize more innovation u more effort more research, just a general hunger to create value and build wealth in the nation As you say, it's a tightrope that he has to walk because that isn't the mandate of the nation and it seems to be veryery paradoxical by its nature, by its nature. And I guess I just wonder like How does Xi Jinping get that messaging Like how does he present China's view on billionaires and on innovation and honestly on capitalism, without defying. the cultural history. created China. This is the contradiction at the heart of China's unique blend of capitalism and socialism. They call it socialism, Chinese characteristics And it is that you have in essence a socialist DNA you behave like a capitalist country And the reason for that is because the social contract increasingly has been one of since don't showop paying forward enriching everyday Chinese people. and you need the private companies to do that, they hire the most number of employees, I believe somewhere in the order of eighty to ninety percent of the workforce is hired by private companies alone. And these aren't necessarily the big tech companies. They're also small mum and pop shops. you know, manufacturers, et ccera And they are the drivers of productivity and innovation far beyond what the state own enterprises can do. And I would also say that there is a geopolitical or global dimension, which is that, you know as fromrom the nineties onwards, there was this going out strategy from Joh imen to tell the SOEs to go out and buy up companies or sell Chinese industrial products globally, there is a going out implicit strategy that Xi Jinping gives to the Chinese tech companies through built and road initiatives, for instance, that they should go out and sell electric batteries, electric vehicles, AI models, semiconductors to the rest of the world. becausecause as we've spoken in the past about You know, thirty percent of GDP growth is made from the manufacturing sector. It's a key part, twenty five percent. from net exports. It's a key part of China's growth strategy. and he deeply depends on the private sector in order to achieve this. So I don't sense that there will be a turning back or a pivot in that strategy. I think In general He has co opted The billionaires and the private sector, the tech companies as part of a broader strategy to build China economically and also in technology realm, to build what he calls a wealthy and strong nation. I mean you mention dance. This is sort of the last big tech company that should really that everyone's been waiting to go public. I mean the last valuation was reportedly around six hundred billion dollars. They had one hundred and eighty six billion dollars estimated in revenue in twenty twenty five That valuation is tiny just compared to the U.S companies. Like if you look at like meta, for example, metaradees at around ten timees sales and it's down pretty significantly. right now. So if you are valuing this company like you valued meta This is a two trillion dollar company. Yeah in the private markets valued at six hundred billion dollars. This is sort of the China tax Um because there there's a lot of concern among the investment world that If you're trading in China, then you could get jackaudred for whatever reason. and it's not going to go public Why do you say that? I mean, it sounds like you believe they just don't really need to raise the money, which is an interesting point Are there any other reasons? Yeah, I just don't think they need the cash right now. their revenues I mean they do far less R and D CapEx compared to meta. And they just disclosed that they're probably going to do CapEx up to seventy billion dollars in twenty twenty six mainly for data centers and AI. and they believe that's a lot less than than MetA has been doing. They last year, their revenues slightly exceeded Meda's And this year in the Q one it was slightly down, but I'm generally positive about by dancers. reach and its ability to continue to monetize ads There's been some good data to show and it's funny you asked this question to show that of the top one hundred internet platform companies and their apps byy far the majority of of the top ten within that from China. So in terms of user reach, that is. So China has huge user reach. It's not able to monetize as effectively as Americans, Mbe probably because the pricing at play and just the competition amongst a lot of players in the field in China. But I'm very optimistic about growth and user reach for Bite Dance or for a lot of these other social media companies And these other know offshoots of them, you know we haven't talked about this in the past, Kling AI, which is their photo editing platform that is getting a huge popularity in China and around the world. There's some speculation that that might actually be carved out for a separate IPO, who knows And then related to what we just talked about CDance, which is their video editing platform that everyone is a fan of, including people I spoke to in Hollywood. I just don't get the sense that you know they are looking to IPO. they don't need the cash They're worried about the regulatory scrutiny that might come becausecause as we know, Ed and we've discussed in the past, they play this weird magic rabbit out of the hat game with TikTok Like how do you price how do you value Dance. And how will the Chinese regulators approach it when clearly it is somewhat in violation of the export restrictions or export controls for Chinese data companies because you've effectively exported some of the algorithm to a now TikTok US entity So I think it's just way too complicated right now. and I don't think that they really are pressed to raise the kind of cash that they need to continue to grow. They're doing pretty well in terms of growth. That's just my heart take Yeah, which to me, I mean, if I were dictator of China for a day. I mean, one of the first things I would do is just loosen up the regulations on the public markets because the amount of wealth and value that is waiting to be captured in China, if you didn't have this multiple overhang, which essentially just scares off Wall Street investors. If I could invest in Bite Dance, I mean, I would do anything. I mean, to invest in Bite Dance at a six hundred billion dollars evaluation. I mean, especially the TikTok US deal, which was arguably rigged, I mean I not arguably, it was rigged. and the price was just ridiculous and unbelievably cheap. I mean these businesses are incredible. What Bit Dance has done with TikTok is just Totally insane, the way that they were able to disrupt the social media market, which everyone said for many years was undisruptible Meta came out with Instagram and TikTok entirely changed the game and it's been such a success story. and we're continuing to see these incredible companies coming out of China BYD. I mean, we could do a whole episode on BYD. We could do a whole episode on Dep Sak as well. Maybe that will be the next IPO. But it does seem like that is I understand that they have their issues with being going public and what that means in terms of u sharing information and perhaps what it might mean in terms of companies and their ability to or incentive to partner with other nations, partner with other governments. I mean, China's just very sensitive about, as you said, cross border capital. They don't like it And so it's better for them. they believe to keep everything private, to keep everything within the borders. But I do believe that they are missing out on so much value so much wealth. they could be created if they were just click a button and say Let the markets have at it. let the IBO market rage on Uh, but they've decided no. It's not worth it to us. Yeah, they've optimized for control and they are very, very worried about volatility historically in stock markets. So ye I completely take your point, Ed and it's just a feature not a bug of how the Chinese government approaches markets. Yeah. Okay, let's take one last quick break and stay with us Support for the show comes from Gusto You know that glorious feeling when everything in your life is in order? Your car is washed, your house is decluttered, and everything is just in place. That's the same feeling you can have if you switched to Gusto for your business. Payroll HR benefits, all the admin chaos that's been piling up finally organized in one place Ggusto is online payroll and benefit software built for small businesses. 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China's workkers Daily, the mouthpiece of the government backed national trade Union recently ran a series of articles on artificial intelligence and labor rights. This comes as China's GDP grew five percent in Q one of twenty twenty six But warning signs in the labor market are growing The unemployment rate for sixteen to twenty four year olds held at sixteen point nine percent in March while the twenty five to twenty nine cohort hit a record High of seven point seven percent And just for reference, nearly half of China's urban labor force has shifted into flexible gig employment. Ed, it's so startling to see a tale of two scenarios in the US and China play out in the AI realm And who would have thought that on the Chinese side, we have a government that in some respects is proactively saying Hey, this AI thing could be really bad for everyday people, for the labor market. We should start to think about the implications of digital cloning through avatars or of digital platforms having way too much control over their employees and consumers data. On the other hand, in the US scenario, which I want to get your take on It seems that the administration hasn't really done any regulation, but is still going out and trying to willy nilly target anthropic because it's unhappy with Daria Amadeay and it wants to make an example out of him. Again, it's not clear what their intention or their intended outcome is, but right now it seems like on the one hand, you have a country in China that is seems to be carrying about with regards to AI. And then when it comes to America, they care more about trying to tell anthropic who's boss But Ed, what's your take on just the news that has come out in heaps and leaps and bounds over Anstthropic v. Washington. Yeah. well, it's so funny because for the longest time, The White House said that any form of regulation when it comes to AI is a form of stifling innovation And so that's a problem. But then suddenly as soon as they get their feelings hurt by anthropic, suddenly they're taking regulation seriously. Now Now it is a problem. Now they do want to stifle innovation. I mean, this kind of headline is exactly the sort of thing that David Sachs, if it were being done by the Biden administration, David Sachs and his group and his buddies would be all up in arms about this. You're stifling innovation, you're being too protectionist, too paternalistic about about safety issues, etcetera Now they've decided because basically because they got into a scuffle a few months ago, now it's okay So I just think that there's a lot of double standarding going on in the White House. Again, this goes back to our first conversation, depending on whether you're a friend of the administration or whether you are a quote unquote enemy of the administration. So that I think is what's going on But in terms of overall protection for workers for the American people against AI Basically there is AI going to take your job Question The White House currently is doing everything it can to make the answer to that question be no. It's not going to take your job. That is essentially their approach. and so they've been completely hands off. They said, we're not going to have any form of regulation whatsoever I call it The libertarian mind virus. I think that there is a mind virus that has infected the minds of many in Washington, where they view that any form of regulation whatsoever is a problem And they it's almost as if they cannot hold two truths in their head at the same time, which is that yes, we want capitalism, we want free markets, we want innovation, but at the same time, we also want to create rules in the same way that there are rules in a sports game. And we want to make sure that there are referees there to enforce those rules. and that hasn't happened. So the question, I mean, for Americans at this point is Do you believe that the government is going to protect you from the possibility that AI is going to wipe out millions of jobs Yeah And for most Americans at this point, they believe no it no it won't And so they're scared to death. of this thing And they have every reason to be because we are seeing tens of thousands of job cuts which all stated to be the fault of AI. I mean, AI has been responsible been said to have been responsible for nearly one in five of all job cuts in America this year. fifty thousand jobs. We saw layouts from Pinterest and Amazon and block. And they all say, yes, it's because of AI. Now there is a debate as to whether they're lying. Are they just saying it's because of AI to increase their stock price because it means that we're very tech forward and we're figuring out how to implement AI into our business To me, I don't even care about that. Because the reality is they're saying it's AI, jobs are being lost. So let's If we're policymakers, let's assume that it's probably AI Or let's at least assume that they are doing whatever they can to use AI such that they can eliminate tens of thousands of jobs. That is clearly what's happening and yet we have seen no regulation. In fact, we've seen an executive order that has been The directive was to limit regulation to not allow states to come up with their own regulation for AI. That's why Americans are so freaked out about this. Maybe it's a different story in China. Yeah, it's noter less of a freak out and it's more of a government is trying to Get ahead of the curve. It's like if they see the tsunami which is perhap coming for all of us and it's trying to get it ahead of the curve. And I detected that one recent trip earlier this year You know, the narrative has shifted from AI is going to be a panasy for the economy to, we need to start to think about digital inclusivity inclusive growth. These are sort of catchwords for know, we need to avoid an AI apocalypse in the labor market. And I think it's interesting just to get into some of the details of the papers from Chinese Workers Daily So the three core threats that were identified for laborers for workers in the AI era were digital cloning. so companies requiring that employees train AI digital avatars of themselves Sometimes this is tied to their performance reviews. This has raiseed concerns about data privacy and who owns IP. Number two was AI being used to your point, E in the US, but in the Chinese context as a cover for illegal firing. So some employers are using AI replacement as a pretext to fire people and the Chinese courts have already ruled that this is unlawful Termination. And number three is this concept of algorithmic digital overseas So Basically these opaque platform algorithms that are blurring working hours and are cutting pay and making it impossible for workers to basically gather enough evidence to defend their labor rights. that is another area of concern and just putting it all together It suggests to me uh, that You know, the government is very, very worried about what I believe will be the next decade of structural unemployment across the world as we try to figure out how AI is going to jobs disrupt sectors. What are the new sectors that are going to come up in instead. History shows that any massive technological revolution begets a period of structural change and unemployment and then begets more innovation and more labor demand as you know people start to transition to the new economy But it's true that in the Chinese case, because they're so exposed to the giging economy in particular You know, I just mentioned that half of the labor force is in this flexible gig economy work that's like Dlivery drivers, U Chr's equivalent of Uber drivers. These are the jobs that are I think very easy to cut in the world of autonomous drones, autonomous cars humanoid robotics or robotic installations. My bet is that China in a way is even more exposed to the AI revolution because it is so exposed to the gig economy And we're starting to see that in the data. according to researchers from Peking University, Naming University and a host of other universities in China, AI could displace up to two hundred seventy eight million Chinese workers by twenty forty nine. That's one in three employees in China currently. And then one a recruitment site in China basically noted that job postings for college grads fell twenty two percent. In the first half of twenty twenty five compared to the previous year. we've also seen protests in China in Wuhan, where drivers are protesting against by bringing out robot taxis We're just beginning to see this wave, I think, of an AI backlash in China. And I think it would surprise people to note that people do protest in China and that the government to some extent listens We saw this with the wealthalth management products coming out of the real estate sector a few years back when there was protests about illegal fraud and manipulation from these real estate companies The local governments tried to intervene on the side of of consumers And we're starting to see this play out in China. But Ed, what's your view on the labor market in the US How disruptive is this going to be And And do we end up in a scenario where it's just as bad in America as it is in China, you think? I would just want to comment on a few things that you said there about how China is dealing with this. You said that China listens. And or at least the Chinese government listens. to me is apparent in the framework of concerns that they have laid out as to how AI could disrupt the job market in China. and that is quQuite nuanced their observations about digital cloning, about using AI as a pretext for firing and then creating legislation around that Like they clearly have Ccern, real concerns, concerns enough that they're investigating the problem and they're coming up with creative solutions to the problem And it also goes back to our previous conversation about IPOs and you allowing for trillionaires or not And that is China has demonstrated a willingness to forego Money in the name of The common good Yeah in the name of protecting workers and protecting labor They have demonstrated a record and a history of doing that And so even if China is more structurally exposed to AI based on the way the economy is set up, based on the amount of dig work as you mentioned. Um And it's a really interesting point. Even if that is the case, my assumption is that the Chinese government will bend the economy to its will in order to protect Chinese workers And I wonder if Chinese workers believe that and assume that. that ultimately at the end of the day The government will do what it can to make sure that there is at least like a base level of economic security. What I know about America is that the total opposite is true. This White House has basically said, our main priority is wealth creation. Our main priority is making as much money as is humanly possible. And then we'll ask all of the other questions later What will it mean for wealth inequality? What will it mean in terms of disparity? A we going to think about creating a floor of economic security? Are we going to think about issues related to worker displacement over the long term? No, we're not going to worry about any of that. All we're going to do is make sure how do we increase shareholder value as quickly and as much as possible? That is the MO in America And so when you think about like How do how does the population feel about it This was a survey that I looked at a few months ago and maybe it's changed and this is from KPMG in association with the University of Melbourne. pulled differentiffere populations on how excited they are about AI, whether they are excited about AI. Less than half of Americans said that they were excited about it. It was around forty percent And in China, That number was nearly ninety percent. Now I don't know what their methodology was or how much we should actually trust it But that was the number And I wonder if one, you think that's true to why, if it is. Yeah. I saw that same data set. My instinct having seen the way that the digital tech companies developed in China and how quickly adoption in China, you know, compared to say a Japan or some of these other YM countries. let alone, you know, a Germany or European countries is that Chinese people are remarkably keen to adopt new technologies and they generally see new technologies as being a good thing. as opposed to looking a scan at it with skepticism And we're seeing this play out in the AI realm where they go Hey, wouldn't it be nice to have an autonomous vehicle? And here again, I think adoption will be faster in China for AV's versus the US Hey, wouldn't it be nice to have a robot in your home doing all these different things? And then that it comes to the cultural element whereby everyday Chinese people believe that that updating yourself into new technologies will improve your life. brring home your point about the government I do believe that the government is going to do its darned hardest to try to cushion the blow of AI. It has a history recently of doing this. If you look back to the nineteen nineties when you saw the last major structural unemployment phase in China, hundreds of millions of jobs lost. As SOEs went bankrupt, you know, you had this policy of letting SOEs go, letting them go bankrupt because they were inefficient. and highly indebted And then you had this policy from the premier at the time, Jj to create iron rice bowl effectively subsidies to try to offset some of the pain for these laid off workers in SOEs. That obviously led to the next wave in the two thousands where China really rode the wave of WTO and of the export engine, creating new factories, new growth U, But again, I think I point to that period for people just to show you that the government is a responsive organism. It is looking at real time data and I think we'll move quite aggressively to my suspicion is maybe put on some taxes on these AI companies or robot companies and find ways to cushion the blow for these people who will be left out by the AI wave. And I wonder if that ultimately plays to their hand in the AI race. and this is something I've been talking about, which is that the biggest obstacle to AI in America It isn't really supply chains and it isn't really power supply It's lack of popularity It's the fact that so many Americans have decided they hate this thing and they are now taking to the streets protesting AI, protesting data centers, which is one of the largest reasons, it is the largest reason why data centers aren't being built in America. Tens of billions of dollars worth of data centers were blocked in the US in twenty twenty five because of political pushback. nineteen states are considering restricting the construction of data centers or just restricting it outright. and we're now seeing more and more interest in America, just a moratorium on data centers full stop