Bankless - Why China Builds Faster Than America & The Rest of the World | Dan Wang

Starting point is 00:00:00 I would like for the U.S. to be 20% more engineering. I think that it, you know, that's how you get a few more homes constructed and wind turbines and solar and mass transit as well and to recover some of this engineering muscle that has lacked for quite a while. Just 20%. That's not bad. Seems low. 20%.

Starting point is 00:00:20 That's good enough. I'll take it. We're close, right? I guess we're, we still have that DNA here. We just need to polish it. We just need to, you know, work out and, you know, work out these muscles. and get stronger again. Bankless Station, Dan Wong is the author of Breakneck.

Starting point is 00:00:38 It's China's quest to engineer the future. We've got a lot of questions about China here today. Dan, welcome to Bankless. Hey, Ryan, good to be here. Okay, so the central idea of your book is that the U.S. is kind of a lawyerly type of society, that China is more of a builder, engineer society. Can you break that down for us? What do you mean by this?

Starting point is 00:00:58 Take a look, especially at the elites of both countries. I used to be a fellow at the Yale Law School when I was really felt like I was surrounded by all the future aspirants of the White House who really want to become president one day. And so these are people who are very smart, fun, interesting in all sorts of ways, but especially very ambitious. And indeed, the U.S. is really run by lawyers for 16 presidents from Washington to Lincoln, 13 of them were lawyers. Every single nominee of the Democratic Party between 1980 to 2024, most recently with Harris, had gone to law school. Much of the U.S. Senate has law degrees, only one of them is an engineer. By contrast in China, much more of the leadership had degrees in mechanical engineering, electrical engineering, thermal engineering, whatever else. And they really treat society, the economy, and the environment as just a giant engineering project.

Starting point is 00:01:56 So the issue with engineers is that they build a ton of shit, whether that's homes or roads or hyperscalers or coal plants, whatever. They are also really willing to completely shut down, let's say, most crypto miners over the course of a few years last decade. The lawyers are really good at blocking things, so you don't have the crypto being outlawed exactly. You don't have stupid ideas like the one-child policy, but you also don't have, I would say, functional infrastructure anywhere in the U.S.

Starting point is 00:02:28 And part of the argument of your book, Dan, is that this turns into the respective's way of life, like the United States way of life. It's kind of downstream of the fact that we have lawyerly political elites and then respectively in China, whatever the Chinese way of life is, of which me and Ryan are very unfamiliar, or at least we haven't experienced it ourselves. So whatever the Chinese way of life is, is downstream of the fact that Chinese leadership has always just been engineering coded for decades now. Could you elaborate on that perspective as well? Yeah, I'm speaking to you from San Francisco, which is obviously one of the generators of

Starting point is 00:03:07 innovation and wealth over the past few decades. SF is a, I used to live here between 2015 and 2016. And for the most part, you know, San Francisco as a city does not work all that well. The city works really well if you're super rich. If you're a $4 trillion company, namely Nvidia, if you're one of the rich VCs living in Atherton, life is pretty good. You don't have to suffer through some of these issues of poor mass transit, very expensive homes, a lot of homeless folks who are wandering, distressingly throughout the streets. You're kind of immune from that. In New York, you know, the rich don't necessarily have to take the subways. They have these skinny skyscrapers that are available to them. And I think that what the lawyerly society does is that it rewards the rich and they protect the rich really well.

Starting point is 00:04:00 As in China, the rich are sometimes chopped down and often in very public and humiliating ways. And what the state really tries to do is to take the resources and sort of build stuff as its redistribution scheme. So, you know, walking around Shanghai, it's a very functional city, excellent subways much better than New York. You have excellent infrastructure everywhere. You have excellent infrastructure, even in really deep rural countryside areas where people are really poor, but they have new bridges. They have high-speed rail. They have a lot of airports.

Starting point is 00:04:38 And so that's kind of one fundamental difference between how lawyers run things and how engineers run things. Dan, so you said in the U.S., the rich are more protected. In China, is it the case that those in political power are the protected members of society? Sometimes. It depends on whether you are running afoul of Xi Jinping thought in some way. And so I think this is part of the challenge of authoritarian systems is that the rich, the political elites are not necessarily protected. So, you know, if you are an elite in Beijing, let's say you work at a tech company. Well, maybe hopefully you're not working at one of the tech companies that Xi Jinping smashed a couple of years ago as a broader sort of a crackdown.

Starting point is 00:05:23 Maybe you're working in finance and banking. The Communist Party last year introduced the salary cap of, I think, $300,000. And so if you've made over that, sometimes you have to get back your back pay because the party has instituted this limit. And you might be riding high in the party. But then if your patron is taken down in some sort of a corruption scandal, then the entire network unravels and everyone kind of goes down with him. And so it is kind of just slightly more precarious, slightly more apocalyptic living in Beijing, even if you're one of the elites. Imagine a world where traditional finance meets the power of blockchain seamlessly. That's what Mantle is pioneering with blockchain for banking, a revolutionary new category at the intersection of Tradfai and Web3.

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Starting point is 00:08:45 That's bullish.com slash pro-trader. link in the show notes for more information. How do you raise ranks in the political circles in Beijing and China in general? So it, you know, in the U.S., it's kind of clear how you do this, how you become wealthy, not always easy, but it is clear. Generally, you have to build something of a tremendous value that is useful to large portion of the world or the U.S. population. You're basically playing capitalist game of, you know, creating shares, increasing shareholder value and building products off of that and suddenly one day you two can become Elon Musk, right? And this is the story of capitalism in the U.S. and the West. It's not clear to me how you become an elite member of Chinese

Starting point is 00:09:30 political society. How does that even work? Yeah, well, Elon Musk is no longer being very good at being Elon Musk. So I hope that Elon Musk can be Elon Musk one day. That would be positive. I mean, it's interesting you say that, Ryan, that the mechanism for becoming a, American political elite, at least on, your example was mostly in business, which I agree with. Yeah, and I don't mean so much political elite. Maybe that's less clear. But certainly among the wealthy that you said was like more untouchable in the U.S. That path that at least to me seems clear. Yeah. Well, I guess there's probably three broadways of getting rich in China. I mean, what have been the big drivers of wealth in China over the last basically four decades.

Starting point is 00:10:18 one of them is just land. Chinese didn't really own much land, and then if you had much claim to land, and property value skyrocketed as it has, as China became like a much richer country, this is how you get the phenomenon of, you know, a family in Shanghai could be just kind of a normal family. They would be given three apartment units by the state,

Starting point is 00:10:42 and you could liquidate one of them, and then you could send your kid to college at USC and buy her a Mercedes on top of it. And that is just one path. The other way of getting really rich in China is to tap into the export economy. And so if you are an early factory owner in Guangdong province making a lot of goods for exports, maybe you built a lot of wealth that way. There's also the standard American ways of building wealth by working in the tech industry,

Starting point is 00:11:11 working in the finance industry, and trying to get claim to assets that way. or maybe you're within the party elite, making a lot of money, skimming a bit off of state projects on the side, you know, skirting the risk that you are going to be netted in some sort of a corruption crackdown. But that is kind of the pathway. But I think it's actually the, I do want to poke a little bit at this difference of, you know, how do we become, how does the U.S. become a political,

Starting point is 00:11:39 how does an American become a political elite? Because in China, by contrast, the process is really straightforward. If you're a bright kid, maybe even starting in middle school, and especially in high school, your teachers will give you a tap on the shoulder and say, hey, do you maybe want to consider joining the Communist Party? Maybe you do so by the time of university. And if you want to be a cadre and administrator, you'd be sent to a village, like some poor village to govern this place and to show that you know how to govern a pretty poor place.

Starting point is 00:12:14 And then you would get promoted up into a township, and then you would get promoted up into a city. Then maybe you get to run a state-owned enterprise. Maybe you run some sort of a government think tank proposing policies. And then you have a shot of making it into the central committee, which means that you might be one of the future general secretaries. As in the U.S., a lot of things are pretty unclear. Joe Biden spent his entire life representing the state of Delaware. He was matched against Donald Trump, who kind of came out of nowhere. in politics until recently.

Starting point is 00:12:47 So in this case, you know, the Chinese are really transparent and the Americans are not. Yeah, so it seems like rising the ranks in the Chinese political capital circles, it sounds like you're describing something that is fairly meritocratic and you're describing sort of a technocracy,

Starting point is 00:13:02 which is sort of this engineering-centric culture. I guess if I think about how does someone in the U.S. accrue political capital, you could say it's based on their ideas, right? certainly in a democracy, one would hope that the best ideas sort of win or the most popular ideas win. Increasingly, it seems like the political game in the U.S. is an attention game as well. I mean, if we've converted fully to like this attention economy, it's sort of the politician

Starting point is 00:13:30 that can accrue the most attention kind of wins. Is that how you contrast how it works in the U.S.? Like I guess I've not really thought about how a U.S. politician accrues political capital but it has to be eyeballs, attention, ideas that people support. And these levers are not so much at work in China. It sounds like in China it's kind of political elites lending a hand and bringing up the future generations through this technocratic ladder, I suppose. Yeah.

Starting point is 00:14:05 Well, China is pretty technocratic up until a certain level. Once you reach the elites, namely the Central Committee, which has about 400 people. Then you have a shot of making it within the Politburo, which has 25 people, and then one of those will be the general secretary. And within the Central Committee, that is obviously a total backroom dealing.

Starting point is 00:14:28 It's politics. You know, it's really, they're selecting the next pope. And so that is, you know, pure backroom process. But it is, I would say, mostly pretty technocratic up until you get that point. Whereas the U.S. is very, confusing. You know, how much does the Democratic Party decide? How much do the people decide? People sort of have a say, but, you know, it's, there's no ladder that you really climb,

Starting point is 00:14:54 like in China. I want to continue doing a little bit more of like I compare and contrast of like the, I want to call it the economy, the political economy of these two respective ways of life. Like in America, we know, as Ryan kind of illustrated, the American ideal is you are the founder of this thing and it becomes very useful to society and you have this exit and you become very rich as a result. That's like the ideal. The ideal isn't necessarily to go into politics. And over the arc of the United States, there's been like different phases where like becoming the president is, is an ideal. And I think over the last like 20 or 30 years, we're kind of in a low point of how high that ideal is in American culture, whereas being a Mark Zuckerberg, being on Elon Musk,

Starting point is 00:15:42 being an entrepreneur and being a billion dollar exit entrepreneur is kind of like the ideal. And when we call the United States world, that kind of style, it's just all capitalism. It's all the entrepreneurial spirit. And it's downstream of this whole lawyerly economy that you've kind of illustrated. We once had Hernando de Soto on the podcast. And he talked about, he illustrated for us, like, why are, why is American capital? capital market so different than everywhere else in the world? What about American capital markets are so unique? And he said, it's the rule of law. It's the court system that is willing to

Starting point is 00:16:21 protect your property rights. If you do ever get rich, it's a place to keep your money to keep your capital because property rights are going to be protected no matter what. And perhaps that lends itself to America's entrepreneurial spirit or the idea of like you can get rich in America and why that's kind of the highest ideal. What's the equivalent on the Chinese side? Like, what's the motivating force for somebody to climb the social ladder in China? Is it politics? Is like I want to be as high up in the political ladder as possible? Is there entrepreneurialism? Because there's definitely a free market economy in China. So you can definitely get rich in China. But what's that motivating force that people dream about? This is how I'm going to climb the ranks of just the

Starting point is 00:17:03 Chinese society. Yeah. Well, I think it is exactly the same as the U.S. I mean, there's plenty of people who want to become president or a U.S. senator, come hang out at Yale Law School with me sometime. You'll find plenty of those who don't necessarily want to be Zuckerberg or Elon Musk. And in China, there's some people who really want to become high in the party, and that is just a common endeavor almost anywhere in the world. And there's a lot of hustlers who really want to become rich. And so there's plenty of people who set out creating a great company. They really want to make a lot of money.

Starting point is 00:17:40 They have insanely competitive business instincts. I think that the U.S. is far less capitalist in terms of red-blooded competition than a lot of Chinese companies. There's something like 100 or dozens of big electric vehicle makers. There's something like dozens of big solar photovoltaic makers. They are competing fiercely every day and being really ruthless about it. And I'm sure you guys have amazing stories. from crypto folks who are shanking each other, you know, three times a day before breakfast in China at all, right? So, I mean, those stories are real and they are competitive. They're very

Starting point is 00:18:18 much driven by money. And so this is where I think the U.S. and China are actually pretty alike. You know, everybody likes donuts. Can you say more about this, Dan? So I wanted to get into kind of a list of maybe, you know, things that a typical American listener might think. And I want you to bet whether this is a misconception or maybe there's some level of accuracy in it. So, like, one is I think there's this idea that China is very much a centrally managed society. It's not quite the same free market capitalism that the U.S. has. I think there is this idea that we tend to sort of think of China as kind of like the Soviet Union, right? centrally controlled, centrally managed.

Starting point is 00:19:01 And Americans are like, oh, we've seen this before. Like we, the private way of doing things, capitalism is better. To what extent is that right? Is China centrally managed versus, you know, free market? Mostly wrong. That China is, you know, what China does have is what Marx advocated for, you know, government ownership of a lot of the means of production. So China does have a pretty large state-owned sector that is formally state-owned.

Starting point is 00:19:32 So a lot of these upstream sectors, strategic sectors of the economy, everything that includes airlines or energy or telecommunications, essentially it's a lot of, or just something like three big state-owned enterprises and maybe some entrepreneurial firms, but a lot of that is centrally managed. But otherwise, aside from that, there's a lot of regulations of China, of course, as there is anywhere else. The state has a lot of discretion to do things in the economy if it wants to regulate this or it wants to push away that. It has the ability to do so and not everyone's able to resist. But I think this is just really sitting on top of a large and thriving

Starting point is 00:20:18 entrepreneurial economy that is growing larger as a share of China's economy rather than declining. Would you say it's even more free market than the U.S.? Yeah, I think it is just in terms of being ruthlessly competitive, I think if you want to appreciate, let's say, the greatness of Detroit, you shouldn't go to Detroit today. You should go to Shenzhen today because there's just so much hardware and automation and industrial firms competing against themselves. In a lot of ways, Chinese taxes are much lower than American taxes. They don't have a property tax, for example, which they've been trying to institute for a very long time. Just average. tax rates among normal people. It's a pretty regressive taxation system in which a lot of it is consumption taxes, and that falls on the poor harder than the rich. And so in a couple of ways, I don't want to push this too far, but in a couple of ways, China is relatively free market, along with a big state sector that governs very closely what it does govern, something like, you know, all the airlines, all the telecommunications companies are state-owned. But I would say that there's a much

Starting point is 00:21:26 bigger sea out there. And that sea is growing and, you know, shrinking the side, the relative share of the state sector. You said they've been trying to implement a property tax for some time and it sounds like that's been unsuccessful. Like, why? That confuses me. Yeah. Well, first, it's just kind of logistically been difficult to try to assess the value of a lot of homes and then, you know, tell people that they're going to tax it. And, you know, we're all familiar with this phrase. I'm no taxation without representation, right? And I think there's something about the Chinese that they understand this phrase too.

Starting point is 00:22:06 What they do not have is political representation, right? That's pretty straightforwardly. They cannot vote. And therefore, I think the government has decided, well, therefore we're not going to tax you all that heavily. Otherwise, you might start demanding political representation of what are you doing with our tax money. And I think there's been, and so like politically,

Starting point is 00:22:24 in the 21st century, it is really difficult to institute a new property tax. It's much easier to have done this 100 years ago, whenever the U.S. did it. It is like one of the most unpopular things that really frighten a lot of homeowners now. That's so fascinating to me because I think a typical Western listener

Starting point is 00:22:44 might think, well, doesn't the Chinese government had the ability and the authority to do basically whatever it wants? Which brings me to the second, like, you know, is this a misconception or is this accurate authoritarian control? The idea that there are very limited civil political freedoms in China for Chinese citizens, the idea that it's some form of a dictatorship, to what extent is this true? Yeah, well, dictatorship is a loaded term. And what exactly does that mean?

Starting point is 00:23:12 You know, it's definitely an authoritarian system. But as we, you know, can go into the example of the property tax, there's definitely limits on China's power. You can see this with, there's been occasionally more protests, for example, of like Shanghai residents protesting a trash incinerator right in their backyard. And after some protests, the government kind of threw in the towel and said, okay, we'll place this elsewhere. There is a tradition of some protest in China, and sometimes the government does listen. I'll give you just one more example of like a technocratic fix, which they haven't been able to make, even though they should have made it long ago.

Starting point is 00:23:55 The average retirement age in China is 60 for men and 55 for women. They've raised it very slightly, but this is way too low. Imagine if our moms had retired by age 55 for a lot of women, this is still kind of the prime of their career, but essentially they're forced out of the labor force. And they should have raised this retirement age long ago because life expectancy had already long surpassed, you know, any reasonable levels. But because such a thing is actually still kind of unpopular, they have a lot of reluctance

Starting point is 00:24:30 and they're only raising it very, very incrementally and steadily. So you can definitely see all sorts of constraints on their power. It seems that the Chinese have the ability to protest about things and that the leadership of China responds to the will of the people. But are there things that people can't protest about, just like the people? sensitive subjects that like, yes, you can totally protest about the retirement age. Please feel free to go protest that. But don't protest about, you know, something a little bit more sensitive.

Starting point is 00:25:01 Is there kind of like a push poll? Like, yeah, you guys can protest about that. And because we gave you that, we can't protest about this. Is there something like that? Yeah, absolutely. You can't protest anything to do with the legitimacy of the Communist Party. Don't go out and say that the Communist Party needs to become, you know, a multi-party, it needs to accept a multi-party democracy.

Starting point is 00:25:20 You can't protest about like the basic nature of the Chinese system, the Chinese political system. That's absolutely not allowed. You can't get too foundational? No, not foundational. And so, you know, anything that a regulatory agency might do, like some sort of a banking regulation or some sort of a environmental regulation. Yeah, you know, knock yourself out. Go do some protests. Can't get out of hand.

Starting point is 00:25:44 It can't snowball into political demands. But there are some protests and these are kind of recorded. And you see them, you see a lot of videos. Police abuse, that's protestable. So you can protest the rules, but not the rule makers. Yeah, that's a good way of putting it. Yeah, yeah, well, it checks out. What about another misconception?

Starting point is 00:26:03 Copying other people's breakthroughs, mainly the United States breakthroughs. Like the Chinese economy or like market is, at least in the West, understood to be just a bunch of copycats, right? They don't actually make true innovation. They just take other people's innovations and start iterating. on it marginally to make it marginally better, marginally better, marginally better. And that's the market that comes out of China. Is that accurate, less accurate?

Starting point is 00:26:28 How would you amend? It is true, but overstated importance. So I think for the most part, you have not seen a bunch of great fundamental scientific breakthroughs out of China that turned into big commercial products. And they have indeed, you know, early on Samsung copied Apple iPhones. And then all these Chinese companies were on Android and they copied the Samsung phones. But now I think they have been able to make, you know, once you gradually improve, you know, bit by bit, like that ship of Theseus, you change this ship plank by plank.

Starting point is 00:27:07 A while later, you can get a whole new ship and they've upgraded into, you know, in some cases like a battle cruiser. Sorry, that's a bad metaphor. But, you know, this idea that they are kind of innovators in a lot of. consumer drones. Did they invent it? I think technically not. I think that was a Silicon Valley invention, but they fully own this industry now. They did not invent the solar photovoltaic cell. That was invented by Bell Labs in 1954 in New Jersey. But, you know, the Americans did not build that much solar. Beaming the Germans that were more interested, and now solar is like a completely Chinese product. And so this is where I think that at least we overrate the importance

Starting point is 00:27:48 of this founding moment of invention. What really matters is some degree of diffusion, scale up, production, and that's something that the Chinese have become much better than the Americans have. There's not so much the idea. It's more about the execution. How about this idea,

Starting point is 00:28:04 misconception or accurate? The idea that China or living China is like being in a digital totalitarian state. So internet is censored. You post something you're not supposed to. Maybe someone deletes your account, shows up at your house, something bad could happen, social credit system kind of controlling.

Starting point is 00:28:22 There's really like no freedom because everything is digitally surveilled. To what extent is that true? Again, maybe true, but also overstated. I think it is definitely the case that the Chinese internet is pretty extensively censored. They don't block that many websites, but they block all the useful websites. So something like Wikipedia or Facebook or Wall Street Journal, you can't access. a lot of these different websites. And so they kind of have alternatives that are much more extensively censored.

Starting point is 00:28:57 And I think that, you know, it, you know, maybe the Chinese argument would be something like, are we surveilling a lot? Yes, maybe. But, you know, after the Snowden revelations, it seems like the Americans are also surveilling a lot as well, right? NSA has a lot of data on people. We don't really know how much data it has after Snowden. It turned out to have been quite a lot. And just with the U.S. as well as in the U.S. as in China, maybe the government has the ability

Starting point is 00:29:33 to figure out exactly everything that you're doing online and on your phone and everything else. But it doesn't necessarily mean that they're going to do anything with it. And so, you know, there's surveillance, but that doesn't mean that they're controlling absolutely everything. Okay. So just getting into kind of the nuts and bolts of something like this. So in the U.S., I have an ex-account. I feel okay right now.

Starting point is 00:29:59 I know the political environment is changing rapidly, even as we record this, but I still feel okay tweeting something critical about the current president. like in fact insulting the current president and posting that publicly online. Great. Let's add a mean tweet right now. Okay, so maybe after this episode, just as a test. And even as I say that, I'm just actually less, it's interesting, I'm less comfortable doing that

Starting point is 00:30:28 than I was a few years ago, which is maybe says something about America that we could talk about. Anyway, except that's still true. What would be the equivalent in China? Would a citizen ever be able to do that on kind of the equivalent X type platform? We chat something like this in China, just post something publicly against Xi? Or what could they expect to happen if they did that?

Starting point is 00:30:51 Yeah, almost certainly not. Would they have the ability to do something like that? That the Chinese equivalent of X is Weibo, and that platform is censored very, very extensively. There is something, I think, digitally totalitarian about this. which is that for a lot of people to be able to go online and register for the internet, you need to provide your social, your national identity card,

Starting point is 00:31:19 which is essentially a driver's license. To register to get on the internet, you have to have a national ID in China. Yeah, there's some subtleties here. It's like, I think if you register for, if you have like a cable connection, you have to show who you are and that IP address might be tied to your real name.

Starting point is 00:31:35 If you try to get a SIM card from a telecommunications company, your local T-Mobile, they will want your national ID card before they can give you a SIM card or a telephone number. So what that means is all internet traffic or all internet activity is traced to individual citizens. And so an individual citizen can be accountable for what they do in accessing this. Yes. I think that there are gaps. I think there are holes in all sorts of ways. But that's very much the idea that they like to move towards such that you're unable. to say mean things about

Starting point is 00:32:07 CD&Ping on Weibo. So when I sign up for internet on my phone, so with Verizon or my internet provider, whatever it is in York, so spectrum or whatever, I have to give them my ID, but the difference is that that is a company

Starting point is 00:32:23 that could be served by the government, but it is not the government. Wait, you have to give them your ID? Why do you have to give them your ID, David? Yeah, I'm surprised about that. You don't have to give them your ID. For my, phone data?

Starting point is 00:32:36 Nah, just give me your phone, name address, credit card. I'm pretty sure I gave Verizon my ID. I might be wrong about this. I mean, opening a bank account? Yes. I think what Dan is subscribing is similar to the American experience

Starting point is 00:32:49 of opening a bank account where it's full kind of national ID, AML, KYC type check. That doesn't exist, to my knowledge, to just get access to the internet via an ISP or even like a phone. All right. Yeah.

Starting point is 00:33:02 I mean, maybe they ask you for some sort of identity document. but it might not be absolutely necessary. Maybe they don't give it to the NYPD. But in China, you know, it's really hard to say mean things. People are generally able to talk about it at the dinner table. And sometimes they self-censor a little bit, and they speak a little bit in circles and elliptically before they, you know,

Starting point is 00:33:27 mentioned the name. So there's definitely like a lot of fear in China. And the best analogy to think about with censorship, in China is that there's a sinologist Perry Link who came up with this metaphor of the anaconda and the chandelier. So imagine we're all at a dinner table. There's a chandelier above us. There's also an anaconda inside.

Starting point is 00:33:48 And you never really know if you'll say something that makes the anaconda wake up and decide to come strangle you. So you kind of self-sensor and so you don't want to wake up the anaconda. It doesn't mean that the anaconda will come after you if you say the slightest thing. but a lot of it is just self-censorship that prevents people from speaking the truth. I was getting lunch with two people from Hong Kong a while ago and we were talking about subjects similar to what we're talking about right now.

Starting point is 00:34:17 And I was asking them just about the nature of living in Hong Kong and under the Chinese sphere of influence. And the person I was talking to flipped their phone upside down and moved it very far away from her as she was talking. And I was like, the fact that she did that just stuck out to me. Yeah, who knows? And probably no one was listening. I bet.

Starting point is 00:34:38 But, you know, that she feels the fear, that's very real. And that will create some sort of self-censorship. That was the anaconda in your, you know. That was the anaconda. We had the anaconda was there getting lunch with us, yeah. Dan, I want to ask this. There were these kind of nightmare-type scenarios often painted in Western media about, you know, China, central bank digital currency,

Starting point is 00:34:57 some sort of, you're like money-type Adaras, tying that to a social credit system. And to what extent is that sort of Western extrapolation of what's going on in China? And to what extent is that true? Is there like a social credit system in China that's active and working such that if you do anything, you could be economically locked out, that there's like a whole reciprocity score system and sort of a database on every citizen and there's a list of the good citizens and the bad ones, you can kind of rise the ranks?

Starting point is 00:35:28 Is that stuff real? Mostly not. I think the social credits score is, I think, one of them most weirdly overstated themes in China. It's kind of like a Western meme, would you say? It was mostly a Western meme. I mean, I think there are some kernels of this in which they try to begin and they gesture that to try to implement because, broadly speaking, Chinese don't have credit scores. And this is just kind of too new. People didn't have any credit in the past.

Starting point is 00:35:58 So you can't generate a credit score. And so people kind of had this more ambitious idea. But, you know, some people have been banned from taking the train to Beijing because they protested that their bank failed. And then they need to get their deposits back. But broadly speaking, there is no, you know, functional nationwide, you know, fine-toothed social credit score that is getting a lot of people when snared. And last I checked, the central bank currency was not broadly used. but everybody has an AliPay account or a WeChat pay account. And so effectively, given that your whole life is already online

Starting point is 00:36:35 and both of these companies are deeply, deeply enmeshed in the government, I think that I don't think you need CBDC plus a social credit score system. If the government wants, it has the discretion to reach in and get a lot of your info. How about this last idea on misconceptions versus accuracies? So I feel like sometimes the U.S. and the West oscillates between China's already defeated the U.S. You know, like it's over.

Starting point is 00:37:02 You know, China is now the strongest countries. Sorry, the U.S. is the diminished empire now. And China is about to collapse. Like, whether it's like a, you know, demographic collapse, whether it's currency manipulation, whether it's the ghost cities and, you know, the Chinese economy is based on nothing. What about this idea of China's about to collapse? How true is that versus misconception?

Starting point is 00:37:28 A misconception, again, mostly for the most part. There's always a kernel of truth. Nobody predicted, almost nobody predicted the collapse of the Soviet Union when it took place basically by 1989, and then it unraveled really, really quickly. And then afterwards, it seemed inevitable that such a thing was going to fall apart. But after having lived there for six years, it doesn't seem like a society that's right on the brink of completely, unraveling. You know, their economy is weakening right now, but it is still growing decently well. The people there are creating amazing companies. They're making better and better electric vehicles, industrial robotics, all sorts of goods. They're totally dominant in solar. People there, I think,

Starting point is 00:38:17 are broadly, you know, for the most part, pretty supportive of the regime. They get better cafes. They get better parks. They get better bubble tea. They get better noodles, whatever it is. I think the the cities function pretty well. And, you know, at least in the early days of COVID, the Chinese were able to organize a response that looked really effective for a while. Let's call it two years before it all fell apart. But, you know, they had the capacity to do something like that. And the U.S. did not have the capacity to organize much of anything at all. But I definitely agree with you that this narrative on China tends to see saw. So after, you know, being in China for six years, I left to my job as an investment research analyst, and I became a fellow at the Yale Law School.

Starting point is 00:39:06 And, you know, that was all, you know, at the time that I moved, there was like just such triumphalism for America. You know, we had MRNA and China did not. We had ChachyBT, and China did not. And the war in Ukraine wasn't going well. And so it looked like autocracies broadly were failing and democracies were winning. Right now, the narrative is much more complicated here in SF. I hear a lot of people in tech saying, yeah, China has already won. It's already defeated the U.S., and I think that's, both narratives are overstated. And I think we should just, you know, keep in mind that both countries are going to be around. They're probably going to be both going to be around for a very long time and both have to get much better than they are in all sorts of ways.

Starting point is 00:39:50 going back to the notion that China, this top-down centrally planned economy is on the brink of collapse because we've seen this once before. The biggest reason that why that strikes me as far-fetched is like no one really seems to be dissatisfied. Any Chinese expat or Chinese citizen that I run into during my travels in the crypto world, everyone seems pretty happy about the state of China. And one comment that you've made, or one line that you've made, Dan is in a, the city journal is where this quote comes from, that the Communist Party treats society not as a living organism, but as an engineered system. You know, society is a series of pipes to be optimized and engineered. Whereas I think in the Western way of life in the United States, it's more of a living organism where you have this minimum viable rule set, right? You have this constitution. And so long as you follow the rules, we're just going to emergently allow this organism.

Starting point is 00:40:46 and to blossom. And that just, again, goes back to, like, this whole way of life perspective difference. And so, like, I think in order to be a satisfied, check me on this, I think in order to be a satisfied citizen of China, it's like, you just have to be okay with, like,

Starting point is 00:41:01 the set of pipes that you live in. And then if those pipes work well for you, you're probably pretty happy. And without any sort of, like, growing crescendoing of discontent from the Chinese, why would they upend the system that seems to be working for them? Yeah.

Starting point is 00:41:15 Well, I want to push back a little bit. I think I agree with this idea that, you know, you need to be able to fit into the pipes. And I think that, yes, the pipes are getting better and better. They're working well in all sorts of ways. But there's plenty of people who don't fit in the pipes. And so, you know, the groups that I, there's three groups of people that come to mind. There's plenty of rich people that have fled China, including, as I understand, a lot of crypto people. I mean, they moved to Singapore, they moved to Japan, U.S., whatever.

Starting point is 00:41:43 And there's a lot of creative types who've decided that censorship in China is growing. It's way too annoying. And they move to Thailand. They moved to Japan. They moved to the U.S., whatever. And there's been, like, you know, one of the most surprising things over the last couple of years has been that the U.S. border was picking up a lot of Chinese nationals, trying to walk across the border.

Starting point is 00:42:06 They fly to Ecuador, then they walk around, walk through the Darien Gap, like a lot of other folks from Central America. And the U.S. and CBP, Customs and Border Patrol, were picking up something like 30, 40,000 of these people. And would these be like middle class Chinese citizens? It's very hard to tell. It's a big mix of people, but mostly, I would say, less educated people, less creative people, but some middle class people also there.

Starting point is 00:42:34 But here's where I want to ask, both of you, what's going on in China's crypto community right now? I mean, there was a big crackdown. Like, people weren't arrested, but a lot of things, close? Like how do your friends who are Chinese, Chinese nationals, not necessarily Hong Kongers, how do they feel about crypto? Are they really not upset about anything? David is maybe more well-traveled, so I'll allow him to answer. But, you know, like my perception is China's kind of a black box with respect to crypto. It's basically every, you know, couple of years we'll get some indication that China has cracked down on crypto. Something has happened. It's banned. And it's kind of the end of

Starting point is 00:43:12 crypto in China, miners move, you know, exchanges shut down, and then things will relax for a while and some of that energy comes back and then there'll be another crackdown. It's certainly not the crypto capital of the world. I mean, most of the big exchanges and founders and projects have moved away from mainland China. And so crypto, you know, there's people that use and leverage crypto in China, Chinese citizens, but it's not leading the pack with respect to innovation. That's for sure. And I think that's largely because of the crackdowns. But it's also hard. There's not a lot of visibility. I don't feel like we have a lot of visibility in the way that we have visibility into other countries, you know, globally and what they're doing in crypto.

Starting point is 00:43:58 What would you say, David? Yeah. The instances that I have of talking to someone who is, you know, mainland China are very few. It's very dominant. in Hong Kong. One instance was we did a podcast with an American expat who lived in China who reported on the Chinese Central Bank Digital Currency Project and gave it a fair like shot. I was like, yeah, this is actually doing a very good job banking a lot of unbanked people in China. And so this one individual said like, hey, I really appreciated you and Ryan like not coming

Starting point is 00:44:29 in with like your American Western hammer and being like, this is bad. And we like heard that time of day and they appreciated that. He was a mainland Chinese person. And another mainland Chinese person I was talking to was talking about the Chinese Crypto Conference. Like I won't call it a sector because it's outlawed. But the vibe that I was getting, the story that they were telling me is that you can organize a crypto conference in China.

Starting point is 00:44:52 You kind of just do it on the DL. You send out the address at the very last minute into like this network of people on WeChat and then people all go for the day. It's like a pop-up conference very in and out. And then it shuts down and closes down before the. the Chinese central government really hears wind of it. And that's understood, and they are just okay with that. And it doesn't really bother anyone,

Starting point is 00:45:15 but they just kind of do it very quietly, pop it up, pop it down. And then that's what the Chinese, like, crypto conference looks like. Other than that, like, everyone has left. Right. So everyone has left. That's not an endorsement of the regime, right? You're saying that. Europe people being very unsatisfied, but then they left, right?

Starting point is 00:45:31 That's a pretty strong voting with her feet, right? Yes, yes. Dan, why do you think that? that what's really interesting is China is at the forefront of a lot of different technologies. You know, we could talk about AI, we could talk about energy, we could talk about drones, we could talk about batteries, the full electric stack, let's say. Not crypto, though. Is this because crypto is sort of a kind of an open markets capital type of technology?

Starting point is 00:45:58 It's almost like a political technology of a sort. Is that the explainer to you? Yeah. there's plenty of things that Xi Jinping really seems to dislike or people around him, and this is kind of just all rolled up in Xi Jinping thought. But he has expressed a lot of dissatisfaction with, you know, a couple of sectors. I'm not sure if he's ever weighed in exactly on cryptos in particular, but, you know, I think there's definitely a fear that this is kind of open and blockchain is going to, you know,

Starting point is 00:46:29 make it more difficult for the state to control the money supply. and I think that that is kind of like just a conventional thing. And in the early days, it was all used to buy drugs. And the Americans had that thought, and I'm pretty sure the Chinese had that thought as well. And so they care about sovereignty. They want to be able to control absolutely everything. Again, it doesn't mean that they will control everything, but they want to have the discretion and the muscle to be able to control things

Starting point is 00:46:56 if things get out of hand. But Xi actually has announced something like the, financialization of the economy, as well as a lot of sectors of consumer internet. Here's where, you know, he would say something like, and he has said stuff like this before, that the financial industry is not creating enough value. He has kind of a very Soviet model of what finance needs to do. There's a kind of a broad sense that's frankly shared by a lot of Americans and a lot of people around the world that a lot of consumer tech is not terribly useful that we're sending our best physicists from MIT to design better ads or better algorithms

Starting point is 00:47:34 for consumer tech. And that's not fundamentally useful. And so, you know, this is kind of not necessarily a view that is unshared by global elites, that kids need to play fewer video games. We should have fewer smart minds building alternative currencies. And so that is just kind of, you know, an elite view of things to try to really re-engineer the economy. How does China's elite view capital markets, or maybe specifically just like Chinese capital markets, because as I understand it, China's capital markets are just very weak and very weak in comparison to the ratio of the actual economy, economy, very strong. Capital markets very weak.

Starting point is 00:48:14 Is that an intentional choice? Is that a byproduct of the governance style? What's downstream of that? Well, it is mostly policy choice. they have very extensive capital controls. And again, this is a kind of a function of their need for discretion and sovereignty over absolutely everything. They don't, they want to be able to control foreign money flowing in as well as out. China's capital markets have been discouraged to put it lightly when Xi delivered these beatings on a lot of tech unicorns. And so a lot of

Starting point is 00:48:48 VCs were pretty discouraged and it's been harder for VCs to raise money from their LPAs. And there is something like really strange about the Chinese stock market where essentially, you know, this country has average, let's say 8% growth over the last 30 years. And what has the, you know, Shanghai and Xinjiang stock exchanges done, it's been essentially flat over this period. And that's because they're like these very strange quirks with a Chinese stock market. It doesn't mean that every stock is bad. I mean, you, among the stock pickers, if you pick a couple of good stocks, you can, you can, really be do well. But, you know, again, I know nothing about crypto, but, you know, maybe to bring a borrow an analogy here, most Chinese stocks are shit coins, but are going to do really

Starting point is 00:49:38 well here. So, you know, a couple do very well. But on average, you know, a lot of things don't grow very well, very well. So the median person in the United States, middle class medium person, makes saves more money than they spend on a monthly basis. They take that money and they put it into the stock market. They buy an index and do something. They put in their 401k and they do that for 5, 10, 20 years enough until they have some amount of lump sum that they put on a down payment for a house. And now they have some money in the stock market.

Starting point is 00:50:10 Now they have a down payment on a house. And that's the known path to wealth for the middle class in America. What is it like in China? If I'm a middle class median person, what do I do? It's much more challenging because I think the goal is for everyone to buy their own home and buy their own property. It's just a lot of East Asians really need to feel the need out of this cultural expectation to own a home. And, you know, the mortgages, you know, for over there, what's really difficult is that could be extremely expensive to actually, you know, purchase a home relative to your income. You know, it probably might take you something like, you know, 30 years of, you know, very intensive saving.

Starting point is 00:50:53 To get a mortgage, sometimes the down payment could be something as high as 50% of the value of the home. And so you really end up with a high down payment. In the U.S. is like something like 20%, right? So as a share on a much higher price relative to your income, it's much more challenging in China. And so I think this is also part of where the despair among youths, commit, you know, you're making, let's say, $2,000, $3,000 would be a pretty good salary in China, but then the homes cost, you know, something like $400,000. And so the economics of that could be pretty challenging.

Starting point is 00:51:30 You may want to try to put your money in the stock market, but essentially it is flat if you're for the average stock. And, you know, I think that is one of these reasons that some people do feel dissatisfied. And youth unemployment right now is high. so there's plenty of things wrong with the engineering state. We take a look through some of the choices that people have. Introducing FRAXUSD, the genius-aligned digital dollar from FRAX. It's secure, stable, and fully backed by institutional-grade real-world assets,

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Starting point is 00:54:24 Bankless is being compensated by Bit Digital for this ad. You can find out more information by clicking the link in the show notes. That is so strange, too, with the Chinese economy booming why more of those gains aren't reflected in the stock market. It does sound like for the average Chinese citizen, really the store of value is maybe their house or their property and they have to work up. to that. Maybe to look at another thing that seems weird, which is the portion of the U.S. capital market share of the world, something like 70% of all U.S. of all equities are in U.S.

Starting point is 00:54:56 capital markets, right? It's incredible relative to the size of the U.S. economy. And I almost wonder, going back to kind of your original thesis, if there are some things that are products of the lawyerly state. And there are other things that are other things that are, which are better products of the engineer and the builder state. One of the things that might be a product of the lawyerly state is property rights, for instance. And maybe this is why U.S. capital markets being kind of open and free and with kind of very clear rule of law. I mean, David alluded to this earlier.

Starting point is 00:55:31 Maybe this explains why 70% of all equities are in the U.S. It explains perhaps why the U.S. has global reserve currency status, at least. right now with the dollar and assets as well. Is that basically the strength of U.S. capital markets? Is that sort of a, it seems very clear, it's an area where the U.S. is ahead. But is that just chiefly because it's a pure lawyerly product. I mean, you don't have to build something. It's just like, it's literally legal documents all the way down.

Starting point is 00:56:00 Yeah, partly. I think that, I mean, yeah, it is kind of stunning. I think 10 years ago, any American investor would be stunned that U.S. equities are 70% in the global total. That is pretty surprising. And I think it is fair to say that the rich feel comfortable to create amazing businesses in the U.S. They feel the protection over property rights, intellectual property rights. That is all very fair. And I think the other big superpower is that still a lot of the world's smartest people would really like to go, you know, build their companies in the U.S. because it's much easier doing that than it is in Germany, for example,

Starting point is 00:56:40 Japan, whatever. But I want to put a slight caveat here and I want to offer a provocation, which is that maybe equity values is not the right way to think about, you know, a lot of what's most important in life. So let's take a look at a company like Apple. It's $3.5 trillion company by market cap. And compare that with Xiaomi, which is kind of another phone maker and Xiaomi is about, last I checked, about $200 billion in market cap. So Apple is just something like

Starting point is 00:57:14 30 times bigger than Seattle. Apple for, you know, it's publicly reported for over a decade, considered trying to build an EV, try to build a car. And they thought about it for a really long time and then they

Starting point is 00:57:30 canceled the project and threw in the towel a couple of years ago. Wow. Xiaomi, which is also a phone maker, also makes like, you know, rice cookers and a lot of household consumer goods. You know, five years ago, the CEO declared, we're going to be an EV maker. This is going to be the last great entrepreneurial venture of my life. And I'm going to invest $10 billion into building, making Xiaomi and EV. What has happened?

Starting point is 00:57:55 Well, Xiaomi did make EVs. Its cars are not being driven around in Beijing. It keeps raising as production targets because these cars are really good, so good that last year, their first SUV set a speed record in Germany in one of these German auto race courses called Nureberg Ring. So there's a really challenging race course, this nickname the Green Hell. It's set in the mountains of Western Germany and Xiaomi, and its very first automobile, set a speed record in one of the big races in the world. And so again, this is a company where Apple is something like 15 times larger than Xiaomi, but Apple couldn't.

Starting point is 00:58:35 not pull off an EV and it decided to surrender and throw in the towel, but Xiaomi could. And, you know, which company is better? I mean, I kind of want to bet on the company that is able to achieve the things that it wants to achieve. Yeah, I hear that. And I mean, I hear, like, Apple hasn't even responded to the current thing, which is AI in a very effective way. I mean, there's a lot of sleepiness over there. But I guess maybe if, Sammy is a stronger company in a lot of ways, what explains the 15x premium that Apple has? Is that sort of a product of, there's some kind of American capital markets premium

Starting point is 00:59:11 that our equities have and our capital has in general? There's maybe like almost a negative premium right now in China. Is that because we have a lawyerly society? Yeah, well, I think it's both a positive premium for Apple and also a negative premium for China writ large. I mean, Apple is famously capital-light. It doesn't own its factories. It outsources that to Foxcon.

Starting point is 00:59:36 It basically exists as a giant software and marketing hub in Cooper Tino. Where yes, Xiaomi decided to own a lot of equipment and it treats inventory seriously and it has a pretty giant workforce relative to Apple. And so, I mean, I guess this is where I'm pretty skeptical of the American approach, which doesn't value workers, which overvalues profit. which is about cutting prices to the bone. Tim Cook is the one who I think came up with a phrase,

Starting point is 01:00:10 inventory is evil, you know, just have just in time production all the time. And so, you know, I think this is where I'm more in favor of the Chinese approach, which builds redundancies, which has a slightly larger workforce than it needs and is able to, you know, get the job done. Why is trying to like that? Again, is that another top-down decision by the political elite or to what characteristics was that the just property of the Chinese economy that emerged?

Starting point is 01:00:38 I think the most important thing that I would cite is that China just has a lot of industrial expertise, something I call process knowledge. So, you know, technology is not just tooling and equipment. It's not just patents and blueprints and other written instruction. A lot of it is what, you know, kind of exists in our heads that can't really easily be written down. and it just has to be practiced and maintained for it to grow. And so the U.S. keeps losing manufacturing workers. China has a manufacturing workforce of about 70 million people.

Starting point is 01:01:14 And so, you know, if they're just, you know, building iPhones all day long, and then they're building drones, they're building electric vehicle batteries too. You know, there's just a giant workforce that is solving three new problems a day before breakfast, right? So they are able to just keep pumping and learning things incrementally growing and then probably at the front edge of developing new products in the future as well. So that's on their side of the story. There's also just a giant spree of investments made by the government. So the Chinese government invests a lot more in power production, whether that's solar or wind

Starting point is 01:01:55 or coal or nuclear than the U.S. does. and much better traditional sorts of infrastructure at large. They have much better ports, much better railways than the U.S. And so there's a lot more public investment there, and there's a lot more, much better workforce that they can tap into. There's a much more sophisticated electronics ecosystem that they can also tap into. And so, you know, I find a strange, you know, Apple worth $3.5 trillion can't easily tap into a lot of these sort of things.

Starting point is 01:02:24 Frankly, you know, is Xiaomi, you know, undervalued, Apple overvalued, you know, I would say is, you know, Apple seems to be overvalued when we compare it head to head against Xiaomi. Do you have a thesis or like a reason why America became weak on the builder side? Because, I mean, there's an argument that it wasn't always this way. I mean, there was a time where America was not only a lawyerly society. It was also a builder society, too, an engineering society. I mean, World War II, that was kind of the story of the 1940s and then coming out of that. So something has happened. Really, something has changed. Part of it is the rise of China, but it's another part, like, how did America become so weak?

Starting point is 01:03:05 What's the explanatory force behind that? The 1960s. That's the explanatory force behind a lot of different things. So first, I agree that the U.S. used to be an engineering state, built a lot of canal systems, built skyscrapers in Manhattan and Chicago. It built the transatlantic. It built to the transcontinental railroad interstate highway system, and especially Manhattan and Apollo. But then I think the U.S. did substantially overbuild. You had a lot of urban planners that rammed a lot of highways through dense urban neighborhoods, most infamously, Robert Moses in New York City. And you had the Department of Agriculture spraying DDT and pesticides absolutely everywhere throughout the country.

Starting point is 01:03:50 The Army Corps of Engineers dammed essentially every river in the West. And so there's a bunch of disasters that America made in terms of over construction. People fell out of love with the technocrats who were prosecuting something like the Vietnam War. And so, you know, all of these factors kind of came together for the Yale Law School to turn into, you know, students there to turn into regulators and litigators. So people, they decided that you had to restrain the government, you had to stop the government from polluting or tearing things down. And I think that right now we are still, most law students are still in that mindset, that we need to use environmental law to block a lot of projects. We need to use all sorts of laws, whatever we can use to block Donald Trump. And I'm generally

Starting point is 01:04:40 sympathetic to a lot of these types of arguments, but, you know, I think that that has been too much and we can't keep beating up on the problems of the 1960s when the U.S. right now has a housing shortage, mass transit shortage, and needs to build a lot more solar and wind too. Is this similar, Dan, to the argument that Ezra Klein and Derek Thompson put out in their book, Abundance, which is actually,

Starting point is 01:05:03 it's interesting that this is coming from kind of more of the left side of the political spectrum, but it's basically the argument that we've let regulators say no to everything, and what we need is a mindset shift, what we need is an abundance agenda. I think he was mainly speaking to the Democratic Party, but are you articulating, would you endorse that argument? Yeah, I am a partisan for abundance.

Starting point is 01:05:26 I think that the left needs to build shit. And I think that, you know, I was, I spoke at the abundance conference in D.C. Last month. So I'm a partisan for abundance. I think it has the answer. We don't have to become like China, but let's just build more homes and infrastructure

Starting point is 01:05:43 where people really need these things. We had a regulator of the SEC, Gary Gensler, and I'm not sure if you're as familiar with his adventures in crypto, but it's very much that lawyerly, no, you can't do this. No, you can't do that. No, no, no. Every token is a security. You know, the 1940s act was perfect.

Starting point is 01:06:04 US is the best capital markets. We don't need anything in crypto. He is now gone. I did an episode too. It was terrible. It was terrible for crypto innovation. It was terrible for builders. What ended up happening is a lot of the crypto industry started to move offshore.

Starting point is 01:06:20 And that is completely reversed once a new SEC regulator came in. But I think it's that type of mindset. When I read the abundance book, I was like, oh my God, this is Gary Gensler. This is exactly what he was doing. He was just a no fairy. It seemed like his whole job was to say no to everything that happened in crypto and to not like it. And he was very good at that. And I think we're doing that in a lot of areas.

Starting point is 01:06:44 we had an up close and personal event in crypto, but it seems like we're doing that in a lot of places. Yeah, absolutely. There's another explainer that people in crypto use, and I'm wondering if you give it any credence, right? Which is like, they answered the question of, why is America weak? There's sort of the Ray Dalio type of explanation, which is like, this is big cycles. This is changing world orders.

Starting point is 01:07:06 What happens is every empire kind of has a, you know, crescendo, has an apex, and then it has a decline. and this happens over every 80 to 150 year time period, and he maps this to long-term debt cycle and that kind of thing. There's also the idea, which is primarily a financial idea, that's related to this, which is the Triffin dilemma, basically, is once you become a world reserve currency, you sort of hollow out your middle class, you hollow out your manufacturing base.

Starting point is 01:07:35 And so some people would say, Dan, yeah, the 1960s and regulators saying, no, in lawyerly society, I agree with some of that, but the big driving factor is actually like the U.S. became a financial center, world reserve currency, and our export became dollars instead of actually goods. And then there's another related kind of cultural explanation, which is just like, you know, the whole hard times create strong men, strong men create good times, you know, et cetera, et cetera, right? To what extent do you think these are reasons for why the U.S. has been weak relative to China?

Starting point is 01:08:10 And I say weak relative to China because it's actually been strong compared to some other Western democracies, I would say, but like weak relative to China. Yeah. Great. A lot of great questions there. First, you know who Ray Dalio sounds like all the Marxists in Beijing, you know, all these like world historical grand cycles there and you can't resist these giant waves of history. That's like, that's kind of how Marxists speak. I find that kind of hilarious. Do you think they're right, though? Do you think there's an element? of this is true? Or do you think it's fiction? What I would acknowledge is more of your other point, which is that as the U.S. gets richer, it's inevitable that people feel the need to defend

Starting point is 01:08:54 their property rights. I think that as American society matures, there's this mass or all sort of stuff of interest groups really starting to take shape and it becomes much more difficult to do things. And the U.S. is a relatively rich, expensive country. and it is just not going to be competitive on China, on something like solar panels, to say nothing of socks, right?

Starting point is 01:09:18 So, I mean, I think all of that is real and valid. But for me, what I find important is to think about technology as essentially a political project as well as an aesthetic project that, you know, like, why doesn't the U.S. have a little bit more self-confidence in believing that, you know, we're the richest country in the world, We should be producing some of the most high-end goods, and we should be exporting some more of these sort of things. I understand there are some restraints here,

Starting point is 01:09:48 but manufacturing as a share of American GDP is something like 11% of GDP. For Germany and Japan, it's something closer to 20%. And I think that the U.S. should look a little bit more like Germany and Japan. I think that would be quite a lot better. And so deindustrializing is in part a cultural choice. it is in part a political choice. And I think what I want is for people to just be excited about manufacturing again.

Starting point is 01:10:17 And yes, even though the U.S. has all of these pretty good advantages with, let's say, AI, let's say a lot of biotech, like a lot of its apex manufacturers have been weak relative to, frankly, the Europeans or the Japanese as well. So Intel has really fallen on hard times. Boeing has really fallen on hard times. Detroit has been having a hard time for decades, and even Tesla seems to be falling on a hard time. And so I wish that there was more of an ethic to say, we are a rich and powerful country and the rest of the world ought to feel that there are products here worth buying.

Starting point is 01:10:53 Would you agree with a broadstrokes idea that America has this superpower, which is the capital markets? You can go get a loan. You can go finance things. You can go to the venture capital market. you can get investment. And it's a shame that we don't have the manufacturing arm of the United States to really point that very strong capital markets towards.

Starting point is 01:11:17 We have all this latent power in our capital markets and we're kind of just doing an over-financialization thing to really unlock a growth inside of America. And it's a shame that we can't connect it to manufacturing. On the Chinese side, plenty of manufacturing skills, labor. expertise, a politically inclined, an engineering inclined political elite. So all of the industry that you need in order to do that, weak capital markets, though, doesn't really have the strong capital markets to be able to really invest in these things. Or I'm assuming here, because again, I don't know.

Starting point is 01:11:54 But like, I see just this like inversion here where China's got the engineering doesn't have the capital, doesn't have the capital markets, whereas America's got the capital markets doesn't have the engineering. I mean, like, are we just, can we just? can we just like come together here and like put these puzzle pieces together? Like what's going on here? Yeah, I don't know. David, what are you?

Starting point is 01:12:12 Akami? What sort of panahugger are you to kind of make everyone come together? I mean, yeah, I mean, there's all of these like wonderful inversions between the two countries where like a housing crisis in America means that house prices are soaring and they're unaffordable. Housing crisis in China means that they've overbuilt and, you know, confidence is weak. And it's like collapsing in value. And so, you know, there's all, like, all sorts of ways in which I feel like if the Chinese could just build a lot more homes in America, that would be positive.

Starting point is 01:12:45 You know, I sign on to that. If the Chinese could build more like solar and EV plants here, that's good. And that's positive. But, you know, I spend quite a bit of time in Washington, D.C. And my friends in D.C. will not let me get away with, you know, answering the panda hugging on challenged, which is that, you know, folks. in D.C. feel like China is a security threat because they want to dominate their side of the Pacific. They feel that China is an economic threat because they don't want more American manufacturing jobs to disappear where the semiconductor industry goes the way of the solar industry,

Starting point is 01:13:23 which entirely is a Chinese product. They don't like, you know, a lot of these human rights issues that are facing a lot of Chinese. So, you know, I think that, you know, we should figure out some terms of coexistence, but the frictions up at the top political levels, I think, are absolutely real and they have to be resolved. Dan, to what extent do you think China is an actual security threat to the U.S.? Beijing absolutely wants the island nation of Taiwan. That is kind of, you know, a direct stated aim, and they would absolutely like to have it back, you know, by hook or by crook at some point. You know, I don't think they're in a hurry to do something like that. And they, they,

Starting point is 01:14:05 also want to dominate the near Pacific, all these countries in the East Asian Pacific. And so, you know, some of these are American protectorates and treaty allies like the Philippines or Japan or South Korea. And, you know, the U.S. doesn't want allies to get in trouble. I don't see any scenario in which the Chinese will ever want to, like, invade mainland America or even Hawaii. And I don't think that American troops will ever want to occupy, you know, coastal China either. But there are, you know, a couple of these flashpoints out there. There's a lot of cyber attacks between the two sides. And so, you know, there's plenty of grievances if we want to poke at them in Washington, D.C. Dan, I want to go back to the building for a second and what America can do to get its mojo back on

Starting point is 01:14:58 that score. And you just to talk about the scorecard because I think a lot of listeners are not aware, at the level that China is ahead in some of these areas. So China's manufacturing capacity versus the U.S. as 2x. Electricity generation 2x, U.S. gigawatt output. Automobile production, this is skewed towards EVs. It's now 3X, the U.S. A steel output, 11x. Cement production, 20x.

Starting point is 01:15:27 Shipbuilding capacity, 230x. Batteries, China is 80% of global supply. EV production, about 75% of global supply. Drones, 90% of global production. And I remind folks how useful drones are from a military perspective. I could go on, we've talked about solar and other areas. People look at those stats or they hear those stats. And a certain amount of fatalism, I think, sets in, which is like,

Starting point is 01:15:55 the US can never catch China at this point in time. Like, maybe they've been sleeping on China's growing manufacturing ability, and not investing at home for so long that it now feels impossible to catch China. How can US actually reverse course on that? Is there a set of policy prescriptions that you have around this? Yeah, it was pretty deliberate in not writing a policy book. I didn't want to say, you know, we need to change this law or that regulation. I think that a lot of what I want to do is to actually introduce some of these facts.

Starting point is 01:16:30 I mean, I write pretty extensively in my book. about how much China's building, how they are winning crucial industries of the future. I moved to China in 2017 in part to study one of their major industrial plans, namely made in China 2025, which they announced in 2015, you know, 10 major industries that they really want to dominate in the future, something that includes, you know, semiconductors and clean technology and maritime technologies and even agricultural technologies, they've really listed a lot of these things there. And I would say that, you know, a lot of what I've been writing about is that they have been successful in all sorts of ways and reaching, you know, some degree of much stronger capability in doing these sort of things really, really well.

Starting point is 01:17:16 And, you know, why they have been able to do that, starting with, you know, some help from the government. Sometimes the government is hurting them. But mostly this is about process knowledge and the industrial expertise and people just solving their problems on a day to day. And what I would want is for the U.S. to have a little bit of an ethic itself of doing some of these sort of things, you know, to really value technology as important, to really try to pursue these sort of things, to recognize that manufacturing in particular is important. And that, you know, if something like forced technology transfer, which the U.S. complains about with China, if it worked for the Chinese, why don't we do it to that? why don't we get a lot of Chinese EV battery makers over to the U.S. and take their technology and make them train in the way that Apple trained a lot of Chinese workers?

Starting point is 01:18:06 And so, you know, I think these are the sort of questions that we should be asking. You know, why are they successful? Is there anything that the U.S. should do to study and copy them perhaps? Or, you know, should we really just give up our hands and be fatalist and say, There's absolutely nothing to be done. And I don't think that we should quite do that. Some of this might require rethinking assumptions that we've had in the past. I think industrial policy, government, you know, federal level industrial policy has had sort of a, I guess, it's been a dirty word in the US before. It's private markets always do it better. And certainly there's a time in the place. But our private markets and tech companies have given us,

Starting point is 01:18:46 basically, consumer social media, right? They have not given us 90% of worldwide drone capacity. Do you think this will require a shift in some of these core assumptions, say around industrial policy? Like China is able to call something that they want to be good at and then within five years be really good at that thing through some central direction of funds. Now there is market-based competition at the bottom layer of this, so you might have dozens of companies competing, but they have wide-sweeping industrial policy. The U.S. doesn't do that.

Starting point is 01:19:19 Should we? I think I'm in favor of some. something like an industrial policy with American characteristics and just understand what it is that America would be able to do very well and try to find that and try to produce better technologies and try to produce better workforces. Because I think it is a shame that we threw a lot of capital at Silicon Valley, got a lot of social media, which doesn't seem to be making people happy. We have a lot of these ad algorithms. Some would say that cryptocurrencies, is not as super useful part of the tech stack as well.

Starting point is 01:19:58 And I think that... Not us, though, Dan, to be clear, not us. To be clear, yes. But I think there should be some effort at thinking through. Like, how do we get smart people interested in chips and aviation and chemistry, again, because they seem like pretty fundamental technologies and sectors that has been neglected in favor of the social media? Well, speaking of some of the strengths that AmeriGamination,

Starting point is 01:20:22 has traditionally had. You mentioned sort of people leaving China and kind of the high net worth class and coming to the U.S. traditionally, this has been a superpower of the U.S. being sort of a global talent hub, right? The U.S. model of kind of this melting pot of talent where if we can attract the top 1% of capable people around the world and they want to come to America and build in America, then we all benefit, right? And this is historically how our talent class has really been built. To what extent is that going to be a superpower for us moving forward? It seems like China does not certainly have that, right? They're mainly leveraging the talent of Chinese native-born citizen. They don't have an immigration. Is this something that the U.S. can capitalize on more and

Starting point is 01:21:10 a strength we can double down on? Well, I hope so. I mean, I am a Canadian citizen. I was attracted to the U.S., just as many Canadians have been. But I think that, you know, to say that, that we should be more attracted to immigrants. Seems pretty out of sync with Trump administration's policies. And so, you know, they are deporting a lot of folks. They are humiliating a lot of South Korean engineers who are building a factory in Georgia and, you know, deporting them back home in chains.

Starting point is 01:21:40 And so I think a lot of that is not very positive. And I think that it is still the case that a lot of the world's smartest people, including many of the smartest Chinese really want to move to America. And I think this is actually pretty pertinent because when it comes to something like AI, a lot of the top researchers in Silicon Valley are of Chinese nationality.

Starting point is 01:22:03 They went to Chinese schools and they were hired at meta or XAI or whatever else. And a lot of these people are not necessarily very impressed with San Francisco. I think that could be one way to put it in which they feel like, you know, their standard of life in Shanghai may well be much higher than their standard of life in San Francisco, even if Chinese companies aren't able to match meta salary packages.

Starting point is 01:22:30 And they could move because they feel like their quality of life would be better. They don't like Trump's rhetoric and the way that Trump is messing up the immigration system, maybe because they just miss the noodles or they miss their mom. You know, that's totally valid of a reason to move. So, you know, I think what the U.S. should do is to probably keep the high-end talent, but that doesn't seem like that's where the administration's mindset really is. I think part of the fear that the U.S. has had on things like industrial policy or maybe to a lesser extent to like immigration and really doubling down on this whole builder thing is that if you start going down the path of kind of centralized control, then you inevitably become more totalitarian. right? This might also explain all the kind of regulation, regulatory naysayers and lawyers who are just constantly saying no to things. You want to give the people, the community, the option to have a

Starting point is 01:23:29 vetoocracy, right, the ability to say no to things. You don't want to impinge your will on the people. Is there a way to build an engineering builder society, yet preserve the political freedoms that the U.S. has historically enjoyed. Or do you have to sacrifice political freedoms to get the engineering stuff? I don't think you have to sacrifice political freedoms in a big extent. I think about other countries like, let's say Japan or Spain. Both Japan and Spain have built a lot more homes for people. They've built a lot of mass transit. Both of them have excellent high-speed rail networks. They have much cheaper subway stations built out. And they're not known for trampling all over the rights of the people, right? So I think, you know, we don't need to get to China. China is definitely too far in all sorts

Starting point is 01:24:19 of ways, but let's at least get to Spain, right? Spain is working pretty well. You know, Denmark is building more subway stations. Again, I think there has to be a recognition that people need infrastructure. And it's impossible to build infrastructure without upsetting someone through either the construction or the noise or the property rights or whatever. But over the longer run, people should be able to believe that better infrastructure is coming. It is on net making everyone better off and it is positive. And so, you know, I think that that is an ethic that exists in China that I want, that I wish that, frankly, more Californians and more New Yorkers could be less nimbie and, you know, just accept a physically dynamic society and that will feel pretty

Starting point is 01:25:05 exciting as well. So much of this episode has been talking about the misconceptions, um, Americans and Western listeners have about China. What are some of the misconceptions that China has about the U.S.? I think there is kind of this conception, which I would say is a misconception, that democracies are necessarily rowdy and that they're necessarily weak, that they are eventually going to tear each other apart. I think that is a classic line that all authoritarians have about democracy. And at various points, this looks more true than others. But still, I think that what is important is that the U.S. looks weak in a couple of pretty crucial ways right now.

Starting point is 01:25:50 It is, frankly, a little bit rowdy. There's like a worrying level of political violence. And, you know, there is like all sorts of problems with the U.S. But I think that, you know, democracies have been strong and democracies can be strong. But the first way to really demonstrate is to have the proof in the world. the pudding, such that when you land at JFK in New York or at, you know, in San Francisco, it doesn't really feel like, you know, you're going through this awful decrepit infrastructure to get into town, which is kind of empty, at least in San Francisco at night anyway.

Starting point is 01:26:24 And so I think there has to be like a demonstration that the U.S. can, you know, produce, manufacture things and make things that people need. I think we've shown throughout this episode that there are a lot of ways that Americans underestimate China. Is that true on the other side too? Do you think China underestimates America? I think both are true and both are dangerous and that it is really important for us to understand that they are pretty innovative in all sorts of ways, that they are winning in all sorts of ways, but also that America has a lot of strengths and needs to do much better than it currently is doing. Dan, this has been a pleasure. Last question for you. And I want you to maybe end by

Starting point is 01:27:07 painting a happy picture for the world, for U.S. and China, these two rivals over the next 50 years. What's the happy case scenario where the U.S. is the best that it can be and China is the best that it could be as well? I would like for the U.S. to be 20% more engineering. I think that it, you know, that's how you get a little few more homes constructed and wind turbines and solar and mass transit as well and to recover some of this engineering muscle that has had its last. for quite a while. Just 20%. That's not bad.

Starting point is 01:27:40 Seems low. 20%. That's good enough. I'll take it. We're close, right? I guess we still have that DNA here. We just need to polish it. We just need to, you know, work out and, you know, work out these muscles and get stronger again.

Starting point is 01:27:53 And I want China to be 50% more lawyerly because I feel like a lot of Chinese are really creative and their creative impulses have been strangled by the state. And I really wish that, you know, individual rights in China. could be respected, and I wish that the Chinese government could, frankly, leave its people alone for a little bit rather than treating them as just another social engineering exercise. So if you think that the United States is 20% off the mark off of what their optimum is, and then China is 50% off of their mark, does that mean you think the United States has a better shot at continuing to be the dominant superpower in the future?

Starting point is 01:28:33 Maybe. What I'll say is that I think that this is kind of a dynamic process. and it's not going to be stable. Because the more ahead that one country is, the more that it's going to grow overconfident, overplay its hand, and make a lot of mistakes. And we saw this in China when they smashed a lot of tech companies, when in 2020, when Xi Jinping felt like he was on the top of the world

Starting point is 01:28:53 because he got the pandemic under control. And the more that a country is behind, the more that it will hustle to really try to catch up and to try to fix its mistakes. And so I think that this is going to be like a long rolling race for a really long time. It's not just one country with all the advantages because these things change moment to moment throughout the dynamic process. There's always that succession thing too, isn't there, Dan? Like what happens after Xi and you can sort of get good emperors of China and you can get very bad

Starting point is 01:29:24 emperors of China and a lot hinges on that, doesn't it? Yeah, a lot of good emperors produce bad emperors, you know? So, you know, it is cyclical. I mean, here is where I agree with the most Marxist, Freidaleo. Dan Wong, thank you so much for joining us, guys. The book is Breakneck, China's Quest to Engineer the Future. Thank you so much. It's been a pleasure. It's been a lot of fun. Thanks, guys. Guys, got to let you know, even though we didn't talk about it too much, it was more geopolitics.

Starting point is 01:29:52 Crypto is risky. None of this has been financial advice. You could lose what you put in, but we're headed west. In this case, we're headed a little bit east too. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - Why China Builds Faster Than America & The Rest of the World | Dan Wang

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