Odd Lots - Years of Restrictions Didn't Slow China's Quest for Tech Dominance

Episode Date: October 31, 2024

In 2015, China identified several key industries of the future for which it aimed to compete at the technological frontier. The 'Made in China 2025' plan included expansion in things like EVs, solar power, batteries, semiconductors, AI, and drones. But now, 2025 is almost here and China's progress has been remarkable across several of these categories. In fact, it's the world leader in some of these industries (like EVs and solar), and it's catching up in others. In this episode we speak with Bloomberg News reporter, Rebecca Choong Wilkins, as well as Gerard DiPippo, senior geoeconomics analyst at Bloomberg Economics. The two of them were part of a team that took a major look at the status of Made In China 2025 (a name that isn't really even used that much anymore). We discuss how much progress China has made despite efforts from the US over the last several years to impede its ambitions, and how it's judging the success of the program. Read More:US Efforts to Contain Xi’s Push for Tech Supremacy Are FalteringHow American Tax Breaks Brought a Chinese Solar Energy Giant to OhioBecome a Bloomberg.com subscriber using our special intro offer at bloomberg.com/podcastoffer. You’ll get episodes of this podcast ad-free and exclusive access to our daily Odd Lots newsletter. Already a subscriber? Connect your account on the Bloomberg channel page in Apple Podcasts to listen ad-free.See omnystudio.com/listener for privacy information.

Thanks for listening to Oddlots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast OddLots on Amazon music. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Oddlots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe. Do you realize it's almost the end of 2024? Yeah. Well, yeah. It's crazy. You know, it's been a really warm month in October. Yeah, I know. So I feel like we got this free month of summer.

And so, yeah, like we're basically almost here. And we sort of like got a free month, one less month of winter, it feels like. I feel like the warm weather is also throwing everyone's sense of time off. But anyway, we're almost done with 2024. Who knows what the rest of the year is going to look like. But that means that 2025 is coming up. And you know what I think of when I think of 2025. You and I think of the same thing.

And we're the only two journalists in America that don't think of Project 2025. Yeah, of course. Okay, so Joe and I are thinking of made in China 2025, which, of course, was the big program that China launched 10 years ago, almost 10 years ago now, back in 2015, to bulk out strategically important advanced technology sectors. And so I'm kind of curious what exactly happens in 2025, how much progress China has made on this front. You know, next year are they suddenly going to like declare victory in advanced technology and that'll be the end of it? What criteria are they actually using to judge its success? I have a bunch of questions. You know, I just have to say that I appreciate things like made in 2025 initiatives or even like, you know, five year plans or 10 year plans or whatever just because they provide a very convenient spot to go back and look, did the goals get hit or not.

It's one thing to talk about moonshots and like, oh, we're going to lead all this. But unless you put a date on when you want to achieve it by, you don't really know whether you're successful, right? Because you never really know where you are in sort of the arc of progress. But if you have a system that puts dates on where you want to be, at least you can go back and judge, well, were we successful or not. And so now we're on the verge of being able to look at the start of that initiative and the end of that initiative and sort of say whether it worked or not. Is that your pitch for all thoughts, world domination, 2025? Well, we'd have maybe 2035. Okay.

And we need some, like, very specific metrics. You know, we have to, like, really know what that means in advance. And then, yeah, we'll see if we hit it or not. Okay. You're right, though. Deadlines are very important. So, speaking of deadlines, why don't I go ahead and bring in our very perfect guests for this particular episode?

We're speaking with Gerard DePippo, senior geo-economics analyst over at Bloomberg Economics. as well as Rebecca Chung Wilkins, senior correspondent for the government and economy team Asia. I knew her back when I was in Hong Kong and she covered China credit and she was so good at it. So who better to kind of draw the connection between technology and finance and economics than these two. So Gerard and Rebecca, thank you so much for coming back on all thoughts. Thank you for having you. Such a pleasure to be here. Let's start with the beginning, I guess.

2015, China decides to launch this Made in China 2025 program. What was the thinking behind it? What were the goals? Well, I think one thing to remember is this sort of a whole made in China industrial policy. This comes just a couple of years into President Xi Jinping getting his leadership underway in China. So this is also very much President Xi's vision for the Chinese economy. His idea that these key sectors, these key industries are essentially going to underpin the national development.

So this is not sort of, I suppose, just a discussion about China's strategic ambitions, but also specifically she's own vision for the direction for China. I'll also add that in the context of Chinese industrial policy, so made in China 25 is an example of an iterative process and also sort of a reflective process with the rest of the world. So there obviously were other industrial policies before. And that would include something like the medium long-term plan from 2005, which is a 15-year plan.

There are, of course, five-year plans. But also, Made in China-N-China-25 was partially inspired by Germany's Industry 4.0 plan, which is much less detailed and ambitious. But there's a sort of a reactive effect there, which ends up having knock-on effects because in the U.S. reacts to Maine and China-25. And so it's just part of the cycle. I think what makes Made in China-25 different than other plans that China had had is it was more comprehensive, more ambitious,

and much more focused on not just catching up, but actually leading in 10 strategic sectors. Previous plans have been more about, say, lower value added or mega projects, right? And this is basically they wanted to be the world leader and all the technologies that circa 2015 they had identified as being the most important. That's interesting. So one way of thinking about development is like, okay, we're going to build lots of bridges and rail and housing and hospitals and other sorts of things.

But this is about really leading the technological frontier. And of course, this is what is the source of tremendous angst. in Washington, D.C., and various U.S. industrial giants and so forth. I mean, I don't know if we need to list all 15, but what are the big areas that China felt it had to pursue? Sure. So they have 10 strategic sectors, but then within that, there's any number of technologies. So the big ones would be like information technology, which includes things like semiconductors, 5G artificial intelligence, and then things like aviation and space technology,

energy equipment, which include things like solar panels, and then new energy vehicles, things like electric vehicles. So it spans pretty much everything, but it skews towards the industrial sector. And it's really a manufacturing-based view of development. So one thing that was interesting, Jared, is you said that it was an iterative process. How has it changed in your mind from like 2015 to now? Has there been maybe more of a focus or a shift in direction? A few things. the original Made in China 25 blueprint, which is what people treat as being the plan, that was announced in early 2015. But then actually, when people talk about all the targets, those mostly come from something that's commonly called the Green Book, which was published by the Chinese Academy of Engineers. And that's where you have the 250 plus targets that are looking at specific technologies over time.

It is sort of like an authoritative addendum. But then on top of that, there are something like 400 plus other authoritative documents going to, through technologies, going through different levels of government. So it's not just one thing, and that's part of the fact that those other plans don't come out at exactly the same time. That makes it iterative. The other thing that I think is really important is the Chinese government realized around 2019 that the phrase made in China 25 was provoking antibodies in the West, particularly in the U.S. I would say that along with Belt and Road Initiative or the two slogans that ended up having the biggest effect on a discourse. But BRI is more favorably viewed in a lot of parts of the world, whereas China, 25, was considered more of a threat by a lot of industrial economies.

So what did China do? They actually tamped out on it. So you will struggle to find any direct references to it now in Chinese official documents, at least publicly, but it's not dead. So a lot of the key goals are now incorporated into the 14-5-year plan, which is the one that we're currently in going through 2025. The other thing to keep in mind is that the targets were what they thought circa late 2015, right? So I would think that within the Chinese government, they actually have adjusted some things or realized that maybe that wasn't the right forecasts. Some of them were actually quite vague for things like what nanometer technology would

semiconductors be circa 2030 because of course they didn't actually know. But my strong suspicion is that this framework still remains in place, but it's sort of an evolution because the point is not necessarily to hit all those individual targets. It's are you basically fulfilling the plan in the broad sense? Are you actually achieving leadership in all those key technologies? I'd just add there that, you know, some of that antipathy among Western powers around the idea and even the phrase of made in China 2025 is still sort of quite live. I was at a meeting with some policymakers, think tankers at university recently.

And there was still this quite lively discussion, I call it politely discussion, between a visiting European political advisor and Hong Kong officials and China's officials about precisely what Made in China is, whether it's just an industrial policy or in the view of this particular visitor, something much more sort of malign. I just got to say, it's so weird to be the idea of technological development along these lines being malign. I mean, you know, this is human progress, right? Technology advances and countries want to be technological leaders. understand why governments and companies around the world feel threatened by it. But anyway,

this is one of the main tensions. Right. Because for instance, the U.S. will say, well, we want to develop more clean energy technology domestically because it's important for the environment. But on the other hand, you could probably have more progress on the clean energy front if you just imported a bunch of stuff from China right now. One of the challenges here or the differences here is precisely over what it means when Beijing says it's going to back a certain sector, right? The idea that if Beijing identifies, let's say, electric vehicles or solar panels as a sector to back, it really can throw its weight behind it. It can ask banks to provide cheap credit. It can ask local governments to provide land at cheap or no cost. It can get state-owned enterprises to pour those

significant resources, talent, innovation into those industries. It really has sort of a huge machinery that it can redirect, which other countries feel as quote-unquote unfair. And in some ways, that's sort of behind the whole accusation around unfair use of subsidies, for instance. I will try to channel both Beijing and Washington to address your comment. So from Beijing's perspective, I think they would say it's a bit ridiculous that the West was more or less fine with China moving up the value chain as long as it wasn't in sectors that are too high value added or too competitive with advanced.

economy industry. So textiles, fine. But when you say, oh, we want to have our own jet airliners, that becomes a problem. And I think there's actually true to that, right? So what change is that China went from lower to higher value added, and now its companies are direct competitors in many cases with like G7 companies. On the U.S. side, I think part of the response would be, well, the threat part of it is it's not development per se. It's that the Chinese government, particularly of late is quite clear that self-reliance or self-sufficiency are the maybe primary goal. This is clear in the third plenum that came out in July, that it's about self-reliance. And self-reliance has a heavy national security undertone.

So I'll go back to what I was saying earlier that I think both sides sort of feed off each other. So why is China so worried about self-reliance? Well, part of that is a response to Western tariffs and U.S. export controls. But the fact is they are basically saying we want to be free to the extent they can be from the Western technological supply chain. And they're doing that because they're worried about national security. So of course, and in Washington, they would think, well, why are you worried about national security, right? So it sort of goes in both directions. I'm Francine Lacqua, an award-winning journalist.

And I've got a new podcast, leaders with Francine Lacqua from Bloomberg podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. but I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. What separates good leaders from transformational ones?

I'm Jessica Chen and in season two of Leading By Example, we'll sit down with executives like Grace Chen, of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact

on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. I guess I could see this sort of malign angle also if it's like this is not real technological development. This is just loss-making, companies that are backed by the government that are going to then bankrupt and destroy the industrial base of the West and not actually make any progress. I guess I get all of these debates and nuances and why people talk about China overcapacity

as a problem and all that stuff. But, okay, the other thing that happened over the last several years is in addition to these ominous sounding phrases and slogans like made in 2025 and the Belt and Road initiative that created anxiety in the West. The U.S. like actively started to try to suppress Chinese technological development, starting under the Trump administration, and then obviously continuing under the Biden administration, and it may get ratcheted up even further under the next administration, whoever that is. What's that done? How would you describe specifically what the U.S. has tried to do in terms of constraining China's technological development? And what's the basics

of the impact that these efforts have had. What the U.S. is trying to do is somewhat subject to debate. The official line is that the United States is not trying to stop China's development. It's not about overall delinking of the economies. It's just about select de-risking. It's about remaining ahead in the strategic and critical technologies of the future. But it's not about sort of stifling the macro economy of China. In Beijing, the view is that it's all around containment

and that the United States, mostly, but some other Western countries, are trying to encircle China and basically prevent it from moving up the ladder economically and technologically. Is it working? It's complicated because there's a series of policies, right? So when we talk about what started, the thing that people mostly focused on is, of course, the trade war, which effectively started in 2018 in the Trump administration. The purpose of the trade war is complicated. It wasn't really to stunt China's growth, although there were people in the Trump administration

would have hoped that. It was actually for the president, for President Trump's perspective, to try to balance trade and get a deal, which we got in the form of the phase one deal as, you know, whatever you think of that. But the other thing that happened that I think was actually a bigger deal from the Chinese perspective was when the U.S. added Huawei to the Commerce Department's entity list in early 2019. Because what that signal was that the United States was effectively trying to kill what was arguably China's best global technology company. The U.S. would say we're not trying to kill it, but the restrictions are pretty draconian, and there's very much that vibe. And so what it did was convince not just Beijing, but the local governments and Chinese companies

that otherwise would have preferred to just use sometimes cheaper or better foreign inputs like for semiconductors, that actually what Beijing was saying about self-sufficiency was indeed a national security imperative. Is it working? It's complicated, but our basic is that at the macro level, what's happening in a Chinese economy is primarily due to the property sector. You could call it a meltdown because it's pretty dramatic. The Chinese government arguably started that with the three red lines policy. But I would be careful about conflating the idea that China's economic weakness is due to basically industrial policy when really there's clearly a more obvious macro phenomenon that explains it. On the technology side, the export controls,

I think, are really the crux of the question of, are they slowing China's development? I think there, the focus on the U.S. side is primarily on semiconductors. And there's even recent news, as Bloomberg has reported, that, for example, TSM, the famous semiconductor foundry in Taiwan, might have been sending some Nvidia chips to Huawei through some indirect body. Maybe they didn't know about it. But there's all this debate about how far ahead is China really, and are they actually able to make the most advanced chips on their own? And I think that is really the question of when you get to how effective are the export controls? It looks like they are having some effect, but not a lot at a macro perspective.

We were also sort of discovering in real time precisely the sort of miscalculation. The idea of export controls initially the belief was that it would help the US stay ahead by eight to 10 years. But last year we saw Huawei launch a mate 60 smartphone, which included a seven nanometer chip that suggested actually that Huawei's chip-making partner Smic was actually somewhere between sort of four or five years behind. So there have been these sort of series. of nasty surprises and have led to sort of recalibration so precisely where Chinese tech advancement

actually is. So just on the idea of what the U.S. needs to do here, I mean, one of the criticisms of some of its response is that the problem really is the cost of these technologies. So in order to make them domestically and maybe internationally competitive, the U.S. really needs to bring down the cost curve and that's hard to do when you're competing with China. And it has maybe fewer regulations and certainly cheaper labor. Is there anything that can be done on that front to make American technology more competitive, for instance, via more tariffs? In theory, if the U.S. erects tariff walls, which we already have, but if Trump is reelected, he's promising 60% tariffs on China, which would be huge and might shut off eventually a good share

of direct U.S.-China trade, his theory, as he explained recently on his Bloomberg interview with John McElthwaite, is that essentially that will compel all these companies to reshore or onshore production back in the United States to sell in the United States. Now, generally speaking, import substitution has a pretty bad track record internationally, but the U.S. has the advantage of being the largest economy in the world, right? And it's the largest consumer market. And so there is some feasibility to it, but I think something that might be under-emphasize in a general discourse, is that the tariffs, particularly as they're constituted now, but especially if they increase them, also hit a lot of intermediate goods, right?

So it actually makes it more expensive to import things like steel or all the components you need to build a factory or inputs for whatever. And so you have to sort of decide so the U.S. wants to protect its steel sector, okay, we can do that. We do that. But that also means that steel costs more in the U.S. and it means construction costs than are up, which means making a factory in, say, Taiwan or China or whatever is cheaper. So there are tradeoffs there. In my personal view,

I don't think tariffs are a good way to go about it. I think industrial policy, which is a much wider set of tools, as some promise, but tariffs to me are like a sledgehammer. I think this is a really interesting point about intermediate. I mean, I imagine that even if you were to go into an Intel factory or Fab somewhere in the United States, there are just numerous imported goods of all sorts. So if we want Intel to be a powerhouse, the idea that tariffs are going to make that much easier, I think. It's complicated. And then, of course, there's all the questions about, like, well, how do you know it's coming from China or what if the final assembly is somewhere else, et cetera? Let's get into specifics. Both of you talk about some key industries

where China was in 2015 and where they are today in 2025 and what kind of progress has been made. Well, I think the sort of really obvious consumer ones where we've seen these kind of extraordinary leaps in EVs and solar panels. I mean, I think companies, like BYD, which is basically unheard of, I think globally a couple of years ago, now a Chinese leader outpacing its global competitors. It thinks it's going to sell half of its products overseas in the future. So certainly also doesn't really see tariffs or potential tariffs as an impediment to its expansion overseas. And I think in a way, it's sort of unimaginable. I remember reporting in China about a decade ago around the time that Made in China was actually announced.

and officials, local government officials, are very excited to take me to a lithium battery factory, which batteries were going to be used for electric vehicles. And it seemed, I have to say, like something of a pipe dream. I can say, totally misunderstanded the future of this sector and the future of the company. But even at that time, it was something that, you know, local officials were really had this sort of razor-sharp focus on. EVs are probably the best example because they are the technical. where China has exceeded the plan, so to speak, right? They've done much better than their internal forecast would have suggested in the 2015 documents. But there are other sectors where they've

also done well. So unmanned area vehicles, which is to say drones, like that DJI makes, China is clearly the world's leader and that the U.S. tries to restrict imports and use of that in the U.S., but elsewhere they're dominant. There are other things like solar panels that China clearly has dominance in. Other areas, they're not exactly the world leader, but they're clearly starting to catch up and they're better off than they would have been, say, circa 2015. So semiconductors are one area where they're not the world's leader, but they are on a relative basis stronger than they were five years ago, industrial robots, things like machine tools.

There are other sort of maybe more obscure things like large tractors. So part of the plan talks about things like agricultural equipment and pharmaceuticals. They're also making gains. So really, in all areas, except arguably for maybe commercial aircraft, they're making relative gains. I guess the other element, though, is I'm trying to, some ways China sort of had set itself up to succeed, because there are some areas, right, Gerald, where, you know, China was already a global leader. Yeah, well, so that's a good point because

the new energy vehicle plans go back to, I believe, 2009, right? So when they're deciding in 2015, where is it going to go, some of those technologies, they already had plans in place that were underway. And so they could sort of project, okay, we already know how this is starting to work. Whereas other things like artificial intelligence, yeah, it was a thing people spoke about. in 2015, but it wasn't nearly as real as it is now, right? So that was much more speculative. This is Tom Keene, inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto, all the information you need

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Bloomberg Surveillance, essential listening each and every business day. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. Can we maybe talk about semiconductors specifically because this obviously has been a very hot button area for both the U.S. and China and maybe one of the areas where we've seen a lot of money pouring in.

How's that shaking out? I mean, by and large, semiconductors is probably the one area where the U.S. has had most success in rolling out. support controls and curbing China's access to these really key strategic technologies. And part of that is down to the success of the Biden administration enlisting support from its allies. It's just a handful of companies that are involved in making these types of chips. And there's an argument to make that unless Biden had sort of convinced Japan and the Netherlands to come on side, that actually the controls that he rolled out would have been far, far less effective. And one key area here is actually preventing China from accessing the manufacturing equipment

that's needed to actually make these types of really advanced chips that are used in AI and quantum computing. There's a interesting and I think quite important counterfactual to be discussed, which is that what if the US had not done the export controls? In essence, what the US is doing is imposing import substitution on China in a way that China hadn't preferred. But we can also see in the data, including for filings for SMIC, their main foundry, that they upped the amount of subsidies they were getting after 2019, right? So it means that China sort of turned the industrial policy dial from 10 to 11. You could debate how much effect it has, but it seems clear that that is the overriding priority

now, more than anything else actually semiconductors, right? Because they know that is the key node both sides except that. Is it working? I mean, clearly it has slowed down their ability to get the most advanced chips, but China is clearly making gains on so-called legacy nodes or mature nodes, right? So sort of slightly older technology, and they're building out a lot of capacity there, and that's something that they're still have access to a lot of the lithography equipment to do so. Other areas like packaging, they've improved. It's design, maybe some improvement, but they're still lagging the west

so Qualcomm and Vindia, et cetera. I think really, as Rebecca said, it's the equipment, so specifically the most advanced lithography machines that China, as far as we know, has not been able to make on its own, and that is the current roadblock. But like whatever the most advanced lithography machine that China is able to make today on October 24th, 2024, is it substantially higher than the most advanced lithography machine that China was able to make at some point in 2015? And is the number of years gap between that most advanced machine versus the one that ASML makes, is it perceived to have narrowed?

I actually don't know the narrowing of the, the generation Gerard. Do you? Okay. Well, first of all, this is something where I think it would be subject to debate, right? So there's the fact, as Rebecca already mentioned, the MATE Pro, the Huawei phone that had the 7-nometer chip. When that came out, there was a debate, and I don't think it's been conclusively settled as far as I know as exactly what happened, how they got those chips. The fact that we have news recently saying that maybe actually Huawei is kidding chips from TSM indirectly adds a wrinkle. Because if that's true, then it would suggest that actually they don't have their own technology.

They're essentially just finding a way around the export controls, which is a problem for the U.S. in one sense, but it also means that maybe the export controls are working and that China doesn't have the indigenous capacity to make those things. On lithography, I'm not an expert on that, which is a super technical topic. But my strong suspicion is that the quality of China's domestic capacity has increased, but the gap is still there.

And so TSMC, I believe, is still pretty confident in ASML that they're the world's leader and there's going to be a gap going forward. I just add that, you know, the gap that we know of now between Smick and the industry leader, TFSMC, is about two generations. So that's roughly four years. But as Gerard says, there is actual sort of still life debate over precisely where that gap might be. Something it's bigger, something that's smaller. So I think semiconductors are also, they're interesting for many reasons, but one of them is that the technological race is very much ongoing. So if Moore's Law hasn't been exhausted yet, so if there's still the ability to get to lower and lower nanometers, then you could imagine that TSM or the West or whatever is able to stay ahead.

But if that slows if at some point in a not too distant future, that innovation is not moving as quickly, I would imagine that with enough resources, the odds of China catching up is higher. So there are other areas like, say, commercial aircraft, right, where there's clearly an innovative feel, but it's not as cutting edge as semiconductor. and yet Comac, China is struggling. I think that is more of a function of the sort of dual-oply nature of that market and the difficulty of having sort of product integration and then sort of market share. But from a technological perspective, they're getting there and they eventually will catch up. So the other thing I was wondering is the role of foreign investment. And I don't just mean foreign direct investment, but also companies that come into China and

set up factories and then workers learn some of those techniques for advanced manufacturing and things like that. Obviously, there's a debate over intellectual property and things like that as well. But what role does FDI foreign investment, foreign expertise play in China's technological progress now? I would say a lot less than it used to. So it would vary by sector and technology, right? But generally speaking, if you look at, for example, the trade data that China Customs puts out, they actually break down whether the entity that's doing a trading is a state on enterprises,

or a foreign-funded enterprises, which is basically an FDI company, or essentially a private Chinese company. And what you see is that China's exports are now overwhelmingly dominated by private Chinese companies. So in the 2000s, during the sort of peak China shock years, a lot of that growth in exports were actually foreign investment. firms in China that had set up factories. Over the past decade, that has shifted. It's really just private firms. And so I think more and more, at least in terms of brands and manufacturing, it's really indigenous companies that are doing to work. Now, there are some things like AI, where I think having some of the research links might still matter, but by and large, I think China is moving closer towards indigenous innovation, as they call it. One area that we really

see that transition that Gerard is talking about is about 10 years ago, if you're a foreign investor in China setting up a factory, you are deeply concerned about IP and about information leakage and all of those sort of issues. And now actually, as we see, for example, more Chinese firms going to set up their own factories overseas in part in response to issues around tariffs. We actually see state-owned enterprises and private businesses, China's private businesses concerned about that same problem, concerned that, you know, their international competitors and local workers will actually be picking up sort of technological skills and be picking up on, you know, potential company secrets.

And I'm worried about information leakage the other way. One big question, you know, we're obviously in the U.S. doing, you know, our own industrial policy of various sorts. One thing we haven't really gotten into in the Maiden 2015 specific conversation is the operationalization. of a goal. Okay, so it's one thing to say in 10 years. We want to be leaders in all these areas. And I think, you know, clearly they've made extraordinary strides. And I'm sure this is a very long, separate question. But I'd be curious from both of you, especially, you know, maybe you start with Rebecca, like, you know, you went to that factory 10 years ago and it seemed like

a pipe dream. And now it's extraordinary. How would you characterize what the government did or what the government did along with banks and other, et cetera, and private companies to make these dreams a reality? Well, just the scale of resources that were poured into these sectors. I mean, there's sort of two key parts of the made in China. On the one hand, there was this idea of self-sufficiency that China should be less reliant on other countries and it wanted to essentially to stand on its own two feet. And that was clearly linked fundamentally to a national security goal.

The other part of it was this drive for innovation that China wanted to create these sectors that became global competitors, that they were able to export, high-value-added goods into the rest of the world. So there was these sort of dual ambitions that were also feeding into the sort of raison d'etre for supporting all of these industries. And I think there's also this sort of prevailing issue, too, for Beijing about the idea of needing to really shore up its own security. So, for example, Beijing officials are increasingly concerned about making sure that it has access to its own sources of energy, particularly in any kind of, you know, potential wartime scenario. And that is part of a whole ethos that we see also,

for example, in food security in China too, but really an increasing focus on trying to make sure that Beijing isn't unnecessarily exposed and perhaps even expose in any way to overseas supply chains for these key areas. In terms of policy instruments, quantifying what China's doing is actually very difficult, except for things like rebates for electric vehicles or things that show up in listed firm data. But things like state-linked credit or even totaling government guidance fund allocations is quite difficult. I would say, you know, in China's case, subsidies are not new. So subsidies are not the secret sauce. What is different now? Well, generally speaking, around really 2013, 2014, they tried to pivot to more market orientation.

The big policy innovation at that time was the reinvigoration of government guidance funds, which are essentially state-owned private equity funds or venture capital funds. Those played a very large role in the first, say, five-ish years of the plan. My sense is they've slowed in part because they weren't having the market-oriented returns that they were hoping to have. But in general, the state's essential ownership of much of the financial sector matters a lot. And you see private investors in the stock market, for example, where if Beijing, says this sector is a priority, then people invest in it or on the other side when they said

five or so years ago that ed tech was not a priority that tanked. And so there's a way of sort of allocating all the market resources towards priority sectors. The other thing I would flag is that there are some technologies. I think EV is the best example of this where they really got the market orientation right in a sense that they allowed consumers to adjudicate. So every EV company, if actually eligible, could get the credits for purchases to reduce the price of their EVs. Their localities might have been helping them in different ways. But ultimately, the best cars from a consumer perspective won out. So B.D, why is BYD great?

It's not just subsidies. Yes, they benefited from subsidies, but a lot of other companies did too. I think the hard part now for China, and this is what their system is less good at, is while they might have fixed the problem of picking winners, so to speak, by having the market do it, they're less bad at eliminating losers, and there's a consolidation that now has to happen. You look at areas like solar panels where a lot of these companies, they have negative margins, actually, right? So how do you address that? So it's sort of like the tide goes in and goes out, but as long as it's market-oriented, it's generally more effective. Yeah, I think it's interesting. A lot of people forget the sort of volatility that we've seen, especially in EV funding specifically,

because a few years ago, we had lots of Chinese EV makers that were going bankrupt, and there's still some going bankrupt now, but there are also those that are sort of getting, I guess, revived from the dead with new funding. So it's interesting to see that flow kind of go back and forth. But what happens in 2025? So the Made in China label brand is being downplayed somewhat. So what exactly does that anniversary the end of the time frame actually mean? I can I add one more for Gerard, which I'm also curious about, which is what happens in 2030? Well, in both cases, I would say the 15th and 16th five-year plans respectively, right? I think it's iterative.

So made in China, 2025, somewhat misleadingly, actually has a lot of targets to go out to 2030. They're typically vaguer than the 2025 targets, but the plan doesn't end in 2025. And so I think they will, as part of the five-year plan, that will be coming out in early 2026, will probably essentially incorporate some of that. And as I said at front, there are so many documents that are associated with this one blueprint. It's like, think of it as the phrase I prefer, as someone has coined, is cascade of plans, right? It's not just one plan. It's a plan that then begets a whole bunch of other plans.

And it is iterative and requires a lot. It actually, I think, eats up a lot of the bureaucracy's time because they have to assess and reassess and come up with new targets. But the bottom line is China is definitely not giving up an industrial policy. The signal is coming out of Beijing in recent years. if anything suggests there's an even greater urgency, in part to the national security concerns. And so whatever the successor to Made in China 2025 is, it's going to happen. It probably won't be called Made in China 2040 or whatever, but it's going to exist. Part of the question is, I guess, over that packaging precisely because of all of the responses

and suspicions that were provoked by the Made in China 2025 label. And it's no longer advantageous. In fact, it's sort of geopolitically disadvantageous to be. advertising your industrial policy in this way if you're Beijing. And Gerard, you read all of those plans, right? The hundreds and hundreds of pages? Thousands of pages. There are plenty of people around the world to do that work for us.

Even reading just the so-called green book of the targets is quite a slog. All right. We're going to have to leave it there. But thank you so much to both of you for coming on all thoughts. That was great. Thank you. Thank you so much. Joe, I thought that was a fantastic overview of what China is doing. And to some extent, what the U.S. is trying to do, too.

I did, too. I had a lot of thoughts. And obviously, anyone who listens to the podcast knows that we're both extremely interested in this specifically and all the other things related to it. Can I say, you know, one thing at the end and Gerard was talking about, like, I think he called it a cascade of plans and all the, I've been reading, you know, a lot of Chinese history, the 20th century, history. They love meetings and plant. They always have all these like work groups and study groups and random people or it's like I got appointed to a new study group. I don't know if that's good or bad, but they love a study group. I think it's funny that you're just discovering this. Actually, you know, one of the interesting books, just speaking of bureaucracies, one of the interesting books I read when I moved to Abu Dhabi was about Saudi Arabian government ministries and what it was actually like to work there. And it was sort of a similar thing. There were lots of meetings and people kind of getting paid to not do very much. But it was super interesting.

As a meeting hater myself, I guess whenever I read, I note when they're, like it rings a bell in my head when I see another study group or a work committee or something like that getting formed. I'm like, oh, God, that sounds so awful. But no, I thought that was good. And look, I mean, you know, this gets back to many of our big themes. And I get why the U.S. and the West is anxious and all this stuff. But on the other hand, I would just say two things. Like, economic development is technological development. This goes back to Ricardo Hausman and the ability to make complex machines. That is what it means to get wealthier, or that seems to be, the ability to do complicated things and move up the value chain. And when we look at Boeing and we look at our own manufacturing,

like a lot of the issues, I get the impression, are projecting our own problems abroad. Like, you know, one way for China to close the gap on aircraft is to make better and cheaper airplanes. But another way for China to close the gap on aircraft is for the U.S. to not be able to make plans. And we can converge in two directions. And one way of maybe if we want to avoid that divergence would be getting better at making airplanes ourselves. Well, the other thing I was thinking about, and this is sort of speculative or kind of fuzzy, but the socioeconomic, I guess, aspect of this, which is, you know, a lot of the jobs in advanced technology, they might pay well relative to other manufacturing jobs, but like some of them aren't very much fun, right?

That's right. If you're working in a fab or something, you're wearing like one of those suits and you're staring at tiny chips all day and you're indoors, et cetera. But at the same time in China, you know, we've seen a lot of like popular dissatisfaction. You have the live flat movement where people are like, why should I even bother trying because my life is never going to get better? And so I kind of wonder like how all of that plays into some of this as well. There's a really good video by Asianometry that people should watch. It's basically what does someone who work in a fab actually do?

And it's an issue here. I mean, this is not a job. I mean, there are jobs in engineering and tech and hard tech in the U.S. that many people would find to be an extraordinary, challenging and interesting and highly remunitive career. But there are also a lot of jobs in engineering and hard tech in the United States that I think, or anywhere, that people would find to be quite miserable, et cetera. But this is why we need humanoid robots. That's right. Okay.

Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthall. You can follow me at the stalwart. Follow our guests, Gerard DePippo. He's at GDP 1985. And Rebecca Chung Wilkins, she's at our

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