The Prof G Pod with Scott Galloway - China Decode: Microsoft's China Retreat, Remembering Zhu Rongji, and Typhoon Dolphin's Aftermath

Episode Date: August 18, 2026

Alice Han and James Kynge break down Microsoft's five-year retreat from China — shuttered offices, closed retail stores, and thousands of jobs wound down — while the company quietly keeps selling Azure and AI services to Chinese giants like ByteDance and Shein. They dig into what's driving the pullback, whether this is the decoupling everyone's been warning about, and the irony that Microsoft's Beijing R&D center helped train alumni now leading rivals like DeepSeek and SenseTime. Then: former Chinese premier Zhu Rongji — the man who steered China into the WTO in 2001 and became known as "China's Thatcher" — has died at 97. Alice and James look at his legacy, from a 12x increase in China's global trade to the tens of millions of state-enterprise workers laid off along the way, and what the surprisingly unscripted outpouring of grief on Weibo says about China today. Finally: Typhoon Dolphin has weakened to a tropical storm, but not before forcing over a million evacuations, grounding 40% of Shanghai's flights, and pushing Hong Kong to its hottest day on record. Subscribe to China Decode on Substack for weekly analysis, livestreams, and deep dives into the biggest story shaping the global economy: chinadecode.profgmedia.com. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Bill Gates famously saying that more than 90% of personal computers in China were running Microsoft software, but what he didn't say was that that was almost all pirated. Microsoft has, in my view, it's been a bit of a loser, certainly in comparison to some of the other companies. Welcome to China Decode. I'm Alice Han. And I'm James King. In today's episode of China Decode, we're discussing Microsoft quietly easing it out of China, the legacy of Zhu Rongji China's Thatcher, and how world Chinese emergency infrastructure works in the midst of a massive typhoon.

That's all coming up. But first, let's do a quick check-in with how the Chinese-Mongji infrastructure works. markets are starting the week. On Monday, markets were up, where the Shanghai composite up 1.41% and the Shenzhen component up 2.44%. The Chinese government also released key data from the first half of 2026, which showed retail sales growing just 0.6% year-on-year, missing the target of 1.5%. The urban unemployment rate was 5.2% in July, up from 5% in June. All right, let's get into it. Over the past five years, Microsoft has been steadily shifting its strategy away from China, retreating across multiple fronts.

That includes at least 15 branch offices and joint ventures closing, all authorized physical retail stores on the mainland shuttering in 2024 and an estimated 2,000 job losses due to the winding down of Microsoft, Microsoft's original joint venture in mainland China that dates back to 2002. With the withdrawal, however, a small but important sliver of Microsoft remains in China. Now, that's the ability to sell Azure Cloud and AI services to Chinese companies like Bightance and Sheen that need Western technology to manage their international operations. James, I have to say that when I was reading up about the history of Microsoft in China,

it took me back to. There's a picture of Bill Gates in 1994 going to China for the first time and meeting with Zhang Zemin. And it's a timely, I think, episode to be talking about this trip, because today is Zhang Zemin's centenary, so 100 years since his birth. There was a big fanfare to do about it, led by Xi Jinping and the Communist Party, to celebrate Jung's victories. And I mentioned this story because if I think back to that period in time in the 90s, it seemed to a lot of American companies that China was the golden goose.

you know, if you could just get into the market, then, you know, the sky's the limit in terms of in terms of market size, in terms of growth potential. Now we have Microsoft shutting down, basically, it's all physical operations in China. But I think that the Reuters article and the coverage of it has been somewhat deceptive because although, yes, Microsoft has basically gotten rid of its footprint in China, as well as in terms of hardware supply chain in China, about Xbox and other electronics goods. They are still selling to Chinese companies, no. I mean, effectively, the Azure part of the operations in Microsoft is still being used

to help Chinese companies like ByteDance and Tencent access U.S. models, right? I think I read somewhere that Tencent is the biggest buyer of these cloud services and uses it to train deploying Western AI models. So I think it's somewhat deceptive to say that Microsoft is completely given up on China, but certainly this retreat is, again, another casualty in terms of the Western companies that thought that China would be the golden goose. Yeah, so right, Alice. I remember those days in the 90s and the 2000s.

We used to call it the China Dream. That is the dream of selling things to over a billion people in the China marketplace. And there was an author Joe Studwell who wrote a wonderful book. about this phenomenon just over 20 years ago. And I think, you know, there have been some big Western companies that did manage to realize the China dream. So if you look at Apple or Boeing or Airbus, Tesla, Starbucks and others, those companies have really made a huge amount of money in China, either selling things into China or making things in China and then selling them abroad. And then I think there's another category of companies that made it big. They realized their

China dream. And now before our eyes, that China dream is slipping through their fingers. And in that category, I would put companies like Volkswagen, BMW, Mercedes, and several others. And I wonder whether Nvidia, the big US chipmaker might be in that category too, because they made lots of money in China. and now because of U.S. restrictions and Chinese restrictions on Nvidia chips being sold in China, they're not doing well either. And then I think there's a third category, and this is the category that I would put Microsoft into.

This is the category of companies, big Western companies, that dared to dream the dream, but never managed to realize it. And I remember in the 90s, in the 2000s, Microsoft software was being pirated across the whole of China. It was really extraordinary the extent to which it was being pirated. And I remember Bill Gates famously saying that more than 90% of personal computers in China were running Microsoft software.

But what he didn't say was that that was almost all pirated. Microsoft has, in my view, it's been a bit of a little. loser, certainly in comparison to some of the other companies that have done well in China. But this is one of the biggest companies in the world. The market capitalization of Microsoft at the moment is about $3.7 trillion US dollars. It's worth more than the top 10 Chinese companies put together. So it is a very successful, very influential company. And I guess, as you've said, Alice, for as long as Microsoft remains in China,

there is a flame of hope. There is just a perhaps a little blue pilot flame of hope that maybe one day the Chinese market could come good for Microsoft. Right now, China accounts for just 1.5% of Microsoft's global revenue. But I think one interesting thing that we should mention is Microsoft does have a research center researching into AI. It's called Microsoft Research, China, according to Reuters. And this lab seems to be pretty successful. It's had lots of

luminaries in the Chinese AI space move through it. And it's opened labs in Vancouver, Singapore, and Tokyo. So maybe the China dream from Microsoft will be less about selling things into China than using China's intellectual talent to create AI products and selling those. around the world. Yeah, it's interesting. You talk about the personnel side of things, because when you were talking about the different buckets, we didn't hear Tesla,

and I'm curious which bucket Tesla falls into. But I think in this regard, Tesla and Microsoft are somewhat similar because they've spawned a generation of engineers that have come out and done similar operations, similar businesses, right? I thought it was interesting that a lot of the alumni of the Microsoft Research Center that you mentioned,

senior leaders at SenseTime and Deepseek. So essentially, they have been trained by an American tech company and then have gone off to do their own AI businesses and models elsewhere in mainland China. And a similar thing is at play in Tesla as well. The big question is, will Tesla be squeezed out increasingly, as other companies like Microsoft have been, right? I'm not so sure because I think Elon Musk has put a lot of political capital and a good relationship with the Shanghai provincial government and the central government.

And he's actually come out on X recently saying that he won't separate the China part of his business, part of the Tesla business from the core Tesla business. The reason people are asking is because now there's speculation that he may be pressured due to the fact that SpaceX, if it gets tied with Tesla, will be involved in defense contracting work. And that could be a national security risk to have that kind of China exposure. But I mentioned this example in particular because in the case of Tesla, what's fascinating is that it's using China basically to produce more than half of its EVs. China has become a production hub for Tesla cars. And when I look at the Microsoft situation, it's not that Microsoft is selling directly into the Chinese market, but they are helping the Chinese be able to manage consumer data and be.

in adherence with global regulations overseas by using the Microsoft Azure Cloud services, as well as accessing, you know, as I mentioned, Western US AI models through the Azure Cloud data centers. So, you know, these two stories are very different, but they show how China, you know, has different inputs into different parts of the businesses for different companies in the U.S. It's not necessarily a story of, say, a Starbucks where you're selling directly to the Chinese consumers. There are different ways that you can have a China relationship, as you've seen with Tesla and Microsoft. You know, Alice, I meant to put Tesla into the first bucket. I regard Tesla as a company that's done really well in China. It has realized its China dream. But we don't know how long

these dreams last. You know, the Chinese competitors are always coming up. And in the case of Tesla, obviously, there's BYD and there's a whole flock of other Chinese EVs that are looking better and better. So we don't know the longevity of the dream. I guess that's one of the things. So just for the sake of balance on Microsoft, let me just say that one of the reasons why Microsoft really had a hard time in China was that there was a free open source software called Linux, Linux, that was available at that time. And Chinese users were very keen on Linux. So the thinking is that if Microsoft had got heavy on the Chinese market and tried to sell more products or crack down on pirated versions of its software in China, then the idea was that maybe Linux would just take the

market away. And I remember Bill Gates actually referenced this at one point. He said, it's easier for our software to compete with Linux when there's piracy than when there's not. So he's literally referencing that situation back in the day, showing that really Microsoft had a tough gig in China. It would have been difficult for them to crack down on Chinese piracy all those years ago. Yeah, and then at the time, he failed to pitch to the government and the agencies to use Linux, right? And so they ended up creating their own Chinese open source operating system called Kleinex, I believe. And so, you know, even then in the 90s, the Chinese government was concerned about having too much exposure, technological exposure to a foreign company or foreign supplier in the form of

Microsoft. So, you know, it's been hard for Bill Gates, but I would take the bet that, you know, Microsoft continues to have some product or service to sell to the Chinese market, especially because, as we've said previously, Chinese companies have to have a global footprint. And we're moving into an era where more. and more data needs to be localized, where certain restrictions apply for being able to access models. You're seeing this in China. Certain companies are restricted from accessing American models, mainly because of the U.S. restrictions. So I still see Microsoft as playing a part

in this period of continued tech segregation. Okay, we'll be back with more. After a quick break, stay with us. support for the show comes from IM8. With afternoon meetings to attend and end-of-day deadlines to hit, trying to find the energy to finish the day can be a challenge. So if you're looking for a little boost to power you through it, complete with all the nutrients you'd need in a day, try IM8. IM8 is the way to simplify your supplement routine once and for all.

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former Chinese Premier Zhu Rongji, who served from 1998-2003, has passed away at the age of 97. During frequent comparisons to Margaret Thatcher of Great Britain, due to his free market reforms, his defining achievement was steering China into the World Trade Organization in 2001, a deal that doubled China's economy within five years and helped China overtake the U.S. as the world's largest manufacturer by 2010. James, I am glad we're talking about this, because today is the centenary anniversary of Jansamin, who was the leader at the time of when Jouongji was in power.

Joleng Ji was his effectively Jansimins'in's premier. And, you know, in the space of the last two weeks, we have the death of Jouinji, but we also have the centenary anniversary of Jansimin. And this couldn't be more perfect and poetic in a way because these two leaders oversaw, I think, a very important significant period in Chinese history. You know, when I think back, the 90s are about the sort of market reforms,

pro-market liberalization, cutting down the inefficient SOEs, privatizing certain industries, making sure that, you know, corruption was reduced. The party to corporate crony capitalism was also in control. And this was, I think, part of Jiang and Zhu's efforts to help China, be kosher enough, so to speak, to get into the WTO, because remember there were requirements in order to be a member of the World Trade Organization. And at the same time, these two also oversaw the handover of Hong Kong to mainland in 1997. They oversaw the 2001 WTO accession, which is huge for China's modern history. So it can't be overstated how important these two

figures are. But today, we're talking about Zhulunji, who, to my mind, is one of the most colorful guys in Chinese political history, modern political history. Here is this guy who was born in Hunan. And then studies in Qinghua, electrical engineering, then becomes mayor of Shanghai, and then party secretary of Shanghai, then becomes vice premier, managed the economy in the early 90s, and then premier. And really, the 90s and early 2000s are dominated, I think, by this guy at the helm of the economy.

And you have mentioned this to me, that he, resembles Margaret Thatcher, and I want you to unpack that as a Brit. But I think that that is a very apt analogy, because here was this guy who was really trying to push China towards pro-market reforms, because he saw that that was the necessary future for China, and that China needed to be part of the global economy. And I think today's export engine has really drawn to you to thank. Yes, Alice, I think the Thatcher analogy is apt in some ways. Certainly, Juryang was somebody who pushed through deregulation, privatization of state-owned industry. Margaret Thatcher did exactly the same thing in the UK. And I think also there's a comparison here, crucial comparison,

because both the reforms that Margaret Thatcher pushed through in the UK in the 1980s and the reforms that Jurongji pushed through in China in the 1990s and 2000s created huge. huge social dislocation and created a great deal of social tension and friction. The main difference was that Thatcher is thought to be responsible for the loss of about two million jobs in the UK in manufacturing and mining and sectors like that. And Jurongji painted on a much bigger canvas. Obviously, China's a much bigger country. But there are estimates that say that, that under Jurongji, about 35 million jobs in China's state enterprises were lost. And I remember going all over China to look at the fallout from the Jurongji era.

I remember traveling particularly up to the northeast to an area of China that was then called the Rust Belt, cities like Xionyang, and walking down the street where thousands or tens of thousands of work had just been laid off from big plants in that city. And these workers would just be sitting on the pavement. It was as if they looked honestly dazed, as if their whole world had come to an end. But they were thrown out of their jobs, and they really had very little to fall back on. There was very poor provision made for these people under China's social security system at that time. And I think, you know, one of the words that people used to use at that time was Mahmoo. It was like they were numb.

You know, people felt that the tides of history had just swept them away. And there they were sitting on the pavement, hoping that somebody would come along and either give them a job or give them a handout of some sort. So the bruising nature of Juryong Ji's reforms should not be forgotten. But having mentioned that, I should also mention that he's true. two big reforms not only transform China, but they also transform the global economy. And I would say the two big reforms of Juryong Ji, one of which you've mentioned, China's entry into the World Trade Organization, and the other one, the privatization of China's property market,

were genuinely globally altering events. When it comes to China's accession to the World Trade organization, and that happened in 2001, we can see that Chinese trade with the world has increased 12-fold since that time. And of course, China is now the world's biggest trader, probably the biggest trader in history. And its current trade volume or trade volume last year was about 6.5 trillion US dollars. So that is a massive reform, a massive. A massive. departure for China and the world. And then when it comes to the privatization of the housing market, I remember Jurongji announcing this at a press conference in the Great Hall of the People in Beijing. And honestly, it was like the whole room was hushed. The hair on the back of my neck stood up.

He was quoting poetry. He was sounding the most assured, I think, that anyone had seen a Chinese official until that point, and he just announced that the Chinese housing market would be privatized. These days, about 90% of urban households own their own property, and about 70% of the country's total household wealth is held in the form of property. And just as an estimate, the total residential and commercial real estate stock in China is estimated to be worth roughly 42 trillion US dollars. So we're talking enormous, enormous changes. And so my kind of summary of the Juryung Ji Premiership is that he did things that were very bruising for Chinese society at that time. A lot of people lost their life.

livelihood, lost their job, lost their direction, lost their orientation in life. But the reforms that he pushed through are really responsible for the Chinese economic superpower that we see today. So you couldn't imagine a more consequential, if official. I would even go so far as to say that he could be one of the most consequential officials or politicians in the 21st century. Obviously, we're only partway through the 21st century so far, but as things stand, I'm probably voting for Jurongji. Yeah, no, I actually would agree with you, and it's not just because I study economics, I'm bound to favor the economic drivers of history, both as an economist and a historian.

But, you know, I'm glad you mentioned the property sector, because when we look at China today, part of the reason why people think it is so unbalanced is, A, the export side of things, which we've already mentioned, we've got Zhuong Ji and Jansamin to thank for helping China join the WTO. But B also, the property sector, you know, at its height before the crackdown a couple years ago, the real estate sector and related activities

was about 30% of GDP. It was a significant chunk of the economy. And really, it was because of the privatization of that sector, allowing people to have use to ownership rights over property. then engendering the sector of real estate companies that could deal, and these are all predominantly private companies, by the way, in the 2000s up until now, these private real estate companies to create a market for construction and for selling of properties. That has been a huge theme of China in the early 2000s up until around 2020. And I think people don't understand the extent to which

the crackdown on the real estate sector, I think by historical standards in China is one of the biggest crackdowns on the private industry in China just because of the sheer volume and market cap of these real estate developers. So I think he's the most consequential economic official in Chinese recent history. And I'm glad that we touched on him because a lot of the stuff that we talk about all the time, whether it's exports, imbalances in the economy, you know, even the way in which the government is managed, it all comes back to Jolongi because, again, we haven't talked about this. He really oversaw in Chinese elite politics the centralization of fiscal governance,

where the central government took more control over tax revenues, over the local government's fiscal balance sheets. And that has been a trend, really, from the 1990s on. woods. So again, cannot be overstated how important this guy is. And I'll end by saying, just as we have had a mixed, I think, description, mixed but nuanced description of Zhongji, if you look at Chinese social media on Weibo, for instance, you know, there was one post that got 190 million views. That's a huge number for somebody who's been out of the public eye since 2003. But there's also have been some criticism leveled at him in terms of the layoffs, you know, people describing their

own personal experiences of having their relatives and seeing them go through job losses and layoffs and never really getting back on their feet. So much like the economy itself, there are pluses and minuses. And I think that the response to him really encapsulates the nuances. Okay, let's take one last quick break and stay with us. Support for the show comes from Everybody's Business, a podcast from Bloomberg Business Week. Sometimes you want a macro view of what's going on in the economy. You might be wondering why the price of groceries is going up or why every brand is trying to sell you an experience or why it's harder than ever to find fun activities that don't cost an arm and a leg. Everybody's business gives you the big picture you need and shows you how it impacts your day-to-day life. It's hosted by Max Chaffkin and Stacey Vanek-Smith. Everybody's business is a show for people who don't need to be finance pros but are financially curious. The great thing about this show is how it breaks down the domino effect of huge economic forces, including the Fed and interest rates and tariffs, and how they impact people, including you and me. Also, it's fun, and it won't financially ruin you.

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This week on Why Are You Like This? I got to sit down with legendary Minnesota links coach Cheryl Reeve in Chicago during All-Star weekend. We get into her personal style of activism, how she supports her players as people, and why she proudly considers herself a dyke. Then we learn if she's more of a mommy, daddy, or baby. Check out the latest episode of Why Are You Like This, wherever you get your podcast and on YouTube.

Welcome back. The massive dolphin typhoon that recently ripped through parts of China has been downgraded to a tropical storm, but damage from the storm as well as major flood alerts continue. Revenants continue to affect large areas of eastern and southern coastal China. More than 1 million people were forced to evacuate. The storm hit with winds up to 150 kilometers an hour, and about 40% of Shanghai flights were grounded.

On a related note, Hong Kong also recorded its hottest day ever on the Sunday that Dolphoon Typhoon struck, 36.9 degrees Celsius, the highest since records began in 1884. James, it seems like just as we're having the year of the firehorse when it comes to geopolitical risk, We're having something in the meteorological domain as well. I've been watching some of the videos online, but also via my friends in China.

And just the level of flooding that you see in Beijing and Shanghai is pretty overwhelming. You saw, I think, in the number of a million people evacuated as a result of this. And what seems to be happening is a confluence of two trends. One is the El Nino event, which is creating more typhoons that are moving inland. And the second is really climate change or global warming that is creating more precipitation. The air is holding more moisture. And the two El Nino and climate change acting together just creates mega typhoons, it seems, which according to specialists in this field should be the norm moving forward.

And that's pretty shocking to see. Yeah, absolutely, Alice. I think you're right to highlight the discontinuity about this. According to predictions, the Northwest Pacific typhoon season is expected to be one of the most active on record with 28 tropical storms and 20 typhoons projected for this year. This typhoon, the typhoon dolphin, came just two weeks after Typhoon Bavi. which also forced about 1.7 million evacuations. So China's sort of running, you know, continuous disaster response operations along its eastern coast.

And I think a couple of other details when it comes to this latest typhoon, Typhoon Dolphin, might be pertinent in the sense that they show a discontinuity. In other words, a worse type of typhoon that may be linked to climate change. And that is that this dolphin typhoon started somewhere near the international date line. That's about 6,000 kilometers east of Georgia, which is the province in China where this typhoon made landfall. That is the furthest origin typhoon ever to make landfall in China. So that could be quite significant. And then the lifespan of this typhoon was 16 days, which is three times that of a typical typhoon.

So as you mentioned, Alice, what we seem to be witnessing here is the stronger typhoons, more typhoons, and typhoons with a longer fetch, I mean a longer journey before they hit landfall, in this case in China, but obviously in different parts of Asia as well, for the forthcoming. typhoons. And as you've mentioned, we haven't seen the end of this. We're almost certainly going to get several more typhoons in China. So I think it's a, you know, it's a disquieting trend, really. I think the big question that I've heard some people ask is, why is it that we haven't really seen electrical grid outages? And this goes back to previous discussions we've had about China's electrical grid system and how really it's an electro-state. It's a state that has an enormous

amount of self-sufficiency in electric production, you know, the biggest producer of electricity in the world. And that is because a lot of the electricity production through renewables is done further inland, right, in the western parts of China. And the grid itself, the UHV, the ultra-high-voltaneic grid that helps move the electricity from west or inland China to the eastern coast. postal parts of China, has inbuilt within, which I find interesting, a typhoon, level of typhoon resistance. So the engineers have built that in mind. But it's been really interesting to see the emergency response.

Now, China showed during COVID and other emergencies that it, you know, can move very, very quickly. But the big question is, will it be able to move ahead of some of these events moving forward. And, you know, there's some discussion of engineers and scientists using AI and mathematics to try to get ahead in terms of predictive models for the patterns of typhoons. But if this is going to be the norm rather than an outlier, it might be very normal for us to continue to see this kind of flooding and for local governments and administrations to have to deal with this on a more regular basis. But I've been surprised by the emergency response and how efficient it's been, but also

to some extent, less surprised by the fact there hasn't been a lot of recording as to casualties and, you know, the value that has been destroyed by the typhoons in time will probably see that data come out. But right now, I think we're seeing, you know, a lot of these administration officials moving quite quickly in terms of emergency response. to the events. All right, James, you know what time it is. It is prediction time. As you peer into the future this week, what do you see? Okay, so I am doing a prediction on fixed asset investment. This is basically investment in all types of things. It can be infrastructure. It can be plant, machinery, all those things that sort of make the economy go. And fixed asset investment

accounts for a huge proportion of overall Chinese growth. And this year, it has literally fallen off a cliff in the first seven months of the year. Fixed asset investment is down 6.7% year on year. And that's driven by a plunging property investment market and softening infrastructure and manufacturing as well. So I think it's worth highlighting. My prediction is that actually for the full year, fixed asset investment will be minus 5% year on year. So slightly better than the first seven months. And the reason for that is really a base effect. I don't actually think that the Chinese government is going to come in with a big stimulus package on this. So I just want to register that one. I think, you know, fixed asset investment is so important. And just to give you

One incredible statistic, real estate investment in the first seven months is down 19.2% year on year. That is extraordinary. That is because new construction and funding for developers has been drying up. So the bottom is still falling out of the real estate market in some parts of the country. Yeah, and I think this isn't talked enough about because the figure. excess investment part of the economy is a huge. And if that remains an ongoing drag, it means that the slowdown is going to be larger than people expect. So I would agree with that. Mine is more in the realm of robotics and of equities. It seems very likely this week that

Unitary, China's big humanoid robotics maker, is going to IPO. And by current public records, it is over 8,000 times oversubscribed by retail investors. That is a new milestone for the star market that it's trying to list on in Shanghai. So I suspect that this is going to create a lot of positive momentum when at IPOs. We're going to see a huge upswing in the market cap and valuation. And it might actually even help Chinese equities broadly the week that it IPOs, as people get more enthusiastic about China, of robotics and China, AI and tech.

But again, this is a short-term movement, and Unitri is the one to watch really in the humanoid robotics market, both in China and globally. Wow. 8,000 times oversubscribed. That is extraordinary. And as we know, James, just a couple weeks ago, we had the IPO of CXMT, China's DRAM memory chipmaker, and that had a record IPO in terms of market cap. surpassing the market cap of ICBC when it IPO.

So that's just to give you a sense of the mega IPOs that have been happening this year. And I think Unitary is definitely one of them. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts. So you don't miss an episode. And we'll talk to you again next week.

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