The Prof G Pod with Scott Galloway - China Decode: The AI Race Just Took a Stunning Turn

Episode Date: June 9, 2026

Alice Han and James Kynge break down reports that a Chinese robotics startup has topped a leading international benchmark for embodied AI, raising new questions about whether China is pulling ahead in one of the most important technological competitions of the decade. They also examine Xi Jinping's first trip to North Korea since 2019 and what it reveals about China's evolving relationships with Kim Jong Un, Vladimir Putin, and Donald Trump amid growing geopolitical tensions. Plus, China's government launches a sweeping crackdown on "ghost kitchens" after regulators uncovered tens of thousands of fake restaurants operating on major food delivery platforms. 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

When it comes to home improvement, even the most experienced DIYer has a limit. I'm not going to come in here with the blow torch and get it hot and solder and put the copper pipes to cover. I'm not doing it. I call it very nice man to handle it. When to call the experts and when to do it yourself. That's this week on Explain It to Me. Find new episodes, Sundays, wherever you get your podcasts. I don't think I want to raise girls who are nice.

Girls who are nice, are pliable, and do what other people tell them so that they can be liked. This week on Project Swagger, the incredible Shonda Rhymes. I felt really overwhelmed after Grace was a giant hit. And then I thought, like, well, how am I supposed to do this again? We talk about motherhood, confidence, knowing your worth, and adding tax. If you go in already thinking to yourself, I have to take a deal, I have to make this deal, you've already lost. Listen now at Project Swagger. 90% of humanoid robots produced by China, 60% of robotic installations produced by China.

And what I'm most adhering is that it's actually really easy, relatively speaking, for Chinese industrial companies, especially in the automobile and the smartphone space to pivot into robotics. Now, I've heard that BYD has a secret humanoid robot project that it's working on. Welcome to China Decode. I'm Alice Han. And I'm James King. In today's episode of China Decode, we're discussing the cutting-edge AI technology taking over robotics, President Xi's tripped North Korea, and the cutthroat world of food delivery apps in China. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week.

On Monday, markets saw a broad rally across all major. major indices. The CSI index was up 1.45%, the SSE composite index was up 0.43%, and the Shenzhen component was up 1.63%. This comes after a tech-driven sell-off on Friday. All right, let's get into it. In the latest face-off, in the growing global AI race, China might be about to take yet another victory. The news comes out of robotics, a major frontier in artificial intelligence, and the competition between Chinese and American firms in building the brains for next generation robots is well front and center. A Chinese robotic startup called Spirit AI claims its foundation model for embodied intelligence called Spirit v.1.6 has become the first Chinese model to top a major

global leaderboard, beating Nvidia. That puts its squarely up against similar models being built in the United States. James, we've spent a lot of time talking about LLA. I've long been of the opinion that just to focus on generative AI and LLMs is way too short-sided. I think the AI race is multimodal and China is proof of that in the sense that one starting statistic, from my perspective, is that while the U.S. spends 12 times more on compute, this from the private sector versus the Chinese private sector, China is spending 42% more on the robotic sector. than the United States. And apparently this gap is going to widen.

So this is two very different, I would say, modalities. But I think that the robotics race, especially the AI component of it, is a really exciting one. And it's where China actually has distinct advantages, not just in the hardware, but potentially the software too. Absolutely, Alice. I think, you know, what we're really talking about here is physical AI. And as you've just said, this is a very new area.

So physical AI is using AI to do physical tasks. So, but this is very different from, let's say, a machine and a factory that's doing the same thing over and over again. This is a machine that can perceive and understand its environment and interact with the physical world. In other words, these are machines, normally robots, that think before they act. I think that's the key definition. They basically think in the way that robots actually think, and then they act on that thought to fulfill a task. So, for instance, it would be something like asking a humanoid robot

to do a series of tasks or getting an autonomous vehicle to drive for you. That would be an example of physical AI, or using a robotic arm to do something, but not the same thing over and over again. Using the robotic arm to do something that you sort of instructed to do and then it immediately thinks how to do it and then executes. I saw this recently at a robot expo in Beijing, and there was a fascinating sort of demonstration there

of a humanoid robot that was standing in a pharmacy, and all of the people were coming up to the counter of the pharmacy and saying, I would like this medicine or that medicine, and the robot would be looking straight at them, and it would listen to the command. It would then spin around on its axis and choose from hundreds of different medicines behind it, find the ibuproofin, pick it up, turn around, and give it to the customer. That is, you know, in a nutshell, that is physical AI.

And this is a whole new frontier because one of these days, we think that we might reach what's called the chat GPT moment for humanoid robots. That's when you can give a humanoid robot pretty much any command under the same. they will think how to fulfill the command and then they'll do it for you. And if we do ever get to that stage, then we are in a very, very different world. I mean, obviously, to my mind, we're in a rather dystopian world where humanoid robots can do everything that humans can do. But let's not dwell on that too much right now. We don't want to be too depressing straight off. But anyway, as you said, Alice, the key news this week is that a Chinese startup called Spirit AI has top

the global leaderboard for these physical AI models. And this is the first time that a Chinese startup has managed to do that. And in so doing, it's beaten an invidia model called the Cosmos 3 in second place. Just FYI. Third place is also another Nvidia model. And the leaderboard is drawn up by Robo Arena. And what they measure is how effectively one of these. robots in different forms can act out a robot policy into real-world actions. Now, a robot policy is

effectively just an instruction, but it's an instruction that's turned into mathematical cues that robots can understand. So it's basically saying, if your robot can act out an instruction effectively, you know, without doing all the wrong things and just do the right thing, then it's an effective robot and this is an effective physical AI model. We're looking at China leaping to the forefront of this very important area of AI, that is physical AI. And I just did, before I passed back to you, Alice, I just did some research to look at what other areas of AI China is also leading in. And, you know, there are a few. I don't want to call the AI race. I've never wanted to do that. It's far too early to call that. The US is very, very strong in many different areas. But in video

generation, for instance, Chinese models comprehensively outperform international peers. That's according to the Stanford University AI Index report. In token consumption, that's really a measure of how many tokens all of these AI models are using. In this case, we're talking about LLMs, large language models mostly, but Chinese models are using many more tokens than U.S. models these days. And also in advanced AI agents, there's another leaderboard there called the Terminal Bench 2.0. And Chinese models are doing, you know, pretty well in, in that regard as well. Yeah. Just to hone in on what you mentioned, James, you know, in the physical AI realm, what's interesting is that you have on the one hand, what you mentioned, the policy

capabilities. So, you know, as if you were training a dog, if you give some kind of stimulus, there will be some kind of behavioral response. There's another layer of world capabilities, that's what they call it, where basically a model is created that is able to simulate and then predict what is going to happen next. And then the robot will take a specific action based on that. So there is almost as if there's a digital avatar or a virtual twin that accompanies. a physical robot. And here I think it's really interesting because the Chinese have fused the two.

There are some companies like Faye Faye Lees at Stanford that are doing this too that are going heavy in terms of simulation. And Vidiya is doing this too. So the virtual simulation and then creating predictable outcomes and responses to the virtual stimuli. And in the Chinese case, what I find particularly interesting

is yes, they are going really into the virtual space when it comes to these virtual robots or virtual twins. But they're also, I think, really leading already. We saw this in autonomous vehicles in particular, but also drones. They're really leading in the physical multimodal sensors. So what I'm talking about is sound, vision, lighter, you know, picking up on all the stimuli. And then you see this in advanced robotics already in China, in advanced drone technology, in autonomous vehicles.

And here I think, you know, you have the real. potential just from the sheer scale of physical hardware, whether it's drones, robots, autonomous vehicles, for a much broader and deeper data set of multimodal data that is collected by Chinese companies. And that's, I think, really underappreciated in the West, where a lot of the focus, I think, is on text to language and text to cognition. In the Chinese case, there's a lot of data that can be collected and is being collected in the physical space. And here, when you train on that data, you know, the models get more intelligent, then you have more intelligent, not just humanoid robots, but even these more task-specific robot

installations that you're talking about, say in the pharmacy, James. And just so that people understand, you know, 90% of humanoid robots produced by China, 60% of robotic installations produced by China. And what I'm most a hearing, I'm curious if you've heard this to, James, is that it's actually really easy, relatively speaking, for Chinese industrial companies, especially in the automobile and the smartphone space to pivot into robotics. Now, I've heard that BYD has a secret humanoid robot project that it's working on. I wouldn't be surprised if you saw other big companies. I believe there's a smartphone company that, Lingyi, I tech, that supplies to Foxcon,

which obviously assembles Apple's iPhones, that is targeted. 500,000 humanoid robots by 2030. So I think the industrial supply chain is really geared towards pivoting very quickly to the robotic sector. But what are your thoughts there? No, completely. Again, back to that robot expo I went to in Beijing a couple of months ago, what struck me so clearly was that every robot there had been designed for a specific task.

We're not talking about idle robots that are sort of show ponies for people to marvel at. We're talking about robots that are being put to work. This links up with China's central plan in the 15th five-year plan, which just came out earlier on this year, which is to have AI diffusion into 90% of industrial areas by 2030. So China wants robots to use the expression of Dong Xiaoping to catch mice. It doesn't want show pony robots. It wants robots to make money. And this is what you're talking about, Alice.

This is what I saw in that expo. There were scores of robots there. Every single robot had a specific, was designed for a specific task, whether it was performing some kind of surgery on a meniscus of your knee or giving you drugs, as I said. This development that we've just been talking about, this spirit AI technology to allow robots that do things, to do those things efficiently and effectively is so key. This is what is going to be powering these robots to do these tasks. And it's not surprising, therefore, that Spirit AI has just raised 1.5 billion remin B.

That's about 222 million US dollars. And what we're seeing now is a bit of a gold rush in terms of money going into startups for these physical AI programs that will animate physical AI. because people see this as a very lucrative area. So I think we've, I'm really glad that we've chosen this topic for this week because this is something that's going to run and run and not to be too corny about it, this is going to change the world. Yeah.

It reminded me a lot of, I don't know if you watch the Marvel series, but Ultron, Iron Man 2 about the rise of Ultron, this AI robot that is then able to control all these other robots. robots. And I think that that's something that people don't appreciate either is that in much the same way that you have drone swarms. So drones working in unison with each other, you always have robots working in unison with each other. And one of the companies that does this at the forefront is Unitary. Unitary apparently, talk about lucrative, is going to IPO. Apparently for around $7 billion. On July 1st, it's going to have its IPO application under review by the Shanghai Stock

exchange. And more recently, the NVIDIA CEO, Jensen Huang, announced at Computex that it's going to partner with Unitary, as well as a Singaporean robotic handmaker Sharper, to build a humanoid robot reference design. So there's a lot of collaboration, you know, across different companies. And one last thing that I'm curious to ask you, James, because you've actually seen a lot of these robots, is some of the sort of tactile hands. I've, heard that actually that technology is not easy to do, and especially it requires lightweight material to be able to do the kind of dexterity necessary to, say, do open heart surgery, or really, you know, sewing, for instance, really, you know, delicate handiwork. But did you actually

see this on your travels? I never saw a hand like that. I have heard that there are robotic hands that can do acupuncture, so that is holding a needle. And I've always... also heard, and I think I've mentioned it in a previous episode of China Deco, there are, there are robots that can make these, you know, dim sum dumplings, which requires, I think you told me 19 folds to make a proper dim sum. I mean, that's not an easy thing to do. I certainly can't do 19 folds properly for a dim sum. So we're getting there. I haven't seen it myself, but we do seem to be getting there. Yeah. That's amazing. Okay, we'll be back with more after a Quick break. Stay with us.

Support for the show comes from LinkedIn ads. There's no worse feeling than making a major investment in something, only to realize it didn't exactly live up to the hype, such as buying a nice piece of tech that ends up in storage collecting dust, or taking a business workshop where your main takeaway was little more than a few motivational words. If you work in marketing, this can happen with ads. You optimize for the numbers that look great, impressions, reach, and reactions. But when they don't show revenue, will, that can turn into an unfund conversation with the CFO. LinkedIn has a word for that, bullspend. Reach the right buyers with LinkedIn ads and invest in what looks good to your CFO.

According to the 26 Dream Data benchmark report, LinkedIn ads generated the highest ROAS of all major ad networks. It's 121%. You can target by company, industry, job title, and more. It's time to cut the bull spend. Advertise on LinkedIn, the network that works for you. Spend $250 in your first campaign on LinkedIn ads

and get a $250 credit for the next one. Just go to LinkedIn.com slash Scott. That's LinkedIn.com slash Scott. Terms and conditions apply. Support for the show comes from ProtonVPN. Have you ever noticed that the second you Google something, suddenly every ad you see is about that thing? Or you try to watch your favorite TV show while traveling,

and it just blocked? That's all because the internet isn't as open as we think. So if you want the same access that you get at your home as you do on the road, you might want to check out Proton VPN. Proton VPN is a secure VPN service designed for people who want to prioritize their digital privacy and security. It keeps what you do online private and lets you access the internet like it should work, open, secure, and on your terms. Unlike most VPNs, Proton is backed by strong European privacy laws and years of expertise, creating a safer, faster, and more open internet for everyone.

Plus, Proton VPN has a strict no-logs policy that's independently verified. It's open source so anyone can expect how it works, and it's backed by a foundation focused on protecting user rights, not selling your data behind the scenes. It's easy to get started right now. ProtonVPN is offering our listeners 70% off a two-year plan when you go to ProtonvPN.com slash prop-G. That's P-R-O-T-O-N-V-P-N-V-P-N-com slash prop-G for 70% off your two-year plan. That's ProtonvP-N.com slash Prop-G. support for the show comes from Lisa. A miserable night of sleep can lead to a nightmarish day,

and there's no amount of coffee they can make up for it. But Lisa is here to help. Their mattresses can get you the much-needed R&M sleep you need to start your day off right. Lisa has a lineup of beautifully crafted mattresses tailored to how you sleep. Each mattress is designed with specific sleep positions and feel preferences in mind. From night one, Lisa believes that you'll feel the difference

with premium materials that deliver serious comfort and full body support no matter how you sleep. Plus, Lisa mattresses are meticulously designed and assembled in the USA. For exceptional quality, complete with free shipping, easy returns, and a hundred and twenty-nine sleep trial. And they've been awarded the best hybrid and best memory foam mattresses by New York Times wire cutter. Go to Lisa.com for 25% off plus get an extra $50 off with promo code ProvG exclusive for our listeners. That's L-E-E-E-SA.com promo code Profji for 25% off. Plus, an extra $50 off.

Support our show and let them know we sent you after checkout. Lisa.com promo code Prop.Gee. Welcome back. Chinese President Xi Jinping is in North Korea this week on his first visit to the neighboring nation since 2019. The visit comes as Kim steps up diplomatic activity and showcases his expanding nuclear capabilities. And just weeks after she hosted both U.S. President Donald Trump

and Russian leader Vladimir Putin for separate, nearly back-to-back visits in Beijing. James, I just watched the video of Xi Jinping and his wife, Peng Li Yuan, coming down and shaking hands with Kim and his wife. There was a huge group of people. In this case, they weren't Chinese kids, but they were North Koreans of all ages and genders, and they were coming to greet in, I think, great deal of pomp and circumstance.

This obviously is an exception. important relationship. I mean, I don't think people understand enough that China's only ever signed one mutual defense treaty, and that is with North Korea in 1961. This relationship obviously has been very rocky, and there's, it seems like, a third wheel in the relationship in the form of Russia that comes every now and then to destabilize or somewhat threaten the relationship. What was your take on both the optics, but also the substance of this visit? Yeah, the optics, are always impressive when it comes to North Korea. I think that there were people lining the roads for the entire trip that Xi Jinping took from the airport to the place where he was meeting Kim Jong-un,

people lining the roads cheering in an uproarious way. But we must remember that this is all stage-managed. None of this is spontaneous in North Korea. And to be honest with you, I think that this relationship remains very complex. And although, as you mentioned, Alice, North Korea is China's only formal diplomatic ally, the true state of the relationship remains much, much more complex than that would suppose. And I think the big issue here is North Korea's nuclear arsenal. Kim Jong-un said recently that, quote, there would be an exponential expansion of North Korea's nuclear arsenal. Kim Jong-un said recently that, quote, there would be an exponential expansion of North Korea's nuclear arsenal. And this would be in order to take on, quote, the most ferocious enemies.

North Korea is the master of sort of blood-curdling rhetoric. So we shouldn't sort of read too much into that. But to me, there is effectively what's happening here is a kind of two-sided leverage game going on. The first leverage is North Korea trying to use. It's nuclear arsenal to gain concessions from China. And the second order of leverage is China trying to use North Korea's nuclear arsenal to gain leverage from the U.S.

We've seen this in the past. Excuse me for being somewhat cynical about this, but I reported on all of the meetings of the so-called six-party talks between 2003 and 2007 when I was based in Beijing as a journalist for the Financial Times. And effectively, those talks were an extended charade. They were a way of both North Korea and China extracting concessions from the United States. So the way it went was that the U.S., because it had no way of appealing directly to North Korea, would try to go through China to influence North Korea and stop North Korea from developing those nuclear weapons. And in order to go through China, China extracted concessions at most steps of the way.

Sometimes big concessions, sometimes small concessions, but there were concessions given by the US towards China in an attempt to prevent North Korea from developing those nuclear weapons. And effectively, the US got nothing for it because, in the end, North Korea did indeed develop nuclear weapons and now is creating this arsenal of intercontinental, ballistic missiles that it can use to deliver those weapons to pretty much anywhere in the world. And so what we have now is potentially a kind of take-to of that leverage game. North Korea is inviting Xi Jinping to Pyongyang, and then I would guess that the US will now try to use China's influence over North Korea to prevent North Korea from weaponizing

and using the nuclear weapons as it has in ways that would obviously disadvantage to the US or its allies in the region, i.e. Japan or South Korea. But the truth is, I feel anyway, this is my opinion here, so it may be wrong, but I feel that China has very little leverage with North Korea. And I feel that we were shown that during the failure of these six-party talks that lasted five years from 2003 to 2007. And so if the U.S. falls for this leverage game again, then I think it'll just end up losing concessions yet again. That's my rather jaundice view of the whole thing.

I may well be wrong. I kind of hope I am, but I suspect I might not be. When I was reflecting on this, I was thinking how, in the last couple of years with the Russia-Ukraine conflict, I would say the great power politics game has shifted. In the past, it was very much about U.S., China, North Korea. I mean, obviously there's the South Korea dimension, which we can get into just a bit, but in general, China almost used North Korea as a bargaining chip any time the U.S. wanted certain things, like, for instance, China going ahead with sanctions a couple

years back during Trump 1.0 on North Korea when they were unhappy with their nuclear buildup, or that China was somewhat of a back channel for American diplomats to engage with North Korea. But in recent years, I've noticed, and this came up in some discussions over the last year or so in China, that the other third wheel in this new relationship is Russia. And I remember a couple years ago there was this viral image of Putin hanging out with Kim and his car in Moscow, just two dudes in a car together, smiling and laughing. And as you know, James, in a North Korea apparently has sent 14,000 troops to the conflict between Russia and Ukraine. Some of these troops have gained battlefield experience in return.

Apparently, the Russians have sent over military and technological equipment. And Kim has learned, I think, from watching the great power politics game that actually it pays to be a nuclear power. I mean, look at what's happening in Iran. The fact that Iran isn't yet fully nuclear capable puts it at constant risk from the Israelis and other countries both in and outside of the region. And North Korea has quietly been building up its nuclear arsenal. To your point, James, this is a cause of consternation for the Chinese. But before this trip that Xi has been taking, North Korea unveiled a new facility to produce

nuclear fuel. And so the big question is, what is China's strategy when it comes to North Korea? Because on the one hand, I think it wants to improve relations. I think it has been worried about how North Korea is getting closer to Russia in the last couple of years. And we've seen that with the resumption of flights and trains going in and out of China between China and North Korea. But on the other hand, the Chinese are very worried about a nuclear buildup just across its northeast border. And the Chinese do care about its commercial relationship with the South Koreans, right? Part of, I think, what has allowed the South Korea-China relationship to be relatively strong

compared to, say, the Japan-China relationship is this kind of tacit understanding that the Chinese could hold North Koreans back from really radical positions on the nuclear issue, for instance. What is China's strategy going to be? because it is trying to improve things on the one hand with Pyongyang. But the other hand, can it do that if Pyongyang just believes it should continue to build up nuclear arsenal because of what it's seeing on the world stage? Well, I mean, it's a great question.

My answer is fairly simple. I think the answer is no. China does not have sufficient leverage over North Korea to influence it on its nuclear policy. It has leverage over North Korea. It can persuade North Korea to do lesser things. But when it comes to North Korea's nuclear arsenal and whatever weapons it's building up to transport those nuclear warheads to wherever in the world, I think China has almost no leverage whatsoever.

And that's for the reason that you've just given. North Korea is an ostracized state. It has, you know, tenuous links with Russia and China, and it feels itself as a victim of all kinds of international currents over the last, you know, several decades. And it has this very oppositional sense, even when it comes to so-called allies, it feels very oppositional to China, it feels oppositional to Russia, it doesn't want to be bullied. that's why it has created this extraordinarily ultra-independent state with an ultra-independent foreign policy and is known around the world as the hermit kingdom, because it's almost

impossible to travel to North Korea. North Korea has very few links with any country in the West. I've personally been to North Korea, and I have to say it is the strangest country I've ever been to. You know, you're watched everywhere you go. You're tailed by an individual agent who is supplied to monitor you. It really is, it's like a country on a constant war footing, which, of course, it is on a war footing because North Korea never signed a peace treaty with South Korea. Officially, these two countries are still at war. There is wall-to-wall propaganda being piped out of every loudspeaker, you know, there are video cameras we hear in most of the flats and apartments in Pyongyang. It's a very, very militarized society and a very suspicious one.

So I really don't think that China could possibly influence North Korea when it comes to the most important agenda that Kim Jong-un has, which is building up his nuclear weapons, for the very reasons that you've given, Alice, because that is. is North Korea's insurance policy. It not only uses those weapons, you know, potentially to defend itself, but also to win leverage and gain concessions from its biggest partners and its potential enemies such as the US. Yeah, I agree with that. Although one other way to look at this is if China can build economic leverage, because China is the biggest trading partner, basically, to North Korea, then maybe that has something, some element or factor in the relationship.

I'm a skeptical of that view because, as you've listed out eloquently, James, this North Korean regime is more interested in nuclear buildup than actually getting richer or making the people richer. Although I had heard a couple months ago in Beijing that this was during Wang Yi's visit to Pyongyang meeting with Kim, that there would be high-level meeting between Xi and Kim, and that Kim was finally getting out of the post-COVID, confinement phase and seeking to improve the economy and largely doing this by resuming trade and travel with mainland China. We'll have to see if that bears fruit, but I thought that was an

interesting data point suggestive of the fact that, you know, this is a deeply impoverished country, the economies and shambles, and maybe we're seeing a leader in Pyongyang that is trying to change the tide there and actually prioritizing economy for once. I'm a little bit skeptical, but it's worth mentioning as a potential form of leverage in the future of China develops that. Indeed. All right. Let's take one last quick break and stay with us.

Support for the show comes from Rifling. These days, you can chat with AI about almost any business problem. But with Rippling AI, you can actually solve them. That's because Rippling AI is built on your live global workforce data, giving you full visibility into your business and the ability to take action with AI. that executes across departments. Say you want to retain top talent. Just ask Rippling AI, who are my top performers this year,

and you'll instantly receive a workforce report flagging potential at-risk employees with supporting data like comp ratios, recent performance reviews, and engagement metrics. But it doesn't stop there. Rippling AI can turn these insights into a proposed reiteration strategy, including a recommended 10% spot bonus for top performers. All you have to do is tap confirm, and the spot bonus is added to the next month's pay run.

So don't settle for AI that's all talk. Head to rippling.AI slash prop G and get AI that turns insight into action. That's R-I-P-P-L-I-N-G. Sign up for exclusive access today. Big news this week for all my Gordon Geckos, my Robin Hooders, my Claude Squad Anthropic, which is newly the most valuable AI company in Sovorld, announced it would be going public.

That news follows reporting that OpenAI plans to go public as soon as September, and that that news follows reporting that SpaceX, which also considers itself an AI company, will be going public in maybe just a few weeks from now. Welcome to the era of the Omega IPO. We are about to see millionaires, billionaires, and yes, probably even the world's first trillionaire created overnight. And yes, it's that guy. This is the chainsaw for bureaucracy. Change saw. But all the tech bros who are going to make all the money, they need our money way more than we need their products.

And we're going to remind you why on today, Explain from Vox. Welcome back. We've covered AI competition and international competition. But before we close, a peak at a potentially even more competitive world, that of food delivery apps in China. The issue at hand is so-called ghost kitchens, businesses that have sprung up because of the fierce demand for and competition amongst restaurants and apps offering food delivery services. They are restaurants that exist only on food delivery apps with no physical presence,

which outsource orders to the lowest bidding third-party vendors. James, I remember a couple years ago when Travis Kalanick, the erstwhile, you know, founder of Uber, went all in on ghost kitchens. I think that this model has proved really ineffective, at least in America. There was apparently a lot of legal reasons for that in terms of liability in shared spaces and food safety. Now this has become an issue in China where ghost kitchens, I think, have been more prolific. And the government is really cracking down. It was interesting to see that, you know, the state administrator for market regulation, this is the anti-monopoly body in China.

the director of food safety at that body has basically said that the food delivery platforms like Ilama and Me Tuan, quote unquote, must truly assume the primary responsibility of being gatekeepers of food safety in the food delivery industry. And just recently, the seven e-commerce platforms, including Maitwain, have been fined combined $530 million over these ghost kitchen deliveries. I've, every time I go to China, I do use these apps, and they're so effective and efficient. I didn't know that this was actually an issue, so it was a little bit surprising to see. But it really, for consumers, is deeply worrying because you obviously got food safety, hygiene concerns. But also, you know, lack of transparency as to who is actually making your food. Have you experienced this, James?

I have been wondering how many deliveries I've ordered in, you know, Beijing, Shanghai, hi, Tianjin, Shenjun or wherever, I was in China recently, came from ghost kitchens. And some of the details that I turned up did rather turn my stomach. I mean, so when you get on the app, it shows you a beautiful restaurant, and you might have a picture of a restaurant, or the food that's being made in that restaurant, and then you think, oh, that looks great, and then you order it. but the ghost part of this comes in because actually the food you're getting delivered to you doesn't come from that restaurant. It comes from somewhere completely different. And after various

investigations by Chinese state media, they had some true horror stories come up. There was one where they went to a place that was making pig trotter soup. And, you know, the restaurant was listed online look great. But then they traced it to where it actually came from, and it came from a filthy, cramped kitchen in a junkyard. And this stuff was being slopped out and put into, you know, delivery boxes and then taken by the drivers on scooters to the people who were consuming it. Of course, all of the scooter drivers are on ultra low wages because, you know, in this game, the food delivery game in China, it's all about margins. You have to undercut your competitors, so margins are way for, way for thin. So you pay as little as possible for the food that's being

made and to the drivers who are delivering it in order to preserve whatever tiny margin you may have. And there was all kinds of other stories as well. There was stories of well-known eateries advertising online, but then the food that was being made supposedly under the brand of these eateries was actually made in hovels, infested with cockroaches and all of that. So it's a really, you know, it really does sort of make you think. I mean, I'm not saying that this is, you know, the majority of food that you order in China. I simply don't believe that. But because this is such a huge market and hundreds of millions of Chinese have takeout, food deliveries every week. And the industry is supposed to be worth about 200 billion US dollars a year.

This is a big issue. And some of these delivery companies like May-Tuan that you've already mentioned, they have about 7 million delivery drivers on their books at any one moment, mostly on scooters, kind of picking all of this stuff up and delivering it to your apartment or wherever you live, at incredibly quickly. I mean, This is the other thing about this industry. These delivery drivers are under such pressure to get you the food within, I don't know, Alice, what is it? Like 15 minutes or something? Sometimes it's even less than that.

It's 10 minutes. It's crazy. It's really crazy. I think it says a lot about the type of economy that China is, the cut-froke competition that people have to deal with all the time. And then, and so then it's easier to understand why the phenomenon of ghost kitchens exists, you know, why people, cut corners because they're under such competition for margin. And I think, you know, without belaboring the point, we can also see it in other sectors. I mean, what is it? There's supposed to be more than 100 electric vehicle companies in China and only a handful or a tiny handful of making a profit.

That's because, again, cut through a competition in that sector and many others. And even in traditional industry as well, you know, when it comes to steelmakers, for instance, you know, some of these plants, they turn the lights on, but nothing is coming out of it because they're subsidized by the local government and they need to keep employing people. I thought it was interesting that the regulators identified as 67,000 of these so-called ghost shops and that in a bid to meet the new regulations, some of these merchants are actually pivoting very quickly to building quote-unquote transparent kitchens with something that's very popular in China, as you know, live streaming. So they do live stream feeds of cooking from their restaurants so the consumers can

watch how the food is being prepared in real time. And some provinces like Anhui, for instance, assigning food safety agreements with major platforms so that there's a level of AI monitoring of these kitchens. And they're trying to incentivize in some cases delivery riders to report illegal restaurants by giving them cash rewards as well. So this is, the regulations moving fast, the industries those are moving fast to meet the new regulation standards. But when I did research, it made my stomach curdle a little bit to think about where your food is being prepared. But I generally am supportive of this regulation. I think it's good for the industry.

And as you mentioned, this is a growing industry, James. It's 200 billion US dollars by 20303. Apparently, it's largely dominated by white-collar workers, you know, who are, obviously looking to get a quick meal. And that's an interesting cultural observation and change. As you know, James, this is a culture that, you know, growing up, for instance, prides itself in home-cooked meals, but it's really pivoted, especially in the urban areas with white-collar workers to being very, very supportive

of online food deliveries. And generally, this whole market is controlled by the three platforms owned by Alibaba and Tencent. And then JD.com is to the third provider in a platform. But generally, it's interesting to see the regulators holding the platforms to account and saying, actually, you guys are responsible for food safety. You guys should be going above and beyond to make sure that you're meeting the standards as a platform and protecting consumers. Absolutely.

And I remember also the days when I worked in Beijing, our company had about maybe 200 people in it. I would say 90% of the people always had food deliveries to their desks during the working day. for lunch. And yeah, I mean, you know, I've been raking up all the horror stories, but actually a lot of the food look really good. And to be frank, look better than a lot of the sort of fast-dish food or food delivery that you get in the West. So I don't want to give everyone the impression that all of the food in China that you get delivered is made in ghost kitchens. That's clearly not the case. Yeah, well, I mean, I shouldn't say this, but I just in general have found take out in China to be way better than take out in the UK, but maybe biased there.

I don't think so. I think that's fair enough. I actually saw a photo from Fuchsia Dunlop, who as you know is a British sinophile, but she specializes in Chinese cuisine, and she showed a picture of industrial workers in China who are getting these cheap meals, and they say, we do not have them for pleasure, but just for convenience. And I looked at thinking, actually, that Looks really good. They've got bok choy, pork belly, a bit of rice. It's a very balanced meal. And, you know, in the UK, that would have been a very different kind of convenience meal. True. All right, James, you know what time it is. It is prediction time. As you look into the crystal ball for the future this week, what do you see? Well, Alice, I'm just about to have a holiday in France. So my mind has naturally turned to wine. And I was looking at what's happening in the Chinese. wine industry. We've already got several Chinese wineries issuing asking prices for wine at more than

1,000 US dollars a bottle. And so my prediction is that there will soon be wine in China sold for about US dollars 5,000 a bottle. Wow. At the moment, according to my research, the most expensive bottle of wine on the market at the moment in China is $4,300 U.S. dollars a bottle. That comes from the Changyu winery, and it's called A-FIP number one. But that bottle is set with 28 gems and 18-carat gold plating. So you're paying a lot for the bottle as well as for the wine. But there are others as well. There's a winery called Domain Franco-Shinois. That's in Beijing. Those wines are selling for 1,360 US dollars a bottle. There's another very famous winery called Au Yun, which is an LvMH winery.

That's in Yunnan province in southwest China. Those bottles are very expensive as well. But my point is that Chinese wine, which 20 years ago used to be regarded as a bit of a joke, is very far from a joke now. Most of this Chinese wine has now won multiple prizes. is some of the biggest, you know, wine expos in the world. And my prediction, therefore, is that soon, I don't know how long, we're going to see a Chinese wine, let's say,

sell for more than 5,000 US dollars a bottle. Is that driven by domestic demand? Are there domestic Chinese that are buying this or some Westerners, too? I think this is primarily Western demand. And we can also see that quite a lot of French sales of wine in China has fallen. because, frankly, according to many of the judges at the wine exposes, you can't really tell the difference between, you know, the best French wine and the best Chinese wine. There isn't a gap anymore.

Gosh, it'll be like a repeat of the 70s between Californian wines and French wines, that kind of competition. And I wonder to what extent climate change plays into this, because you've heard this theory, James, that apparently will start to get some good wines coming out of Britain. relative to France and Spain and Italy because of climate change. I mean, it's just going to get hotter in a lot of these historically renowned wine regions in Europe, right? Completely. I have a good friend. I have a good friend who's just started selling wine from his vineyard in Hampshire in the UK, and it's absolutely outstanding.

And shout out to House of Roosevelt. This is not a shameless plug, but I was just there recently in Shanghai. And they offer really good Chinese wines, Chinese red wines, white wines. wines from the local Dewe. So if you ever there on the Bund in Shanghai, you need a good bar spot, House of Roosevelt is awesome. So my prediction is in the robotics domain. I have been looking a lot at magnesium. This is the lightest structural substance that is increasingly being used for robotics. And I predict that we'll start to be focusing a lot on magnesium alloys being used in humanoid robots. And so for some of the more dexterous tasks that you meant,

James. So, for instance, the robotic arms and hands, because ideally you want as a lightweight, but as durable and material as possible, to conserve energy, but also make sure that the robot doesn't break down. So I think magnesium alloy is going to be the next thing that we're going to talk a lot about, in the same way that we've been talking a lot about, say, helium for semiconductors, mainly because of the Iran conflict obstructing supply. But I've been looking quite deeply into that structural substance. Interesting. 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 podcast so you don't miss an episode. Talk to you again next week. Formula One, so hot right now. It's like if traders in succession had a baby

on wheels. Seems lying. Drivers beefing. Celebrities everywhere. And scandals. Lots of scandals. So we made a show about it, the Red Flag's podcast where we recap races and break down all the latest F1 headlines. But no nerdy tech talk.

We only cover the stuff you want to hear about. Yeah, and the only thing hotter than the drivers are our takes. And now we're doing it on Vox. Oh, we're so legit now. We're basically thought leaders. TED Talk incoming. And we do a podcast with Gunter Steiner called Venka Hours. I still can't believe that's true.

Well, believe it. There is so much for the beautiful Vox Media audience to enjoy. So come check out the Red Flax podcast every Monday on YouTube or wherever you get your podcasts.