Transcription
Uh, it's the amazing thing. If you compare China and America, for instance, both countries benefited tremendously from globalization. If you look at GDP growth, look at surpluses, uh, they've all gained a large amount of wealth. But China's GDP grew 10x, maybe around, okay? And China's median income grew about eight times. In America, America's GDP grew also tremendously, four or five times from a large, much larger base. Yet their median income has been dropping, stagnant, and dropping. Isn't that amazing? Where has the money gone?
And if you go to Paris, go to the streets of Paris every weekend, you'll see them wearing these yellow vests, and they'll tell you where their money has gone. Okay? And if you go even in Germany, uh, Germany is the most successful country in Europe. There's so much dissatisfaction. So we see a, a tremendous, uh, backlash against the elites who led this wave of globalization or globalism, and that's, I think, will only, uh, intensify and spread.
So what does that have to do with us? China has been the only exception among just about any other, among all major countries in the world. China was the only one who engaged in globalization and benefited from globalization the most. Yet, it rejected globalism decisively. It said no to the political system of liberal democracy. It said no to market capitalism. It, it was pointedly not market capitalism. It's socialism with Chinese characteristics, which is fundamentally different.
>> But some form of market economy exists, but not capitalism.
>> How do you distinguish them?
>> Well, I, I distinguish them simply by saying that in a capitalist society, a country of capitalism, capital is an independent power. Capital can determine the future of a country. In China, in a socialist country, we have tremendous capital, great entrepreneurs, lots of wealth, but capital is beneath political authority. Our national political authority will never allow capital to determine the future of our country.
>> So you
>> All right. In America, the 100 wealthiest people in America will have an outsized influence on the future of an American political establishment and the direction of the country. Okay. In China, the wealthiest country, the 100 or 500 wealthiest Chinese people will have zero influence over our Politburo and our Central Committee. Zero. So that's the difference between a capitalist country and a socialist country.
So, and the role of capital, of course, is borderless. Capital is not committed to the land. Capital is not committed to culture. Capital goes wherever it can make the most money. So it's different, and that's why you see all these backlash in developed countries and developing countries alike, because people's lives, people want their lives taken care of. Uh, they don't want to just be, be ruled by, by capital.
So, China is the only country that's been successful in this globalization process. It's developed a tremendous economy, became the second largest economy by nominal terms and largest by PPP. It's now the, the largest trading nation in the world by far, and the largest trading nation in history. By the way, I think 115 or 120 countries count China as their largest trading partner. Only 63 count the US as their largest trading partner. So, we've done this, and we've lifted 800 million people out of poverty in the, in the process, and we're continuing on that process. We're not there yet.
Now, something else is happening in the world. The United States and its Western allies, but the US is leading this, confronted with these problems of globalization, seems to have decided to lead an effort to deconstruct and destroy the institutions of globalism that it built. And that's unprecedented. It's never happened sort of in the history of conflicts. If you read, uh, Graham Allison's latest book about "Destined for War," and all those conflicts among great powers, I was talking to him. I said, "Have you, have you seen an instance like that like this?" He said, "No." What is it? The, the leading power, the incumbent leading power is dismantling the system it built by itself for its benefit. It wants to ditch it. And of course, you have all those other countries, especially in Europe, build their systems based on the belief US-led system will continue forever for another 2,000 years. You're in trouble. What are you going to do? Okay. So that's another interesting and amazing thing, unprecedented thing that's happening in the world.
So what are we proposing? We look at 16 plus one or 17 plus one. We look at the Belt and Road Initiative. Uh, China, I think, is proposing a new form of globalization. A globalization that's liberated from the ideological shackles of liberalism. A globalization that's non-ideological. A globalization that allows the space for countries to develop their own paths, that does not seek to impose a set of political or economic values onto other countries. A globalization that respects national sovereignty. It respects differences. A globalization of diversity or pluralism, I like to call it. President Xi Jinping used to say that it's like a pair of shoes; whether or not they fit, only you could tell when you walk. So I think the Chinese approach is going to make a difference in the world. I hope through the Belt and Road Initiative, through 17 plus one, through other initiatives, uh, China's proposition, it's still a nascent proposition. It's a new proposition. There are going to be a lot of problems, a lot of issues, but it's a new idea that I think the world should entertain, which is that we would want to promote interconnectivity, promote globalization, but respect cultural and civilizational integrity, respect national sovereignty, and let each country discover and pursue their own development paths.
I think the current US leadership is wanting to draw down an iron curtain of some kind to decouple with China, other economies too. Uh, because I don't blame them. I think the US has great advantage, great strength to compete and win in a, in a world of an era of what I call "waring states." This is a period in Chinese history where, where everybody fights for its own interests. Okay? And, and China will fight for its interests too. But, but, but I think that will be an unsettling and risky period. I think we ought to be looking to reconstruct a more peaceful world order, and I think China's proposal needs to be heard. The trade war is, needs to be understood in the context of a larger scale competition between these two countries, and I think that will continue. And I think there will be more competition, not just between China and the US, but among many other countries like Russia, Germany.
So we're in a, in a new era where somehow, I think Europeans in particular had this thought, I think it turned out to be an illusion, that somehow we're going to build this so-called liberal rules-based international order where everybody will operate under certain, this set of rules, and that it's, that's over. Now, it's an era of everybody competes, everybody fights, and there's not going to be a set of rules that countries respect. Uh, so we're going to see an era of hard power. Unfortunately, not because of, I think, because of the failure of the soft power era. The soft power didn't deliver. These rules-based system didn't deliver for the, for the people. And unfortunately, I wish they had delivered, but it didn't. So we're in an era of hard power competition. And, and Europe is in a very tricky position because Europe had not believed in hard power.
Like I say, if you look at the numbers, uh, the US and Western countries benefited just as much, if not more, than China. It's the problems within those countries. The benefits only went to the very few. And a large number of people came out worse off or stagnant. And most people feel less secure. Most people feel they've lost control of their destiny to nameless, faceless global institutions like the EU. I was talking to a friend of mine about the euro, and he was an economist. And we, the globalists don't understand there's something more important than money. All the globalists could see is money, money, money, money. And the economist gave me a list of the benefits of the euro, economic benefits. I said, "Well, look, that's all good, but I don't care. I would not want to be a citizen of a country in which I take out my wallet, I take out my currency, and I don't see my hero, my national hero's picture on it."
>> Wow. Have you ever heard of venture capitalists talk this way about money? How do you get your investors to invest? I mean, with this kind of enlightened perspective.
>> No, I mean,
>> No, it was a joke.
>> So, people are more complex than that. People need dignity. People need community. People need a sense of belonging. People need cultural integrity, civilizational integrity. So I make a pitch: Don't join the Euro. Countries need to be able to develop in their own ways.
And China wants to take its excess capital and capacity to build. The Chinese have learned one thing, one lesson in the last 40 years. It went from an agrarian poor country into a behemoth. And there's one lesson they learned. It's called, I heard it everywhere. I hear, you know, people talk about in China, if you want to get rich, build a road.
>> Build a what?
>> A road.
>> A road.
>> Yes. So infrastructure-led development. And infrastructure, meaning it's not just physical infrastructure, but digital infrastructure as well. Right. So, so China is trying to take that idea and say that, okay, we're going to take our excess capital, excess capacity to build infrastructure, be it in physical or digital, in countries that are connected to the Chinese economy, so that we could increase interconnectivity this way between China's economy and their economies. That's what the Belt and Road is about. I mean, I remember five, six years ago when I started building, I was in Chongqing and saw the terminals, it was gigantic, and now it's straight to Madrid to London. Okay. So along the route, uh, obviously, it will improve trade, improve investment environments, and bring, pro, hopefully bring development and prosperity, uh, in those countries, and hopefully it'll come back and benefit China. But it's up to those countries to decide how they want to do it, and how they want to run their countries, how they want to run their politics and their economy. And they could, for instance, Malaysia, uh, China had these big projects in Malaysia, uh, big financing, big borrowing, and they changed government. Prime Minister Mahathir came to power, and he said that some of those deals were not good deals for Malaysia. So they renegotiated. China cut the price by a third and changed certain aspects of the, the transaction, and they're back on track. So the Chinese are saying, "You decide how you want to run your country, and you're a sovereign power. We're not going to impose our standards on you."
For as long as I could remember, since I began my career as a venture capitalist 30 years ago, when I returned from America, I went to school there, came back to China. Every 10 years or so, there is some major crisis that will going to sink China. China will be in some serious trouble. And the troubles are real. I remember when I first graduated from school in America, came back, was in the early 1990s. Those post-1989 years were difficult. Everybody will say Chinese economy will buckle under the sanctions. But then we survived, powered through that one. And then there was the financial crisis, Asian financial crisis, that was bad. I don't know if you can remember. And then there was the Jurongji reforms. Okay. The real estate bubble burst. Sounds familiar. I mean, Jing Mao Tower, I don't know if you, was empty, was just building completely empty, nobody in it. And these days, we have a serious problem with youth unemployment because employment skyrocketed in the country. But I tell people, god, you know, at that time, during the Jurongji reforms, everybody knew someone that was unemployed. Every family, virtually, felt like somebody lost their job in Shanghai, and up in the northeast, that's the worst. Okay. We thought we'd never get out of that one. We powered through that one. So all the troubles are real, but the rest is history.
So I look back at Xi Jinping's tenure so far, in 2012, 10 years ago. What were the serious troubles that were going to kill China, that was going to end the Chinese experiment? Okay, if you're a journalist at that time, you would remember because you were probably writing about them: the three things: official corruption, economic inequality, and environmental degradation. Three major problems, major crises that were going to kill the country. That's going to end the Chinese experiment. That's going to end the Chinese project. Everybody was talking about it. If you remember, corruption, okay, Hu Jintao, the general party secretary at the time, said himself, "Failing to handle corruption is going to end the party and the state publicly." And, and the New York Times, of course, reporting on corruption every day. And, and they're saying that this corruption was the DNA of the party-state. So you, they could never fix it. So it's going to sink the state. Liberal democracies are inherently so good at correcting corruption. Everybody's so clean in liberal democracies. Okay.
So 10 years, I was surprised. I was shocked with the rest of people. I studied politics. I was, I'm a student of politics. Nobody had ever seen an anti-corruption campaign like this one. Aria was a famous historian and, and writer in China. He said he wrote that this was the most intense anti-corruption movement in 2,000 years. Okay? Nobody had ever seen anything like it. So the outcome, we're not there yet. There's still corruption, but everybody on the ground will tell you, much better. If you look at the data, this is the Elderman Trust Barometer. Okay, trust in governance, trust institutions, social institutions. In the last 10 years, the US and China have diverged. US is dropping like a rock. Okay? And we're moving up. We're not, we're not rising like a rocket, but we're moving up, right? So, corruption. So, I'm, don't, don't broadcast this. I said, "She's report card." I saw this. I'm, oh, I will be in trouble. Who am I to give Xi a report card? I want to delete that. Okay. So, this is an interim assessment of General Secretary Xi Jinping's track record. One, on corruption. Okay.
Second, economic inequality. We had 20, 30 years of breakneck growth, of 10, 20 years, 30 years of market ruling everything. And the result was tremendous growth. But the byproduct was a few got really, really rich, and the rest are better off than they were before. But the gap widened tremendously. I mean, we created more billionaires than any other country in that period. Okay, think about that. We're a socialist country, and our Gini coefficient surged over .4. If you study politics, you know this is revolution business. .4 is dangerous. So everybody thought this will be an intractable problem. Why is it so intractable? Because the greatest country since the birth of mankind, the United States of America, could not fix that problem. The best political system since sliced bread, liberal democracy, could not fix that problem. So, of course, China's dead in the water. Couldn't fix inequality. We're going to have revolutions in our hands.
So, obviously, we know what happened. Tremendous government initiatives to fix poverty. I mean, we, in the last 10 years, during Xi's first and second term, they lifted nearly 100 million people in the last five years out of absolute poverty. I know the baseline's pretty low, okay? Nobody wants to be there. Uh, it's not, you know, you're not sitting at the FCC having lunch there, but we lifted that 100 million people out of absolute poverty. Uh, it was a tremendous project. Many people died on the front lines. Communist Party cadres died, gave their lives, thousands, because the conditions were treacherous in those, uh, rural areas, someone very remote. Okay, it happened. I mean, it's never happened in Chinese history. I mean, I would put it to you, I, I haven't done my research, so I could be wrong, but I don't think I, I think the Chinese Communist Party under the leadership of Xi Jinping in the last 10 years had lifted more people out of absolute poverty. And the hardest, and bear in mind, this is the last 100 million, which is always the hardest. It's easier when you're really poor to lift the first group and second batch and third batch. This is the very last batch of people who are living in absolute poverty. They've done that for more people than any other country currently in history, in the history of man. Okay, that's, I venture to suggest, uh, we should research that and see if that's correct. Okay. But I think that should probably be true. And the common prosperity initiative, we're, there's a paradigm shift in China's development model. We've developed fast, very successful, but we can't leave people behind. We got to close the gap. So, our Gini coefficient is improving. We're not there yet. Okay? I always say it's a scandal. I'll say this publicly. We're the only major economy in the world, only one that does not have an inheritance tax, that does not have a property tax, and does not have a capital gains tax. Think about that. And we're a socialist country. So, I was, there's a long way to go, but I think the report card is pretty decent at the, for, for now.
Third, environmental degradation. So if you go back to 2012, if you're reporting about China, you're probably writing about smog every day. This was going to lead to revolutions. Nobody's talked about smog anymore. If you go to Beijing, it's blue sky most days. We, one video, I remember one year, one video went viral. It could have caused major social unrests. And this is just for China, okay? Globally, uh, I think China has been a leader in dealing with climate change with the Paris Accord, and we have played down the principle of so-called "common but differentiated responsibility," which basically says that greenhouse gas, the effects of greenhouse gas are cumulative. So western nations, they accumulated so much, and now we're developing, you want us to stop? But we kind of played down that principle. We still hold to that principle, but we've played down that in, in climate negotiations, I believe. And China, in the last 10 years, have become a global leader in green technologies, number one. So these three major challenges, these three major crises that were going to stop China's development and its track, I believe, had been, not totally resolved, but achieved tremendous successes.
What needs to happen is we need to move from this old paradigm to a new paradigm to where we can make more money out of our existing economy and develop new industries, otherwise we'll be stuck in the so-called middle-income trap. So if you look at two new directions. One is existing industrial capacity. Our industrial capacity is, is China's biggest asset. China's industrial capacity is about 33, 35% of the world's. We're bigger than US, Japan, Germany put together. I used to say that, and then last month my research assistant said that the numbers have improved actually in the last three months, that China's industrial capacity is now bigger than the combination of US, Japan, Germany, and India. But the value-add of that industrial capacity is still relatively low. Okay, it's about 12%. It's like the gross margin of our industrial capacity, 12%. When the US in the 1970s, when they were at the height of their industrial capacity, their gross margin is about 35, 40%. Okay. And how much is that worth? Our industrial capacity is worth about 5 to 10 trillion US dollars a year. That's the denominator. To go from the denominator, go from the numerator, go from 12% to 35, 40%. Think about how big the pie is. Okay? Maybe 8 to 10 points is semiconductors. We need to do that.
Second is new industries that are driven by technology innovation. Day one. Alternative energy, new materials, bioengineering, life sciences. Okay, those China is doing great. So all of that, I believe the political leadership had concluded the market forces could not be relied upon to engineer this transition. So this had to be done through political initiatives, top-down. I agreed to that view. I'm a market, I'm a venture capitalist. I knew we weren't going to those directions. We wanted to bet more on consumer internet, and a lot of my colleagues, I mean, venture capital, I do technology, I don't do real estate, but they still want to do more real estate. So there is a gross misallocation of capital, market misallocation of capital, that's being reallocated by political initiatives, by policies, and then we'll see if the market catches up. Okay, this is what's happening in the Chinese economy, and we're now in a difficult period. I quote the Italian communist Antonio Gramsci, who said that the old is dying, but the new is struggling to be born, and we're in the interregnum. And this is what the Chinese economy is now. And I expect that to last two, three, four years, but this is the tough period that we have to go through in order to get to the next stage.