Transcription
Professor Cu Jin is one of the world's leading economists on China and author of the new China playbook. Her work challenges the western view of China as a geopolitical rival, arguing that the bigger story is a country reshaping the things that matter and that understanding China correctly is one of the defining challenges and opportunities of our age. K Eug Jin, welcome to Wellpropolis. I'm really excited to have you as a guest because regular viewers of this series will know that one of our conversation motifs, something we return to a lot, is this notion that much of the world and in particular much of the Western world don't really understand China and China's emergence. They may do at a at a surface level but actually beyond that their view tends to be in my opinion tainted by the geopolitical view which is fed by western news organizations and I often feel that my experience of the country my experience in particular deal with companies and private families from the country that the geopolitical view is a small snapshot of a very small piece of the bigger story. Now you are one of the preeminent economists specializing in China. I wonder if you can unpack for me what does the world not really understand about China and more importantly tell me your view of China as it stands today.
>> Well, thank you for having me uh Michael. It's great to be here and to chat with you about about China. um really quite a mysterious uh uh even opaque country but clearly very very important. If we look at just the sentiment that has dramatically shifted even just in the last few years uh we went from peak China, China uninvestable to oh where should we put our money uh in today? uh and uh the economists cover what will China dominate again from uh being part of this axis uh you know with Russia and this political alignment to oh China should be the stable anchor today so that's just in the matter of last few years but even if you look at the economist cover uh which is always provocative but uh during China's fastest period of growth there were at least four collapse episodes uh about China and yet China is doing uh extremely well on certain fronts uh has a lot of economic challenges at the same time and that dichotomy that paradox is something we have to grapple with but also unpack a little bit and I I hope we can do that today but really the three biggest um misunderstandings about China would start with the model which I've written extensively uh about uh you know I I was trained in the west um uh uh as an economist and we we learned basically three macroeconomic models and there was no role of the state but here China has the state model we're opening the debate about industrial policy from America to Europe uh actually distilling the lessons from China uh but is it really a politically centralized centralized model as we we we see it I think it's much more nuance has its strength has its weaknesses second is uh a huge misunderstanding of the Chinese people, but just on things like the relationship between people and authority is something that if we use a purely western lens to look through, we're always going to get something that is puzzling, that is maybe even offensive to some, and something that is very difficult to to to understand, to grapple. uh but authority right the notion of that implicit contract even between the emperor and the people from thousands of years ago to modern-day families uh between children and parents to uh school teachers and students that is not blind submission at the same time there is a certain amount of difference for authority so these there are a lot of these kind of examples uh even on uh things you know how you value between freedom or liberty to security it's obviously a spectrum and there are in many cases clear tradeoffs but if you look at the world value survey the Chinese average Chinese would say they prefer over 90% for security over liberty and in the US uh uh less than 30% would prefer security over liberty although I haven't checked in the last uh two years but this was 2018 so again if we take that lens cultural lens civilizational lens geopolitical lens uh national security lens to look through China. You're going to miss this uh country that um is complex but uh but clearly very important.
>> Why do you think the the West insists on viewing China through either a ideological or or this geopolitical kind of political stance? I'll give you an example. I was at um I was at a big dinner a few weeks ago and the after dinner speaker was an amazing chap called Frank Gardner. He's the BBC security correspondent. He's written some incredible books. So you somebody I respect a lot and he was asked to speak about China. Now inevitably he is the security correspondent. So of course he talked about it in terms of security. But in a room of maybe a hundred quite intellectual successful people. I felt like that was the only precept through which they were able to express any understanding of China at all. And it's something that comes out increasingly in this series is one of the great transitions that the world will have to make in the 21st century is this shift away from everything being defined by western precepts viewed up through a western prism because we're moving to the blend. That can really only be a good thing if done correctly. Why do you think the West insists on always viewing China through that security lens?
>> Well, first um I've spoken to many influential western politicians or businessmen and something that consistently comes out is somehow the assumption that when China or indeed other developing countries become wealthier, they will want to look like the west. In other words, they feel everybody wants to look like them in the end. And I said, wait, that's really an assumption. Um and uh I think starting from that you know few hundred years of western dominance to of course if you think about from the renaissance the enlightenment to the religious wars China never experienced that much of the world did not go through that period of um uh uh you know the libertarian uh development right so clearly uh very different perspectives all around the world um but even just focusing on China for a little bit China was always had the same political system, right, for uh uh uh you know, for for a few decades now. That wasn't really the issue before China became really big, right? As we are often reminded, uh the Clinton administration helped China join the WTO. Uh they saw opportunity. But now it's especially stark because China has become a major major superpower. And it's not just in terms of economic size but real technological potency um supremacy even in some areas uh potentially exceeding uh the frontier uh technologies in the west and so I think it's mixed in between and that becomes a renewed uh discussion and if you look at the populist wave sweeping around the world discontent with globalization often conflated with the rise of China uh or um or or China's dominance um is bring back the the the conversation. But you can't blame China for being competitive, right? But you can really talk about China in a more negative lens. Look, this is a holistic picture, right? If we're looking at whether it's WTO uh rule violations, then we can count plenty even for uh uh advanced economies uh uh uh including uh uh and of course uh China's uh trade issues as well. But you know, nobody's perfect. If we look around the world where we are right now, which government is actually doing the best for its people? I think on that uh front, whether it's accountability, responsibility or responsiveness to the Chinese people, the Chinese government has actually done a pretty decent job. But uh they they you know, it's often underappreciated including what they have done uh in Africa. Yes, there were a lot of problems early on belt and row but they're learning through the process and over time they have supported local economy uh looked into more at jobs um supported the emerging market uh uh financial crisis after 2008 when the western economies led by the United States was not interested in giving these swap lines to anybody other than six of their friends right there many many examples that don't really make it to popular western narrative they're there. Um, so I think recently, uh, it's it's the rise of China, but also we are in a much more contentious world, right? Even internally, even within country, there's so much, uh, there's so much, um, uh, you know, strife that uh, it's very easy to blame it on the other.
>> I I think there's an assumption as well. I I don't want to by no means want to do down the west but I do think it's important for everybody to understand each other better in the world because actually that's how you avoid conflict and I think um conflict conflict is a failure of politics or rather war is a failure of politics to to use the actual quote and so I think when the world understands each other better in terms of motivations families at the individual level the local level I think that's a positive thing so I want to say that because I don't want to sound like I'm anti-western here, not by a long stretch of imagination.
>> Well, I I want to bring in the point that um even with regard to the US, the Chinese were amazed and impressed by the United States. Um uh for for the longest period of time, uh the American dream, uh the US technology, US influence, obviously the soft power. Same thing with Europe. So they came in being integrated into the world with this admiration really uh for the west. Why do the Chinese keep on sending their children to the west to to study? And um there there are many things that are wonderful uh about uh western societies and their values and political systems. And I think this is something that the Chinese recognize uh uh are are very ready to to acknowledge. But you're right, this big misunderstanding, right? I would say that's a little bit asymmetric because China tends to have more information about the west through uh the cultural elements and the films um and uh with these astute exchanges um and it is also partly uh uh China's uh uh lack of uh uh transparency in some dimensions that make it more difficult to understand uh uh the country. But um there's been a huge amount of appreciation but that's been turned around I would say weaponized by the politicians really.
>> You know there was an episode of wealth office we did with Nicholas Dantis and one of the things he actually specializes in now and we talked about it a lot in the episode is this notion of visionering and he actually talks about it more at a family or or a private company level. this notion that you need to have have a clear vision of the future and if you don't have a vision that is stagnation essentially so at a company level he was saying if you're focused on day-to-day management chances are in a world that's changing so quickly you're actually stagnating I think and this is not just a China thing there are other parts of the world we could apply this to but I think part of the the misconnect rather in understanding is that a lot of the western world today is in what I would call a management cycle. It's maybe unfair to say manage decline, but it's certainly management. It's not vision focused. It's shortterm. It's here and now. It's budget to budget. How do we put money in people's pockets or take it out of their pockets? Asia generally takes these much longer horizons and in my experience looks much more at how do how do we build systems that will provide for people exponentially by making long-term decisions over 10 20 years. In many ways what we're seeing now in the world is the consequences of that in China in particular. So if you look at the number of Chinese cars on the road now, I think that's a consequence of long-term planning. Even on a cultural level, look at Leubu. Now Libu, maybe it will be as big as Disney one day. Who knows? But it's a Chinese cultural creation which has become significant in the world. And I feel like that shift is all because of that long-term mindset which comes partly from the way that the economy operates. But in many ways that is also their advantage right they're not constrained by democracy in the way that the west is if I can call it a constraint but at the same time as you say it's it's not necessarily oppressive in the way that the west assumes in many ways and I I've got this from your book it's it's hybrid right how would you define that hybrid
>> well um in terms of the how the model works um a lot of people you know mislabel it state capitalism or market economy, market over mauo as one book would would would call it. Neither is quite quite right. Um it has been able to foster in my in my view a unique um balance between market mechanisms and state coordination, industry and government and communalism and individualism. And this is anchored in national conditions but also in the historical legacy, part of the values, part of the culture. When you talk about system that bureaucratic system, the political system, the long- termism uh is very much uh uh some of the some of the features. But they've been able to craft this very interesting model, political centralization, economic decentralization, which initially was really the way that reforms were able to be done in this highly anti- capitalistic uh era of the 19 late 1970s, 1980s. uh the the mayors, provincial governors, the local uh uh government uh were incentivized to um you know take radical uh uh uh projects and uh be bold. This is how Shenin turned from a fishing village into what it is today. Yes.
>> Uh and the incentives were were aligned uh in the sense that they did something great for the economy. They were more likely to be promoted. Of course, there was the pride, there was the recognition, there was the model emulation. Everybody wanted to be like them. But you fast forward and it's still the same model, right? Central direction. China needs to do strategic long-term planning in AI, in EV in renewables. China needs to prepare for the arrival of Trump, you know, and so forth. But who carries this out? It's the local government because they know the local conditions. And so fast forward, you look at the the EVs, you mentioned the EVs, but the robotics, uh the AI companies, the chip companies, the biotech that is according to Bloomberg as hot as as AI these days. Um the local government plays a specific role uh coordination, right? We we way under underestimate the role of coordination. There's no sense in which coordination led by the state is at all important because markets are supposed to figure everything out, right? Um but uh uh they they bring in talent. They're basically a one-stop shop in a place where there's still a lot of bureaucratic red tape and financial markets are not perfect and so on and so forth. But it brings to this very interesting question. Does China have a different model? I I do believe it does. Um I like to call this the innovation flywheel. So just to give you an example in Haang Bay in uh Shenzhen one square one radius kilometer of uh of space there are thousands of design firms 4,000 drone companies um a few more thousand manufacturing firms uh 2,000 R&D firms all within that location and as we know EVs didn't spring out of nowhere it came from actually consumer electronics because of battery and all these expertise were built over time through manufacturing cross bill over and coordination right so this um this scale and learning by doing and manufacturing uh innovation embedded in in and production is something that doesn't really exist that notion right we think about innovation you know science frontier science uh research and development but that model and how powerful that could be um needed an initial start And that's where the local governments can play a role.
>> That's almost my point about vision in many ways that my experience mostly through the you know the various families that I look after in my day job when we're not recording this series. But it seems to me that there are the vision is building the platforms and then on top of the platforms the ecosystems develop and on top of those ecosystems opportunities commercial enterprises economic opportunities just grow very naturally very organically in many ways just to continue the comparison in the western world we still value the lone entrepreneur we love our Elon Musks well I don't know if people love Elon Musk in quite the way they used to but you know we love the idea of the the guy or the girl who builds something whereas more of the Chinese more of the Asian model generally but let's stay with China tends to be about ecosystem participation but actually because of that ecosystem that's been built on the platforms the platforms being a function of the vision for the country which I think the west lacks at the moment I don't want to keep laboring the west in comparison incidentally but I think it's useful as a way to for people to identify but I think you need that vision of the platform building to create the ecosystem and it just doesn't seem to exist in a lot of the world.
>> Well, Michael, I think the vision is there for many countries, right? Um, but who implements it and how are these incentivized? And that's a key question because you're right, it's not just about the west. There's a rest of the world, if you will, that is growing and uh uh becoming uh uber important and uh carry great weight. And they they look at the China model for inspiration. um they might have plans but it doesn't get done. It's the last mile delivery if you will um that is also a problem. uh now they so they try to study the local government model in China but China has a very different system because politically uh there's enough power to incentivize the local governments to perform by and large and you're right it's all in the end it's about ecosystem it's not about one particular technology uh whether it's frontier or not uh China has crafted something that is about integration that is about efficiency and even in the semiconductors of chips uh the whole ecosystem system matters more than particular chips. And that would be true for AI, biotech, um, and so forth.
>> With with AI in particular, I would say that that the the Chinese Asian view is more about AI is for civilizational architecture. It's what takes humanity forward versus the wider worldview, which is AI is a battle between five or six companies. It's a very different philosophical way of developing a potentially humanity defining new technology, new platform. Yes, it's
>> very different.
>> Uh and you don't hear about so much um you know all the jobs lost uh and this very pessimistic view about employment uh and uh people's you know prospects in the future so much uh in in China as in the west. I want to make a point that this is not just about the state state planning, state coordination, all of which um are are are essential but in the end they heavily lean on private market competition and as most people who have been to China will know there's no market more competitive than China. So today if you make it in China you can make it in the world. So that that that hybrid right that initial um coordination uh to you know to plow in funds and to develop these high-tech zones and for the local mayors to really support these these sectors but then ultimately it is not uh nurturing a few champions that become monopolies. these industrial policies is tend to not work in the end but it's about creating this massive market competition and even if there are 500 EV companies to start with they will be through market mechanisms coming down to probably less than a handful. Yes, this is a pro uh this is a process that uh gets you results but at the same time very problem problematic at as well with the wasteful investments and the resources and the overcapacity for a period of time and so on debt debt and so on and so forth. It's a model that is expedient in delivery, in scale, in supply, but it's not a particularly good model to um lead to good demand, high demand, and raise personal welfare.
>> I was reading an article just a few days ago, I think in the spectator, and it was about in I think they call it involution, which is maybe a slightly inaccurate translation, but maybe you could just unpack involution for me because it's quite relevant to the country at the moment.
>> Yes, it's it's the latest buzzword. Um before it was lying flat and then now it's evolution. So kind of the opposite. But anyway, it's a it's a whole mix of of of of um social phenomenon. Involution represents overcompetitiveness at every single level of the society of the of the economy, education, right? uh young young kids um competition in schools and for school admissions to uh too much competition basically every single sector to the point of uh a very low profitability um just um spanning really every part of society. You know, if you open a coffee shop, you'll find the next coffee, you know, in two weeks there will be another coffee shop. If you're doing well, they don't open a bagel shop, for example. that kind of notion of of of uh swarming into this um this this area because there's not enough demand or the economy is not doing well or there not not enough uh opportunities so not enough uh differentiation. One of my favorite authors is a an author called Douglas Adams who sadly passed a while ago. And in one of his quite famous books, he talks about um what he calls shoe store event horizon. And he talks about a a planet in space where one day somebody opened a shoe store and it did very well. So the next day somebody opened another shoe store and that did pretty well. And if you fast forward forward it eventually so many shoe stores open that the only option available to people is continuing to open more shoe stores because that's what the entire economy becomes based around and it reaches a shoe event horizon. If if anybody's watching this it's worth looking up because it's it's quite an interesting kind of microeconomic concept which I think is is relevant to involution in many ways. But a lot of this series we are talking about private capital in particular. Now I have a theory. So bear with me with this and feel free to to disagree and unpack. A lot of my experience which comes from my company is there's a tremendous amount of private wealth that's been created in China in the last 20 years. The trend is usually one of two things. It's usually either a family business which was domestic which was pretty big has suddenly become humongous just because of the economic growth the population growth the growth of the middle class and then the families tend to diversify pretty quickly into other high growth industries and they create these compounding fortunes essentially. On the other side, you have these entrepreneurs, these often very young men and women who start businesses in a country which is so vast that they scale very quickly and they generate significant wealth. What I see very much as a trend in the world now is that private capital is no longer just staying domestic. in some ways because of political situations in other manner it's you know economic slowdown and so these families inevitably start to look at where are the next compounding opportunities where in the world do I go and so I see increasingly in the world the the flow of Chinese capital or Asian derived capital flowing into the world's markets opportunities I was speaking to somebody recently about how the next generation of biotech companies are very much being invested in by Chinese and Asian capital. That flow of significant private Chinese derived wealth is going to impact the wider world whether the wider world likes it or not. It kind of transcends politics, which is something I really want to get to as the point of this episode, which is the the political and the geopolitical are fine, but are almost a sideshow because the reality is people are people. We do business. We trade with each other. We create innovations, we invest. What's your view on that?
>> First, um, if I make the, if I may make the remark that, uh, the world economy has had a lot of pretty serious shocks in the last few years from COVID to, uh, Russia, Ukraine, uh, to Trump, Trumpism, uh, to the energy crisis. Um, you know, people have been talking about deglobalization, about cold war 2.0, zero about fragmentation about uh de-risking from China from Europe that is not at all what happened.
>> Yes.
>> Right.
>> Um actually USChina trade peaked in 2022.
>> It's almost an exact capture of what I mean that the as much as the the political rhetoric is one thing the reality is very different.
>> Exactly. Exactly. So media dominant headlines and political narratives that's temporary. that's temporal because there's no long-term structural, you know, foundation for these things where wealth and prosperity, um, developing countries growing, pedalling to prosperity, lifting people out of, uh, poverty, preserving value for your next generation, that is human nature, right? And so what what what is comfort what is comforting is that unlike in the past uh globalization have found has found just so many more optionality and again coming back to your theme right so rrooting substitution not only rrooting if you look at Vietnam it is not just Chinese trades goes in and quickly passes through no actually they're building their own domestic industry Chinese FDI coming um domestic value creation a lot of these smaller economies, middle powers um are able to benefit from more opportunities. Uh frankly speaking, not to mention digital connectivity, the fact that service trade is just booming. Um it is very hard to coordinate with your allies these days. all of these forces trying to fragment the world, trying to stop the economics uh from uh uh really uh overriding the politics that hasn't succeeded despite you know so many uh uh uh bombs thrown at the global economy. And so that is the re the real new reality. And again coming back to your theme, we have to be open-minded that the world is no longer east versus the west. Uh uh but um your your ability to understand different cultures, the multipolarity, nature, the the the various um uh uh connectivity optionality is so fundamental to whether you're a family or your company to adapt to this new reality. So I think that's why just taking it taking a very narrows lens whether it's just a a geopolitical lens or a um a national security lens it's missing really the big picture because the world the fundamental forces is still shaped by those who want a better life.
>> Yes. I think that's again one of the things we return to a lot in this series is is this misunderstood notion of let's say China still is the world's manufacturing hub. Now, I'm not going to say it isn't that, but if you look at the trend at the moment, there's definitely been a move from what we perhaps would have once called a fast follower, which was the rest of the world develops something and China copies it very quickly, often at a lower cost, and then sells it back to the world. That is very much a redundant view. You know, China now is very much a primary innovator. You see it in the technological field with AI. you see it. I talked about EVs earlier because it's the most familiar example. But actually going even further, I was in Hong Kong a few weeks ago and I met a very seasoned investment banker at one of the very big western banks. I won't name which one for legal reasons. And he'd been in Hong Kong since maybe the 70s. And he was saying, "You know what? Times are good. There's a three-year backlog for companies to list on the Hong Kong stock exchange." And I said to him, well, you must be doing incredibly well. He said, 'You know what? We are busy, but actually, we can no longer do a deal without also having a Chinese investment bank on board as our partner. Now, that's not from political dictat. That's just because that's now smart business in the ecosystem that you don't just follow the Western way. You need to blend the two together. And so, most of those transactions have a western bank and a Chinese bank. That's cooperation. That's humanity. And as you say that's that's people working together which is our base humanity. It's base economics in many ways. It's everybody following the incentive where we're all essentially aligned to look after our family, look after
>> each other and that's universal
>> and I think there is a underlying structural change uh to globalism uh to globalization uh in that localism uh really anchored or globalization anchored by localism is becoming ever more important and more successful. uh to your point uh if you look at really pretty much anything in China now whether it's local financial participation but local companies right uh local talent there's that local element that is so fundamental and this is not just true for China but also in India these days so these multinational companies that used to come in with a western model with a western uh governance which actually did a a lot of great things for for the host economy they're not doing as well as they were before but they need to reinvent. So that constant collaboration I think is is what is really um if you can get the best from both parts of the world that is really the new model again it's an anti-fragile new model right adaptability agility flexibility and that first of all comes from um the ability to to to see different perspectives
>> if you accept a lot of what we're saying how do the west participate more so I've highlighted already that I see a lot of Chinese derived wealth flooding into westester western markets. I say west flooding into markets everywhere to be frank. And actually the point I was going to make a moment ago is a lot of the manufacturing that maybe once was in China is shifting to surrounding countries because there are better cost environments as China continues to develop. And actually it's taken the ecosystem beyond just one country to the entire region. And that ecosystem is a huge strategic advantage when that capital is flowing out into the wider world. it seems to more or less know what it's doing. And in many ways, a lot of that capital can completely outgun, for one of a better way of putting it, some of the western capital sources. And we we talk a lot on this series about this notion of private capital starting to exceed institutional capital, both in in size, in size, in scope, in its ability to take long-term positions, but also its ability to take significant risk positions, especially in early technologies. How do the west participate better the other way round? How do western capital holders participate in let's call it the Chinese upside? Because it feels like a harder bridge to cross in that direction than the other way around.
>> Well, first of all, if we look at the United States, one of the unique features um is that at the same time it has a lot of debt. It is actually the global investment banker because it invests in long-term globally and takes equity positions, right? So, US takes in a lot of money and US sends out a lot of money as well. So, net foreign assets is actually uh uh very strong. Um that is that is what what uh advanced economies are eventually going to look like. So if China didn't have the capital controls in place um proportional to its GDP its size it should allocate a significant amount of capital also globally. So this is just part of the trend and um before because of capital controls it was uh intermediated by the state. Uh now there are private flows u in the greater uh uh uh panasian uh uh region but also greater China. And so again that is converging to something where it should be going anyways right and we see that we see that continue and again uh uh to your point the collaboration is is really what um makes this globalization really truly work at its best. If you look at life sciences for instance um even just looking at China with Europe right Europe has what China lacks and the other way uh holds as it holds true as well. So Europe's universities basic research uh frontier science talent etc etc is actually where the gap still lies in China but China's scale uh its manufacturing capability you know some of this great Chinese companies uh can do these clinical tests at a fraction of the cost right that's actually accelerating human progress in some some area that is about humanity and life right um if they can accelerate that progress by uh uh uh collaborating with the um they're actually in a much better position. So now especially with the sentiment changing towards China um being much more a bit more you know open-minded again uh a lot of European companies at least in that sector are asking you know what should we do with China really they're they're starting to to recalibrate because there are significant advantages especially in this world when some actors political actors want to um frame it as a us versus another kind of uh h place. Um, but at the micro level, there's a huge amount of incentive.
>> I just want to pick up on one of the the points you made there, which is, for example, China holds a lot of US debts. The US is an incredibly indebted economy at the moment. Let's not dig into the the pros and cons of that because I know you're an economist and I'm sure you could do a fantastic job. It is not the purpose of this series. But let me give you an example from history because when power transitions from empire to empire, things often don't go well. And actually hopefully what we're getting today is a multi-olar world rather than straightforward transition. And that hopefully means we don't get conflict in the way that we've had in the 20th century. But if we look at we're sat here in London today. We're sat in a in a building which very much manifests the the guilded age of the the British Empire. I would say the end of the British economic empire and the true transition to the United States as the world's primary superpower. If I was to pick a moment is probably the sewers crisis. Now bear with me here. So sewers crisis Egypt NASA um assumed control of the sewers canal. The British went in to try and get control back. It was a military failure. They wanted the US to come in and help them. And the US said, "You know what? You're not a superpower anymore. You can't keep going in imperialistic and asserting your rights in other people's countries. You should pull out. No, we're not going to back you." And when the British wavered about whether to pull out or not, and I don't know if this is apocryphal or not. Maybe some of our viewers can f check this for me, but I believe this to be true. The United States informally said, "If the UK does not fall back, we are going to dump all of your bonds that we hold. We're going to dump all of your debt and it's going to bankrupt your country." And United States had so much UK debt post World War II that the UK government had no choice. They had to retrench. And that was the end really of the British Empire because it was the UK being told by the new superpower, you do what we say because we own your debt and we own you essentially. Is there any scenario where that could happen with China?
>> I don't believe so. Not at least through US debt or the threat of dumping US debt. First of all, even from a pragmatic point of view, it's a double-edged sword for China. They will suffer uh economic losses. But really finance used to play a huge role historically speaking. You know France whoever had long-term financing tend to win wars. Um technology is quite a different thing today and I think that's where um most of the the uh the power is is held. But really I think about this world is quite different from the previous ones for a few really critical reasons. You know, even during the cold war, these small economies played absolutely zero role in terms of cushioning the blocks and geopolitical shocks and the cold war um uh uh uh scenarios. Today, they play a massive role. Again coming back to the theme of the the degrees of freedom are so um so many whether it's in parallel systems of payments uh financial um uh uh uh you know again the rrooting of the manufacturing even critical inputs uh choke points just don't have the kind of bite they used to have. Sway's Canal was a choke point. We thought, you know, Hormuz is in some ways a choke point, but you can you can believe that once they're weaponized, there will be massive diversification strategies to substitute away, right? So, China understands that the rare earth leverage, even though it worked for Trump, is a short-term thing. And so maybe it's my more positive, more optimistic view of the world that that very bumpy transition even to the point of conflict is less likely today than it was in the past during the power transition because it's the whole world right the whole world the distributed opportunity optionality distributed wealth much more than the case before rather than concentrated in one or two places and by the way China doesn't seek dominance of the world, right? But it does want to preserve multipolarity. This is part of the reason that it still supports Russia in some sense. It's not trying to overtake the US. That I don't think that's where where China is going. I don't think the world allows for that model anymore. So, um so even in finance, right, uh the the different uh levels of engagement, the networks, the depth of the networks, uh that's something we've never seen before. And again, these last few years have given me some reprieve that it's not that easy to weaponize the world and and make a lot of people suffer.
>> I want to refer to two other Wealth Office episodes because they feel very relevant to this conversation. One is um an individual called William Louie who is the fourth generation of his family and he spent 30 years funding really top tier western education for really bright but underprivileged Chinese kids. And because he's done it for 30 years, some of those kids have gone on to do incredible things. One of them we had as a guest on wealth office, Shield Zeldan. He in his 20s built a education business on in mainland China, making education tutors more accessible across the entire Chinese economy. Education is very important. And he built that into a humongous business. And by the time he was 30, he was listing it on NASDAQ in the USA for billions of dollars. But there's two things that come out of that. First of all, I think it says a lot that a young Chinese entrepreneur when it really comes to it, and you see it with the Chinese tech companies, it's still the United States where they want to go and get their secondary listing. You look at what's happening in Hong Kong at the moment with hundreds of companies waiting to list. After that, they'll be looking to United States for secondary listing. The blend happens in the financial system no matter what. The other thing that's quite interesting and it kind of goes into where I want to kind of continue talking now is when I talk to William today he will say that his scholars who were graduating say 20 years ago their dream was the American dream or the western dream. It was to stay. It was to get a work here to start a business here. And he says you know my scholars today they want to come. They want to get the western education, the western cultural immersion so they can create the blend. But they don't see the opportunity in the west. They want to go to China because they see so much opportunity to build and to create and maybe even to go global with what they build and create. But that is what they now regard as the platform for their personal progression, their commercial, their economic progression. And we're talking about millions of young people who now take that view. What do you think the impact will that will be as we start to extrapolate out over the next couple of decades?
>> Well, you you pointed at the right word. It's opportunity and this is really lacking around the world especially in advanced economies. But here what has really changed again and I want to uh you know underscore this point is the distribution of wealth, distribution of economic opportunity around the world. you we're not only talking about China but even Nigeria one of the fastest growing fintech uh uh uh uh sectors is in Nigeria um India Turkey and everything around so in Europe right that's what we're not seeing right the young people are not feeling that so I'm not all surprised that we have to acknowledge what the west offers the most the best financial system for instance, the US is something that no country can substitute for a long period of time right because of the network effects the breadth, the depth, liquidity. This is also why the dollar um still holds the reign uh because of the strength of the financial system. The western education system, you have to give it that it is the best training and the best uh it brings out the mo most potential um in in young people. But again, opportunity and this is part you know we sometimes partly blame on the government and we certainly are blaming the government here of why not more growth opportunities, right? So I think that is the bestest testament to the wa world wide world that China is not a plat bad place to be right if that was the case why would so many people um go back but also reveals something very um still very interesting you talked about the US now it's the reverse model right the Chinese companies make it and they want to expand globally that is probably the biggest underlying uh uh trend at the company level going forward and many of them still want to go to the United States, right? That's where they can make the most money if they can, right? Because it still has the best business environment in the world and it has opportunity.
>> I want to go back to this same notion I know I keep returning to, but the the fact that certainly politicians push us into the geopolitical perspective if you were to really pick that apart, is that actually a sign of weak political leadership and poor economics in the west rather than the threat of what's emerging in Asia?
>> I think it's a lot of is distraction, right? Um if you can't do a good job here, then you can always have somebody to blame. That's at least part of um the underlying cause in my view. It's it's really not about trying to stop a competitor, right? It's always been trying to um harness your own strength and build your own strength. We've looked at throughout history lots of these you know common sense views of let's try to suppress the competitor in various ways cut them off embargos blockades you know technological export controls and so forth those have never worked ultimately and coming back to the example of US Japan US first tried that on Japan but then Japan's rise especially in the chips sector made us do a lot of things differently internally including passing some of the laws that were fundamental to creating this innovation system and guess what innovation really thrives. So it's not about stopping trying to stop the other and I hope that as you know when and if if and when the US does recognize that it's unable to stop China that finally this geopolitical rivalry narrative will start to soften give each other some breathing room. Um, but if they recognize that and start to turn all that attention domestically, then I think that would be the better outcome for everybody.
>> If we accept the proposition that we're kind of alluding to here and I've talked a lot about in this series in previous episodes that the 21st century is the Asian century because of the things that we've talked about because of the the rapid the huge populations, the rapid economic growth, the development of platforms and the ecosystems that are on top of them. All of those things together compound into humongous wealth creation at a at a you know at the ultra high net worth individual level but even at the family level when you see millions of families lifted into the middle class that's significant for the world. If you look at this problem from the other end of a telescope, how should the rest of the world, let's say the western world adapt an ideal
world where politicians actually had a long-term view and we had better options to vote for. What would be the ideal platform for the West to integrate with this Asian century? More pragmatism, right? We've seen it in Europe now, but it took Trump to bring out that that the desire for more pragmatic policies and to re-engage China. But why does it have to be Trump, right? Don't can't we have more of this, you know, uh pragmatic uh uh uh approach coupled with uh legitimacy and morality and narrative? It's not um uh uh uh there's there's no there's no conflict here.
But being really open for business, right? That that doesn't mean just staying in the west and taking the old model, but you know, recognizing that there are complimentarities uh with the rest of the world. You know, we talked about China and the very highly complimentary capabilities that Europe and China have. Um, uh, is another thing, but really the model going forward, you know, we talked a little bit about the new globalization, but at the company level will be the same. You know, the most flexible companies are completely reinventing their their their identities. Maybe a supply chain in China, um an R&D center in uh in in in the Gulf countries, uh treasuries in Dubai or Hong Kong, you know, taking the best of different parts of the world because first of all that kind of um goes above the political geopolitical identity but also takes the best from each place. It's a combination, but companies that actually think about that, actually o openminded enough to explore that are the best positioned right in this new world. And we're already seeing some of that actually taking place. Especially a lot of Chinese companies with uh really great technologies finding it very difficult to have this Chinese hat going around the world. They're splintering their bodies in different parts. I mean, why not, right? But also um locally investing in in in in in in jobs and and uh and and the markets in in Europe for instance. So um the west has to take into the take into account again this vast decentralization of wealth and opportunity and growth and to not just see you know starting where where our the initial part of our conversation of the assumption that everybody wants to look like us to well there's a lot of heterogeneity and how can we best take advantage of that.
When I look at when my company opened our our Hong Kong office. It was very easy to hire some Europeans and some Hong Kong locals and put them in an office. When we opened our Shanghai office, same thing again. We blend in some Europeans, you blend in some local, and it gives you that blended global view where everybody brings a slightly different precept, but you find the right place between you. And I think that exchange is really important. Which just brings me to the final piece. Now, I know you're an economist, so I don't know how much you were prepared to talk to me about culture, but we talk about culture a lot because I think economics is people. Economics is essentially the behavior of people. Fundamentally, people are highly influenced by culture. We've alluded to it a little bit with Libu, this idea of of Chinese culture starting to pervade the world a bit more. And you know what, we've seen it, you see it across Asia. If you look at the the impact of Korea for example and K beauty, it's a significant global cultural movement. If you look at a Hello Kitty out of Japan, maybe not the best example, but it's a it's a valid example that I can think of. Do you think we'll see more of these kind of cultural movements coming out of China which maybe soften people's views on it and maybe start to shift the dial in terms of mainstream western news and places like the White House not taking this this thing we started this conversation with this very hard geopolitical security focused view on something which actually could be an example of humanity all going forward together if we can find that blend?
What is a common uh factor in the examples that you gave is this cycle the cycle of renewal or the cycle of development. Um initially Chinese people worked very hard you know uh the last generation three shifts a night to earn a few extra dollars. Uh but you ra you know you brought the example of Korea and Japan at that point when they become wealthy they want to enjoy more leisure more entertainment. So, a lot of the innovative capacity turns into making life just more pleasant. And I think I think the Chinese young generation and I'm very impressed by them. Um, just so creative, so in innovative um but in in in things that they they're interested in, right, in making, you know, just life a bit more um more enjoyable, right? That notion barely existed. Enjoying life. I mean, you know, God forbid what what a what a decken thing to to want, you know, from the parents generation. But that's all they want to do to the point that they don't even want to have kids because they want to have a better time. There is definitely a psyche behind there. So, labubu represents that that you know that that play with that psyche, the the the delight that the the you know surprise element um that you can uh satisfy with not you know 30,000 alma's bag but a fraction of that cost and they think about you know what makes life more enjoyable and I think that is the same trend behind you know Japan Korea so again China is reaching a really interesting phase where that is going to be uh a very dominant.
And with that softer side with people wanting to have a good time, people want to share that uh around the world. Um that is the organic soft power, right? Not state-led uh soft power. And the new generation, there's just so much more commonality between the Gen Z's around the world than there there is across the older generations. They care about animal rights, social inequity, the planet, and that's the thing that that unites them. And again, they're not so hungry and so desperate. uh to you know to drive others out of the market uh again like the last generation. So I think um you know even on the consumption side they're borrowers right they have no qualms of borrowing to buy lipstick today and hopefully somebody will repay it you know tomorrow that notion completely did not exist in the last generation. So I think if if a lot of the focus you know uh uh shifts around the connections from person to person, the young generation to the next, China would be in a much better position to be better or more easily understood um less ideologically uh uh divisive and yes of course that would help even on US China relations.
That's a really interesting notion because Gen Z gets such a bad rap around the world. Not in this way. Yes. The notion that maybe Gen Z's cultural connectivity with each other could actually transcend politics and transcend some of the divides that politics creates. Exactly. It's very interesting and it hopefully gives gives some optimism about the future. Precisely. Ken, thank you for joining me. [music] Great. Thank you very much.