When it comes to China's stronghold over global supply chains, everybody wants to talk about rare earth metals, and I understand why. They're very important. They're an integral input to so much of what we rely on, from the magnets that power the electric windows in our car to the most advanced weaponry that defends our shores. But let me tell you this, rare earth metals are but one of thousands of non-discretionary economic inputs that China has their thumb directly on top of. And today we get into that and we get into just how deep the moat around China's economy truly is.

My guest today is Peter Alexander. He's the founder and managing director of ZBen Advisors. Now Peter is an American who moved to Shanghai in 1996. 30 years ago and he never left. Now, it's important to note that he didn't move to China as a journalist or a think tank observer. He went there to actually build things inside China's financial system. He project managed the launch of Everbrite Primame, one of the very first Sino foreign fund management ventures ever permitted inside the mainland. And before that, held senior roles at Barclay's Global Investors Credential and Nationwide. In 2004, he founded ZBEN Adviserss, which has since become the go-to research and advisory firm on China's asset management industry. And today, more than 80% of the world's top 50 global asset managers think the Black Rockcks, the Fidelities, and the Vanguards of the world rely on ZBen's intelligence to navigate the Chinese market. When global money managers want to understand what's actually happening on the ground in Chinese capital markets, this is the guy they call. He's the rare American who can speak about China from inside the system, not from across an ocean. And I really enjoyed this conversation with Peter today. I know you will as well. This is the J Martin show. Let's get into it.

>> This is Jay Martin.

>> All right. Here I am with Peter Alexander. It's a pleasure to have you on the show, Peter. I'm looking forward to this.

>> Appreciate it very much, Jay. Me, too.

>> So, we connected uh through a mutual friend and a crowd favorite on my channel. And a crowd favorite on so many of my peers channels being Luke Groman. And he called me a month ago and said, "I want you to have my China guy on your show." Right. and he was referring to you and as the most trusted voice on China that he listens to and I know he said that for a handful of reasons but one of them is that you live in China and you've lived in China for 30 years and so many of us in the west have a snapshot view of what China is today relative to US competition and all of this there's obviously much more of a story to it and that's what we're going to unpack today and I'm really looking forward to it so I want to lead off with one question here and then We're going to spend 90 minutes unpacking it, but many people in the west would say three things about China. I don't agree with them, but you hear this often. The number one is that China is a communist country. The number two is that China is a surveillance state. And the number three is that President Xiinping is has appointed himself dictator for life or as long as he wants to stay. Um, when you hear that, Peter, what what occurs in your mind?

>> Well, the the short answer to your question is yes and right. So, is China a communist country? Absolutely. They literally call themselves the or the Chinese or the Communist Party of China CPC rather than CCP. But, you know, we won't quibble over those sorts of things. So, it's communist. Is it a surveillance state? Yeah, I would call it that. Um, you know, you can go around. I mean, I think you have to get into a lot more of the detail of some of the tropes that are thrown about about what that actually means. Uh, I believe first and foremost, you know, one of the comments that I'll make with people is, uh, I'll hear, "Well, Peter, when we're having a conversation about China, we need to recognize that it's a nuanced conversation." And my response to that is, "No, it's not." Um, it's a different conversation. China is not a nuanced subject. It's a different subject. you you have to take into account the the cultural, historical, whatever you want to call it, differences rather than be projecting simply a framing or a perspective that is predominantly western in construct onto what you're seeing. So surveillance state, no doubt. Is there a uh uh a social um what do they call it? Uh social credit score,

>> right? This is when I get there. There's this uh uh video going around from Jordan Peterson where he talks about, you know, if you jaywalk, you're going to get money taken out of your bank account. Your face is it's nonsense. There is no formal social credit score here. the surveillance that's around um however you want to define it does provide the government with Uber um oversight in terms of what people are doing but does it actually impact everybody's dayto-day life not really and the other thing is and I think this is important the topic will come up with the Chinese people that I'll talk to and they actually laugh at me because you know much like you asking me the question I ask it of the Chinese and say well what do you think of this and their response is always, of course, we know that the government is tracking and knows where we are and what we do and what have you. It's just how things operate here. So, they know that they're being surveiled, but they have to laugh because their argument to me is always, well, your government in America surveills you as well and probably all across Europe, and yet you just think that you've got the ability to be free and what have you. Now, again, we we can debate that. Um but this is why I think it's important to recognize sort of the different perspectives that people will have. But to your question, yes, China is a surveillance state strictly speaking. The last point I think is the one that's most interesting, which is the concept that Xi Jinping has appointed himself so-called emperor for life. You can see it as an individual that has put himself in a position where he has no real competition for power and that it would appear as though that he is going to stay on for yet another term, a fourth term. The question that I have yet to see be asked is why? like why was it for him important to completely abandon all of the norms if you will that were created under Dong Xiaoping 40 50 years ago and I think that's where you need to start dissecting the issues and for me what I have found is number one it was about surviving or being able to re-energize and recentralize the entire party when he came into power in 2012. I can tell you from personal experience, the 30 years previously of decentralization of power down to local governments, provincial governments had gone too far. Um, you know, we can look at issues like the Boschilai incident or the Wangran incident of 2012 and it was very clear that various provinces and municipalities were beginning to push, I would say, the limits of power that would go against central authority. His position was this was existential and needed to be reigned in and that was not something that could be done over two terms. And the final point that I would make and I think this is super important when trying to understand the motivations not just of Xi Jinping but of the party is Xi Jinping when he came into power he could have done his two terms. He could have done his 10 years exited stage left and left the entire economic mess to the next guy. I don't think China was in any real threat of witnessing some sort of economic calamity during that 10-year period, 2012 to 2022. What I believe has been underappreciated is the willingness by Xi Jinping to come in and fundamentally alter the economic model. Now, I'm not here to say it's going to work. But it's been very clear that he has moved the economy and the economic model in a fundamentally different direction.

>> I want to pick up that last point first and understand that existential crisis that uh President Xi was addressing. So is this to say that you know China there's there's potential for China to to um to deunify right to its like pre turn of the century. I mean, China unified what, 2,000 years ago under Emperor Chin, the first emperor.

>> And you know, in one of your letters here, you've got this quote, "China is a civilization disguising itself as a nation state." That's what I thought of when you were describing this to me. Massive country, ethnically diverse. What was the existential threat really, Peter, in 2012 that President Xi was addressing?

>> Well, it was both domestic and geopolitically, uh, foreign, if you will, the domestic I would say existential threat again was uh the party there there was no unity really um within the party and there was as we can see through the headlines even to this very day endemic corruption you can go back to New York Times, Wall Street Journal, Bloomberg wherever you want to look and you can see countless stories talking about uh degrees of corruption from the very top on the way town throughout the 2000s, even going all the way back to the '90s. And again, if you look at Chinese history, a a corrupt emperor or a corrupt uh society has been one of the key downfalls of a so-called uh dynasty over the past 3, four, 5,000 years, whatever you want to call it. So this was something that was picked up by Xi Jinping in my opinion and needed to be addressed quickly. At the same time, it was around 2012 if you recall that the United States was finally sort of moving beyond the global war on terror. Maybe not 100% but to a great extent. And you had the Obama administration make what I consider to be um one colossal mistake and then one I think smart strategic move but one that caught the attention of China. Uh you had the pivot to Asia that was announced under Obama which was the first time I would say 2011 2012 where the United States if you want to call it woke up and said okay we have this competitive threat that is China we need to change our approach. So that was one. The colossal mistake, however, that was made and very unironically given what is going on in today's day and age was for the very first time the Obama administration made the cognizant choice to weaponize the US dollar through the cutting off of the Swift network to the Iranian um economy. And that was also existential to the Chinese given their economic model, one that is heavily reliant on exports. So you had this confluence of events that were going down and and the status quo, the very same environment that provided China with an enormous amount of opportunity to grow its economy and better its people over a 30 40-year period. the dynamics changed and Xi Jinping in my opinion recognized that the dynamics were changing and there needed to be a shift in approach and that's what we've seen been in process for over 10 years now.

>> Right okay. It's it's interesting timing that 2011 2012 series of events um leading to 2016 when in the United States the narrative around China really began to shift right.

>> And it was uh, you know, it was the country that we heard about in every statement from the podium during that presidential campaign for sure. Um, okay. I want to address the other two points really quickly and then and then come back to this. I agree with you when you said you know I asked you is China surveillance state? You said yes absolutely and you know your Chinese friends laugh and say yeah but so is America so is Europe and you know I I tend to align with that. Right. It's funny. You have these little devices in our pocket that can see and hear everything we do, record all of our keystrokes, but we turn a blind eye. And we're very good at pointing the finger and saying, "But it's worse over there." You know, I really noticed this in 2020, 2021. Just as part of my job, I try to pay attention to global news. And it it was terrible to be anywhere during those years, right? They were tough years, right? Various stages of restrictions and lockdowns and all this stuff. But what I did notice is that if you're reading Australian newspaper, they were pointing the finger at how bad it was in the US. In the US, they were pointing the finger at how bad it was in Canada. And in Canada, they were pointing the finger at somebody else. And everybody was getting the same message that it's bad here, but don't worry, it's worse over there. And I wonder how much of this same strategy is what applies to our mainstream China coverage that you know because you see I see the same clips you do that Jordan Peterson clip that you mentioned and also just random shots of China's youth seemingly unemployed sitting all over the sidewalk but the narrative under it is this is a consequence of a social credit score must have been some offense and now these kids are unemployable right and it's just

>> it's all smoke right it's all smoke.

>> Okay. All right. Um and then the communist question, just to tie a bow on that, you know, uh obviously a communist party, but also a very capitalist society, right? And and those two things do coexist in China.

>> Well, I I think this is important. I mean, I I literally was trying to answer your question. I probably should have expanded upon it. And I I'll share with you a personal um story from when I first made the decision to come to China where I was working on Wall Street. I was what is now referred to as an emerging market analyst and I just decided, you know, at 25, I want to go and I want to go live the life there, see what it's like, you know, gain some experience. So when I went and told my my parents that I was moving to China, my father, who was of the generation, silent generation, better dead than red kind of idea, he turned to me and he said, "Let me see if I understand this correctly. you're quitting your job on Wall Street to move to a third world communist country to teach English for $200 a month. And I sat there and I said, "Well," I said, "Dad, you know, with regard to it being a third world country, I'm moving to Shanghai. There's been some development. There's been this Kyifanka opening up process." And he stopped me and he said, "No, no, is China a third world country or not?" Okay, yeah, it is. But then I said, "With regard to it being a communist country, you know, there are all these new reforms that are going through. it's becoming a bit more market open so on and so forth which it was and again he replied to me is it or is it not communist and I was like yeah it is and I think that's where when I say you have to have an appreciation of the differences that's where that sort of lies uh and yeah China is communist in name in label but in terms of how it goes about operating you'll have a Marxist Leninist approach to societ society. Sure, that's where the surveillance state comes in, but it's not as draconian, if you will, in terms of upward mobility. Right now, it's very difficult. You talk about youth unemployment. Youth unemployment is certainly an issue, but China is the welfare state. Contrary to so many economists that continue to pound the table, China needs to promote consumption. China needs to be able to provide support to the household, so on and so forth. Very Keynesian in its approach. And the the Beijing leadership well before Xi Jinping, I might add, has seen how that policy has played out in other markets, you know, whether it's in Europe, whether it's in the States, and here in China, you can agree or disagree with it. It is all about the household and taking responsibility for what you need to deliver. So the youth unemployment, interestingly enough, yes, has l led to a massive surge in gig work. All of these scooters that are delivering, yes, they're out there, but at the same time, you have a growing, albeit small number in terms of size, but a large number in terms of entities, if you will, of these individual groups that are setting up their own shops, doing various different types of services. They're getting into AI. So you have certain ambitious people that are going out and starting their own companies, small companies, 10, 12 people, maybe not a lot of revenue, but they don't want to live with their parents. So they're going off and doing something else. Now again, I want to reiterate, I'm not trying to color over the the issues that are present here in the economy. It is very soft. But the reason the economy is in the state that it's in is predominantly due to a decision, a cognizant decision to shift the economic model. And again, whether it works or not, time will tell. But this is where we are right now is in this role of shifting away from property and infrastructure to something that's far more servicesoriented, nextgen oriented. It's it's a a fundamentally different place than it was even six years ago.

>> Okay, that's really interesting because when myself and I know many others think about China's economic boom over the last 30 years, property and infrastructure are at the top of the list, right? And that's what we

>> that's where our mind goes when we think about what's the activity been about. property speculation, building of maybe overbuilding of cities, you know, how true is that, Peter? You know, we hear a lot about the ghost cities out west and bridges to nowhere, right? Um maybe municipalities that have quotas they have to hit, right, to uh appease whatever, you know, federal they're reporting up to. And so infrastructure is built without a use case just to hit a GDP number. How legitimate is that?

>> Well, it's legitimate. And I would state that the truth as in with so many things lies somewhere in the middle.

>> Yeah.

>> Meaning that are there ghost cities? I'm sure there are ghost cities out there.

>> But is China littered with ghost cities all over? Probably not. I mean, the original ghost city I'm living in and speaking to you from right now, which is Pudong, Shanghai. When Pudong was first created as the new financial center and it it exploded into massive apartment complexes that they go as far as the eye can see, that was the original ghost city. And then over time, given urbanization and what have you, people gravitated to the city. Granted, it's Shanghai, not totally representative, but you know, I I think the the most infamous piece on this was a 60-minute story that ran God, I don't know, 10, 15 years ago. And you know over time the supply does get uh acquired if you will. Um but there's there was no doubt the the economic model and the overbuilding and again the revenue model of the local governments which was on land sales was not sustainable and and I think it's it's you you go back to 2017 when during the 19th party congress it was the first time where again Xi Jinping made the you know now very famous statement of we are no longer focused on growth at all costs we're focused on quality growth. Now, that's not something you're going to be able to attain overnight, but it has been a move in the in the right direction, and they're still working through all of the overhang from that period. It's going to take time, but what I think continues to get missed is for all of the commentary across all mediums today, the China collapse story. I mean, this has been going on for almost as long as I've been here. And at some point, you know, my argument is when when individuals who have made multiple years, if not multiple decade calls with regard to the Chinese coming collapse, the argument I've made is look, you're you're entitled to your opinion absolutely, but there needs to be a degree of accountability as well. You know, when you're speaking with certain individuals, you want to ask them, okay, we're having you we're having this discussion. Can you start by explaining why your previous assessment was wrong? And I don't see much of that in the popular discourse right now. And again, I'm not sitting here saying that their opinions aren't necessarily accurate. I just think that there is far more to the story than is being included in in a lot of these discussions.

>> Yeah, I appreciate that. You know, and the the biggest argument for that collapse is probably demographics. Would would you agree with that? And I I'd love to get your take on that because we hear about it a lot and now everywhere most developed countries have a demographic crisis,

>> right?

>> Uh in front of them right now, right? Right. Canada, US, Europe, all over Europe, Japan, you know, yeah, spend a bit of time there. And and and you see it, you know, and and if I were to try to think about whether or not China's demographic crisis is unique, what I would think is well, their their baby boom might have been a bit different, right? I think it was 1950s. It was the the Glorious Mother Awards. Our strength is our population. There might have been bans on contraceptive imports, right?

>> But by 1970 and so but that was a like a surge of babies, like hundreds of billions of babies. Lit literally. Right. Literally. Um but by 1970 that policy had gone further than I suppose anybody expected and and glorious mother turned into later longer fewer at first and then eventually the one child policy in the late '7s. So you have this 20-year period where you flooded the market with people, right? And

>> and that generation all entered the workforce at the same time. That's a lot of productive might entering the workforce all at once. You're flooding the economy with production, right? muscle, brains,

>> human resources,

>> maybe to the likes of which the world's never experienced before in that number,

>> which explains the economic boom, I would say. You could make you could draw those lines. Anyways, but that generation is now, you know, 1950 to 70, they're 50 to 70 years old and they're not aging out of the workforce. So, could the population boom that was, I think, 300 billion people in those 20-year periods, uh, you know, it could the opposite be true? If a flood of 300 billion created this economic boom, would the withdrawal of that create the opposite? And I think that's that's the part I wonder about. What's your take on that, Peter?

>> A couple things. First of all, there is definitely a demographic um issue at hand like you said across the world and in China. I remember vividly uh there was

>> jeez

>> 300 million. Sorry, I said 300 billion. Let me just

>> and I I didn't know if you said billion or million,

>> but in any but in any evention

>> um what what you had is uh when I around the time when I first got here, there was this concept that China was going to grow old before it grew rich,

>> which is just saying China has a demographic problem in a different way.

>> Sure.

>> And again, this is 30 close to 30 years ago. and and this was a very prevalent conversation that would reach all different levels of the people that I would be talking to. So the first I think point that needs to be made is yes there is a demographic issue. I don't think that's debatable but then it's something that I believe that the government has been cognizant of for 20 odd years. So I think it's dangerous to look at it and say there's a demographic issue ergo the economy is going to fail in the next 10 years. I think one of the key takeaways that I've learned with regard to China has been until the policy makers here have demonstrated a catastrophic error in their policy, you probably want to bet on the fact that they know what they're doing, but their time preference is completely different compared to everybody else. The the low time preference Chinese approach versus the high time preference, call it G7 Western approach. So, I'll give you a good example. A couple 18 months ago or so, China announced we're going to raise the retirement age. No debate, no conversation. We're just going to raise it and we're going to raise it sort of slowly over time. So, there are steps that are going forward. I think where China has been fortunate has come from the new age of robotics. I mean, you probably have seen a lot of stories talking about dark factories where you can go in and, you know, there's not a single person that is operating in a factory. Uh, it's just all robots. My favorite call it anecdote is the the Shanghai port. The Shanghai port here has reduced its headcount by 75% over the course of the last 10 years. Um, the majority of the activity that takes place there is all via robots. So somewhat ironically I think what China faces right now again with youth unemployment as an example and again those kind of you know is China either have a youth unemployment or do they have a demographic issue? What is it?

>> But ultimately

>> that's a great point. Yeah. Yeah. Okay. But but ultimately I think where China's looking at the future is productivity where we know we have this issue we now have robotics and again China could ultimately move so quickly on the robotic space that it could actually disenfranchise a a degree of the populace before they actually have a demographic issue. Um and and I'll give you a great point. We all know that everybody's talking about EVs. Chinese EVs are now starting to just go throughout the entire globe. They're everywhere with the exception of, I think, the United States. What China did in the span of time that China was able to accomplish such saturation of the EV market, they're going to do the same thing but faster on humanoid robotics. I would say robotics across the board. Uh, and and again, this is an issue that I don't think people have truly appreciated. Um, again, not to get too deep into the weeds, I'm super excited where there's a a really um famous company here called Uni Tree, which has been the pre preeminent robotic humanoid robotic company here. They're just got approved yesterday to be able to list uh on the Shanghai stock market probably in the next week or two. It's going to be a it's going to be an issue you're going to see all over the media in the coming in the coming weeks. But anyway, again, it's an issue, but I think it's you need to be careful to discount the ability by the Chinese to be able to address it or to think that they don't have an understanding of it and various plans in place. But we'll we'll have to see. I I can't see into the future much like anybody else. It's an it's it's an interesting contradiction though, isn't it? That there could be such a stark demographic crisis, but simultaneously there is a youth unemployment crisis and those two things got to be at odds, you know, and I I've wondered that same thing. Could you replace the workforce with robotics? And I think something like in 2024, China added 300,000 autonomous robots to its workforce. That same year, the United States added, I think, 30,000. So they're moving 10x faster in terms of automating that workforce. I've still always found it just kind of opaque like to understand, but could that actually replace the labor force? So I really appreciate

>> your Shanghai port stat that they have in fact reduced the headcount by 75%. Well, that's very measurable, right? And that that is obviously being replicated, you know, across

>> I I suppose maybe blue collar. Uh, I'm not sure, but that's a measurable stat, right? Right. That gives a bit of color. A bit of color to that. That's really interesting.

>> Um you you you shared on BYD. Uh what would you say to the the catfish effect concept?

>> Are you familiar with this idea where

>> not familiar? I mean I I know the catfish effect with regard to Tinder, I guess, but I don't know what it means for B.

>> Okay. Yeah. Yeah. All right. So, uh, the catfish effect, I'll get give it a go here. So, you know, China has a a pattern of, uh, luring in American tech companies with their massive population. Look, come make a home here. Biggest market in the world, great place for you to put down roots,

>> right? Um, usually access to that market may come with some terms, maybe a bit of uh visibility into some processes or IP or workflows or maybe supply chain restrictions, things like this. Tech company usually sees early success and quickly as they access this colossal market. But over time, a Chinese competitor emerges that's learned from the US company domesticating in China over that period of time and then receives maybe some favor, some regulatory support, some supply chain favoritism, and they overtake the um the the US counterpart which is then squeezed out of the market and runs back home. And we've seen this with a handful like LinkedIn, Facebook, Tesla's maybe there right now. You know, that would maybe where they're at, right? And um the the the catfish analogy comes from what I believe was like cod fishermen who used to come back from sea and they look in the tanks and the cod would be all lifeless and pale because they were just living a complacent life. But they found if they threw a catfish in the tank, it would keep the the cod on edge and they'd be all sharp and strong by the time they got back. So you throw a catfish in the pool, you wake up the domestic competitors, right? You bring Tesla in, BYD learns and grows because there's a new competitor on the street. What do you make of that, Peter?

>> Oh, I I mean, we could spend an hour and a half talking about Let's break it down to the simplest structure, intellectual property rights. Right. Again, here's another subject that I have been participating in, if you want to call it a debate, which is, oh, China steals our intellectual property. Yeah, they do. But I've been listening to this for the last 30 years. Let me let me begin with a couple things. Number one, there's no such thing as a forced technology transfer. The technology that's been brought into China has been brought in willingly. And it's been brought in willingly because you have had this again, maybe less so today, but there was a 30-year period where outsourcing to China was all about the bottom line. Uh, you know, I I have these the this whole thesis and whatnot about why this was the case, but we knew of intellectual property theft going all the way back to the '9s, early 2000s. Now if and I I don't want to make this a I'm you know playing the victim card or anything else here blaming the victim but if you've known for 20 25 years that there is an issue with regard of bringing in processes bringing in IP and that your Chinese partner is going to you know plloin it and take it for their own maybe you don't come here anymore maybe you look somewhere else what I have found in conversations with various groups is it's cost of doing business. There's again remember what I was saying before low versus high time preference. The American corporate executive, he's incentivized or she's incentivized to be able to deliver quarterly results, annual results, what have you. They're not thinking about whether or not Apple comes in as the classic example and then in 2011 Xiaomi comes out with their own competitive phone. Who was the individual that deployed the entire supply chain for Apple into China? That was Tim Cook. It's the reason Tim Cook became CEO. I call it the Fouian bargain. You you have these global organizations that have entered China under the expectation of being able to improve broadly speaking their bottom line. But ultimately what they've done is they've created a global competitor. And again, I I get it if it was 20 years ago and it was like all new and exciting and we didn't really understand the market. But today is entirely different. I mean, if you if you look at someone like Meta, Facebook, whatever it's called, they're coming out with these new AI glasses. Where are they being manufactured? Here. And already I believe Alibaba or somebody's come out with something that's similar. So the question becomes okay why do they continue to do it? One is the time preference differential but the other is there's nowhere else to go. If I'm manufacturing anything and I want quality price and scale and basically reliance where do I go? Where can I produce a 100 million iPhones or 10 million glasses, AI glasses, wherever you want to go? There is nowhere in this world that has the manufacturing dominance than China. So it becomes this tradeoff. And for me, this has been sort of a at least present day life mission. Manufacturing is everything. And China has created more moes than you possibly can imagine. And again, before I step off my uh my soap box here, Jay, everybody, the air has been sucked out of the room talking about rare earths for the last 18 months or so. Rare earths are a mcguffin. They're a simple one element important, do not get me wrong, vitally important input to the American economy, but it's representative of hundreds, if not thousands of inputs that American manufacturers are relying upon China for. And the statistic I give everybody is 47, just under half of China's exports are what are called intermediate goods. These are inputs into somebody else's processing. Only half or so of China's exports are finished goods. So if you stop and you look at the pervasiveness of the supply chain over the course of the last 25 years, you don't just have contractors, you have subcontract, you have everybody. and show me a product in Europe or the United States that is 100% domestic made with zero Chinese inputs and I'll be shocked no matter how basic it might be. So this catfish effect that you're talking about I completely agree with it but at some point American corporations I believe quite frankly they need to be told you can't do this anymore. Nvidia shouldn't be selling chips to China. That's nonsense. So when you look at it, you've got to start looking inwardly. And let me be honest, as an American, introspection is not one of America's stronger traits. And I think that's really what needs to take place at this point.

>> Well, okay. Thank you for that. I'm I got a billion questions. So therefore, you must chuckle a little bit at the concept of reshoring. Or do you? You know, I I hear that rhetoric and I I hear that promise from our political leaders and I think, well, we can't afford to do that, right? China built their incredibly specialized industrial zones over the course of 30 years, but it cost around $40 trillion. That was with incredibly cheap labor. and over the last 30 years trying to do that now with American labor and today's dollars there's no foreseeable path towards making that a reality notwithstanding we don't have the expertise to then manufacture at that level uh what are the moes that you referred to you said nowhere is there nobody has the manufacturing dominance of China I think we can all agree with that and then you said and they have more moes than you can imagine now 47% of their exports it's being those rare earths or or sulforic acids, you know, those inputs that are hyperritical would be a big moat. But what are you talking about there? What else?

>> So the two the two primary modes that I would highlight would be energy, electricity if you will, um and um distribution. So I'll give you a bit of a pardon me for this a bit of a history lesson because I think it's important

>> is when China first entered the entire manufacturing ecosystem back in the 80s everybody joked and said oh you know we'll let them do as the the reference was textiles and toys and where you saw the majority of the manufacturing take place was uh across the the coastline. So everywhere from Shenzhen down south all the way up to Shanghai even further north. And again around 2012 2013 or thereabouts due to outsourcing by Americans and Europeans there was more and more demand for Chinese manufacturing capabilities than there was production lines if you will.

>> Mhm. China introduced a policy called the go west policy which was there was a a desire for the economic vitality to move increasingly out towards the west and away from the coastlines. To do that though required a significant investment into transportation predominantly rail. So when people talk about highspeed rail in China, yeah it's great. It looks good on on social media when people are traveling. It works amazing. It's cheap. But it really wasn't about moving people. It was about moving goods.

>> And this served an important purpose because the lower value added manufacturing could move to the lower cost areas out west which then freed up the manufacturing capabilities on the coast. That allowed then those companies to move up the value chain. So they started getting into things like precision machinery um you know higherend electronics you know areas that Japan and Korea and Taiwan let's say had maybe dominated previously but then they decided no we're going to move you know and and try to take as much of that as possible and this continues to this day. So you took what was a lower value added production line that was relatively locally sourced on the coasts and you just expanded it through policy across the entire nation. Now you add to that resiliency, meaning while all of this was going on, China recognized that as the West was focused on the ability to create efficiencies in manufacturing, China wanted to be able to do what they needed to do for resiliency. And there's no better example of that, and again, you see it playing out today, than in energy production. You know, for China, an electron is an electron. Whether it's coming from coal or hydro, they don't care. And you've we've all seen the chart. It's like up and to the right, the amount of power production that China has. This all really began um in, you know, right after, if you will, the uh, the Gulf War of 2003 because China was highly dependent even back then on imports from the Persian Gulf for natural gas and oil. Um, and at the same time you would have seen perhaps that China had already started building pipelines and rail lines across what Mckinder had called the heartland across Asia throughout Russia to be able to get access to energy and to markets which is where the rail lines came in. But it's also the reason why China was so early in the entire renewable space. You know, there was a lot of talk about China wanting to move into clean energy and so on and so forth. I'm sure there was a little bit there. It looks good on uh, you know, looks good on paper, but it was all about resiliency. You know, if you're able to generate power through solar, hydro, wind, all the better. And that's why today, after we have all of the events playing out with the uh, the new Gulf War, what do you think the Europeans or the Indians or anybody wants right now? They want solar panels. They want batteries. And again, here's where manufacturing comes in. There's only one country that does it. So again, I keep coming back to the same concept of time preference, but I think it's critical. And that manufacturing moat again or Moes has continued. Again, we're seeing it right now with regard to technology, right? You know, Huawei, we've got this new company called CXMT. You know, they're they're moving into DRAM. a host of different areas that you know places like Japan or especially South Korea, you know, I can I can see a lot of their, you know, very large sort of state champions getting assaulted um in the marketplace by what China is doing now in the technology space.

>> Okay, so energy dominance, but not just energy dominance is energy resilience, right? That's really interesting going back to 2003 is when this reckoning maybe hit China that we need we need our own energy resilience and that means a bit of diversification and and electrons and electrons and get I get it but make sure we have options and lots of them right. Um, your second point was distribution

>> and you you talked about the rail lines. As you were saying that, I was wondering how much of that influenced the Belt and Road initiative and maybe I'll give you like my understanding of this, but I'd love to know yours because I've heard you speak about it. Um, you know, when I when I first tried to understand what exactly the belt and road initiative really was, it struck me as a response to 2008 when um, you know, Western consumer bases were crushed during the GFC and China wanted uh, arms and legs into into other options, other consumer bases, right, across the South Pacific or the the global south, so to speak.

>> Um, I believe there's been like $1.4 4 trillion dollars allocated through Belt and Road initiatives, infrastructure plays, um, and like 150 countries received loans through the Barri, the the Belt and Road Initiative,

>> which is like 75% of the world, right? And when I thought about it through that lens, I thought, is this, you know, is is the Belt and Road Initiative future alliance promises in the event of some kind of global conflict? We want to make sure we've got a good variety of countries on our side because we funded their infrastructure versus maybe call it weapons diplomacy from the west. America sells weapons to nearly 100 countries. I think 97, so half the world. And in some event in the future where China and the US find themselves in conflict, it's going to matter how many friends you have. Um, now maybe I'm going way too far down a rabbit hole, so I'll back up. What's What do you think of what I just said, Peter? And how would you explain the Belt and Road Initiative?

>> Well, I think there's merit in the um in the points that you've made with regard to we'll call it economic diplomacy. You know, I've always to a certain extent looked at the Belt and Road initiative from a very high level, if you will, as similar to the Marshall Plan that the Americans used um after World War II. Now, the Marshall Plan, those were grants, meaning free money. Um uh China of course is is doing lending but they do share a common variable which is when the Marshall plan was launched you could get the money for free but you had to hire American companies to do the work.

>> Okay that's good. China's the same way. You know look if you if you're going to take these loans you're going to have to use these Chinese companies. So there's definitely merit in your argument, but it's far more the issue of Belt and Road is much bigger than people appreciate. And the the issue really at hand is number one, Belt and Road actually began in the late '9s, even though it wasn't called that. Recall when I was mentioning about Moes and I mentioned Mckinder in the heartland in the post 1996 world that was really when Russia and China decided to build uh I won't call it an alliance but a partnership because in 1996 you had two seminal events one was the United States announcing the expansion of NATO um eastward and you also had the Taiwan third strait crisis um where the United States after China clearly had provoked in advance of a universal suffrage vote. But Bill Clinton had sent, you know, two carrier groups through the Taiwan Strait. The reason I bring this up is this meant that China and Russia needed to look to each other, China going west, Russia going east, meaning if they had a block on the land mass that is the heartland, they could find ways to work together. In fact, not to go too deep down the rabbit hole, but is relevant. This is where the SEO, the Shanghai Cooperation Organization began. I mean, that began in 1996, what was then called the Shanghai 5 because China and Russia recognized that for there to be any material um economic activity in the heartland, there needed to be stability. So, all of the former stands, you know, let's get our borders straightened out, let's demilitarize, and let's start building pipelines and rail lines throughout the heartland. Now here's where the I think the interesting development came up was even back then you know BRRI belt and road was launched in 2013 and notice a lot of things happened in around 2012 134 15 in that period that's sort of for me a major inflection point for China now so what happened was China invested a ton of their capital into these projects um back in the late 90s and the 2000s but the inflection point was was the global financial crisis. It seems a little

bit disjointed, but bear with me.

In the global financial crisis, the United States made for me a colossal strategic mistake. Rather than take the same path that the United States had demanded of Thailand during the Asian financial crisis, South Korea, Russia, Mexico, all of these financial crises required you need to hike interest rates, you need to do austerity, you need to open up your markets. All of these things were forced upon these markets by the IMF at the behest of Washington.

When the United States ran into that problem, what did they do? They printed money. They papered over the problem. Who was the largest or I should say second largest creditor of the United States at that time was China. They had upwards of two trillion of their foreign currency reserves held in US treasuries and what are called government sponsored entities. Fanny May, Freddy Mack, and they just witnessed a massive cut in their basically national savings account.

Yeah. Now the Chinese will operate and say, "Okay, fool me once. Shame on you." They said, "If this happens again, we need to make sure that we can have a lower exposure. We need to diversify away." But how do you diversify trillions of dollars out of US treasuries? There's no other market that's as large or as uh liquid as the US Treasury market. And that was where the "aha" moment in Beijing took place, which was, "Why don't we take programs that we've done through Central Asia over the last decade and go global? Let's go and buy ports. Let's go and invest in infrastructure. Let's go and invest in in uh commodity extraction. Let's go to Africa."

So that 1.4 trillion, if you think about it, Jay, that you mentioned that has been invested through BRI, you can actually look at it in a separate way, which is that's 1.4 trillion that wasn't put into the US Treasury market. And that is exactly what has been transpiring ever since. And now just Google how many ports in Africa does China operate. Off the top of my head, I think it's like 83. You know, my my favorite example is the United States wants to dominate the Monroe Doctrine as it were, dominate the Western Hemisphere. I will believe that when I see the Peruvian government find a way to extradite itself from this massive port, deep water port that China built there.

So, Belt and Road has achieved a host of different objectives, strategic objectives for China. And this is how I'll finish the point. Whenever you're looking at what China is doing, I want you to always think about embedded optionality. There's no linearity in terms of, "We're going to make this choice for this reaction." We want to make a choice that has multiple positive outcomes, second and third order effects. And again, and I apologize, I'll make this the last time I say this because we have the low time preference to be able to allow it to play out. So, Belt and Road is far more of a consequential program than people truly understand.

That's a really interesting take and it makes a lot of logical sense to me. You'd invest that capital. You got to put it somewhere. You're right. You're running this surplus. You have these US dollars.

Historically, you've parked them in the US Treasury market because that's historically been the safe haven of the world's preference, right? And the US government in theory always pays its debts. Uh, and then you see the value of two trillion in treasuries begin to inflate away as the issuer of that currency just pumps the market full of more paper money or digits, keyboard money, you know.

So, you look for alternatives and you park it in fixed capital, right? Bridges, rails, ports in Peru. I think that that's the first deep water port on the west coast of Latin America or Central or South America in Peru, right? It's a Chinese port. Um, it also just as you were walking me through that, I was like, you know, we compare the debts often, you know, US, China, a lot of debt, you know, in China, it's a problem. Um, but that debt was spent on fixed capital, that was spent on infrastructure, on manufacturing base, and specialized industrial zones, right? The US has $39 trillion in debt and it was spent on wars that they lost and bailing out banks, right? There's a lot less to show for that money.

Yep. Um, oh man, and I love embedded optionality. We're going to come back to this. So, let's stick with the Treasury market. However, since that event, 2008, I'd say that lack of confidence in US treasuries has definitely spread and for good reason. You know, maybe confiscation of Russian assets being another big watershed moment.

Um, what's your take on the, let's start high level here. What's your take on the whole de-dollarization conversation, Peter? What, what are you paying attention to that has substance and what do you dismiss?

Again, another subtopic we could spend an hour and a half on. Um, so, and but this will be helpful because it does again play to the the concept of embedded optionality. Uh, first of all, with regard to de-dollarization, uh, and it's it's something that I wish there were more conversations that were were truly genuine in nature, if you will. Looking, you know, I tell clients all the time, look, I'm here to tell you what you need to know, not what you want to hear, which I I got to say is pretty horrible for my business development, but so be it. And and I think in those kind of conversations, and this might be an important point for me to stress as well, look, I'm a red-blooded American. I grew up in my most formative years under the Reagan administration, "city on a hill." The the reason why I have been so determined to get a lot of these talking points out to demonstrate the strategic buffoonery, quite frankly, that has come out of Washington for 30 years is to try and wake up and find those that have the courage to say, "We need to do better."

So when you look at something like de-dollarization, it's a bifurcated concept, right? Either the US is going to dominate forever because it's the reserve currency of the world and everybody uses the dollar, look at these numbers, or because the United States has so much debt, you know, it's going to go down, the yields are going to move higher and China is going to replace the dollar. Neither. You want to go back, remember I made the mention of the Obama administration weaponizing the US dollar in 2012 by cutting Iran off from SWIFT.

Mhm.

That was again, as I stated, existential to China. And what did China do? In that very same year, they directed the central bank, the People's Bank of China, to go out and create an alternative system because they, everybody used SWIFT. And by 2015, again, notice all these dates. By 2015, the China Interbank Payment System, what is called CIPS, was launched. Now, CIPS was not created to replace SWIFT. CIPS was created to be able to have an alternative in the case of China being cut off by the United States from the SWIFT market. And the first thing that they did was they connected all of the Chinese banks in this system. And all of the Chinese banks have opened up various branches across the world in most of their trading partners. They have, you know, high-level settlement banks across major markets as well.

Now, adoption was limited. I think there was, I don't know, 14, 15 global banks that participated. No one really paid much attention to it. But here was the interesting element of what CIPS was doing. Was as that was in process, China introduced what is now referred to as the Shanghai International Gold Exchange. Now, the Shanghai International Gold Exchange for the first time opened its capital account for settlement in gold. Now, when I say "opened the capital account," does that mean that Mr. and Mrs. Wong down the street can take their renminbi and trade it into gold and, you know, transfer it somewhere else in the world? No. You know, China is going to make sure there are certain barriers, if you will, uh, in place. But it did allow for any country that may have an RMB surplus, let's say, to be able to convert that surplus into physical gold that could then be transported to wherever that third party wanted it transported.

So, these were all small steps where there was virtually no adoption, at least initially. And where we are today, especially after events that are now taking place in the Gulf, is you've seen a relatively, and I need to stress that, relatively, um, acceleration in CIPS adoption over the course of the last three or four months. And my favorite, I think, most recent development was BHP, you know, this massive commodity producer in Australia, had a long, hard negotiation with the Chinese over access and exports of iron ore, and BHP ended up capitulating and agreeing to invoicing 30% of their their uh, their iron ore exports to the Chinese in RMB.

Now, people will say to me, "Okay, well, what, what does BHP need RMB for? They don't." But what they are doing is they're taking that RMB to the Shanghai International Gold Exchange and converting it to gold. And now China's trying to build what's called the "Golden Road," which is they're building vaults because the Chinese know that nobody trusts them to hold their gold. So, they're building vaults. The first one of which is now in Hong Kong. Okay, China, not China. But they're planning in Singapore, they're planning in Switzerland, and they're planning in Riyadh as well.

So, you've had this, if I can use the over uh simplified example of the frog and boiling water approach, where China is not trying to replace the US dollar as the foreign reserve currency, but it wants to make sure that its trading partners have an alternative to the foreign reserve asset, which is the US Treasury market. So, you've seen what's happened to gold over the course of the last 12 months, even going all the way back to again, another ridiculous move by the Biden administration, as you highlighted, the confiscation of Russian gold or forex reserves, I should say. So, all of these pieces have been in place for a decade and now they're starting to play out.

So again, let me stress, China is not going to replace the dollar as the medium of exchange, but it is certainly offering an attractive alternative for trading partners that have surpluses that are looking for something that is far more stable than US treasuries right now in terms of the real buying power over time.

Okay, I uh, that was lovely. Thank you, Peter. Truly, man. Really enjoy your answers. Um, and and it keeps coming back to the concept of embedded optionality, you know, and that's sort of what the BRI provided, right? It's it's not necessarily a confrontational move. Um, the Shanghai International Gold Exchange, not a confrontational move. The CIPS, the China Interbank Payment System, not on its own a confrontational move, right? But it's it's an option, right, that we may need in the future and that could grow and you could join and and use as well. You know, and and what the Shanghai Gold Inter Shanghai International Gold Exchange provides is that option for anybody else, everybody else who's transacting in US dollars and historically has therefore recycled those US dollars into the US Treasury market, which funds the US government, right? They run a deficit of $2 trillion per year. They need to borrow that money every single year to keep the government funded, right? And that works as long as people are willing to reinvest those US dollars into the Treasury market.

Right?

There's more questions about that today than there was 20 years ago. That's for sure. And now there's an alternative. The BHP headline was really interesting because that wasn't a BRICS nation that is doing business in RMB. That's an Australian company, right? And so, you know, we're a Five Eyes country here. This is NATO, right?

It's it's not it's not Brazil. It's not India, right? And when China came to the table and said, "We're we're what did they say? We're we're cutting off future purchases of iron ore in US dollars." They didn't say, "We're not buying iron ore." "We're not going to do it in US dollars anymore." Right. And got that needle moved to, as you said, 30%. Right? 30%. Just a taste, right? But it's precedent, right? All these things happen. And it's I find it so important to look at that and say that's not just a deal that BHP did, right? It's always precedent. It's always part of a trend. What's next? Right? What's next?

I'd love to understand personally the mechanics of the Shanghai International Gold Exchange a little bit better. So you're BHP. You're selling tens of billions of dollars of iron ore to China every year. They're your biggest customer. China is the world's primary steel manufacturer. That's what they need it for, right? Very important input for them. But now BHP is sitting on all this RMB and uh maybe they don't have a lot of use for it. So they want to exchange this into gold. Uh, can you walk me through the mechanics of that trade, Peter? Where does the gold come from? How is it, how does this function?

Sure. It's very straightforward. Um, you have on the the gold exchange, you have a futures market. And the way that it works is again, we're making the assumption in the BHP case here that the decision has been made that we don't want RMB. So if you're working on the assumption that you have uh final settlement in gold, then when you enter your your contract for the for the purchase of iron ore, your or I'm sorry, the sale of iron ore by BHP to the Chinese, of which 30% is in RMB, you're having a separate trade that's put on that you lock in the price of whatever gold is through the Shanghai International Gold Exchange. So essentially the RMB actually never leaves China. What happens is it's a it's a paperwork issue. And this is where CIPS comes in because unlike SWIFT, SWIFT is only a messaging network between banks. You know, the Chinese do what the Chinese do is they take a system and they improve upon it. So what you ultimately have with CIPS is you have a messaging, you have trade, and you have a settlement system all at the same time. So that when the deal is done and you've got a bank, a Chinese bank that's in, I don't know, Sydney, you know, that's where the deal is going to be done automatically. Once you reach that point where the trade has been done, then the RMB goes, let's say, from ICBC goes from ICBC to ICBC Sydney, and at the same time, it then gets converted into uh or then the contract, futures contract gets settled, and then ICBC Sydney sends the RMB back up and then the gold is there. And then BHP has to decide what they want to do with the gold. Send it down to Perth would be probably the most obvious answer. So you're just all you're doing is you're adding on an additional layer of a futures contract that will then automatically execute at the point in time that the trade is done.

Okay. So final settlement in gold, just like the equivalent final settlement in US treasuries at the end of the day. That's how that transaction wraps up.

Correct. Let me ask you, what's your, so if this trend continues, if and the couple trends that I'd point to here would be um continued sort of fiscal recklessness on behalf of the United States um and uh a continued lack of trust in the value of the dollar or the future value of the dollar, more importantly, right? Um, you know, Kevin Worsh is stepping into Fed Reserve chairman seat here in a few weeks, right? And he's going to be faced with this choice um where he's going to have to choose between trying to defend the United States dollar by being responsible and raising interest rates and try to make dollars as scarce as he can and prove to the market, "These are still valuable. Trust us, we got an adult at the wheel now, so let's go." Uh, versus um staring their deficit in the face, looking at the lack, the the decreasing demand for US treasuries at every auction, right? Um, and eventually probably like in Japan, the government's just going to have to start sucking up that deficit themselves, right? And financing their own deficits.

Correct.

Correct. Okay. Any issues with that thesis? And what are your thoughts on timeline and and impact and, you know, is that the inevitable future here that most every empire in the modern world has gone down and now the United States will go down at two?

So, never, and I will I will say that as emphatically as I can, never underestimate the American tenacity and ingenuity. And and and I I think the sort of doomerism and again, this is one of the reasons why I'm being so aggressive now in trying to highlight where China is operating. I'm trying to provide insight to decision makers. You need to wake up. You need to see exactly what's transpiring. You know, and not to jump off on a tangent a bit, but you know, when I see Secretary Bessant coming out, you know, last year and saying, "Oh, we have all the leverage. China's playing with a pair of twos." I went on CNBC in Hong Kong and I was like, "He has no, he's going to run into a buzzsaw." And then you had, you know, Energy Secretary Christopher Wright a month ago or so. He said, "Oh, with Iran, we're taking away, you know, the second of China's three gas stations, meaning Venezuela, Iran, leaving only Russia." I'm like, "No, you you you don't you you don't have an appreciation of what China has done to build resiliency."

Now, again, you have a change, if you will, in in people's appreciation, like the American people. I mean, I have to believe this, that there's far more commonality across the board and understanding what the issues are. What is lacking is courage in Washington. The ability to say, "We all know, Kevin Worsh included. I mean, here are you and I, I mean, look at us. We're doing a podcast interview, we know what the problems are." So, it makes sense that the people, the so-called smartest people in the room in Washington know what the problems are. They just don't have the political courage to be able to do anything about it. How do you cut entitlements? You do not go from one trillion on defense spending to 1.5 unless part of that spending is meant for reshoring. You know, maybe it's just going to be used in other ways.

You you're going to have to make difficult choices. You're going to have to raise taxes. You're going to have to cut spending. And I think that that is doable. We've done it in the United States in the past. The unfortunate part though is I believe the go-to outlook, what the what the policymakers want to do is to take the playbook from the past, which is, "We're going to address debt by debasing it. We're going to have inflation run hot." And that may have worked post World War II, may have even worked, let's say, in the '70s. It won't work today. People know what is happening. There are far too many people that are are are very clued in to the games that can be played and the trust in the institutions is already absolutely in the garbage. So what needs to be just done is to get the American people. One of the things that I try to tell people is like, "All right, Peter, what do you do? You're in a job where you're going to be able to make these decisions. What do you do?" First things first, focus at home. Focus on cleaning up my backyard. China's going to do what China's going to do. We should work with them where we can work with them. Enough with the hegemony. Like we spheres of influence, this is all very 20th century. So when Kevin Worse is coming in, I'm hoping that he is of the mind that he wants to have the ability to go in and really fix the problems. I just don't have that much faith right now. And I'll just end by saying Winston Churchill. I have a lot of disagreements with who he was as a man and his decisions, but when he said, "America does everything wrong until the last step, and then they do the right thing."

That's America, right? So it may take a fundamental existential crisis in the United States before what are the various obvious solutions are finally achieved.

You know, I I hope you're right. I I struggle to see America's embedded optionality play. I struggle to see it. Um, and and similarly like I I'm well, okay. So, so my the question I want to ask is how, you know, and I I just I I look at the same situation and I say, "I'd love to see >> somebody come to office who's willing to do the work, who's willing to tell the population, we got to make some hard choices here and it's going to be tough and life may actually get worse for the next 10 years. But trust me, this is worth it for the future generations. For your kids, this is necessary. We have to take some pain here, right? We've been having a party for too long." Nobody's going to get elected with that message. And even if they did, two years in, when people start to feel the pain, they're going to abort. They're going to pivot and elect somebody else who's going to fix the pain in a year, right? Presidents get elected by making promises that they can fix everything inside of two years. And it's just a it's an empty promise, but people want to believe it, you know, so they do and they vote for that, right? It's this it's back to the time horizon challenge, right? I'd never choose any other system, quite frankly. Like, you know, I'm not American, but my wife is and my kids are dual and I I love the United States.

Um, and I wouldn't I wouldn't choose another political system. Having said that, there's advantage to be able to think in in five and 20 year increments as President Xi can >> and not have to worry about public sentiment and political will. You can just see the strategy and do it. Um, massive downsides to that. Massive. There's no perfect system. But but I just struggle to see it. And I I you know, I I'm looking now at the uh the Treasury market specifically and just wondering where we are, right, in in maybe Japan's timeline. Where are we in relation to the point in time where the United States has to fund the entire Treasury market itself, right? No, not we're not there yet. I don't think we're close to there yet. I think we got a long time here, right? But, you know, I'm watching I'm watching the sort of development in the swap line market. I'm trying to understand this and I'd love to get your take because uh I'm no expert, but I'm trying to wrap my mind around this, you know, and and swap lines being, you know, emergency credit facilities. I believe that were launched after the GFC in 2008. Um, short-term loans to a small group of friends, right? Japan, Switzerland, Canada, the EU, the UK. Um, short-term bridge loans from the United States to these countries. Now, how does a country that runs a $2 trillion deficit lend money to anybody? Well, they print it. Keyboards, right? They print the money, they create the money, transfer it, and as long as the money is paid back, the loan is crossed off and the money supply doesn't actually increase. So, it's not inflationary. And the United States charges interest on these swap lines. So, it's, you know, it's a profit center to a degree. Um, and that works as long as that's where it stays, right? But nothing stays there. And quietly, I think around 2016 or '17, these these temporary swap lines to those five friends were rolled into permanent swap lines. You know, it's kind of the like um and what's the difference between a a loan that you default on and a loan that doesn't have a maturity date? Like, I don't know that there is, but that's kind of where we where we're at, right? So what wasn't an inflationary money printing measure kind of became one, >> but it was still restricted to five reasonably responsible economies relative to our global peers from a currency volatility standpoint. But Argentina got a swap line six months ago, one of the most volatile currencies on Earth, and that has defaulted four times in their country's history, >> right?

Uh, now the money was paid back. Let's just say that, right? The money was paid back. The swap was returned. Two weeks ago, United Arab Emirates requested a swap line. And Scott Pacent has since said there's actually a whole lineup of Asian and Middle Eastern countries that are requesting these short-term credit facilities. And the UAE is interesting because it's such a wealthy country. They got trillions in their sovereign wealth funds and billions in the US Treasury market, but they needed a short-term loan. And it's because their cash flow is cut off. They can't sell oil. They're wealthy, but if your cash flow is cut off, you got to dip into your savings. And for the UAE to dip into their savings, that means selling US treasuries, right? And if so many countries are in that situation at the same time, you know, the selling pressure on the US Treasury market would be a problem and would fast-track us to that point where nobody wants to buy the treasuries anymore that everybody's selling and the only buyer is the Fed themselves. So, you know, what's your response to that? Have I understood the swap line mechanics sufficiently? Am I missing anything? Any blind spots? What's your take, Peter?

I've never, I mean, I think everything that you've laid out uh is completely accurate. Uh, I think where I might differ is on the sort of the concern with regard to what it may or may not represent. I think honestly, it makes considerable sense for the US Treasury to say, "Look, we want to be able to give you alternatives." I I I do believe that groups like the UAE could maybe even go, I think to the Fed. I think there's some some program there where they can put their um or maybe the Fed has to work with whatever country's central bank. But there are options and you you most certainly do not want a situation where you know treasuries go no bid because you have all of these countries around the world that need money selling treasuries, right? So it makes for me it makes sense. It gives again, the United States is providing embedded optionality right now. How does this play into uh an issue with regard to does this impact money supply? Is this debased in the currency? What have you? Maybe maybe not. But here's an interesting point and and you I have to go back and look at the data. China has swap lines for RMB with approximately 25 different countries. And interestingly enough, um the two countries that are not included are Japan and the United States, but it's got it with everybody. Now, this is for China to be able to provide a degree of liquidity when it comes to the usage of the RMB trade. You know, if there's a situation where you need to be able to tap in, you you're always going to be able to to to have that option. Um, and you know, these are swap lines that again began back in 2015. And I I there's a whole list of them. Again, I wish I I wish I brought it with me for this because I completely forgot, but it really does come down to Jay, that optionality issue. So, I I may be missing something. Swap lines aren't necessarily in my belly wick. Um, but I think being able to provide an outlet to those countries that have only the option of selling, let's say, treasuries to be able to then use them as collateral to be able to take on a loan. I think that's potentially some very smart policy, at least as I see it, very shallowly speaking.

Okay. And and probably in the context of in response to what is possibly a short-term challenge being exporting of oil through the Strait of Hormuz, right? If that can be resolved, then the swap line demand resolves with it, right? And that might be

From your lips to God's ears, Jay.

I mean, can I, what, you know, well, let's go there. So, what's, you know, we're in this situation now, I suppose, where um I feel like the Strait of Hormuz is in 2020 land where it's like, "Just give it two weeks, right? Just two weeks, this will be resolved." "Two weeks, this will be resolved."

Flatten the curve. Flatten the curve.

Yeah. Right. Exactly. Just give us a couple weeks. Just a couple weeks. Just a couple weeks. Um, a lot of people will compare this to a potential Suez Canal moment for the United States. And the the quick and dirty on the Suez Canal moment was, you know, post World War II, Britain was broke, navy was destroyed, weak, and Egypt made a move on the Suez Canal, which had been controlled by Britain, and they took control of it. Now, this is a key choke point for international trade. So Britain and France sailed to the Suez Canal to uh kick Egypt off, but needed assistance, financial assistance from the United States to do so because their balance sheets were a mess post war. And the United States saw this as an opportunity to say, "Look, we'll we'll bridge finance the cash you need, but under one condition: you turn those ships around and come home." And um the canal will remained Egypt's. The point is the entire world saw what happened that the global superpower for the previous 150, 200 years had to walk away from what would have been a small conflict with its tail between its legs because their older brother, their financier, their banker, the new superpower, wouldn't bless the excursion, right? And maybe the United States will have to return from the Strait of Hormuz without regaining control, with conceding to Iran's demands. You know, you got to ask the question, "If you can open the Strait, why haven't you?" Right.

Right.

World's most powerful military, but we can't open the Strait. What's going on? Why can't we do that? Right. What, what's your take? Is there some separate play here being made or is it as simple as lack of resources?

Okay. So, there is a argument to be made that, you know, what's the top, what's what's the question of the day? Like, who who controls Hormuz? The Iranians or is it the US Navy? What have you? I would I would contend that the Strait of Hormuz is controlled by Beijing. And this is going to get me in a peck of trouble.

Let's go.

Okay.

If you if you look at a Venn diagram of all the parties involved right now, at the center of that Venn diagram, Beijing. I mean, we just had the Prime Minister of uh, let me back up a second. We were laughing in the office because when the news broke a month or two back that Islamabad was going to be the the center for negotiations for peace, we laughed and said, "Yeah, this has got Beijing's fingerprints all over it because of the relationship that China has with Islamabad." And it makes it makes sense geopolitically to to sort of have that start there. And then I mean, just the other day, right, we had the Prime Minister of of Pakistan in Beijing and there's um, you know, and people when when they hear this, you can say, "Well, you're connecting certain dots." I may be, and I'm not here to say that I'm right. I'm just saying that the biggest real benefactor geopolitically for Iran has been the Chinese. And I think it is a mistake to assume that the Chinese have no leverage to be able to impact the direction of where things go with regard to the trade war moves. Consider, if you will, how many macro analysts over the last couple months said, "China has weeks. China at this date is going to run out of energy." You know, "China is China is doomed because of all the energy needs they have." What did China do for the last two months? Is they radically reduced the degree of imports of oil, predominantly from the Middle East. And this has been claimed to be one of the reasons why the price of oil hasn't spiked as high. Now, were they doing this for geopolitical reasons? Whatever. I have no idea. But the fact remains, imports of uh of oil into China over the last few months have have dropped significantly, and yet I'm I'm here in China, everything's running smoothly. Now, granted, I drive an EV, so I don't have to worry about petrol here. Um, so you look at that and you can see that China had maximum flexibility with regard to where exactly the the flow of energy was going. And there's an there's a really interesting, I think, data point here that people have overlooked, which is I was mentioning before about all the the rail lines that were going across the heartland. I'm I'm uh I'm obsessed right now with this whole battle, theoretical battle that's going on between the Mahan doctrine and the Mackinder doctrine, right? Sea power versus uh the the world island doctrine. And in 2025, China went online with a direct rail line between China and Iran. Right down like bound down to Tehran. Now, if I'm Israel or the United States, I'd be taking that rail line out pretty quick.

Mhm.

It's still operational.

Right. Right.

So, we've also seen a host of ships that have gone through that are Chinese flagged or Chinese operated. So, you know, the Gulf nations, you know, China has an enormous amount of uh call it constructive relationships from Iraq, Kuwait, UAE, the Saudis. There's no doubt that there would have been backdoor conversations about what Beijing may or may want want to do. And it is my supposition that what Beijing has said is, "Let's see how long we can play this out before it gets out of control." Because could it possibly be the case that Beijing wants to see exactly what you laid out, which is, "Why don't we have the United States there in the Gulf unable to project power through their navy?" What is that signal? I think it's potentially far more consequential than even Suez. Now, again, there's a lot of dots that are being connected here, but if you do take a step back and look at all the players, the throughline, at least for me, is Beijing. And I'm sure Trump had a conversation about this when he was in Beijing. Trump comes in, Putin comes in after him. I mean, it's a revolving door here of world leaders. So what is Beijing's incentive? Multiple. And they're not at any material risk right now of having a deficiency in energy. So how this plays out longer term, I'm not sure, but I suspect that when you see Beijing getting a little bit more involved, that's when you probably will have a sense that things are coming to a close.

That's interesting. So, if that's true, that China is under no threat of energy scarcity, right? Then the longer this conflict goes on, it's almost like, you know, they're on the sidelines and not even in the ring, right?

As far as mainstream headlines go, as far as warships in the Strait go, right? They're not in the picture, right? But, um, their competitor, regional hegemon, is all over it, right? Is is owning this, is the cause of this, right? The Strait was open before the invasion.

Yep.

Um, and so the longer this goes on, the more the higher the value of so many parts of China's embedded optionality, whether it's the CIPS program, whether it's the Shanghai International Gold Exchange, all these other things, all these options that have just been sitting relatively dormant or used on the margin, um, become appealing, right? In a similar way.

Well, let me let me just add one point to that and I mentioned it earlier. When you have energy scarcity that impacts the majority of the world and you had something similar in 2022 with the Russian invasion of Ukraine,

Mhm.

Everybody is going to want alternatives now. Renewables.

Yeah. So, not only does it benefit in certain geopolitical great power rivalry with the United States elements, China's got massive capacity in every single aspect of renewables. Everything from EVs to solar panels to batteries. You don't think that Germany, Japan, all these different countries are going to clamor to get this from the only country that produces it at scale and at price, which is China.

Of course. Of course. Yeah. And I'm I'm so curious about Japan specifically. I'm heading back there in maybe a month. And um, I'm honestly given the trip at like 80, I'm 80% odds that I'll get to go at this point. Just going to sort of watch things happen. But you know, that's a country that's right in the crosshairs, right? They produce 100,000 barrels of oil per year, but they consume 3 million, you know. Um, they import 97% of their fossil fuels. Um, and what does a country like that do in this scenario, right? It's printing a ton of

They go to They go to Russia. South Koreans and Russians are buying a ton of Russian oil right now.

Yeah. Right. Okay. Yeah. Yeah. After Trump's visit to Beijing, I looked at the headlines and felt like it was a bit of a nothing burger. From what I heard and what I read, there wasn't really anything material that came out. The American media said, "China's given us assurances they won't be involved in Iran." And Chinese media said, "Uh, we communicated the importance of Taiwan." You know, and that was sort of how I interpreted what happened.

President Xi did use the term, um, I always botch the pronunciation of this, Thucydides's.

Thucydides's trap.

Thucydides's trap. Thank you, Peter, saving me. Thucydides's trap. And you know, when I when I think about your your timeline here that you've walked us through today, right, going back to 1997 and some agreements between China and Russia and some more material developments in 2011, '12, '13, and '14 and um, you know, some some maybe bigger tipping points in the last six years here. Um, was this inevitable, right? Is this inevitable that we end up in this, you know, John Mearsheimer would call it the security dilemma or Thucydides's trap or the prisoner's dilemma? Well, any one of them, right? But it's the same scenario where you have an established superpower that is inevitably going to see the rising power as a threat, right? And every move they make, are they doing that for their own good or are they doing that as a threat to us? Or we better do something too, right? Just in case what they're doing is is a threat to us. And then you each see that and you kind of ratchet up the ante.

With every round. Where does this go? Is this inevitable? Is this? And where does this go?

So, a couple points. Number one is this this point, this juncture in time that we're in, the Beijing leadership, based upon what I can see, recognized the trajectory again 30 years ago. Uh, the especially after the Gulf War in 2003, and it was an issue of if you if if the Chinese considered that their growth was going to move at a certain pace and they were going to do all these things that they wanted to do to be able to build, you know, a a more dynamic large economy. There was only one outcome from their perspective, which was this is going to lead to potential confrontation with America because America, America loves the whole so-called international rules-based order when so long as it's convenient and so long as there's no rival.

Yeah.

And I think what China recognized was an inevitability that if in fact, because again, it's a huge market. It's a huge economy. Ton of people, that the trajectory they were going to go down was going to get us to this one point, which is why resiliency was so important in terms of how the economic model was created. Now, what that then meant was, okay, we need to figure out what we have to do, cuz the Chinese are going to want to bring, if you will, the fight on their terms, rather than wait, as is typically the case, for the United States to wake up one day and then say, "Oh, we have a real or imagined threat over here. Let's go."

And, you know, the Chinese for their part, you know, were looking and recognized that they were hemmed into the east. You know, the number of uh military assets, people and machines, or whatever you want to call it, uh weapon systems in South Korea, in Japan, now in the Philippines. You know, this was the reason why the excursions the Chinese made into the South China Sea was so critical for them because their attitude was, "If we get hemmed into the South, we have no access to blue water." So, this has been going on. So, when people talk about Taiwan and they say, "Oh, it's all about chips." Has nothing to do about

Right.

It's all about the first island chain that people continue to talk about.

Uh, now, I do believe it is farcical that everybody believes that China is going to move on Taiwan at some point. That's not how China operates. Um, for me, my bigger concern is that there has been this approach to sort of goading, if you will, by the Americans. You know, whether it's Nancy Pelosi flying in 2022 to Taiwan on, which never really should have happened. The whole idea of strategic ambiguity, in my opinion, was thrown out the window in 2017 when the United States under the first Trump administration, I might add, when they passed what is called the Taiwan Travel Act. A very short bill, but basically what it said was anybody from the US government that wants to go to Taiwan, go ahead. You can knock yourself out. Military, legislator, whoever. That was not the policy prior to 2017. So when you look at this sort of idea of inevitability, the Chinese have been operating from that point. I thankfully look at where China is today and it's more they're more at the point now of managed competition. Low time preference, high time preference. My apologies for bringing it up again. Time is on China's side. Time is on China's side when it comes to Taiwan. They don't need to do anything. Over the course of enough time, Taiwan, which are Han Chinese, there will there was going to become a recognition that some form, not pure reunification, but some form of alignment will happen. It just makes sense for the Taiwanese.

Mhm.

Um, and the United States knows that with their global hegemony, their their entire 20th century outlook, I mean, it's so antiquated right now.

That well, we have to we have to own the entire chessboard.

And the Chinese, they just shrug and they go, "Okay, you know, what's the joke? Like, how's that working out for you?"

And then you add the layer you talked about before.

Do you have the financial flexibility to do any of this?

Not really. Mhm.

Again, China has a host, a lineage of its own domestic problems. There there's no denying this is not a China great US bad concept. This is about looking realistically at the dynamics between the two,

You know, the two main players on the stage. As so I don't think it's inevitable and I think quite frankly, China, in its own incentives, its own best interest, knows conflict is not a desired outcome. They don't want it because they don't need it.

I like that take on Taiwan and I I have to agree and it it strikes me that every year that goes by, not to say there there is any plan for a hostile move on Taiwan from China, but every year that goes by, it seems like the odds get better for the Chinese. Um, and maybe the odds get

Let me just let me just add to that.

Please.

How many how many podcasts, how many news stories over the course of the last three years, all said, "China is going to go after Taiwan in 2027." Now, they would dance around and say, "Well, the military this and they're going to prepare and they would hedge their bets." But you could not escape a conversation where Taiwan in 2027 wasn't discussed. And yet three weeks ago, the entire American intelligence agencies cumulatively came out and said, "No, no, no. China has the intention of going by 2027 is not our base case." And there was no coverage of that. Nobody talked about uh now what we're hearing is, "Oh, five years, five years from now." So you have to start asking the question of what are the motivations for these headlines and these talking points because if you if you truly look at the Taiwan issue, it makes no logical sense for the Chinese to take an aggressive kinetic approach to Taiwan when they know the direction of travel. Period. Yeah, that's the man, the direction of travel. And inevitably, if if if my assumption is correct that every five, 10 years

Every year that goes by, the odds of a hostile move would be more in favor of the Chinese. Then just let enough years go by, and the outcome will present itself. Right, as you mentioned, right? I think that's where that, you know, Taiwan will go to where it's treated best and where its future options look the um, which might be going home. I mean, you know, okay.

Um, let me ask you a question that, you know, is kind of related to this. When that concept and conversation has come up on this podcast a lot, right? The 2027, we want a Chinese Navy that's ready to take Taiwan, all this stuff.

Um, also, you know, the probability of a kinetic conflict between the United States and China directly, right? Like, what would that trigger point be? What would that look like? And you, it's not hard to spin narratives that you could maybe speculate on that outcome, but what I always come back to is I just don't see an actual decoupling as a possibility. You know, I mean, uh, 97% of American advanced military weaponry inputs come from China, if not close. And look, if I've got a gun pointed at you, you're not going to sell me the bullets. There's no scenario where these two countries can actually have a conflict because they are too embedded with each other. But that may be true for the United States. I don't know. I'd love to know your perspective. Is it true for China? And I, I, I think throughout 2,000 years of China's history, they've never invaded a sovereign nation. I don't think ever.

I don't think ever. And history is important precedent. So that may just say a few things about the philosophy. Maybe good business is not conflict. Good business is diplomacy and negotiation. Okay.

Uh, and therefore, there's not even there's not even an interest on China's part. But from the United States, they can bluster in from the podium all they want, but the end of the day, it just doesn't make any logistical sense and it's an impossibility.

What's your take, Peter?

So, all right, I'll try to make this quick. Um, yeah, China, China not only has not been, I mean, people will take the example of Tibet and Xinjiang with exception, right? Uh, what I find more interesting.

Right, what I, what I find interesting over 5,000 years of history, or 2,000, whatever the Chinese always say it's always 5,000 years, but is not only have they not invaded per se, but what they have been is they've been conquered.

Right, you had the Mongolians and you had the Manchurians. Yeah.

Then what the Chinese are absolutely brilliant about doing is assimilation because you had foreign conquerors that came in, and then within two generations, they were all ethnically Han Chinese because of marrying, because of, you know, creating new families, whatever, but assimilation generally. So that by the end of the Qing dynasty, I mean, most people don't even know that, you know, in 1912, like, oh wait, these were Manchurians. These were not actually Han Chinese. No, they were Han Chinese by the time 1912 came around, 1911. So, uh, that, for me, I find the far more interesting element because this is how China tries to look at it. It is the Middle Kingdom, as they say, and the Middle Kingdom is the mainland is China. Um, not beyond that sort of geographical space. But I think this also ties in, and again, I'll try to keep this quick, but it also ties into how China approaches, um, its international relationships. There are no alliances, you know, triple entente or all this stuff from the 20th century. Every relationship with China is bilateral. And then what China does is they create this sort of divide and conquer approach whereby they're able to pit Canada versus the United States, as we just saw. Then they can pit, let's say, Japan and Korea off each other. So everything is a bilateral relationship where China tries to work to benefit itself by using other groups against each other. So right now, if you look in Washington D.C., there is this growing consensus of something called allied scale. Yes, China may dominate us in certain areas, but if we were able to work with alliances of the EU, America, Canada, India, Japan, then we would be able to create a formidable bloc that would be able to counter and compete with China. As I always like to tell people, looks great on paper. It's exactly what you would expect to see come out of a think tank. The problem is China would welcome that and they'd say, "Okay, because then what they'll do is they'll just play each other, each one of those members off one another."

Oh, you want to have access to something we've got? Okay, but you're going to have to give us this. And it would fall apart in a matter of years. I've seen this professionally play out. You know, the Chinese playbook, quite frankly, is rail thin. It's not a complicated place. It's again, different. You need to understand what the playbook is and you need to adapt. And America needs to adapt now.

It's a good finish, Peter. Here we go.

I think we should, I think I got to have you back because I feel like we could keep on going and, um, but I know it's.

Okay, we could, we could take, we could take one subsegment and go for three hours.

Yeah. Yeah. Yeah. Yeah. Yeah. Well, it's, it's, I'm just looking at the clock. I can't believe the hour 40 is blown by. But, uh, I know in, in Shanghai, it's like bright and early on Thursday morning.

Yep. Thursday morning. Yeah. You're, you're my day is over. I can hang out. I got all night.

Well, let me, I, I'm telling you, man. If you're going to be in Japan, I swear to God, you're Canadian, right? Passport holder.

Yeah. Yep. Yep.

You can, you can less than two hours hop over to Shanghai, visa-free entry. I, I'm going to take you up on that 100%. And it might not be in June when I'm in Japan, but we're, we spent half the year in Indonesia.

Um,

Oh, okay.

We're close, man. We're close.

Yeah.

Because here's, here's the fascinating thing. Prior to the COVID, uh, epidemic, uh, I mean, everybody was coming here. I mean, it was foreigners all over the place.

Yeah.

And no, I mean, I shouldn't say nobody. It's gotten much better. China, in its brilliance, did all of this visa-free travel. I mean, everybody's coming through.

Um, but not the people that matter, not the decision makers, not, I mean, people I deal with in business, the Americans are like, I need to bring a burner phone. I can't bring my. I'm like, guys, trust me.

Yeah. Yeah.

You are not worth their time or energy. Not even close.

Right. Right. Um, but everybody to the man and to the woman that has come back, it's been six, seven years, and they leave going, we're so.

Um, okay. And the, and the other thing is, prior to COVID, it was called the Shanghai Beijing gauntlet. You'd fly to Hong Kong, you go to Beijing, Beijing to Shanghai, Shanghai out. Today, I tell everybody, go to Hong Kong, jump across the border to Shenzhen. Shenzhen's amazing. Take the overnight. It's not even an overnight train now. Take the train to Chongqing. From Chongqing, if you have time, you can go hop up. It's about a 40-minute train ride to Chong Chungdu, then go to Hong Jo, Shanghai out. Those cities I mentioned, that's where the economic vitality and energy is today. It's not. It's Shanghai is great, but it's, it's a big city.

But the growth and the energy is in all of these large second-tier cities.

Interesting. Interesting. Um, let me ask you because I hear that a lot.

Shen, hold on. Shenzhen, Shenzhen, Chongqing, and Hangha are musts when you travel there.

Okay. Okay. Okay. I, I'll take you up on this. Um, and I, I, it's looking at like October, possibly November. Um, I might be in your neck of the woods. Let me ask you because I hear that a lot. You know, you said, you know, a westerner goes to China, dips around, whether it's airport, transport, they come back and they're like, we are so, your words, right? How much of that though, and they, they draw comparisons to the quality of the rail system here versus there, modernization of the airports here versus there. And I, I, if I think critically about that, I think you got to ask the question, well, the United States modernized over the last 120 years, right? China did in the last 30, so of course it's still got that shiny new airport smell, right? Like obviously it's a brand new airport, you know, relative to what we're used to.

Um, and it's, is it an unfair comparison in the same sense, or are you like, that's just a footnote, man. It doesn't matter, right? The speed at which things move is just non-comparable.

Yeah. The, the example I give to everybody is, um, so an example of how there are still more people today working or that need work than you might imagine is all around this city and around every major city. You're going to have undereducated older people, probably 50 or so, that have these brooms, handmade brooms, and all they do all day is sweep the streets. It's, it's spotless.

So when you look at the infrastructure that's in place, you have, you know, you go to these restaurants or you go to these airports, train stations, what have you, there are people literally in all the bathrooms that are just cleaning up. Like, it, before 30 years ago, it was an absolute pigsty. Today, not anymore. So there is a, a learned focus of being able to sort of provide maintenance. Um, you know, I, I'll give you my own personal example, which is I had doubts about buying an EV because I thought the quality was going to be shoddy. Wife was like, "Come on, let's get one." So, we got a Neo back three, four years ago.

Yeah.

It's at least three years old now. It's amazing. Now, it's a city car. I'm not taking it for huge road trips, but it's phenomenal. You know, we charge it. It's seven, was it? $7 to charge the damn thing.

The whole thing. You know, just plug it in, go get some noodles, come back, it's done.

Um, so the infrastructure for charging is all over. So it's, and this is one of the issues that I have with those that talk about the debt issue in China is there, there's a measurement of saying, well, the debt is this high, but the economic output is below that, so the debt is, um, negative in terms of productivity. You're not getting a bang for the buck. You're putting in, you know, $2 of debt to get $1 of growth, right? The problem is the debt that we're talking about is capital is for capital investment,

meaning it's for roads and everything else. So you're taking a one period of growth for an investment that was made when, in fact, it's supposed to carry forward over 20 years.

So when I first got here, and they built this massive new airport in Pudong, the mayor at the time, who was a brilliant guy, he built an eight-lane highway to get from the city to the airport when nobody was using it. Like, nobody was going to the airport. This is 1998. And he was asked, "Why would you build such a big highway?" And his response was brilliant. Well, it's like buying clothes for your children. You always want to buy them a few sizes too big so they can grow into it.

That's where Chinese debt has gone.

It's not that all of it's being used right away, but it grows into it. And I think that's been one of the biggest challenges that the economists have when they savings equals investment. You know, all of this. I'm not saying China doesn't subsidize everything. Sure. Mhm.

But my, did you ever see the movie, um, um, The Dark Knight with the Joker? Batman.

I didn't. I haven't seen it.

Okay. So, there's a scene. Heath Ledger is playing the Joker. And I use this example all the time where he's kind of taking over the city and he's got three thugs that come in.

Um, and they bring in something that he wanted. And he was like, "This is great." He's like, "You know, we're expanding." And he looks at the three guys and he takes a pool cue and he snaps it over his leg into two and he throws it on the ground and he says, "But I only have room for two of you. There's three of."

And then he walks away. Basically, like, you, you two of you are going to have to kill one of the other guys.

That is how China competes. We're going to give you all an opportunity. And I loved, by the way, your state capitalism approach. That video you did was great.

Okay. Thank you. Um, because it was, I, by the way, I like the sort of Lance Armstrong approach to it. Um,

Yeah, the right.

But, but again, I think the, the real interesting element of is you're, China never puts his finger on the scale to pick winners in the beginning. They let it get reduced down, and then like with this past year with EVs, they said, okay, enough, you guys are the winners. You four.

Yeah. I mean, sounds relatively capitalist to me. Mhm.

Man. Okay.

Well, listen. I'm always around. More than happy to talk.

Let's do it. This has been great. Seriously. Yeah. Really enjoyed this conversation.

Uh, guys, you should read Peter Substack.

PLAlexander.substack.com.

Let's get you back on, man. Super fun. And I will hit you up. I, I'll, I'll just funny. I was chatting to some buddies. We go on an annual trip every October. Uh, we've done so for a decade. And we're scheduled to go. Oh, we don't have the location yet. We got the dates. One of our guys is going to be in Hong Kong. So, he's like, "Can you guys just come to me?" Which is cool, cuz when I'm in Indonesia, they came to Japan last year, which is generous of them. Although, it's funny. Getting from from Denpasar to Tokyo was actually takes like three times as long to get there as it does from Vancouver to Tokyo. It's like they had a seven-hour direct.

That was like 25 hours. Oh my gosh. Anyways, the thought was there. Um, but October, I might be in your neck of the woods and I'll, I'll definitely take you up on this tour. I've got a list of five cities here written down. We're gonna talk before then. We're gonna talk before then.

It was a pleasure, Peter. Thank you so much.

Thank you, Jay.

Get Our Mobile App

The Truth About China That The West Gets Wrong

Transcription