Transcription
Can you speak to the thing you mentioned a few times, which is the difference in, um, American versus Chinese, or maybe Western versus Chinese, approach to entrepreneurship? The zero to one versus one to end, uh, maybe can you explain that? And, uh, what will it take for China to become a consistent zero to one innovator for the individual entrepreneurs to create totally new things versus doing the things you mentioned about speed and scale?
The US will lead for some time on breakthroughs on disruptive technologies, the zero to one technologies, um, that ultimately change the world. But innovation is a process. It goes from invention to production and commercialization and diffusion. Diffusing technology throughout all parts of the economy. And on those two stages, I think that China has a unique advantage, even if it still can't do the zero to one breakthroughs. Because in the end, how much this technology is adopted by the countries and by the various parts of the economy is fundamentally crucial to how much productivity will be unleashed. And China's innovation currently, the DeepSeek is really one example, and I think it's really the beginning of the scale-based, leading-edge technology, cost-cutting driven kind of innovation model. Could be just as powerful, maybe even more effective and powerful than the breakthroughs. Um, and it's a very different approach to innovation. The Chinese companies focus on solutions, problem-solving. Again, that comes back to the education system, right? You're giving a problem, I'm going to find the answer. The Chinese students can do it. You want them to write their own question? They can't do it, right? I'm exaggerating a little bit, but it's a little like that, right? They see a problem, they're going to go after it, and they're going to find the best solution. Um, and that's really, really useful, right? Because we don't need, or developing countries especially don't need, these frontier technologies that they can't use. And China currently has this AI Plus program, which is about pushing AI into every single plausible sector with the help of the state. So adoption, diffusion is very important.
Why China can't do breakthroughs or can't do zero to one technologies? I think at the root of it, and there are some deeper, uh, uh, we talked about the the approximate, uh, reasons, the short, flat, fast, for instance, right? You don't want to spend too much time on investigating something that you don't even know if it's commercially viable. So basic research is still weaker than in the US universities. But also this kind of intrinsic motivation, it's very different, right? In China, it's driven by extrinsic motivation. You are rewarded by, you know, compensation, financial compensation, all these kind of extrinsic motivation is what drives you. But intrinsic motivation, pursuit of knowledge for knowledge's sake, right? That was deep in the Confucius philosophies. But of course, you know, poverty has changed all that. The profound commitment to scholarship, to research, which we know is very much true in the US universities, that's it's starting. It's starting, but it's not there. Um, so I think these two approaches are actually quite compatible with each other. I don't know what all this fuss is about, right? Uh, China uses technology very well. It can scale up and reduce costs, and then it can spread it around. And the US, you know, has makes the highest value added by inventing these technologies. Um, but you know, again, diffusion matters.
Well, yeah, the things you mentioned, the the scale, the manufacturing, the diffusion, from a sort of economics perspective, you wonder which is the more important skill to have. And it seems like the cost cutting, the efficient, large-scale, fast manufacturer, the diffusion is much more important for the success and the growth of the economy. I think where it ultimately leads to an impact on the economy that's more important, it's this persistent question we have, why don't we see the productivity in the numbers, right? You're in AI, AI, we had long periods of investment, right? You just don't, you haven't, you hadn't seen it in the numbers until maybe even recently, and it's still very slow. But China's pushing that in the sectors, you know, robotics, um, AI, cloud, industrial internet of things. And even companies like Huawei, I think it's gotten a little bit too bad of a rep in in the US, but American engineers working for Huawei said that it's, you know, they're so happy working for Huawei. The intent focus on innovation, but also on solution-driven innovations in Africa, in rural areas, really changes people's lives. It doesn't change the world, but it changes individuals' lives.
What's the feeling that Chinese entrepreneurs have about copying technology? Because I think one of the cultural things in the US is just really not respected if you copy. Yeah. So like that's not seen, that's seen as a big problem. And is there some degree to where in China it's not? No. Unfortunately, um, this is a big cultural difference. Our our sense of property rights is actually quite different from the US. I think that will change over time, but absolutely, you're right. Um, they have no qualms about copying as long as it leads to success, right? That's the difference in values. Uh, as we mentioned in the beginning, you asked why, why the level of competition is so fierce? Well, they all do the same thing once they've seen one successful thing. Everybody does the same thing. You'd have no respect for doing that in the US, right? But in China, it's all fine. But I think that over time, it will change. Just give it a little bit of time.
So, do you fundamentally, it's a bad thing? In the end, if China is all about innovation technology, you cannot not have very strict IP protection. True. Right. And ultimately, again, we're still in the short, flat, fast stage, right? When we graduate from that stage, you're going to have very different views about these things, and you're going to try to diversify and do different things. But again, it's a stage. Chinese people were hungry. They're still a little bit hungry. They're not going to be as hungry in the future.
So, can you describe the DeepSeek moment and, uh, DeepSeek because it represents what China's thinking about in the space of AI? And, uh, does China have a chance at outrunning the US in the AI race?
DeepSeek was a surprise to the world, but I don't think it was that much of a surprise to the same degree to the Chinese. Um, and remember that DeepSeek happened in times of crisis, urgency, not in times of comfort. A lot of these technological breakthroughs and leapfrogging happens in times of crisis. This is called crisis innovation. And you got to thank the US for that, right? When the Chinese were comfortably importing chips from the US, the whole industry stalled for 20 years. I mean, why would you plow in billions, tens of billions, and even more when you can just import the best, right? You don't want to do your own innovation. It's because of these export controls, these sanctions on these companies that Chinese companies and the Chinese state felt an existential crisis a few years ago on being by being cut off from these critical components. And guess what happened? In a short amount of time, the degree of domestic capacity ramping up and catchup has been nothing short of remarkable. Again, thanks to, uh, US ticulence on technology. Now, I'm sure there are many aspects of hyperbole related to DeepSeek, but it just shows you that the gap is much smaller between the China and the US on leading-edge technologies than what was expected. That these export controls were not effective. They may have even backfired. And it shows you that China has this relentless focus on taking some of the existing technologies and using scale, um, and, um, the advantages to cut cost and to diffuse. And this is just the beginning. I think it will happen in many other industries as well, including in semiconductors. Um, and that's the Chinese approach.
Now, there's an interesting dilemma here, which is that this is happening at a in a time of extreme economic softness, slowdown, um, and missed uncertainty, trade wars, uh, uh, a lack of confidence, a slowdown in private investment and consumption, a withdrawal of foreign investment from China, especially the US venture, um, funding. Imagine what China would have been like, let's say, if the economy was doing better, right? But you could also argue that it's because people feel threatened that they make more leaps. Now, I wish the world is not, we don't have to, you know, drive each other to the corners to do something great, but that is the reality. And, uh, I don't think that there's an easy say between who wins because I think the winning idea is part of the old playbook, right? You're all kind of part of a network. Different countries, different players have different choke points on each other. I don't think it's just about the US and China. And what's more, you use your leverage once, and that leverage has a half-life. It becomes a lot less effective the second time around because other countries, other companies are going to try to substitute it away. You know, if China uses the rare earth leverage, which I think it is now a little bit, um, there will be alternatives and substitutes. Got to be very, very careful of what coercion leverage means. Same thing with the US, right? So I think this is all the old thinking of who wins, who dominates. I think we need a new new playbook.
So to you, maybe when you refer to Biden, Trump, if it go back to Biden, it would be the Chips Act. So the export controls created unintended, unexpected effect where it had the reverse geop was unintentional, otherwise, you'd be questioning the level of intelligence of the US administration, right? But, um, I think that the things they laid out did the opposite of what was intended. It sped up, um, domestic capacity. It, uh, uh, motivated the whole country to do this whole venation program to go after technologies, kind of like the way they go after Olympics, right? Olympic gold medals. They wanted to maximize Olympic gold medals, and they put the whole nation at work and all the resources, and that's what China did. Huawei, another example, they were sanctioned. Guess what? They have come back to life stronger than ever before. And this is not unique to this episode. If we look throughout history, these blockades don't work. The continental system actually indirectly led to industrial revolution, uh, in the UK, when the the Spanish, uh, kind of blockade the the Portuguese, they came up with a very ferocious, forceful naval power. Um, and you're talking about China here, they just don't lie down and lie flat and say, oh, we give up, right? They're more motivated than ever before. So the lesson is, uh, don't force people or nations into a corner. Yeah. You make them have a very comfortable situation, and they tend to become complacent, and, uh, and they, they stagnate.