Transcription
You went to Brazil in 2019, there were no BYDs on the road. You come back in 2023 and a third of the cars are BYD in Sa Paulo. You're like, what just happened here?
And so I think this is when the eyes at least of people who wanted to see, who were trying to understand what was going on, is in 2018. President Trump punches China on the nose, and China wasn't expecting the punch. And they take the punch and they realize, we can't punch back because if we punch back, he can ban us on so many different things. If we try to fight back on semiconductors, he might ban us on chemical products. At the time, China was a big importer. They were very worried. So, they took the punch.
Biden comes back in in '21. And I think there was this hope in Chinese policy circles of thinking, "We've known Biden a long time. He's visited China a bunch. He was Obama's vice president. We go way back. This will be better." And you had the Anchorage meeting with Blinken and Sullivan that was an absolute disaster. It was an absolute disaster. It was actually worse than any meeting they had with Trump.
Today I'm joined by Louise Vincent Guff, and he's one of the few researchers that actually take, uh, your, his reports as the gospel, pretty much closely. I read it.
Yeah, you shouldn't do that.
I read it diligently. Uh, I read it diligently, and together with other credible analysis on China, I consider this to be a must-read for anyone who's interested in global affairs today. With that, Louie, I'd like to thank you for coming on.
Thank you so much for having me. Uh, now you've set the bar way too high. And now I'm, I'm bound, I'm bound to fail. Uh, you've, uh, oversold, oversold, and I'm bound to underdeliver. But I'm going to try my best. Thank you so much for having me, Keith.
Yeah, that's the point. I like to anchor your expectations. But I, I like to start at, at 2018. In 2018, uh, this is, um, you, you said it marks a decisive turning point. You say that you flog a dead horse, but I, I don't think so. I still remain, at least convinced in my opinion, that many people underestimate the significance of the year 2018. Uh, I'd like to ask you first, why 2018 is such an important watershed moment for us?
Yeah, I think, uh, yeah, maybe I do, maybe you're right. Maybe I, I should make that point more often. But look, 2018 is the start of the US, uh, semiconductor embargo on China. And for me, the reason I think it matters is severalfold. First, of course, it really marks the, the breakdown in the US-China relationship. You know, up until that point, it was essentially what you had between the US and China was a, a trade war. You know, they were like, ah, you got to buy more from me, and I'm going to put tariffs on you, and, you know, these are the kinds of things that happen, but it doesn't create lasting tensions, lasting ill will. Um, with a tech war, like 2018 moves the trade war into a tech war, where all of a sudden, if you're a Chinese leader, you start to worry, hold on, the US is blocking me from semiconductors because the US doesn't want me to grow anymore. So, uh, if they're blocking me from semiconductors today, tomorrow they might block me from chemical products, or from auto parts, or from energy, from, from any number of things. I therefore need to get self-sufficient, uh, very, very quickly. I also need to develop other trade relationships very, very quickly, whether with Russia, whether with Iran, whether with, you know, anybody who I don't think the US will be able to put pressure on. Because if you go back to the semiconductor embargo, what was quite surprising and, and somewhat shocking to most people, it's not just that the US said to US companies like Nvidia, you can't sell chips to China, but the US said that to Tokyo Electron, and they said that to Samsung Electronics, and they said that to ASML. Uh, everybody was told, you can't sell stuff to China anymore, or, or face the consequences, which will be massive US sanctions.
So, uh, all this to say that I think it was a, a super important development because it meant that, uh, if you were, um, uh, if you were China, all of a sudden, you had to very rapidly move towards self-sufficiency. Uh, you can, you can, you, you could only afford to rely on people who wouldn't be bullied by the United States, and that's only a handful of countries. Uh, so, yeah, uh, so it, it, it completely changed the economic equation for, for China. And I see, you know, you see this very clearly in the bank lending data, starting in 2018, bank lending to real estate, bank lending to, um, uh, to the consumer, absolutely craters, and instead, all the bank lending goes to industry. Uh, it's almost as if the government told the banks, "Guys, from now on, we're only, uh, putting our money into industry because we need to essentially de-westernize our supply chains as quickly as possible." And this very decision was massively deflationary for China and for the whole world. Uh, it was deflationary for China because it triggered a real estate bust, property companies going bankrupt, lower commodity prices. But it was also very deflationary for the world because as China poured all of its savings into industry, what you saw was China move quickly, very rapidly up the value chain in autos, uh, automation, robotics, railroads, nuclear power plants, I mean, you name it. Essentially anything linked to transportation, anything linked to automation/robotics, and anything linked to, uh, energy generation, energy transportation, energy storage. Uh, China poured so much money into this that in the span of seven years, China ended up leapfrogging the entire Western world. Uh, and so here we are today. We wake up to a world where China produces nuclear power plants that are better and cheaper than anybody else. Where China produces cars that are better and cheaper than anyone else. Tractors, solar panels, you name it. China now is producing better and cheaper goods.
If you look at 2014, that's when they announced the "Made in China 2025." So then what explains that four-year gap between 2014 and 2018? Because one might argue that in 2014, they kind of saw the signals. Uh, why, why didn't they act earlier and why did they wait only until 2018?
You know, the train was on the track in 2014.
But, but 2018 gave it massive urgency. Um, so I think in 2014, what you have with the "Made in China 2025" program is a statement of intention, saying, look, we're going to go over there, um, which is what, you know, five-year plans are for, and which is how policy happens in, in China. So it was very much a case of, look, we do want to go over there, we want to produce our own cars, and we want to produce our own tractors, etc. Um, but in 2014, there wasn't the element of, we're going to do this at the expense of everything else. Uh, because it is now a national security imperative that we do this. In 2014, it was, we're gonna do this, uh, but we're still gonna have, you know, money going into real estate, and we're still gonna have money going into consumption, and, you know, we're gonna have a pretty balanced economy where we're, this is the direction of travel we want to head over there, but again, not at the exclusion of everything else. By 2018, with the semiconductor embargo, it's almost as if, okay, we, we have to do this right here, right now, uh, at the, you know, and that means no more loans to real estate, all the money's got to go into this. So it was, you're right, that in terms of direction of travel, it didn't change, but in terms of the intensity of, of the policy, 2018 marks a very profound shift.
Um, when I look back at 2018, the year, and started, you know, combing through the archives and history of what people was talking around then, at least within Southeast Asia, actually, this was completely not in the picture in terms of how people calculate, or at least understand the US-China picture. They don't see it through the lens of the technology war. I think primarily through the lens of trade. And the second thing, I think within Southeast Asia, was a huge focus only on the digitization of the economy. So I think everyone was really kind of focused on, look, to borrow a phrase of a venture capitalist I interviewed, he said, it's 600 million people getting their smartphones for the first time in their lives, right? How do we translate that opportunity into tangible financial gain? So there wasn't really this focus on this technology war. But if we fast forward to today, it seems that, you know, that actual plan to upgrade China's technology stack, as one will put it, that was the real massive game changer for us, even in Southeast Asia. So I, I completely agree with that.
Well, look, to, to your point, you know, it's, it's, it's easier to see things backwards than forwards. So 2018, I think took a lot of people by surprise, including the Chinese leadership itself. I don't think the Chinese leadership really anticipated this semiconductor ban, which is why I think they perhaps overreacted, and, you know, and the, the policy response was so violent. It was, it was a deep, deep shock and a deep surprise to them. Um, and yeah, uh, look, uh, I, if you go back in time, so, you know, the semiconductor embargo happens in late 2018. Um, and so it, it really starts to unfold in 2019, and then you start to see, you know, the puzzle pieces come into place. It's like, oh, the Chinese real estate is really starting to roll over. Capital to, to the property developers is really being starved. So, you start to see the puzzle pieces come into place. But then come 2020, and of course, COVID happens, and, and that, you know, upends everything for, for like two years. All people talk about is COVID. Uh, nobody's talking about Chinese policy anymore. And so, you know, it's, I think it's only when you come out of COVID in '22, '23, and when people start traveling again, and as people start to travel again, they go to places like, you know, South Africa or Brazil, and all of a sudden, like, wait, all the cars are BYDs? Like, how did this happen? Like, last time I came to, you know, if you went to Brazil in 2019, there were no BYDs on the road. You come back in 2023 and a third of the cars are BYD in Sa Paulo, and you're like, what just happened here? And so, uh, I think this is when the eyes, at least of people who wanted to see, uh, who were trying to understand what was going on, around 2023 is when most people start to realize, hold on, something is happening with industry in China. Um, because, because of the chain of events, it was actually pretty easy to, to miss it.
Yeah. And I think, Arthur, when I had him on the podcast, he was talking about that shift in policy and industrial policy within China specifically, where there was a, a kind of glut of subsidies primarily from the state that looked at incentivizing competition, which also led to the phenomena of evolution as we see it now. My follow-on question to you, at least from your perspective, is that, you know, following that, uh, embargo in 2018, what were some of the policies, what were some of the early signals that you saw that you thought that maybe the market wasn't, uh, accounting for, uh, tangibly in terms of the companies investing into technology?
Look, for me, the, what it became very clear was looking at the bank lending data. Uh, you know, it was all of a sudden, you had the absolute collapse in, in loans to real estate, and you had a surge in loans to, I mean, loans to industry went up like seven or eight times, which, you know, I've, I've never seen in any economy anywhere. So, you know, going back to, to my business partner Art's point on subsidies, etc., I think you have to remember that in China, the way the way policy works isn't so much the government, you know, central government writes a check, "Hey, BYD, I want you to produce electric cars, here's a check, go produce electric cars." The way policy works in China is very much through local authority levels and through local banks. So what happens is the central government will say, you know what, we want to produce electric vehicles. Um, so, you know, they'll get all the provincial governors, the party secretaries, the mayors in a room, and they'll say, "Guys, you know, the future's electric cars." And so now, if I'm the mayor of Wuhan or the provincial governor of, you know, Zhejiang, um, I know that to get my next job, I need to produce the best electric cars. That, that's what they just told me. That's, that's now in my KPIs. You know, it's, I have to produce electric cars. So I go back to my district, to my city, to, to my province, and, you know, I talk to the local entrepreneurs and I say, "Hey guys, if I give, I've got a plot of land over there. If I give you that to build a car factory, and I call Agricultural Bank of China to give you a loan to build a car factory, will you do it?" And so this is how you end up where we are today with, with, you know, 100 EV producers. U and so this started to happen pretty visibly in 2019 in, in a lot of industries. You know, going back to EVs is the easiest example because we see the cars and we know, well, we know some of the brands. I'm not going to claim I know all 100 of them, but, you know, if you'd asked me in 2018, 2019, how many Chinese car brands there were, I would have said, I don't know, 12, 13, 14. I mean, you know, I would have picked a number around then. Uh, except by 2019, the number was already like 50. And by 2021, it would be 100. So my, you know, and then you look at, you know, loans to the car industry, and all of a sudden it's surging. So you're like, okay, something, something is happening here, uh, because, you know, this is how, and you can replicate that model, of course, for the battery makers, and you can replicate it for the tractors, and for, you know, so earth-moving equipment, and so on and so forth. So all this to say that, to answer your question, how do you know where things are happening? You know, we spend a lot of time in our little shop looking at bank loans. I think that's, that's a pretty clear indication. You know, a lot of the loans are are politically motivated. So, it's a pretty clear indication of where policy wants to go. Now, you could say, "Yeah, that's great, but it's a bit delayed." You know, you get the bank loan data three, four months later, etc. And, and that's true, but it's better than nothing. And so, um, so to answer your question, that's how you, you knew it was happening. And at the same time, you know, if you're a bit of a car guy, you'd like, hold on, like this is a new brand. Um, if you do go to things like the Beijing Auto Show or the Guangzhou Auto Show, and all of a sudden you see that there's three times as many, uh, you know, um, companies there. And again, I think most people missed it because while five years ago, a lot of guilos like me might have gone to, to the Beijing Auto Show, during COVID, you couldn't, right? I mean, there wasn't even a Beijing Auto Show during COVID. But, um, but during COVID, like a lot of the things that you would normally do to sort of understand what's going on, i.e., go on field trips, meet with companies, uh, you know, talk, talk to, to business leaders, none of these things were really possible.
After 2018, uh, within China, there is a shift, right? In a sense that they kind of know that, one, that even the Biden administration didn't let go, or he didn't relax the embargo on technology, which made it worse.
Made it worse.
Yeah, precisely. Which then would signal that actually this was a bipartisan effort of, of the American, uh, policy elites to, to stymie China's technological progress. So in that sense, there was a shift towards self-sufficiency, right? And then I think the second point would be, then, um, they, they kind of knew that things were only going to get worse and not better in the long run. Yeah.
So, so, and you use the analogy of them training at the CrossFit gym. So I want to ask you, you know, what was that, what was that training looking like? What did their training look like?
So, so you're right. So the way I look at it is, in 2018, President Trump punches China on the nose, and China wasn't expecting the punch. And they take the punch and they realize, we can't punch back because if we punch back, he can ban us on so many different things. Like, you know, if, if we try to fight back on semiconductors, he might ban us on chemical products. At the time, China was a big importer, and, you know, so there was, they were very worried. So they took the punch. Biden comes back in in '21. And I think there was this, this hope in Chinese policy circles of thinking, well, you know, uh, we've known Biden a long time. He, he's visited China a bunch. Uh, he was Obama's vice president. We, uh, we, we go, we go way back. We go way back. This will be better. And you had the Anchorage meeting with Blinken and Sullivan that, uh, that was an absolute disaster. Uh, it was an absolute disaster. It was actually worse than any meeting they had with Trump. And, and on the other side of that, um, they, the Biden administration actually increased the, uh, the embargoes on China. Uh, so, you know, China doubled down on the industrial policy. So again, they get punched in the face, and again, they can't fight back. So to your point, what I've said in, in some pieces is, you know, having gotten punched twice in the face by two different presidents, you go, you go to the gym and you train hard. And so Trump comes back, and going to the gym and training hard means de-westernizing your supply chain, means making yourself, you know, taking out all the vulnerabilities in, in your economy. Uh, which is where, where you are today. You know, my, my colleague Tom Gatley wrote a great piece recently highlighting that Chinese exports have gone through the roof in the past year. Uh, in the past three years, really. And usually, when Chinese exports went through the roof in the past, imports would also go up because, you know, if you're going to export a lot of cars, you need to import a lot of copper, and you need to import a lot of rubber, and you need to, you know, to before you transform it into other things. Now, of course, China is still importing commodities, but a lot of the things that China would have imported in the past, say, chemical products, in the, you know, like, you, you want to build a car, there's about $2 to $3,000 worth of chemical products in, in a car. And in the past, that might have been provided by Dupont, by Dow Chemical, and now no more. Now, it's all being produced in China. And so, it's fascinating because China's exports are booming, but its imports are not. And so, the trade surplus is getting bigger and bigger. So that's what I mean when I say China went to the gym and got fit. It, it, it de-westernized its supply chain. And then what happened, uh, you know, Trump comes back in, and when Trump comes back in, he's obviously angry. He feels that, you know, foreigners haven't given him the proper respect, etc. And so he doesn't just punch China, he actually punches everybody. He punches Europe, he punches Mexico, he punches Japan, Korea, Canada. He punches, he's like a drunk in a bar, you know, it's like he's, he's fighting absolutely everyone. And this is when China, because like, you know, Europe, Canada, they weren't expecting to get punched by the US. Like, it was, it was a big surprise to them. Now, remember, China got punched twice in the past seven years. So China has been ready for this moment. And so when, uh, when Trump finally, uh, punches China and says, you know, more tariffs on you, um, I'm going to increase the embargo, China says, fine, you want to do this, let's go. Gloves off. You want to have a fight, you tariff me, I tariff you. You embargo me, I embargo you. And then the US realizes that without the Chinese rare earths, without the Chinese magnets, the, uh, the, you know, the US can't produce weapons, the US can't produce cars. And meanwhile, you know, the US might think that banning China from the high end of semiconductors is a way to bring the Chinese economy to its knees. But meanwhile, what you've seen is the release of DeepSeek, the release of Qwen have shown that even at the very pinnacle of technology, i.e., AI, even at the, you know, the top, top, China can actually be competitive without access to the US semiconductors. So all of a sudden, the relationship shifts. And you saw this very clearly in South Korea when President Trump met with President Xi. You know, what were the two topics of conversation? The two topics of conversation were TikTok and, um, rare earths and/magnets. Both of these, if this is the topic of conversation, you're playing straight into Xi Jinping's hands because Xi Jinping can give you TikTok or he cannot give you TikTok. You know, what does he care? He's not a shareholder in TikTok. He's not trying to sell TikTok. And if the US decides to shut down TikTok, well, that's going to be a big problem politically for Donald Trump because young people are going to be very upset at him. Meanwhile, on rare earths, same story. If that's the topic of conversation, that means that China's already won because China controls all the cards. It can decide to give you rare earths or it can decide not to give you rare earths. If the topic of conversation is rare earths, and if the topic of conversation is is TikTok, that means that the US is asking for for stuff for China to give. So it's a completely 180-degree relationship from seven years ago, when seven years ago, China was asking, please, can we have the semiconductor machines? Please, can we have the semiconductors? And the US were saying, no, you can't. And so the relationship has now shifted 180 degrees. And so that means that makes for a China that can also shift its policies domestically because it no longer really needs to, um, to protect its economy from potential US attacks.
You know, with regards to the gym, there's always the adage which is no pain, no gain. So China had to take a lot of pain, right? They should, in order to get, get the gain. I'd like for you to kind of elaborate the kind of massive pain they took between 2018 to now, because for you to grow that much and overcome that technological asymmetry, as one will call it, that will require you to take a lot of pain.
Absolutely. Well, look, essentially what China did was mobilize its massive savings because China does have massive savings. And, you know, again, took it all from property, took it all from equity markets, and put it all into building industrial supply chains. I mean, look, during that period, there were barely any IPOs, uh, there were barely any corporate bond issues. It was, we take all our money and we put it into, um, uh, into our industrial supply chains. So the end, what was the end result? The end result was property prices went down by a third. Uh, equity markets essentially went down by two-thirds. It was a brutal, brutal time. It was very deflationary for China. Uh, you know, growth went down. Nobody had wage increases for seven years. And this had real societal consequences. The, the, the marriage rate collapsed, uh, in China. The, the birth rate collapsed. You know, China pre-2018, China was having 17, 18 million births a year. Now you're down to 9 and a half million births a year. It's almost halved. So China took a lot of pain, uh, to essentially, you know, free itself from the possibility of US reprisals. It took a lot of pain to de-westernize its supply chain. And so today, it's interesting because, you know, following Seoul, the US turns around and says, "Hey, you know what? We're going to de-sinify our supply chains. We're going to build our own shipping, uh, industry. We're going to build our own rare earth industry. We're gonna build our own aluminum industry. We're gonna build our own chemical compound industry for, for drugs." You know, and each time, you know, if every one of these things, it's $500 billion, a trillion dollars. And, you know, the US is proposing to do this at a time when government debt in the US is, you know, pretty much at record highs, where budget deficits are 6% of GDP. They're roughly two trillion a year. And so the US is going on saying, "Yeah, we're going to spend a trillion to do this, a trillion to do that, a trillion to do this." So if they do do that, that's money that's going to come from somewhere. And then, you know, it's, so either you're going to print the money, but then you, you know, you already have a 3% inflation rate. So if you're just going to print the money, you could, you could get into a, a strong inflation situation very quickly. Or the money is going to have to come from out of the stock market, out of the real estate market, essentially what happened to China. And so, you know, China, the, the population took it on the chin. You know, they, they, as they say in Chinese, "chi ku," they ate bitterness. Um, you know, they had the, the one-third drop in real estate, the two-thirds drop in equities. Can the US accept such an outcome? I, I think the US cannot accept such an outcome, partly because the US is a much more over-financialized economy relative to China. There's a much more, a lot of leverage against asset prices in the United States, much more so than in China. And, um, and, you know, the, the US valuations of assets today means that actually economic growth is highly dependent on assets. Now, if you look at the Buffett indicator today, the market cap of the US is more than twice the level of GDP. So if equity prices go down 30%, that is going to, that that pushes the US into a recession, like, you know, it's almost mathematically. So all this to say that, you know, China took a lot, a lot of pain to de-westernize its supply chain. So if the US wants to de-sinify its supply chain, it will need to take massive economic pain and financial pain to do so. Alternatively, it can turn around and say, you know what, let's make, let's make peace with China. Uh, you know, let's turn the page, move on. And, you know, I think US policymakers have realized that they don't have much of a choice because any policymaker that imposes a one-third drop in real estate and a two-thirds drop in equity prices will be kicked out of office long before the positive fruits of such a policy, i.e., the de-sinification of the, of the supply chains, long before the positive fruits of such a policy, uh, appear, the, the, you know, you, you'll have lost elections, you, you'll have been kicked out. So, uh, so all this to say that, you know, I think all roads lead to the, to the reality that the US is slowly starting to realize that they really have no choice but to get along with China.
Could one make the case that you could pursue a Pax Americana approach where it's like the US and Europe come together to build out a maybe an American-led kind of supply chain that serves as an alternative, or is the Chinese elite just too commanding at this point in time?
I mean, and okay, uh, I mean, Europe is more than willing to, to, and I say this as a Frenchman, it's more, it's more than willing to, uh, to be America's doormat, uh, as, as we keep showing. But, um, you know, what does Europe bring to the table? Like, what the US needs is rare earths, it's aluminum, it's shipyards, it's, uh, you know, it's magnets. You know, these are the things that China now totally controls. So I think the odds of, uh, Europe being able to help on any of these fronts is essentially zero. Now, China and Korea can help on, h, sorry, Japan and Korea can definitely help on some of these fronts. They can help on, on the shipping. They can help on the aluminum. U, they can help on some of the chemical compounds. Um, the, the real chokehold remains the rare earths and the, uh, the magnets, where I think, you know, de-logging China's dominance in that sector would be a 10-year effort. And so it's, uh, and it would take massive, massive investments. So, you know, yes, the US can do more with Japan, US can do more with Korea, but let's not kid ourselves that, you know, through that, you, you take all the boxes. As for Europe, I'm, I'm not really sure. And I, again, I say this very sadly as a Frenchman. I'm, I, I don't really see what we bring to the table.
Why is that the case?
Why do we suck? Terrible because of terrible policy choices. Um, you know, I like to state, you know, my starting point, I always like to say that economic activity is energy transformed. Now, Europe, really for the past 15, 20 years, has done its very best to increase the cost of energy for its local businesses. So it's, um, you know, look at my own country of France. We used to be nuclear world leaders. You know, I, growing up, and it was the one thing that essentially, the one issue that united left and right. Everybody agreed from the Communist Party to the far right. Everybody agreed, except for the Green Party, that essentially represented 5% of voters. Everybody was pro-nuclear. But because essentially you needed the Greens, and the same story in Germany, because you needed the Greens to make coalition governments, you know, that 5% or 10% of Greens essentially, you know, as a price for their participation got, you know, essentially Europe to sacrifice its nuclear industry. And so, you know, you, France, we, we used to be, 90% of our electricity came from, from nuclear. Uh, we're now down to basically almost 50 now. Um, and this, by the way, very much happened on Macron's watch. And, you know, this was, this was an among Macron's many policy disasters, this was probably the biggest one of them all. So if you're Europe, and you start off with, you already have, you know, one of the highest cost of labors out there because there's the wages, but on top of the wages, there's all the social spending, and, you know, the, the social taxes that employees have to pay, etc. You know, we have an office in Paris. When I employ someone in Paris and he costs me a hundred, the reality is he costs me 200 because there's all these taxes on top of it.
So, uh, so you start off with that. You start off with also highly inflexible labor laws. You know, if somebody's not working out, very hard to fire, etc. So you start with that. Then on top of that, you, um, um, you throw the highest cost, uh, so on top of the highest cost of, of labor, you throw the highest cost of energy. You know, you're really, that's kind of the straw that breaks the camel's back. And it, it essentially leads to a collapse in investment. With the collapse in investment, you get a collapse in productivity, and you get weak growth. And so, so that's where we are now. Against this, I still think there's some absolute world-class companies in Europe. You know, even in spite of, of all of these problems, but a lot of these world-class companies are essentially multinationals. You know, your Siemens, your K, your Schneider, like, you know, world-class industrial companies that increasingly produce less and less in Europe, uh, or if they produce still in Europe, they increasingly produce in Eastern Europe where the regulatory, um, you know, backdrop, uh, is much less. Where you look at, for example, Poland. Poland is very happy to burn coal to provide cheap electricity to its companies, you know, and so on and so forth. So, um, the, the story of Europe is death by policy suicide. It's a terrible thing to say, but there you go. You can't have the highest taxes, the highest cost of, of regulation, the highest cost of labor, and the highest cost of energy, and expect a positive outcome. It's just not going to happen.
A lot of people are looking forward to the end of the Ukraine war that's happening.
Yes.
You don't have a very optimistic view of the fallout, you know. Um, can you explain why?
Sure. Uh, absolutely. Look, uh, don't get me wrong, I, I hope this war ends. You know, it's, it's a terrible war. You know, it's cost the lives of hundreds of thousands of people. I think you have six million Ukrainians that have fled their country, so that are living as, you know, refugees somewhere. I mean, it's like, it's a human disaster on so many different fronts. Um, now, what is happening is it increasingly looks like the war is going to end with what can probably best be described as a Russian victory. Um, now, once that happens, you know, and I think when Europeans got involved, they were hoping that the war would end with regime change in Russia, that, you know, thanks to all the NATO weapons, thanks to all the NATO money, thanks to the very brave Ukrainian soldiers, that, you know, Russia would go nowhere and that at some point you would either get a coup in Moscow or, you know, they would lose the war and the regime would be discredited, would lose power. So the hope was that you would get regime change in Moscow. It turns out you're going to get regime change in Kyiv. I think that's how this war ends, uh, with regime change in Kyiv. And so, once you have the regime change in Kyiv, uh, the problem will be for European countries is what, what do we do about Russia? And I think the, the big problem is you have a lot of countries, Germany, Hungary, Austria, Slovakia, that will say, you know what, we need to do business with Russia. We need to get the cheap energy from Russia. We need to sell cars, machine tools, everything else that we sell to, food, all the stuff that we historically sell to Russia. Let's go back to doing that. So, you'll have a lot of countries that will say, "Let's turn the page and move on." And then you'll have countries that will say, "Absolutely not." Like, we will not, excuse me, we will not do business with Russia, like Poland, I think the Baltic countries, uh, you know, Sweden, Finland, France, they'll probably say, the European Commission, they'll say, "No, no, no, you know, this is an, a regime that, you know, committed war crimes, that committed crimes against humanity, that declared war. We absolutely cannot do business, uh, with Russia." And I, I don't see how Europe compromises on this. If half of Europe wants to do business and half of Europe doesn't, it's going to create this massive split, uh, where, you know, it's, it's, it's a sort of binary decision. It's, it's hard to reach a compromise on this because either you're going to do business or you're not. And so my big fear is that, you know, most of the bills in Europe are paid by Germany. Germany is entering a recession, and Germany is going to say, "Hey, if I'm paying all the bills, I want to do business with Russia." So you guys, you know, it's the golden rule. He who has the gold makes the rules. Um, and so you guys have to do what I say. And I think that will, that has the potential to really create a very, very nasty split within the European Union.
At the end of the war, it's not just Ukraine and Russia that comes out as the losers, right? The Europe, the European Union could lose its supranational project that has been building on for the past 50 years.
I think so. Uh, look, I, maybe the Ukraine war will be the end of the European Union and the end of NATO. You know, when you lose wars, there's usually political consequences. You know, World War I, when World War I ended, uh, you know, by the end of World War I, the Russian Empire had gone, the German Empire had gone, the Austro-Hungarian Empire had gone, and the Ottoman Empire had gone. And so losing wars makes for political upheavals. Now, the whole point of NATO was, you know, back when it was built in the '40s, '50s, '60s, was to protect against Russia, to, well, back then the Soviet Union. It probably should have been disbanded in '92. It didn't really have a, a main purpose anymore, but, you know, we said, okay, well, we'll keep it as a, as a buffer against Russia. And now, you know, NATO had a chance to prove its worth against Russia and didn't really work. Um, so I don't know. I think, uh, and NATO is now being undermined on the, on the US side as well, where essentially the US is, you know, with a new national strategic review that came out on Friday, they're essentially saying, look, Europe, you're going to be on your own pretty soon. So, and, you know, if, if the US walks away from NATO, like, it's kind of a worthless institution because then you're left with the reality that within NATO, you only have a couple countries that still have real armies, you know, like, does France, does France need to be allied with Luxembourg, and with Belgium, and with Holland, when these guys, none, Portugal or Spain, like, none, well, Spain actually has a decent army, but none of these other guys really do. So, bottom line, uh, yeah, I, you know, on the other side of this Ukraine war, I, there's a possibility that the EU does not survive.
I guess then the question would then be, you know, with this kind of, uh, possible scenario looming on the back and the possible of US disengagement in Europe, one would ask this other question, which is, would Europe reconsider its relationship with China? Like, would it now be able to engage more autonomously or independently with China, and maybe perhaps even find win-win situations they could both benefit?
I mean, the answer, I like, they should have been doing this three years ago already. It's like, it's mind-blowing to me that the extent to which, you know, the, the, the general EU institutions in Brussels just cowtow to whatever the US says and does. It's, we're to say that Europe has become a lapdog to the US would be, I think, an insult to dogs. Um, it's, uh, it, it's absolutely, absolutely mind-blowing to me. Um, the, you know, we just saw it again with the National Strategic Review. It's essentially the, you know, the US spits in the face of Europeans, and the Europeans turn around and say, "Oh, this is a nice shower." Um, it's so, yes, logically, Europe should, you know, given how it is being treated by the US, Europe should be turning around and saying, you know what, we are going to follow our own policies vis-à-vis, um, China. We are going to follow our own policies vis-à-vis, maybe Israel. We are going to follow our own policies vis-à-vis, maybe Russia. I mean, the US is following its own policy now vis-à-vis Russia. It's so, anyways, bottom, logically, that's the path it should go. I think there's sort of embedded inertia within the halls of European power that, you know, the inertia is, we're best friends with the US, so we'll do whatever the US says. That inertia has built up over the past 20 years. But, you know, it's, it's an extremely, extremely destructive inertia that, that, you know, should be challenged. But, yeah, who, who are the European politicians challenging that today? Uh, the answer is that there aren't really any.
So then I would say that is it fair to say that, you know, if you look at the coming decades, it will primarily be the world, it will be a tussle between the US and China really fighting for economic primacy in the global order?
I'm not even sure. I think.
Well, is that the right, is that even the right framing? Is there?
I'm not sure it's the right framing. I think, I think that was the framing a year ago, to be honest.
But I'm not sure it still is the right framing because I think, uh, the US realizes now, you know, the US is starting to talk about a G2 world. That's what Trump talked about when he was in, in, in Busan. Um, I, I think the US realizes that, you know, having a confrontational, conflictual relationship with China actually underserves US interests. Um, and so, you know, you had a period of 20 or 30 years where people were talking about Chin-America, like it was integration of these two economies. Then you had a period of roughly 7 to 10 years where the economies were pulled apart, very conflictual relationship, etc. And I think we're coming to the end of that period now. I don't know what's coming next. I'm not saying we're going back to Chin-America, but I also don't think that, I think both China and the US want to work towards a more constructive, uh, positive relationship. Um, it doesn't mean that you go back to, to, you know, keep growing and the integration of the two economies together, but, uh, I don't know if the, we're moving to a world where it's going to be, you know, fighting, fighting each other for influence around the world. I think at this stage, it's increasingly clear that the US has said, look, Latin America is mine. It's pretty clear that Africa at this point is, is, um, is China's. It's pretty clear that most of Southeast Asia, most of, um, Central Asia is going to be China's. Europe, it, it's not even obvious that it matters all that much over the long term. Um, yeah. So, it's, you know, maybe you have a world with different zones of influence, but it doesn't mean it needs to be conflictual.
I'd like to ask the question on, you know, China's structural weaknesses, right? I think some of the, the, the, maybe China bears would say, hey, you know, like, China's still nowhere close to the US in terms of its, uh, um, ability to, to have a, maybe a robust market, or maybe invest in an investment-worthy market, right? Uh, a lot of people kind of cite this statistic about the 0% correlation in the past few decades of its economic growth and the stock market performance.
Yeah. So that, that has been something that that people use against China. Uh, obviously, then the question would be to, you know, what makes China investable? You know, how should one think about investing in China?
We could spend hours on this. Um, so, so first, you know, on the investability issue, Chinese equities have been terrible returns. Chinese fixed income has been terrific returns. And I always highlight this, that, you know, if you look, if you look at the past three, five, 10 years, Chinese bonds have absolutely crushed the returns of, of Chinese equities. So it's, um, you know, I think as a default, most investors look at everything through the lens of equities because, you know, we all watch CNBC and we look at the tickers go by, and it's also easier because it corresponds to companies that you know, we interact with. So, Facebook or Amazon or Alibaba or Tencent. And so, you, you like, "Oh, yeah. I compare Amazon's done much better than Alibaba, and, you know, Facebook's done much better than Tencent." Um, but, um, but, you know, I would, so, so first, I would, you know, caution that, you know, in the US, what you've done is you've essentially sacrificed the bondholders for the equity holders. And in China, you've had the, in China, you've had the reverse. Um, now, you know, where do we go from here? I think in China, there's increasingly a willingness to, you know, not maybe not sacrifice the bondholders, but definitely goose up the economy. You know, next year, the Chinese budget deficit will probably be 10% of GDP, thereabouts. So, they're, they're stimulating much, much more aggressively. No, I think the other thing, uh, so, you know, we can go down that avenue on the, the bond versus equities. We can go down.
The avenue on what policy going forward looks like. We can also go down frankly, um, the the avenue of the transformation of the Chinese economy. Uh, which for me is perhaps the the more interesting thing, the more interesting development as an investor. And that, you know, I think if you go back five years ago, 10 years ago, 20 years ago, it was very hard to make money in China as a company because if you had a successful business model, somebody would come in and compete with you immediately. Uh, because you were typically operating at a fairly, you know, low margin, uh, low, low barrier to entry business. You were in manufacturing, or you were, you know, it was it was all sort of pretty low-end. And so, you know, again, you'd get tons of competitors.
Now, I, you know, what's fascinating with China's big push into industry and China's massive improvements in education, what you've witnessed is transformation economies. And perhaps the best example of this is BYD. You go back 10 years ago, BYD made very crappy cars. The idea that anybody with money would want to buy a BYD would have been laughable. Um, but you fast forward, you fast forward to today and, you know, arguably BYD now makes the best cars in the world. Whether it's the super high-speed cars, like you want to, you know, you want the fastest car in the world, it's made by BYD, goes 495 km an hour. You want a car, you want a Land Rover type car that can uh float in a river for 30 minutes. BYD, that's BYD who makes that. You want a car with a drone that goes ahead of you so that there's if there's deers on the road, they uh the, you know, the car gets a warning and automatically slows down. That's also BYD.
So, and how did BYYD go from here to there? BYD went from here to there because today there's 120,000 engineers in BYD's R&D department. Now, that that's a mind-blowing number, 120,000. To put things in context, it's 80,000 workers at Tesla. So, it's, you know, it's we're not talking about, forget the same ballpark. It's not even the same sport. Um, in terms of of R&D, in terms of and the idea 10 years ago that BYD could make original products, uh, or would have 120,000 engineers in its in its R&D department would would have seemed laughable. And again, so you know, when you compare when you look at the Chinese equity market today and you look at what's happened over the past 20 years or 30 years, you're comparing apples and oranges. It's not the same thing anymore. That the Chinese economy has transformed itself dramatically and you now have companies that are, you know, much higher up the value chain.
I'll give you another example since we're talking about cars. You know, the the biggest lidar company in the world with more than a third of the global market share is a company called uh Hosai. Um, and you know, five years ago to put lidars on cars would cost $50,000, like, you know, to equip a car. Today to equip a car with lidars cost 200 and thanks in to Hai it cost $200. So the cost has gone from $50,000 to 200. It's down 99.5%. And you know, this is this is kind of mind-blowing because it completely changes the economics of everything. You know, it used to be that lidars was all about, oh, we're going to use them for autonomous driving. Now, we're entering a world where every car is going to have a lidar for safety. It's going to be like the airbag because a car with a lidar is much safer than a car without a lidar. And so, just like you have to have an airbag, people are going to have to have lidars.
And so you look at a company like Hail, you know, these kinds of companies didn't exist in China 10 years ago. Companies that uh a were at the forefront of technological innovation at the same time at the forefront of manufacturing because, you know, these are two separate things, but doing them together, you do them better if you do them together at the forefront of manufacturing and uh that own basically global markets and do this while, you know, maintaining pretty good margins. So you now have uh I think in China 15, 20 companies that are absolute world-class companies that dominate their market both domestically and internationally, and this is something completely new. Again, this did not happen. You did not have this 10 years ago.
So, you know, on the whole China investability thing, I think uh, you know, it people look at the past and project it in the future, even though you can see with your own two eyes the transformation, the dramatic transformation of Chinese economy. And so, yeah, people say, oh, you're saying it's different this time, but I invite people, I say, come to China and tell me it's not different. You know, go see these companies and tell me it's not different, because it is. >> It reminds me of your former colleague's book, Dan Wong. He talks about breakneck. Right. He talks about the engineering versus loyalty society. And one of the interesting things that I thought he didn't really explicate as much was actually the engineering talent stack in China is just so rich. Not at the policy level, but at the private enterprise level, and even at the be it at the startups, be it at the corporates. It's like everywhere you go as an engineer there.
>> So, look, I I went to university in China in the early 90s. Um, yeah, in a vain attempt to learn Chinese. And when I was there, China was graduating roughly 350,000 university students a year. China now graduates 12 million university students a year. And, you know, almost half of these are in the STEMs, in the sciences. Um, you know, so either, uh, engineering, math, uh, physics, uh, chemistry, you know, mining, engineering, all all these things. Um, now here's the fun bit. You know, I invite you to go to Imperial College in London or to Purdue University in the United States or any of the big engineering schools and go into a classroom and you'll find that half of the students in the classrooms are also Chinese, the other half is Indian. So in the western world, I think we have this delusion that, you know, yes, tech matters, uh, of course it does, uh, and yes, uh, we will dominate tech by essentially attracting the smartest Chinese and the smartest Indians to come work in the West, um, because that's what we've done really for the past 25 years. Um, I mean, look at, you know, the entire, the entire AI team of Facebook is Chinese. Uh, like the entire of Meta, the entire AI team is is Chinese. And so I think there's still a bit this delusion in the West that, you know, what Chinese people and Indian people, they all want to come and work here. Which, you know, it's it's true, like the US still has a terrific ability to attract top talent. Having said that, that gap keeps on narrowing because the quality of life, you know, the quality of life in China 20 years ago was terrible. Uh, you lived in Shanghai, it was polluted, it was there was nothing to do on the weekend, it was super lame, uh, no no good restaurants, you know, you name it. If you have money today in Shanghai, and you don't even need that much money actually relative to say New York or San Francisco, you live like a king. You live like a king. And so you are starting to see more and more people come back. Um, which is, you know, perhaps also something that that people underestimate when they look at at China. And here I I'll use the the biotech uh experience as as an example. You know, out of nowhere in the past 15 years, China has built up a massive biotech industry. It's now, you know, it's now outperforming the US biotech industry. Now, fascinatingly, a lot of the guys worked in the US and came back. Um, they came back because, you know, lots and lots of reasons. Perhaps also the US is becoming less friendly to foreigners. I think if you're Chinese, if you're Indian, uh, the US, you know, 20 years ago opened you with welcome arms, you know, today that's not really the case anymore. So, it's a number of little factors. It's it's not one thing. It's a number of little things where it's nicer to live in China now. It's nicer to live in India. Uh, it's uh, it's very, very expensive to live in the US. Uh, you know, you as a Chinese or an Indian, and you're not really treated very nicely anymore. It's like it's one thing after another, and then people move back. And as they move back, you know, they it it helps the domestic growth, etc., etc. So, um, again, I I things are very fluid. It's a it's a constant, things are al constantly changing. But I would just say this, you know, the the markets, you know, they can sense that out. And so you look at the past couple years, Chinese biotechs have massively outperformed US biotechs. Chinese tech is starting to outperform US tech, and in Chinese industry is massively outperforming US industry. And meanwhile, the framework of everyone's point of reference is China's uninvestable and US is exceptional. But eating away underneath, you're already starting to see in the markets the relative shifts of performance.
>> So then the question becomes, you know, where does this leave the US, right? I think many people are asking, you know, is it are we actually understanding the US right way? Is this just maybe a temporary blip in the history or are we starting to see a decline?
So, first, we have to start off with the simple reality that the US won the lottery of life and has uh basically pocket aces. You know, if it was a poker table, the US has pocket aces. It uh it obviously can't be invaded by anyone. It has pretty much all the natural resources it could possibly want. It has a network of rivers through the Mississippi that allow you to move goods around at very, very low cost on barges. It has uh an institutional makeup that is very, very robust in terms of guaranteeing personal freedom and liberties, uh, independence of the justice system. It has so many comparative advantages. It of course has the advantage of having the world's reserve currency. It has the advantage of, you know, I think people underestimate what an advantage the the chapter 11 uh is in terms of, you know, having very sound bankruptcy law that allows you to transfer assets from, you know, weak hands to strong hands uh very quickly. So I I could go on. The list of of advantages that the US has is enormous. So you I think you never want to you know, completely um, uh look look at you know, lock it away.
Now, having said this, you know, how much of that is priced in the market? How much of that is recognized by the market? The reality today is that we're 15 years into a bull market in the United States, and the US is very richly valued relative to everywhere else. But, you know, even beyond valuations, and it's richly valued against its own history. It's uh, yeah, but even beyond all of this, I think the bigger issue is, you know, that the longer a bull market lasts, the the bad actors don't get punished, right? And and a bull market that continues attracts con artists, it attracts hoodlums, it attracts all sorts of bad behavior. And I think you've seen a lot of that in the cryptos in recent years. But when it comes to um, to this kind of behavior, it's uh, it's what's John Kenneth Galbraith in his book called the bezel. You know, you have essentially dodgy characters that that come in. And that doesn't happen at the bottom of markets. That happens at the top of, you know, that happens as the bull market lasts. And I I wonder if in the US we're not now not reaching the points where the bezels are starting to appear. This was pretty clear. It's what um, uh Warren Buffett said, you know, it's when the liquidity comes out that you see who's who's been swimming naked. And, you know, you're starting to see some of the private credit guys implode. Private equity is struggling and having to postpone returning capital to shareholders. So, it's event after event where uh you start to wonder, okay, uh, you know, are the bezels starting to emerge in the system?
Meanwhile, you know, if you were running a dodgy business in China, you've been starved of capital between 2018 and 2024. So, you've already gone bust. And to some extent in Europe as well, you've been starved of capital. So, we're entering, I think, the phase in the markets where you are going to start to see the the more dodgy business models implode. And that's essentially essentially that means uh you're going to get more scandals in the United States than you are anywhere else. So cyclically, structurally, there's nothing wrong with the US per se. Cyclically, I think it's it's a dangerous place to invest.
>> I thought AI is a useful framework or prism to see where the technological divergence is happening. How is AI I would say different in China versus the US? How are they developing differently?
Look, I think what happened in the US is that, you know, one of the biggest success stories of the past 30 years, 20 years in the US is Apple, right? And Apple created a closed-end ecosystem. So, you get your phone, you get your laptop, and then you're an Apple customer, and they own you. And with that, the Apple share price rated from eight times earnings to 35 times earnings. And I think an any tech executive looked at this and said, "This is perfect. This is what I want." And so the even though it's in the US, it's called Open AI, it's anything but open. And so what you've seen in the US is essentially an attempt to build a bunch of, you know, what could best be described as fortresses. Think of a European medieval fortress. You build huge walls and you say, "Once you're in there, you're safe, and, you know, this is a great castle. Come into my castle." So what you have in the US is an attempt to build a bunch of castles and to get people into the castle. And once they're in the castle, they have to pay monthly fees and and and that's the business model.
Now, the problem with that business model, actually, when you say, you know, China's is is seems undervalued, etc. The problem with that business model is the revenue, at least so far, but most likely forever, doesn't justify the capital expenditures. You know, if you're bringing in poor peasants into the the fortress and saying, "Hey, you have to pay me the protection money for these big walls that I had to pay a lot of money to build." Then the poor peasants are like, "Yeah, I don't have the money to pay you." So, so that's the that's the US model. In China, because China couldn't throw computing power at issues, they really because of the semiconductor embargo, they had no choice but to embrace genuinely open AI and to have, you know, thousands of engineers around the world essentially write code and mostly around China write code for free and and and and so you you've got two very different concepts.
Now, as it turns out, most corporates would rather go for an open-ended solution. I don't know if you saw, but uh 80% of startups that knock on Andreessen Horowitz's door. So, Andreessen Horowitz is one of the biggest VC funds in San Francisco. 80% of the startups actually use Chinese LLMs. First, because of course, it's cheaper, and when you're a startup, you're probably counting the pennies, but also because um they can modify them as they need to. And I think that's that's a very, very important modification. In fact, the Airbnb co said this in in the the earnings release said, "Look, we used to use ChatGPT. We've switched to Quen because, you know, Quen we can modify at will to our needs." So, you know, essentially the US is building medieval fortresses and China is building Dubai. Now, I don't know if you've been to Dubai, but Dubai is expanding, expanding, expanding, and each time there's another 100 thousand people that move there, you know, they just build more into the desert or they go north, they go south, they build out onto the sea, and they just they just keep adding. And it's a completely fluid place where you want to move to Dubai tomorrow, you can move to Dubai tomorrow. And as long as you respect the rules and you come, you can come, you can go. And so it's it's actually very funny because conceptually you would imagine that the US would go for that. The US is supposed to be a free and open society. It it's, you know, you come and go, the government doesn't, you know, track you too much, etc. When China is supposed to be this repressive regime that tracks every move and etc. And so meanwhile, China goes for the open AI solution and the US ends up going for a corporate uh solution that I think will actually fail in the market. Because between, given it's it's actually the way you can frame it is corporates will be given the choice between freedom plus low cost against safety. Again, going back to the medieval fortress thing, this will be the choice. Now, for some, if you're JP Morgan, you're probably thinking safety is paramount. Like, it's safety is 99% of the battle for me. So, I'm going to pick safety. Thank you very much. But I think a lot a lot of businesses, small businesses like ours, a lot of universities, a lot of schools, they'll pick uh they'll pick freedom and low cost.
>> So, even in the US, you'll start to see a much more blended AI tech. Wouldn't just be purely American-made?
>> Yeah. No, I think so. And in fact, I think on the AI front, it feels to me like it's already rolling over in the United States. >> But I think the big event is probably coming in the first quarter of this year when Quen for the the Baba LM is going to be released, and which, you know, supposedly is supposed to aggregate sort of all the other ones like the Deep Seeks and the the Mummies, etc. It's like all all of them uh aggregated under the Quen for umbrella. If that does happen and happen successfully, I think that's going to be a bit of an electroshock, perhaps even a bigger electroshock than DeepSeek.
>> On that note, what is the right lesson that one should take from the DeepSeek moment? Is it purely that semiconductor embargos don't really work? But what should the the bigger lesson be?
I mean, there's so there's so many, but yes, u semi the semiconductor embargo obviously failed. The uh mass collaboration works because that's what DeepSeek was. Uh, but perhaps the simplest, the simplest explanation is that, look, creating these LLMs is actually nothing that outrageous, that amazing, that incapable for lots of people to do, which means that essentially it's always going to end up being a very commoditized business.
>> So that's that's the end result. Is if you think that Open AI is going to be able to to charge massive premium for ChatGPT or Anthropic is going to be able to charge huge premium to justify all the money that they've already burnt through, I think that's delusional.
Where does this leave Southeast Asia in this world where you start to see uh the China starting to become so dominant that even in Southeast Asia where you're maybe at the lower end of the tech development phase, how can you then upgrade your ST? How how does one in Southeast Asia think about the future?
>> I I should ask you, you're the Southeast Asia expert, not me. But the >> I'm in Singapore. So I think in Singapore, the place seems to be you try to be the Switzerland of both tech stacks. So you you be welcoming to everyone, and then where you make the difference is um, you you try to you try to fit uh the needs for each company economy. So for the Chinese, the play would be, you know, if you're a TikTok trying to get out of China, Singapore is the best place to internationalize. So that's why ByteDance is a huge office here. Uh, and in the US, for the Googles of the world, it's like, yeah, if you want to access the Southeast Asia, the APAC market, Singapore is the place to be. So, we're kind of like trying to be the Switzerland of of the Southeast Asia. But in other parts of Southeast Asia where they're lagging in development, the play seems to be, let's just adopt Chinese tech and get underwritten by American finance. That that seems to be the ideal state.
>> I think so. Uh, look, I uh, I think the path of least resistance is to assume that Southeast Asia will keep doing what it's doing now, perhaps at a somewhat accelerated pace, but you're seeing it. You know, you look at, you know, Vietnam is actually doing quite well. It's moving up the the value chain in terms of industry. You know, Indonesia's done a pretty good job at monetizing their their commodity uh comparative advantage. You know, forcing people to to move battery production into Indonesia. Down the road, obviously, they'll push to to move the car production there as well. You know, Malaysia, you know, I think it'll continue to remain tied to the energy cycle. Thailand has some, I think, genuine issues. Um, it's uh, it's not obvious to me what Thailand's big comparative advantages apart from tourism. So, it's it's hard to make a blanket statement across Southeast Asia, right? Because everybody's got different comparative advantages and and and different different plays. But, you know, by and large, I think in most of the region, you've seen, you know, in the past generation and looking forward, you know, fairly sizable improvements in human capital. You know, more more kids going to university, more kids graduating from high school, more kids learning to speak English. So you've had, I think, a sizable improvement in human capital, which which matters. I like to say the only wealth is man. Um, I think you've also had a fair amount of investment in infrastructure, you know, and and here China's obviously had a big role to play. You look at, you know, the train now in Indonesia, you know, that high-speed train on Java, uh, the trains coming through Vietnam, through Laos, through Cambodia. Um, you know, what what China essentially is able to do with a lot of these countries is to say, look, we can we can build you good quality, cheap infrastructure on credit. Um, and, you know, for a lot of these countries, you know, infrastructure was always been a big hurdle. Now, some of them have real challenges. You know, you look at Indonesia, it's like, you know, thousands of islands. So same story for the Philippines. That that's that's tough to do. But, um, you know, it's you look at a lot of these, you know, I remember the days when I first moved to Asia, you'd have brownouts all the time in Vietnam. You'd have brownouts all the time in Indonesia. You know, the electricity would run out. You don't really have that anymore. So, you know, once you have electricity, factories consider moving there, etc. So, you know, I think by and large, the trends are are pretty positive across the region.
>> Yeah. So, it it's really just about integrating Chinese tech. A lot of the region is like, how can we just get more Chinese tech in, make make use of this, make use of their low prices, of their kind of overcapacity to kind of fuel development.
>> I think so. Yeah.
Last question for you. Given all that you know, what is that one piece of advice you give to a fresh graduate entering the working world today?
Deep down, when it comes to having a career in finance, the the biggest, and especially if you're going to be managing money or something like this, the the biggest important thing to know is to know yourself, to know what your weaknesses are, where your strengths are. And at 22, that's not obvious. It's not obvious at all. You know, that that you can know yourself, that you have the self-reflection to know what you're going to be good at and what you're not. And what's very important, I think, is, you know, as in your 20s to try to figure that out, to try to assess that out, what are you good in and what you're not good in, and then to make sure that you you put yourself in the situations as often as possible where where you stand a chance. It's like finance is a very competitive field, and we all come in with our own biases and our own, you know, that reflect our own life experiences or our own cultures or whatever else. And you want to be you want to always put yourself in positions where the odds are in your favor as opposed to odds against you. So you you have to be able to identify situations where you say, "Okay, you know what, in this situation, I'm I know I'm not good in this situation, so I'm going to back off."
So now, how do you go about knowing yourself? One of the best ways, what I've done, it doesn't mean it's because I did it, it's the right way, but one of the best ways to know yourself is to keep a diary, uh, to, you know, express your thoughts and to go back and read them, uh, because, you know, with the benefit of of hindsight, you go back to what you were writing at the time, you go back to what you were thinking at the time, and you can say, "I was wrong about this. Why was I wrong?" And so you can do a proper analysis. So I would encourage young people to to keep a diary because it's uh, it really helps you to know yourself because your mind will play tricks on you. You know, your mind will will, you know, erase all the embarrassing things and only keep the glorious things. Like that's what your mind does, you know, it's the a self-preservation mechanism. Each time you mess up, you want to erase that from the memory bank. So it's, but there's a lot of lessons in the messing up, which is why, you know, your mind is going to try to forget it, but actually that's no good for you to forget it. Uh, so it's, it's that's why I think keeping a diary is is a is a great exercise, and reading them, going back to read them.
>> That is a wonderful piece of life and career advice. With that, Louie, thank you so much for coming on.
>> Thank you very much for having me. It was great to be here.