China Today: Myths and Realities — #65

Steve discusses China myths and realities with Victor, a tech founder who ran a company in Beijing for 7 years. Among the topics covered: economic growth, real estate bubble, technology innovation, human capital, freedom of expression, Confucianism and Culture.

00:00 Introduction

02:02 Post-COVID economy and bursting of the real estate bubble

08:25 Semiconductor Industry and US-China Tech War

16:57 STEM Education and Workforce: China vs US

20:36 Slides on PRC human capital deepening, STEM and total workforce

39:58 Economic indicators and potential war economy

41:03 Singapore as model for PRC development, leadership exchanges

45:45 Travel plans, changes since pre-COVID era, YouTube travel content

53:00 Freedom of expression

1:02:20 Confucianism, leadership styles

1:17:57 Backyard Addendum: Further thoughts, travel to China

Music used with permission from Blade Runner Blues Livestream improvisation by State Azure.

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Steve Hsu is Professor of Theoretical Physics and of Computational Mathematics, Science, and Engineering at Michigan State University. Previously, he was Senior Vice President for Research and Innovation at MSU and Director of the Institute of Theoretical Science at the University of Oregon. Hsu is a startup founder (SuperFocus.ai, SafeWeb, Genomic Prediction, Othram) and advisor to venture capital and other investment firms. He was educated at Caltech and Berkeley, was a Harvard Junior Fellow, and has held faculty positions at Yale, the University of Oregon, and MSU. Please send any questions or suggestions to [e-mail] or Steve on X @hsu_steve.

Creators & Guests

Host

Stephen Hsu

Steve Hsu is Professor of Theoretical Physics and of Computational Mathematics, Science, and Engineering at Michigan State University.

What is Manifold?

Steve Hsu is Professor of Theoretical Physics and Computational Mathematics, Science, and Engineering at Michigan State University. Join him for wide-ranging conversations with leading writers, scientists, technologists, academics, entrepreneurs, investors, and more.

Welcome to Manifold today. I am joined by Victor. He is a tech founder originally from Canada. His current startup is in the blockchain space, but for seven years, he lived in Beijing where he also ran a tech company. And he listened to the recent AI episode. I did the real situational awareness episode.

Steve Hsu: And he emailed me and said that he enjoyed it and wanted to do one in a similar vein with me about China, because there's so much misinformation about China out there today and its relevance to the world economy and to geopolitics and geostrategy is only increasing. So he said, why don't we do one like that AI episode?

And he would play the role of interlocutor. The way that Jim did in the previous episode. And so he'll be a voice off camera, and he will interrupt me when he needs clarification, or if he wants to steer the conversation into a different topic. So, Victor, are you with us?

Victor: Yes, I am, and excited to have this conversation.

Steve Hsu: Welcome to the show.

Eventually, every friend I have in the world will spend some time on this show, I guess. Ha,

Victor: We'll get all of our updates through podcast episodes.

Steve Hsu: Yeah, absolutely. All right. So I have a list of things that we could cover today. But again, like if I am not getting to the things that you want to talk about, we can always rearrange the order and just feel free, free to interrupt me at any time. Now let me just start by talking about the current economic situation in China. And so there's a lot that's underappreciated. So they are coming out of COVID like everybody else. But something that's underappreciated is that the government there has deliberately popped the housing bubble.

Victor: Yeah.

Steve Hsu: So if you follow China for the last, I want to say, for 10 or 15 years, people have been saying there's an obvious property development bubble developing in China.

And the government's going to have to take some action concerning this bubble at some point. And, and they've finally done that. So, the consequence of that is they're going to be working through, you know, a bubble is a dangerous thing. This is probably the biggest property bubble ever in the history of humanity.

It might even be the biggest asset bubble. And it's further exacerbated by the fact that, you know, the economy has only been modernizing in China for the last 30, 35 years. And so they don't have a super well developed or they don't have a super well developed stock or bond market. And so, the average person would, you know, Save and invest by just buying properties, buying apartments.

That was like the unit of investment that if you went to China and talked to people, they would always talk about how many apartments they owned. And during the years of eight or 10, even 10 percent annual GDP growth, the prices of these properties, especially if they were in, you know, tier one city or downtown area of a tier two or even tier three city, they would just, you know, just Every year go up in value significantly, even though they were building lots of new capacity, but of course it was realized that this isn't the right way to grow your GDP because just building more apartments or housing or even real estate developments like shopping centers doesn't really, doesn't really Increase the productive capability of your economy.

It of course provides shelter and a home for people, which is needed because obviously the real estate stock that they had for the country developed was pretty crappy. And now they have a pretty good stock of housing, and other amenities and cities. So it was a necessary build.

But they overshot. The government has stepped in and basically signaled that they're not, they really actually want to pop this bubble. Prices of apartments and, you know, buildings and things like this in China have, have gone down every year the last few years. And so it's, it's got, it's, it's created a pretty negative effect on the average person.

So the average person feels poorer in China. Then they did in previous years. And of course, that has a knock on effect on consumption and just the general vitality of the economy, the employment levels, et cetera. So, that's the housing bubble side of the story. But layered on top of that is a determined reorientation by the government.

To push advanced manufacturing and high technology in China. And so the government there you know, the central government has a lot of directional power. They set the direction for the entire country. Although the execution on any policy that they implement is actually then devolved to the local governments, regional governments, city governments.

So it's, it's actually very decentralized. The way these things work, but the central government has signaled that property is out. Real estate is out. We're going to pop this bubble, even though it's painful. However, we want to relocate those billions and trillions of dollars that used to go into building real estate in China and infrastructure into advanced manufacturing technology, things like semiconductors, electric vehicles, and alternative energy.

So, there's a transition that's actually happening, but it's a coherent strategy by the central government. And I think that's underappreciated by people in the U.S. So that's why there's so much confusion about. Wait a minute. Are they kicking our butt in manufacturing? Like, they're running like a trillion dollar trade surplus in manufactured goods every year.

Now, are they kicking our butt in high tech manufacturing, or are they being crushed by the popping of a financial bubble and, you know, significantly higher unemployment they've had before? Both things are happening at the same time. any response to that, Victor?

Victor: yeah, and that's what I've been hearing from the people that are on the ground, right? Like, I think there's a third element of that shift in the economy and that tourism and foreign investment is also way down too. So, like I would, I'm kind of curious. Like, have you started to notice the effects of this?

Like, did you see, obviously there are many, you know, there's, you've done episodes on the electric car market and, you know, Huawei. There's a lot of focus on sort of the big ones. But do you see a lot of startups and reaction to these things? You know, do you think that there are more in these sectors now than before or that they're growing faster?

Steve Hsu: In the sectors of the government, so this is how it works. The government signals in its plan, a five year plan, you know, it sounds like a terrible communist thing, but that is how they do it. They signal in their five year plan that self-sufficiency in semiconductors, getting to the frontier in semiconductors, EVs, alternative energy, AI, are all top priorities.

The government signals that and then there's this sort of coordination in society where if you're the governor of a particular region or the mayor of a big tier one city, you then start allocating your investment budget toward those things. So you might have a venture fund, which is partially funded by the local government, or you might have, you know, the opening of certain types of factories or infrastructure, which support those industries. And so all of this is happening. There has never been like, I think, a better time in China to be the founder of a startup in the semiconductor space or in the AI space or in these basically favored areas that the government is pushing. so that is definitely happening and I'll get into the chip or later, but, but one of the things that has happened is that, if you were running and people just generally don't understand how deep the tech stack is for semiconductors, like you might be in the business of writing design software for designing the chips. You might be in the business of manufacturing wafers that are used to actually, you know etch like many, many chips, right?

you might be in the business of just some, you know, chemical reactants that are necessary or the lithography machine, the x-ray machine that allows you to actually burn features onto these chips. There's so many different technical aspects of the semiconductor supply chain and process chain that in the past, if you were, say, a foundry in China, like SMIC is the largest foundry.

The easy no-brainer thing for you to do would be like, well, what does TSMC use? TSMC is a world leader. Who are they using for their, you know, wafer supply? Oh, some Japanese company, Tokyo Electron or some Japanese company or something, right? So, then you would just buy it from them. Or this particular materials process who's, how are we, how, how is TSMC handling that?

Oh, they're a customer of Applied Materials, which is a U.S. company. They just buy it from Applied Materials. The lithography machine, oh, they buy it from AM, ASML. If you're a SMIC in China, in the past, you would just buy it. From A. S. M. L. So if you're trying to come up in China as a startup and you're in one of these sectors and you're trying to get the business, so you maybe have built something which is comparable or competitive to what a mat cells or or to what Tokyo Electron cells and you're trying to get some local fab to adopt it, you have to sell to them and you have to beat these incumbent western.

We're here. Western countries include, you know, German, Japanese, Japanese, Korean companies that compete in the space to beat them. And so that was quite difficult. So there's a previous era of big, there was something called the big fund. There was a previous era of investment by the government in semiconductors, which happened before the U.S. started the chip war.

And that money wasn't really very successful. The companies that that funded didn't really grab big chunks of market share. However, once we, once we Americans started the stupid chip war, we basically showed all these Chinese companies that they're at risk, that they could just be sanctioned and all of a sudden they would lose access to, you know, apply materials or to a S. M. L. Or what? Or Tokyo Electron? So basically that created an incredible opportunity for all the startups in China to basically ship their products to sell their products within that domestic market, which by itself is something like 30 plus percent of the global chip market. Mhm. and so and so it just suddenly created a coordination problem among all these different Chinese companies where they just realized that we're all in it together.

It would be foolhardy. For even the guys at the top of the food chain, like SMIC or Huawei, it would be foolhardy for them to rely now on foreign vendors that the U.S. could just sanction and remove from the completely bar access to their products. So basically now it's created an integrated ecosystem within China on the legacy chips, not the cutting edge, you know, 3 nanometer, 5 nanometer process, but the legacy 14 nanometer, 28 nanometer.

The Chinese have basically already caught up and they're going to start basically eating market share in all of those product lines. And then at the frontier, you know, at the seven nanometer level, Huawei SMIC is already making seven nanometer process chips for Huawei, both for its phones, you know, small SoCs for its phones, but also big, AI accelerator chips like the Ascend 910B.

So all of this has happened because U.S. policy was very stupid. And I think it's because U.S. policy underestimated how capable the Chinese tech ecosystem was. And they thought, oh, what's holding you guys back is that we have a huge technological advantage over you. And that's what's going to keep you from catching up.

And if you remember when they started these chip sanctions, there were all these. I want to call midwit policy analysts in the U.S. who said, Ah, this is it. This is the end. China's going to be 10 years behind in semiconductors forever now. Right? That's literally what they said, but that isn't what happened.

And the issue is that they weren't really, they are, they are catching up in certain technical areas. That's definitely happening, but that wasn't really the issue. The other issue was really the coordination between the companies. And you and I know how difficult it is for a startup, even if you have better product, better technology than the incumbent.

It's so hard to break into the market and get that market share, right? But the U.S. solved that by threatening to cut off all the dominant products from the top of the food chain companies like SMIC and Huawei, etc. So basically they had no choice but to embrace all of the startups in China that were building replacements.

for all of these other mature products. And that's basically what's been happening the last few years. So if you talk to people who are really in the semiconductor industry, either in Taiwan or in China, they realize, Oh, this was a big mistake. They're catching up super fast. It may still take them years to completely catch up.

lithography machines, you'd be extreme ultraviolet lithography machines that only ASMO makes. Those will probably be the last things that the local Chinese companies are able to produce. There's a, there's tons of speculation online among technical people about whether it's going to be a couple years before there's a, there's a comparable Chinese EUV lithography machine, or will it be five years or will it be more?

So, nobody really knows exactly what's happening. People in China know because, you know, some rumors are they're already testing prototypes and things like this.

So that is like in a microcosm, you know, maybe the most dramatic change in a particular ecosystem. And this is a very big ecosystem because, you know China imports more microchips than it imports oil every year, right?

Or it used to. And so they, that's a huge swing in a, in a super important sector of the economy.

Victor: It, it, and you know, it's, it's funny, like, I, I guess I'm, I'm trying to also understand because the CHIPS Act had two purposes. One is to slow down China, but the second is to onshore manufacturing to the U.S. You know, because they realized they were at risk too, right? Like most of the manufacturing happens at, at TSMC, and that seems to be moving incredibly slowly relative to what's happening in China.

Steve Hsu: Well, this is part of a general thing. Like if, if the theme of this episode were the U S not China, then I would say there are problems in the U S like we're basically very sclerotic. Like the amount of regulation, the difficulty in aligning our interest to get something done. Preference for actors in the U S to just participate in grifting and looting as opposed to long term building. All of those are problems we have in the U.S. Any lengthy, difficult project. That we've tried to accomplish in the U S of late has cost more and taken longer than one would expect, whether it's like building a bridge or building a nuclear reactor, you know, the, the one exception is in probably Silicon Valley and Silicon Valley at cutting edge technologies, you know, like AI, we're still the world leader and we're racing ahead very fast, but almost everything else, including semiconductors, we're behind in the and we're not catching up very fast.

So, that part of the CHIPS CHIP Act, CHIPS Act I would say I'm not very optimistic that we're necessarily gonna execute well on.

Victor: That's interesting. Yeah, that was my impression. And, and you've, you've basically verified that. I, and one thing I'd like to dig a little bit more in, I don't know if this is getting off your schedule, but, you know, how is AI evolving in China? Is it a big company dominated, like it is in the US? Is it a startup?

Is it a mix of startups? Is it, you know, there are government projects? Like how, how is that all evolving?

Steve Hsu: Sure, we can just jump into that. Before we leave semiconductors, I just want to mention one thing, cause, cause I, I sort of tried to paint a picture of what's happening in China properly. Sure. I said a few things about what's happening in the U.S. And most people don't realize the U.S. is nowhere near the frontier.

We don't really have any companies that are at the cutting edge in terms of fabrication of chips. In terms of design of chips, of course, we have NVIDIA and other leading companies, but they have TSMC fab the chips for them, right? so now I didn't mention how this all looks from Taiwan, right? So that's the third player in this game.

Victor: Right.

Steve Hsu: Taiwanese. So my brother in law is a professor of electrical engineering in Taiwan, and he did a PhD in the U.S. at the University of Michigan, and then he went back to become a professor. So he's a professor. His students staff companies like TSMC, right? So, and he lives in his university, but I won't say the name of it, but it's one of the top universities for electrical engineering in Taiwan.

And it's in the Silicon Valley of Taiwan, which is Shenzhou, right? So he lives in Shenzhou, right? So, what's funny is that these guys all know the U.S. What's the best outcome for the U.S. Best outcome for the U.S. Will they eventually knock off TSMC because I don't know. Even if they're defending Taiwan, which I think the Taiwanese don't necessarily think they are going to when push comes to shove, even if they are going to defend Taiwan, some very critical component of everybody's supply chain, i. e. TSMC, the Americans would rather have that in Arizona or Oregon than in Taiwan. So the Taiwanese are very cynical about what the U.S. goal is here. The U.S. goal is to pressure the Taiwanese to transfer as much technology to the United States. And then that opens up a lot more optionality for the U.S. you know, geopolitically, in terms of how important it is that they have to defend Taiwan.

So it's in Taiwan's interest actually to keep the know-how in Taiwan, not let it go to Arizona, not let it go to Oregon. you know, it's all in their interest to do that. And furthermore, they're very skeptical that American workers are up to the kind of grind that is necessary to actually run a chip fab.

So to get high efficiencies out of this process and the process has many, many steps and each step is super technical and super delicate and to evaluate each step, you're doing some complex process, which involves chemistry and physics and engineering. You're doing a step and then you're evaluating that step and you have to do it using statistical methods, right?

You have to actually say, like, Oh, what happened here? Oh, we had flaws in all of these things. And well, what caused that? And then you have to work backwards and figure out, well, what do I have to adjust? You have to change the temperature. Are there too many? Are there too many particles in the air that we have to filter out better?

You know, you don't really know what the problem is and then you have to figure out the problem and then you have to fix it. So you have to be very smart and also very hard working to run a fab competitively so that the efficiency of the fab is world leading and then you get all the business right.

It's a very tough industry to be in and it sort of suits these sorts of very highly educated, well disciplined workforces that they have in Northeast Asia. So it's, it's, it's no surprise that historically Japan, South Korea, Taiwan, and now China are all at the frontier in terms of semiconductor manufacturing.

Right? So, and by the way, like the way they make like flat panels, you know, they now, all the display work in the world, like the display on your computer or on your TV, All of that is now dominated also in Northeast Asia, and that's a similar business because it's, it's very precise manufacturing using very complex processes and then like technologies that are evolving quickly.

Right? And so that's, that's what they're good at over there. And they're pretty skeptical that Americans are going to recover or Germans or whatever are going to recover the lead in that industry. So that's the Taiwanese. That's, I think, a fair characterization of the view from Taiwan.

Victor: That makes a lot of sense. You know, like, as you know, I spent a lot of time in Taiwan as well. And one, you know, the entire Taiwan education system is oriented toward hardware engineering in a way that, you know, it's hard to find software engineers, for example, relatively speaking.

Steve Hsu: No, it's a great point. So in the US, basically, it's like, suppose you're a kid who's smart enough to go to a top EE program, electrical engineering program, where you're gonna have to learn lots of physics, differential equations, you know, circuit theory material science, chemistry, you have to learn a lot of stuff, right?

It's hard stuff. It's actually, in a sense, harder than, like, learning how to code in C or something, right? And, and, suppose you're a kid in America who's good enough to do all those things, but then you sit down and you're like, well, wait a minute, I could make more, more money in software. I can make more money in banking.

I can make more money in medicine. Why do I want to become an electrical engineer, right? And so the U.S. just doesn't produce people like that very much. Like, if you, if you, especially if you go to a graduate program in electrical engineering, material science, applied physics. Those are the really hard things you're going to find.

It's like tons of East Asians, South Asians, and then a much smaller component of native born Americans. Right. And I think it's terrible because when I grew up, actually, I grew up in a university town, which was known for its engineering program. At that time, a lot of kids were coming out of high school, because they didn't necessarily know what theoretical physics was, to them, the idea of, like, the hardest, most, in a way, intellectually glamorous thing to go into was electrical engineering.

For a long time, in my generation, electrical engineering was, like, the, like, cool thing to do, a combination of being intellectually hard and also, like, having real world applications, right?

Victor: Right.

Steve Hsu: But that's kind of gone now, like very, I think very few kids want to do electrical engineering now in the United States, whereas in Taiwan, the culture is still like the, you know, very large fraction of the top students will go into hardware.

And there, you know, there's a joke like hardware is hard , right? So there's a reason why people say that.

Victor: Well, and, and, you know, getting back to China, That seems to also be true about China, like the number of, you know, like if you look at the fields from STEM that they're graduating and it's amazing to me how, how huge a population are now graduating from universities in China compared to when I was there.

Steve Hsu: Yeah, absolutely. So, you know what, I'm gonna share my screen. So the, so, so the people who are watching this on YouTube as opposed to, um. Just listening to audio won't be able to enjoy these slides, but I'm just going to flash three slides. I'll put links in the show notes to these slides and you can enjoy them with Victor.

Can you see this?

Victor: Yes.

Steve Hsu: Okay. So This slide shows by year the fraction of the total workforce in China, which has attended college. Okay, so that's the dark blue bar and there's a light blue bar. The dark blue bar is the number and it's measured in millions of people who are college graduates in the Chinese workforce.

Total Chinese workforce. Now you can see 2023. It's about 800 million people, so it's a little bit less than a billion people are in the workforce. Other people are too young or too old to be in the workforce. Okay, now, if you look, that blue bar is growing over time. So if you go forward 20 years to 2043, it's basically more than, it looks like it's more than doubling.

It might even be going up by a factor of three. Okay. On the other hand, the total workforce starts at 800 million, but 20 years from now, the total workforce will be something more like low 700s. So they're going to lose maybe 70 million workers, like 10, they're going to lose maybe 10 percent of the total workforce.

But the size of their workforce, a workforce that had a college degree goes up by like a factor of three. So 20 years from now, you have a slightly smaller workforce in China, but you have a much more highly educated workforce. And in that blue bar, 40 percent of the people in that blue bar are actually stem graduates.

So currently, they're probably I don't know, it looks like something like, you know, Maybe 50 million STEM graduates in China, and in 2043, it's going to be maybe 150 million STEM graduates. So, so much, much larger. So, people talk about the demographic challenges that China will have in the future. The demographic challenge is reflected by the decrease in the total number of workers.

However, the deepening of the human capital pool, Is caused by the fact that 20 or 30 years ago, a very small fraction of people could go to college because the country was still poor. 50-60 percent of the high school graduates go to college. And so you're transforming the workforce from 1 that is mainly geared, you know, well suited for manufacturing to 1, which is better suited to high tech manufacturing, research and development and maybe services, right?

So that, that's a key thing for people thinking about China or the U S competition with China to realize is like, yes, they do have demographic challenges on the one hand, but on the other hand, they are definitely going to have a huge deepening of their human capital pool over the next 20 years.

Victor: So do you think the current High youth unemployment is because of this shift?

Steve Hsu: You know, it's interesting if you, if you really want to drill deep into Down into the weeds on that youth unemployment thing. There are several factors that contribute. So, one is, yes, they prop, they popped the property bubble. So there is a transient thing that's going to go on for, and who knows how many years it's going to go on where the economy just isn't as robust as it was when that property bubble was booming.

It was sort of like, you know, like we experienced 2008 in the United States, right? It's kind of like that. 2000, a little bit like 2008. Although in detail it's not because the way the government handled the remedy is different. And the, the, the amount of down payment required to buy a property in China is much higher than it was in the us.

Like we had gone through zero down at the peak of the bubble. So there's, so the, the way it's playing out is different, but it's kind of analogous in the sense that the economy is, you know, not good right now. Right. That contributes to the high youth unemployment rate, but I've seen some claims that part of the youth unemployment rate is that there are a lot of, a lot of kids who either are getting more education, so they're not working, or they got a very fancy college degree and they're not willing To go back and do what aren't white collar jobs.

So they're, they'd rather just, you know, these are kids who grew up in the single, the one child era, right? So you just kind of hang out at home and mom and dad are going to support them while they continue to look for the quote, ideal job, which is appropriate to the, you know, political science degree that they got at, you know you know, Shanghai, Shanghai Jiao Tong University or whatever, right?

So there's a certain amount of like, reluctance of the younger people to realize that, you know, Hey, the degree you got, if it's not in a really in demand STEM subject, you may not be able to get the job that you thought you were going to get. Right. And so there's, there's, that's also contributing to youth unemployment.

Victor: Anecdotally. I've heard that story a lot like that. People would prefer to not be employed than be underemployed. I guess is the way I'd [put it].

Steve Hsu: Yeah, because people view status and signaling obviously is very important. So like, say you, you are a college graduate, maybe you've traveled abroad or something. Are you going to take a factory job or a delivery job or a sales job where, you know, you're, you're like, you know calling on people to sell stuff?

You might not, right? You might, you might not. And if you look at Chinese social media, there's, there's lots of stuff about young people, like, You know, going off into the countryside and restoring some old, you know, building and making into a bed and breakfast and, you know, there's a lot of stuff like that, which is more kind of like the analog of Brooklyn hipster kind of lifestyle stuff that's happening.

And you can just imagine if you're a single child and your parents have socked away money and you just graduated from a pretty good university, you have two choices. One is to take a job that you really don't like and is very tough. or doing the Brooklyn hipster thing out in the countryside. And so there's, there's a lot more of the second thing than there used to be.

Victor: And you know, something I'm hearing from founders in China, they also, you know, when I was there in sort of the 2007 to, you know, 2015 kind of time period, a foreign degree was looked at very, very highly, like you'd get preference for jobs in that. But now it seems that it's particularly for undergrad.

They look at it a little bit skeptically. Like, why couldn't you go to a top Chinese university now instead of giving you a preference for a job?

Steve Hsu: I think, yeah, I think the value of a foreign degree is much less than it used to be. So we used to have a huge number of Chinese students at Michigan State University and the U S colleges were using them as a cash cow. And so as a consequence of that, you know, mainly through my wife, I know the stories of a fair number of kids who came here from China, their parents paid out-of -state tuition for their kids to go to Michigan State and now the kids are in the career market.

And yeah, I think it, a lot of them will probably have to chalk it up to it was a great experience and I learned a lot, but it didn't necessarily pay off in economic terms to come to the U.S. and get that degree. And so now the younger kids coming up, the families with younger kids realize that's the case and so they're, they're much less willing to pay, you know, 40, 000 a year in out of state tuition to come to some U.S. university and they'd rather actually have their kid do well in the Gaokao and attend some Chinese university.

Okay, so this is another key figure. This is a very complicated figure. It's produced by the National Science Foundation 2019. So it's still relatively current.

It shows the work for the total workforce in the United States stem and non-stem. So whether you work in the stem industry or you don't work in the stem industry, but then in the middle column, it shows the educational level of those workers. And so if you ask how many people in the U.S. work in STEM and also have at least a bachelor's degree in STEM.

That's that horizontal purple bar at the top and it's about 16 million people. Okay. So it's 16 million people. That is the number of people in the United States who work in a STEM industry and have a STEM degree. Okay. The total stem workforce is larger than that. But then, but included in that are people who don't necessarily have a college degree.

Okay. And so that number is 16 million, that's a decent estimate of the Americans who work in STEM and are highly trained. They at least have a bachelor's degree. Okay. 16 million. Just remember that number is 16 million. Okay. In China, the number of STEM graduates every year is something like three and a half million.

Or maybe four million. So every four or five years, they're producing a population equal to this highly trained population. We're talking about the United States, right? Every four or five years. If you aggregate up all the kids who studied stem in China and you put them all together, it's a group which is equal to this highly trained stem workforce of the entire United States.

Okay. So one way to think about this is that in the next 20 years, every four or five years, China is going to produce another workforce, which is equal to the highly trained STEM workforce of the United States. So by the, as you come out of that 20 year tunnel, they're going to have potentially five, six, seven times the total human capital pool for doing advanced STEM stuff as the United States.

And. Any calculation has to deal with that. So if you're like, oh, we're just going to stay ahead of them. Oh, they're ahead of us in hypersonic missiles. Well, we'll just catch up because in the past, we've always been good at aerospace, right? We'll just catch up and surpass them. But then you realize they're drawing from a pool, which could be four or five, six, seven times larger to staff there.

Wind tunnel design, you know, aerodynamics and, you know, and all the things you need to do for that particular vertical to catch them and surpass them. They have a bigger pool of people to do it with, right? It's the same thing for AI, the same thing for, you know, material science, the same thing for electric vehicles, right?

So, in every vertical where you think you're going to catch them or, or stay ahead of them, you have to deal with. A much bigger pool. Of workers and, and even at the high end, like the people with advanced degrees in science and engineering.

Victor: Do you know how many STEM graduates the entire United States produces in a year? I'm just kind of curious.

Steve Hsu: I want to say it's like half a million a year.

Victor: That sounds about right.

Steve Hsu: Yeah, so if you think about it, half a million a year, let's suppose you're, you're, you're, they're feeding into a pool, which is 16 million. And let's suppose the half a million a year that kid has a 30 year career. That's, that's six. That's about 15 million, right?

So, so, so the steady state, I think our steady state is sort of like there's a half a million graduates per year in the United States. And then there's, we suck in like another, you know, tens of thousands of foreigners, right? But, it maintains the steady state pool of 16 million highly trained stem workers in the United States.

So when your startup is trying to hire some dude to work in your Brooklyn office or whatever, you're drawing from that pool, right? But just know that there's a many times larger pool that your counterpart in Beijing is drawing from.

Victor: Yeah. And well, we haven't even talked about how much money is being allocated to these different areas. You know, I'm sure I know the government is allocating huge amounts of money in R&D.

Steve Hsu: Yep.

Victor: Relative to the United States too.

Steve Hsu: Yep. So one of the things, like you've mentioned a key thing, it's like when you compare costs in China to the United States. So you could be talking about the cost to hire a software developer or the cost to hire a chip designer or semiconductor engineer, or the cost to rent a really nice apartment near a metro stop in a pretty big city of at least a million people, right?

All of those costs are way lower in China. And the way the economists try to correct for this in comparing the sizes of two economies is called purchasing power parity, right? So the purchasing power parity correction between the US and China is about a factor of two. So basically, if you, if you take the nominal GDP of China and you want to compare it to the United States, if you correct for these purchasing power differences, the Chinese economy, you should multiply by a factor of two for that correction.

And after you do that, the Chinese economy is significantly larger than the U S economy. So the question is if once the quality level of that software engineer in China is comparable to the quality of his counterpart in the United States, how then like their economy is effectively quite a bit larger than ours because there are many more of these guys

Victor: Right.

Steve Hsu: and that is reflected in the PPP adjustments that people make.

And if you, if you go by PPP, their economy has been big, significantly bigger than ours for quite a while. And if you go by other metrics, like, well, how much electricity do they produce or how many tons of steel do they produce? Or, you know, how many cars do they produce? By all of those measures, the economy is already significantly larger than us.

So. If you're a US planner and you're just like, Oh, yeah, well, you know, we had to fight Japan and we just gutted it out. And after a while, we were just massively outproducing them ships and planes. And so, of course, we eventually won. If you run that argument in a US versus China competition, the one that can just power up and do a lot more is actually not the United States is actually the country that's four times the population.

Right? So I just think it's important for people to be realistic and actually understand that simple numbers are not like rocket science but just to understand these simple numbers helps you think a little bit more clearly about things like foreign policy or who you want to pick a fight with.

Victor: Well, and, and it's funny that you should mention it in Japan. I mean, if you looked at the numbers, that was effectively the advantage the states had over Japan, right? It was roughly five times the population of Japan. So they could outproduce Japan over any length of time, even if they were superior for a period of time.

Steve Hsu: I, you know, I went through the phase that I'm sure a lot of nerdy guys go through when you're growing up that you're really into World War Two for a while. And I remember studying all of these economic strength indicators between all the Axis powers and the U.S. and its allies. And, you know, it was, it was basically like, if we get our war economy going and we don't get completely defeated early on, then for sure we're going to win this thing, right?

I mean, that's how it looked. But in a conventional competition, if it's not in a nuclear war, but a conventional competition between the U.S. and China, that same logic applies, but it just goes the other way now. So any other topics you want to discuss in terms of economics or technology?

Victor: I guess, what is the mood that these, I think what you've described is, you know, this China's in this sort of transitional state, right? Like they've, they've been conscious and mindful to move in this direction. You know, aside from general concern about the economy, what is the general mood on the ground that you saw?

Steve Hsu: So, it's actually tough to say, like, I'll tell you an interesting story. So, I was in Singapore recently As part of my AI odyssey. If you listen to the AI episode, you know why I was in Singapore, but while I was there, I met with a lot of government officials. So some who specifically work in AI, some who are more broadly involved in economic development and finance.

I met with people from their sovereign wealth funds. What's interesting, something I learned from them was, you know, they have regular exchanges with their counterparts in China. So this goes all the way back to Deng Xiaoping. So one of the reasons Deng Xiaoping decided to liberalize China is he went and visited Lee Kuan Yew in Singapore. And he saw what they could do in Singapore. And, you know, from Lee Kuan, from Deng Xiaoping's perspective, he's like, first of all, the Chinese that you have in Singapore are totally like the detritus of the Chinese nation. Because like, these are like the, these were like manual workers, none of the elites. Like, you know, very peripheral kind of shitty provinces, you know, they all moved here to Singapore and now you guys are have a leading, you know, kind of modern economy, world leading economy, high, very high test scores and good, you know, right, you've achieved all this, but you're not even like the kind of the elite of the from the Chinese nation.

Right? So, Deng Xiaoping was very, very focused on this and Lee Kuan Yew wrote about this and also Deng Xiaoping wrote about this. So you can go look at it. They were very inspired and they modeled a lot of the reforms when the, the, I mean, the system opened up. They model a lot of it on Singapore and they had reg they've since then they've had regular exchanges of top government officials going from PRC to Singapore just to meet with their counterparts and learn from them. And it's kind of weird because it's like one's a country of one and a half billion people and the other one's like a city of like, I don't know, less than 10 million people or something. Right. And it's kind of weird, but the city is very well run.

The city state is very well run and they, You know, they, they select some of the top students that the most meritorious people in Singapore become government officials, right? So everybody I met with very high ability. But what I learned from them was some interesting stories about what they are hearing from their counterparts.

So their counterparts are these high officials in China who just every year come to Singapore for, you know, a set of meetings, right? But then when they go out for drinks or they're having dinner or whatever they're hearing like, what is life like in China? What is happening and stuff like that?

So there definitely are if you were more on the reformist side. So, I don't know if you followed Chinese politics Victor when you lived there But you know there were people here who thought, oh, it's like North Korea, right? Or it's

Victor: Right.

Steve Hsu: his USSR like there's just some like God like, God Emperor guy, and everybody just does what he says, and it, of course not.

No, there are political, like, fights within the system. There are people who are more pro Western, pro liberalization. There are people who are more, like, distrustful of the West and want to emphasize, you know, autonomous, economic self sufficiency and military development, right? So you, you have the whole spectrum.

And the perception is that Xi is kind of on this side, not on the liberalizing pro market, pro western side. So some of the officials that I talked to, their counterparts are from that side of things, and they're like, we kind of want to get out, we kind of want, like, we think there'll be more opportunity that we should maybe immigrate to Canada, like Victor's family did, you know, general, you know. So there is discontent there. So if you're, if you're more on that side of things, you're not happy with it, it's a little bit like a lot of people were mad in the U.S. when Trump was president, right.

Victor: Right.

Steve Hsu: And so, like, there, there, there's definitely a lot of discontent.

Victor: They also want to emigrate to Canada, by the way.

Steve Hsu: Yeah, if only it weren't so cold there, but there's a lot of discontent in China. There's a lot of people who aren't doing well financially. So if you aren't one of the lucky people who's like.

Got the right skills to do semiconductor stuff or A. I. Or work, you know, you work at B. Y. D. Or something you might not be doing very well, right? So there is a lot of that. It's a tough time. Just like if you came to the U.S. In 2008, 2009, 2010 and just ask some average person who just graduated. I was an English major and I just graduated.

I'm trying to find a job. I think those people were probably feeling like I'm really unlucky to be a recent college grad in this era. Mhm. And I think that's what you would see in China. If you talk to people, um,

By the way, I'm going back in the fall. I haven't been back since 2019. So that was pre COVID.

And so I'm planning to go back in the fall and you should go back to, and we can compare notes.

Victor: I'm definitely planning to go back because I do want to see. With my own eyes, what's happening? I mean, my contacts are, you know, I do know local people in the tech industry, but I, you know, it's, it's really walking around that gives you a very, very powerful impression.

Steve Hsu: The stuff, the stuff that I've heard from people who just went back, who hadn't been there for a while and is, is a lot of bonkers stuff like, like the, the move to cash free stuff is automation has gone even further. The cars you see on the street, it's like you like you got out of it, if it came from the US, it's like you got out of a time machine because every car you see is like some wild ev thing that looks very futuristic, right?

And so, so, and, and, you know, the infrastructure is continuing to get better. you know, the Metro system is like state of the art, all these things. So, in some ways it's, I think there's a big claim. There's a big positive Delta that would just be noticeable once you just start walking around Beijing.

That's the claim. I don't know if it's true. We'll see.

Victor: Well, I, I definitely think we should compare notes after we both go. Cause, yeah, that's what I'm like. I will say, like, a lot of people I know were like me who kind of catered toward tourism, you know, foreign industries and that, you know, the whole market has kind of been decimated. Now there's plenty of internal domestic tourism, but if you're, you know, catering to tourists coming from outside China, kind of looking around, that market has severely dried up.

Steve Hsu: You know, the thing is that, you know, like no matter how many foreigners used to go to China and travel around, it cannot compare to the fact that, you know, in the last 5, 10 years since you were there, China has continued to get richer. Yeah. And so the amount of internal tourism is bonkers. It's insane.

So if you go to a big amusement park or a major museum or some natural, you know some natural landmark site that a lot of people travel to, it's just insane how many Chinese tourists are going there. And you can, you can even use English language, YouTube. If you go on YouTube, you can find China travel sites either where the content is made by a Chinese person, or it could be made by a foreign visitor.

And now because it's like, like, it's so easy to shoot like high quality video and stuff. you can just see, you can just get a sense of like, it's pretty vibrant in terms of internal tourism. Like that was probably just getting started when you were there. but now it's like, It's super highly developed and like, some of my favorite stuff is some of these less well known areas of China, like Xinjiang or Tibet or Yunnan in the far west.

I love watching travel videos of people and it could be people from like Shanghai or Beijing going there and doing stuff. I love watching those videos because you see like, okay, how, how developed, of course, you know, how, what it's like in Beijing and Shanghai, but, but how well developed are these second and third world countries.

Third tier cities or Chengdu or what's happening in Tibet or even in Xinjiang. And you can get a sense of it from watching these videos. Of course, by going there, you'll get a better sense of it.

Victor: And, you know, I, I, given that your trip around Asia, what is the general, like, you, you talked about, you know, the, the Singapore sentiment toward China, but I'm also curious, what is like, what are other countries that you traveled to? What is their sentiment about what's happening in China? You know, do they feel like they have to choose between China and the US?

You know, where?

Steve Hsu: I think so, I traveled to some ASEAN countries. I was in the Philippines and I was in Singapore recently. I have an interview with a guy called Kishore Mahbubani. It's pretty famous. He was a foreign minister of or maybe the U. N. Diplomatic representative from Singapore. So he's pretty well known and then became a university professor.

So he's a pretty well known intellectual in Singapore who writes about foreign relations and things like this, and he's an interesting guy because he's South Asian, Indian heritage, not Chinese heritage in Singapore. and unfortunately, I wasn't able to, we were going to meet up when I was in Singapore, but my schedule with all these government officials was just too tight.

I couldn't quite fit in my meeting with him. But, he, both in that interview and more recent interviews he's given, he talks a lot about how all of these ASEAN nations, Indonesia, Malaysia, Vietnam, these, these are very populous nations. These are all a hundred million plus kinds of population countries and with very rapidly developing economies for all of them, their number one trade partner is China now. And so they're always in this balancing act between like, okay, they don't want to alienate the United States. But they know if the United States goes away, China is still going to be there. And China's just getting stronger and stronger and China's their main trading part. So you know, I think there's a whole interesting dynamic of what's happening in ASEAN right now.

Victor: Interesting. Yeah, it seems like a very fluid time in terms of, you know, how everything is developing over in Asia in comparison to, you know, how the view that we have here.

Steve Hsu: Yeah. I don't think things changed too much here, although the general quality of life, I mean, I don't live in a big city. I think certain big cities are pretty dystopian right now. Like I've spent a fair amount of time in San Francisco in the last couple of months, but where I live. I guess the deindustrialization of America, I live in Michigan, so that part has already happened and there are bad consequences of it.

But in general, like these, these college towns in the Midwest and everything, it's, it's all pretty stable. And to me, the quality of life is very high. Like I live, I don't have to ever drive very far. I can go to Trader Joe's or Costco or whatever. And. You know, my internet works fine. So, America still has tremendous advantages.

Like Asia is so densely populated, right? It's like, if you're into that, it could be invigorating. For me, I'd rather live somewhere where I can go out for a walk and not see tons of people. but you know, I, I just hope that we don't have to end up in a violent confrontation between, you know, the existing hegemon and the rising power in the East.

Victor: Well, I totally agree with you. I mean, that's one of the reasons we left Beijing because being in that environment of, you know, hyper competition, is very invigorating for a period of time, but at some point it can burn you out pretty quickly. So I think it's, you know, it's nice to have the ability to balance and we never found that, you know, when we lived in China and it sounds like that would be even more extreme now.

Steve Hsu: Let me ask you a little bit about your Beijing experience, because one of the things I express to Americans sometimes, and they just, they just can't believe that it's true. They, they like to react in disbelief, right? If I say things like, you know, maybe once or twice, I can remember times where the conversation went into some area of politics and people were a little bit sensitive, like they didn't want to discuss it.

But most of the time, 99 percent of the time, I've been there. I never felt like those people had less latitude to discuss ideas or events than in the United States. And now maybe that was just a special case because I was mainly hanging around with elites or university people or scientists or whatever.

But I'm curious what your impression is about the level of freedom that people have there compared to say in the U.S. or Canada.

Victor: So I think I was there, I would say in the height of, you know, the cooperation between the West and China, right? So, you know, roughly 2007 to 2014. And at that particular time, the people I knew, even in the government and academia, were like, we're focused on learning as much from the U.S. as we can, right?

So that was, and They were very open to kind of talk about all these different ideas. I have heard that things now are more muted. Like, and during that time, everything was on the table. Like, you know, people were talking about. And I, I have heard now that the conversations now are more muted. More kind of like almost that we're reaching that point, and now we have to go beyond that, like the United States is not the model we want to follow, kind of going forward, right?

And I, I think there is generally a degree of I would say self censorship that people have, but the rules are not, you know, and even when I ran my companies, we would look at comments, and we would remove comments that were, that we felt were controversial. We weren't told to do this, but it was more of like, you know, we didn't, we didn't want to cross that line, basically, and I think that's kind of, I, I think that's always there.

On the other hand, I would say that in many ways, intellectually, like when people talk about ideas, they tend to, the range of options they have is even more than I've seen in North America. You know, like, like the way they talk about things, and they have a much vast, better understanding of what's going on in the West than, you know, You know, any Westerner I know, short of people who have lived there, have about what's going on in China.

Steve Hsu: Yeah. I agree with that. They know a lot more about, or at least the people that you and I would interact with know a lot more about the West than any Westerner would know about China in general. This issue of them not having to self censor because of political correctness is definitely true. So if you say like, you know, maybe there are certain topics, like if you wanted to talk about Tiananmen Square or something like this or the Cultural Revolution, some people would just be like, let's not talk about that.

Then the analog here is like, if you say like, well, what about what about this Floyd, you know that, did this guy George Floyd, did he actually, was he killed by the police or did he die because he was high on fentanyl or what? You know, there are similar topics here that you wouldn't actually feel necessarily comfortable talking about unless you were with close friends, right?

And to me, the one, the one incident that I can point to where I encountered like some sensitivity was in 2019. I was there and I was visiting a genetic testing lab in Beijing and they took me out to lunch and I was talking to them and that there was a young woman scientist who worked at the lab and then there was an older guy and the young woman was kind of complaining like she was like, I guess she was asking, like, maybe about whether she should come to the U.S. to study or maybe do a graduate degree or something. And, then she started talking about the political situation since Xi Jinping had taken over and that was sort of part of her decision process about whether she was going to come to the U.S. to study and the other guy was like, because she was drifting into territory.

Maybe she was going to be very, maybe her family is probably very critical. She was going to drift in that territory and the guy was like, let's not talk about that. Right? And so that's one time actually I've, I've experienced it. And that was in 2019, maybe it's worse now. I don't know, but I, that's something I'm interested to find out when I go.

Victor: Yeah, I, I get the impression that, that it is, that what you cannot talk about has expanded, right? That's the general impression that I get. You know, the topics that are off limits, like, you know, they used to be like, you know, Taiwan independence and Tibet and like, you know, Tiananmen Square. I think that's grown in terms of the one thing that I haven't quite figured out is, is that because we are in a generally much more charged environment, where people feel like they have to pick sides between like people like you and me who have experience in both places, there seems to be a greater emphasis in kind of picking a side, right?

Like, do you see the US view or the Chinese view?

Steve Hsu: I, I feel this pretty acutely because like on my Twitter account, I'm often like pointing things out where like, the evidence seems pretty strong that X is true, but our media is saying not X and I'm just laughing because like. Well, if you think there's a genocide happening in Xinjiang, maybe you should watch this, like, tourist video of, like, you know, some random person traveling in Xinjiang or something, but they don't look very tense there.

Like, if there were a genocide, usually when there's a genocide going on, people are a little stressed out, right? But, but, but, like, apparently it doesn't seem that way, right? And then I get attacked as a communist party shill or, you know, whatever, whatever the terminology is. So, obviously I'm pretty sensitive to the pressure that you're under in our society to conform to certain views, even if those views are completely wrong.

I totally feel that, you know, one of the things that's changed a lot for me is that prior to 2020 ish, when I went to China, there would be actual business, interesting business things like there might be some investors there who would want to invest in some of the companies I founded, or we might be thinking about opening like, you know, prediction might be thinking of opening an office or a lab in China.

You know, there were real, like, substantive things that might be the subject of discussion when I'm in China. Now, if I go, it's mainly just for tourists or just intellectual interest to figure out what's happening here, because like I basically decided it's not worth it. It's not worth it.

Try to set up a satellite office there or try to grow the business in that direction. It's just like decoupling. It's decoupling, right? And the amount of heat that you would get, even if you just took an investment, like, like if some fun there was just like Yeah, we'd like to take a stake in your next round.

You might be like, no, because that's just gonna open some huge can of worms.

Victor: Yeah. And I think that's true on both sides, right? Like, if you, like, you know, and I see that evolution is that you're, You kind of have to pick a side in terms of like investments and partners and all of these things Because you know the trend line is that it's becoming much much more sensitive So I guess that's where i'm trying to like I don't think it's necessarily nationalism driving that it's just practicality, right?

Like, you know, like If you have a startup and you want government work one day, but you have investment from the other side you might not get that. And, you know, you don't want to even take that risk. So I think a lot of people are in that mode and kind of making those kinds of decisions.

Steve Hsu: Yeah, it's really too bad. And I know a lot of scientists, academics and scientists are basically deciding, like, am I gonna go back to China? Or am I gonna stay in the U. S.? And oftentimes the decision comes down to, well, because my kids have been growing up here in the U.S. I kind of have to stay in the U.S. Even though the research opportunities like the amount of funding I could get from the government and the quality of students that I could get there, the size of lab space they would offer me, that's all now on the side of going back to China and keeping them here is like, well, my kids in junior high and has a lot of friends and so I can't go back. And these are people who grew up in China that came to the U.S. for grad school or something, right? So that's a very bad signal for the U.S. Because these are among the most talented people in our economy. And it's not a good signal that they're like, well, the only thing holding me here is my, like, if they were childless, they might've gone back. Right? So,

Victor: And, you know, I, I mean, like, I, people would know that, like, I, like, many people know, and it's widely talked about in Taiwan, is one of the reasons TMC exists in Taiwan, and they became a powerhouse. You know, he was the founder of TMC and was an executive at Texas Instruments. And, you know, he just felt that he couldn't get ahead in the U S and, you know, the Chinese government, the Taiwan government were very generous and helped him kick off that industry.

So like, if that's, if that becomes more true for Chinese citizens, where they feel more heat living in the U S than not, then, you know, I can see it'd be very attractive for them to go.

Steve Hsu: Yeah, this is a topic we didn't touch on that I would like to discuss a little bit with you since you've been a founder, a tech founder, and I have as well. The leadership style, I've said this in public before, and you know, so usually like when an Asian person hears it, they like, they're like, yeah, you're right on Steve.

And then someone, some white guy hears it, they're like, that can't be true, right? So the thing is that the style of leadership that plays here in the U.S. doesn't play so well over there and vice versa. So here there,

Victor: Yeah.

Steve Hsu: There you better under promise and over deliver. And if you're too aggressive or rambunctious or just self aggrandizing, it's a big turnoff for the, for the, the culture there.

Whereas here, if you're not that way, if you're not trying to dominate the conversation all the time or trying to be like me, me, me, me all the time, people are like, oh, well, he's a good engineer, but he can't really be a leader, right? And, the guy who founded Morris Chang, the guy who founded TSMC, like that, that I think is exactly his story because at Texas Instruments, they weren't going to give him, they weren't going to give him more responsibility.

And that was why he went back. And I think that when people. In the U.S. Are like, Oh, well, gee, how come there aren't more CEOs from Chinese heritage or Japanese heritage or in heritage? And I'm like, those are all the Confucian societies that the way they are brought up. It doesn't play well here that the key question.

So I think that you can just if you know, both cultures, you can, you can understand that that's true, even though most, like, typical white guys in the U.S. Don't want to admit that this is true. But once you realize that is true, then the next question is, which system is more effective? Like, is this like a grifter, bullshitty, self aggrandizing style that predominates in the U.S. and Silicon Valley? Does that really get the results? Maybe it does. Maybe that is the right way to build an Apple or, or whatever, or market an Apple. Or maybe the other style actually in the long run builds like massive infrastructure and, and leading technologies and companies just as well or better.

So that, that's, that's to me, an interesting question.

Victor: Well, I will reframe it, but I think we're saying the same thing. I would say, you know, in particular among Asian tech businesses, right? Really what they're focused on is product and they tend to not be very good at marketing, whereas

Steve Hsu: Wait, wait, I want to challenge you on that, Victor. Are they not good at marketing to the market in China?

Victor: They are good at marketing. But it's in a, I would say it's a difference, like to your point about culture. I think it's different from marketing here. Right? Like, you know, like I think they focus on things that are more hard, tangible, things like price, for example.

Steve Hsu: Think there's two, there's two issues here. So one is like, it's kind of a little bit, this hardware software thing for sure they're, on the East Asian side, they're very going to be very focused on like measurables, like real quantitative things, like does the product work and you know, how efficient is it and how much energy does it use. Like that stuff they're very focused on. But that's different from saying they don't know how to market their product. They may not know how to market their product in the Western environment, but I think they know how to market their product within their home market.

Victor: Oh yeah. But I'm talking about leadership, like marketing. I'm saying it. In the Western type of leadership, marketing, the leader is very, very important.

Steve Hsu: Oh, yeah. So I would call that self promotion.

Victor: Exactly. So like, and, and in, and that is like, until you reach a certain point, it's not considered the value in itself, right? People look at the hard metrics much more closely.

Steve Hsu: See, my dad was a Confucian. And. So, like, I, I, like, recognize this distinction about what types of leadership styles play in the West versus in Confucian cultures. Now, I, myself, am actually better suited to the Western society. Like, I have the personality that I like to talk to people and get my views out there in the meeting.

So, I do okay in the Western setting. I'm not sure it's necessarily better. But my own dad, if he saw me on one of these podcasts and, you know, I just, I get on a riff and I start saying stuff that's really out there, my dad would be like, shaking his head. Like, this is not right. You should not, Steven, like, if I come home and he'd be like, you should not have said that, you know, or what, what, what's, you know, so, so it's a very different value system.

And you know, it's, it's shameful to actually be as outspoken as you know, like, like. If I were like Leopold Aschenbrenner, I made some crazy AI predictions and stuff like this you know, and I was wrong or something, my dad would be like, you see, it's how, you're never going to live this down, man.

You said that with such confidence and you were wrong, right? So the whole way that they view these things is different.

Victor: Yeah. I mean, it's, it, it is much more that view is like, I think if, yeah, like what you describe is self promotion and there are, you actually don't want to promote yourself individually. that much, right? For a variety of reasons, right? And really you want to, but you want to outperform. And that, that is, that is, I, I think you're absolutely right.

That is sort of the Confucianist.

Steve Hsu: The computation thing is under promise and over perform, over deliver. But. Here in the U.S. If you're that way, you could easily get passed over like, Oh, who's going to make partner at Goldman this year? Well, not not these East Asian guys because they're too quiet.

Victor: Well, and I think part of that is the education system itself, right? Like, it's not, like, I was very surprised in the West that it's actually illegal to publish students' marks. You know, when my kids went to school in China, like after every exam, they would post your name and your mark and in rank order.

So, you know, like you, there is no purpose to kind of say like, Oh, I, you know, killed it on that test because everyone can see it like they can just see the results there.

Steve Hsu: My wife, my wife grew up in Taiwan, and she told me what she told me was amazing. And I think this is like the standard in Chinese schools. There would be a number one student whose marks were consistently at the top. That person would sit at the front of the room, and I think on the left.

Mhm.

Victor: Yes.

Steve Hsu: The person next to them would be the number two student. And the person next to them would be the number three. So they literally ordered the students to sit by how good they were. I mean, like, can you imagine that in the United States? Not, not anymore.

Victor: Well, and, and, you know, because of this, It's very clear what your ranking is, right? Like you don't have an option to kind of yourself up if your ranking is low. So like, like I was very amazed by that and this is both a positive and a negative, right? Like it's very singular focused and it was very tough for my, my, my, one of my kids is very academically inclined and one is more athletically inclined.

And, you know, for the academically inclined one, he did very well, you know, but because people could see, like, status was conferred by where you were on that list. So the cool kids and the smart kids are the same kids. Whereas, yeah, like, but like, it didn't matter that my son was an amazing athlete. Like, they couldn't care less about that because like, you know, he was not at the top of the chart on marks, you know.

So like, they're very

Steve Hsu: It's even true.

Victor: in that way.

Steve Hsu: It's even sort of in the middle in Europe where the school schools don't have big time sports. Right. So, you know they're less obsessed, like the social status you get in the U.S. from being like a star, track athlete or whatever, swimmer. you wouldn't necessarily get that in Europe, because they don't, it's not part of the school.

You might belong to a club, and you're really good, you're the number one sprinter in Dusseldorf, but you don't, you might not get quite as much social status as a kid in our high school, one of our high schools in the U.S. from that, right? So, anyway, I think it remains to be seen which system is going to win out here.

It is a competition between two radically different systems. And you know, I, I just, it always pisses me off how little people here try to educate themselves. Even if, even if they're obsessed, like even the hawks, the warhawks who want to like go to war with China or whatever, They don't even spend the effort to, like, really try to figure out, like, to get a realistic picture of what is it that they're competing, what is it you're about to go to war with might be good to have a realistic grounding before you do that, and, and yet they're still willing to make very cartoonish assumptions about the other.

Victor: Yeah, and I, I think that's the most surprising thing. Like, you know, the number of people in just in government that I know in China who have been educated in the States is like, incorrect, like, like, I would say, like, it's, Now, this is a circle that I was running in, but it was at at least over 50 percent had spent a significant time either getting an entire degree or spending time, you know, maybe it was graduate school, but they had spent a lot of time.

So they understand that system really, really. And whereas, The opposite is clearly not true, because I talk to very, very educated people over here, and they just have no comprehension about, you know, what the world is like over there.

Steve Hsu: And I think when I talked to you in setting up this podcast, like, there's a huge disorientation here because the media in the U.S. And, and the government influencing the media, everything is being pushed now toward a kind of Cold War narrative where almost all the reporting about China is, is, is negative and often unrealistic in its negativity.

And so, of course, like if you know a little bit more and you realize, wait, some of what they're saying is not true, or a lot of what they're saying is not true, you get into this cognitive dissonance mode.

Victor: Well, I mean, you mentioned the Xinjiang thing. Like, there are, there are two things that I think people miss in that entire conversation. One is, those steps, and I'm, I'm not saying they were appropriate or not appropriate of reeducation camps and integrating them, you know, and kind of looking at it came out of a series of terrorism, like a terrorism campaign that was pretty widespread when I was there.

Steve Hsu: You were there when it happened. In fact, there was stuff in Beijing, actually.

Victor: Yeah,

Steve Hsu: Terrorism. It's so funny because Americans during that same era went crazy, and a million Iraqis there were probably a million excess deaths in Iraq because of the U.S. invasion and who knows how many in Afghanistan.

The U.S. reacted to that, okay? So it was okay for the U.S. to react to terrorism in that way, but of course they're not willing to grant any reaction to terrorism by the Chinese government to them, they probably most Americans wouldn't even know that there was this spate of terrorism in China during that era.

Victor: Exactly. Like that is part of the story that isn't even talked about. And you know, like. And the other part is that when anything, when there is something bad happening, I think Kaiser of the Sinica podcast has coined the term catastrophism, right? Like everything is just going to make the entire economy collapse.

And I mean, what I saw is that my experience is that it's a very robust system in, you know, like the amount of people and like you know, entrepreneurialism and openness in that system is off the charts. It's, it's not this, I think you're right in that there are these top down kind of things where it's guiding, but really there's a lot of like, like you said, it's decentralized and running kind of grassroots.

Like there's a lot of innovation coming from the bottom. And it's not that those ideas are, are ignored. You know, those ideas, like, it's basically like, we're going to look at everything. And I think this goes back to Deng Xiaoping. Like if something works, we're going to use it. And that, that's something that's seen.

And, you know, even to the point of, if it's coming from somewhere else, they'll use it. Like those ideas are still, I feel somewhat more open, than say, you know, in North America. I think if something didn't come from, now, here, they would look at it with a lot more skepticism.

Steve Hsu: I mean, the only place that is open to innovation and new ideas and is positive about technology as China in general is, is probably Silicon Valley in the United States. Yeah.

Victor: Yeah. And I, I see that, that parallel in it. That's a very, very good parallel. It's just happening on just such a larger scale, you know, like, and it's just hard. That's the part I think people miss is how big things actually are and how fast things evolve.

Steve Hsu: It's all done at scale and very fast there. And I think you can't get a sense of that unless you go there and spend some time.

Victor: Well, I'm looking forward to following up with you after we both, you know, make a trip there after your trip in the fall and my soon, but yet unplanned trip there.

Steve Hsu: All right, we'll do that. We're well over an hour and I actually have to go, so maybe we should call it there and we'll, we'll agree to talk again after we've both been back to China.

Victor: Sounds great.

Steve Hsu: Okay. Take care.

People like the little addendum that I filmed in the backyard after the AI episode, so I'm going to do it again. I just finished recording with Victor talking about China, what's happening in China these days. I just thought I'd add an anecdote. people are very surprised, the ones who talk about war with China over Taiwan.

And they're very surprised to learn, for example, that a lot of Taiwanese people would consider retiring in China because they think it's more dynamic and interesting and they're not particularly concerned about political repression. So to them it's, you know, a different political system, but still a normal place to live.

And I think this is very surprising because in the narrative that you're going to, you're going to be bombarded in a lead up to some kind of war over Taiwan. You're going to be told that Taiwan is a good democracy and China is a bad authoritarian or totalitarian state. But on the other hand, my wife who grew up in Taiwan is actually interested in the possibility of us retiring, you know, in China.

Not for any political reason or anything, but just because it's such an interesting place with so much happening, the society, and the economy, and the technology there are evolving so rapidly. It's just an interesting place to spend time. So I just thought I'd throw that in there for consideration. in the run up to any kind of competition, like the last Cold War, or this cold war that we seem to be entering into.

You know, people are really working to shape the narrative. So I think if you really want to know what's happening, it would be a very good thing to, especially if you're a person with, you know, the means to take a trip to China and just see what it's like. I think something like 14 million people visited China as tourists in the first half of this year.

You know, now that COVID is in the past. And I think China has relaxed the visa requirements for people from quite a few countries to come and visit. I recommend people who are interested in geopolitics or the economy or the future of our planet to take the opportunity and go there and travel.

It's really very inexpensive by American standards to travel there. The plane ticket, obviously, it's a long flight, but once you're there The cost to actually travel around is quite low and I think you'll enjoy it. failing that, I would recommend watching travel videos. There are lots and lots of good travel videos that people just put up on YouTube now.

They could be, you know, Chinese people who are traveling in China or they could be, it could be foreigners. but there's really tons and tons of great content and you can, you can get a sense of how things are there. from that kind of content, although it's obviously no substitute for going there yourself.