China, China, China. Breaking Down China’s Tech Surge | BG2 w/ Bill Gurley and Brad Gerstner

Over lunch, this individual told me, you know, every founder and every VC in China studies the West at a nauseating level. So they listen to all the podcasts. They read everything they possibly can. They study any speech. They look at the financials. And he said, the West doesn't do that of China. And, you know, maybe we should be. Maybe we should be studying the best and the brightest over there.

Hey, Bill. Great to see you. Good to see you, Brad. Man, summer has just blown past. It's almost football season. Yes. How are the Longhorns looking this year? They're ranked pretty high. What's that mean? Come on. Give me the scoop. I know you're all over this.

People that know, know, but they have the dangerous starting position of being ranked number four in the country. Oh, wow. Wow.

Any big games coming up?

They play the number ten team in the country this Saturday. So we're going to find out.

And back to Big House country. Yeah, exactly.

It's been really incredible. I just got back to Silicon Valley after being away for a few weeks. The OpenAI deal, the Anthropic deal, I was just looking at these. I think these are bigger private IPOs than any public IPO done in the last five years in the tech market. You had Sam say the other day, Sam Altman say, two things can be simultaneously true. One, that this is the biggest thing to have ever happened in technology. But number two, that in the short run, things become overheated and people can get a little bit ahead of themselves. Where are you on that?

Look, there's just no denying that the amount of capital that is going into these companies earlier in their life and the scale of hiring and their willingness to take on risk, which I think you can use cash burn as just a proxy for risk because you get further away from knowing unit economics and you're more front-leaning. You know, I think what... those numbers are unprecedented. Like even against, you know, the Uber-DoorDash wars and all this, they're bigger than that. And so I think it's part of, we've talked about it. I think it's part of a systemic trend where investors are aware of network effects. They've watched companies that get the initial conditions right, go on to really big outcomes and they're willing to bet ahead of the curve.

And the more confident they get over more time, the more they're willing to make that bet ahead of time. And so, you know, it is what it is. We're seeing, you know, massive numbers.

Well, I'd say it's a combination of two things. Extraordinary scaling. We've never seen a company, in the case of OpenAI, scale users and scale revenue as fast as they are. But definitely, you're absolutely right. The private markets are there to meet them. And we're seeing the depth and the breadth of capital and investment in the private markets, I think, unlike anything we've ever seen. But, you know, we're going to save that for... Yeah, save it for later. Let's save it. Let's save that for another day. We're going to do something a little different today. You know, one topic that I think we've hit on time and time again, but we're going to really just try to dedicate the show to it today.

And that's China. You know, you just got back from China. It's one of the hottest, in many ways, most consequential and also most controversial debates, I think, in Silicon Valley and in Washington. You know, on the one hand, you have, I think, national security, economic hawks, you know, who are in this camp that we should decouple. It's a little bit more Cold War 2.0, a great power struggle. This is the Mearsheimer perspective. You know, maybe in the middle you have, you know, tech pragmatists, I guess I might call them, you know, like Jensen Huang or Tim Cook. I'd probably put myself in this camp who thinks we have to compete, we have to re-onshore industry. You probably should have some tariffs in order to achieve that, but you definitely can't decouple or ignore or antagonize.

And then maybe on the other end, you have kind of the globalists. I don't know, Jeff Sachs, Jeffrey Sachs is probably in this camp. It's free trade, open science collaboration. And, you know, this is of tremendous consequence to issues around tariffs and trade, issues around military, issues around AI. And there's this new book out by Dan Wang called—that I want to talk about, you know, where he really takes on the differences between the two countries. But why don't we start with, you know, this trip that you recently took? You know, you just got back from China. Why did you go? And frankly, especially given all the blowback you've gotten personally, Benchmark's gotten with respect to China, maybe for having too soft a view on China, give me your inspiration for wanting to go and spend as much time as you did studying China.

Yeah, so I've probably been four or five times before this trip, but I hadn't been since COVID. And I've been reading about everyone that's been going. We had talked about Thomas Friedman's comments from his last trip, and you hear about all the things that are different. Personally, my daughter's an Asian studies major, so she went on the trip with myself and my wife. And so with her studying that topic, I thought it'd be a great chance for her to see things too. She's much younger than us, but I wanted her to go around. And the fact that she speaks Mandarin was helpful on the trip as well. But you just said something, right? You said this is probably the most consequential, you know, other nation when it comes to thinking about America or thinking about our stock markets or thinking about how technology companies are evolving.

And so I just wanted to learn. Like, why wouldn't you want to know more? I don't understand how you... If it is the most consequential relationship for a country, why you'd want to know less, right? And so I've always enjoyed going over there. I've always enjoyed learning things that I don't know. And I really wanted to see it up close and personal. One thing that was super helpful was Dan Wang, who you just mentioned, gave me an early copy of his book. So I read it on the way over there. Tell us a little bit. Who is Dan Wang? So, he's a gentleman that lived over there. He lived over there during COVID. You know, he's a policy analyst, and he recently moved back to the U.S.

He's at the Hoover Institution, been studying China for a long time, looks at it through the lens of technology and innovation.

And the book's titled Breakneck, and it's really talking about some of the acceleration that we've seen in building inside of China. But I would suggest the two things about the book that are really interesting. One, he kind of uses it as a mirror back on the U.S., so it's really about both countries. It's not just about China. And then two, he's balanced. Like he talks about the pros and the cons of what has happened over there. He starts with this chapter that was recently republished in The Atlantic where he highlights that the vast majority of the Politburo are former engineers. So this is the ruling party within China, and that the vast majority of the people in Washington, D.C. are former lawyers.

And he uses that lens to say this is why they're great at building things and maybe why they're not so great at social things. I think he gives the edge to having the lawyers, to protecting free speech and personal rights. He did not enjoy the lockdown in Shanghai, which was fairly abrupt. He's very negative on the one-child policy. And for those people that don't know, the Chinese government is now trying to encourage people to have three children. Not successfully, but that's the new program. So they've completely flipped from where they were. But it's a fascinating read. It's a very personal read. You can tell that, you know, his life journey, his parents were born there and left, you know, and went to Canada.

And that's how he grew up in the West. And then he went back. And so... I think it's a really interesting lens, but it's very, very current. One of the things he really dives into, and this is something that people that I've talked to that know China have known this for some time, but I don't think the general people understand this. One of the things that's led to the vast build-out—so we've read about high-speed trains, we've read about overnight cities, we've read about their number of companies in the solar space and the EV space—one of the reasons that happens is the provincial leaders compete with each other. So the provinces are very competitive with one another, not in the same way the states are, really.

One of the reasons this is true is if you run a province and do well, you put yourself in really good standing to move up in the federal government.

But wouldn't you say that seems to me like Gavin Newsom competing with DeSantis in Florida on who is more business-friendly, who is tougher on immigration? It seems a little bit the same way.

I think it's a little bit the same way, but the difference is that, because there's a singular government that's going to make choices—like in the U.S., if you do well as a governor, you might get elected. Got it. But in this case, it's more like divisions of a company. And if you run one well, you might get the CEO job. And so that competition leads to overbuild in certain cases. So there's several ghost cities, that are buildings that are empty, where they've built too fast. They are now facing problems, even though they're the world leader in EVs and the world leader in solar panels, where some of these companies need to go bankrupt and a province may not want them to because of employment issues.

Right, and so those are... flip, you know, two sides of a coin. You get one benefit, you get hyper-competition. We talked about the "thousand flowers bloom." So the federal government publishes every five years this mandate of the things—these are the things that are important and you need to go work on. And then the provinces, you know, go at it like—they go right against those initiatives. And that's how they've taken a lead in those things we mentioned and energy production. You wonder, we talk about all the number of nuclear plants that they have, new nuclear starts, solar farms, wind farms.

I want to dig into that, Bill. I think there's this general view that China's good at building things, building iPhones, but perhaps not at innovating. And then, you know, Jensen Huang reminded us recently that 50% of the world's AI researchers are in China and they're indeed innovating and not copying. You know, on the ground, when you look at the things happening in auto, when you look at the things happening in AI, when you look at the things happening in space or energy, etc., how would you compare and contrast, as a venture capitalist, the level of rigor and innovation and excitement, enthusiasm, and investment, I guess, going on against these critical future industries?

Well, if you're over there, you know that the ByteDance founder is just remarkably unique. You know Lei Jun at Xiaomi is remarkably unique. And if you spend time studying those people, I don't know how you would possibly think that they can't innovate. I mean, TikTok was there first, right? And then it came here, and then Reels copied TikTok. One thing that doesn't seem like innovation, but I was surprised by, Pop Mart is a $40, $50 billion public company, which is a children's toy company that started in China and is everywhere over there. But like, just the idea that there is no innovation. You know, one of my favorite meetings, and I promised I would protect the innocent, so I'm not gonna share who it was with, but over lunch, this individual told me, "You know, every founder and every VC in China studies the West

at a nauseating level. So they listen to all the podcasts. They read everything they possibly can. They study any speech. They look at the financials." And he said, "The West doesn't do that of China." And, you know, maybe this goes back to my main motivation for going over there to learn. But I thought that was a very provocative statement that he made, you know. And maybe we should be. Maybe we should be studying the best and the brightest over there.

Well, let's dive into maybe one industry, I guess, as a lens. I know you spent a bunch of time in the auto industry looking at all of these new entrants. And help us understand the innovation that's happening there on two dimensions: one on just electric vehicles, number two on maybe autonomy, and then number three, I'm just curious how Tesla is able to compete so effectively, you know, in a market where you have this hyper-competition, uh, for electric vehicles.

Yeah. So I, I, I had a number of auto experiences when I was over there. First of all, I was invited to, um, visit BYD. This is my, they gave me a nice coat. I, um, I met with Stella Lee, who is their number one executive, I think, facing outside of China. She runs all their Europe initiatives. For those people that don't know, BYD is the largest EV manufacturer in the world at about 4 million vehicles. They started in batteries. They compete with Foxconn to build mobile phones. They bought Jabil Circuit. You remember that old company? I do. And they make lots of things. They make buses and subways and all kinds of different things. But they got into cars over, I don't know, about five to 10 years ago.

They have a number of models. They gave me this one. This is a very kind of high-end sports car. In fact, I met a public company CEO that was proudly showing me this was his favorite car that he drives around. They make an SUV you can drive into the water with. I don't know exactly why you'd want to do that, but we rode it into the water, drove around in the water and drove out. Um, they have cars at 10 to 15 grand price point on the entry side. They've hired a European designer. It's just how they're building stuff like this, um, on the higher end. Um, and they're very aggressive from a cost perspective. I think BYD, more than anyone, on the cost side. It's not preventing them from building higher-end cars as well.

So that's BYD. I also had a chance to visit Xiaomi. They also gave me a car. The... the Xiaomi is a super interesting story if people don't know. So I, I w I was fortunate enough to meet Leijun back in oh three Oh four. Um, but about 13, 10 to 13 years ago, he started a phone company and that's what Xiaomi is. And that company is now third, I think around the globe and handsets sold heavy in Europe, heavy in South America, not just China. Um, And three to four years ago, I think around 2021, he decided to build a car. And it was about the same time Apple said they were going to build a car. And mind you, this guy was back in 03, ran an e-commerce company called Jojo. Like he's... There's no reason he should be able to build a phone and then build a car.

So what do you attribute that to, Bill? When you see that, again, going back to Dan Wang's book, he's like, this is an engineering culture that has built these technological ecosystems that gives rise to a higher velocity of innovation than we see in the United States that Dan would argue is bogged down by technocracy, you know, regulatory capture and lawyers, et cetera. Why do you think, you know, Xiaomi is so successful?

And by the way, let me just share with you some numbers. So they're making a thousand of these a day. They just came out with a kind of a Cayenne.

A thousand cars a day.

Yeah, in the factory that I went to. They're sold out. They have like a 30 to 40-week backlog. You have to pay five grand to get on the waiting list. The factory, this is an interesting data point. The factory makes 1,000 cars a day with 2,000 employees. It was highly automated, like really highly automated. I imagine that they plan to improve that number over the next five years. Let's say they took it to 1,000 employees for 1,000 cars. That'd be one employee per car per day. That number is like at six in the US. And that's super interesting for a number of things like, if you want to bring the jobs back there, by the time you get the jobs back, there may not be any jobs because of automation. The entire global potential for car manufacturing in five or 10 years from now could be like 400K total.

And so, you know, we just need to be really thoughtful about those things. But back to Lei Jun, he gave a talk in 2024. We're talking about maybe people should be watching and learning in both directions that I would encourage people to watch. It's on YouTube. It's his State of the Union from 2024. And he spends about an hour talking about his approach to building a car. And it sounded like so ridiculously, I don't know, like, like you asked about entrepreneurial. He, he, he decided that he hadn't been driving a car for 10 years cause he had had a driver. So he immediately switched seats with his driver. And then he, um, he went through the parking lot at his company. And if there was ever a car he had not driven, he'd leave a note on it and asked to borrow it.

And then he would have the owner of the car tell him what they liked and didn't like. So he claimed he drove 170 cars that way. And then he also, like BYD, they hired a European designer that came in and helped him out. But for an entrepreneur who had never been in the car business to build a factory in a three-year window—and look, same thing was true, our friend Omid built a factory in Texas, you know, you know, under 40, like, just spectacular, that, that these entrepreneurs are capable of doing these things. But it just kind of blows my mind, like, when I was being driven in this golf cart through this factory, just thinking that this person wasn't in the business three or four years ago. And for people that don't know, I'd encourage you to go online.

And so the CEO of Ford, Farley, he went over there and I think had the exact same tour I did. And he insisted they ship him one back to Chicago. And he's been driving it around. And he's made some pretty extreme statements after having experienced Xiaomi. This car sells for about $40,000. But he said, 'It's the most humbling thing I've ever seen.' And he says, 'Even beyond that, their cost, their quality of vehicles is far superior to what I see in the West. We are in a global competition with China, and it's not just EVs. If we do not, if we lose this, we do not have a future at Ford.' You know, that's Farley at Ford. You know, and I, by the way, I would take a pause after mentioning that to the people that are going to accuse, just because I went over there to learn, accuse me of somehow being like an agent for the CCP.

Is that also true of the CEO of Ford? You know? Like, why is he saying these things? Like, we're just witnessing what's happening on the ground.

One of my observations is—and you hear this from Elon, you hear this from Jensen Huang, you hear this from Tim Cook, you hear it from Farley—it's extreme respect for the level of innovation, for the focus, for the engineering-led culture that exists in China. And that, to me, one of the reasons I wanted to do this pod on China is because I think it's as much a reflection about what the United States needs to do to re-engineer its own society. It's not enough to say that we want to re-onshore critical manufacturing. It really is about this movement around American exceptionalism, America Builds. It's about making the reforms necessary, whether it's regulatory capture, whether it's the tort reform, legal reform required to frankly allow this level of innovation and recognize that we're in this global competition.

You know, and there are two ways in which you can approach this, Bill. One is we can build barriers, we can try to decouple, and we can pretend the rest of the world somehow won't buy China's goods. You know, but if you look at it today, the U.S. only represents about 14% of China's exports. The U.S. only represents about 3% of China's GDP. Yep. Right? So, like, we're just not that important to China. I don't wanna understate—we're still very significant—but China has found a market in Europe, they found a market in Africa, they found a market in South America, right? And it seems to me that the harder pill for the U.S. to swallow—and this is where I think that I'm in the camp of those in the middle who say, we need to engage, we need to compete, there is a competition, we wanna win the competition—

But this is about focusing on us and running a faster race. We have a lot of reforms. I think a lot are occurring now. I think we're doing the type of things that we need to be doing in order to get more globally competitive. There are industries that are critical to our national security—you know, things like rare earth magnets, things like, you know, steel production, things like pharmaceuticals—where I think it is appropriate to have both an industrial policy and a tariff policy that's going to provide the incentives to those industries. Yeah. But to me, the reflection on what I hear you saying about China when I read Dan's book is that China is putting the accelerator to the floor in terms of innovation.

And it's in every single industry. It's powered by this provincial competition you talked about. It's powered by people who are just naturally entrepreneurial and hardworking. And there's no escaping that, and there's no putting that genie back in the box. What are your thoughts on that?

Yeah, no, I think it's exactly right. I mean, BYD has a big presence in Hungary, and they have a factory they're building, or already have one, in Mexico. And why, if you're Mexico, would you not buy the 10 to 20-grand EV? Why would you buy that, the 50-grand one from America? It just doesn't make any sense, right? For any country around the world—and I could reflect this on the U.S. as well—if you're not gonna buy domestically, you should certainly buy from the low-cost producer, right? It goes back to comparative advantage, right? If you can't produce a globally competitive product and you close your import border, your people are forced to buy a product that is overpriced. And so from a standard of living perspective, they're worse off than they would be if you had opened the import door.

And so I'll give you another example of this. So this is the Apollo competitor to Waymo. So we've seen the Waymos around Austin and San Francisco. We've ridden in them. I've ridden in this now. It's a little bigger, I think a little roomier than the Jaguar for sure. It's more of an SUV. But this is on the streets. And Apollo is kind of interesting. It's inside of Baidu, which is a search engine company. While people are saying that the Waymos should be worth $170 billion inside of of Google, you can buy shares of Baidu for zero enterprise value. It's a $30 billion market cap, $30 billion in cash on the books. And from a global perspective, I don't know why, if this is $30k, why you'd want to deploy Waymos, which people say are over $150k, partially due to the

to the MEMS solid-state LiDAR advantage that China has, which we've talked about previously. So yeah, I think rest of world is a really interesting thing to think about, you know, when you compare the two countries, because I don't think that—I personally, and I don't have a ton of data on this, but I personally don't think all the other countries in the world share the same level of hawkishness that at least part of the members of our national government have. And so I don't think they're going to be as afraid of their technologies.

Let's think about this in the context of, you know, what you've seen. If you were giving advice to Trump on export controls, for example, Bill, you know, whether it's on, you know, AI chips or other things, you know, would you be, you know, what would your advice be?

Well, I mean, I think you hit on some of it around the red tape and, you know, there's a couple of different things. In certain industries where we're really behind, I would be very open-minded to JVs coming towards us. You know, for the past 50 years, you know, European car manufacturers, US car manufacturers, they opened facilities in China. Some of them were forced to be 49% owned, 51% owned. I'd be very open to that kind of thing. There was some positive news out this past week following Trump's engagement with Korea around nuclear, which we have talked about before. Korea can build a nuclear plant for one-fourth the price that we can. Why don't you invite them to come help us build a few in the US and see what we can learn?

And I wonder if we should allow Ford. There's going to be, there are so many EV companies. I didn't even mention, you know, NIO and Zeekr and some of these other things. They're all innovating in different ways. But some of those are going to have financial trouble. NIO's public. You can see that the stock's not doing all that well. But would we let a Ford or a GM buy one of those companies, right? Maybe we should. I don't know if the China government would let them. Would we let one of those companies open a JV with Ford or GM in the US? I think we should if we'd learn from it. And you could say the same thing about solar or any of these technologies where they have a lead, solar, nuclear.

So I would be open-minded to those types of things. I would be really big on trying to get regulation out of the way and recognizing that the—that an autocratic country that has specific goals can move so much faster in any industry than you ever could in the US because we've created so many people whose jobs it are to block things. I think we're seeing that type of behavior in certain states, which is why TSMC's in Arizona, which is why Tesla's in Texas. I would give Governor Shapiro a lot of credit for reopening Three Mile Island and what he did with I-95. All those things are signs of recognizing that we've built mud in our system that prevents building. And how do you start to remove that and move in the opposite direction?

Specifically, you know, thinking about the tariff. So, you know, I think that the president tweeted yesterday morning, you know, if we don't get—it was appearing that we're on a glide path and making a lot of progress with China, and we may very well be. I think he tweeted yesterday morning that if we don't get rare earth magnets from China, he could raise the tariff rate to 200%. There was some talk that he was going to visit China in the first week of September. So that's right around the corner. I said on a couple of pods ago, I thought that the way to understand this president is that he's a self-described deal junkie. He's a pragmatist. He's not an ideologue. It seems to me that when he's talking with Jensen Huang and others, he falls in that kind of pragmatic centrist category.

He certainly wants to rebuild stuff in the United States. But at the same time, it appears to me he wants to get a big deal done on China. Where do you come down again if you were advisor on the tariff side of things, Bill? Do you think he's going to get a big deal done with China? Do you think that's the right thing to do? And how do you think that influences some of the building that you're talking about?

Okay, this is—I have zero insight. I didn't meet with anyone in the—in the CCP or the government. So I have no idea what, what their mindset is. It's pure speculation on my, my point, my part. Um, you already brought up the fact that, that we're a much smaller percentage of their exports than people realize and people think about. And as a result, you know, I think that they're going to be, China is going to be far more, um, biased by what they view as fair and face-saving than they are necessarily like numeric. And so I think if someone were to approach them in a pragmatic way, I think a pragmatic deal could easily get done. If they are engineers, as Dan Wang said, it's not like they wouldn't accept a pragmatic outcome.

I think they would. But if we're intent on being derogatory in our language, and by the way, that's the thing that I just really don't understand that you see in Washington, you see it on that Select Committee on the CCP, and you see it from some of the people in Silicon Valley. I just don't understand the value of being derogatory, belligerent. But many people clearly are. I mean, they have four times the number of citizens on this earth than we do. And everybody's country of birth is something that happens to them outside of their control. So I just don't know why vilifying a billion people is a good idea. So I think it's possible. I think they would do a deal. And I just don't know if—if we get caught up in a silly tit-for-tat verbal war, what the benefit of that is.

And anything like that, and this is one of the points Sachs makes, Jeffrey Sachs, not David, you might provoke World War III. So how do you put that into your NPV calculation?

Is it fair to say that, you know, I think if you look at tariffs heading into this year, they basically doubled on China. But if we put tariffs on particular industries in order to incent building in industries in the United States, imagine it was a deal a bit like Japan, Bill, where we also cut a deal with the Chinese that they had a trillion dollars of investment the way we have with other companies that go into the U.S., into some of these industries, and that we perhaps get some reciprocity and reduction of barriers to some of our goods into China. How would you handicap that? Did you get any sense... or do you get any sense from the stuff you read in the United States as to the probability of that?

I think it's one of the biggest influences as we look at growth in the back half of this year, as we look at market sentiment in the back half of this year. Just curious where you stand on that.

Ironically, one of the things that, I mean, like I said, I met with companies and founders and, and a few academicians and some journalists, but I didn't meet with the government. But in general, there's just not any hostility from their side, from that group of people that I met with. In fact, most of those people look up to the U.S. founders that have done great things, the Jobses and the Elons, and most of them aspire to compete globally, the same way a founder in the U.S. would. And so they would like to see all this rhetoric die down and they would like to have the opportunity to come to the U.S. market. They'd like the opportunity to compete in Europe and South America. Many are—Xiaomi and BYD already are.

And so I think, like I said, I think there's a pragmatic deal to do to the extent. And if... if that led to the types of programs that I just talked about, this kind of JV thing where there's a market they're a leader in, and we have that company come to the U.S. and help us understand how to compete in some of these technologies and get to lower price points, I think that'd be fantastic.

Do you feel like over the last 20 years, who do you think's gotten the best out of the relationship, Bill?

You know, I haven't read this Apple-China book. A lot of people have been talking about it and I aim to. It, it—I think the problem with looking at it that way is, you know, you and I have talked about this finite versus infinite game is, you know, where are we in the time of the planet? And what do you think the planet's going to look like, you know, 15, 20, 30 years from now? I mean, I think it'd be very easy to say, you know, using your framing to say the U.S. took advantage of Europe post-World War II. And a lot of the manufacturing that existed prior to World War II shifted to America. And so you could then with that same frame say, yeah, China grew on the back of America from that time.

I kind of look at it another way, which is there have been different periods where these different countries have industrialized. We were a huge beneficiary post-World War II because most of Asia and Europe had been blown up and there was no production capability whatsoever. And a lot of the kind of glory day mindset that we have about what life and generational change should be like in the U.S. come from that time, which is a bit unfair, I think, from a global perspective. There's a ton of hardworking people over there. You know, Deng Xiaoping brought capitalism underneath the Chinese government and led to the biggest, you know, increase in standard of living of any—it's like 500 million people came out of poverty as a result of that.

And, you know, when people say, 'Oh, we should have never let the jobs go over there,' I don't think they really want to say, 'Well, we shouldn't have let 500 million people out of poverty.' You know, it's the same people that want to talk about aid in Africa and whatnot. So a lot of people benefited in China, but they're also hardworking people. And we talk a lot about meritocracies, right? And some of the same people that talk about meritocracies are anti-China. And so that's a hard thing to square because if someone's willing to work twice as hard as you and willing to study harder and all that kind of stuff, do they not deserve a chance at a life like you have?

I think the bigger complaint is that we were naive in our trade policy and therefore we allowed huge advantages to flow to other areas. And, you know, by the way, as Dan says in his book, at the same time, we were actually moving to more of a regulatory state in the United States. So, you know, like our companies were getting less competitive at the same time we were helping their companies get more competitive. And there was a lot of collateral damage in the United States during that period of time. And I think right now people are saying, 'OK, we're moving into this age of AI, but we have to get back to driving reform in the United States that levels that playing field a bit.' And so you can't undo the past, but I do think there's recognition that we need to do the things in order to incentivize U.S. industry to compete more effectively in a lot of these different categories.

I think it is going to be tricky, though. You know, if you say, you know, you've got a hundred competitors in the EV industry in China, they're all willing to work on razor-thin margins and they're willing to sell cars into Europe at $20,000 or $25,000. Today, as Farley said, there is not a U.S. manufacturer, sans perhaps Tesla, that comes anywhere close to being able to compete in that way on a global basis.

Correct. One thing I've been studying a bit is I do think that the Chinese government's more, has more scrutinous of monopolies. You know, I don't think that they—I think they would consider it a negative if there were seven companies worth $3 trillion or whatever. Like, I don't think they care about market cap. I think they care more about employment and global competitiveness, which would cause you to support low-margin companies. Um, and they get to choose to make that choice. I'm not judging it, but it would result in this outcome. In addition to the Farley quote, the Mercedes CEO said, 'We need a reality check,' when he was talking about Chinese EVs. And then Stellantis, I guess, is the new name.

Yeah, Stellantis, who rolled up a bunch of other car companies. They said Chinese EVs are, quote, "possibly the biggest risk" facing his carmaker and Tesla. And he criticized—this is Carlos Tavares—he publicly criticized EU tariffs on Chinese electric vehicles, calling them a major trap for automakers. And this is, you know, you talk about what policy would fix things. I'll tell you what policy will make things worse. You start protecting US industries by putting export tariffs on the most competitive products around the world, which I talked about earlier. Now your consumers don't have access to those price points, and so you're buying inferior goods at inflated prices. And that's going to lead to inflation, and prosperity and standard of living levels dropping in the US.

So, there's a lot of variables.

I would say that's generally true. I think if there's a moment, if there was a national strategy to improve competitiveness in an industry that had been, let's just say, had an unfair playing field for a period of time, like I could see a national strategy, for example, we talked about pharmaceutical manufacturing, we talked about chip manufacturing, we talked about rare earths, where you would say, "Okay, we're going to actually impose a tariff because these other goods are flooding and it deprives us of the ability to build our own domestic industry." But I think we have to be very careful when you do that, Bill, to your point. We know that unfettered competition will lead to, you know, is going to lead to much better products, much lower prices.

And when you start protecting these industries, what I worry about is you protect the regulatory grift and the over-lawyering that Dan talks about in his book, right? We got to face up to this fact that we have to reform some of these basic things in the United States. And that's why you see companies like Tesla moving to Texas where those reforms are moving forward. And I think we are making progress on that. But I think there is a rationale, uh, for those critical national industries, but I generally agree with you that if we move to high levels of protection because we simply can't compete because it takes, you know, us, uh, you know, 10 people, uh, in an auto plant to do what they do with one person in an auto plant, I think that's unsustainable, and I think we need to be careful with the rhetoric we throw around. So, so I'll give an example. So, um,

If you read what comes out of the biggest hawks, they say, "Well, everyone in China just steals things and the government subsidizes everything." So I brought that up with, uh, I brought up the subsidization with Stella Lee at BYD. And she said, she said, "If I'm getting all this government subsidy money, can you please find it and show it to me? We're, we're a public company. Come show me the money I'm getting from the government." She said, "I'm getting nothing." And, um, and then, you know, you look at the U.S., like, we give companies subsidies all the time to build factories. We've had EV credits for the past 10 years, both at a state and a federal level. Intel's getting money from the U.S. government.

Like, I don't understand... We're, we're, like, like, it's very unclear to me, like, what we're pointing at and accusing and why it doesn't—isn't the same thing here. And then lastly, you know, Elon's published all the Tesla patents, okay? So there's free IP for Ford and GM. And I would ask you, with that free IP, if we gave Ford and GM subsidies, do you think they'd immediately be competitive with China?

No, sir.

Okay, and if I ask 100 smart investors that question, what would they say?

I think they'd agree with me.

Yeah, so the thing we're accusing them of being the reason they're succeeding, if you flipped and gave that to the U.S. companies, none of us have confidence that would work. So that's what I'm saying. You just got to try and get as much information as you can, learn as much as you can. I just want people to have a pragmatic view and an accurate view as they make decisions. I did a deep dive on your favorite product, ChatGPT, a $300 version, Deep Research, and on the 24 members of the select committee for the CCP. And I think all but four of them have never been to China. And the ones that went, it was seven years ago. I just encourage them to go visit if they're going to sit there and have such strong opinions.

It'd be good if they were educated. I wouldn't want—if you were putting together a committee inside of your corporation that's going to be in charge of something, wouldn't you want the most educated people on that committee?

I can already hear the criticism. Oh, yeah. You know, of course, people would say, "Well, we don't expect the CEO of BYD to tell you the truth necessarily about government subsidies or things like that." Here's the one thing I want to get across in, you know, kind of this pragmatist camp. We do have to be self-reflective. Right? If we have this—if we have this view, "the only reason China's competitive or winning is because they're stealing or they're subsidized," I think what that view does is it allows us to delude ourselves into believing we don't need to get better ourselves.

Yeah.

It's like if you're playing a competition and your kid's out there playing in a football game or a swimming race and they lose the race and they come back to you and they say, 'Well, the only reason that person won was they cheated.' Your advice, I think, is, 'No, you've got to get better yourself. We've got to get better. How can we get better?' And I think that's why cultivating this balanced and realistic view of China—what's actually happening on the ground, how hard folks are working, what the level of innovation is, the fact that the United States is a diminishing part of their trade, of their GDP, etc.—I think that should cause us to look a little bit inward about how the hell do we accelerate?

How do we build more? How do we invest more? How do we get more globally competitive? Why does it cost us four to five times to build a fission reactor in this country? Why are we building no nuclear reactors in this country? And so the good news is this: I feel like there's a lot of momentum under this administration that was building before this administration around investing in America, getting more globally competitive. Right. A lot of people want to build things here again. You know, and you got—you have somebody like Jensen Huang who says both can be true. We need to sell H20s and B30s into China. We need to stay relevant in their ecosystem. But at the same time, we need to build plants in Arizona, and we need to rehabilitate and invest aggressively in our own domestic chip program.

Those things can be simultaneously true. And it's interesting that all of those CEOs who spend the most time competing in China, they all fall in that pragmatist-realist camp in the center about the United States needs to get serious about the work that it needs to do if it wants to remain globally competitive. With that said, Bill, can we shift for a second? I want to look at this through the lens of kind of just what's going on in AI. I know you spent a bunch of time over there looking at the key players on the model side, thinking about the chip side, etc. So maybe just round out that other conversation and then shift there.

Yeah, so one thing to note that isn't in the Dan Wang book, but I think that we can infer from it: the government every five years publishes this five-year plan. The last one was the 14th, and I think the next one will be coming out soon. I would encourage everyone to read that because that's where they tell the provinces what's important to work on. And that historically has led to these areas where they're investing heavily. And they might make a mistake in what they say to focus on, but when they've gotten it right, it's led to a lot of global competitiveness. So I would watch that. But in the last one, in the 14th, they literally talked about open source. And so, you know, I'll put a link in.

I found a document that covers all the history of Chinese open source, but it goes back 20 years. This isn't an overnight thing. And our government recently said they were pro-open source in this new AI executive order. But this was kind of pushed out to the provinces. And so two things I would say about the AI market there. First of all, no one's particularly concerned about there being a monopolist because there's so many open models. So there's, in general, I think from the entrepreneur's perspective, a more relaxed, you know, opinion because they can work on products and they can take in all these different models. I think, I think DeepSeek has the most kind of intellectual brand because of how that arrived and almost the national pride that came along with it.

Um, Qwen, um, is a really important player, mainly because Alibaba leads in the cloud market over there. You and your team may know more of these stats than me, Brad, but I think they're like a 70% player in the cloud market. And so that just gives them a natural place to deliver models from that makes them important. And then on the consumer side, you know, ByteDance, it seems to be the company to watch on anything consumer. And they already have an app. If someone said whose app is closest to OpenAI's in China, it's already an app from ByteDance that's out there. On the watch list, people are very curious if Tencent's going to do something. Obviously, WeChat's still extremely important in China, and so that's a great asset if they were to bring something, but they haven't been particularly aggressive.

And then Xiaomi, because of Lei Jun, everybody wonders what he might do. You know, owning the phone and that big a market share might give you some advantages. And we've talked about that with the U.S. players. So that's kind of, that's what I would say is the state of affairs over there when it comes to AI.

On the model layer, is—do you think there's an acknowledgement or a belief that they're basically, they have the tools, they have the chips, you know, with Huawei, et cetera, to be competitive? Like, is there a sense in China that, you know, Qwen is going to be competitive with Claude? You know, we know they're all open source. Do you think there is a sense that they all stay at the frontier?

I had that sense before I went just because of the number of competitive open-source models and the way they can train each other. You just have a much more natural environment to have this kind of hyper-competition that we talked about in EVs or solar. Like having that many open-source providers gives you that. I would say even maybe more because of the way the models can help one another, at least in the EV case. You can't take someone else's EV and make yours better, but here you can.

Can we talk about that? Just open for a second. Let me double-click on this. Obviously, we saw OpenAI open-source a model a few weeks back. Now we have comments this week out of Elon. They're getting back to more aggressively open-sourcing. You've obviously got Meta already, you know, with Llama out there on the open-source front. And I saw you had a tweet yesterday, maybe, Bill, just on you were surprised that Google had not taken a more aggressive position with respect to open-sourcing Gemini. Do you think they will? Why do you think they haven't? And why do you think it would be the right thing for them to do that?

Well, I had some replies to that tweet to get into this, but this goes back to where you started the podcast. I don't think public companies understand, or I don't think they've internalized and really come to terms with the fact that the private markets are willing to bet so aggressively on these new players. And we're talking about AI today, but this could be true of any new disruption in the future. Today, when I was going through the Uber-Lyft wars and, you know, we'd be in board meetings and look at these burn rates and all this money we're spending. You talk about whether or not to raise another round. And certainly thought about doing what Sam did and trying to talk capital out of the market, which never seems to work.

But you get frustrated with that game and you want to, you know—but you're dealing with business decisions that you would never see in another industry. And so getting back to the question you asked, I just don't know. If everything's at stake for Google, should they be willing to lose $5 or $10 billion? Because the startup that's attacking their space is willing to lose that amount of money. And I think it's an ironic situation we're in where the private markets and the startups are willing to be more aggressive, perhaps, and more risk seeking than the public incumbents are. And I think, you know, our friend Rich Barton took a lot of heat at Zillow when he chased Opendoor. But he was faced with a situation where a private company was claiming it was going to out-innovate him and disrupt his game.

And some of Wall Street had come to believe that. And so he engaged and he played that game on the field. Now, that eventually turned out to not be true. And maybe if he hadn't... engaged competitively with Opendoor, maybe they wouldn't have kind of tripped and fallen. But it was probably the right thing to do. And I don't think a lot of public companies think that way. Now, Google historically, when it came to AWS, open-sourced Kubernetes and went after them. When it came to Apple, they open-sourced Android. And certainly some of their lower models are open-sourced and competitive on OpenRouter. But maybe they should be more aggressive even still because of what's at stake. That was my point.

Okay, shifting back real quick, and we'll round up here on China. The VC market in China, we just rewind the clock, you know, not that long ago, Bill. And, you know, there was a lot of U.S. enthusiasm. There were a lot of U.S. firms investing directly in China, right, from Sequoia to GGV. A lot of those firms either shut down or spun off their operations, you know, in China. Benchmark has taken a lot of, you know, heat for doing an investment in MiniMax that, you know, I've read Benchmark explain really isn't even... you know, based in China. What do you see, you know, when you were there, do you see a lot of U.S. investors actively investing on the venture side in China? And then what does the Chinese venture ecosystem look like?

So a couple of different things. So first of all, there's a real lack of Westerners. For all my trips, this was the fewest Westerners that I've ever seen. And the high-end hotels and the high-end restaurants were fairly empty. And I think that it just has to do with the chilling of the relationship that's caused less travel from Westerners. The VC market is in a bit of a lull because when these policies all changed and when—the Jack Ma thing happened, when Didi got pulled back from the U.S. markets, when the for-profit education companies got taken out, and when WeChat went—I mean, Tencent went flat for a couple years because of gaming reforms. All those things took a lot of air out of the system and caused a lot of people to reconsider.

And then you also had, and I don't even know if this was more led by the U.S. government or the China government, you had the splitting of the venture capital firms. Sequoia split in half, GGV split in half. And so there are much fewer Western dollars available to invest in China. And so, you know, there are a few firms that have stayed. You know, Neil Shen at Hongshan had raised a ton of money right before all this happened. He's very active, has a huge staff of people. Anna Fang at ZhenFund, which is an angel group, are very active. And IDG is highly present there and has been active, but that's only three firms. And compared to where things were six years ago, when every one of our competitors in the venture industry were making an annual trip, it's kind of night and day.

And then there's not that many RMB dollars available to the venture market. A lot of the—you don't have the foundations and university endowments that you do here. And the billionaires, um, that have made wealth typically are looking to diversify offshore. And so you just don't have a lot of RMB dollars seeking a home. And now you have the provinces entering the investment space, which is an uncomfortable reality for some of the VCs. They're asked—I hear they're asking for terms that you and I would consider, um, non-starters, you know, um, and so that's—it's all a little bit messy. Um, it's, it's funny because it's simultaneously with some of these markets, EVs, uh, autonomous, uh, robotics where they're—where the country's doing extremely well.

So I found those things off a little bit. And everyone's very aware that if the government decides your company is doing something that's not in the best interest of the citizenry, that that's going to get corrected. And so there's a phrase, I don't know if it was in Dan's book or I read somewhere else, called "Don't be the tallest tree." That's a problem for you. Yeah, exactly.

Yeah, in that regard, do you think, you know, that's what I was wondering. You know, there seems to be a ton of entrepreneurial activity despite the fact that, you know, VCs have retreated, that you have companies that are not going public and have been shut down. You have entrepreneurs that have gone missing. It doesn't really seem to have diminished the activity around AI, as we were talking about.

Or startups or entrepreneurism. And in fact, a lot of the locals heavily dispute that Financial Times graph that was going around about the number of startups. They said it just mismeasured the whole thing. And so, no, I don't sense that there's any lack of enthusiasm from entrepreneurs. And towns like Shenzhen, where DJI and BYD and Huawei are all located, I mean, that town is a new, young, 20-million-people, highly energetic, you know, town with lots of stuff happening, you know, lots of stuff.

You said something to me before we wrapped. Is there anything else that we didn't cover that you want to hit on?

There's two things I would hit on. You talked about innovation. One thing that you noticed very quickly as a Westerner is no one takes credit cards. They used to, like the last time I went, but it's almost 100% WeChat Pay and Alipay. And if you can't get those to work on your phone, you're screwed, man. You can't pay for anything. What's the government's position on crypto? I don't know the answer to that question. I don't. But because they've been using these apps for so long, you've started to see incremental innovation around that. So most restaurants you go to, not the very high-end ones, there's a QR code on your table. That QR code not only represents the restaurant, but it represents the table.

And you can order from that. You can pay from that. Like, so if you are done eating and want to pay and leave, you just scan and pay and go. You walk right out. And, you know, we're far away from that in the U.S., that amount of automation around payment. And it's just interesting. And that goes from, you know, the high-end hotel and restaurant will take WeChat Pay and—street vendor will take it, right? It's universal. So that's one thing. The other thing that I would just mention, very recently China announced something called the K visa. And one of the—one of the things that's happened recently because of, I'd say, an increased agitation between the two countries is there have been a number of very recent policies in America that are impacting skilled immigration, especially at the university level.

And I did hear stories over there of groups of 50 or 100 PhD students who had been admitted into a university and were now being told they can't attend. And you and I and everyone have talked about skilled immigration and how that's been kept flat in the U.S. And now, you know, at least with regard to China, we're starting to put up blockers. And on top of that, you've seen these other charts where like 50% of the AI researchers in America are Chinese. And so—so that's something that's super interesting to watch. And this K-visa thing, which they've never done before, says if you are studying technology, you know, I don't know the exact rules. You don't even have to have a job. So this isn't like in the U.S. you need a—you're welcome to come.

They're going to give you a visa. So China's basically inviting everyone to come to the university systems from around the globe. I don't know how successful they'll be. I don't know if Europeans will go there. But it's an interesting thing to see.

Again, it's just a reminder to me. I continue to think that the U.S. is in an incredible position on a global basis, an incredible position vis-a-vis China. But decisions matter. And we talked about stapling a green card to every diploma, as the president did as part of the presidential race. And certainly, I think there's ample opportunity for upside to accelerate, to attract, to build in the U.S. And I hope that one of the takeaways of this conversation, the many conversations we ought to have—and it's why I think being overly dogmatic leads us astray—is we got to reflect on the things that we can be doing better to run a faster race ourselves, right? And I've heard you say this before, you know, the old quote from The Godfather: 'Never hate your enemies.'

You know, it affects your judgment.

Yep.

And I think there's a lot of that going on in Silicon Valley and other places that, you know, we're going to be a lot better off if we're very pragmatic about there's no slowing down in China. They're going to be there in AI. They're going to build chips at Huawei. They're going to build models at DeepSeek. And the way to beat them is not to, you know, try to cut them off at the knees. We don't need to make it easy on them. But the United States needs to accelerate our race. And I think if we focus too much on how do we slow down China, we take the eye off the ball on how to accelerate our own race. So it's fun spending one of these just digging deep on a particular topic. It sounds like an incredible trip.

Yeah, and I would just echo what you said, especially just on learning. My main—to anyone that's interested in this topic would be just make sure you have the exact right information as you then go to make decisions, especially around policy. And read what these global car CEOs are telling you. They've been over there. They're seeing it with their own eyes. They don't—they don't have a reason to be as candid as they're being necessarily, but they are. And then read Dan Wang's book. I think it's fabulous. Like Tyler Cowen said, it might be the best book of the year. It's very well written and a joy to read. And I would encourage everyone to go pick it up. It's called Breakneck. And I think it's out now, today.

No, you literally can go on ChatGPT and just ask it, your favorite CEO, what's Jensen Huang think about the level of competition in China? What's Tim Cook think? What's Elon Musk think? The reality is the people who spend the most time on the ground in China have the most respect for the innate capabilities and ongoing competition that we're going to see with China. And, you know, and and I thought that Dan had a really balanced view at the end, which is, you know, we shouldn't go out of our way to make it really easy on China, but at the same time, we got to engage, we got to be, you know, pragmatic, we can't stick our head in the sand, and we have to know that we got to reform ourselves, we got to run a faster race ourselves. Bill, it's great seeing you. I'm glad we're kind of getting back in the swing of things, and, uh, look forward to, uh, continuing the conversation.

As a reminder to everybody, just our opinions, not investment advice.