How China Became a Tech Beacon | China Decode

A fun fact, when I go to China, people

like to joke that China is a country run

by engineers, whereas the US is a

country run by lawyers.

Welcome to China Decode. I'm Alice Han

and I'm James King.

Well, today we have a very special

guest, the one and the only Scott

Galloway. Scott, thank you for joining

us. How are you?

I'm so excited about this podcast. Alice

and James, I'm um not only really

excited to um inform our listeners and

provide more insight into USChina

relations, but if you guys uh work

really hard and have the sort of success

that I think we can register, I might

get my second plane. So, I'm really

excited about the prospects of your

success. I'm really banking on you. And

James, I don't know if you've heard, but

my kid is applying to college. So if

this doesn't work, he's not going

to school. So really need you to bring

it, James. Really need you to bring it.

I'm trying.

We'll work hard for the Ivy League

education that he deserves.

There you go. There you go. I'm super

excited about this. So just just a

little bit of background on how this

came about. Um, we had we've had Alice

uh James as you know on the Prop G

Markets podcast and she's generally

speaking like our most popular guest

relative to her fame and that is when we

have Mark Cuban on or Secretary Clinton

they get a lot of positive feedback but

Alice would get that same level of

feedback and very few people knew who

she was. So we thought how do we build a

podcast around Alice and we said you

need a co-host. She said, "I've got the

perfect eye." But also in terms of

positioning the podcast, we thought,

"What subject matter has the greatest

ratio of importance relative to real

understanding?" And this all fed from my

own confusion. And that is every time I

thought China u dependent upon what

media I'd read lately, I thought it's

either going to collapse under a

demographic

uh collapse or subprime debt in the real

estate market or their dark

manufacturing expertise and new

relationship scooped up uh through a

failed American policy make it the

premier um nation in the world. And I

can never reconcile those two. And so

we're excited to try and um figure out

or fill that wide space if you will in

terms of understanding around what is

always kind of the second word word in

any conversation around economics or

geopolitics and that is China.

Well thanks very much Scott.

Well thanks very much Scott. I mean I'm

delighted to be here and I I I'm I'm

taking the the title China decode as my

kind of remit. I'm trying to explain

what's really happening. Although that's

always a very difficult uh thing to do

when it comes to China.

If this doesn't work, James, I'm

convinced the China decode name is

really the key here. I'm convinced you,

me, and that that kid who runs uh Tik

Tok who's very handsome. I think we

could start a boy band and we need a we

need a Korean and then boom, boom, boy

band. China Decode, the new boy band out

of China and Korea. Alice, what do you

think? You think we got a shot?

I think it would do well. It's a good

time to enter the market. James was just

saying he remembered a Wham concert in '

85 in Beijing. So, this would be uh the

second second part to that. Boom.

Strangely, nobody's ever told me before

that I should be in a boy band. I I

wonder why. Yeah.

Oh, it's coming. It's coming.

Well, this is a great time to be doing

this podcast, Scott. Uh my clients have

made a lot of money from China this

year, up 30% year to date on uh a shares

and H shares. Uh so, I see a rotation

back into China. So it couldn't come at

a better time to try to understand the

second biggest market in the world.

We have gotten so spoiled at the flows

of both human and financial capital

immediately defaulting to the US and it

does feel as if and I know you sense it

Alice that China is back. It feels as if

after a really tough time with co

um it feels and I don't know I I can't

figure out if it's our fault or their

success and I think the answer is

probably yes. Uh, but when I saw the the

image of the year, in my opinion, the

image of 24 was Trump pumping his fists

into the air after the failed

assassination attempt, I think the image

of this year so far is the image of she,

Putin, and Modi uh together looking like

they're fraternity friends. I think that

should send a chill down the spines of

America. And I think the big winner in

all of the geopolitical own goals from

the United States, hands down, has got

to be China. And when I see South Korea,

Japan, and China, who traditionally

don't get along very well, deciding to

have talks, it's as if Trump was

successful in inspiring a ton of

economic deals, unfortunately, they

don't include the US. They include China

and third parties. And I just think the

strategic own goal of the year thus far

has been these ridiculous ownorous

tariffs on India thrusting what is kind

of a swing vote. the ultimate swing vote

in the world. It wasn't leaning left,

wasn't wasn't wasn't leaning west,

wasn't leaning towards China and it

feels as if we have thrusted them into

the arms of the Chinese. So, I think

this is China ascending and I would

argue the US descending and I'm curious

what you guys think. How much of it is

our fault versus how much of it is

China's success?

China has its own structural weaknesses.

I would largely say it's the US's own

goals. If you compare China now to Trump

1.0, Trump 1.0, zero the the US was much

better at extricating the rest of the

world from China. Uh whether it was on

trade or national security. I think in

this administration they've headed in

the opposite direction uh for a number

of reasons and China has taken advantage

of it because like any good boxer it's

known how to read its opponent. So aside

from the structural weaknesses that

remain in China, I think this is largely

the US scoring its own goals and China

knowing how to make the most of them.

But James, what do you think?

I I I think a lot of it is down to

China. I must say I have a kind of

non-consensus call that gets me into

trouble with some of my friends uh over

here in the UK. I think that China is

winning the tech race with the US. In

fact, to be honest, I think it's already

won. Um and that doesn't make me popular

in Western circles, but it is a it's a

it it is a genuinely held belief. Um

however um I do think that China also

has quite a lot of internal problems and

one of the big internal problems is this

issue of what's called involution. You

know it's a very tough word to

understand but it basically means

excessive selfdefeating competition that

leads to diminishing returns for

companies and therefore low profits. And

if China can't shake that bug, then I

think there is a possibility though at

the moment I think a slight one that it

might all come unstuck. So I'm I I I

don't want to have both sides of the

argument. I I think basically China is

in a winning frame, but there is a

possibility it could come unstuck.

Well, James, that's a great way to segue

to our first topic today. Okay, so in

today's episode of China Decode, we will

be discussing the buzzword involution

and how it could spell trouble for

China's economic miracle. How Beijing is

courting talent globally just as Trump

tightens on US visas, and why China is

loosening its ban on hiphop to cash in

on concert tourism. All right, let's get

straight into it. When I was in China a

few weeks ago, the number one word

wasn't tariffs or trade. It was

involution. Uh, and the way that I've

described it to some of my clients is

that it's involution convolution, but

certainly it's a term that has been used

to denote the deflationary pressures on

the economy from just cutthroat price

competition that really erodess firms

profits. So whether it's car makers,

solar firms, battery producers, we've

seen over the last few years that

they've been flooding the markets, their

profits are basically vanishing. Uh, and

that's creating a a wage deflation

spiral where we see wages go down, debt

pile up, and Beijing is currently trying

to stop this. It's basically telling its

companies that they need to stop these

price wars and scale back on subsidies

and output. But critics warned that

without stronger consumer spending,

China risks sliding into the kind of

stagnation that we saw in the last

decades in Japan in the 1990s. Uh this

is a bit of a a more economic topic

which we can get into the reasons why

deflation happens but I certainly agree

with you James that this is one of the

biggest economic issues that's happening

in China and I don't feel as though

people in the west quite understand how

salient or how significant this is for

the Chinese economy just to put it into

context uh the way that I look at

involution it is just another version of

what we've seen uh in the last few

decades which is uh increasingly

inefficient fixed asset investment being

poured into different sectors. So uh if

you think about it uh in the '9s it was

in the manufacturing sector. This led to

a lot of ses going bust that needed to

be bailed out in the 2000s. It really

then got pulled back into infrastructure

and real estate investment. That bubble

burst in around 2020. And in the last I

would say decade, we've seen a massive

ramp up in fixed asset investment and

subsidies going into the manufacturing

sector. And that's basically creating

this dynamic whereby you seeing

ridiculously cheap EVs and solar panels

being flooded in the domestic market but

also globally. Uh James, what's your

take on this involution nightmare? I at

least from an economic perspective, I

see this as deeply troubling, but what's

your take?

Completely I completely on the same

page. I think you're you're very right

to highlight this. To me, involution is

a tough word, almost completely not

understood by anybody who speaks

English. Um, but this word could spell

the end of the Chinese economic miracle

if things go wrong. And just like you,

Alice, I've seen I've seen the sort of

foothills of this over the last 20 years

or so. We all remember the $7 toaster.

You know, how did that happen? that sort

of hit American shores in about the year

2000 2005 something like that. But these

days we're in a step change and that

step change is that these unbelievably

low prices are being applied to

high-tech stuff. In fact, some of the

highest tech products anywhere in the

world. So, instead of a $7 toaster,

we've now got a BYD uh electric vehicle

that's selling for about $8,000 US

um or the equivalent in Europe. We've

got a humanoid robot from a company

called Unitry that can stand up and do

tricks and do kung fu selling for

$6,000.

I mean these are fractions of the price

of similar products that we've found in

the west. So I think that when this uh

involution issue um is an issue for

China, it's also an issue for the west.

For the west it's an issue because these

products undercut you know our best most

high-tech companies to a degree that we

can't hope to compete with. And for

China, it's an issue because the profit

margins on producing an $8,000

uh US electric vehicle of pretty high

spec are just tiny. And so Chinese

companies are experiencing this phase of

profitless growth or close to profitless

growth. And we just don't know where

that's going to end. If the big

companies in China don't make enough

profit, then how can the government tax

them? If the government can't tax them,

how can it fund its aging society? How

can it fund its welfare state? So, this

is a bind for both sides. It's a bind

for the West and it's a bind for China.

How do you see this whole thing playing

out Alice?

My hot take is that these private

companies, if there is no intervention,

they're going to become like zombie

companies, the SOEs that were

increasingly inefficient. Uh and the

reason I say that is because what we've

seen and this is worth noting is that

the local governments have been

basically pulling all their resources

into subsidizing their local champions.

So almost every local government has its

own major EV company. Uh BYD and

Shenzhen for instance is is one of them.

Uh and that is creating a dynamic in

which we have well over 100 different

EVs. that number should be much smaller

and it's creating a dynamic in which as

to as you mentioned James the prices are

ever declining. On the flip side of the

argument that declining prices should be

good for consumers is that it's leading

to a dynamic where wages are getting

suppressed uh and everyday Chinese

people basically decide instead of

spending because prices will fall in the

future they're going to save their money

and that is coming at a time in which

the government is desperate to see a

rebalancing of the economy uh towards

more of a consumer-based economy. uh and

certainly the deflationary pressures

that we've seen in the recent data. PPI

has been deflationary I think since

2023. CPI print was negative0.4% last

month. This is deeply troubling for the

government and it makes stimulus even

less effective uh because effectively we

see real rates close to zero. So I think

people in the west only see one side of

it which is that prices are going down.

This is bad for foreign competition in

foreign markets. uh we should put

barriers on China uh tariffs like in the

case of the US or EU but it's more than

a global trade story there's I think a

deeply problematic story at the heart of

of China which is that it is

increasingly pulled inefficient uh

investment into the manufacturing sector

subsidizing it at the expense of

households and consumers that's that's

my hot take yeah Scott so what's your

take on involution have you heard of it

as a term uh is it bothering you it's

the first time I heard the term as far

as I can tell it means competition

that's so intense that results in

deflationary pressures. The moment I had

that around this topic was I was

recently in Brazil and I got in a car an

Uber and I thought it was a Model Y and

I saw the BYD logo and I asked the guy

and it was really nice car. I asked the

guy what did this cost? It was like

80,000 Royale and that's $16,000

in I thought this is half the price of

what you get maybe of what you could get

a used Model Y for. I go to where you

were talking about Alice. I think one of

the biggest problems in the US is that

young people no longer have the

purchasing power they had and they just

don't have the quality of life that

their parents had. And I love the idea

quite frankly of a a young couple

getting to have a new car for 12,000

bucks. I'm a free markets guy. Now at

some point if the government is

protecting its infinite industries and

providing so many subsidies that they

can engage in dumping to clear out

industries then that's a problem. But I

see the US auto industry quite frankly

going away at this point because our

national champion Tesla has declining

revenues and just can't compete against

BYD. Eventually foreign products show up

on your shores. It might take some time

but eventually you're subject to those

competitive pressures. I would hate the

V Volkswagen right now because my

understanding is that uh China's now

producing 50% has 50% share of global of

EVs which means they have the scale for

better battery technology can continue

to push prices down. Now if the

government is subsidizing this to the

point where it's it's lowering wages and

making them non-competitive then yeah

that's a problem. I'm sort of here for

it. I like the fact that these guys are

producing putting competitive pressure

on international automakers such that

consumers can, you know, can get good

cars at a low price. So, I I like the

competition. If it's being subsidized by

the government to the point where

they're effectively dumping cars across

markets and putting our people out of

work, fine. I get there should probably

be tariffs, but I love uh full body

contact competition that results in

really low prices and low margins. And

ultimately if unless the government's

subsidizing it, the market should take

care of this. There used to be in the US

50 or 60 automobile companies. But none

of them had the scale to support the

margins differentiation to survive and

we ended up with four or five. But the

problem we have in the US is the exact

opposite. And that is we have let the

industry consolidate so much and are so

guilty of regulatory capture that

there's four or five meat companies,

processing companies, and meat prices

have vastly outpaced inflation as has

pharma. We're too concentrated. So, it's

just sort of interesting to see the

other end of it, but I I like the idea

of really inexpensive cars landing on

the shores of the US.

Yeah. And I mean, I take your point and

I think that that is where uh we'll see

some interesting developments because

when I was in Hung and Shenzhen, what

struck me is that almost all these

manufacturers and suppliers including in

the auto industry have a plan B, meaning

they are trying to onshore as much

supply in the US as possible. they're

being pressured by the suppliers to do

so. So that's another way in which uh

you know you probably will see more

Chinese goods in the US market but not

labeled under a Chinese name.

Effectively they're creating these

offshoot companies in the US with no uh

real direct ties to the parent company

on mainland as a workaround. The other

thing that struck me in the news just

this week was that Beijing has announced

that it's doing export approvals for

EVs, meaning that they're trying to

limit the amount of EVs that get

exported. I sense and I'm curious if

what you guys think that Beijing feels a

great degree of pressure I think from

especially the developed markets because

there have been an increase in trade

investigations uh uh amongst developed

and developing countries including

Brazil on on Chinese cheap goods.

Yes, Alice, I I I think that is also a

key point. I mean, you know, Chinese

hyper competition um does have to an

extent anyway a political base and and

and that is as you've already alluded to

the fact that local governments have

their local champion companies and they

will do well a lot I won't say just

about anything but a lot to subsidize

that local company give them tax breaks

um help them with like free land

allocations and in many other and and

and many other things. though you end up

with a market in China that is just

unbelievably competitive. Let let me

just give you a couple of eyepopping

examples. Um there are apparently about

250 beer companies in China and well

over 10,000 beer brands uh in China.

Even a beer drinking uh country like the

UK doesn't have anything like that.

There's more than 200 steel companies in

China. nearly 3,000 cement companies. As

you mentioned, Alice, there's about 130

EV brands in China. Um, 150 companies

that are making uh energy storage

equipment. So, a lot of the reason for

these incredible numbers of companies in

the same industry all competing against

each other is that they all have a local

government behind them. And so, it's a

political economy uh issue as much as

anything else. And that's why I do have

some sympathy with uh European uh and

other officials in the west that talk

about unfair competition coming from

China. And it's this industrial policy,

this subsidy um sort of regime that

makes it quite difficult for countries

like uh I don't know those countries in

Europe to compete with. So I don't know

where this is going to end. I have a

feeling that this is going to end up end

in a huge trade bust up to be honest,

but uh we're probably years away from

that so far.

I think this is an important story again

to discuss because what I've seen is a

big pivot from Beijing in the last few

months. They started to treat over

capacity like it was a political and

geopolitical issue. Uh last year I was

there they basically said this was

nothing burger and it was invented as an

excuse for free market economics which

the west has benefited from for decades.

Uh but they pivoted I think earlier this

year and they realized that China's over

capacity engine was going to create I

think very damaging results economically

politically. It's not a surprise that

they decided to get rid of their uh

developing economy status through the

WTO. Uh but what struck me when I was

meeting some of these officials is that

they actually have a plan going back to

what we're discussing about a planned

economy. They have a plan to try to

reduce capacity. So they were discussing

using plant approvals to manage excess

capacity say in energy and steel. Uh and

apparently that's already being done. Uh

they're ensuring that suppliers are not

overly squeezed on prices. uh they're

forcing and encouraging I've heard uh

consolidation in key industries like EVs

uh autos and steel parts and they're

targeting specific sectors uh for

capacity cuts so steel cement uh PV

solar panels EVs coke and metals so I

think this is actually a big story where

there's a considerable amount of

political heft uh behind this

anti-involution drive

Alice James and James nice to meet you

Alice thanks for your good work and

we're off to a great start

thanks so much Scott thanks for joining

us.

Thanks very much, Scott. Great to meet

you.

Welcome back. It's just James and I.

Now, we're going to talk about the K

visa, which is actually coming at a very

interesting time now that we've heard

that there will be this $100,000 fee on

the US H1B visas for foreign migrants

and workers in the US. The US is making

it harder, in fact, and more expensive

for companies to bring in foreign tech

workers. And simultaneously, China, it

seems, is moving in the opposite

direction, rolling out a UK visa on

October the 1st, so very soon, designed

to attract top science and engineering

graduates from around the world. The

move is part of China's larger push to

become a global tech leader while

Washington seems to be raising barriers.

But I think the devil really is in the

details. And I'm very curious to hear

what you have to say James on this

because when I look at some of the data

on top tier talents in technology

especially AI uh it's very clear to me

that the US still dominates in terms of

the destination that even Chinese STEM

graduates want to go to for the for AI

research and work. What's your take on

this? Well, I mean like you Alice, I'm

really struck by the symmetry or maybe

we should say asymmetry of these two

moves which as you say the US making it

more difficult to attract the top

scientific talent um and China making it

much easier. Um I just can't help my

first reaction reading this was to think

of a phrase that Cining often comes up

with which is uh the east is rising and

the west is declining. Um but maybe I'm

jumping to conclusions. Certainly I

think the Chinese uh K visa will make it

easier for young foreign science,

technology, engineering and mathematical

graduates to come to China, live and

work and importantly they can do that

now without a job offer which is a

significant loosening in restrictions.

Also, Alice, as you say, I mean, China's

had this push to attract the world's

best scientific talent for quite some

time now, and I think that, you know,

they've made some really big strides. I

was really struck recently reading an

article in the Guardian newspaper about

a a man called Seun Ju who lived in the

US for 28 years. He was a professor at

the University of California in Los

Angeles and then he just upped and went

to China. When he got there, he had an

office in the prestigious Peing

University campus. And according to the

Guardian newspaper, it's an incredible

place. It's a courtyard building. The

back door looks onto a landscape of

rocks and streams and pomegranate trees.

It looks like a a traditional Chinese

painting. Um, and uh, I think you can

assume that he was leured there with

considerable amount of money. It wasn't

as if he was poor over in California. I

mean, over there he had a hilltop home

on Malh Holland Drive, uh, which I

understand is a fairly smart place to

live. The important thing is that this

man, Mr. Sun Chunju, is regarded as a

worldleading authority on artificial

intelligence, and that's what China

wanted to attract. So I see this K visa

really as part of a bigger picture, part

of a bigger push. Um, China is very

serious about getting the best talent to

go to China so it can well overtake the

US in terms of technology. What's your

take on it?

Well, firstly, I would agree with you

that this isn't the first time. I mean a

couple of years ago uh there was a lot

of talk about the a thousand talents

visa. You may or may not remember where

they were ideally getting uh ethnically

Chinese um people to come back to the

mainland to work uh for these long-term

visas uh in different sectors whether it

was technology or even in governance uh

and the economy uh and they would get

huge signing bonuses uh and get all

these kinds of benefits that you've

alluded to as well. But my real fear is

that I think we're over sensationalizing

the narrative currently. I mean, I was

just crunching the numbers. China only

has a million migrants. That's less than

1% of the population. Uh, and the US,

frankly, has still has over 51 million

migrants, which is about 15% of the

population. And and what was more

interesting the other day when I was

looking at the macro polo data on this,

they they have great data on AI talent

flows. Uh what struck me was that in

2022 the leading countries where the

most elite AI researchers work at the

top 2%

uh are mainly going to the US at 57%

share and then China is the next largest

sum at 12% that's still staggeringly low

compared to the US uh and even although

you still have a very strong I think

representation of chi Chinese AI

researchers at the top 2% globally I was

looking at the numbers uh China has 26%

of the top 2% AI researchers globally.

The US has 28%, India has 7%. So it's

still um clear to me that a lot of the

elite Chinese researchers if they can

stay uh in the US will choose to do so.

money is one side, but if you have top

tier researchers and an ecosystem of

that and capex feeding that in Silicon

Valley, I think it's going to be hard

for some of these really talented

individuals who are say working for Mark

Zuckerberg at Meta to decide to uh go to

Beijing where maybe they're not at the

cutting edge uh in terms of Frontier

Labs and AI. That's that's my hot take.

I think we'll have to see how effective

this is. But certainly what I could

foresee is that uh other countries

outside of the uh the west for instance

uh when I think about uh the global

south countries they may decide on the

margin that going to China for education

and for work is more attractive than say

the US. What struck me as well by the

H-1B visa uh debacle in some respects is

that 70% of the H-1B visa holders and

their dependents uh from India and uh I

was seeing a lot of social media about

uh within India about this issue being

supportive of the K visa. Now whether or

not that materially impacts talent flows

is one thing that remains to be seen but

I think to your point there's a real

asymmetric narrative at play about the

future of uh of talent flows.

Yeah I I very much agree I think with

all of that really especially for those

Indian scientists or Indian origin

scientists uh in Silicon Valley or

elsewhere in the US. I mean, if they

were to go to China, obviously there's a

big language uh barrier, there's a

cultural barrier, which simply doesn't

exist um in in the US. Um so I think

that um it probably won't be the case

that we see a massive tidal wave of

talent going over from the US to uh

China. But I wonder, I mean, you know,

all it takes is a few brilliant ethnic

Chinese scientists to go to the AI labs

in China that are already very smart and

to raise their game, I don't know, 5 10%

and that could move the needle. I I I

don't know, but I I definitely see this

as an own goal for US um ambitions in

tech development. My sense is that a

$100,000 flat fee for somebody is at the

cutting edge of AI research is probably

a nothing burger for a lot of these huge

tech companies. Maybe, and this is

something that I'm hearing in terms of

uh speculative gambits, they will try to

use this as leverage with India in a

renegotiation of their uh trade deal and

maybe they'll give exemptions to Indian

workers. That remains to be seen. But

certainly I think what it affects uh the

US most is in the area of say healthare

or some of the lower tier tech and uh

software related jobs where $100,000 is

materially quite significant. Uh but to

your point I I I do concede that you

know it only takes a few highlevel AI

researchers from China to come back to I

think move the dial in some respects in

certain key industries and technologies

and this kind of made me think a little

bit about uh talent flows within a

broader perspective. I was in China a

few weeks ago and they were telling me

that uh I mean again we shouldn't quote

this but people were saying that over

50% of the AI researchers are ethnically

Chinese. This includes a huge group that

lives in the US uh and that these

researchers have a level of exchange

with mainland researchers through GitHub

or gi which is China's equivalent uh of

that platform. And so there's a degree

of open- source sharing of information

that is occurring that I think could be

quite significant. Uh but this all

reminds me that at the end of the day a

key driver behind technology is talent

flows.

Absolutely. And I I also think it's a

really key point you made there about

the possibility that this is a

bargaining chip or a negotiating ploy

that the Trump administration may use

further down the line to, you know,

loosen these restrictions they've

announced or loose or reduce the the

price um maybe bring it down from

100,000 to something less in order to

get some other um some other concession

perhaps from the Indian government. I

think that that that's a key point. I

think that that could certainly happen.

James, since you've lived in China for a

considerable amount of time, what's your

attitude about uh the cultural elements

of the workplace? Because to my mind,

China is not quite Japan, which is quite

uh I would say uh homogeneous in its

monoculture, I would say, uh but it's

not quite the US either. Do you think

that China could get to some kind of a

middle ground between those two

countries in terms of inviting foreign

talent? That is something that I

struggle to quite accept. But maybe you

have a different view having lived there

for some time.

Yeah. I mean, you know, I was thinking

about this this afternoon actually. Um

my first reaction was it'll be really

tough for uh people who don't

scientists, technologists who don't

speak fluent Chinese to integrate into a

Chinese workplace. But, you know, the

companies that I worked in in China, I

mean, one of them had about uh 300

people and I was one of only three

foreigners there. Um, I do speak

Chinese. I mean, you know, but most

people I worked with spoke pretty good

English. I didn't feel, of course, I

felt different. I felt like a foreigner,

but I didn't feel like an outsider

necessarily. I feel that in some of

these young tech companies where

everybody's driving towards the same

technological goals, firing off each

other's intellects, I feel like it could

be actually a really quite a rewarding

place for, you know, non-Chinese to go

to to sort of test their metal in one of

the fastest moving markets in the world.

So, I I don't know, the jury's out. I I

I can see both sides. Uh, and just

really quickly, I've been talking to

some of my friends who run universities

in China, and what they've noticed is

that there's a huge uptick of foreign

students, mainly from the global south

countries. Uh, so US students enrolling

in China has gone down considerably over

the last few years, which is not

surprising, but we've seen apparently a

massive uptick in students from Central

Asia uh, and from global south

countries, Southeast Asia, parts of

Africa, even Latin America. Uh, and I

think that that is probably going to be

a bigger trend moving forward. that's

worth tracking.

Absolutely. I I couldn't agree more with

that. Um I think you know when you meet

uh those people, young people maybe from

global south countries, they look at

China and the opportunities in China in

a very different way, it seems to me

from many of the people that you get

going from the west. Um because China is

this tech beacon for them. It is the

land of potential opportunity. And so I

I I really agree with that, Alice. I

I've seen that with my own eyes. young

people from Central Asia, um Pakistan,

India, uh Russia, you know, that really

do see China as a place of opportunity.

And one last thing, a fun fact, when I

go to China, people like to joke that

China is a country run by engineers,

whereas the US is a country run by

lawyers. Uh and I think that that's

reflected in a lot of uh these trends

that we're talking about. Okay, let's

take a quick break, so stay with us.

Welcome back. So, a few weeks ago we

talked about China exporting pop culture

with leubus, but it seems to also be

importing more than it used to allow.

Beijing is loosening its music

censorship and cashing in on concert

tourism. After Kanye West drew massive

crowds in Shanghai this summer, Travis

Scott is bringing his Circus Maximus

tour to Macau and Hainan this fall in

November. This is a big shift. Hip hop

stars once kept out are now being

welcomed as tools to potentially boost

domestic tourism and soften China's

global image. Local governments are

betting these blockbuster shows can fuel

their economies the way gambling and

duty-free shopping once did. I have to

confess, James, I'm probably one of the

worst people to talk about hip-hop. I

know basically nothing. Uh my Spotify is

mainly old jazz and 60s7s rock. So, I

had to do a little bit of a of a a

readup on on hiphop, its origins, why

China is embracing it. To my mind, it's

partly a story of, you know, trying to

improve China's global image, especially

after zero co and it's partly partly a

story of local governments and the

central government trying to boost, I

think, tourism related services and

revenues. Uh what strikes me about the

recent rhetoric coming out of Beijing in

the last few months is that they're

pivoting away from trying to boost

consumption in goods to boosting

consumption and services. And I think

tourism and and retail and hospitality

related to concept tourism are probably

part of this story. Secondly, I think

we've seen a bit of an image change in

China and I'm curious to hear your

thoughts. You know, earlier this year,

they announced a 30-day visa-free travel

for a lot of countries. They've

introduced this K visa, which we just

talked about. More musicians and

celebrities are going to China. For

instance, I'll I'll tell you a story

about how I was staying at the same

hotel in Shanghai on the bundge as

LeBron James. So, there were lions

outside of the hotel and people in

LeBron James jerseys.

You thought they were there for you,

Alice. The lions, the lion dances. You

thought they would them out for you?

Yeah, I thought it was a little bit

strange, but they're all wearing uh

Lakers t-shirts. So, uh it strikes me

that I think people in the West are

getting to realize that Chinese people,

especially Chinese youth, are not so

different from them. And I think Tik Tok

has done some work in in bridging the

cultural gap. But I think that this is a

great story to show that actually

China's Gen Z is not too different from

uh the Gen Z that we're seeing globally

in the US or even in the UK. But what's

what's your take on this? And are you a

hip-hop fan?

Well, Alice, I was going to say if

you're not so knowledgeable about

hip-hop, I'm afraid I'm a I'm I'm I'm

even worse. Um but uh I've also done a

little bit of reading up and uh I very

much concur with your view that this is

a much bigger topic than just hip-hop.

Um, this is uh a really kind of Chinese

cultural diplomacy and there's a lot

riding on this. Um, can I can I also

indulge in a reminiscence here? Um, I

was in

I was in China, believe it or not, in

1985. I I I shudder to admit that fact.

Um, and that was the year in which uh

the UK pop group Wham came over to

China.

I love Wham. Oh, it was it was honestly

just dramatic. I didn't manage to get a

ticket to the performance in the workers

stadium in the middle of Beijing, but uh

everywhere you went after that uh

performance um people would talk to you

about Wham. They would be humming the

the hit song Careless Whisper, they

would ask you to sing Kessless Whisper

to them. I once had to sing it on a

train going through the middle of China

um because everybody was so insistent

that I had to. Um and so um what the the

impact of that event I think is very

similar to what China hopes for with the

Travis Scott um performance that's

coming up. It gave people a great sense

of relaxation, a great sense that China

was part of the world, that the best of

foreign culture wanted to come to China.

People felt a sense of validation. He

felt a sense of connection. And I think

that's really what the Chinese

government is aiming at now. It's also

though this time aiming at quite a bit

more. Um, and believe it or not, China

being a planned economy, uh, there is a

a plan for this and it has 28 separate

points in it. I was reading it this

afternoon. Um, it's all about Chinese

soft power. It's about cultural

diplomacy and it's also um at its at its

base about what Cining calls the global

civilization initiative. And this is one

of four initiatives that Cinping has to

show how important China is on the world

stage. And this is this one the

civilization initiative is all about

understanding and friendship between

peoples. And as you say, Alice, I think

that China is taking this pretty

seriously now. Um, and I think that

quite a lot of these relaxations, the

ones that you referred to, including the

K visa, come down to this broader push

to kind of have China uh join the world

and be admired by the world. Um, yeah.

Are you are you seeing that? I'm curious

what you think about the global

civilization initiative because if we

had this conversation a couple years

ago, I would have said, well, this would

be another reason to ban hiphop, ban all

western influence, make sure that we

only have dowist and confusion values

and things that adhere to so-called

Chinese values. uh and China has a

strong tradition when you look back to

say the boxer rebellion of the 19th

century of trying to block out and

repudiate western foreign values. So it

strikes me as it being a big shift for

Xi Jinping in the leadership because

what I've seen since she has joined

power is that there is a rewriting of

the China narrative of the China

civilization of the China culture and

yet now we're seeing a little bit more

loosening when it comes to uh bringing

in uh western music and western sports.

Uh so I wonder what this really is from

the Chinese government. Uh my sense is

that they understood from zero co uh

right after the end of zero co if you

recall in December 2022 remember we had

a really bad period of Chinese public

diplomacy. I think that they felt that

China was very isolated from the rest of

the world and that they needed to

rewrite that narrative. So that's my

sense of at a geostrategic level what

they're trying to do. But to your point,

I think it's a really good one, which is

that there is what the government is

trying to do and there is what everyday

Chinese people are doing. And it's clear

that there is a rise of hip-hop in China

domestically. As I was researching this,

I discovered that the most streamed

Chinese musician right now, he's taken

over Jao. His uh Lanl um Sky is your God

is his English name. uh and he mixes

hip-hop with Kanto and Chinese dialects.

Uh and he's become the most streamed

artist in China currently. So there

seems to be a bit of a a domestic rise

in in hip-hop culture. You see that in

some of the street wear aisle as well as

the musical taste that I think is coming

up. Is it a commentary against

materialism like hip-hop was in the 70s

and ' 80s in the US? I'm not sure. Maybe

that's too much of a stretch. But

certainly I feel like there is a bottom

and up cultural shift in China where

people are accepting more and more of

these western hip-hop style uh trends.

I think you rais a really great point

there, Alice, because I mean hip-hop is

somewhat countercultural as I understand

it. I mean, it's not the sort of music

that you would expect to be, you know,

supportive of an authoritarian state,

put it like that. Um

um and so this does seem to be a bit of

a risk to me. um you know from one

perspective from another perspective

it's going to please the crowds uh

particularly the young crowds in China

and you know there was recent statistics

that came out the other day saying that

19.8%

I believe nearly 20% of people between

the ages of 18 and 24 can't find a job.

So perhaps it's a salve to those people.

Perhaps it's uh it's a it's a gambit to

try to gain popularity among young

people who are who are feeling a little

bit disenfranchised, a bit disconnected

in China these days. But I also do feel

that sense that this is a bit of a risk

for a highly sort of authoritarian state

that wants everything to be just nice,

you know, squared away, cornered away. I

mean, hip hop is not that, right? It's a

freewheeling countercultural message.

wouldn't be surprised if there's some

kind of a crackdown if things get too

under ahead. And certainly it somewhat

fits into the Gen Z culture of of

Tongping and Involution, which we'll get

into just a bit, where it's sort of a a

cultural backlash against excessive

materialism and social climbing and the

nevo ree system. And I think hip-hop

somewhat fits into that prevailing trend

amongst Chinese youths. Uh a quick story

when I was in Beijing earlier this year

and I should have seen this as a bit big

shift. I saw a performance or some

random little area in Beijing uh of of

young kids. I think there were six seven

8-year-old kids break dancing in the uh

they were doing little mini break

dancing competition in the square and

that I think should have been a green

flag to me that there was a cultural

shift that was happening starting to

happen amongst Chinese youths. Uh but

just quickly on the numbers I think

people should remember that services are

still part a huge part of the economy.

Uh 57% of China's GDP that's higher than

manufacturing sector and um the services

share of employment is around 45%.

That's still a very significant share of

the labor market.

That's a big part of it. Maybe you know

the economic drive to boost the services

sector is a big part of this. I'm I'm

definitely going to be watching with

interest to see how Travis Scott gets

on.

Don't worry. It's uh basically too much

excessive competition that's driving

down prices and leading to deflation.

All right, that's all for this episode.

Thank you for listening to China Decode.

This is a production of Prof Media. Make

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