Xi vs Trump: Inside the Chinese Economic Machine

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1:33Just before we start, a very special message for our American, maybe even more particularly our New York listeners. I will be in New York on Friday the 9th of October and I'm going to be sitting down for a very special evening in the Irish Arts Centre in Manhattan with CNN's Doni O'Sullivan. We're going to be chatting about the economy, politics, geopolitics, a bit of history, and knowing the pair of us, a few laughs, and more than a little bit of crack. Tickets are available at irishartscentre.org forward slash events. That's Friday, the 9th of October, 7pm in Manhattan. Hopefully, I will see you there.

2:15And get in quick, because these tickets will go fast. To understand the economy, you have to understand human nature. This podcast is powered by ACAST. How are you doing there? Time for the podcast now. The last podcast was all about Ireland and what Ireland was doing and we talked about the Ed Sheeranisation of Irish economic policy and we looked kind of inward. Today we are looking outward. Today we are looking at probably the most consequential summit, although some Irish people would have thought it was Donald Trump coming to Doonbeg to play a bit of golf and his summit with Micheál Martin.

2:57But no, I suspect what is going on today in Washington beats that because it is the summit of the two great powers, the United States and China. It is Trump and Xi Jinping sitting down today and tomorrow to, in effect, in effect, set the ground rules for the way the world will operate in the coming years ahead. Because America is not the declining power, but the power that has clearly passed its peak. Doesn't mean it's going to decline quickly, but it was the big boy on the block. and now we have China emerging. And not only emerging, but the second Chinese shock, as it's called, is percolating through economies, particularly here in Europe, that up until recently, largely saw China not so much as a threat, but as a place to sell stuff, cars in particular.

3:57Now the Chinese have reversed that, and there is a deluge of Chinese products, better priced, better quality, and I think even on the design area, better feel to them. And they are swamping into Europe. And this is creating all sorts of industrial problems for Europe. So today, John, it's all going to be about China. It's all going to be about China versus America. But we're going to try and analyze how the Chinese economy works. How do they do it, right? Because that's That's the really interesting thing. People talk about Chinese this, that, but nobody talks about how have they done it? What is going on?

4:37What's the interaction between the banking system, the real estate system, the state subsidies, the manufacturing, the high tech, the battery industry, all these things that the Chinese have become preeminent in? How is it done? And of course, China is a massive country. It is the Middle Kingdom, as they call it themselves. It doesn't seem to have imperial ambitions. Why? Because it doesn't need to have imperial ambitions. It has everything there. It has all the resources. It has all the rare arts. It has everything. It's just a matter of how they structure themselves. Do you know what I think is possibly one of the trickiest jobs would be being the translator for Xi when he's talking to Trump?

5:21Because you know the way Trump kind of rambles and he doesn't complete sentences and he doesn't have a coherent thought in his head. Your man's trying to translate this back to Xi. And Xi's probably looking at him and going, are you serious? Is this what this guy is saying? But you know what I've always thought to myself, you know, what would be the most devious job if you really wanted to undermine the world? Yeah. You would get a translator who lies. Yeah, yeah, yeah, yeah. A compulsive liar. What did your man say there? And he said, well, we think, you know, It's been really, really good for us to have peace between the great nations.

5:57Oh, your man said he wants to slap you around, actually. You're a bit of a tosser. I mean, not my words, his words. Not my words just came out. Anyway, let us go and talk to a real Chinese expert, Yan Mei-Zhi. She is coming to Kilconomics. She was at Doci. A fascinating, fascinating insider's view of what is happening. She has worked in think tanks all over the world looking at China. but again, from somebody who is from the country and has family in the country, was brought up there, etc. So let's go and talk to Yan Mei to make sense, John, of the US-China relationship, but more specifically to understand what is going on in China and what makes that extraordinary country tick.

6:44Let's go. Yan Mei, how are you? It is lovely to see you. The marvels of modern technology. John is in Dublin. You're in Switzerland. I'm in the West of Ireland. We're talking about China. Globalization incarnate. Here we go. Yanmei, lovely to see you. How are you? I haven't seen you for ages. Wonderful. Great seeing you, David. I thought the word globalization is going out of fashion, but I'm glad to hear you mention it. Never. We're always behind the trends. We're always behind the trends. But let us talk about, because globalization is going out of fashion, and this is one of the topics I want to talk to you about.

7:19But today, Donald Trump is meeting Xi Jinping. Tell me, what is on the agenda here? What is the state of play between America and China? But before you ask me that, tell me and the listeners about your own journey out of China. You know, you're born there, you studied there, etc. Yeah, so I was born and grew up in China, in the Sichuan province, where the fiery spicy food is from, and where the pandas live. So I grew up there, went to college in Beijing. And then right after college, I left China to go study in the U.S. So I studied in the U.S., worked there for a number of years in Washington, D.C., very fortunate as a journalist.

8:04So observing the U.S. policy and politics up close and compare and contrast with how things work in China. And then moved back to Beijing, worked there as an observer, I would say, of Chinese foreign policy, Chinese political economy, politics and policy overall that impact economics. And then I left Beijing and worked in Hong Kong for a few years. And now I'm in Europe. Quite a migrant, quite a migrant. Brilliant. No, because again, because it's always fascinating because there's always a difference in podcast or any sort of broadcasting between testimony and analysis. And always the most interesting conversations are those who can combine testimony.

8:45I saw this thing. I lived this experience. Plus then giving the analysis on the top, which is always why your gigs are sold out at Kilcanomics. We might even have to put you in a bigger room. You sold out like that. But again, for listeners, Yanme is coming over to Ireland for Kilcanomics. And we are going to go large on China at Kilcanomics. So let's talk, Yanme. explain to me what the state of play now is, let's say, between America and China and what is likely to be the focus of discussion. And then I want to ask you about how the Chinese economy works. We both have read this interesting book called I Deliver Parcels in Beijing by Hu Anan.

9:27And that's about life at the bottom, the gig economy in China. I want to talk about that as well at some stage. But tell me, this summit, what is on the agenda and the stakes, the stakes involved? Yeah, so let's first talk about the vibe, right? Let's talk about the vibe. I want to frame it in the big picture. So I think the kind of like IR, international relations jargon, frame the current US-China relations as strategic stability. And that's what China wants, right? China wants stability, wants predictability. But I think what's behind that stability is this recognition of strategic parity. Meaning U.S.

10:05and China recognize each other as peer competitors, right? Neither has much room to dominate the other. Neither has much room to escalate the current state of play without unacceptable cost to itself, right? So sort of they have fought each other to a standstill. So I want to give a little bit historical context because during the first administration, I think there was still this feeling that U.S. was kind of the top dog in the world and had the feeling that or the confidence that through sort of economic pressure, it could change the way how China operates. And China back then was willing to show a little bit more deference.

10:52So China was eager to say, look, you are the top dog. We have no intention to challenge you. And we're still very much invested in the U.S.-led global order. And then I think in the Biden administration, the thinking changed, right? The Biden administration realized that actually there isn't much room. The U.S. doesn't have enough leverage to really change how China govern itself, how China operate its own economy. And then so the Biden administration adopted this mantra or doctrine of not changing China's behavior, but shaping the environment of how China operates, right? The neighbors, the U.S.

11:33allies. But I think for the Trump administration, so they went to economic war with China and then fought to a standstill. So there's more recognition that this, U.S. versus China, is a peer-to-peer competition. So the competition is real. But at the same time, each side have to give each other a bit wide berth to not upset this very fragile equilibrium. So what you're saying is that the relationship has evolved. So the Trump first, let's say, so we're talking 10 years ago, China understood its position was actually a little bit behind America and didn't want to upset the Americans. But since then, we're seeing a much more assertive China and it recognizes parity.

12:18And one of the things that happened since then, of course, is the war in Ukraine that China has explicitly supported Russia. I mean, that was a kind of a break from this idea of parity. They said, no, no, we're on that side. How much is that strategic thinking very dominant now still in Beijing? Or do you think in a way the Chinese might have thought, was this the right thing to do, get into bed with the Russians so explicitly? Right. So, no, I think there is no ambivalence about that, right? So when you see Xi Jinping's rhetoric with Russia, with Putin, talks about the no-limit friendship, although I think there are limits, that's more rhetorical.

12:55And also, I think China is also more assertive in its sort of sphere of influence, right, in terms of now Xi Jinping visited North Korea recently, which no Chinese head of state has visited North Korea for years or perhaps for a long time. So it's kind of explicitly saying, no, you know, North Korea, which is considered by all of the West as pariah state. But China, that's our little brother. That's one of the Chinese client states. So China, by visiting North Korea, China is, according to North Korea, the diplomatic legitimacy by a major superpower. Right. So there's there's like no no shining away from asserting China's influence, asserting China's sort of sphere of influence.

13:41Do you think, and this is a very strange question, I want to talk about the, and again, it has been the second, what's called the second China economic shock. The first China economic shock is, it was Chinese goods begin to emerge. And it's very, very much an export driven. There's also a perception that the quality of Chinese goods might not be quite as good as Western goods. But, you know, they're cheaper, they're ubiquitous, etc. That's, again, a 20-year-ago story. Today, the second China shock is really hitting Europe and really hitting Europe manufacturing. Can you explain to me how come a centrally planned economy like China has managed to figure out internal competition such that it gets these companies to be so brilliant at what they do, let's say the car companies or the battery companies, and then only after having competed internally do they look to the external markets and try to dominate?

14:39And they're really trying to dominate. It's not like they want to compete. They want to dominate market share. Explain to me how the whole thing works inside because lots of us really can't get our heads around the fact that, yes, there is the Communist Party of China, but there is this extraordinary capitalism involved in this communist country, extraordinary capitalism, and that capitalism begins at home in China. Right. So this is kind of classic industrial policy, right? One major pillar of that is the dynamic adjustment between protection and competition. So when we see if China wants to cultivate an industry, it always, always starts with internal competition and then also shield the Chinese infant industry from external competition at the beginning, right?

15:29So it's kind of like the theory of young kid learning to walk and talk and run should not be subject to a competition with an adult, with adult professional athlete, for example. So if we look at the Chinese auto industry, the EV industry at the beginning, China set up very generous subsidies for the automobile companies, very generous subsidies for the battery companies, generous subsidies for consumers who buy electric vehicles. But at the same time, they designed the technical specifications to subliminally exclude foreign competitors. So back then, the foreign companies, the Germans, the American, the Japanese, and the Korean-Japanese battery makers were the leading companies in the world.

16:19But they were not able to ever benefit from the Chinese EV subsidies. But at the same time, because China said EV is a strategic sector, and it encouraged local governments to subsidize and support industry and then match central subsidies with local subsidies. So it gives incentives, both economic and political, to local officials to grow their EV industry. So every province wants an EV cluster. Every province is setting up industrial parks and, you know, very generous investments, bank loans, land, energy, and even, you know, direct government investment in all these EV companies, right? And to some extent, some of the EV producers have to split their factories to different provinces in order to benefit from local subsidies, right?

17:13Suddenly, fast-growing capacity, but also extreme competition among all these Chinese producers. So now, China then gradually dialed back on the support and protection. So the subsidies has a schedule at the very beginning to be dialed back on year 10, for example. And starting at the low-tech end. So the subsidies began to be tied to the range of the batteries. And then those batteries at the lowest tech end started to die out. So they would be cold first, right? And push the companies also to win them from subsidies and move up the tech chain. But competition, the fierce competition still exists, right?

17:57Then the last play is introducing external competition. So 2019, China allowed Tesla to open a factory in Shanghai, being the first foreign carmaker to be able to produce in China without a joint venture, right? And the Chinese call that as introducing a catfish into the sardine tank. The idea is the catfish will eat, you know, will pull the weak and sick ones and make the existing ones stronger and fitter. And that's exactly what happened, right? So that's why China created, through this dynamic adjustment of competition, subsidy protection, create this globally formidable EV industry. Yeah, and I mean, because EV, the electronic vehicles, is such a totemic industry in the sense that not only is it a manufacturing concept, but it's a sort of a futuristic concept as well.

19:00Like the country that's doing the electric batteries as opposed to the country that is basically still in the mechanical engine phase is the country that wins. But now this is the fascinating thing. I was brought up in the world said, look, subsidies, direct investment by the state. This is all what leads to Soviet style stagnation. And what China has managed to do is it has taken that sort of centrally planned logic, but not implementation, with an objective, almost a centrally planned objective for the country. But it has infused this with an extraordinary, as you said, the catfish in the sardines.

19:42I mean, it's an extraordinary competitive element. Where is the money coming from for the subsidies? Because when people listen to this and say, OK, right, OK, so they subsidize. Well, where does that come from? It comes from central government. So is it that the Chinese generate all these exports, which generates all this foreign exchange, which comes into China, into the state coffers, and it's that money that they are using to resubsidize their industry? Is that how to understand that? No, I think it's still more of an internal mobilization of resources, right? So I think to a degree you are right.

20:18At the core, the Chinese political economic system is a Leninist system. The core of a Leninist system is mobilization of resources for what they consider to be socioeconomic transformation, right? And where does this resource come from? I think largely from Chinese people. So it comes from financial suppression, capital control, and fairly artificially low savings, and not a lot of avenues for household investment, which kind of drives household savings into banks. And then the interest rate is fairly low for savings. And then banks, which are the Chinese banking system, is majority overwhelmingly state-owned.

21:05and state banks also directed to give loans to sectors and companies that are considered, you know, favored by policy, which are considered strategic, right? So I think we have to be careful not to glorify this system because there are costs, right? I'm not saying ideologically because there are costs. So if we look at the Chinese auto industry, the export keep reaching record year after year. But the profit margins keep reaching record low year after year. So I think almost on the 10-year streak, I think now all the industries' profit margin has been declining continuously. And now it's somewhere between 3 % to 4%.

21:50So it's very low. So because you have this system of state support interferes with market mechanism, interferes with market discipline. So the companies are not being called or consolidated. and then they engage in, you know, three, four year price war with each other. So on one hand, they're extremely competitive, but then they cannot profit from the competition, right? So this is what I'm saying. So basically the Chinese have encouraged their own companies to compete with each other in order to drive their profit to zero. And it's only at that that they look amazingly competitive with the rest of the world.

22:28Whereas the German car industry, for example, is functioning on the basis of having private capital. Private capital demands its 5 % or 6 % or 7 % return. It requires cost adjustments. It requires all these things. So it's actually like apples and oranges. Although the Chinese companies are actually competing with the Germans in the final consumer market, the actual way they get there is completely different. And the constraints that the Germans have vis-a-vis the Chinese are much more stringent because the Germans can't be a non-for-profit company. What you're saying is part of the Chinese miracle is this non-for-profit almost approach internally.

23:08Right. It's kind of sacrificing profit for volume, for market share. And market share. Yeah. OK. So I think that this is cold comfort to German companies. Because so a Chinese carmaker can fight a price war, you know, slashing price on their new cars by 20, 30 percent with their Chinese peers and export at, you know, very high volume and very competitive price. But still convincing their banks and then the government investors to continue providing the capital for capacity expansion. A German carmaker can't go to their board members, can't go to their bank lenders, can't convince their equity holders and say, our profit margins keep declining, but we need more capital to expand capacity to fight another year price war with our peers.

24:02So even though the Chinese auto industry on a whole is suffering on the profit front, that doesn't mean that's good news for the German automakers. It's actually pretty bad news. Okay. This is fascinating, Yame, because this is the building block of comprehending this second Chinese shock that Europeans see everywhere in every facet. This is even before we talk about AI, right? Now, I've just read a book called I Deliver Parcels in Beijing by a guy called Hu Anian. And it's a very poignant, kind of sad reflection of life in this hyper-competitive Chinese market. He's delivering basically parcels.

24:50He's a courier guy, right? And he's in the gig economy. I read somewhere that the gig economy could be up to 40 % of the Chinese local economy, which is short-term contracts, etc. Explain to me, you said that there are costs. What do you think are the social costs in China of this second? It's like the Industrial Revolution in England. When you look back on it, you see children with bare feet. You see children working in factories with absolutely no social protection, all that sort of stuff. So this book kind of, and by the way, dear listeners, it's well worth a read. It's a very easy read. It's well worth a read.

25:27What is the social cost of this breakneck industrial policy? So I think let's start with a visual. So the Chinese economy now, I think, is commonly understood or visualized as a K-shaped economy. Right. So on the upper, trending upward leg are the industries, the technology, export, which look extremely competitive and unstoppable. But then the lower leg that's trending down is everything domestic. The real estate sector has, you know, the bottom is in no sight, right? So house prices are falling, falling, falling. There's too many flats built. And creating this effect of wealth contraction among consumers.

26:16So the consumer sentiment is very weak. Demand, domestic demand is quite weak. So labor market is, you know, there's a lot of slack in the labor market, particularly among youth. And income growth is stagnating, right? So that does create this widening gap. This K idea, yeah, okay. And this K seems to grow wider. So the Chinese leadership gambit is that if we just focus on the upper leg, the strategic sectors, the high value added, high tech, advanced manufacturing, that will grow robust and strong enough to pull up the lower leg. Right. Okay. So that might as well work. You know, they're saying we can plan long, you know, far ahead.

27:05It may take 10, 15, 20 years, but we'll get there. Yeah. But I think there's also quite the risk of the lower leg dragging down, the lower leg getting lower, and the gap just becoming bigger and bigger, right? So it's possible of, one, with the size of the Chinese economy, the upper leg, it doesn't act fast enough or big enough to pull up the economy, right? So let's think about exports. The Chinese economy is still growing, and hence the rest of the world, at the same time becoming more dependent on export of manufactured goods. There's only so much of manufactured goods that the rest of the world can absorb from China.

27:45And also, versus China, the rest of the world is becoming smaller and the freight is becoming bigger, right? So it's kind of the engine is becoming smaller while the freight is becoming bigger, right? So it's harder for the rest of the world to pull the Chinese economies through Chinese exports. And then also there is, I think, the contradiction of what the Chinese leader can consider as cyclical pains, right? Like the real estate, the weak consumption can solidify into structural contradiction. Meaning if you have a policy of upgrading the supply while experiencing everyone else, it's downgrading the consumption, right?

28:24Because the income's stagnating, the wealth is contracting through the real estate bust, and then the outlook is pretty depressing. So you're going to have a wider and wider gap of what the economy supplies and what the population consumes, right? So I think this contradiction can widen and could become structural. Because I think what this parcel delivery idea is, this is a guy in the gig economy. He's just trying to survive. He's at not so much the bottom, but close enough to the bottom. And what comes across from the book is the relentless anxiety of a young guy who's basically looking at the future and thinking, how am I going to get a house, get a wife, have kids, all those sort of things.

29:14And it's basically, it's the human face of this intense competition that we speak about, number one. And it's the human face of the gig economy, which again is a function of the fact that there's overinvestment everywhere. and there's too much of stuff in China. And of course, when there's too much of stuff, what tends to happen is wages begin to fall, etc. Now, what you've painted a picture of, so again, this is very much the ABC approach to China watching. Are there internal inconsistencies that could threaten the Communist Party from the inside in China? Before I talk about that, so allow me to kind of supplement what we're discussing about the gig economy, right?

29:58So anecdotally, anecdotally, what I'm hearing from China is, so one, there's consumption downgrade and also employment downgrade, right? So previously for a young person, it was a pretty sure path for family to pull their savings, send their kid to college, and then from college to find a pretty gainful employment and have a secure middle-class life. And that bridge seems narrower, right? That path seems less secure. And oftentimes I hear anecdotally from, you know, my parents, friends, and the neighbors of kids going to college and then ended up still driving the Chinese version of Uber, right?

30:39Or doing deliveries, right? And then also at the same time, when you hear from these Chinese Uber drivers, what they're saying is, so there are more Uber drivers in China than DD drivers. Uber actually does not operate in China. They're DD drivers. They're more DD drivers, more supply. But at the same time, they're less demand because people can afford taxis, right? So there's, again, the supply and demand gap is widening. So there's that. How much of that can threaten the Chinese kind of political system? So I am one who is reluctant to, you know, pronounce the vulnerability of the regime too quickly, right?

31:17Because if we look back at the history of the Chinese Communist Party, they have weathered a lot. They weathered the Cultural Revolution, they weathered Tiananmen, they weathered the COVID. So I think from the Western democracy point of view, people tend to draw a direct line between economic dissatisfaction and then political instability. I think in China, the mechanism is less clear. And I think at the same time, the instruments for political control have also strengthened in China as well. And I think finally, I think Xi Jinping probably has a new social contract with the people, which I think can be summarized as, one, nationalist pride.

32:06I think Chinese people can genuinely look at how the country's rising status in the world, that China's industrial technological conqueror in the world and feel very proud, right? Feel genuinely that I'm proud to be Chinese. I'm proud that the Chinese Communist Party is finally gaining the recognition that my country deserves in the world. And two, I think it's perhaps the road to prosperity is getting narrower and slower, but China, what Xi Jinping is offering the Chinese people is affordability. So in contrast to much of the Western world, affordability, inflation and affordability are big, both economic and political issues.

32:52China is very affordable. Right. And I think third one is stability. Right. So Xi Jinping can genuinely or explicitly, implicitly say, like, look, in contrast to the rest of the world here, there's much political stability in China and safety and security. Right. And finally, I want to add also is what the Chinese can take pride in is also the visual day-to-day, year-to-year improvement in the physical surrounding. Yeah, in the infrastructure, in the whole thing, that it's actually the place is getting better. Right. So where I came from, small town in China is still pretty big, right? It's not small town in Ireland.

33:35Small town in China. Small town in China is the capital of Ireland. Right. So there literally there was a river running through the middle of the town and it was called Stinky River when I was growing up. Stinky River. It's dried up and it was sludgy and, you know, full of effluents from households and factories nearby. Right. So that has been dredged up and filled with clearer water. And around it has become like, you know, genuine sort of a leisure ground. Right. So people can join the river, enjoy the river bank again. and there was another place in my hometown. There was a little hill. On top of the hill, there is a pagoda.

34:15We call it the White Pagoda that was falling apart when I was growing up. So that has been renovated and a big park was built around. So my parents, every day, they go take a stroll around the park with their friends and they chat and they do some exercise. Sometimes they sing revolutionary songs, right? So there is that feeling of progress, you know? visual, physical progress in their day-to-day life. I just want to ask you about the education system and how that works and the intersection of the education system and, say, tech and AI. First of all, is education a big cost to a regular family?

34:56I mean, do you pay for education in the same way as you would here for either a school or university? Yes, but by and large, I think education is subsidised in China. So it can still be a fairly big expenditure in China, but it perhaps not to the extent of, you know, as costly as in the US or perhaps in Ireland. I'm not sure about the Irish system, but, you know, so in China, I think it's a large expenditure for families, but it's, you know, state subsidized. So what we have been seeing in the last few years was, So for a long period of time, China focused on growing and expanding higher education, right, colleges, graduate schools.

35:39And then at some point, again, there seems to be an oversupply of graduates of higher education institutions. So the Chinese education policy actually has pivoted to actually stop growing the higher education, but more focused on vocational training, right? Again, with this idea of we want factories, we want manufacturing, we want technicians who can operate future robots. Hence, we don't want everyone to work in the banks and then work in the internet platforms, right? So there is a kind of reorientation of the talent towards sectors that the Chinese leadership likes. And then just to follow up to that then, the focus on AI, because obviously that's one of the big battles as well as everything else with America.

36:28Who's going to win the AI race? So I was just wondering from an education point of view where that sits. And also when you're talking about the gig economy and downward pressure on wages and all the rest, where's the AI element to this? Is that going to take away a lot of those jobs? That is interesting because currently we have the paradox of labor market slack versus the Chinese government going all in on AI, right? So I think perhaps if I must reconcile that is one, as you said, they have this mindset that they are in a tech-driven strategic competition with the United States. And AI is the focal point of that strategic competition.

37:11And China cannot slack off on that. And two, perhaps they are looking ahead at the demographics in China, right? So the population is contracting, fertility rate is low and declining and not responding to policy incentives. So at some point, perhaps the AI can take over from human workers. But I think what's harder to reconcile is, you know, robots can be producers, but they cannot be consumers, right? So again, we're coming back to this supply-demand gap. And this is the big inconsistency with AI is, you know, if the objective is to destroy your workforce and make it more efficient, what are the robots?

37:57They don't go to the pub. They don't go out for dinner. They don't go on holidays. They don't get it. But today, Donald Trump is meeting Xi Jinping, a man who plans, a man who is steeped in Leninism. I don't actually, personally, a man who has suffered, his family have suffered in the Cultural Revolution. He understands the system, stability, visual, evidence of the country getting better, pride, all these things, lack of internal opposition, you know, moving the right way. When he sits down with Donald Trump, what do you think goes through his mind? That's a very interesting question, right? Like, you know, try to divine the psychology, right?

38:40I think perhaps, I think he perceives himself who has outmaneuvered Trump and who can continue to outmaneuver him, right? Actually, after the first Trump administration, there was a saying emerging among Chinese analysts and strategists of the quote, a poem, which basically, you know, the poem describes a pine tree on a cliff, right? And buffed by winds. But it doesn't sway, doesn't change with wind. It's just standing there. Like the winds will blow in different directions, but it's deeply grounded, has deep roots, and it will be there, you know? So I think Xi Jinping probably sees himself as the pine tree and Donald Trump as the wind that blows in all different directions.

39:28It's a good description It is a brilliant description but look, I mean, again, this has been a priceless conversation Yan Mei, if you want to see Yan Mei Kilkenomics, she'll be live in Kilkenomics, a fascinating discussion absolutely apt on the day that Xi is meeting Donald Trump and wonderful to see you and lovely to chat to you. Great seeing you thank you for having me

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41:27A really interesting insight, isn't it? Yeah, she's great. Just to get a kind of behind the curtain view of China. She's brilliant. She's great fun. She's got an insider's view, but also an outsider's view because she's looking from the outside. and it's great. As I said, she'd be at Kilkenomics. Well worth trying to get in the room and have a chat there with Yan Mei. She's brilliant. And there was loads that we could have gone on for ages, Matt, because there was loads of stuff to talk about, you know, even including the Iranian question and the Taiwan question, all those kind of geopolitical stuff that could be muddying the waters with the trade talks and tariffs and all the rest.

42:09But maybe we leave that for another day, perhaps. Yeah, well, I think that just what comes out from what Yan Mei is talking about, she cited there the four fundamental pillars bolstering Xi's administration. And they are pride in the country. They are the visual sense the country is improving. They are a sense that, again, after the hundred years of humiliation, the Chinese are back. All these things are very important. but I think the key thing she was talking about was stability. In an unstable world, we give you stability. You might not necessarily have the same living standards as Americans, but you have a much better standard of living than your parents, and we're going the right direction.

42:54And that would suggest to me that the kind of porcupine strategy, which is in effect what the Taiwanese have and what the Ukrainians have, the Russians, which is you create a porcupine spiky little thing that's really hard to beat. Yeah. And that's what Taiwan's doing. And that's what Ukraine is doing. I think Xi would say, you know, the cost of trying to take on a porcupine is that you might actually lose, like Putin's losing. That destroys all his stability and all his legacy. So maybe they'll just leave that alone. So, I mean, again, I would say the long-term prognosis or the learnings we would have from a conversation with Yan Mei was they'll probably leave well alone there because stability is really important to them.

43:39But what I find really fascinating is the mobilization of resources in that Leninist way. Yes. That has created a profoundly uneven playing field for anybody competing with China. Particularly, we highlighted the German car industry specifically because the German car industry used to be the exemplar of the sort of, I'm going to mix my metaphors, is the Rolls Royce, even though that was a pretty dark race, of car industries, and they are being hammered by the Chinese. And then the question I'd say is at the end is, it's only a matter of time, I would say, before the Europeans put trade barriers up against the Chinese.

44:21Because I don't think you can sit and watch the lifeblood of your economy being destroyed by a system that is gaming the system. Yeah. Because the Germans and the French and the Italians cannot compete against this juggernaut because this juggernaut's being fueled by subsidies, whereas our companies are not being fueled by subsidies and therefore cannot compete against them. Do you know, it kind of struck me when she was explaining that and the idea of sacrificing profit for market share is very much like what the likes of Amazon did in their early days. It's what every monopolist does. every monopolist decides that market share is what allows you to become permanently profitable down the road, right?

45:11Because you own the market. And that's exactly what the Chinese are doing. And you're right. That's what Amazon has done for years and years and years until now. And that's what all monopolists want to do. So I think it's a very interesting one. We should end there. What we have is a monopolist juggernaut coming out of Asia. And when you see it in that context, the question then, it's not for today's ending, is how does the world compete with China in the future, given what was outlined today? Is there a strategy? The American strategy against Russia, which was its ideological foe for many years, was just to wait and the internal inconsistencies of the Russian economy would drag it down.

45:58I'm not too sure that's the strategy now. I think the more you wait for China, the more it's going to eat your lunch. Let's talk to you on Monday.

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