In short
The episode argues that China’s AI-chip industry could challenge Nvidia by shifting from Moore’s Law (shrinking transistors) to a “tau”/scaling approach focused on data movement, chip stacking, wiring, and memory efficiency. It claims Huawei has already captured about 50% of China’s AI-chip market in 2026, citing Jensen Huang saying Nvidia has largely conceded China’s AI-chip market to Huawei. It notes Huawei’s chip development leader He Tingbo (“chip queen”), running an internal semiconductor unit since 2003 with about $400M annual budget, and discusses limits: a Council on Foreign Relations estimate that Huawei can produce only ~4% of Nvidia’s aggregate AI compute, raising supply-demand concerns. Examples include 3D stacking by TSMC, and mentions CXMT (memory DRAM) and Minimax (AI model listing). It also covers a potential EU-China trade war over Chinese state-subsidized imports, and Hong Kong overtaking Switzerland as a wealth hub (BCG: $2.95T cross-border assets in 2025).
Guests
Alice Han and James King (hosts).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOMarket Overview: Chinese Markets
0:01 to 0:30
Explore the current state of Chinese markets amid rising trade tensions.
“Support for the show comes from Northwest Registered Agent.”
Market Overview: Chinese Markets
1:21 to 1:53
Explore the current state of Chinese markets amid rising trade tensions.
“So why make it harder with a dozen different apps that don't talk to each other?”
Market Overview: Chinese Markets
2:52 to 3:21
Explore the current state of Chinese markets amid rising trade tensions.
“That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week.”
The Rise of Huawei in AI Chips
3:38 to 5:34
Discuss Huawei's potential to challenge U.S. chipmakers in AI technology.
“There are more signs coming to light of the Chinese chip industry's ability to potentially take down U.S.”
Limits of Moore's Law and New Approaches
5:45 to 7:58
Examine the limitations of Moore's Law and Huawei's new scaling law.
“But by 2030, according to Morgan Stanley, it could be worth about$67 billion.”
Challenges for Huawei in AI Compute Production
8:16 to 11:43
Evaluate Huawei's capacity to meet domestic AI demands amidst competition.
“She's saying we're moving to a new way of assessing the compute power of a chip.”
The Story of He Tingbo and Huawei's Evolution
11:47 to 14:00
Learn about He Tingbo's leadership and Huawei's journey in the tech industry.
“I have no way of knowing, but my sense of this is that the running is going in China's favor.”
Huawei's Evolution and Global Position
14:00 to 16:54
Learn about Huawei's transformation and its growing influence in the tech industry.
“And Huawei has to rank as China's most important tech company, if not China's most important company, full stop.”
Huawei's Evolution and Global Position
18:05 to 19:07
Learn about Huawei's transformation and its growing influence in the tech industry.
“that would be a waste of anyone's ad budget.”
EU's Economic Dependence on China
20:18 to 28:00
Discuss the implications of Europe's trade surplus with China and potential trade wars.
“And make sure you tell them we sent you.”
Show all 16 chapters
Europe's Economic Challenges and Chinese Competition
28:00 to 32:08
Explore the implications of European trade policies in the face of rising Chinese competition.
“and bring jobs, manufacturing jobs to Europe in the way that Japan did in the 80s?”
Hong Kong: The New Wealth Hub
33:25 to 42:02
Discuss the rise of Hong Kong as a leading offshore wealth hub and its implications.
“On a somewhat lighter economic note, some of the world's wealthiest individuals have a new favorite safe haven called Hong Kong.”
Hong Kong vs. Singapore: A Comparison
42:02 to 43:31
Explore the differences between Hong Kong and Singapore in terms of freedom and energy.
“So they're doing all the hardware and the electronics part of the AI capex that is really being fueled and financed by American money.”
Beijing's Influence on Hong Kong
43:31 to 45:26
Discuss the impact of Beijing's relationship with Hong Kong and its implications for freedoms.
“And I think the number one reason I heard that people were leaving Hong Kong was after the protests.”
Future Trade Relations with China
45:26 to 47:26
Analyzing the likelihood of a trade war between Europe and China amidst political tensions.
“And a lot of people find that objectionable.”
Chinese Yuan and Global Demand
47:26 to 48:16
Insights on the Chinese Yuan's performance and potential economic shifts due to global demand.
“It's also been up against most other trade-weighted currencies in its basket.”
Transcript
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0:47When I got a new car, I thought my insurance premium would increase and empty my bank account. Like if Fatween won the lottery.
0:54Alice Han:I've invested most of my winnings in chicken tenders because they're bomb. But bro, I bought a house and it's sick, bro. I'm thinking the floor is going to be all trampoline, bro. With the helipad on the roof. The contractor said it's structurally unsound. They're just being babies. But switching to Geico saved me hundreds, so my bank account is safe. It feels good to save some hard-earned cash. It feels good to Geico. Support for this show comes from Odoo. Running a business is hard enough. So why make it harder with a dozen different apps that don't talk to each other? Introducing Odoo. It's the only business software you'll ever need.
1:31It's an all-in-one, fully integrated platform that makes your work easier. CRM, accounting, inventory, e-commerce, and more. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses have made the switch. So why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com.
1:58Alice Han:It really couldn't be a bigger story. Already, Jensen Huang, the CEO of NVIDIA, has said that his company has largely conceded, those are his words, largely conceded China's AI chip market to Huawei. In 2026 so far, Huawei has captured around 50 % of the Chinese market for AI chips. What this really means is that chip companies in the future might stop obsessing so much as they do right now about how small the transistors in the semiconductor should be, and they might focus more instead on how fast the data moves through a semiconductor.
2:49James Kynge:Welcome to China Decode. I'm Alice Han.
2:51Alice Han:And I'm James King.
2:53James Kynge:In today's episode of China Decode, we're discussing the latest sign that China's chip industry might overtake, Nvidia, a growing trade war with the European Union, how Hong Kong has become more popular than Switzerland for the mega-rich. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, markets were down today as investors turned cautious over renewed China-EU trade tensions. The Shanghai Composite Index dropped 0.73%, while the Shenzhen Composite Index fell 1.81%. Overall in May, the Shanghai Composite lost 1.06%, while the Shenzhen Composite was up 3.1%.
3:35James Kynge:Alright, let's get right into it. There are more signs coming to light of the Chinese chip industry's ability to potentially take down U.S. competitors in the not-so-distant future. Huawei, thanks in large part to its head of chip development, He Tingbo, has announced an antidote to Moore's law. That's the long-in-practice mechanism by which semiconductors continue to improve and get smaller over time. But increasingly, it appears that we've hit the Moore's law limit. Instead, Huawei is beginning to operate under a different kind of scaling law. And the innovative approach might just catapult Huawei into serious competition with U.S.
4:15James Kynge:chip makers, the leading of which is NVIDIA. I love the fact that she's now called the chip queen, and she's somebody who's generally shied away from the spotlight. But she's been responsible for running this internal semiconductor unit since 2003. So nigh on two decades with an annual budget of about$400 million. And she's now become a viral sensation in China, and I think rightly so. Can you tell us a little bit about what you think about this new tau scaling law that Huawei has just launched and whether or not this is a serious threat? Everyone's going to ask this multi-trillion dollar question.
4:49James Kynge:Is this a serious threat for Jensen Huang?
4:51Alice Han:I think, first of all, as you've described it, this story is partly about Herting Bo, the chip queen, as you put it. And it's also partly about the business of the world's biggest company, that's NVIDIA, in China, the world's biggest emerging market for semiconductor chips. So it really couldn't be a bigger story. And I think it's really key because already Jensen Huang, the CEO of NVIDIA, has said that his company has largely conceded, those are his words, largely conceded China's AI chip market to Huawei. And he may well say that because in 2026 so far, Huawei has captured around 50 % of the Chinese market for AI chips.
5:44Alice Han:And just to give you a number here, the size of the AI chip market in China is supposed to be about$21 billion this year. But by 2030, according to Morgan Stanley, it could be worth about$67 billion. So we're talking really big dimensions as usual. And now, what Hertingbo has said is that we're moving to a new type of way of assessing semiconductor performance. And she's called it the tau or the scaling law. What this really means is that chip companies in the future might stop obsessing so much as they do right now about how small the transistors in the semiconductor should be, and they might focus more instead on how fast the data moves through a semiconductor.
6:45Alice Han:So that puts the focus away from the little transistors that go into a semiconductor and more into the clever way that you can arrange semiconductors on a chip and the wires that you use and the memory systems that you use so that you get greater efficiency on that chip. At the moment, as I'm sure you're aware, these transistors that go into CPUs or GPUs, those are the chips within AI systems, right? They're so small that you can literally get hundreds of billions of them onto a chip. Now, that means that these transistors are invisible to the human eye. So we're reaching the physical limits of miniaturization.
7:34Alice Han:And that's why, as you said in the opening, Moore's Law, which used to say that a transistor that would go into a chip would endlessly shrink. So you could get more and more of these transistors onto a chip. And that, of course, boosts the compute power of that chip. That's why this has always been an aim. But we're now reaching the physical limits of Moore's law. We simply cannot expect physics to allow chips to get smaller and smaller and smaller now that they've already reached the size effectively of a human virus. So that's the key background to what Hertingbo is saying here. She's saying we're moving to a new way of assessing the compute power of a chip.
8:22Alice Han:And that way is not to miniaturize the chip because we're already reaching the limits of physics. It is to cluster the chips, to stack the chips in a clever way and focus on the other parts of the chip, such as the wires and the arrangement design, all of those things to increase the compute power of the chip. So I do think it's an interesting development. I have no way of assessing whether or not this is going to be something that really has traction. I have no way of assessing whether the tau or this tau scaling law is really going to be the way that we assess chips in the future. What do you think, Alice?
9:03James Kynge:Yeah, it's so complicated insofar as I understand it. Moore's law is predicated on a doubling of the number of transistors on a chip. And to your point, it's ever getting miniaturized smaller and smaller in terms of the components on the chip. Now, apparently, TSMC is understanding that it's hitting the upper limit of Moore's law and is now going into 3D stacking, which is not too dissimilar, I think, from this Tao philosophy in terms of increasing efficiency on a chip. But if TSMC is going in that direction because it recognizes it's hit the upper limit, my question is, you know, can Huawei and other players, you know, Huahong and SMIC, who are pure play foundries as well in the space, can they reach the aggregate amount needed to meet Chinese demand?
9:56James Kynge:And I thought it was interesting. And again, here I'm citing the Council on Foreign Relations, so we've got to take it with a grain of salt. But insofar as they understand it through their own research, the best US AI chips is still five times more powerful in compute than what Huawei can currently do. And apparently, according to them, that gap is widening. and according to their calculations, only around, you know, in the most bullish scenario, Huawei can only produce about 4 % of the aggregate AI compute that NVIDIA can produce. That is a huge, I think, takeaway because even if they are getting more efficient, in the short term, the big question, a trillion, multi-trillion dollar question is, is can Huawei produce enough to meet domestic Chinese demand, which is only going to increase, as we've previously talked about, because of the massive public and private sector investment in data centers and AI across the stack.
10:51James Kynge:I'm a little bit worried there, but I don't bet against the Chinese in terms of finding ingenious ways to work around existing technological constraints. But in the short term, I'm a little bit worried about whether or not they can meet the demand currently. One last data point I thought was super interesting. I'm still bullish. maybe this is out of consensus, Jensen Huang in China. Jensen Huang just got announced that he is on the board to Tsinghua University's School of Economics and Management, on which the Apple CEO, Tim Cook, is also a member. Maybe this is a signal that things are heading in a more positive direction, that some of the floodgates may be opened softly.
11:36James Kynge:But my number one question is, can China meet the demand that is only rising for AI compute with the existing domestic competition.
11:46Alice Han:Well, that's the$64 million question or probably$64 billion question. I have no way of knowing, but my sense of this is that the running is going in China's favor. And I think that this statement by Herting Bo, Huawei's chip queen, gives a sense of confidence. It gives a sense that China's got an alternative method, an alternative route towards creating the types of compute power that it needs. And in this regard, this is this scaling technique that she is describing. So I think that actually, although I believe China would probably like to get its hands on the latest NVIDIA chips, the Blackwell chips, which are considerably more powerful chip for chip than anything that China's got or anything that Huawei is even close to producing.
12:44Alice Han:I think that even if China doesn't get its hands on these Blackwell, it can stack these chips and scale these chips, the Huawei indigenous chips, in such a way that it can probably have a useful workaround. And then if you add into the equation things that we've spoken about on China Decode before, the fact that electricity is so much cheaper in certain parts of China and that, you know, you can run data centers close to the Gobi Desert using solar power that provide incredibly cheap electricity and thereby overcome the fact that you're having to spend, use more power to power the chips to run your large language models.
13:28Alice Han:I think overall, China is in a pretty good spot. But I'm also interested, you mentioned Herting Bo at the beginning. This is a great human story as well, isn't it, Alice? I mean, as I understand it, she was put in charge of Huawei's chip development way back in 2003 when Huawei was really nowhere when it came to making chips. They were really nowhere. But she had a$400 million budget annually, and she's become one of the company's most important executives. And Huawei has to rank as China's most important tech company, if not China's most important company, full stop. And now He Tingbo is on the Huawei board.
14:14Alice Han:She's one of only two women to be on the board. It's really an incredible story, isn't it, Alice?
14:20James Kynge:It really is. And I've been reflecting a lot on Huawei's evolution, that Huawei was late to the game, to what Samsung had long been doing. because Huawei obviously started off doing telecommunications and then has expanded now across phone sets to now chip production. And Samsung did this fairly early on. But I think increasingly, my hard take on this, and maybe you think this is right or wrong, is that Huawei is increasingly becoming the Samsung of China, which is this global technological leader in the broader ecosystem, but that has a complete supply chain or hopefully resilience in that it's touching many, many different sectors in the technology stack.
15:03James Kynge:What's your take on that?
15:04Alice Han:Yes, I would definitely agree with that. And I would say the other thing about Huawei is that it's the symbol of China's resistance to American pressure under the export control regime. I mean, Huawei has been the main target of American sanctions. It has been unable to get hold of a lot of crucial American technology, and yet it seems to have prevailed. And so the development of various different semiconductor chips, Herting Bo's confidence in coming up with this new law, the scaling law, I think is just another indication that Huawei is prevailing against, you know, American sanctions and American pressure.
15:52Alice Han:So it's a geopolitical story as well.
15:55James Kynge:And I have to say that I'm happy about my prediction that semiconductor stocks would rally. I was just looking at year-to-date performance on one of the ETFs, and it's up at least 40 % year-to-date. It's done outpaced the AI stocks and the Shanghai and Hong Kong composite indices. Clearly a sign both of confidence, growing confidence in the domestic chip industry, but also foreign investors, I think, are looking into it as a play, as a more picks and shovel play for AI, as NVIDIA has been in the US context. It's interesting that we'll have CXMT, which is a big memory DRAM supplier, coming online probably this year.
16:36James Kynge:And then I just heard the announcement that Minimax, which is a big AI model company, is looking to list additionally, in addition to Hong Kong, also in mainland China on the Shanghai Starboard. So we're seeing a lot of momentum, I think, in this AI hardware story and the chips definitely are a beneficiary of that. OK, we'll be back with more after a quick break. Stay with us.
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20:28James Kynge:Welcome back. In another evolution, following the increased sanctions between the U.S. and China, there are now apparently growing worries in the European Union as to their economic dependence on China, which means a new trade war is just about to brew. James, as the resident European, I have to get your hot take on this. This has been a long time coming because China, for years, has been running increasing trade surpluses with Europe. It just apparently hit over$400 billion last year, the highest level on history, and probably will increase again in 2026. But I mean, the Europeans should have foreseen this, that China would increasingly become Germany in the global supply chain, and that it's replacing it in the areas in which German and European manufacturing have traditionally been strong, that is cars and chemicals in particular.
21:20James Kynge:I found it interesting that the majority of the trade surplus is in cars and machinery right now, but China's making a lot of inroads in the chemicals industry as well. So it wouldn't be surprising to me that if we have this conversation in 5-10 years that it is the global dominating supplier in the chemicals industry. But as a European, I have to ask you, you know, where did we go wrong? Where did the Europeans miss the train?
21:46Alice Han:Yeah, those are great questions, Alice. I would say some of the biggest things to change recently was a statement by French President Emmanuel Macron. He called on the EU to take inspiration from the United States on trade measures aimed at protecting strategic industries in Europe. And then he had this quote, and this really sums up the realization that is dawning not only on Emmanuel Macron, of course, but on many policymakers in Europe. He said, quote, China is literally killing a large part of European industry. And I must say, he couldn't be more correct. We've all heard about floods of Chinese electric vehicles coming into Europe and really dealing body blows to European car makers.
Read the full transcript
22:44Alice Han:But that is by no means the only sector in Europe that is getting hit. And you mentioned the issue of whether or not Europe should have woken up to this a long time ago. And, you know, it's so clear that they should. I have been so exasperated looking at Brussels, you know, the center of EU power and looking at the national governments that are members of the European Union and looking at the government here in the UK and wondering why is it that they are failing to heed so many warnings and so many research papers written by think tanks all over Europe talking about the rise of China's tech challenge and the way that this is going to impact one industry after another across Europe.
23:34Alice Han:And, you know, until people like Macron a couple of months ago started to talk in the way that I've just mentioned, we really didn't get hardly anyone sounding the alarm. But now we have. And I guess that's why this is topical at the moment. We've got a French-led coalition of five EU countries, that is France, Italy, Spain, the Netherlands, and Lithuania. And they are urging Brussels to rapidly deploy stronger cross-sector tariffs and defensive trade tools to protect European industries from this surge of Chinese state-subsidized imports. And the trade deficit that Europe has with China is enormous.
24:23Alice Han:It looks like there are forces in Europe, let's put it that way, that are limbering up for a trade war. They want to have a trade war with China. They want to restrict Chinese imports with tariffs and other defensive trade tools. There is going to be a G7 summit. That's the summit of leaders of the G7 countries, and that will be held in France on June the 15th. And I think that's partly why we're seeing Emmanuel Macron, the French president, start talking about this, because I believe that this G7 summit may talk a lot about reducing economic reliance on China and talking about the hit that many industries in countries across the G7 are getting from cheap Chinese imports.
25:19Alice Han:And we have officials from the European Commission's Directorate General for Trade saying that they are drawing up, quote, more assertive and effective trade defense policy tools with Beijing. So we've got quite a lot of things going on. Personally, I think that what we may see is some new trade tools being used by Europe to protect their domestic industries against Chinese competition. But I very much doubt whether these will work. And the reason I say that is primarily because many of Germany's biggest companies have China as their biggest market in the world. And those big German companies are lobbying the German government to ensure that a trade war or trade friction between the EU and China doesn't get too nasty because they fear that the Chinese government could turn against their interests in China.
26:26Alice Han:So this is a convoluted web. It's hard to know how it's going to evolve. But what are you seeing on this topic, Alice?
26:34James Kynge:Okay, I'm going to be a bit of a Debbie Downer, James. I go to so many conferences, I was just in Poland, where the standard fare is Europeans complaining about the G2, US-China dominating the world, and they're stuck in the middle. And meanwhile, while very little of the Draghi report has been adhered to, there's a lot of talk about export restrictions and tariffs in China. And yes, over a year ago, they did put restrictions in EVs with tariff measures. But we still continue to see record Chinese exports of EVs into Europe. I thought it was interesting. The Rodion report just had recent data suggesting that while there was a downward cycle in Chinese FDI, both M &A and Greenfield since 2018, over the last two years, there's been an uptick.
27:20James Kynge:So last year, FDI grew 57 % year on year. And a lot of that is actually driven by both M &A activity, so buying up European companies, and greenfield investment into places like Hungary traditionally, but also increasingly France and Germany in the automotive and green tech sector. So automotives and batteries were the highest share of that greenfield FDI investment breakdown. So my big cynical take and question of sorts is, at the end of the day, do these barriers matter if China is just going to put up shop and factory in Europe, do the kind of reverse tech transfers that part of Brussels actually wants, and bring jobs, manufacturing jobs to Europe in the way that Japan did in the 80s?
28:08James Kynge:Remember when Reagan put on voluntary export restrictions, basically tariffs on Japanese goods in particular, automotives. And then Toyota and other conglomerates responded by setting up factories in middle America. Maybe that is the future. And all this tariff stuff is just a nothing bagger. But maybe I'm overly cynical.
28:28Alice Han:So you're saying, Alice, that it won't save European industry anyway, because Chinese investors will move into production sites within the European Union, like Hungary and whatever. And those guys are going to go out of business anyway. I mean, the Germans and the French. Yeah. Yeah.
28:45James Kynge:Yeah. When I was in China, you know, prior to this recent trip in late November, I had a friend of mine who was advising BMW in China and it's just dire straits and Audi too, in terms of just their outlook in China. So then the other question is how much of a lobbying power can they have if their share of the domestic market is ever winnowing? And maybe, you know, we end up in an equilibrium, a Nash equilibrium, where the Chinese create jobs in Europe in green tech. And then the Europeans feel as though they don't need to put on these tariff barriers because the industry is moving to Europe via Chinese firms like BYD and Cherry and CATL.
29:29Alice Han:My personal fear is that what we get here is an ill-advised set of trade barriers erected by Europe to keep out Chinese competition, thereby protecting many of the ailments that have got Europe into this state in the first place. In other words, huge inefficiencies across the board, high energy costs, high labor costs, highly restrictive labor laws, restrictive investment laws, very low productivity in almost all countries. So I fear that we could end up with the worst of both worlds, that is, restrictive policies towards China and that protect inefficiencies in Europe. and then a kind of trade war that eventually China wins.
30:22Alice Han:So Europe doesn't reform itself urgently, such as it clearly needs to, and it ends up losing the trade war against China. I fear that that could be the outcome.
30:34James Kynge:And I think the next blow, you know, China's counterpunch is going to be, you know, to fight back on European ag. So I'd be worried if I'm a French cognac maker or a Spanish, you know, pig farmer, because that's what the Chinese will do. And agriculture, as you know, is a big lobbying group in Europe, right?
30:50Alice Han:Yep. And of course, China has other tools that it can use as well, such as exports of critical minerals and rare earths, which many European countries need. So if you're going to get into a trade war in China these days, my advice would be prepare well. China has many weapons that it can use and it has shown that it will use. So if you're in Brussels right now, you've really got to be cognizant of the forces that you're taking on.
31:21James Kynge:Yeah, the rare earth question is a really important one because obviously they've shown that they're willing to weaponize it. They did it last year twice. And I don't think the Europeans have a good response to that. I haven't yet seen major investment announcements about unshoring rare earth critical minerals production. they're not as geographically blessed as the North Americans or the Australians in terms of having their own geographic supply domestically. So yeah, that's a really good point. And I wouldn't be surprised if this escalates that China is willing to use that mechanism again. Okay, let's take one last quick break and stay with us.
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33:24James Kynge:Welcome back. On a somewhat lighter economic note, some of the world's wealthiest individuals have a new favorite safe haven called Hong Kong. It's overtaken Switzerland as the leading offshore wealth hub in the world, according to a report from the Boston Consulting Group. That is measured by total cross-border assets under management, with Hong Kong ending 2025 at$2.95 trillion. dollars. James, in a way, I wasn't surprised that Switzerland seemed to have peaked and that Hong Kong, relatively speaking, is on the ascendant. Having been there multiple times in the last 18 months, I've noticed just a more up-to-centment.
34:04James Kynge:Now, this is not economic-driven analysis. It's really based on the vibes. But people in Hong Kong coming out of COVID were a little bit disbundered about the future in the last 18 months. I think they have really turned the corner and they feel that Hong Kong can finally breathe as a cross-border financial hub and a cross-border hub for talent because Beijing wants to use and leverage Hong Kong's international standing to allow both mainland money to flow through and find investments overseas and foreign investors to find investment opportunities on the mainland as well. And I think that this story is way more than about the stock connects, which we've talked about previously, you know, finding investors to invest onshore in the equities market and vice versa.
34:51James Kynge:And it's also increasingly about the wealth connect. So, you know, the rise, for instance, and I just heard this in my last trip in Hong Kong, the rise in mainland bank accounts in Hong Kong with the Hong Kong banks like HSBC or Standard Charter is a reflection on how mainland people want to diversify their risk in portfolio. And Hong Kong is increasingly seen as an attractive proposition. I think this is what is driving it. This comes at a time where a lot of the fixed-term deposits, now it's not clear the size, but I would guess at least in the$2 trillion to$5 trillion range of mainland fixed-term deposits that have been five years or so, yielding around 5 % about to expire this year.
35:36James Kynge:Current yields for a term deposit is 2%, which is extremely low, but unlikely to change given that rates are probably going to keep being low or maybe even trend downwards. So then the big question for a lot of mainland investors is where else am I going to park my money with higher returns? Real estate is still declining in terms of value in certain parts of the country. And the equity market is super volatile. So maybe you pocket in these asset managers, mutual funds, pension funds, not just in the mainland, but in Hong Kong. So I see Hong Kong is really playing an important role in this new evolution in China's capital markets, which is, you know, we started from phase one of getting rich and building wealth.
36:23James Kynge:And phase two is really creating a capital market system that helps to maintain and expand family wealth. But that's a long rant. I want to get your take on how you see this as well.
36:34Alice Han:Actually, I completely agree with everything you've just said. According to the Boston Consulting Group, Hong Kong ended 2025 with 2.95 trillion US dollars in cross-border assets under management, when this is basically mostly money that's come from mainland China into Hong Kong. And that amount of money represents a 10.7 % increase year on year. And it's slightly larger, the overall amount of money than Switzerland had in cross-border assets. So that's how we come to the conclusion that Hong Kong has pipped Switzerland as the sort of wealth hub haven. Boston Consulting Group goes on to say that they project this trend will continue, and that by 2030, the gap between Hong Kong and Switzerland will widen to nearly 600 billion US dollars.
37:34Alice Han:So Hong Kong will be managing more than 600 billion in excess to what Switzerland manages at that time. So they see this as a long run trend, just as you do, Alice. I personally think that this is largely due to the dynamics of money in the mainland of China and in Hong Kong. If you're a mainland person living in Hong Kong, one of the great boons is that you can change your money from renminbi into Hong Kong dollars. And the Hong Kong dollar, unlike the renminbi, is a freely convertible currency. You can convert it to any other currency in the world. You can invest it all over the world. The renminbi, or the Chinese yuan, is not a freely convertible currency, especially on the capital account, in other words, for investments.
38:25Alice Han:And so that's a big draw for Hong Kong. That's why so much mainland money flows into Hong Kong, because from Hong Kong, it can go to the world. Whereas if you're stuck in mainland China, it's much more difficult to get your money out of the country, change it into foreign currency and invest in whatever trend takes your fancy on capital markets around the world. So I think that's the key difference. The other thing I'd say is that I was in Hong Kong during the time of the Hong Kong national security law. That was a sweeping piece of legislation that was enacted by Beijing in 2020 to crack down on the demonstrations that had rocked Hong Kong in 2019.
39:14Alice Han:And a lot of people at that time, including in the financial industry, were saying quietly, over coffee or dinner, oh, Hong Kong's finished. Hong Kong is no longer going to be the wealth haven, the haven for safe money in this part of the world. But of course, that has proven to be completely erroneous. The flow of mainland money into Hong Kong has not only continued, it has accelerated. And now we see Hong Kong as the city in the world with the second largest number of billionaires anywhere. There are 71 billionaires in Hong Kong, And that is second only to New York. So a lot of billionaires, a lot of like tech tycoons in China who've made it move to Hong Kong.
40:04Alice Han:And actually, I mean, I've seen where a lot of them live. It's a beautiful stretch of land overlooking the coast where the old UK tycoons used to live. The old guys from Jardine Matteson and Swires from Yesteryear, they used to live on this stripper land, and it's now mainland Chinese tycoons, mostly in the tech area. And I understand the richest person in Hong Kong is Robin Zeng. He's the chairperson of CATL, which is, of course, the battery maker that we talk a lot about on China Decode. So, yeah, I mean, this is an interesting topic. It just shows that Hong Kong's got legs when it comes to managing wealthy people's money.
40:51James Kynge:I'm somewhat related to this because Singapore often gets put into the same category in terms of this cross-border financial hub in the heart of the Asia-Pacific. And I remember during COVID, a lot of stories of people leaving Hong Kong to go to Singapore. Hence, huge influx of Chinese people in Singapore, house prices went up. But since then, I've heard through a couple of friends that people have been moving back to Hong Kong. They find Singapore, quote-unquote, it boring. I'm not necessarily endorsing that point of view, but I'm certainly getting a sense that there has been a return of a lot of people in that region, Singapore, back to Hong Kong.
41:28James Kynge:So my broader question, I haven't got an answer to this, maybe you do, James, is can Hong Kong outcompete Singapore in terms of taking the crown as the main cross-border hub in the Asia-Pacific? Because I buy this theory that if I'm looking to the future, It's increasingly not Europe, which you've just discussed, and Switzerland really is a gateway for European wealth. It's increasingly the Asia-Pacific, where you've got demographics on your side. You've got all the companies and countries that are part of the picks and shovel for AI. So they're doing all the hardware and the electronics part of the AI capex that is really being fueled and financed by American money.
42:11James Kynge:So I look at Asia-Pacific, and I'm pretty bullish. But my general question is, can Hong Kong be more competitive than Singapore, do you think, having lived in the region?
42:21Alice Han:This is a question that I always fear answering. I think they do different things. My sense is that Hong Kong is still more freewheeling, more buccaneering than Singapore. And I remember Lee Kuan Yew, the former prime minister of Singapore, the former senior minister of Singapore, when he used to come to Hong Kong back in the day, he's now deceased, of course, he would say the same thing. You know, he would say, how come I can get a suit made in Hong Kong in 24 hours, whereas back in Singapore, it takes me however long it was. And I just feel that Hong Kong still has that energy. It's got, there's a feeling that Hong Kong is all about the art of the possible, whereas Singapore tends to be more highly regulated, more conservative.
43:12Alice Han:But that's just a personal view. I could well be wrong about that.
43:15James Kynge:I'm a huge fan of Hong Kong. I agree with that. There's a kind of preserved wildness about Hong Kong. It's not really clinical or manicured in a way that some other major cosmopolitan cities are and I find that very refreshing. But one last question for you is, you know, Beijing's relationship with Hong Kong, right? And I think the number one reason I heard that people were leaving Hong Kong was after the protests. They felt as though, and this is not just journalists, there's also people in banking and finance and services. They felt as though Hong Kong had just become the mainland. And I push against that anytime I have this conversation with people because when you go there, you don't necessarily feel that.
43:57James Kynge:Yes, there is more political, I would say, interference in Hong Kong's affairs and the management of Hong Kong. but when I go to Hong Kong, I don't yet feel, you know, this argument that people have that it's increasingly just mainland China, but maybe I haven't been there long enough. Do you have a take on that, James?
44:14Alice Han:I do, actually. From the time I was there when the national security law came in, a lot of people, most of them I would say probably foreigners, but significant numbers of Hong Kongers as well were saying, okay, this is the end of Hong Kong. Our freedoms, our civil liberties are now ending, and Hong Kong will never be the same. And I'm not blowing my own trumpet, but at the time, I said, look, what's happening here is that your political freedoms are being circumscribed, but your economic freedoms are clearly being safeguarded because China doesn't want to kill the golden goose. And Hong Kong still is the golden goose for China.
44:55Alice Han:Look at the number of tech companies, as you were saying earlier on in this podcast, that are listing in Hong Kong. So, you know, I think I remember several rather uncomfortable conversations in which people were telling me I was dead wrong and, you know, this was the end of Hong Kong. But actually, Hong Kong's economic future has continued to thrive, even though nobody can argue that political rights have not been circumscribed. They absolutely have been circumscribed. And a lot of people find that objectionable. But that's the situation. It's politically tighter, but economically just as I was, well, maybe not just as freewheeling, but economically still liberal.
45:39James Kynge:Yeah, that's an interesting distinction. Thanks for that, James. All right. You know what time it is. It's prediction time. As you look into the future this week, what do you see?
45:47Alice Han:Well, I'm going back to the question of whether or not Europe will have a full-blown trade war with China. This is the buzz at the moment in Brussels and several other European capitals. And I'm going to say that Europe will not have a full-blown trade war with China. There may be some skirmishes, but ultimately, the interests of Germany's big multinationals that are in China and doing business will prevail. These companies will lobby their parliament back home, their government back home, to resist a trade war. And I think that the German government's view will ultimately prevail in Brussels.
46:33Alice Han:And we won't have a full-blown trade war. We might have the odd skirmish, but there won't be a full-blown trade war.
46:40James Kynge:I think I agree with that, given that Mertz's language vis-a-vis China has changed. I would have expected a more hawkish Mertz, given his profile, but I've been actually quite surprised. And then the next question is this year, who replaces Macron? Because all that really matters is that French-German access in terms of what they think about trade and China policy. So mine is not too differentiated. It's in the realm of currencies and trade. So OECD just came out with a report. It's pretty shocking. 60 % of Chinese market gains are driven by subsidies. This is based on their own calculation. And what's interesting is in the last couple months, year to date, CNY has been up 3.4 % against the dollar.
47:26James Kynge:It's also been up against most other trade-weighted currencies in its basket. I don't think that that is durable. in a time where we might see real shock to China's export engine if demand destruction holds globally because of what's happening in Iran on the oil supply shock front. So I think that we'll start to see a gradual walking back, a paring back of some of the appreciating gains of CNY against the dollar. You know, we're currently at 6.7. I think it might dip a little bit more before it starts to rebound. in the second half of the year and move closer towards the seven region. That's my take, primarily because I think it's not going to be advantageous or supportive for exports if we continue to see and appreciating CNY.
48:16James Kynge:All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts so you don't miss an episode. And we'll talk to you again next week.
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From the publisher
Alice Han and James Kynge break down Huawei’s bold new strategy to challenge Nvidia and the future of AI chips. They explore the rise of Huawei’s influential "chip queen" He Tingbo, the company’s attempt to move beyond Moore’s Law, and what it could mean for the global semiconductor race.
Then, tensions between China and Europe are heating up. With record trade deficits, growing concerns over Chinese imports, and new efforts to protect European industries, Alice and James examine whether a full-scale China-EU trade war is beginning to take shape.
Finally, Hong Kong has officially overtaken Switzerland as the world’s largest offshore wealth hub. They discuss what’s driving the surge in cross-border wealth flowing through Hong Kong, why China’s ultra-rich are increasingly keeping assets closer to home, and the risks that come with tying so much wealth to the fortunes of mainland China.
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