China Decode: How China Became a Tech Beacon

Support for the show comes from Saks Fifth Avenue.

Sacks Fifth Avenue makes it easy to shop for your personal style.

Follow us here, and you can invest in some new arrivals that you'll want to wear again and again, like a relaxed product blazer and Gucci loafers, which can take you from work to the weekend.

Shopping from Saks feels totally customized, from the in-store stylist to a visit to Saks.com, where they can show you things that fit your style and taste.

They'll even let you know when arrivals from your favorite designers are in, or when that Brunello Cachinelli sweater you've been eyeing is back in stock.

So, if you're like me and you need shopping to be personalized and easy, head to Saks Fifth Avenue for the Best Fall Arrivals and Style Inspiration.

With a Spark Cash Plus card from Capital One, you earn unlimited 2% cash back on every purchase.

And you get big purchasing power.

So your business can spend more and earn more.

Capital One, what's in your wallet?

Find out more at capital1.com/slash spark cash plus.

Terms apply.

When I go to China, people like to joke that China is a country run by engineers, whereas the U.S.

is a country run by lawyers.

Welcome to China Decode.

I'm Alice Hann.

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 this podcast.

Alice and James, I'm not only really excited to inform our listeners and provide more insight into U.S.-China relations, but if you guys

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 shit 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.

I'm trying.

We'll work hard for the Ivy League education that he deserves.

There you go.

I'm super excited about this.

So just a little bit of background on how this came about.

We've had Alice, James, as you know, on the Property 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 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 guy.

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.

dependent upon what media I'd read lately, I thought it's either going to collapse under a demographic collapse or subprime debt in the real estate market, or their dark manufacturing expertise and new relationships scooped up through a failed American policy make it the premier nation in the world.

And I can never reconcile those two.

And so we're excited to try and fill that white space, if you will, in terms of understanding around what is always kind of the second word in any conversation around economics or geopolitics, and that is China.

Thanks very much, Scott.

Well, thanks very much, Scott.

I'm delighted to be here.

And I'm taking 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 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 kid who runs TikTok, who's very handsome, I think we could start a boy band.

And 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.

Nice.

Strangely, nobody's ever told me before that I should be in a boy band.

I wonder why.

Oh, it's coming.

It's coming.

This is a great time to be doing this podcast, Scott.

My clients have made a lot of money from China this year, up 30% year to date.

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.

Yeah, it's really,

we have gotten so spoiled at the flows of both human and financial capital immediately defaulting defaulting to the U.S.

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 COVID,

and I don't know, I can't figure out if it's our fault or their success.

And I think the answer is probably yes.

But when I saw 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 Xi, Putin, and Modi 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 U.S.

They include China China and third parties.

And I just think the strategic own goal of the year thus far has been these ridiculous, onerous tariffs on India, thrusting what is kind of a swing vote, the ultimate swing vote in the world.

It 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'm trying to discern if it's I think this is China ascending and I would argue the U.S.

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, the US was much better at extricating the rest of the world from China, whether it was on trade or national security.

I think in this administration, they've headed in the opposite direction 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 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 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.

And that doesn't make me popular in Western circles, but

it is a genuinely held belief.

However, 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 self-defeating 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 don't want to have both sides of the argument.

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.

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 hip-hop 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.

It's a term that has been used to denote the deflationary pressures on the economy from just cutthroat price competition that really erodes 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 and that's creating 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 warn that without stronger consumer spending, China risks sliding into the kind of stagnation that we we saw in the last decades in Japan in the 1990s.

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, the way that I look at involution, it is just increasingly inefficient fixed asset investment being poured into different sectors.

So in the 90s, it was in the manufacturing sector.

This led to a lot of SOEs 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.

James, what's your take on this involution nightmare?

At least from an economic perspective, I see this as deeply troubling, but what's your take?

Completely.

I'm completely on the same page.

I think you're very right to highlight this.

To me, involution is a tough word, almost completely not understood by anybody who speaks English.

But this word could spell the end of the Chinese economic miracle if things go wrong.

And just like you, Alice, 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 electric vehicle that's selling for about 8,000 US dollars or the equivalent in Europe.

We've got a humanoid robot from a company called Unitree that can stand up and do tricks and do kung fu selling for 6,000 US dollars.

I mean, these are fractions of the price of similar products that we've found in the West.

So I think that this involution issue 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 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 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?

Well, 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.

And the reason I say that is because the local governments have been basically pooling all their resources into subsidizing their local champions.

So almost every local government has its own major EV company.

BYD and Shenzhen, for instance, is one of them.

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 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.

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 towards more of a consumer-based economy.

And certainly, the deflationary pressures that we've seen in the recent data, PPI has been deflationary, I think, since 2023.

CPI print was negative 0.4% last month.

This is deeply troubling for the government, and it makes stimulus even less effective 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, okay, prices are going down.

This is bad for foreign competition in foreign markets.

We should put barriers on China, 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 China, which is that it is increasingly pulled inefficient investment into the manufacturing sector, subsidizing it at the expense of households and consumers.

That's my hot take.

Scott, so what's your take on involution?

Have you heard of it as a term?

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 it results in deflationary pressures.

The moment I had around this topic was I was recently in Brazil and I got in a car in Uber and I thought it was a Model Y and I saw the BYD logo.

And I asked the guy, and it was a really nice car.

I asked the guy, what did this cost?

And he was like, 80,000 Royales, and that's $16,000.

This is half the price of what you get, maybe of what you could get a used Model Y for.

And I go to where you were talking about, Alice.

I think one of the biggest problems in the U.S.

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 young couple getting to have a new car for $12,000.

I'm a free trade, free markets guy.

Now, at some point, if the government is protecting its 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 U.S.

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 China is now producing 50%, has 50% share of global 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 lowering wages and making them non-competitive, then yeah, that's a problem.

But I got to be, 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 get good cars at a low price.

So 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 full-body contact competition that results in really low prices and low margins.

And ultimately, unless the government's subsidizing it, the market should take care of this.

There used to be in the U.S.

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 the U.S.

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 like the idea of really inexpensive cars landing on the shores of the U.S.

Yeah, and I mean, I take your point, and I think that that is where we'll see some interesting developments.

Because when I was in Hangzhou 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 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 U.S.

with no real direct ties to the parent company or mainland as a workaround.

The other thing that struck 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 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 amongst developed and developing countries, including Brazil, on Chinese cheap goods.

Dames?

Yes, Alice.

I think that is also a key point.

I mean, you know, Chinese hyper-competition does have, to an extent anyway, a political base.

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,

help them with like free land allocations and many other things.

So you end up with a market in China that is just unbelievably competitive.

Let me just give you a couple of eye-popping examples.

There are apparently about 250 beer companies in China and well over 10,000 beer brands in China.

Even a beer drinking 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, 150 companies that are making 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 issue as much as anything else.

And that's why I do have some sympathy with European and other officials in the West that talk about unfair competition coming from China.

And it's this industrial policy, this subsidy sort of regime that makes it quite difficult for countries like 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 in a huge trade bust up, to be honest.

But we're probably years away from that so far.

Yeah, 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 overcapacity like it was a political and geopolitical issue.

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.

But they pivoted, I think, earlier this year and they realized that China's overcapacity engine was going to create very damaging results economically, politically.

It's not a surprise that they decided to get rid of their developing economy status through the WTO.

But what struck me when I was meeting some of these officials 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.

And apparently, that's already being done.

They're ensuring that suppliers are not overly squeezed on prices.

They're forcing and encouraging, I've heard, consolidation in key industries like EVs and steel parts.

And they're targeting specific sectors for capacity cuts.

So steel, cement, 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 behind this anti-involution drive.

Okay, James and I will be back for more after a quick break.

So, stay with us.

Alice, James, and James, nice to meet you.

Alice, thanks for your good work, and we're off to a great start.

Thanks very much, Coach.

Great to meet you.

Thanks so much, Scott.

Thanks for joining us.

Thanks, guys.

Bye now.

Monday Sidekick: The AI agent that knows you and your business, thinks ahead and takes action.

Ask it anything, seriously.

Monday Sidekick, AI you'll love to use.

Start a free trial today on monday.com.

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 U.S.

H-1B visas for foreign migrants and 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 new K 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 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, 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 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 and China making it much easier.

I just can't help, my first reaction reading this was to think of a phrase that Xi Jinping often comes up with, which is the East is rising and the West is declining.

But maybe I'm jumping to conclusions.

Certainly, I think the Chinese 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 reading an article in the Guardian newspaper about a man called Song Chun Ju.

He lived in the U.S.

for 28 years, and he 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 Peking 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 traditional Chinese painting.

And I think you can assume assume that he was lured there with a 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 Mulholland Drive, which I understand is a fairly smart place to live.

The important thing is that this man, Mr.

Song Chun Ju, is regarded as a world-leading authority on artificial intelligence.

And that's what China wanted to attract.

So I see this K-visa really as part of a bigger bigger picture, part of a bigger push.

China is very serious about getting the best talent to go to China so it can, well, overtake the U.S.

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, there was a lot of talk about the 1,000 talents visa.

You may or may not remember, where they were ideally getting ethnically Chinese

people to come back to the mainland to work for these long-term visas in different sectors, whether it was technology or even in governance and the economy.

And they would get huge signing bonuses 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.

And the US, frankly, has still has over 51 million migrants, which is about 15% of the population.

And what was more interesting the other day when I was looking at the macro polo data on this, they have great data on AI talent flows.

What struck me was that in 2022, the leading countries where the most elite AI researchers work at the top 2%

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.

And even although you still have a very strong, I think, representation of Chinese AI researchers at the top 2% globally, I was looking at the numbers.

China has 26% of the top 2% AI researchers globally.

The U.S.

has 28%.

India has 7%.

So it's still clear to me that a lot of the elite Chinese researchers, if they can stay in the U.S., 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 really talented individuals who are say working for Mark Zuckerberg at Meta to decide to go to Beijing where maybe they're not at the cutting edge in terms of frontier labs and AI.

That's my hot take.

I think we'll have to see how effective this is.

But certainly what I could foresee is that other countries outside of the West, for instance, when I think about 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 debacle in some respects is that 70% of the H-1B visa holders and their dependents are from India.

And I was seeing a lot of social media within India about this issue of 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 talent flows.

Yeah, I very much agree, I think, with all of that, really, especially for those Indian scientists or Indian origin scientists in Silicon Valley or elsewhere in the U.S.

I mean, if they were to go to China, obviously there's a big language barrier, there's a cultural barrier, which simply doesn't exist in the U.S.

So it probably won't be the case that we see a massive tidal wave of talent going over from the US to 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 don't know, but I definitely see this as an own goal for US ambitions in tech development.

My sense is that $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 speculative gambits, they will try to use this as leverage with India in a renegotiation of their trade deal, and maybe they'll give exemptions to Indian workers.

That remains to be seen.

But certainly, I think what affects the U.S.

most is in the area of, say, healthcare or some of the lower-tier tech and software-related jobs, where $100,000 is materially quite significant.

But to your point, I do concede that it only takes a few high-level AI researchers from China to come back to, I think, move the dial in some respects.

And this kind of made me think a little bit about talent flows within a broader perspective.

I was in China a few weeks ago and they were telling me that,

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, and that these researchers have a level of exchange with mainland researchers through GitHub or GITI, which is China's equivalent 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.

But this all reminds me that at the end of the day, a key driver behind technology is talent flows.

Absolutely.

And 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 loosen these restrictions they've announced or reduce the price, maybe bring it down from $100,000 to something less in order to get some other concession perhaps from the Indian government.

I think that's a key point.

I think that that could certainly happen.

Well, James, since you've lived in China for a considerable amount of time, what's your attitude about the cultural elements of the workplace?

Because to my mind, China is not quite Japan, which is quite, I would say, homogeneous in its monoculture, I would say.

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.

My first reaction was: it'll be really tough for 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 300 people and I was one of only three foreigners there.

I do speak Chinese, I mean, but most people I worked with spoke pretty good English.

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 mettle in one of the fastest moving markets in the world.

So I don't know.

The jury's out.

I can see both sides.

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.

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 and from global south countries, Southeast Asia, parts of Africa, even Latin America.

And I think that that is probably going to be a bigger trend moving forward that's worth tracking.

Absolutely.

I couldn't agree more with that.

I think, you know, when you meet 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, because China is this tech beacon for them.

It is the land of potential opportunity.

And so

I really agree with that, Alice.

I've seen that with my own eyes.

Young people from Central Asia,

Pakistan, India, Russia, you know, that really do see China as a place of opportunity.

Yeah.

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 U.S.

is a country run by lawyers.

And I think that that's reflected in a lot of these trends that we're talking about.

Okay, let's take a quick break.

So stay with us.

With the Spark Cash Plus card from Capital One, you can earn unlimited 2% cash back on every purchase.

And you get big purchasing power.

So your business can spend more and earn more.

Stephen Brandon and Bruno, the business owners of SandCloud, reinvested their 2% cash back to help build their retail presence.

Now, that's serious business.

What could the Spark Cash Plus card from Capital One do for your business?

Capital One, what's in your wallet?

Find out more at capital1.com/slash Spark Cash Plus.

Terms apply.

Welcome back.

So, a few weeks ago, we talked about China exporting pop culture with laboo boos, 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-freed 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.

My Spotify is mainly jazz and 60s, 70s rock.

So I had to do a little bit of a read-up.

To my mind, it's partly a story of trying to improve China's global image, especially after zero COVID.

And it's partly a story of local governments and the central government trying to boost, I think, tourism-related services and revenues.

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 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 tell you a story about how I was staying at the same hotel in Shanghai on the bunge as LeBron James.

So there were lions outside of the hotel and people in LeBron James jerseys.

And you thought they were there for you, Alice.

Maybe.

The lions, the lion dancers.

You thought they were boiled them out for you.

Yeah, I thought it was a little bit strange, but they're all wearing Lakers' t-shirts.

So it strikes me that I think people in the West are getting to realize that Chinese people, especially Chinese youths, are not so different from them.

And I think TikTok has done some work 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 the Gen Z that we're seeing globally in the US or even in the UK.

But 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 even worse.

But I've also done a little bit of reading up, and I very much concur with your view that this is a much bigger topic than just hip-hop.

This is really kind of Chinese cultural diplomacy and there's a lot riding on this.

Can I also indulge in a reminiscence here?

Please do.

I was in China, believe it or not, in 1985.

I shudder to admit that fact.

And that was the year in which the UK pop group WAM came over to China.

Wow, I love WAM.

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 everywhere you went after that performance, people would talk to you about wham.

They would be humming the hit song Careless Whisper.

They would ask you to sing Careless Whisper to them.

I once had to sing it on a train going through the middle of China because everybody was so insistent that I had to.

And so the impact of that event, I think, is very similar to what China hopes for with the Travis Scott 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,

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.

And believe it or not, China being a planned economy, there is

a plan for this, and it has 28 separate points in it.

I was reading it this afternoon.

Wow.

It's all about Chinese soft power.

It's about cultural diplomacy.

And it's also, at its base, about what Xi Jinping calls the Global Civilization Initiative.

And this is one of four initiatives that Xi Jinping has to show how important China is on the world stage.

And 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 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 join the world and be admired by the world um yeah yeah are you are you seeing that well i i'm curious what you think about the global civilization initiative because if we had this conversation a couple of years ago i would have said well this would be another reason to ban hip-hop ban all western influence make sure that we only have Taoist and Confucian values and things that adhere to so-called Chinese values 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 a 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 bringing in Western music and Western sports.

So I wonder what this really is from the Chinese government.

My sense is that they understood from zero COVID

right after the end of zero COVID, 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 J Chao, he's Lan Lao.

Sky is Your God is his English name.

And he mixes hip-hop with Kanto and Chinese dialects.

And he's become the most streamed artist in China currently.

So there seems to be a bit of a domestic rise in hip-hop culture.

You see that in some of the streetwear style, 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 that's too much of a stretch.

But certainly I feel like there is a bottom-up cultural shift in China where people are accepting more and more of these Western hip-hop style trends.

I think you raise a really great point there, Alice, because I mean, hip-hop is somewhat counter-cultural, 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.

And so this does seem to be a bit of a risk to me, you know, from one perspective.

From another perspective, it's going to please the crowds, 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 a gambit to try to gain popularity among young people 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 counter-cultural message.

So I wouldn't be surprised if there's some kind of a crackdown, if things get too underhead.

And certainly it somewhat fits into the Gen Z culture of Tongping and involution, where it's sort of a cultural backlash against excessive materialism and social climbing and the nouveau rich system.

And I think hip-hop somewhat fits into that prevailing trend amongst Chinese youths.

A quick story: when I was in Beijing earlier this year, and I should have seen this as a big shift, I saw a performance in some random little area in Beijing of young kids.

I think there were six, seven, eight-year-old kids breakdancing in the, they were doing a little mini breakdancing competition in the square.

And that, I think, should have been a green flag to me that there was a cultural shift that was starting to happen amongst Chinese youths.

But just quickly on the numbers, I think people should remember that services are still a huge part of the economy.

57% of China's GDP, that's higher than the manufacturing sector.

And the services share of employment is around 45%.

That's still a very significant share of the labor market.

Absolutely.

Yeah.

Yeah.

So maybe that's a big part of it.

Maybe, you know, the economic drive to boost the services sector is a big part of this.

It'll be, I'm definitely going to be watching with interest to see how Travis Scott gets on.

All right, that's all for this episode.

Thank you for listening to China Decode.

This is a production of Prof G Media.

Our producer is David Toledo.

Our associate producer is Eric Janikis.

Our research associate is Dan Shallon.

Our technical director is Drew Burroughs.

Our engineer is William Flynn.

And our executive producer is Catherine Dillon.

Make sure to follow us wherever you get your podcasts so you don't miss an episode.

Talk to you again next week.

I need a job with a steady paycheck.

I need a job that offers health care on day one for me and my kids.

I I want a job where I can get certified in technical roles like robotics or software engineering.

In communities across the country, hourly Amazon employees earn an average of over $23 an hour with opportunities to grow their skills and their paycheck by enrolling in free skills training programs and apprenticeships.

Learn more at aboutamazon.com.

Adobe Acrobat Studio, so brand new.

Show me all the things PDFs can do.

Do your work with ease and speed.

PDF Spaces is all you need.

Do hours of research in an instant.

With key insights from an AI assistant.

Pick a template with a click.

Now your prezzo looks super slick.

Close that deal, yeah, you won.

Do that, doing that, did that, done.

Now you can do that, do that, with Acrobat.

Now you can do that, do that with the all-new Acrobat.

It's time to do your best work with the all-new Adobe Acrobat Studio.