China Decode: China's Renewable Energy Dominance in the AI Race

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Speaker 11 It's inside these data centers that the machines that train artificial intelligence actually work.

Speaker 11 Without big data centers, you can't train your AI algorithms to get better and better.

Speaker 11 And data centers, as you mentioned, are really power hungry and they also need a lot of air conditioning and they need a lot of water.

Speaker 11 And so the race between the US and China on artificial intelligence, to a large extent, comes down to these data centers.

Speaker 12 Welcome to China Decode. I'm Alice Han.

Speaker 11 And I'm James King.

Speaker 12 In today's episode of China Decode, we are discussing the build out of AI data centers, how the US and China are taking different approaches, the Chinese Navy's debut of a new aircraft carrier and what that means for tensions in the region, and the dream of flying taxis.

Speaker 12 It might be closer than you think.

Speaker 11 Where are you today, Alice?

Speaker 12 Well, I am in Sicily, and this is actually going to amuse you, James. I just came back from climbing Mount Etna.
So we talk about dancing on a volcano.

Speaker 12 And hopefully you can't hear the wailing sirens on the street. It's fairly noisy here.

Speaker 11 I'll keep an ear out for them as the podcast goes on.

Speaker 12 Thanks, James. All right, James, let's get straight into it.
In this great race that's developing over capable AI tools, both China and the US are building out massive data centers.

Speaker 12 Generative AI models lean on a massive amount of powerful GPUs, which need both a lot of electricity to perform and a great deal of water to stay cool.

Speaker 12 So, given the high cost and the vast energy implications of these data centers, let's talk a little bit about how these things are getting paid for and getting power power in both the Chinese and the American contexts.

Speaker 12 So, James, I think, you know, now that we've turned the page on the trade conflict and it seems that we're back into a détente period, what struck me over the last week as being quite interesting was the Jensen Huang piece in the FT, where you used to work, in which he says that China is quote unquote nanoseconds behind America in the AI race, primarily because electricity generation is so much more abundant in China and a great deal cheaper.

Speaker 12 And so he, I think, has issued a Clarin call within the American context to showcase to Americans that China actually has some tools in its toolkit in this broader AI competition.

Speaker 12 And, you know, I would love to get into the minutiae of it in terms of the comparison.

Speaker 12 But what struck me as interesting is the fact that the US, when you look at CapEx cycle, is clearly orders of magnitude ahead, not only in terms of just raw CAPECs that we've seen by the big tech companies, the big AI, Frontier Labs, and the tech companies, but also in the fact that you have, from a policy standpoint, the US Stargate project, which is $500 billion deployed over four years.

Speaker 12 I think the Chinese equivalent Stargate, which was announced by Alibaba this year, is only 53 billion over three years.

Speaker 12 But I think this is going to incite a reaction from China probably in the next March NPC when the five-year plan is unveiled to really, I think, increase the amount of expenditure for data centers.

Speaker 12 And again, as I alluded to, China is a country that leads in power generation. It basically produces 10,000 terawatts per hour in terms of energy.
That's more than double what the U.S. produces.

Speaker 12 But certainly it has, as we've talked about in previous podcast episodes, a semiconductor disadvantage in the sense that it doesn't have access to the energy efficient cutting edge, leading edge semiconductors that are produced, say, for instance, by NVIDIA.

Speaker 12 But James, what's your take on this AI competition that is ballooning?

Speaker 11 Well, as you say, Alice, I think the key point is around these data centers because it's in data centers, you know, which you wouldn't really look twice at.

Speaker 11 I mean, they're sort of big square buildings on the side of the road,

Speaker 11 but it's inside these data centers that the machines that train artificial intelligence models actually work.

Speaker 11 And so, without big data centers, you can't train your AI algorithms to get better and better. So that's the key aspect of why data centers are important.

Speaker 11 And data centers, as you mentioned, are really power hungry. And they also need a lot of air conditioning and they need a lot of water.

Speaker 11 And so the race between the US and China on artificial intelligence, to a large extent, comes down to these data centers.

Speaker 11 And as you said at the beginning, I think it's really interesting that Jensen Huang, the CEO of NVIDIA,

Speaker 11 said this month that he thought that China will win the AI race.

Speaker 11 Then he slightly backpedaled and said, oh, well, China's only nanoseconds behind.

Speaker 11 But I think this allows us to really look into the constituent parts of who is likely to win the AI race, because, of course, the stakes are enormous. AI is going to power all kinds of applications.

Speaker 11 It's going to power all kinds of technologies, and it already is. So the question of who wins is really crucial to the technology economy.

Speaker 11 Now, as you mentioned, Alice, each country has different assets. The first thing to be said is that at the moment, the US is way ahead in terms of the number of data centers it has.

Speaker 11 The US has got well over 5,000 data centers as things stand. And China, according to statistics that I've been able to find, has only about 450.

Speaker 11 But this might not stay that way. And we also need to look at the cost structures involved.
The remarkable thing about China's data centers is where they're located.

Speaker 11 They tend to be in the deserts in the far north of China. Some of them are in a desert called the Taklamakan, which actually I've been to.
I went through it on a bus.

Speaker 11 I wish I could say I went on a camel, but on a bus, it took four days to cross. And the name of the Taklamakan actually means if you go in, you never come out.

Speaker 11 And it is one of the most inhospitable places on earth. The temperature is often nudging 50 degrees Celsius, about 120 degrees Fahrenheit.

Speaker 11 But the reason it's there and the reason that China's putting so many of these data centers in deserts is because the sun beats down and the power for these data centers is generated by solar panels.

Speaker 11 And the power that China is generating through these solar panels is actually the cheapest power anywhere in the world. It costs about two cents, two US cents per kilowatt hour.

Speaker 11 Just to give you an example, that is about one-fifth of the cheapest cost of electricity generated in the UK through coal.

Speaker 11 So China's got this natural advantage in terms of building data centers in the desert.

Speaker 11 But it also has a couple of other strategies, one of which is big subsidies by the government, subsidies in terms of the energy bills that the data centers have to pay.

Speaker 11 The government is subsidizing that so that it means that a lot of these data centers in China are paying just half of what you would normally pay for the data centers.

Speaker 11 And the other big advantage that China has is called superclusters. I won't go into this in great detail, but just suffice it to say that the U.S.

Speaker 11 is far ahead when it comes to the power of individual computer chips. So the Blackwell chip is far more powerful than anything that China has.

Speaker 11 But China is perfecting a way of putting lots and lots of its own indigenous chips, mostly made by Huawei, into what's called a supercluster.

Speaker 11 Some of these superclusters have like 380 chips in them, but China wants to go much, much bigger than that. It wants to have a supercluster of more than 8,000 chips.

Speaker 11 and so it hopes that it can increase the compute power by using many many more chips so i think that's the contours of the competition that we see what are you hearing alice i mean do you think china can make it or do you think the us is just in an unassailable lead so the way that i think about this is that if you recall during the biden administration there were a great amount of export controls on chinese chips or rather chinese imports of chips coming out of America and elsewhere.

Speaker 12 And the consensus at the time was that China is screwed. China will not be able to find an option.

Speaker 12 AI will severely be impaired in terms of its development in China as a result of this hardware constraint. That consensus has shifted a great deal.

Speaker 12 And I sense that the consensus around AI has also shifted in the sense that people no longer think that China is down and out.

Speaker 12 China has, as you allude to and referenced, James, its own distinct advantages and disadvantages.

Speaker 12 The way that I think about the future is that whereas a lot of the internet revolution was about bites, I think in some respects we're returning to the world of atoms.

Speaker 12 And China has been very good at indigenizing and securitizing its energy supply chains. As I referenced, it is the world's biggest producer of electricity.

Speaker 12 And it has even more projects that it's going to bring online, like the hydroelectric dam in Tibet, which could put even more energy on the grid.

Speaker 12 I think that this is something that people are starting to realize is an important aspect, this energy aspect in the AI competition. It's not just about chips.

Speaker 12 It's not just about the trillions of CAPEX that the U.S. seems to be dedicating over the next few years in terms of CapEx outlays for AI data centers.

Speaker 12 It's also about energy production and energy efficiency. So on the production front, China is leading in energy.

Speaker 12 On the efficiency front, as you allude to, James, there's interesting ways in which they can cluster.

Speaker 12 But even the tech companies themselves, when they design their LLMs, which we could get into, they are designing more energy efficient LLMs that in theory could lead to an 82% drop in the number of NVIDIA GPUs that they would require to power the AI models.

Speaker 12 And so just to give people a sense of the numbers, what would normally take 1,192 GPUs, apparently the researchers at Alibaba are able to do with just 213 NVIDIA H20 GPUs.

Speaker 12 That's the difference between spending 2.5 million on NVIDIA GPUs and spending way over $14 million.

Speaker 12 And again, if you think about it from an energy perspective, the power savings could also be massive as well.

Speaker 12 So I think there's an interesting thing that's happening on the energy production front and the energy efficiency front that I think people are starting to cotton onto.

Speaker 11 Yeah, I mean, I think we kind of got to bring it back to why Jensen Huang is saying that China will win.

Speaker 11 And I think a lot of the reasons are the ones you just cited, plus the fact that China has gone for an open source model in all of these large language models that it's coming out with.

Speaker 11 So, as of October, nine of the 10 top open source artificial intelligence models are Chinese. This is in contrast to many of the American models, such as OpenAI's Chat GPT, which is not open source.

Speaker 11 So, China's going really quite a different route from the US.

Speaker 11 China's going cheap power, super clusters of semiconductors, fewer data centers, but probably cheaper, cheaper to build, and then trying to make the artificial intelligence models that it brings out open source so that a lot of companies in China can then start to build their applications based on those models and start to make money by deploying AI in the economy.

Speaker 11 I think that's China's approach.

Speaker 11 It still doesn't quite explain to me why Jensen Huang would say that he thinks China will win, because Because if you look at the US, they've got better chips, far more powerful chips, and they've got many more data centers to train the AI models.

Speaker 11 So I don't know. I don't know which side of this I come down on, actually, tell you the truth, Alice.

Speaker 11 I think the US is a formidable competitor.

Speaker 12 Yeah, I still agree. It's too early to tell.

Speaker 12 And as we've been saying in previous podcasts, China is going to do AI with Chinese characteristics, no doubt about it. It's going to do it in a way that's quite different from the US.

Speaker 12 And as we were talking about in previous episodes, the US is chasing AGI areas that might be more compute intensive.

Speaker 12 Whereas China is not just making energy cheap in the support of AI models, but it's also making models cheap. I mean, I was looking at some of the numbers.

Speaker 12 The DeepSeek chat model, the cost per million output tokens is only $1.10.

Speaker 12 Q1 Plus from Alibaba, it's $1.20. And for reference, GPC5 from OpenAI, it's $10.
Claude Sonnet from Anthropic, Claude Sonnet $4.5 is $15. So they are making these LLMs cheap along with energy.

Speaker 12 And I think with massive implications when we think about the AI competition, in many ways, they are competing for different things, is my conclusion.

Speaker 12 Okay, we'll be back with more after a quick break, so stay with us.

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Speaker 12 Welcome back. Last week, China revealed that it had commissioned a massive new aircraft carrier, the Fujian, and it's the first one that it designed and built all by itself.

Speaker 12 This comes a short time after Chinese President Xi Jinping's massive military parade in September for the 80th anniversary, which drew a lot of attention on how recent advancements in homegrown Chinese hardware have raised the capabilities of China's military, inching closer to parity with the US.

Speaker 12 James, you're more of an expert in this area, so I really want to listen to what you have to say. But I was actually in Beijing during the week of the military parade.

Speaker 12 And what was interesting not only was the the patriotism around it, but the fact that China really was, so to speak, bringing out the big guns.

Speaker 12 It was showing a new nuclear triad in terms of equipment, military drones, new ICBMs, intercontinental ballistic missiles, hypersonic missiles, you name it.

Speaker 12 But it was very clear to me watching this that this was a big sign to Washington and the region that China had key deterrence capabilities when it comes to its military hardware and equipment.

Speaker 12 James, you're very close to this. How big of a deal is this Fujian carry and what does it mean for China's broader military goals?

Speaker 11 I think it's a big deal because it helps us to kind of understand the military balance between the US and China. There's no question that China is catching up the US.

Speaker 11 And this is part of a bigger topic of the geopolitics between the two superpowers. And it particularly relates to potential theaters of warfare.

Speaker 11 I use the word potential underlined and stressed because I'm not predicting any kind of a conflagration between the US and China. But let's say around Taiwan, also the South China Sea.

Speaker 11 And there are other areas where the US and China kind of contest each other already in a geopolitical sense.

Speaker 11 So, the emergence of China's third aircraft carrier, which, as you mentioned, was designed and built entirely by China, that is important.

Speaker 11 The big picture for China is that China wants to build what it calls a modernized military force by 2035. So, that's 10 years from now.

Speaker 11 And it wants to build what it calls a world-class military force by 2050.

Speaker 11 And what people understand by the words world-class means that by that time it hopes to be able to take on the US if it needs to.

Speaker 11 As things stand, purely in terms of aircraft carriers, China is a long way behind the US.

Speaker 11 Now that China has three aircraft carriers, the US has 11. So China has the second largest number of aircraft carriers of any country in the world, but clearly it's still far behind.

Speaker 11 And I think it's true to say that the technology of the US carriers is far superior to those in China.

Speaker 11 For instance, the US carriers are nuclear powered, whereas the Chinese carriers at the moment all run on diesel. And of course, nuclear power is much more self-sustaining than diesel.

Speaker 11 However, when we look at other aspects of the military balance,

Speaker 11 you know, China is already a formidable competitor. The Chinese navy is now far larger than that of the US.
They're projected to have about 50%

Speaker 11 more ships than the US by 2030. So already, I think we can't sort of underestimate what China can do in terms of military projection.

Speaker 11 Just coming back to this aircraft carrier itself, I mean, it's absolutely enormous. It's more than 300 meters long.
I mean, the scale of these things is just incredible.

Speaker 11 That means it can carry about 60 aircraft and it costs well over 6 billion US dollars to make. So, you know, it's a pretty amazing thing, I must say.

Speaker 11 What did you think when you saw pictures of this of this carrier, Alice?

Speaker 12 Well, firstly, I mean, they definitely were putting their best foot forward. Everything that came out on the parade was extremely, extremely impressive.

Speaker 12 But at the end of the day, you know, these images are Potemkin villages in a way. They're not battle tested and battle ready.

Speaker 12 And that, I think, has been the enduring concern about the PLA's capabilities.

Speaker 12 It's one thing to have cutting-edge equipment and parity with the US, but it's another thing to have the battle experience that, say, Russia is having in Ukraine.

Speaker 12 And I think that one of the big concerns for Xi Jinping, especially after the Russia-Ukraine conflict emerged, is whether or not the PLA has the ability and battle readiness to take a stance on Taiwan, to either launch an amphibious assault or salami slice it through a quarantine and blockade.

Speaker 12 And I'm not so sure. And people have different views on whether or not these military equipment are designed to deter the U.S.

Speaker 12 from aggression in the Asia-Pacific or to help launch Xi Jinping's ambitions when it comes to what he would call a reunification of China, taking Taiwan into the fold.

Speaker 12 But when I think about this, I think a lot about both capabilities and intentions.

Speaker 12 And it's not clear to me, especially after the military purges that we saw at the Force Plenum, whether or not Xi Jinping feels that he is ready for prime time when it comes to using these carriers for a Taiwan showdown.

Speaker 11 Yeah, I mean, you know, the whole question of Taiwan and whether or not China would make a move to try to retake Taiwan is one of those things that China experts spend a long time thinking about and talking about.

Speaker 11 And, you know, everybody has their own opinion.

Speaker 11 There really is no evidence. That's why you find such a diversity of opinion among people of our trade, Alice.

Speaker 11 But my own take on this is that China wants to build up a military that is so forbiddingly huge that the US would think twice or think more than twice about ever taking China on in any kind of a military theater.

Speaker 11 And my sense on Taiwan, particularly, is that China would very much like to reabsorb Taiwan without fighting.

Speaker 11 It knows that if it was to launch a military adventure against Taiwan, there would be catastrophic consequences for the global economy, and that would include China.

Speaker 11 So I think its aim is probably to build up its military force by showing off new hardware, such as this huge new aircraft carrier, such as the military parade in Beijing that you mentioned, and then hope that everybody is kind of cowed and overawed and Taiwan meekly returns to the motherland at some point in the future.

Speaker 11 That's my sort of summary of what I think China's aiming at.

Speaker 12 Well, when you were talking, I was thinking of two things. The first is the fact that this aircraft carrier is run on diesel, not nuclear.

Speaker 12 The US is still at the state of supremacy when it comes to nuclear-powered submarines and operational nuclear warheads. The figure is quite stunning.

Speaker 12 China has 600 operational nuclear warheads, and you compare to the US with well over 5,000. The US is leading.
In fact, I think the second largest stockpile is held by Russia.

Speaker 12 That gives you a sense of how much China needs needs to do to catch up. It's projected they'll reach a thousand warheads by 2030.

Speaker 12 Its stockpile of ICBMs, the intercontinental ballistic missiles, is roughly on parity with the US's.

Speaker 12 But there are certain key areas, and I've heard from military experts in the realm of submarine technology, especially where China is a great degree behind the US.

Speaker 12 But the second point I wanted to make, and to quote my boss and mentor Neil Ferguson, he has this law called Ferguson's Law, in which any country that spends more on debt servicing rather than the military is throughout history has been on a downturn trajectory.

Speaker 12 It loses its superpower status. And the US hit that threshold a few years ago.
I think that that is quite material when we think about the superpower struggle between China and the US.

Speaker 12 China is increasing its military spending, massively ramping up its military arsenal at a time when the US is doing it in the opposite direction.

Speaker 12 That's, I think, quite material when we think about the future of US China in the region.

Speaker 11 Oh, that's great. I hadn't heard of Ferguson's law before.
I really like that. I guess the problem with China is, though, that China keeps its military spending deeply secret.

Speaker 11 I mean, it does come out with figures, but nobody trusts them. So we don't really know whether China is spending more or less on debt servicing than on its military.

Speaker 12 That's a very fair point.

Speaker 11 But that's a great metric. I really like that.

Speaker 12 Yeah.

Speaker 12 And we'll have to see in the March NPC what they say, because every year in the March NPC in the government work report, they will issue a statement about how much they want to increase military spending by.

Speaker 12 To your point, James, there's so much of this is smoke and mirrors. We don't know what is actually being spent and where it's being spent.

Speaker 12 And I think Ukraine is a great example of the fact that money isn't everything.

Speaker 12 You've got to be able to tactically deploy it well and spend it on the right things and use, for instance, drones in an operational manner ukrainians have been very lean but very successful so that's something to keep in mind as well well let's take a quick break so stay with us

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Speaker 12 Welcome back. When you imagine the future, if you imagine flying around in a car-sized flying vessel, then much of the 21st century must have been very, very disappointing to you as flying cars.

Speaker 12 I mean, I watched Back to the Future. I don't know if you have, James, but they have proved still very much elusive.
That is until now, perhaps.

Speaker 12 The company EHUNG, based in Guangzhou, China, says it has developed a flying air taxi. It is battery-powered and completely autonomous.
It flies without a pilot inside.

Speaker 12 EHUNG says it plans to deploy these unmanned EVTOLs, that stands for electric vertical takeoff and landing, it's a mouthful, between airports and some cities in China within three years.

Speaker 12 And they say that flights will be offered cheap, only 200 to 300 yuan, or about the equivalent of 30 to 40 US dollars.

Speaker 12 James, this, when I came across this story, thanks to you, I was very much surprised. Is this for real or is it all hype?

Speaker 11 Well, it's definitely for real. I've been following these guys for a few years, actually, but I must say, Alice, when it comes to this kind of thing, I'm personally a complete wimp.

Speaker 11 You know, I have a friend, for instance, who has a helicopter. He's been badgering me for years to get into it, and I've only ever caved in once.

Speaker 11 I'm kind of terrified by these things personally, but I'm really interested in EHANG and as you say, the EVTOL.

Speaker 11 It sort of looks a bit like a doodle bug, you know, it's got a small cabin, enough room for maybe two people, and then it's got these drone-like rotor blades that sort of spin around.

Speaker 11 And the really scary aspect of these EVTOLs is that they're autonomously driven. So there is no pilot.

Speaker 11 So you're sitting there and you're completely at the mercy of the AI AI algorithm that takes you from A to B.

Speaker 11 And I must say, I would find that very scary indeed. I have been in autonomously driven cars.
I was in one in Shenzhen last year. I was slightly nervous about that, but...
it was totally fine.

Speaker 11 Getting into

Speaker 11 an oversized drone and sitting in it and trusting this thing to take you from A to B without crashing, to me, is a totally different kettle of fish.

Speaker 11 But as you say, this has got a license now from the Chinese authorities, and they reckon that they're going to be working commercially within about three years.

Speaker 11 And given that these types of projections in China are always padded out, they normally happen quicker than is projected.

Speaker 11 I reckon, you know, we could be seeing these vehicles in use a couple of years from now, maybe in certain areas, you know, not in general use, but in certain areas.

Speaker 11 And I'm I'm very interested to read that Morgan Stanley, the investment bank, reckons that the market for these vehicles, these EVTOLs, could reach about a trillion US dollars by 2040 and even 9 trillion by 2050.

Speaker 11 So obviously, Morgan Stanley is impressed. They reckon that this is going to become a big part of the way we get around.
So maybe it will happen. happen.

Speaker 11 The last thing I'd say is that China's clearly imbibed this. They've clearly decided that this is going to be something that the future revolves around.

Speaker 11 And they've come up with a name for this type of technology. They call it the low-altitude economy.
So

Speaker 11 maybe the low-altitude economy is going to be a big deal.

Speaker 12 Yeah, when I first saw the image of this, I just thought this looks like a giant version of a drone and something that I'd imagine Tom Cruise and Mission Impossible to sit into.

Speaker 12 Hopefully that it doesn't get tapped into by an enemy agent. But it seems very futuristic and it points to the fact that I think people in China are so ready for tech adoption.

Speaker 12 They're, I think, a lot more daring when it comes to these newfangled technologies.

Speaker 12 My, I guess, concern would be, as you go into different airspaces, what are going to be the rules of the road and how are you going to regulate this?

Speaker 12 I think the government is happy for this to be another way in which Chinese manufacturing capacity can be exported to the rest of the world in the future.

Speaker 12 But I think technology is moving, as often is the case, much more quickly than the regulation can keep up or even regulators can conceive of regulating it.

Speaker 12 So it's not clear to me how Chinese local governments or the central government will think about regulating this space when it really becomes viable.

Speaker 12 But I was reading that one of these taxi vehicles that Yihung is rolling out can fly over 100 miles on a single charge.

Speaker 12 And it's taken a cumulative 40,000 flights in 19 countries to date. So it seems viable for now, but it's going to be interesting to see how this unveils in China as adoption becomes more widespread.

Speaker 12 But I haven't seen anything. I don't know if you have, James, in the US context that's comparable.
I don't think they have truly autonomous flying cars. Have you heard of this?

Speaker 11 Yeah, this is what I was just about to say.

Speaker 11 I spent a bit of time Googling various countries in Europe and the US to see whether or not they've got a licensing process for these EVTOLs, and I couldn't find any.

Speaker 11 But the fact, as you mentioned, that EHANG has had flights in 19 different countries to date suggests to me that they're trying to convince the authorities, no doubt in Europe and the US and elsewhere, that this is a viable technology, that these flying vehicles are not just going to drop from the sky.

Speaker 11 And so maybe they will prevail in certain areas and maybe they'll be licensed in other countries as well.

Speaker 11 I guess it's all a matter of safety, really.

Speaker 11 If EHAN can prove that these are safe, then, well, why not?

Speaker 12 You know? Yeah, this is definitely going to change the way that we move around. I wonder what the first use cases will be.

Speaker 12 If it's people doing this for fun, or if they're actually using it to commute, or if they're using it to send packages. I think it'll be really interesting to see how they quickly commercialize this.

Speaker 12 And so definitely watch this space. But at least I think they should change the name because it's a mouthful, E-V-T-O-L, as an acronym.
So we're going to have to find a different one.

Speaker 11 You're definitely right there.

Speaker 12 Okay, James, it is prediction time. What's your prediction for the future as you look into your crystal ball?

Speaker 11 Okay, well, I'm going to stay with the low-altitude economy.

Speaker 11 I'm not talking about these flying taxis.

Speaker 11 I'm talking now about drones because the other thing that's happening in China in the low-altitude economy is that the drone delivery market is really taking off. Excuse the pun.

Speaker 11 And it looks like this year, maybe there could be more than 5 million packages delivered by drone in China. That would be up from 2.7 million packages delivered last year.

Speaker 11 The important thing about this is that, as I'm sure you're aware, Alice, the key thing about delivering packages is that it's quite costly in what they call the last mile.

Speaker 11 So, you know, the last stage of the delivery process where the delivery person has to find your house and then post your package through your letterbox.

Speaker 11 Or if you're not there or you don't have a letterbox, do something else. That's the costly bit of delivery.

Speaker 11 So having a drone that can literally come to your front door and just drop the package on your doorstep is going to be a lot cheaper.

Speaker 11 And that's why we're seeing such a big uptick in the drone delivery market in China. So my prediction is 5 million packages delivered this year in China by drone.

Speaker 12 It sounds like we're going to have a lot of drone overcapacity. There's going to be drones everywhere.

Speaker 12 So, James, my prediction is more left field, and it's centered in France, where the French fraud watchdog has suspended Sheen from operating in France.

Speaker 12 Now, Sheen, as many will recall, is China's fast-fashion retailer platform. And apparently, it seems that on the Sheen platform, there were illegal sales of these sex dolls that resembled children.

Speaker 12 These listings have been taken off of Sheen and Sheen has confirmed this.

Speaker 12 But I think this is symptomatic of a larger issue that is arising between the EU and China, which centers around trade and technology.

Speaker 12 Whereas in previous episodes we discussed a great deal of tension between Washington and Beijing. I think what we are starting to see is more storm clouds emerging between Brussels and China.

Speaker 12 My own sense in talking to people from Europe is that they were very unhappy with the way in which China basically used the rare earth export controls, even though China has since walked that back.

Speaker 12 And I think that that move engendered a great deal of mistrust from the policymakers in Europe.

Speaker 12 So, my sense is that there's going to be more investigations in the next few months on Chinese goods, not just the ones that they've listed, for instance, on Chinese tires.

Speaker 12 And there may be more, I think, sanctions on Chinese companies in Europe, in addition to what we're seeing with Nixpera, for instance, the Chinese semiconductor company based in the Netherlands.

Speaker 12 This, I think, is a tide that is ultimately a symptomatic of worsening trade relations between Europe and China. A very interesting call.

Speaker 11 I have a hunch that you're right about that. I think the Europe may well get a bit tougher.

Speaker 12 All right, that's all for this episode. Thank you so much for listening to China Decode.
This is a production of Prof G Media. Our producer is David Toledo.
Our associate producer is Erica Janikis.

Speaker 12 Our video editor is Ness Smith Savadoff. Our research associate is Dan Shallan.
Our technical director is Drew Burroughs. Our engineer is William Flynn.
And our executive producer is Catherine Dillon.

Speaker 12 Make sure to follow us wherever you get your podcast so you don't miss an episode. Talk to you again next week.

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