China Decode: The Global AI Race

In this episode of China Decode, Alice Han and James Kynge discuss China’s decision to block Nvidia’s newest AI chips—what’s behind the move, and what it could mean for the global AI race. They also break down the long-running TikTok saga, now moving toward a new U. S. ownership structure—who will really control the app and its algorithm? Finally, they explore a social media trend capturing Chinese Gen Z’s nostalgia for the “boom years,” revealing what today’s young people are longing for and why. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:19Alice Han?

  Certainly, I think a lot of US investors are salivating when they look at TikTok because they see the eyeballs, the potential, the growth, the different income streams that could arise from a stake in TikTok.

• 1:37Alice Han?

  Welcome to China Decode. I'm Alice Han.

• 1:39James Kynge?

  And I'm James King.

• 1:41Alice Han?

  In today's episode of China Decode, we're discussing China pulling the plug on Nvidia's AI chips, the latest on the US-China TikTok deal, and how China's Gen Z is looking back and dreaming of the boom years. So let's get right into it. We're still following the news that Nvidia's AI chips just got the cold shoulder in China. The country's top internet regulator has reportedly told major tech firms like Alibaba and ByteDance that they should stop buying and testing Nvidia's newest chip, the R2X Pro 6000D. This is a chip Nvidia designed specifically for the Chinese market in compliance with US export controls. And this is a big deal, apart from it being a very cumbersome and difficult name, which a lot of these chips are.

• 2:25Alice Han?

  This really matters because the people that I speak to, I rate really highly in the chip world, basically have equated chips to the oil of the digital economy. And Chinese companies have been stockpiling on these chips over the last few years. In fact, they've ordered thousands of these chips since July, and now they've been told to pull the plug. Nvidia CEO Jensen Huang said he's, quote unquote, disappointed, noting that the company can only serve markets that actually want its products. And right now, Beijing is signaling that it just doesn't want Nvidia's chips.

• 2:56Speaker 04

  I do hope that the United States and the Chinese government work out their perspective on what's the best way to share technology and share markets. And I have every confidence it's going to get worked out.

• 3:09Alice Han?

  This move comes amid China's accusations that Nvidia is violating antitrust rules and claims on the part of China that its own homegrown chips are now as competitive as Nvidia's offerings. James, I know this topic can seem very niche and very arcane, but can you describe to us in plainest language why these chips matter and how big this is a deal for Nvidia?

• 3:34James Kynge?

  What a great quote there, Alice. You know, the oil of the digital economy, that really sums it up. These chips make everything work in the digital economy. And for Nvidia, it really is huge. I mean, I think we first of all have to realize how big Nvidia is as a company. It's capitalized on the stock market at 4.3 trillion US dollars. That means that this one company, this one American company is worth more than a trillion dollars more than the entire. UK economy. So really, whatever news is coming out with regard to China and Nvidia, it could be measured in the hundreds of billions of US dollars in stock market valuations.

• 4:17James Kynge?

  And the news that came out, as you said, from China this week was huge, that they don't want this Nvidia chip that you mentioned. And, you know, we don't know how much further this is going to go. We don't know if the Chinese government is going to get tougher on all kinds of Nvidia chips. Now, the Chinese market accounts for about thirteen percent of Nvidia's global revenues. And actually, it's pretty well understood that that's a big underestimate because there's huge smuggling of Nvidia chips into China through places like Singapore. So if Nvidia loses the Chinese market, and, you know, we don't know if that's going to

• 5:00James Kynge?

  happen yet, but if it does, then it will have a significant impact on the stock market price of Nvidia and also on the company's revenues. This news was greeted by a three percent sell-off in Nvidia shares. But I think we can be clear that this is just a fairly modest decline because most of the market participants, the investors, they don't think this is curtains for Nvidia in China. They think that what's underway is more of a shadow play between America's biggest company and the Chinese authorities, and eventually, some kind of deal will be done. And we've just heard the news that Trump and Xi Jinping are going to meet in November

• 5:45James Kynge?

  in South Korea and then again next year for a summit meeting. So I think what's happening is that the market thinks that this will all be patched up and Nvidia will be able to sell some chips, we don't know which, to China as it has done in the past. That's my reading. I don't know about you, Alice.

• 6:04Alice Han?

  Well, James, I was going to add, given that I was just in China two weeks ago, a lot of discussion that I had with some of these entrepreneurs, and some of them were in the semiconductor space, was that Jensen Huang lobbied hard. Because he was very worried that the CUDA architecture, basically what was described to me as the operating system for chips that Nvidia users would basically be jockeyed out of the country if Trump didn't relax some of these export restrictions, including on H20s, which are not the leading edge chips that previously during the Biden administration adhered to the export controls for China. That seems quite plausible to me that he is in a desperate situation where he's seen competitors like Huawei and SMIC,

• 6:47Alice Han?

  who almost every other day, and including today, are announcing that they, you know, have Ascend chips, they have cutting edge AI chips that they can completely manufacture in-house and design in-house. My sort of question that I'm grappling with, and I struggle with this because I see arguments on both sides, is to what extent are the Chinese puffing themselves up when it comes to these semiconductor capabilities? Because on the one side, you definitely have the bulls who say, well, Huawei can generate all these, you know, even close to three nanometer chips, but they can do these clusters that can perform just as well as potentially Nvidia. On the other side, you hear people on the bear side who say, even if they're, you know, producing more, they're not going to have the same compute capabilities as Nvidia's cutting edge chips.

• 7:31Alice Han?

  But where do you sit on this debate, James? I'm curious.

• 7:34James Kynge?

  Well, I mean, that's a huge question, and I think there's a lot of debate about that. I had an opportunity this week in London, actually, to meet with a delegation of senior Chinese officials, and we spoke a little bit about this. And their point was that China's self-sufficiency in advanced chips must happen. They were absolutely clear that this is a priority of the Chinese government. And actually, this goes back quite some time. I remember reporting from China 20 years ago. I remember the president of the time, Jiang Zemin, saying that if China remained dependent on the West for semiconductors, he said, then the West will always have us by the throat.

• 8:19James Kynge?

  And he was the same president of China that had his son start one of the very first big semiconductor ventures in China. China. So I'm not surprised to hear this mantra of China must achieve self sufficiency in chips. But the question is, are they actually going to do it? We can look at some of the resources that China's put into this. About a hundred and fifty billion US dollars in grants since two thousand and fourteen. That puts the US Chips Act funding into the shade. It's uh it's about three times as much as the funding from the the Chips Act. But the really big question now resides with these companies that you've mentioned Huawei,

• 9:02James Kynge?

  Alibaba and some other big Chinese tech companies. Huawei's chips, especially the Ascend series, are supposed to be getting close to some of the best performers that Nvidia can put out. And particularly, if you cluster several hundreds, several thousands of these Huawei chips together, you can get what's called superclusters. And these Huawei superclusters are apparently really catching up with Nvidia superclusters in terms of their efficacy in AI, in artificial intelligence. So it's rather involved. I don't think anyone has a clear answer to the question, but

• 9:44James Kynge?

  as far as as I can see and as far as my research is concerned, China is definitely catching up.

• 9:51Alice Han?

  Yeah, that I go back again to why this matters. I think a couple of years ago, when China seemed to be behind the curve on chip development and everyone was saying, you know, these export controls from Trump and then Biden are really canny, they're going to be a choke point for China, they're not going to be able to catch up. Uh I sensed that this was going to have material impacts for the AI rollout or even the discussion about AGI, which we'll get to in just a bit. But when I was there three years ago, the general feeling was from the people I spoke to in China. Yes, we're screwed when it comes to semiconductors, but we'll have good enough uh workarounds through, and they didn't say illegal smuggling, but it does happen through smuggling.

• 10:33Alice Han?

  And increasing stockpiles through potentially illegal means, but also through some of the domestic options like SMIC, which is a fab based in China. They felt as though they had the workarounds to support EVs, AVs, the IoT industry. But when it came to AI inference and training, which requires strong compute and memory, there was a realization, and I think even an admission from the people I spoke to in China, that this would seriously hold them back. That, I think rhetoric has shifted. When I was in China two weeks ago, there was this feeling, to your point, James, is that now China is getting better at AI chip design.

• 11:15Alice Han?

  They have some fabs that maybe not on the level of TSMC, but they're getting there. And certainly, I think what is important, that I don't think gets covered enough, is that you still have TSMC producing Chinese-designed chips. So even if Huawei and Alibaba are saying that they're designing all their chips in-house, they still need fabs. And some of these fabs are outside of China. So I think it's kind of erroneous or potentially overly simplistic to say that these are all completely made in China. There's still a huge ecosystem that supports Taiwanese and Chinese innovation on the semiconductor side. But again, wrap this argument back around to AI. I think this is going to have serious implications when the West considers China's AI rollout.

• 11:59Alice Han?

  Because a couple of years ago, as I mentioned, people were very skeptical about AI because they saw the chip, the hardware constraint, and they said, well, this is going to really screw them when it comes to training.

• 12:12James Kynge?

  Absolutely. And I think particularly, this is all about what's called AGI. That's artificial general intelligence. And it's difficult to sort of define what this is, but it's seen in the industry as the kind of El Dorado of the artificial intelligence industry. It's the point where machines become so clever that they can start learning for themselves. And therefore, their learning process can happen at warp speed. And really, I was told by a US analyst close The Pentagon this week that really what's happening now between China and the US is that their competition in these AI chips is being driven by this race to achieve AGI,

• 12:57James Kynge?

  artificial general intelligence quicker than the other competitor. We don't know who's going to win that race, but if China wins, according to the analyst that I spoke to, then it will mean that its military development in all kinds of technologies will get a leg up. And that's what's really scaring the US. And similarly, it's scaring China too, from the other perspective. So we're in this kind of extraordinary, I won't call it an arms race, but it's clearly a chip race or a chip war, which is part of what people talk about when they talk about the new Cold War between the US and China. And it has echoes to me of the old Cold War.

• 13:40James Kynge?

  It's this sense we must win and therefore we're going to throw everything at this. Money, our most brilliant people, our best scientists to come up with the best chips so that we can win this race to AGI. So it's really, I mean, I don't know, maybe it's being overplayed, but it seems at this point to be high stakes.

• 14:00Alice Han?

  Yeah, I I want to take this back to what is China's strategy here? Because the statement that came out a couple of months ago in which Chinese media and the government were casting aspersions as to the safety or security of using Nvidia chips. It begs the question, are they doing this because A they want to support domestic competitors? So it's a form of national protectionism? Or are they doing this because they actually are concerned about the security risks? I was reading an article by a colleague of mine, Chris Miller, who also wrote Chip War. It's funny that you make that analogy. So he basically says that the US is looking into geo-tracking the semiconductors that it's exporting because it's aware that there's a huge degree of smuggling via Southeast Asia mainly.

• 14:44Alice Han?

  I looked at it a couple of months ago. There was a huge potential smuggling through Malaysia, for instance. So they're looking into that. I think that he calls it telemetry. And the Chinese may be concerned that that could be used to geolocate or geo-track chips as they get into China. So I I struggle with this and I'm curious if you have a view. What is China's end goal? Because it's not like. China can overnight rival Nvidia or even TSMC. It still needs other countries and companies, be it, you know, the Duchess ASML Philanthropy or TSMC for fabrication. It can't produce everything domestically. So I'm struggling to figure out what its strategy is here by by saying no to Nvidia chips, basically.

• 15:29James Kynge?

  You're struggling, Alice. I think everybody is struggling. It's it's really an opaque situation. I mean, if you ask me my guess, I think that what China is doing is coming up with a negotiating ploy so that when Chinese, well, when Xi Jinping meets President Trump and all their officials get together to prepare those meetings, the Chinese have got more leverage with America. I think that's number one. The second point is, can China really go it alone without Nvidia chips? My guess is no, not for quite a few years yet. And so ultimately, I think the Chinese are angling to get hold of the best Nvidia chips.

• 16:10James Kynge?

  So not the ones that we've been talking about so far, but the Blackwell series, which is the latest series of Nvidia chips coming out, hugely powerful, much more powerful than anything that China's got. And I think that the ban on Nvidia today is a negotiating ploy to get the Americans to allow Nvidia to export the Blackwell chips to China so that China can use those in its AI models so that China can race faster towards this goal of of AGI than I mentioned.

• 16:43Alice Han?

  I'm glad you mentioned that because it reminded me of a conversation I had with a PE investor in China recently in which he said basically the same thing is that it's rather negotiating ploy or a gambit to, again, as you mentioned, get higher grade chips that could potentially be compliant with some of the US export controls. But I completely buy that in this argument, and I think that that's extremely convincing. And it seems like, just to use a pun, all chips are on the table when it comes to the negotiation between Trump and Xi. And as you referenced, James, they had a productive call this Friday, and it seems like they've agreed on a number of issues. But it also paves the way for a TikTok deal, which is the next subject of discussion. Do you have TikTok, James?

• 17:26James Kynge?

  I do.

• 17:27Alice Han?

  What's on your feed? Because my feed is all food and fashion, so the algorithm knows me.

• 17:31James Kynge?

  I've got quite a few food things. I've got quite a few sports. I got a lot related to China, actually, because obviously that's my interest. But really, it's spooky how quickly the algorithm learns your preferences. I mean, and I guess this is why TikTok is so popular around the world with 170 million users in America alone. It's quite extraordinary.

• 17:53Alice Han?

  Right. We'll take a break now. Stay with us and we'll come back for more on TikTok.

• 18:03Scott Galloway?

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• 19:06Alice Han?

  Welcome back. As of this taping, the year-long fight over TikTok may finally be moving forward towards a resolution. President Donald Trump announced that he had a, quote, a quote, productive call with Chinese President Xi Jinping on Friday, and that they've effectively approved a framework deal for a group of US investors to take control of TikTok US's operations.

• 19:27Speaker 05

  There's tremendous value with TikTok. And I'm a little prejudiced because I frankly did so well on it. And so we were able to work out a deal with China. And it's a very good deal for us. It's a very, I hope it's a good deal for them. I just, I want to say I want to thank President Xi because he was a gentleman. And we've just had a good relationship.

• 19:48Alice Han?

  The agreement would spin off a new US entity with 80% owned by consortium consisting of Oracle, venture firm Andreessen Horowitz, and private equity firm Silver Lake alongside some existing ByteDance backers. And ByteDance's total stake would fall below 20%, meeting the requirements of a US legislation passed last year. Trump said that he and Xi signed off on the deal during the phone call on Friday, and that they also discussed other topics, including trade, fentanyl, Russia's war on Ukraine. And Xi, for his part, framed it as a commercial solution, while stressing that China should retain authority over TikTok's core technology. I want to read actually a statement that I just saw from the Chinese Foreign Ministry

• 20:32Alice Han?

  in which they basically seemed to be happy with this deal. They said, "They were happy to see productive commercial negotiations in keeping with market rules, leading to a solution that complies with China's laws and regulations and takes into account the interests of both sides." So it seems like TikTok has finally, after almost a year of torture, have seen a pleasant ending for it in terms of its app being still used within the US, where you've got 170 million US users who can still use the app as of right now. So now that the deal seems to be done, the big question remains, what happens to the algorithm? Because insofar as I understand, the Chinese semantic is that we are licensing this algorithm out to our US operations,

• 21:18Alice Han?

  but that algorithms are still owned by ByteDance, which is, after all, a Chinese company. Whereas this, I think, is a bit of a murky territory because at least according to the US legislation, the algorithm cannot be owned at all by a Chinese entity. So we may be in a period of strategic ambiguity in which both sides agree to disagree. But certainly, I think TikTok has evaded the worst. What do you think, James?

• 21:43James Kynge?

  Yes, I mean, this is a remarkable deal. It appears to pave the way for TikTok to operate in the United States. But as you rightly point out, Alice, what we really don't have a clear sense of yet is what's going to happen to the algorithm. The old algorithm, or we should say the existing algorithm before it's changed, means that American users' data is accessible to China. And China's National Intelligence Law of 2017 creates a legal obligation for all Chinese firms to turn over data collected abroad and send it back to China if China requests that.

• 22:22James Kynge?

  So it isn't absolutely clear to me at this stage as to whether this new deal will mean that American data stays in America, or whether there'll be a backdoor for that data to come back to China if TikTok so desires. That's just absolutely not clear, I don't think. Have you picked up anything on that?

• 22:43Alice Han?

  Well, I think we have to understand this TikTok deal within the context and framework of the broader US-China relationship. And what's become apparent to me is that, A, Trump cares a lot personally about TikTok for his branding, for his appeal to the base. And that's sort of view that's shared, I think, by a lot of his colleagues and peers, potentially, who take a more hawkish posture. You look at some of the senators and congressmen, like Tom Cotton, for instance, who I think are going to be tough on this issue. And B, the Chinese, I think, understand that Trump sees this as part of a grand deal, a grand bargain, and are employing the art of the deal in potentially offering him something that looks like it's ticking some of the boxes.

• 23:28Alice Han?

  And so I think it's a big magic act where Trump basically says that it complies with the US legislation, even though it doesn't fully. And meanwhile, other companies may decide not to sue the administration or ByteDance because they don't want to fall afoul with Trump. So I think Trump ends up with TikTok. And on the same time, the Chinese end up potentially with a better deal on trade and technology because they see this as an area in which it's been an easy concession for Trump. Uh. So I think that that's how I kind of approach it. And the real minutia, in a way, doesn't matter because ultimately it's a political game in which uh the Chinese are swapping TikTok potentially for maybe relaxation on chips.

• 24:10James Kynge?

  Yeah, and I mean, in the meantime, um TikTok remains incredibly popular, especially with American teens. About fifty seven percent of American teens use TikTok every day and they use it for an average of one point five hours a day. So, you know, this really does matter, isn't it? I mean, this is by far China's biggest uh cultural export, I guess. And so whatever the fate of TikTok finally is, um it really does make a big difference, not only to TikTok and ByteDance, its parent company, but also normal Americans and normal British and and other Europeans.

• 24:45Alice Han?

  And just to again talk about the financial side of things, uh I read recently that ByteDance, the parent company of TikTok, is on track to make more than a hundred and eighty billion dollars this year and trades at a valuation of about three hundred and thirty billion dollars. And again, to sort of peel back the layers uh of the onion, uh Trump's friends, many of them who are in on the deal, if you look at Siskahana Capital, uh Jeff Yass there or you look at Oracle and Drayson Horowitz, they could be investing in TikTok at a lower price per share multiple than Procter and Gable. So there's obviously other agenda at play beyond just TikTok itself. And certainly, I think uh a lot of US investors are salivating when they look at TikTok

• 25:28Alice Han?

  because they see the eyeballs, the potential, the growth, uh the different income streams that could arise from uh a stake in in TikTok.

• 25:36James Kynge?

  Absolutely.

• 25:37Alice Han?

  I think what strikes me as being interesting in the US context is the way in which we've seen some of the hawkish members of the establishment really treat ByteDance like an arm of the CCP. I remember when the CEO of ByteDance, he was being interviewed by senators in the Senate Commission and they were asked him if he ever had any affiliations with the CCP. And it went viral because a lot of people were seeing that and watching it with a degree of incredulity. But it speaks volumes about the fact that, you know, ByteDance has internally that tension of being seen as a Chinese company, potentially an arm of the Chinese government, whilst trying to be global. In 2023, a former ByteDance

• 26:20Alice Han?

  employee alleged that the CCP spied on pro-democracy protesters in Hong Kong in 2018 by using, quote-unquote, "backdoor access to TikTok to identify and monitor the activist's locations and communications." My own view on this is that any platform, whether it's X or Instagram or even Telegram, any platform really is ripe for misinformation, disinformation, for any kind of government-led espionage. So I don't think TikTok in this instance is unique, but certainly I think it has been a lightning rod politically for a lot of American policymakers when they look at the company because they're very worried about the longer-term impacts of having a Chinese platform that is disseminating information

• 27:04Alice Han?

  to millions of daily users in America. And I guess related to that is TikTok seen as a Chinese company outside of the US. Because in the US, it's very much been politicized in the sense that, you know, they see this as a Chinese company that poses a threat. But I'm not sure if the rest of the world really feels that way about TikTok.

• 27:24James Kynge?

  I think, you know, in the UK, I think most people don't really see TikTok even as a foreign company. They just see it as an app that gives them pretty inoffensive and quite amusing short videos on their phones. I, of course, you know, a certain number of people will know that TikTok is Chinese, and a certain number of people will know that data can be exfiltrated by these apps back to China. But I think the sort of baseline attitude here in the UK is, well, if I'm looking at a lot of cat videos, then why does that matter? You know, how important is this information to China anyway? I'm not any kind of an agent, I'm just a normal person looking at my mobile phone.

• 28:09James Kynge?

  So to be honest with you, Alice, I think the popular sentiment towards TikTok is is pretty good. But then the security services in the UK and other European countries are very much vigilant towards TikTok because I suppose in addition to sending data back to China, these apps allow these Chinese companies to learn quite a lot about the way cyberspace works in European countries. So maybe that's it, but but generally, I think the public view on this is that it's pretty inoffensive.

• 28:45Alice Han?

  Yeah, and one last thought I had on this issue was that decoupling in reality is tough to do. Even though politicians want to basically ban TikTok, I think this story leading to a happy conclusion potentially for TikTok proves the point, which is to say that as long as there are vested business interests in the US that are pro TikTok, it would have been very hard to ban it. And the reason I say that is, you know, ByteDance over the last few years has been teaming up with Oracle More, but Oracle's serving basically data centers for TikTok in the US and overseas. When I was in China, they were talking about potentially adding more data centers through Brazil to service the whole Latin America and North America region.

• 29:29Alice Han?

  So I think this story, in a way, beyond it being Trump scoring a victory for his communications to the base, is also a story of how, you know, the Andreessen Horowitzes and the Oracles of the world have actually won a big deal by getting an increased stake in this very valuable social media company.

• 29:47James Kynge?

  Absolutely, that's it.

• 29:49Alice Han?

  All right, just before we head off to another break, we're going to talk about another social media trend that is all the rage in China. So we're going to take a quick break and stay with us.

• 30:03Scott Galloway?

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• 31:12Alice Han?

  Welcome back. We're diving into a trend sweeping social media in China, something people are calling "the beauty of the boom years." Platforms like China's Red Note and Douyin are full of posts that take users back to the 2000s and early 2010s. Think bold fashion, catchy pop songs, and vintage TV ads that once defined the era. Nostalgic hashtags like hashtag millennium, hashtag Chinese Dream Call, and hashtag beauty of the boom years have racked up over 10 billion views. But what exactly are people in China reminiscing about? Many say these posts reflect a time when China felt full of possibility, optimism, growth, and prosperity before economic slowdown, stagnation, and social pressures hit.

• 31:56Speaker 06

  Remember when life was simple, no pressure, no hustle, just dreams, sunshine and 3G phones. Back when Chinese dramas made you cry and success felt possible. Today, millions in China are posting, "I miss the golden era, I miss who I used to be." If you feel that too, like this video and comment. "Waya san kuai tu, I want to go back to, let's bring the feeling back together."

• 32:26Alice Han?

  At the same time, this wave of nostalgia comes with a bittersweet undertone. Young people, especially Gen Z, are increasingly sharing content that seems to mourn what's been lost or lament the pressures they face today. Everything from rapidly growing housing costs to career uncertainty. It's a vivid window into a generation caught between the optimism of the past and the challenges of the present. James, I really, really want to get your thoughts because you actually lived in China during these quote-unquote "boom" years. I only ever went there once a year over the summer to see my grandparents. But you really lived there as a journalist at the FT, so tell me a little bit about what that period was like.

• 33:05James Kynge?

  It was a great period, really, honestly. When you look back at that time, it seemed just much more simple. There seemed to be much more possibilities. And I have one friend who bought an apartment of 90 square meters in Beijing back in 2003 or 2004, and she paid 80,000 US dollars for it. That apartment today costs more than a million US dollars. So you can just see that, you know, back in the day, you could buy things for not a huge amount of money. And these days, young people would not be able to afford a million-dollar apartment. Not in a month of Sundays, not in a very long time.

• 33:48James Kynge?

  In addition to that, life is stressful, people work long hours, the traffic is clogged, commuting times are very long, the cost of schooling is high. And mostly, you know, China is just a very competitive and stressful place to live. And, you know, this came out recently in a survey done by Douyin, which is China's version of TikTok. They found that 88% of young people in China are feeling stressed in their daily lives. And 60% said that they buy things to alleviate that stress. And so this has led to... What I consider to be a really fascinating trend in in the economy, which is

• 34:31James Kynge?

  this big consumer theme of emotional consumption. So that's people buying things that are nostalgic or help with their self-care or things that bring joy or they're kind of cute, a bit like the Labubus that we mentioned last week.

• 34:48Alice Han?

  I was gonna say, yeah.

• 34:49James Kynge?

  So, you know, this is, this is a really, really interesting theme, I think, this emotional consumption idea. I don't know, you must have come across this quite a bit.

• 34:59Alice Han?

  Yeah, for sure. It chimes with at the macro level, what I'm hearing from P investors who are saying, yes, there has been a trend line of high savings ratio in households, but Gen Z, the next generation, they're going to be earning less potentially than their parents, but they're going to be spending more. So their marginal propensity to spend will go up. And they're already starting to see the initial changes in their consumption patterns relative to their parents and forebears. So I think at the macro level, that's definitely being borne out. But to go back to what you were saying, as I was reflecting on this, I was thinking how it's so interesting that in the US, you know, Trump is trying to revive the eighties in the power suits

• 35:40Alice Han?

  and the Reagan years in which you had financial liberalization and and men and women in power suits and he had a full head of hair. And in the Chinese context, they're also nostalgic about a period in time in which they had relative prosperity and freedom. But in the two thousands and one other sort of thought I had related to this was how last year, I think it was the most watched TV show was a TV show called Fanghua, which means blossoms and directed by the great Wang Kaiwei, who also did In the Mood for Love and Chongqing Express, who is a great Chinese director or actor. But that is about Shanghai, China in the nineties, where it's starting to experience liberalization, where the China dream,

• 36:24Alice Han?

  which is, I think, a counterpoint to the American dream, is possible. Social mobility is relatively strong if you work hard. I think we're seeing the mirror image of that right now, where people, to your point, James, they feel stifled, they feel unmotivated. There's a term that started off in sociology in China that's gone into economics. It's called nadron, which is involution, basically, this kind of feeling that there's no point in trying because it's too competitive and too tough out there. And that's really feeding into this, as you say, this generation of people who will spend more, won't work as hard and don't feel the need potentially to live in bustling

• 37:06Alice Han?

  tier one cities. You also see in China a trend of young people going out into the country or into the forest, living in nature, living in lower tier cities, you know, getting a thousand RMB a month, but being happy because they can afford to to live in the lower tier cities. So I think this is an important sociological trend and I'm glad that we're discussing this because we in the West tend to look a lot at how AI and the economy are screwing over Gen Z. But there's a similar, I think, dynamic and debate taking place in China.

• 37:35James Kynge?

  You're so right, Alice. This is a really important topic and and it's so palpable when you go to China. You meet people who talk about, as you said, you know, kind of going to the countryside, living the simple life, you know. I I think you're also really right to to invoke the comparison of Americans looking back to the Reagan years, you know, there's a sort of sepia tinted kind of aspect to this whole thing. And I I was just looking recently into the phenomenon of the white rabbit candies.

• 38:05Alice Han?

  Oh, I love those. I grew up on those. You know, they're from Shanghai originally.

• 38:08James Kynge?

  I I didn't know that. I was hoping you were gonna say that. These are extraordinary. I remember them so well from when I was a student in China. They're cute little candies. The wrappers are sort of blue and red and you open them and there's a little bit of rice paper and the candy inside or the sweet inside of your if you're British, it's kind of milk based. And actually, it turns out that these candies have got a bit of a history in China because a Chinese leader called Zhou Enlai in the 1970s, he was premier at the time, he loved them so much that when Nixon went to China in 1972 to open relations between the US and China after a deep freeze, Zhou Enlai gave him a box of these candies.

• 38:51James Kynge?

  But I couldn't find anywhere online whether Nixon liked the white rabbits as well. But I'm anyway, the point is to update this story is that these white rabbit candies are becoming the nostalgia candy of China now. And the sales are just wild.

• 39:06James Kynge?

  There's all kinds of follow-on products, like you can buy White Rabbit cuddly toys and you can buy, you know, little baby suits and all kinds of other White Rabbit stuff.

• 39:17Alice Han?

  Yeah.

• 39:17James Kynge?

  So it's it's just an example of how people are hankering for the past, which, as you rightly say, Alex, is so counterintuitive, I think, to the way the rest of the world looks at China. We always think of China as charging ahead and steaming into foreign markets and relentless growth and everyone kind of gung ho, but actually, when you get there and when you know Chinese people, there's a lot of people who find this blistering pace just kind of unbearable.

• 39:42Alice Han?

  Yeah, it reminds me of what we were talking about earlier in the week. You said to me that Maotai vintages, the older they are, are getting more and more expensive. There's a whole market for them, right?

• 39:53James Kynge?

  Absolutely. I I I happened to meet, you know, an executive from the company that makes Maotai, which is this fiery white spirit in China. It's very expensive. And and I was asking him about how much they cost, and he was talking unbelievable numbers, you know, some bottle of Maotai going back to the 1950s, costing hundreds of thousands of of US dollars, and even some more recent than that as well. So there is this ticket to nostalgia that increasing numbers of Chinese consumers are jumping on because it reminds them of a time in the past where things were simpler, life was simpler. And as I said at the top, you know, this seems to be a balm for Chinese consumers. They seem to feel less stressed.

• 40:38James Kynge?

  They seem to feel happier about their lives when they're when they're buying stuff that makes them feel joy like that, I suppose.

• 40:45Alice Han?

  Mm hmm. I I love that story. And even though I'm not a big fan of Maotai, I'm still very much in the camp of a good Japanese sake. I I do love the fact that we're starting to see an economy that appreciates older vintages. You're starting to see that in wine as well. There's some domestic offerings as well. I was just recently in Shanghai and there's this place, House of Roosevelt, where they have domestic terroir bottles of wine from different periods as well, as early as the early 2000s.

• 41:11James Kynge?

  Wow.

• 41:12Alice Han?

  So maybe nostalgic for them. But yeah, it's definitely, I think, happening at a pretty societal level, which I think is is worth keeping in mind.

• 41:19James Kynge?

  Do you know why it's called the House of Roosevelt?

• 41:21Alice Han?

  Well, it's related to Teddy Roosevelt. So there's pictures of Teddy Roosevelt all over the place.

• 41:25James Kynge?

  Wow, amazing, okay.

• 41:27Alice Han?

  All right, James, it's prediction time. So why don't you go first and then I'll share my predictions.

• 41:33James Kynge?

  Okay, Alice, great. Yeah, I'm gonna predict something about the emotional consumption craze that I was just referencing. I'm gonna say that this emotional consumption, which basically is led by Gen Z and includes Chinese spending on things that make them feel happy or make them feel less stressed, make them feel nostalgic for better days in the past, is going to expand by more than 12% this year. And just to put that number into perspective, that is three times faster than the general pace of consumer spending growth in China at the moment. So it's obviously a really big theme.

• 42:16James Kynge?

  So I'm gonna predict 12% growth for emotional consumption in 2025. How about you, Alice? What kind of prediction have you got for us?

• 42:25Alice Han?

  So I think that we're gonna get more news about Chinese semiconductor capabilities. Now, whether or not at a technical level, this actually is significant remains to be seen, back to, you know, what we said earlier. But I do think that A, we'll get more stories about Chinese companies doing in-house chip production and design, and B, we're gonna get potential relaxation on some of these chip controls, especially if the talks and meetings go well in late October, early November. And I think that that will give more upside for chip stocks, Chinese chip stocks. So I think we're probably gonna see more upside for Chinese chipmakers domestically. There are a couple that I saw in Hangzhou that are also looking to get listed soon and probably in Hong Kong. So I would watch that space.

• 43:10Alice Han?

  I need to do the fundamentals analysis to see how they're priced, but my knee-jerk reaction, having seen some of the news today, is that I think Chinese chip stocks might be a win.

• 43:21James Kynge?

  Well, Alice, I'm paying extra attention to your prediction this week because you smashed it last week. You said that Xi Jinping and Trump were gonna schedule a meeting, and lo and behold, a week later, Xi Jinping and Trump have scheduled not one meeting, but two meetings. So, well done.

• 43:37Alice Han?

  Well, thanks, James. So we're gonna have to enjoy a bottle of whiskey. What's your favorite?

• 43:42James Kynge?

  Well, I owe you a bottle of whiskey, it seems to me, from our bet last week. But I'm thinking, can I give you a miniature? I mean, do I have to give you a full bottle?

• 43:50Alice Han?

  No, no, miniature's great.

• 43:51James Kynge?

  Okay.

• 43:53Alice Han?

  Thanks, James. 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 Janikas. Our research associate is Dan Shalan. Our technical director is Drew Burrows. 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.

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