Pod Insights The Prof G Pod with Scott Galloway China Decode: How an AI Price War Could Spark a Market Correction About this episode In this episode of China Decode, hosts Alice Han and James Kynge break down how China is quietly building the “Android of AI” while the U. S. is pouring billions into the ultra-premium iPhone equivalent. As American firms chase ever-bigger, pricier models, Chinese competitors are going lean, open-source, and dirt-cheap — and U. S. startups are already switching to them. They unpack why Chinese models are suddenly dominating Hugging Face, how an AI price war could spark a market correction, and whether U. S. export controls are backfiring.
Plus, a diplomatic firestorm between China and Japan is raising tough questions about the future balance of power in East Asia. With Tokyo taking an unusually hard line on Taiwan — and Beijing responding with fury — Alice and James examine what’s driving the escalation, what it means for U. S. strategy, and how historical grievances still shape the region’s security map. Finally, China’s coffee wars are heating up — and Starbucks is blinking. After losing ground to aggressive local rivals like Luckin and Cotti, Starbucks is selling off majority control of its China business. They explore why Western brands keep struggling in China’s hyper-competitive consumer market — and whether Starbucks can claw back relevance.
Learn more about your ad choices. Visit podcastchoices.com/adchoices
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 When you need to build up your team to handle the growing chaos at work, use Indeed sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsored job credit at indeed.com/podcast. That's indeed.com/podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.
0:31 Speaker 01 Low energy, unfocused, foggy? You might be dehydrated. Whether it's hot yoga, over 100 degree weather, or too much sun. Gator Light, with a specialized blend of five electrolytes, was scientifically designed to help move fluids into the body faster for rapid rehydration. Shop now at retailers nationwide. Gator Light: Hydrates Faster Than Water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.
1:01 Speaker 02 This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior light beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.
1:29 James Kynge? The latest Chinese AI sensation, which is called Kimi K2, costs just a fraction of what it would cost to train an AI model in America. It cost about 4.6 million US dollars. That is just a tiny fraction of what OpenAI has been investing in its large language models.
1:53 Alice Han? Welcome to China Decode, I'm Allison.
1:56 James Kynge? And I'm James King.
1:57 Alice Han? Well, in today's episode of China Decode, we are discussing whether China is building the Android of AI while the US builds the ultra-premium iPhone, powerful but too expensive to dominate globally, why the latest spat between Japan and China could reshape the balance of power in the Asia-Pacific region, and how Starbucks and the coffee wars reveal the fierce fight for China's consumer market. All right, let's get right into it. Right now, the biggest story in tech may be the one the US didn't see coming. China's low-cost, open-source AI is suddenly everywhere in Silicon Valley. While the US is spending billions of dollars building ever-bigger models and data centers
2:39 Alice Han? and inflating what some analysts say looks like an AI bubble, China is doing the exact opposite, it seems: cutting prices, opting for open-sourcing weights, and shipping models that are cheaper, lighter, and surprisingly competitive. And American companies are flocking to them. Airbnb's CEO says his team ditched ChatGPT for Alibaba's Qwen model because it's "fast and cheap." Venture firms are switching to Moonshot's Kimi LLM, and developer data show nearly half of the most-used models in the US last week were Chinese. Alibaba just slashed prices on its flagship model again as part of a full-blown AI price war, and a sign that evolution has come to Chinese AI.
3:24 Alice Han? Former Google CEO Eric Schmidt is warning that most countries may end up using Chinese models simply because they're free. James, we've talked a lot about, I think, Chinese AI over the last few weeks, and I definitely think, I'm very excited to see the models that are coming out of the mainland, but also the fact the West is catching up to this theme that we've been talking about for a while, which is, don't write off Chinese AI. They are going to go for it in a very different model. And I think the recent announcements from these tech companies, some even, I would say, pretty big. Uh startups that are using and relying Chinese L L Ms is pretty dramatic. And I think it's a different narrative than what we've been seeing in the last few years.
4:09 Alice Han? I just wanna go right into it and see what your take is on this Chinese model of A I. And whether or not this kind of Android A I approach to making cheaper, faster, more efficient models is ultimately gonna win out in in a global race between China and the U S of A I.
4:24 James Kynge? Yeah, that's a really great question, Alice. I've started to notice just in recent days, actually, that people are using the word bubble with regard to America's A I efforts uh quite a bit more now. I think in the past, they've been reluctant to do that. My own take is that this is still very far from conventional wisdom. And the U S China A I race is going to be a very long run thing. We can't call it yet. It's gonna be many ups and downs and fits and starts, but as things stand right now, I would say that some big names in the U S are looking quite bubbly. And I think the key point is this, the bubbly aspects of American A I, as I see it,
5:10 James Kynge? are made in China, by which I mean that China's approach to A I is to build A I models at a much lower cost than we can find in the U S. Also, the cost of using those Chinese A I models is much lower. And crucially, the performance of the Chinese A I models is kind of just as good or catching up to U S standards at the moment. So I think that that is the reason why we saw Eric Schmidt, the former C E O of Google, very recently say, as you've already mentioned, you know, the vast majority of governments and countries who don't have the kind of money that the West has
5:54 James Kynge? will end up standardizing by using Chinese models, not because they're better, but because they're free. So I think I think really we're entering a very interesting phase in the U S China A I race. I should just mention before I pass it back to you, Alice, that, you know, there needs to be a little bit of nuance on this. Not all US L L Ms are closed source. And not all Chinese large language models are open source. So it's it's a mixed picture. Uh, you know, we've got Lama from Meta, we've got Phi from Microsoft and Gemma from Google. All of those are open source.
6:36 James Kynge? And of course, it's famous that many of the big and successful Chinese models such as DeepSeek and Q One, as you already mentioned, are open source too. But I just want to, I just want to make that clear. We're, you know, it's it's a variegated picture. It's not the case that everything done in China is open source and everything done in the US is closed source. I just want to leave you with one extraordinary statistic. And that is that the latest Chinese AI sensation, which is called Kimi K two, cost just a fraction of what it would cost to train an AI model in America. It it cost about four point six million US dollars.
7:19 James Kynge? That is just a tiny fraction of what OpenAI has been investing in uh in its large language models over in the US. But how do you see this, Alice? Uh, do you, do you think that, you know, it's too early to call? Or do you think that the American model is looking bubbly and the Chinese model is looking lean and mean?
7:38 Alice Han? I think that's a great way to phrase it. Uh, bubbly versus lean and mean. I think I'm more in the camp of that kind of narrative. Although with the caveat that, as we've previously talked about, James, the US has thrown billions of capex into the data center rollout into leading edge L L Ms. Into the frontier labs and hyperscalers. And as a result, I think is probably going to be further along in the AGI, artificial general intelligence race or superintelligence, as we previously mentioned. But the Chinese model, to your point, James, is Lina and Mina in the sense that, you know, it is doing these models more efficiently, much cheaper to train.
8:20 Alice Han? What was interesting for me to notice, and you already mentioned it, James, is that, and not only are they cheaper on the inference costs, but also on the training costs. I remember meeting, I believe, the father of AI in China, who wrote that film's book, AI Superpowers, which seems like a lifetime ago, but I highly recommend that read, I believe in twenty eighteen. So before this really ramped up as a serious issue. And he had said at the time, a year and a half ago, that China may not be able to compete on training costs because the US has dedicated a huge amount of CapEx towards training and it has the best data sets and training models in the world, but China can rapidly decrease the inference costs. Now it seems like they've decreased both the inference and training costs.
9:04 Alice Han? To your point, the Kimi K two open source model is just four point six million dollars. As you say, that's fifteen hundred times less than what OpenAI spent on R and D this year. And again, just to follow up on your point, James, so that listeners can appreciate this. I think it's a bit of a misnomer to say that China is leading the way on open source. I've been talking to some AI scientists more recently, who've said that actually the majority of the open, quote unquote, open source models are really open weight, meaning that the underlying code and data set are not freely available, but the weights or the training parameters are. That's the difference between an open weight versus an open source. But the fact of the matter remains that China is going through what I see as a Cambrian explosion in terms of different
9:49 Alice Han? L L M's. And we've talked about this theme of involution of price wars, of excess capacity, of hyper competition. I think this is already starting to be played out in the Chinese context, where you have a lot of different L L M's in the race or in the ring. Kimi just overtook of Q N and DeepSeek very recently in terms of its parameters and performance. I think that fact that China is being used, its L L M's are being used by American companies. Is a pretty telling and a compelling sign that consumers are driven by price. And the fact that these L L Ms can be cheaper than their American counterparts, I think, is making them more desirable, even
10:33 Alice Han? amongst some of these Western companies, uh, which is why, you know, I find that the recent talk about Chinese L L Ms being competitive is coming at a time in which a lot of people watching Wall Street are very worried about the A I bubble in the U S. I think the two of them coexisting as narratives is not a coincidence. One question I do have for you, James, is have you actually used the different models? I've been playing around a little bit uh across the different models from the U S and China, but I want to get a sense of what you've experienced.
11:04 James Kynge? Yeah, I have actually. I've used DeepSeek quite a lot. I continue to use DeepSeek quite a lot. Obviously, I've used Chat G P T quite a bit. And I've just started to play around with Kimmy as well. You know, uh, to be honest with you, I'm using it at such a low level that I don't really notice that much of a difference. I'm sort of using it as a dictionary, really, um, and and as a database. So, yeah, I mean, they're all pretty good. I have noticed that the DeepSeek results are a little bit skewed away from politically sensitive topics that, you know, you might expect from a Chinese L L M. But um, I haven't noticed anything too egregious, I must say. But there is this question about security, which is hanging in the background.
11:48 James Kynge? And I think that a lot of people are concerned by the question of security with regard to Chinese large language models. I should cite an article by the Financial Times just recently that says that Alibaba provides tech support for the Chinese military against targets in the United States. Now, I need to be very careful about this. The claims, which couldn't be uh independently verified by the F T, were rejected very forcefully by Alibaba. Uh, they said that this information leaked from your source is complete nonsense. So that's a very strong denial, but there is always going to be
12:29 James Kynge? this issue of security hanging over the Chinese large language models, I think, to users in the West at least.
12:36 Alice Han? Yeah, I I completely agree, and I think that we should watch the space. I think it's a matter of time before these L L Ms get politicized in the same way that semiconductors have been. I actually think that that is a likely outcome. The more that we talk about Kimi and DeepSeek and the more that we worry about an A I bubble in the U S, I think the more political backlash there will be uh against some of these Chinese L L Ms. But just to round up this discussion, I thought it was interesting as I looked into into Kimi's architecture. One of the reasons that it is more efficient than the American L L Ms is that it uses this thing known as the uh mixture of experts design, whereas Chat G P T and some of these other L L Ms are using a dense model.
13:16 Alice Han? Uh, this mixture of experts design only utilizes certain parameters when created and a dense model uses them all. And apparently, the Kimi K two is over a trillion parameters, but it will only use about thirty two billion at a time. And this points to, I think, uh, one last note that I'll end on is it points to the example in which uh Chinese A I is at a research level evolving in a very, very different way. And so the more that I think about this space and I'm trying to read up very quickly because it's changing so quickly, I I see that sort of whole evolution of two very, very different species of A I that I think is is is happening right now between China and the U S. Okay, we'll be back with more after a quick break, so stay with us.
14:04 Scott Galloway? Support for the show comes from Built. Most of us work hard to earn our keep, but usually there's no one around to hand you a cookie when you successfully pay your monthly housing bill. No one except Built, that is. Built has expanded from their original renter rewards program, and they have a lot more going on for members now. For example, members can earn points on mortgage payments, too. Every housing payment gets you points that get you a lot more than baked goods, such as flights with top travel partners, including United and Hyatt, Lyft rides, Amazon dot com purchases, and much, much more. Here's another benefit of Built membership. You also get access to what they call a neighborhood concierge. You can make restaurant reservations, book fitness classes, and find new local spots, all while rewarding you at more than forty five thousand merchant partners. It's simple.
14:46 Scott Galloway? Being a renter and now owning a home feels a lot better with Built. You can download the Built app and join the membership for where you live at joinbuilt.com slash prop G. That's J O I N B I L T dot com slash prop G. Use our link so they know we sent you.
15:04 Scott Galloway? Support for the show comes from Upwork. Trying to scale your business? At some point, you're probably going to hit a point where you need some help. Sometimes, the best way to break through that is bringing in the right talent at the right time. Upwork can help. Upwork is a one-stop platform where you can find, hire, and pay expert freelancers across more than 125 categories. Whether you need specialized skills for a single project or extra support to keep up with demand, it's easy to connect with experienced professionals, review their work, and find the right fit. You can move faster without taking on the commitment of full-time hires. And for businesses that need the very best talent, Upwork Business Plus provides access to the top 1% of freelancers on the platform. AI-powered matching connects you with qualified candidates in under six hours, cutting down the time spent searching.
15:47 Scott Galloway? Upwork also takes care of contracts, payments, and other administrative tasks, so you can spend less time managing logistics and more time focused on what's next. Visit upwork.com/profg right now and post your job for free. That's upwork.com/profg to connect with top talent ready to help your business grow. That's U.P.W.O.R.K. com/profg. Upwork.com/profg.
16:15 Alice Han? Well, welcome back. Tensions are well and surely boiling in East Asia. China and Japan are locked in a fiery diplomatic clash over Taiwan with threats, insults, and even references to beheading now making the headlines. And it all started when Japan's new Prime Minister, Senai Takeuchi, said a Chinese attack on Taiwan could trigger a Japanese military response. This is a rare explicit stance from a sitting leader, and Beijing responded swiftly, summoning ambassadors issuing warnings of a crushing defeat if Japan intervenes and lashing out in state media, calling Takeuchi a "evil witch" and warning Chinese citizens to avoid travel to Japan. The spat highlights more than just the issue of Taiwan.
16:59 Alice Han? It also involves historical grievances, territorial disputes, and Japan's shifting security posture.
17:06 Alice Han? Japan, America's key ally in the region, may increasingly act as a deterrent while the US pulls back. And Takahichi's hardline could boost her actual standing at home and abroad, even with conservative American allies. Uh, James, I think that this is giving me twenty ten deja vu all over again when we had the Senkaku Island incident. We had the rare earths embargo for a couple of months in Japan. We had a lot of Chinese, everyday Chinese citizens boycotting Japanese goods, burning Japanese goods, looting Japanese stores. And I'm not surprised, frankly, that China has reacted in a pretty aggressive manner.
17:45 Alice Han? Uh, and I wouldn't be surprised if everyday Chinese boycott Japan entirely, as they've done uh in the past. Anytime there has been an anti-Japan or or hyper-nationalist movement. Uh, it's no surprise that uh Chinese airlines announced over the weekend that they would allow all passengers to cancel or change Japan-bound flights free of charge. After Beijing basically urged the citizens to avoid visiting Japan. This comes at a time, I think, where uh Trump is clearly trying to pull back from US commitments in the region. Uh, Japan, I think, is sitting there pretty worried about the state of affairs, given that it relies so heavily on the deterrence that the US offers,
18:30 Alice Han? and that Japan is not a nuclear power, which we'll get into in just a bit. Uh, I certainly would be nervous sitting in this region at a time where politically both sides want to play hardball. But what what's your take on this, James? Having lived in the region for quite a bit of time.
18:45 James Kynge? Yeah, I mean, I I've I've lived in Japan and China and Taiwan and, uh, you know, the the countries that are in play. Uh, it's amazing to me how quickly this has escalated. It's gone from zero to sixty or zero to one hundred and twenty in what feels like a very short period of time. You know, I woke up on uh Sunday morning to see on my social media feeds three Chinese warships steaming towards the Senkaku Islands, which are uh territory disputed by Japan and China. It really was quite dramatic. And I think it's important for the West as well, particularly for the United States, because of course Japan is America's leading ally in Asia.
19:27 James Kynge? And Japan also plays host to several US military bases, and these are really major. The Yokosuka Naval Base, just near Tokyo Bay, is the home port for the US Seventh Fleet. And there's a large number of US ships there. And it also has the nuclear-powered aircraft carrier called the USS George Washington. This is one of the, you know, the premier ships in the US Navy. So any kind of a flare-up between Japan and China, especially if it has a military dimension, which this one very clearly does, is a big issue for Washington. And I imagine it's, it's quickening pulses all over the US, just as it is for, for you and I.
20:13 James Kynge? Of course, the Japanese side is now trying to de-escalate. They have sent over Masaki Kanai, who is head of the Foreign Ministry's Asian and Oceanian Affairs Bureau. They sent him to Beijing to see if he can sort of try and patch things up. But in the meantime, as you've already alluded to, this is hammering some Japanese stocks. You know, we've seen the Isetan and Mitsukoshi Department Store owner, that stock price has fallen over 10%. And also the Tokyo Disneyland operator, that's lost nearly 6%. Japan Airlines is down.
20:58 James Kynge? This is all because these companies benefit hugely from Chinese tourists going to Japan. And as you've said, Alice, once nationalist fervor grips the Chinese people, as it is clearly starting to do, then you immediately see a drop-off in the willingness of Chinese to buy Japanese stuff and to travel to Japan. How do you see this? I mean, there is obviously historical context here. I mean, why is it that Chinese feel so triggered, as it were, by Japan at these moments?
21:31 Alice Han? Well, I mean, China had a harrowing experience in World War II at the hands of Japan. Japan. Occupied parts of China, even getting up to Shanghai, where my family is originally from. Uh, and the rape of Nanjing, or even the systemic uh wiping out of populations in China are deeply, deeply remembered within the Chinese collective. Uh, and I think that that probably intensifies a lot of already, I think, strategic uh rivalries and issues at play. Uh, so there's a deep set historical mistrust. Uh, but at the same time, I think when we look at uh it from a real politik standpoint. Uh, Japan is deeply worried about uh an ascendant China and what that means for the Asia-Pacific region.
22:17 Alice Han? If the US decides that it ultimately doesn't wanna be a regional and global hegemon. Japan is in a very, very, I think, isolated state. Uh, because it has no nuclear deterrence of its own. It cannot, uh, according to uh the treaty that it signed after World War Two with the Americans, it cannot have an offensive uh military capable of warfare. And it has the three non-nuclear principles, meaning that it cannot possess, produce, or allow the introduction of nuclear weapons onto its territory. So I think Japan, from a real politik realist standpoint, is in a very desperate situation. And I'm not surprised that Takeichi is trying to draw into question the three non-nuclear principles. Uh, that is another reason why China is worried.
23:02 Alice Han? Because, and this is according to people close to her, she apparently wants to call to question the strict adherence of the no introduction of nuclear weapons principle. Uh, because ultimately she wants to allow US nuclear armed vessels to sit in Japanese ports to uh basically have a credible nuclear deterrence against China in a potential showdown over Taiwan or in the region. Uh, so this is, I think, all driven by the tectonic shifts of power, mainly in terms of the US-China relationship in the region. And I think ultimately, I wouldn't be surprised, even if we do see a de-escalation in the short term, that there is a like an increasing rivalry between Japan and mistrust
23:45 Alice Han? between Japan and China, and that Japan gets closer with, say, Korea, India, Australia, some of these other countries that could be on the opposing side of China if there is a showdown in the region. But just very quickly, James, having lived in Japan, do you think that there has been a shift in Japan's attitude towards China in the last few years?
24:07 James Kynge? Well, I mean, I think that certainly Prime Minister Takeuchi comes from the wing of the Liberal Democratic Party, the LDP, which is known to be more hawkish towards China. She's seen as a little bit of a successor to Shinzo Abe, the previous Prime Minister, who was, you know, considered to be fairly hawkish towards China, and I think that is already playing out in the minds of the Chinese and making China extra anxious about what the next few years of Takeuchi's tenure is going to produce. So I think that this flare-up that we've seen at the moment could set the tone for however long Takeuchi is Prime Minister, even if there are attempts by the Japanese,
24:52 James Kynge? as I'm sure there will be, to de-escalate. Like you, I see this as a, well, maybe not a continuous source of tension, but, you know, a general undertow of tension between the two countries.
25:04 Alice Han? Well, James, we're going to take a quick coffee break, so stay with us as we wait for the next segment.
25:14 Scott Galloway? Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The regentic trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?
25:59 Scott Galloway? Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V-A-N-T-A dot com slash profg for $1,000 off.
26:21 Alice Han? Well, welcome back. This is my favorite section of this podcast, not just because I am a caffeine addict, but also I find this story quite astonishing. China's coffee wars are brewing up, and Starbucks is taking cover, it seems. After nearly 30 years and 8,000 stores, America's Starbucks is selling a majority stake in its Chinese business to borrow your capital, keeping just 40%. Local rivals like Luckin and Coty are surging ahead, opening thousands of outlets, cutting prices, and serving drinks, very bizarre drinks, I would say, tailored to local tastes, from porters of lattes to alcohol-infused specials. Starbucks's premium strategy and slow product rollout just couldn't keep up in the end.
27:06 Alice Han? This joint venture gives Starbucks local insight, faster expansion, and digital integration, critical in a market that remains dominated by WeChat Pay and Alipay. Now, other US brands like Burger King and Decathlon are following suit, selling their stakes to local partners to survive amid China's hyper-competitive consumer landscape. Now, the big question is... Is China still a land of opportunity or have homegrown brands completely rewritten the rules? James, I love this story for many, many reasons, as already alluded to. But also, I had noticed from a friend who sent me a message earlier in the year that that they had picked up a coffee, a pineapple cold brew from Luckin's New York store.
27:48 Alice Han? And I realized then that that Luckin, a coffee brand that I'd long associated just with China, has become very global uh in the last few years. And it was funny for me to see this picture because I still remember during Covid went bankrupt. Uh and prior to that, I had uh cases of financial fraud. So so I was surprised to see that they not only have become profitable again, uh but they are trying to re-list in the NASDAQ and now have at least two stores that I know of in New York. Uh where apparently the regular priced iced latte costs as little as five seventy five. Now I've compared that to some of my colleagues living in New York. Who say that at Starbucks are the places you could get an iced latte for six to eight US dollars, but listeners should definitely correct us.
28:33 Alice Han? I do know for a fact that people who download the app as first time users can have a coffee for as little as a dollar ninety nine. So this is a strategy that they've definitely kept alive uh that has been successful in the Chinese context. But I am a little bit skeptical that they can do a reverse Starbucks and be as successful in America. Because I do think the Chinese market is quite different uh and that they'd have to burn a lot of cash to really survive in in in America. But it's interesting to see these hungry executives in Luckin, but also another tea company that I I really love in China called Chaji. They do specialty iced teas. These executives are really trying to jump over the Pacific and and be as successful in America as they were in China.
29:18 Alice Han? I'm a little skeptical, but James, please refute me if you disagree.
29:22 James Kynge? I love that. I mean, I hadn't heard that story. Luckin Coffee going to America and selling coffee for one ninety-nine a cup, yeah? I mean, that's, that's really quite something.
29:32 Alice Han? It's gonna help Lendani make New York more affordable.
29:35 James Kynge? That's right. Well, it certainly will. I mean, I certainly wouldn't have any qualms about, you know, buying a coffee for one ninety-nine if it tasted okay. But, you know, this story has quite a lot of resonances for me, too, because I was in Beijing when Starbucks arrived in nineteen ninety-nine. I reported on the first Starbucks shop, which was in the World Trade Center. And, you know, at that time, we all, I certainly wasn't the only one, or the journalists there were all writing about how Starbucks had the chutzpah to try to sell coffee to a country with thousands of years of tea culture. There was a lot of quotes from people saying, this will never catch on. And then, look how wrong we were, you
30:17 James Kynge? know, there's literally thousands and thousands of stores. So that was one thing. But the other really fascinating aspect to this story to me, which I hope you'll be able to help me with, because I think you're much more of an expert than I am, is what it says about Chinese tastes. You already mentioned that the halo effect of foreign brands, not just Starbucks, but plenty of others in China, is beginning to slip. We've seen Apple giving ground to local competitors. We've seen Estee Lauder giving ground to local competitors. LVMH, in the luxury sector, doing the same thing. So the other aspect of it is the localization,
30:57 James Kynge? which maybe includes a better understanding by Chinese companies of what Chinese really want to drink or to eat. And I don't know, maybe this is a bit outlandish, Alice, please tell me, but I found something online about a coffee shop that opened in southwestern China that had cooked pork intestines, like on a skewer on top of the coffee. And then there was also, actually, this was Starbucks earlier on, I think it was the end of last year, putting like pork fat drizzle onto their coffee. I don't know if this is the sort of the outlandish edge of this, but maybe there's something more mainstream to say about Chinese taste and the ability of Chinese companies to understand Chinese
31:41 James Kynge? taste better than foreign companies. Do you think there's anything in that?
31:44 Alice Han? Well firstly, I think that those are probably a bit more outlandish. Distinctively, remember now that you're talking, last year during the summer, what was viral at the time was people putting multijie in coffee. So multijie, for listeners who don't know, is China's sake, although, you know, many people who don't like multijie would say it probably tastes like a poor man's sake. It's a type of white spirit, and so they were trying to revive the multijie brand and mix it with coffee. And apparently it was really viral online, and especially Gen Z young Chinese people were going out and drinking these multijie iced coffees. But the reason I tell the story is that, I mean, the Chinese marketplace is so quick moving and evolving, and they love fads, they love new trends.
32:29 Alice Han? And so, in a way, this sort of hyper experimentation fits within the Chinese model. Uh but the other thing that I think that the Chinese model shows that I think will be more well received, rather than these crazy pork fat lattes. In the US context, is the technology platform. So in China, when you go to a Luckin or a Chaji or any of these chains, almost nobody orders at the till. In fact, if you do, people kind of stare at you strangely, and you don't pay with cash. Almost everyone is paying in app or with a QR code. So they pick up. It's a hyper efficient business, and when you see the people move, it's it's actually quite a sight to behold.
33:07 Alice Han? And I think bringing some of that technology and operation system to the US context could be, I think, quite well received. And and just make the whole operation more efficient. I'm not so sure about these crazy tastes, and already when I see the Luckin coffee menu in New York, it's a bit more tame in terms of. Uh what's available right now, they're going on the Thanksgiving theme with these caramel popcorn iced lattes, these cinnamon pumpkin iced lattes. So more within the US, you know, Thanksgiving theme, uh but certainly. The way you were telling that story, James, about how coffee really did take China by storm because it changed the culture, I think is an important lesson because
33:48 Alice Han? I don't think anybody looking at Starbucks in the early nineties could have foreseen, you know, the fact that coffee really took over China. And, you know, the the flip side of this is that Starbucks has already reached peak China. Its market share in China fell from thirty four percent in twenty nineteen to just forty percent as of last year. And this is again, another sign to your point, James, that as tastes have been westernized within China, they've gone back to finding Chinese alternatives. And on future episodes, I'd love to explore that with different brands in luxury, uh in retail, in food. Uh, there's a story about gold here to tell as well with Lopu being Chinese Cartier. I think that this is the ongoing trend is that there's going to be these Chinese alternatives
34:33 Alice Han? that cater to changed palate uh of the last few decades. But yeah, suddenly I'm excited to head over to New York in a week or two and and try some of these New York made uh London coffees.
34:44 James Kynge? Let us know, let us know what you what you think.
34:46 Alice Han? Yeah, and and before we end, James, uh what's your, I have to ask you, what is your favorite or preferred coffee? And choice.
34:53 James Kynge? Oh, goodness me, I'm I'm incredibly boring. I'm I'm just Americano with a dash of milk. That's it.
34:58 Alice Han? Okay, well, I'm gonna try that when I go to New York and and tell you, um, I'm very much a I would say I love a matcha latte right now, but I so very partial to a flat white or a quartado.
35:09 James Kynge? Hmm.
35:09 Alice Han? Heavier on the coffee.
35:11 James Kynge? Hmm hmm.
35:11 Alice Han? All right, James, this is my favorite time of the episode prediction time. Uh, what's your prediction as you look at your crystal ball for the near future?
35:21 James Kynge? Okay, um, I've got something about uh humanoid robots. Uh, this is one of my favorite topics. I mean, we have mentioned humanoid robots before, but I I've got a specific prediction. So Wang Xingxing, who is the head of Unitree, uh, that's the company that makes one of China's most advanced humanoid robots, said that humanoid robots in China will reach their, what he called, chat G P T moment. Um. Within three years. Now, he defined the chat G P T moment for robots as when a robot will be able to walk into a room that it's never been in before, find something like a glass of water that it's been asked to find,
36:04 James Kynge? pour the water into a glass and then bring it back to its host and give it to them. So at the moment, this is not how humanoid robots work. Humanoid robots are pre-programmed to do specific tasks. What he's talking about is where a humanoid robot can assess its surroundings, think what it needs to do, find a solution and then deliver on the solution. He says that should happen within three years. I reckon it's gonna happen sooner than that. I reckon that by the end of twenty twenty seven, we will see the chat G P T moment for humanoid robots and it will happen first in China. That's my prediction, Alice. What about you?
36:44 Alice Han? To my, let it is a horrifying eventuality. I'm very scared of of of robots, I have to confess. But as you were talking, I was thinking, gosh, the Chinese have definitely prioritized a different part of the AI stack. Uh. Whereas the Americans have gone in and poured a ton of money into L L M's. I don't think it's a surprise then that you have Metta's AI head, Yan Lequn, basically leaving and going into world models, so trying to be more in the space of embodied AI humanoid robots, of real world AI data. Um. So again, I watch, definitely watch this space, but I would agree with you as that China is leading uh when it comes to to this humanoid AI robotic space.
37:26 Alice Han? So mine is also AI focused and I'm gonna piggyback off of what we first talked about. Uh. It's honestly surprises me that the Trump administration hasn't gone out yet and banned Chinese AI models. I feel like that's a pretty low-hanging fruit. There was speculation earlier in the year that they could ban DeepSeek. I think this is one of the policy areas in which you have an alignment between the Silicon Valley tech companies that are competing potentially with Chinese LLMs, so Meta, Google, et cetera, OpenAI. And then an alignment between the Silicon Valley tech entrepreneurs and the national security hawks in Washington, who, to your point, James, are very worried about the
38:08 Alice Han? security implications of companies and even officials using Chinese LLMs. So I, I think in 2026, we may see more politicization around this issue that might ultimately push the Trump administration to issue some kind of entities listing for these Chinese AI models, effectively banning them from being used. Maybe starting first with ministry officials and then spreading them out. 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 Eric Janikas. Our video editor is Ness Smith-Savadoff.
38:51 Alice Han? 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, and talk to you again next week.
Previous How Success Shapes Friendships, What to Do with Inherited Money, and Why Patriotism Matters Next Raging Moderates: The MAGA Civil War Begins Page updated October 25, 2026 · transcript and summary are machine-generated
