Will a Bazooka Stimulus Revive China’s Economy? — ft. Alice Han

Scott and Ed open the show by discussing Tesla’s Robotaxi event, JPMorgan’s earnings, and the bull market’s second birthday. Then Alice Han, China economist and director at Greenmantle, joins the show to break down the latest fiscal policies coming out of China. She also shares how she thinks about investing in Chinese markets, discusses the likelihood that China will invade Taiwan, and explains why China’s trade surplus is causing problems for the country. Check out Prof G Markets in Spanish and Portuguese on Youtube. Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X 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.

• 0:00Speaker 00

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• 0:46Speaker 02

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• 1:11Scott Galloway?

  Today's number, $6 million. That's the estimated value of Tom Brady's watch collection for sale at Sotheby's. Ed, I think of my jokes as modern art. If no one gets it, it means it's a masterpiece.

• 1:34Scott Galloway?

  Welcome to Prop G Markets. Get that? That was sort of a, that was a highbrow recultured.

• 1:39Ed Elson?

  Yeah. You've really been churning out the masterpieces, then.

• 1:43Scott Galloway?

  Ed, I did not appreciate that. That took me a minute to process, and now that it's processed, I resent that. By the way, I'm the one that, I don't know if you know this, I'm the one that decides your bonus at the end of the year, just bringing that up.

• 1:54Ed Elson?

  Yeah, I was aware of that.

• 1:56Scott Galloway?

  So, how are you, Ed? What's going on?

• 1:58Ed Elson?

  I'm very well. I'm glad to hear you're back in New York.

• 2:01Scott Galloway?

  That was smart of you to bring it back to me as soon as possible, so. You know what I do in New York? I do a ton of self-care, acupuncture. I'm going to get Botox. I'm actually laughing hilariously right now, Ed. I don't know if you can see that.

• 2:18Ed Elson?

  You can see it in the eyes just slightly.

• 2:20Scott Galloway?

  You get to see my newly veneered teeth. I go and get acupuncture and then I get my physical therapy. I'm getting my PRP shots. And yesterday I did NAD. Do you know what this is?

• 2:31Ed Elson?

  I've heard you mention it briefly, but it's a little unclear to me what it actually does.

• 2:36Scott Galloway?

  This is what it is. It's rich people thinking they can live forever. So I do think there's an analogy to the markets. And that is alternative investments, I'm convinced, are just a luxury brand. And that is wealthy people like to think that they deserve something different and better than everybody else. So the entire alternative investments industry is nothing but a grift and amazing marketing that says, these people with PhDs and, you know, AI-enabled computer programs and algorithms can outperform the market. And because you're a rich person or an institutional investor, you deserve better than everybody else.

• 3:15Scott Galloway?

  So we're going to create this industry, this illusion of scarcity and quality and deep, dark insight that will get you better returns in the market. And if you added up the entire returns of the entire alternative investment industry, it's exactly, uh, underperformed the market by the amount of their fees. This is that, but for health. And that is guys like me who recognize we're not going to live forever, start spending a ridiculous amount of money on this shit, thinking that if I spend a lot of money on it, it's actually working.

• 3:46Ed Elson?

  Yeah. So here's the question, though, is that you recognize that it's a grift. You recognize that it's kind of dumb and yet you still do it. So why is that?

• 3:57Scott Galloway?

  Well, in case it works, because I am under the impression that, you know, like George Hamilton or Tom Cruise or Brad Pitt, they're clearly doing something.

• 4:05Ed Elson?

  They're doing something right.

• 4:06Scott Galloway?

  You know, and I don't know if you know this, but I'm about to turn 50 and I want to look, I want to look 40 again, Ed. And I mean, look at me, I look like the alien from Close Encounters of the Third Kind. I need to, I need to work on this. My ex-wife used to say I look like a fish that swam too close to a reactor. See above, ex-wife, Ed. Ex-wife. Anyways, get on with it. Get to the headlines.

• 4:31Scott Galloway?

  Now is the time to fly. I hope you have plenty of the well at all.

• 4:38Ed Elson?

  Tesla's robotaxi event triggered a stock sell-off that wiped out almost $70 billion from its market cap. Investors were disappointed by the lack of substance at the event, saying it was focused more on branding than on actual technical improvements. Third quarter earnings season kicked off with JP Morgan and Wells Fargo posting drops in profits. However, both banks beat analyst expectations in the latest sign that the Federal Reserve may have secured a soft landing for the economy. Both stocks rose more than 4% following those earnings reports. And finally, the S and P 500's bull market is officially two years old, with the index up more than 60% since it bottomed out in 2022. The average bull market lasts around five and a half years, meaning the current run

• 5:22Ed Elson?

  could be about halfway over. Scott, your thoughts, starting with Tesla's robotaxi event?

• 5:29Scott Galloway?

  Okay, so this is not investment advice, as I tend to get it, what's the term? Wrong. Whenever I talk about this company, but it felt like, so I just had my birthday celebration in Scotland, and two years ago, I heard about this amazing hotel in Scotland that this couple that's into art had bought and redone. I thought, oh, this would be great for my 50th, so I reserved it two years in advance. And as it got closer, I don't want to say I regretted it, but I was very anxious about the idea of 85 people coming to Scotland for me and wanting them to have a really nice time. And if, if someone asked me to do something six months in the future, I'm inclined, no matter what it is, to say yes, because it doesn't really exist and it's not a big commitment.

• 6:12Scott Galloway?

  And then I find out I'm having coffee with the head of DEI from the National Forestry Service, and I'm like, how the fuck did I agree to this bullshit? Anyways, it's the same way. If someone had said, hey, do you want to do your birthday party? It's in two months. I would have said no, because it's too much pressure and anxiety. And I got the feeling with this event, they planned this a year ago, and if they could have, they would have backed out because this was literally jazz hands. This was, this was all bread, no beef. And the robot taxi itself, or the robo-car, or excuse me, cybercab, the design is pretty cool. And to their credit, they're trying to go Apple and be totally vertically integrated, have both software and hardware. I thought it looked great. But essentially,

• 6:57Scott Galloway?

  all the analysts in the automotive industry who know this industry are like, there was no there there. The real tell was when they said, well, what's the timeline? And he said, we think this will be in production by 2025. And then he paused and went, 2026, the latest. Like, even he doesn't know. And I think they said, okay, we're not going to be able to give substantive, any details or logistics that, you know, the actual analysts want to know, as in, when is this thing actually rolling out? And so what did they do? They're like, okay, distract everybody, have something called the Robovan or the Robovan. I don't know if you go to auto shows, but all of these car companies have concept cars that

• 7:38Scott Galloway?

  are just so cool and fun to look at, but are never going to go into production. So I would like to know realistically, what are the chances this concept ever sees the light of day? And then in the ultimate misdirect, he had those fucking robots. And it ends up that, that there were people controlling the robots. These things are not automated at all. And he claims that once they're in quote unquote, production, they'll be around $30,000. Talk about a technology in search of a problem.

• 8:06Ed Elson?

  So you hit all of the points that I think are important, that are worth hitting, except for one, the most important one, which is that I predicted this last week.

• 8:16Scott Galloway?

  Oh, you did?

• 8:17Ed Elson?

  We can have a discussion about how brilliant I am, how appreciant I was with my comments, more than happy to engage with you on that conversation, but we'll put that aside for now and we'll just discuss the event.

• 8:29Scott Galloway?

  We should run a clip. I really appreciate it. You're clearly learning from me. You're, you're demonstrating some of that self-absorbed narcissistic male ego. By the way, have you tried NAD or investing in hedge funds yet?

• 8:40Ed Elson?

  I'm looking into it.

• 8:41Scott Galloway?

  Yes, we should actually, we should see if we can find that clip. Let's run that clip.

• 8:46Ed Elson?

  My prediction would be that this RoboTaxi event that's happening end of this week will be highly underwhelming, and I think the stock is going to suffer as all of the hype and the excitement around Tesla continues to deflate. This was, in my view, the worst technology event I've ever seen. I thought it would be bad. I didn't think it would be this bad. They gave us, as you said, no detail on the timeline of the RoboTaxi. They also gave us no detail on basically anything about the RoboTaxi. There was no update on the regulatory approvals, no technical details. The only thing they told us about the RoboTaxi was that it was going to cost around $30,000.

• 9:26Ed Elson?

  So the RoboTaxi unveiling was a failure, plain and simple. What made it catastrophic, in my view, was, as you just pointed out, this pathetic attempt to distract us away from the fact that this was a giant failure with their ridiculous vaporware. And then the stock dropping nearly 10%. It erased $67 billion in market value, more than the market cap of Ford, more than the market cap of General Motors. This was exactly what should have happened, because this was a disaster, and it was frankly just pretty insulting to the people who believed in Tesla and who believed in Elon.

• 10:01Scott Galloway?

  So the market agrees with you. But what's interesting is, and I've been saying this for a long time, what's interesting is the stock, I mean, the stock did go down, whatever it was, 7%, but recovered a little bit. And yet, it still trades at, I mean, Toyota on every dimension is doing better than Tesla right now. I think it's hybrids are growing much faster. Consumers, 45% of EV owners, they're not going to buy another EV because of problems around charging, or are these things just stopping? But it does appear that Tesla, I would argue, and I've been wrong about this before, that event for me. Was Tesla jumping the shark? I thought that was just entirely ridiculous.

• 10:46Ed Elson?

  Do we think that the robot taxi will be on the road before 2027? My prediction is it will not. I think it'll be after 2027.

• 10:55Scott Galloway?

  Yeah, I mean, they say, well, that's the good money. If it's, if it's already kind of five or seven years late. I mean, this is, this is essentially, this thing is every house I've ever renovated. It's supposed to cost X and take X and it costs three X and takes, you know, four X in terms of time.

• 11:13Ed Elson?

  Should we move on to JV Morgan and Wells Fargo's earnings? Any reaction to some of the first bank earnings of the season?

• 11:20Scott Galloway?

  JP Morgan has built probably the strongest franchise in finance. Better than expected earnings as investment banking revenue rebounded and net interest income declined slower than expected. Their stocks are up almost 31 and 28% or JP Morgan and Wells Fargo respectively. While the S and P is up 22%. So when a bank's up that much, it's pretty impressive because they're generally kind of less volatile. JP Morgan beat revenue and earnings estimates. Investment banking fees increased 31%. I wonder if that's merger or IPO activity. So, look, these are, you appear to be well-run companies, taking advantage of a good economic environment. Do you have any thoughts?

• 12:00Ed Elson?

  Well, I just think JP Morgan is, you know, we talk a lot about the power of diversification, why diversification is important. I think JP Morgan is kind of the business case study in why diversification is so important. I mean, the two sources of revenue you mentioned there. You mentioned investment banking revenue and you also mentioned net interest income. When you think about what it is to be a bank, there are basically two ways to make money. You either make money by making loans to people and earning interest. And that's the net interest income. Or you do something else. Maybe it's investment banking, maybe it's wealth management, maybe it's selling credit cards, et cetera. It's some amalgamation of something that isn't just extending loans to people. So.

• 12:45Ed Elson?

  JP Morgan is kind of a special bank because most banks rely on either the net interest income or something else. And you might remember during the rate hiking cycle, it was the banks that relied more heavily on net interest income that were doing very well because as interest rates rise, so does the interest that you earn on your loans. And then there were other banks that barely made any money on interest. For example, Goldman Sachs, who were making the majority of their revenues in investment banking, and we saw this big investment banking slowdown. So now the trend is sort of reversing. Interest rates are coming down, net interest income is falling, investment banking revenues are rising. So now you want to be on the other side of that play.

• 13:30Ed Elson?

  Goldman is lucky. It's a good time to be Goldman. Their investment banking revenue just rose 20% last quarter. And you really don't want to be too heavily reliant on net interest income. But what makes JP Morgan so exceptional as a bank is that the ratio of revenues that it receives from the interest versus all of the other stuff is about 50/50. So they were really comfortable during the rate hikes, and they're going to be really comfortable during the rate cuts. So I just think, you know, when we talk about diversification, why it's important, this is exactly what we mean. This bank is equipped to weather basically any form of market environment. And that's exactly what you want in a bank.

• 14:11Ed Elson?

  And that's why it's worth $620 billion, which is more than Goldman Sachs, Morgan Stanley, and Wells Fargo put together. So if you had to make one bet on one bank, JP Morgan is kind of the play that you have to go with.

• 14:23Scott Galloway?

  Yeah, you're talking, again, you use the correct word. They're able to diversify so that when one quarter or one sector's not doing well, or one division is doing well, the other makes up for it. And it reminds me of when I was starting L2, I read a report from Deloitte. Saying these are, they did a study of all the exits of private companies. And they looked at the tropes or the anomalies, the companies that sold as a multiple of revenues were in the top decile. And what are the features or the underlying pillars of companies that sell for an outside

• 15:03Scott Galloway?

  abnormal, extra, you know, supersized valuation relative to the revenues? And there were a few things. One, they had technology at the core. They had some sort of defensible IP. They had recurring revenues. And then the fourth thing was they were international. And that is they had proven their businesses were very strong outside of the US. And that's because, you know, when I, I remember my first big client, Profit, the strategy firm I started, was Levi Strauss and Company. And when America wasn't doing well, it was kind of saved because Europe was doing well. By the way, Levi, five on ones, when I was working for, with Levi's back in the early 90s, five on ones in Germany would go for 180 bucks and they were selling for 30 in

• 15:47Scott Galloway?

  JCPenney's in the US. But they had just this great diversification, kind of smoothed out the revenues. And I basically formed the business model of L2, an index, recurring revenue, membership model instead of consulting fees. And almost right away, within six or 12 months, as soon as we focused on luxury brands, as soon as we had a bunch of European clients, I opened a London office because I wanted to make sure that at least a third, if not half of our revenue came from clients outside of the US. We ended up selling for a multiple, which is much greater than services. When I sold Profit, my strategy firm, which was not recurring revenue, was sort of international, but not a lot at the time.

• 16:30Scott Galloway?

  But that company was doing 10 million in revenue and I sold it for, I think it was 28 or 33, so call it three times revenues. Whereas L2 was doing 20 million in revenues and sold for 160, eight times. This is a long-winded way of saying, there are a lot of different ways to diversify. And one of those ways of diversification is regional diversification. And if you look at companies that trade at a higher multiple, oftentimes they get some or the majority of their revenues from overseas. So all the big tech guys get more of their revenues outside of the US than they do within the US because they have just unbelievable franchises globally. Anyways, that's my lecture on diversification.

• 17:08Ed Elson?

  And finally, the bull market is officially two years old, 735 days old, to be specific. Based on historical averages, we're likely around halfway through. Your reactions to this moment, perhaps a reflection on two years of returns?

• 17:27Scott Galloway?

  Well, my first reaction is I'm pissed off. I have made more money in the last two years because all I hear is markets up 40%. My net worth has not increased 40% in the last. Yours probably has, right? You're investing and you're doing.

• 17:39Ed Elson?

  It's just S and P, exactly.

• 17:40Scott Galloway?

  Yeah, you're smart. Okay. So I like, I take this with a grain of salt. So much of this is sort of, you know, past returns are no guarantee of future returns. I think it would be dangerous to think the market's going to go another 24 months. We're on the precipice of so many potential exogenous events, whether it's the Middle East or some sort of economic crisis. I don't know. So who knows? I think it's interesting. The most interesting thing about this is since 2010, the technology sector has generated 40% of the US equity market returns. And when you think about, realistically, it's probably more than that because the tech market has created so much value that those people go buy other shit

• 18:21Scott Galloway?

  from other companies that maybe aren't tech. You know, they still need to buy chairs and new office space. I mean, tech is basically probably responsible for someone, if you really reverse engineered to where these capital flows are coming from, is probably responsible for 50 or half, maybe even two thirds of the market returns because there's a lot of companies, public companies that are serving the tech sector. I don't know what to make of this. Do you have any thoughts here?

• 18:45Ed Elson?

  Well, I think it's kind of if we're talking about duration, and that's the story here is how long it's been. I think it's interesting to compare this to the previous bear market of 2022, which we were talking about for a long time on this podcast. Investors were very upset about it. We had the tech recession. We had meta stock twice cut in half. We had the crypto meltdown where Bitcoin lost nearly two thirds of its value. We had fears of a recession. There were banks that were unraveling. There was Russia's invasion into Ukraine. Things looked very bad. And I don't know if you agree with this, but for me, it felt very long. It felt

• 19:24Ed Elson?

  like a long time of, you know, of a bear market. But if you actually just look back at the data, that recession lasted 282 days, which is only nine months. So that is actually a third of the length of the current bull market we are in right now. It was incredibly short, but it felt very long. And so I feel like it's sort of a reminder of how whatever is going on with our psychology, we just have this tendency to over emphasize the bad and downplay and under emphasize the good. And it is just a reminder of all of the, the old adages in investing,

• 20:06Ed Elson?

  the most important of which I believe is that time in the market is better than timing the market. And this to me is just a reminder of that principle.

• 20:15Scott Galloway?

  I think that makes a lot of sense. That was perfect, Ed. That was perfect.

• 20:18Ed Elson?

  Good. We'll be right back after the break for our conversation with Alice Hahn. If you're enjoying the show so far, hit follow and leave us a review on Prof G Markets.

• 20:35Speaker 05

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• 21:05Speaker 01

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• 21:21Speaker 02

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• 21:52Ed Elson?

  Welcome back. Here's our conversation with Alice Hahn, China economist and director at Greenmantle. Alice, thank you very much for joining us.

• 21:59Alice Han?

  Thanks so much, Ed and Scott, for having me on the show.

• 22:04Ed Elson?

  So let's start with some current news. A few weeks ago, the Chinese government announced the stimulus plan. And as a result of that stimulus plan, we've seen a rally in the Chinese stock market. Let's just start with what is that stimulus plan? What are the measures they're taking to re-stimulate the economy? And why is it coming now?

• 22:22Alice Han?

  Well, first, let me start off with the fact that this year equities have performed quite badly. And this is before, obviously, the stimulus talks started to emerge in the last few weeks. And so we think at Greenmantle, the company that I represent, that the markets were clearly getting excited about the tide potentially turning on stimulus. Thus far, the PBOC on monetary front has been reluctant to do bazooka style stimulus. But as we saw in September 24, they launched this 50 basis point cut of the triple R and they launched a host of rate cuts to support the economy and the housing sector. And so the general feeling amongst market participants is that the central government in Beijing has to follow suit with a similar style of bazooka stimulus. But we don't think that actually will transpire.

• 23:06Alice Han?

  We think that markets have gone ahead of their skis and things have started to correct as you've seen in the last week or so after the October holiday in the first week of October. And that is because fundamentally, the central government doesn't really have a plan to launch massive scale stimulus on the fiscal front. And we think it'll probably be modest, looking at about 1.5 to 2 trillion, only be a fiscal stimulus likely announced at the end of October when the NPC has to meet.

• 23:32Ed Elson?

  Okay, so this is interesting because. I'm in agreement with you. We had a conversation about this a couple of weeks ago. My feeling was that the stimulus was something of a fake out, or at least that, you know, the idea that the entire economy is going to become roaring back because of this artificial injection from the government. Could you break down exactly what you said, we don't think that this will transpire, that the stimulus will transpire. Could you break down why you think that won't happen?

• 24:01Alice Han?

  Well, fundamentally, we're not in the same place in China's sort of fiscal outlook as we were, say, you know, back in 2008, 2009, when China launched that four trillion renminbi stimulus package to offset the global slowdown of the global financial crisis. You know, China is way more indebted. The national, total national debt to GDP ratio is now close to 300%. It is way more indebted than it was over a decade or two ago. And secondly, the government run by Xi Jinping is much more cautious of the debt and financial risk implications of China going back to the old model of, you know, traditional fixed asset investment, heavy industrial output led growth.

• 24:42Alice Han?

  And so we've seen a transition politically and economically in terms of China's makeup, whereby you have the central leadership in Beijing saying, look, we can't stimulate the same way that we did in the past. This will have massive implications, not just for debt, but for growth moving forward. And so you've seen in statements in the last five years, I think, statements by the party effectively saying, we don't need high speed growth, we need high quality growth. And if you read the sort of tea leaves of the Chinese apparatchik speak, that basically means to me that they're trying to transition from these high growth target numbers towards a more sustainable growth model that is built on increasing consumption, rebalancing the economy and focusing on high tech output.

• 25:24Scott Galloway?

  So Alice, I want to talk about risks to, risks within China that would affect the domestic market and then risks that might affect the global markets. So risk to the domestic market, there's, I've read somewhere that the amount of commercial and residential debt is several times what the amount of debt was, the residential debt was in the US right before the great financial recession triggered by bad subprime loans. How much of a threat do you think are these zombie loans? Or is China being thoughtful about letting stuff go out of business? What threat does the debt in the real estate sector pose to the Chinese economy?

• 26:01Alice Han?

  It's significant and way more significant, Scott, than 2008, 2009. Fundamentally, mortgage debt burdens on the household balance sheets have increased. Household debt to GDP has gone up to 65 to 70% recently, and as much as 70% of household equity is tied up in real estate. So we're seeing more indebted households. We're seeing a greater risk exposure to the real estate sector, given that now we see real estate prices as much as 20% below the peak three years ago. We are effectively seeing an economy and a household sector that is way more exposed to this real estate slowdown. And it doesn't seem like it's ending anytime soon. The fact of the matter is that even though Beijing, in the last year or so, has pivoted

• 26:42Alice Han?

  to be more stimulative on the household sector to try to ease some of the restrictions on lending for developers, to try to boost more inventory, the fact of the matter is that prices have not recovered. They've flatlined, but more importantly, real estate investment activity, construction activity and sales are double-digit negative growth territory. So this is a very dangerous era that we've reached in the household sector at large. And given its share in the economy as much as 25 to 30% total real estate and real estate activity-related activity, this is a huge chunk of the Chinese economy that isn't going to get solved anytime soon. So I think we're in a very dangerous situation. It's not a financial risk situation, but certainly is a macro contagion risk problem

• 27:27Alice Han?

  for the CCP because effectively households have continued to delever. We see that in the credit data. Households are more reluctant to spend, and this will obviously weigh down on consumption moving forward.

• 27:39Scott Galloway?

  So we've been talking about how relatively speaking, you know, the Amazon or the PayPal of China are just trading at radical discounts to their peers in the US despite the fact they have as robust, if not more robust, market share and growth. But there was no escaping the Great Financial Recession. It didn't matter how good the company was. Everything got taken down by this subprime crisis. Do you think the property stresses you're highlighted are, quite frankly, just reasons to create too much risk to invest in anything in China right now?

• 28:10Alice Han?

  Certainly, I wouldn't touch real estate right now. That even though there has been some plans to try to revive the sector, my conversations with officials in China over the last year or two seem to suggest that they want to stabilize the market. They don't want to go back to gangbusters territory in terms of real estate sector activity. But certainly, I wouldn't go back into that area. I think that there isn't going to be enough stimulus to really see a market recovery in the next two to three years, at least. But in other areas of the economy, certainly, the whole macro slowdown story, not to mention the real estate crackdown, have definitely depressed evaluations of these companies. I was looking at the forward P E's of Alibaba, for instance. This is below 10, which, you know,

• 28:53Alice Han?

  in terms of the history of this company, is unprecedented. So they're basically trading at severely depressed valuations. And this is not just the China story. This is the U.S.-China trade war and tech war story as well. Generally speaking, people in the mainland are quite skeptical that these companies will go back to, you know, say, a decade ago in terms of their valuation. And even though the government is trying to walk back a lot of these policies to be more supportive to tech companies, the China slowdown, the U.S.-China Cold War II, all these elements make it very hard for us to go back fully into the Chinese market. But there are some gems out there. There are certainly some companies that are trading the China FDI trade

• 29:38Alice Han?

  that do e-commerce or that do green technology, like batteries and E Vs that could benefit from further tailwinds, primarily from Chinese manufacturing output and external demand.

• 29:50Scott Galloway?

  The risk cloud that overhangs or hangs over China always. Is, you know, the possible invasion of Taiwan. It's just kind of always there. And analysts range from it's not, it's not if, but when to, based on what's happened in Ukraine, it just doesn't, it's not a big risk. I, I just see really good arguments for why it's definitely going to happen, or why it's just very improbable it's going to happen in the near future. What is your view? I mean, this is, I mean, this is a difficult one to handicap. But what, what, you must get asked this question a lot. Invasion of Taiwan, question mark. Your turn.

• 30:33Alice Han?

  Just very briefly, in response to your question, Scott, I think that it goes up with the Trump administration. I think primarily when you look at the cabinet that he could bring together, whether it's O'Brien or Pompeo in state and national security, we are looking at an administration that may call into question some elements of the one China policy, but certainly will launch massive tariffs on China. And you only need to look back at the previous trade war in 1819 to see the doubling down on war for diplomacy that China began in response to this global, but really US-led decoupling with China. So we, at least from my vantage point, I think we would return to that kind of a world and that kind of a worldview coming out of China, which is that we need to double down, we need to be more militarily aggressive,

• 31:18Alice Han?

  we need to be more nationalistic. And that sort of dovetails nicely, so to speak, with what's happening politically in China by 2027. So the next 21st Party Congress happens in 2027 in October. This happens every five years. It gives the mandate for the new Politburo and Politburo Standing Committee to basically implement policies and agenda. This could, in a way, open up the Overton window for Xi Jinping to effectively launch some kind of naval attack on Taiwan. Now, our base case is that he wants to do it in his lifetime. He's 71. He's still got a decade more of prime time for him, at least. But that he will ultimately be more risk averse and say, Putin, and he's not going to launch a full-scale amphibious assault.

• 32:02Alice Han?

  That would be too reckless and too difficult to do swiftly. The counterargument would be that he would actually launch some kind of salami slicing, naval blockade that would test American and Western resolve. And that would be our base case. We currently hold it at about 15% probability over the next few years, but in particular, the 2027 to 28 period seems to be more likely, A, based on the politics in the US and China, and B, based on the military capacity that the Chinese will finally be able to bring to bear by 2027.

• 32:34Scott Galloway?

  Did you say 15 or 50?

• 32:36Alice Han?

  15.

• 32:37Scott Galloway?

  15, okay. So still more likely not than likely. Also, I've heard, one of the compelling arguments I heard against a possible invasion is actually demographic, that they just don't have the young men to put at this sort of risk. Have you seen the same data?

• 32:52Alice Han?

  I mean, I've seen that data, and there's definitely an argument for that. And a social media move, if you look at some of the social media comments about this, there's some sort of commentary socially within China that they don't want to sacrifice their only children, their sons or daughters for that matter, to this kind of conflict. But the fact of the matter is, as you know, with wartime, Scott, it's not just about numbers, it's also about political will, it's about the spirit of the people, it's also about the military capacity that they can bring in terms of hypersonic missiles, in terms of naval capacity as well as submarines. So it's not just about the software, the people, it's also about the hardware. And fundamentally, based on our own military understanding, 27, 28 is when a lot of the

• 33:35Alice Han?

  metrics start to shift in favor the Chinese in terms of what they can bring to the military conflict.

• 33:41Ed Elson?

  So you mentioned that you think Xi Jinping wants to do this in his lifetime, which I just find fascinating. I also find it fascinating just the idea that... We are expected in analyzing this market. As a result of having an autocratic leader like Xi Jinping, the expectation is that we have to basically read his emotions. That's literally what we have to do in terms of analyzing the market, which is crazy to me, but it's essential. What is your read on Xi Jinping? What are his motives? What does he care about? What do you think he is ultimately trying to accomplish?

• 34:18Alice Han?

  I mean firstly, it's not too crazy. You need only look at Milley and Trump to see how the markets read leaders for trades. Secondly, the way to understand Xi Jinping, or any official of that generation for that matter, is to understand them as children of the Cultural Revolution. So, you know, my parents, for instance, grew up in the Cultural Revolution, but they were very small. They were around the age of 10. But Xi Jinping was a young man during this time. His father had been purged from the party, and that had serious implications for the family. And so Xi Jinping, if you think about his life story as one where he's trying to regain legitimacy of not just his family, but also the country,

• 35:01Alice Han?

  then it's understandable that he is trying to revive a lot of nationalistic pride. And what is key is to understand him as again with reference to Mao and Deng. And I really do think he is a blend of the two. If you look back to Mao, he is very much a cult of personality. He's somebody who tries to revive this idea of self-sufficiency, basically autarky. China needs to be able to produce everything, from guns to steel, to its own agricultural products. And China needs to stand up to these paper tigers in the West. They need to stand up to Western imperialism that has historically always has tried to contain China. So you have that political, I would say, mantle on the one side coming from Mao.

• 35:44Alice Han?

  But on the other side, he does inherit some of the legacy of Deng, which is to say that, you know, Deng is really trying to move the economy and reform the economy forward. What does that mean? That means that he is trying to liberalize the economy, parts of the economy, to make it investable for foreigners and to try to make China more competitive on the world stage. You know, Deng Xiaoping was very important for the, ultimately, the IPOs of state-owned enterprises that made them more competitive with their global peers. So he is really combining the two legacies, economic and political, of Deng and Mao. But at the same time, he is driven by his own personal familial legacy, which is really to rewrite some of the wrongs that were committed against his father and to basically become the president that reunifies China.

• 36:29Alice Han?

  So I once heard from a pretty established businessman in China, this is about a decade ago, that the way to think about these three leaders is Mao created modern China, Deng made China rich, and Xi Jinping wants to reunify China. So if you think about it in terms of these sort of grand arcs of history and legacy, it starts to make sense that he is fixated on this Taiwan issue.

• 36:54Ed Elson?

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• 38:21Ed Elson?

  We're back with Prof. markets. I'd love to get your view from an economic perspective. Do you think that it's possible that actually an autocratic society has more growth potential than a democratic society?

• 38:37Alice Han?

  My very brief response, and I'll flesh it out later on to that, is that more often than not, autocracies fail to deliver economic outcomes. But there is, obviously, in terms of the distribution, at the very high end, there are autocracies that are successful. You only need to look at some of the East Asian tigers, even Singapore today. Taiwan only really democratized in the 1990s. People forget that. And yet, it is a vibrant economic power and technological power. China has shown an alternative model, which is why, you know, more recently, China has talked about the Shanghai consensus. But China is not directly replicable in other contexts, and that's something that we need to keep in mind.

• 39:20Alice Han?

  Part of what made China great as an autocracy is not just the sheer size of the population. You know, it was previously the biggest population in the world. It has a huge labor force that it could effectively, through a degree of financial oppression, move the labor force from the rural parts of China, put them into factories, and turn China into a factor of the world. So China, in this regard, is sui generis. But certainly, if you look at the political model, the centralization of power has allowed it to mitigate some of the financial economic risks that could have happened, say, in 1997, Asian financial crisis, or in response to the 08, 09 financial, global financial crisis.

• 40:01Alice Han?

  Having a centralized system whereby you have the central regulators effectively bail out asset management companies or SOEs, or try to contain risks and basically spread liquidity through the system to avoid massive liquidity tightenings, that is, I think, systematic of an authoritarian system. And that is where autocracy has been successful. But again, I would say... More rarely does that happen than it does. You know, and so certainly China is a sui generis in this regard. But it certainly has made for an interesting case study for political economists.

• 40:36Ed Elson?

  But it's almost like, I guess, the danger is that the king goes crazy. I mean, things go well and then, you know, something happens. Maybe he invades a nation or he goes crazy or gets too old. And that's where it goes wrong. Do you see that happening in China?

• 40:50Scott Galloway?

  Or they have kids that are dipshits.

• 40:52Ed Elson?

  Yes.

• 40:53Alice Han?

  Well, luckily, Xi Jinping doesn't have a son. He only has a daughter. There's a, people say in China that it's that's fortunate that he doesn't have a son. And there's no succession plan. You know, what worked in the Chinese model, I say, at its peak, is really Deng Xiaoping era of collective leadership. Right? So even though you have a one party system, you have these elders that are vetting, not too dissimilar from the Roman style, I would say, vetting potential successors and candidates and seeing who would be the next party secretary and leader of the country. And then this brings us to the open ended question of who would succeed Xi Jinping. That we don't know yet. There are some candidates out there that are being named.

• 41:35Alice Han?

  But he has given himself more time to basically solve a lot of the political, economic, and potentially even military issues that he wants to solve in his lifetime. And to your point, Ed, you know, the naked emperor complex is a real challenge. I think that Xi Jinping is different from Putin. I think he is, you've seen this in even in his COVID response, even though he let zero COVID stay on for too long. He is a very risk averse person by nature. And I've heard this from multiple sources in China. And so he will take policies slowly. But yet, as you saw from zero COVID, when, when we really reach a tipping point, he can be very decisive.

• 42:16Scott Galloway?

  Just so curious, what you said was really interesting, that the likelihood of an invasion of Taiwan goes up with a Trump administration. Because of the tariffs, sort of they have less to lose or it promotes a more nationalist viewpoint. What, if any, are actions you think are more likely in a Harris administration with respect to China's actions on the global stage?

• 42:37Alice Han?

  Harris will largely be a continuity of Biden. She will keep many members of the Biden team. There's been some talk that Sullivan, Jake Sullivan, could come back as Secretary of State, for instance. So she would try to bring in, I would say, what I would call a safe pair of hands to represent defense, national security, treasury, primarily because she's not a foreign policy leader. She doesn't have the same foreign policy chops that Biden certainly had before he became president. And so we'll have somebody who will try to rely on the old hands when it comes to foreign policy with China. What does that mean concretely? It means that they will continue to have the trade restrictions that they currently have in terms of the tariffs put in place by the Trump administration.

• 43:22Alice Han?

  They won't peel this back. And secondly, they will continue the trade decoupling that we've seen over the last few years, started by the Trump administration as well. That means more sanctions and restrictions and export controls on dual-use technologies, on Chinese tech companies that have too much of a competitive advantage in the US and global markets. That part of the Biden and even Trump administration's strategy vis a vis China will continue.

• 43:50Scott Galloway?

  And just broadly speaking, in terms of US-Sino relations, I always thought that a thaw was likely, if only because we have an inflation problem, or while it's abating, that's the kind of the biggest risk I see in the US for the next administration that inflation comes back. China has a growth problem in the sense that their growth is slowing down. I would imagine they still need to bring tens of millions of people into the middle class to maintain. You know, domestic tranquility. We have IP, incredible consumption, incredible demand. They have an incredible supply chain. It just feels like there's so much incentive to kiss and make up here.

• 44:33Scott Galloway?

  What do you think of the is the likelihood that the economic forces just win? And the two nations figure out a way to, you know, you know, like I said, kiss and make up?

• 44:44Alice Han?

  I'm very skeptical. Can I be the grumpy old man, Scott, on this podcast?

• 44:47Scott Galloway?

  Hundred percent. That's a switch. That's a switch.

• 44:51Alice Han?

  That's my nature in general, which, you know, figures because I work for Neil Ferguson. But I you only need to look at history to realize that even if you have trade complementarity, Allah, Vilemind, Germany and Britain before World War I, that doesn't preclude a military showdown. And one of the main reasons why Germany, and this goes back to the Thucydides trap framework of Graham Allison, why Germany didn't want to maintain that trade complementarity and relationship was that it wanted to have more military and global status in Africa and other parts of the world. Britain has still had its empire. It had the largesse of that British empire that it could benefit from, both in geopolitical and in trade related terms. So Germany wanted to have that kind of status.

• 45:36Alice Han?

  And yet the other allied countries and even other Western powers wouldn't allow Germany to have that. I think a similar thing is happening in China, even though, yes, we are very complementary, the US and China. Neil's written a lot about Chi America, how this has been a marriage of convenience. And yet, over time, the two countries have moved further and further apart politically and geopolitically, I would say for two main reasons. The first reason is this growth towards nationalism and and and nationalism in both countries. It really started, I think, in the US context with the rise of of Trump, with the rise of people like J D Vance and Hillbilly Elegy whereby you look at Middle America, it's been carved out, jobs that effectively.

• 46:20Alice Han?

  Gone towards China and other cheaper markets around the world. And you were left with, you know, industries that have been hollowed out. You only need to look at Detroit to see that. And so you've got this political backlash that has been aimed fully and squarely at China. And it's a backlash that is politically and economically motivated. On the other hand, there another side to this story is the China story whereby China has struggled to rebalance its economy. Consumption remains still low relative to the emerged economies as a share of GDP. And at the same time, the real estate crackdown has further depressed household spending and balance sheets. So what does China do in response? It doubles down on overcapacity or basically exporting a shit ton of things to the rest of the world.

• 47:05Alice Han?

  And countries whereby China has run a massive trade surplus, and I think US is one of them, obviously, but you also have other markets around the world. Countries like that look at China and think we cut that's a untenable unsustainable relationship. We need to address that imbalance. And you really saw that during the Trump administration. And I would say regardless of who becomes president on November 5th, that is an ongoing political issue to try to basically take down some of the China surplus in trade.

• 47:35Scott Galloway?

  So just a just a quick moment here. Memo to self, if Ed becomes unbearable, next co-host of Prop G Markets, Alice Han. I'm sort of blown away here. I'm just kind of already like, all right, what percentage of the podcast will she want? Okay. Alice is Alice is a China economist and director at Green Mantle, a global macro and geopolitical risk advisory company. She graduated in history and economics from Harvard and holds a master's in East Asian Studies from Stanford University, where she focused on Chinese political economy and fintech. I was at a Green Mantle, I spoke at a Green Mantle conference about three, four years ago, where I saw Alice just get up on stage and kind of break down all things China.

• 48:20Scott Galloway?

  And I remember thinking, I need to find a way to get this young woman in our universe. So it's great to have you on the pod, Alice. I'm just simply put, you're just incredibly impressive and we're looking forward to tracking your career. Thanks for your time.

• 48:33Alice Han?

  Well, thanks so much, Scott and Ed. I had a great time and it's good to know that I can be a grumpy old man on a podcast.

• 48:38Scott Galloway?

  There you go. That's what we do best. Thanks, Alice.

• 48:41Alice Han?

  Thanks so much, guys.

• 48:42Scott Galloway?

  Thank you, Alice.

• 48:53Scott Galloway?

  Ed, what'd you think?

• 48:54Ed Elson?

  Yeah, she was fine.

• 48:56Scott Galloway?

  Just okay? Just okay? Oh, my God.

• 49:00Ed Elson?

  Yeah.

• 49:01Scott Galloway?

  Yeah, you're gonna be a little less cocky in your annual review. That's right. That's right, just so you know.

• 49:09Ed Elson?

  She could have done a little bit more homework, I don't know. I decided to go easy on her.

• 49:14Scott Galloway?

  Isn't it? See, you don't, you can't feel this way yet because you're too young. You get, as you get older, you do get a nice sense of, I don't know, paternal pride. One of the wonderful things about teaching is occasionally there'll be some 24-year-old in your class who you call on and they reframe the question and answer it better than you could and you just think, Jesus, maybe we're gonna be all right. Maybe the nation's gonna be all right if there's people like this. And I feel this way with you a lot and the rest of the team.

• 49:44Ed Elson?

  I was waiting to make a joke about you not mentioning me, that's nice.

• 49:47Scott Galloway?

  Well, it's mostly because I see many of my dysfunctions and poor success with women and myself when I, when I hear about you. You know, it really is, you'll see as you get older, it's weird, you start getting this sort of paternalistic, I don't know, reward from young people who are that smart and that inspiring, it makes you feel like, you know, and then I go home and I see the decisions my sons make and it takes me back to a very ugly place about the future. But, no, she's incredibly impressive and sober, not afraid to disagree, very fact-driven, very data-driven.

• 50:23Ed Elson?

  I think in another life, you'd be a talent agent.

• 50:25Scott Galloway?

  You mean because I attract, well, my, the key to my limited success has been finding and retaining smart young people. The ultimate economic arbitrage is young people because, I'll flip it on the other side, the mo, because I can pay you less.

• 50:41Scott Galloway?

  The best companies in the world, I don't care if it's Goldman, I don't care if it's Alphabet, or they have one agreement, and that is the following. If you go flat out here, I mean, if you just go flat out, we just, we don't own your ass, but you've given us your ass. That sounded kind of weird. You basically have given us your life, and you just want to go flat out for your career, we'll get you to, at 30, where your parents were at 50. And I think essentially that's the unwritten agreement at every amazing company that adds, or at least adds just a shit ton of shareholder value. They say to people, "You're smart, you're hungry, you want to make a shit ton of money, you want to do interesting things, but go flat out for us and we can, we can let you run as fast as you want."

• 51:25Scott Galloway?

  Because if you go to work, there's some great companies that are icons of, you know, of yesteryear, still really solid companies, but it's basically, no, if you're amazing, you get promoted in four years instead of five, and if you're just okay, you get promoted in six years instead of five. But great companies say, "Run as fast as you can and as good, and if you're as good as we think you are, and you run as fast as you can, we're not afraid to promote you every 18 months." Those are the people you want to find.

• 51:58Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss, Mia Silverio is our research lead, Jessica Lang is our research associate, Drew Burrows is our technical director, and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

• 52:58Scott Galloway?

  Well, you know what happens to me when I run into a wall with an erection? What? I break my nose.

• 53:05Scott Galloway?

  That's good. That's good. There's our Easter egg. There's our Easter egg.

• 53:12Scott Galloway?

  Bingo.

• 53:18Ed Elson?

  Prof G Markets is going international. We have two new YouTube channels that use AI dubbing to bring you the show in Spanish and Portuguese. So if you want that content, click on the links in the description box to get the latest news that's moving to capital markets in your language.

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• 54:31Alice Han?

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