China's Tech Tightrope: Power, Regulation, and the AI Race with Angela Zhang

In this intriguing episode, Professor Angela Zhang discusses the complex landscape of China's technology sector and regulation. The conversation explores China's approach to AI, the evolution of its tech giants, and the interplay between government and private enterprises. Zhang emphasizes the importance of firsthand experience in understanding China and highlights key insights from her book, 'Highwire,' which delves into China's regulatory strategies and policies. The dialogue also touches on global perceptions, the ongoing US-China tech rivalry, and the broader implications of regulatory actions in both nations. This episode sheds light on the dynamic and often opaque world of Chinese tech governance, offering a balanced and nuanced perspective. SPONSORS: SafeBase: SafeBase is the leading trust-centered platform for enterprise security. Streamline workflows, automate questionnaire responses, and integrate with tools like Slack and Salesforce to eliminate friction in the review process. With rich analytics and customizable settings, SafeBase scales to complex use cases while showcasing security's impact on deal acceleration. Trusted by companies like OpenAI, SafeBase ensures value in just 16 days post-launch. Learn more at https://safebase.io/podcast Oracle Cloud Infrastructure (OCI): Oracle's next-generation cloud platform delivers blazing-fast AI and ML performance with 50% less for compute and 80% less for outbound networking compared to other cloud providers. OCI powers industry leaders like Vodafone and Thomson Reuters with secure infrastructure and application development capabilities. New U. S. customers can get their cloud bill cut in half by switching to OCI before March 31, 2024 at https://oracle.com/cognitive Shopify: Shopify is revolutionizing online selling with its market-leading checkout system and robust API ecosystem. Its exclusive library of cutting-edge AI apps empowers e-commerce businesses to thrive in a competitive market. Cognitive Revolution listeners can try Shopify for just $1 per month at https://shopify.com/cognitive NetSuite: Over 41,000 businesses trust NetSuite by Oracle, the #1 cloud ERP, to future-proof their operations. With a unified platform for accounting, financial management, inventory, and HR, NetSuite provides real-time insights and forecasting to help you make quick, informed decisions. Whether you're earning millions or hundreds of millions, NetSuite empowers you to tackle challenges and seize opportunities. Download the free CFO's guide to AI and machine learning at https://netsuite.com/cognitive RECOMMENDED PODCAST: Second Opinion. Join Christina Farr, Ash Zenooz and Luba Greenwood as they bring influential entrepreneurs, experts and investors into the ring for candid conversations at the frontlines of healthcare and digital health every week. Spotify: https://open.spotify.com/show/0A8NwQE976s32zdBbZw6bv Apple: https://podcasts.apple.com/us/podcast/second-opinion-with-christina-farr-ash-zenooz-md-luba/id1759267211 YouTube: https://www.youtube.com/@SecondOpinionwithChristinaFarr PRODUCED BY: https://aipodcast.ing

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

• 0:00Nathan Labenz?

  Hello and welcome back to The Cognitive Revolution. Today, we're continuing to build foundational context for understanding China as we enter the AI era. My guest is Angela Zhang, professor at the Gould School of Law at USC and author of High Wire: How China Regulates Big Tech and Governs Its Economy. Having grown up in China, lived in Europe, and become a law school professor in the United States, Professor Zhang combines an insider's view of China with a global outlook to create a unique perspective on Chinese technology governance and international technology competition. After first discussing the difficulty of studying China and how much better China collectively understands the United States as compared to how well we in the United

• 0:41Nathan Labenz?

  States understand China, we unpack the dynamic pyramid model that she developed in her book to explain China's regulatory approach, as well as the prevailing characteristics of hierarchy, volatility, and fragility that it exhibits. We then examine the stark power imbalance between government and business in China, where the state clearly has the upper hand, and compare and contrast the Chinese approach with its European and American counterparts. We also discuss several notable moments in history, including the Chinese government's decision to exclude American tech companies, thus creating the market opportunity in which their own tech sector could develop; the famous 2020 crackdown on big tech that involved canceled IPOs, major destruction of the market cap of Chinese tech firms, and the sidelining

• 1:24Nathan Labenz?

  of Jack Ma, who had been one of China's leading technologists and global ambassadors up until that time; as well as the more recent apparent thaw between the CCP and leading Chinese tech companies, which some see as evidence of recognition by the government that they need the most vibrant tech sector possible in order to effectively compete with the United States going forward. Along the way, as you'll hear, I ask a bunch of basic questions about the practicalities of Chinese society, including how concentrated power really is and how internet censorship works at the operational level. On the topic of AI specifically, I was also very interested to get Professor Zhang's takes on the light touch that the Chinese government has taken on AI so far, how China understands the US export controls on chips and semiconductor manufacturing equipment,

• 2:08Nathan Labenz?

  how to understand the deep-seak moment and whether we should expect another crackdown coming soon, and even whether or not Ghi himself might be, as some in the AI safety community have speculated, a doomer.

• 2:19Nathan Labenz?

  Please note as you listen, I am well aware that a number of the opinions Professor Chung expresses in this conversation are highly controversial. To highlight just a couple, while I'm not sold on their strategic value, I am also not convinced that the deep seek moment proves that export controls won't matter going forward. On the contrary, I think there's a very good chance that held in place as they are, they will. And more specifically to the Chinese tech market, I know that Jeff Ding's work on technology diffusion suggests that this is not in fact a great strength, but rather a weakness for China. That said, because my time with Professor Chung was limited and because I'm interested in hearing different perspectives on such important questions, I chose not to push back on each of these topics in real time along the way. I think it's worth taking

• 3:02Nathan Labenz?

  her self description as a neutral analyst seriously and genuinely trying to consider her analysis from a neutral point of view. But of course, this won't be the final word, and you can expect multiple strongly contrasting points of view on this feed coming up. For now, if you're finding value in the show, please send it to a friend who's interested in US-China relations or the global AI landscape. Reviews on Apple Podcasts or Spotify are always appreciated too, and we invite your feedback via our website, cognitiverevolution.ai, or by DMing me on your favorite social network. Now, for a look at how China regulates technology and what that means for the global AI race, I hope you enjoy this conversation with Professor Angela Zhang. Professor Angela Zhang from the Gould School of Law at USC and author of High Wire, welcome to the Cognitive Revolution.

• 3:48Speaker 01

  My pleasure. Okay, I think it's okay to pronounce it as good because it's a good school.

• 3:53Nathan Labenz?

  Yeah, okay, good. I like it. So, quick preface for this conversation. I don't know a lot about China, and I, you know, I'm trying to catch up quickly because I think that the, you know, sort of assumptions that people are making about China and its technology development, and what's it going to do in AI, and what's its attitudes towards the United States or the West or whatever, are, you know, these assumptions are Really fundamental to a lot of the AI discourse that's happening in the United States right now, and I have a sneaking suspicion that a lot of it is not super well-founded. So I'm trying to get a better understanding myself and hopefully, you know, be able to have better conversations with myself and, you know, contribute to

• 4:35Nathan Labenz?

  a healthier discourse. So I've written this book, High Wire, about how China manages and oversees and regulates and exactly to what degree, you know, those different words properly apply its technology sector. And I would love to go through it. But maybe for one question I have to just get started, because I don't think people have a good intuition for this. What are your methods for doing this kind of research? Like, what sources do you go to? How do you understand them? You know, what tools do you use? Is AI helpful? I'm interested in that because I think you probably need a lot more people looking closely at China. And I think, you know, a lot of people might be interested, like, I probably no idea where to start.

• 5:12Speaker 01

  Yeah, that's a good question. It's increasingly more and more difficult for researchers to do few studies in China. But fortunately, I was born and raised in China, grew up in China, I did my undergrad in China, and I also practiced a bit in China. And when I was working overseas, I also worked on China-related projects. So over the years, I built up all my connections with the Chinese industries. And I also worked for seven years at the University of Hong Kong. Hong Kong has very close proximity to China. So all these things add up and it's incredibly helpful for me to accumulate firsthand experience, understanding what's going on. And I have to say, unfortunately, it is impossible

• 5:56Speaker 01

  to really truly understand China without being there. And also, you know, to really truly understand things, you don't get it from an interview. It's more like you have to be really absorbed in the environment and have that immersive experience to really understand what's going on. And also, the book rely on a lot of firsthand understanding and my knowledge and conversation with numerous contacts that I have. But I also did a lot of empirical studies, looking at court cases. So I try everything. I mean, also secondary sources, right? I mean, so I'm just kind of like a AI, you know, in the sense that

• 6:38Speaker 01

  I do the best I can and gather all the sources and try to answer the question that I want to understand.

• 6:46Nathan Labenz?

  Yeah, I'm actually thinking of trying to arrange a trip to China because I've never been. And I feel like it would just help both my intuition a little bit at least and set hopefully kind of a positive example for like general engagement. Plus, I'm sure it would be fun and there'd be a lot of great food.

• 7:01Speaker 01

  I will, I will definitely welcome you and then all your podcast listeners to come and see China. Now I'm living in the United States, I think there's a lot of misconceptions about China and a lot of people worry about traveling to China. But I do think that being there in the first place is incredibly important. And you know, the majority of the people have fun, really incredible experience after they travel there. And it's, you know, it's not as scary as the media has portrayed. It is, and it's just like another country. And in fact, they will be surprised by the technology when they arrive in China.

• 7:43Nathan Labenz?

  Okay, several directions I want to go and follow up there. How, how helpful, I mean, you don't need them, but do you have a sense for sort of how helpful translation tools are in today's world in various contexts? Like if I want to go read content off the Chinese internet, you know, and I translate it with DeepSeek or whatever, like how, how much does that help me actually be able to read in a way that would foster real understanding versus sort of being too superficial? And I guess maybe same question for like street conversation, you know, can I take just a real time translator at this point and have meaningful conversations? What would you expect in that regard?

• 8:22Speaker 01

  I am not a big expert in that, but I would just say that China is a leader in voice recognition technology. And that kind of technology has been built in a lot of the softwares and freely available.

• 8:35Speaker 01

  You know, when I was living in Hong Kong, my domestic helper only speak English and my, my mother-in-law speak Chinese and then communicate flawlessly with each other.

• 8:46Speaker 01

  I'm just using this cell phone. So I don't think that's that's a problem at all. Yeah.

• 8:52Nathan Labenz?

  Yeah, cool. What would you say are some of the technology surprises that the average American would be kind of, you know, most taken aback by when they visit China?

• 9:04Speaker 01

  I would say first is a high-speed train. And it's appalling that the United States, correct me if I'm wrong, still doesn't have high-speed train. I think California has been trying to build this high-speed train for a long time and now has finished one-third of the project and who knows when it will complete.

• 9:26Nathan Labenz?

  Reese's all third has either shown it.

• 9:29Speaker 01

  Look, I mean, yeah, when you think about that, I mean, wow, I don't think China is 10 feet tall, but in terms of the execution capability, you just look at the the capacity to build high-speed train. I mean, this kind of project from between, you know, high-speed route between San Francisco and Los Angeles, it will take China one to two years to complete. And it's taking the state ages and we still don't know when it will be completed. And there is numerous obstacles along the way. Right? I mean, so I was talking to my student the other day. Look, I mean, when we talk about your China tech rivalry, I mean, this is just one example that shows you where China is good at.

• 10:11Speaker 01

  That China's speed, the China execution and efficiency in doing things, right? I mean, so I was just appalled at the the US inefficiencies when it comes to a lot of the high-tech technology.

• 10:26Nathan Labenz?

  You mentioned that there's a lot of misconceptions. I wonder, maybe at the super highest level, one that it sounds like you're already alluding to is that, you know, China is the sort of, you know, invincible, monolithic, you know, super powerful entity when you say they're not 10, you know, China's not 10 feet tall. I wonder what other sort of misconceptions you think are most prevalent or problematic in, say, the US with respect to China? And then I'm also interested in kind of the reverse of that. Like, does China understand the United States better than the United States understands China? And, you know, if so, is that just like because of our sort of general cultural exporting history? And, you know, what what big misconceptions do you think, you know, China collectively has about the United States?

• 11:09Speaker 01

  Right, I mean, this is an excellent question. Look, I don't want to paint a rosy picture of China. Okay, the Chinese economy is at its raw bottom at the moment. Young people have very pessimistic in outlook of the future. Properly, this is kind of like the lowest sentiments for decades. And my book, for the most part, is very critical of the China's governance model. But that said, right, I mean, let me be fair, because I was born and grew up there. There are certain advantages of an authoritarian regime, being very efficient, and they can get things done very quickly. And they put more emphasis on the interest of the majority.

• 11:53Speaker 01

  And so even for a lot of controversies that you have seen in in Western jurisdictions about China, the vast majority of Chinese people actually likes it. I mean, give an example of the surveillance technology, right? I mean, in the West, when we talk about Chinese civilians using all this camera and everywhere, facial recognition, it's all incredibly negative. But if you go to China, I mean, you ask normal Chinese grandma, grandpa, do you like that? They don't care. And in fact, some people will tell you that they feel safer because they have camera everywhere and they don't need to worry about being robbed, like, I mean, the crime rate is extremely low.

• 12:36Speaker 01

  So, you know, I guess the Chinese Communist Party knows how to get endorsement from the majority of the people. I mean, that's why the popularity rating was pretty high, you know, until the mishandling of the COVID-19, okay? Now, so I think China has its clear strengths and weaknesses. We can delve more into its weaknesses as we talk about the book. But what about the United States, the other side around? I mean, does China has some misconceptions about the US? I do think they do. I guess one of the biggest misconceptions is to think the United States is a very democratic government, which this new administration clearly show it is not, okay?

• 13:22Speaker 01

  But for the most part, I think China understands the US much better than the US understands China. And that's understandable because the Chinese governance is very opaque. The bureaucratic regime is extremely, you know, efficient, but at the same time, they deliberately keep things very ambiguous, very opaque. And also because of the internet censorship and information control, it's much more difficult to understand what's really going on inside that China bubble. So I would say that, you know, every day when I read the news in China, I mean, I got to know almost everything going on in the US. But mostly, you can tell the

• 14:04Speaker 01

  government always tells bad news about other countries. So, you know, depending where I live, the information I get is always biased one way or the other.

• 14:15Nathan Labenz?

  Yeah, I was gonna ask just briefly before turning to the framework of the book.

• 14:19Speaker 01

  Yeah.

• 14:20Nathan Labenz?

  When you said like the approval was high up until COVID-19 mishandling.

• 14:24Speaker 01

  Yeah.

• 14:26Nathan Labenz?

  Is that like a felt sense? Or are there like data sources that you trust? And are there data sources that have actually like shown a drop in satisfaction? I'm not aware of that, but it's really interesting if that's out there.

• 14:35Speaker 01

  Yeah. Yeah, there is. I mean, I think however, there's a bunch of scholars who track the the public opinion rating of the Chinese government. And they show, you know, the Communist Party, they gained the legitimacy through a lot of times through performance, right? I mean, they were not democratically elected. So the government needs to ensure economic prosperity, social stability for the vast majority of people, right? Otherwise, there will be a lot of discontent. And that's the thing with China from a lot of other foreign country countries that tend to be extremely repressive and things like that. But by the way, you know, during COVID, when Xi Jinping was able to, you know, get things

• 15:19Speaker 01

  under control, particularly between 2020 to late 2020, during that period, I think his approval rating. Was extremely high. If you talk to the ordinary Chinese people, they feel great about that country. Because when they look around the world, everybody was living in chaos and China was able to achieve COVID zero. It was the first one to emerge from the COVID chaos and the first one to resume production. And there was this talk about, you know, the rise of the East and the decline of the West at that time, right? But, you know, things quickly turned sour after Omicron emerged, when the rest of the world started to open up when China

• 16:03Speaker 01

  is still under severe lockdown. Yeah.

• 16:06Speaker 02

  Hey, we'll continue our interview in a moment after a word from our sponsors.

• 16:12Nathan Labenz?

  Yeah, that was a really interesting moment. Maybe we'll come back to that in a little bit. Let's go to the book.

• 16:17Speaker 01

  Yeah.

• 16:18Nathan Labenz?

  So the core framework of the book, and again, the subject is, how does the Chinese government oversee, manage, regulate its technology industry? So you introduced this framework, the dynamic pyramid model, to which you describe it, you know, a couple of different dimensions. One is just sort of the traits that it has, hierarchy, volatility, and fragility. And then there's also the the different actors that play in that system.

• 16:43Speaker 01

  Yeah.

• 16:43Nathan Labenz?

  Let's start with the overview of the hierarchy. We've got the top leaders, the regulators, the firms, and the platform participants, which I take to be like individuals in small businesses and anybody that's sort of doing stuff on these internet platforms.

• 16:56Speaker 01

  Mm hmm.

• 16:57Nathan Labenz?

  Strikes me that we have basically the same model here in some important sense. But maybe, you know, that provides a good jump off point to compare and contrast, like, how the different actors are sort of positioned differently, or have different levels of power, or maybe have different interests in China versus what we're familiar with.

• 17:14Speaker 01

  Yeah, great question. Right, I mean, so the purpose of having this model is to help our readers to understand how China governs more generally. And in fact, this model is not only helpful for us to predict, you know, how to regulate consumer tax business, but almost every major policy that you see coming out from the Chinese government. So I also applied this framework to analyze how China had, you know, uh, regulate COVID nineteen and property crisis and etcetera. But the book focused almost mostly on the tech sector because it gave us a very good case study. You know, a massive case study to analyze this model in depth.

• 17:55Speaker 01

  And so when we talk about models, the first thing we need to look at are the players, right? I mean, so the hierarchy described the structure of the decision making in in China's regulatory governance system. And so there are four major actors. There's top leadership who are mostly referring to President Xi and the other members of the Politburo. And and then we have the bureaucrats and regulators who are in charge of the day to day implementation of the tops initiatives. And these are the people who really did the hard work in turning out regulation and conducting enforcement. And then we have the firms, right? I mean, and that's the main subject of the regulation.

• 18:39Speaker 01

  And at the bottom are the platform participants that interact with the firms. Now, we obviously have the same four major players in other democratic settings like the United States and EU. However, um, the way that they're organized are entirely different, right? I mean, the major distinction that I will see is the power imbalance. Now, in the China will be, if we see it on the spectrum, China will be at one extreme where the government clearly has upper hand over businesses, right? I mean, so when we talk about the pyramid, at the apex of the pyramid in China are the top leadership. And then it comes to regulators because regulators are subordinate to top leadership. They're not independent, right?

• 19:24Speaker 01

  I mean, they're held accountable to the top. Not necessarily to the bottoms and also how accountable to the public because in China, that's the first and foremost important for them. And then

• 19:36Nathan Labenz?

  It's an interjection. The top leadership, I just had to search for how many members are on the Politburo and I got 24 back is my answer from Google. So are we literally talking at top leadership like, not like a general elite class or even sort of a like 500 member, you know, like a US Congress sort of scale? We're literally talking like just a couple dozen.

• 19:59Speaker 01

  Or you can just think about it, just one person, the president, she, yeah, because he basically controlled the top leadership.

• 20:06Nathan Labenz?

  And then the regulator basically report directly to that high level and sort of, you feel like their direction is coming like through very few links in a chain of command from the very top?

• 20:17Speaker 01

  Yes, very, very loose chains of commands, but it's a good way to put it, right? I mean, the regulators are the, are the governments, right? I mean, are the ministries, the departments and the local governments, right? I mean, there's a huge bureaucracy spanning across 31 provincial entities and, and also numerous central ministries and department agencies. So all these bureaucrats, they have the expertise and the knowledge to implement and the law. However, when they do so, they need to closely align the work with the top's initiatives. So they always look upstairs to see, you know, what are the shifting policy wings?

• 21:02Speaker 01

  Or what are the policy signals, right? So, I mean, because in China, you know, that signal is incredibly important. In, in some ways, you know, that signal is policy, you know, and the policy is signal, right? I mean, so in, in China, when the bureaucrats carry out the, the work, I think the first and foremost is to understand the policy signal because the policy wing can shift all the time. And, and, and that's incredibly important.

• 21:31Nathan Labenz?

  Interjection. When things happen in the United States, like it's often the case that like, this is not what the president wanted, right? We've got, you know, sort of, this is up now for contest, of course, but we've got like independent agencies, you know, that sort of are historically at least understood and meant to be insulated from, you know, the executives' like current mood. We've also got like state level regulators.

• 21:58Nathan Labenz?

  In general, it seems like you just cannot assume that there's like a presidential or anybody, you know, you can only you only go so high before you sort of find like this is the executive, you know, decision maker in this particular domain. It sounds like the Chinese model is a lot of like pull in the sense that there are like local executives who have a very clear understanding that, you know, they don't have an independent power base. They're not like elected or appointed by some other, you know, group that they're more beholden to. It's kind of all at the discretion or the pleasure of the top leadership and their goals are to understand what that top leadership would want them to do. It sounds like they're not necessarily on hold super, you know, always told super explicitly,

• 22:41Nathan Labenz?

  but they're like trying to map these sort of high level notions onto their domains in a way that they, you know, hope will then be ultimately pleasing to the central leadership. Is that kind of how I should understand the?

• 22:53Speaker 01

  Yeah.

• 22:54Nathan Labenz?

  You're trying to please who and with what signal?

• 22:57Speaker 01

  Yes, yes. So basically, everybody answers to one boss upstairs, right? I mean, well, depending on what level they are, they may have other bosses, but they know who is the big boss, right? I mean, so and that's why in China, Xi Jinping is also called Xi Dada, means, you know, he's big. I mean, he's a real big boss in the country, but he even at his level, he may not have the time, expertise and capacity to handle everything, right? I mean, so he has to delegate it to the government officials, the bureaucrats to implement them. So the bureaucrats themselves, they do have discretion, but they do at the same time need

• 23:42Speaker 01

  to closely align what they do with the top's initiative or frame it in a way that align with the top's initiative while it's also work for their own interests, right? Because we also need to take into account agencies' own bureaucratic incentives when they carry out enforcement mandates. Now, so go back what we were talking about, we are talking about power imbalance, right? I mean, so the key actor here are the other businesses, right? I mean, businesses in China, they are, I put them at a lower level of the hierarchy than the agencies because unlike other jurisdictions where you see businesses go to war with the agencies, in China, they don't do that.

• 24:23Speaker 01

  Very fair that you see a company, whether in the public company or private company or foreign multinational company or Chinese domestic company, they almost never, ever directly confront the government. I mean, think about Elon Musk, you know, when he went to China, he behaved like a sheep, right? I mean, he's kissing, he's trying to please the Chinese government, right? I mean, unlike in the US, he's sending poop emoji to the government agency. Can you imagine he ever dare to do that in China, right? I mean, he understands, in China, you play by the Chinese rules and show respect to the government agency.

• 25:08Speaker 01

  So, you know, businesses understand that the government clearly has upper hand, is the most powerful actor here. And then at the bottom are the people, right, are the public. These are the, think about the online merchants, delivery workers, the consumers, right, that interact day to day with the platform. And these people, you know, just like those in the West, they are very weak in bargaining with the platform, a very powerful platform. And oftentimes, there's a lot of complaints, but the voices tend to be muted in the sense that in China, because of the censorship information control, they'll make it very difficult for them to have their voices out.

• 25:51Speaker 01

  That said, you know, the Chinese government is very strategic. If they want... Want to have the complaints heard, they could amplify those complaints. So you, at that point, you do hear a lot of public opinions. Because those public opinion will help the agencies to get more legitimacy of their actions. So Chinese government is extremely media savvy. They do know how to, you know, gain and gain more public approval and support. Now, if you, I will play Europe at the center. In the sense that in Europe, government is still powerful, but businesses do have the opportunity to challenge and appeal their cases.

• 26:34Speaker 01

  Just think about in the EU, where I also used to live. I used to work in Brussels and also talk in London. And so in that jurisdiction, you know, US tech businesses, I investigated, almost all of them are being investigated by the European Commission. They, they almost always challenged Commission and in Luxembourg, with the General Court or the Court of Justice. Courts have been very deferential in Europe. And partly also because of their legal culture. But occasionally, businesses do win, right? I mean, and they continue to, to challenge and continue to fight their cases. And from the standpoint of European officials, they also don't, don't think this is abnormal. They won't hold grudges because they fight, right?

• 27:18Speaker 01

  I mean, because they respect, this is a rule of law system. Now, moving to the United States. I would see it as another extreme polar opposite of China, where businesses seem to have the upper hand. So think about in the past five years, despite, you know, a cascade of congressional hearing and all these interviews and testimony with all these big tech CEOs like Mark Zuckerberg or, you know, all of them. Has anything happened? Nothing.

• 27:48Speaker 01

  None of this, the Congress hasn't passed any single law to discipline the big tech firms. The only law that it adopted is the law against TikTok, to ban and divest TikTok. The United States so far don't have any data privacy law at the federal level. The only law that restricts data flows targeted at TikTok. The Biden administration signed an executive order to restrict the bulk transfer of sensitive data to adversary country, including China. So the only tech regulation that we have in the United States are almost exclusively targeting at companies with the Chinese identity.

• 28:29Speaker 01

  With respect to its own big tech giants, the US have done almost nothing. Right? I mean, and you can say, is that capture? Is it a scandal? Right? I mean, when you see all this big tech CEOs surrounding the president on inauguration day, rubbing shoulders with the president right now. I mean, Trump is surrounded by all this big tech mongos these days and even assisted by Elon Musk, right? I mean, you worry about another opposite to like the crony capitalisms in the United States.

• 29:02Speaker 02

  Hey, we'll continue our interview in a moment after a word from our sponsors.

• 29:10Nathan Labenz?

  Going back for one second to the, just you mentioned that like the government knows how to sort of turn up complaints selectively when it wants to. Can you describe a little bit more how the sort of staffing or like actual management of the censorship apparatus works? Because I would imagine like this is something that tech companies sort of had to build. And then, but you know, and that when you were first saying like, you know, the complaints about the tech platforms themselves are like by default suppressed. That made sense to me because I was like, well, there's already this like censorship regime and they're implementing like whatever censorship guidelines they're getting. So maybe they'll just, you know, salt in a little of their own brand protection as they do it.

• 29:54Nathan Labenz?

  But then when you said, well, they could actually tinker with that in a more granular way. Now I was, you know, kind of wondering what the shape or like, you know, who has access? Who staffs what? I don't know if that is even known or clear, but.

• 30:05Speaker 01

  Well, this is in a very opaque system. Right? I mean, but obviously both the big tech firms and the Chinese government invested hugely on content moderation. Right, although you know how how that you know vast uh machine operates in practice remains a mystery to uh almost everyone except a few insiders, right? I mean, but you know, think about it in in the West, you know, companies like Facebook, Meta, they also employ an army of people to do content moderation, although they're getting rid of them these days. But in in China, this is a very important part of the compliance of all the big tech platform who do social media businesses,

• 30:47Speaker 01

  because one of the first and foremost priority of the government's regulation is to ensure that your content is politically aligned with the government's, or you can name it socialist values of the Chinese Communist Party, right? So the platforms, they will have to receive instruction from the Cyber Space Administration of China about what kind of content is allowed or not allowed, and they will receive very timely updates of, you know, giving the the changing circumstances. But I can give you a very concrete example of how it works in practice. So in the book, I talk about China's largest right-handling platform called

• 31:25Speaker 01

  Didi, which is the Uber in China. And when they wanted to go public in the US, they actually met with some oppositions from within the government and one of the agencies, the Cyber Space Administration of China, we just talked about, they were asking Didi to postpone its IPO filing to ensure that they comply with the data security regulations, because it's a huge um right-handling firm and get a lot of sensitive geographical data and and sensitive personal data from from a vast Chinese population, right? I mean,

• 32:05Speaker 01

  so from the standpoint of CAC, that the the online listing process, including the submission of information to the US regulators, can potentially pose national security concern. However, Didi pressed ahead with its IPO filing in the US, disregarding um CAC's warning. And obviously, the CAC was very upset. And two days after its uh listing in the United States, the CAC conducted a cybersecurity check review over the firm, and that caused the firm's tumble uh more than more than 10%. I mean, and why about A lot of money from its capital, market capitalization.

• 32:47Speaker 01

  And that was really, you know, a point that really make international investors really upset that China is uninvestable. This kind of regulation is totally unpredictable and arbitrary. Now, when the CAC conducted that investigation, it was doing that on the pretext of they wanted to conduct a cybersecurity check on the firm. But that kind of check is often done, you know, according to the law, is about procurement practices, whether the firm is finding some equipment that make it insecure and that propose national security threat. It's never been used to setting where the firm is going online listing, right?

• 33:29Speaker 01

  I mean, they're, they're just submitting documents to this SEC. And so it's a very dubious act from, from the government. And however, in order to enhance the legitimacy, you started to hear a lot of public opinions in the Chinese media saying that Didi is a traitor of turning over its sensitive data to the US government. And the Didi's founder, the president of Didi is called Liu Qing, which is an ex-government banker, very successful businesswoman, is also labeled as a traitor who divulged Chinese secrets and sold it to the US.

• 34:11Speaker 01

  So you see the Chinese government drum up this kind of nationalistic sentiment in the country. And there's also polls circulating showing that Didi actually collected a lot of sensitive government data because it can show, it can tell, you know, at a certain time, what the traffic is like going to different Chinese ministries and which ministry work at what time and which ministry is busy at what time. So, I mean, and this, when this media polls were circulated, it have formed the impression among the Chinese public, look, I mean, this, this company does, you know, have the ability

• 34:56Speaker 01

  to review information that can pose national security threat. And, and so the government is a good thing to intervene and to conduct cybersecurity check. I mean, of course, general public have no idea what cybersecurity review means. And whether there's a clear legitimate legal basis, right? I mean, so you can tell this is one example. Another example is when Jack Ma's IPO was suspended. And then there's a flood of polls, media polls on Chinese internet accusing him of, you know, extremely greedy businessmen who trying to start up this, this a huge fintech company that rid up the Chinese people. And then there's a lot of reports about these dishonest practices of Ant Group,

• 35:40Speaker 01

  which is the fintech company that was supposed to go on IPO and try to dupe consumers. Right? I mean, so the whole Chinese media machinery is also part of the Chinese bureaucracy. Right? I mean, so these different departments, propaganda department, the media and the agents, regulatory authority, they all work together in tandem to jointly increase the legitimacy of the actions.

• 36:08Nathan Labenz?

  Okay, that is quite interesting. And again, a lot of different directions we could go. Could we maybe do just a minute on sort of the rise of China's tech giants? Because I don't know a lot about this. And I'm, one question I'm particularly interested in is, to what degree were these like the winners from a sort of, you know, relatively free and open market competition process versus, at what stage were they sort of, you know, favorites of the party or somehow otherwise like designated winners?

• 36:42Speaker 01

  Well, in the book, I did talk about how the Chinese government censorship and the Great Fire War kind of work as trade barriers for foreign, particularly US, social media businesses to come and operate in China. Right? I mean, so they, so companies like Baidu, which operate China's largest search engines, face way less competition these days because the only other US-operated search engine is Bing, which now has only 1% of the market share. Right? I mean, Google, you know, exited years earlier, right? Now let's consider the counterfactual that you posed. That had China not imposed this kind of restraints on the Chinese internet sector.

• 37:26Speaker 01

  Do you think that China still have these domestic national champions? I think it is true, you know. I still think that the domestic firms will still win. Just think about what happened nowadays, right? I mean, why TikTok is conquering all over the world? And why the majority of the top 10 most downloaded apps in the US app stores are Chinese firms? Right? And the AI firms, you know, also leading and doing well. It's, I think, for the most part, is China's capability of adoption and diffusion is much better than the US peers. So China is not good from zero to one.

• 38:09Speaker 01

  Now that's why, you know, you see the major breakthroughs in technology. It almost never occur in China. Okay, and by the way, I don't see Deepsea as a technology breakthrough in a way. Because Deepsea is not the one who discovered the transformer model or, you know, like Geoffrey Hinton, to figure out how to use the neural network and model the AI architecture of the neural network. That's what I see as a true scientific breakthrough, okay? When we talk about the Joseph Schiffer's innovation cycle, we have the innovation and then we have the adoption and diffusion. China is more at the second and the third stage in adoption and particularly good, extremely good at diffusion.

• 38:55Speaker 01

  And Deepsea is just very good at diffusion. Because when we talk about diffusion, it's just about how we make things more efficient, how we lower the cost, how we make it more accessible to consumers, right? With in terms of that, so that's why I'm saying so from one to ten, China can do it really well. Right? I mean, so so all the consumer technologies that we're talking about, I have no doubt that, you know, from a few years from now, you we will see unless the US ban all the China's apps, which is difficult, um, then you will see more and more Chinese firms flooding into the US market. You already see Timu, like, I mean, just order from Timu the other day. I mean, prices are thirty thirty percent cheaper than from Amazon if you can wait.

• 39:40Speaker 01

  And people can deliver very quickly these days, too. They also have local warehouse, right? And uh she, right, we fast fashion and it's coming into US market. Uh, not to mention DeepSeek and and and things like that, yeah.

• 39:54Nathan Labenz?

  So that that's really helpful context is the, it sounds like these companies are the ones, the tech giant names that we know, your Tencent's and Alibaba's and so on.

• 40:04Speaker 01

  Yeah.

• 40:04Nathan Labenz?

  These companies started as like organic and like they succeeded on their market merits. Yes, there was this sort of exclusion of US companies, which, you know, created sort of a less competitive environment than they would have otherwise faced. But in terms of like why it was Alibaba or why it was Tencent versus a different Chinese company that may have been competing for that niche. These leaders like they won these markets kind of fair and square, so to so to speak, is that?

• 40:30Speaker 01

  Yes, yes, yes. I mean, it's extremely competitive uh market, right? I mean, so before everybody knows DeepSeek, okay? Uh, DeepSeek has already been known in in the country for more than a year. And I was just so surprised that the company just have no interest in China. They totally under underestimated it. So DeepSeek around mid two thousand twenty four have engaged in a wage price war in the AI community. They were the one who slashed significantly the prices and that it started this price predatory pricing in a way um scheme. And then everybody have to follow, including the the leading AI leaders, right?

• 41:11Speaker 01

  I mean, so that's why in China, DeepSeek was called the拼多多 of AI. 拼多多 is the parent company of Timu, which is very good at, you know, huge discounts, deep discount sales. And so I I was just so surprised that the Western community doesn't know this farm's existence until like eight or nine months later, right? All of a sudden, they just woke up. I mean, this this farm is doing this. I mean, and and and just to show, you know, that in some ways, there this misconception that we were talking about, right? I mean, the misconception in the United States is going like kind of also polar opposite. Once one school of thought thinks China is 10 feet tall. China is ahead of us.

• 41:54Speaker 01

  China is going to beat us and we have to control them. And the other is, I think China is like three feet tall, totally underestimate China's innovation capability, right? I mean, so I'm just trying to be neutral. I mean, present what China is.

• 42:10Nathan Labenz?

  So can you tell, you know, we haven't officially touched on volatility and fragility, but maybe you can sort of illustrate those with a little bit of a history from this sort of 2020 moment where you alluded to the Jack Ma sort of, you know, putting him in his place and then kind of through to the president. Because my I I know that story in the sort of roughest terms of like, you know, he said a couple of critical things. All of a sudden, he wasn't heard from very much for a while. Like it was canceled, you know, vast amounts of like wealth seemingly taken off the books. I mean, my sense is that the company's still kind of, you know, carried on without like so much disruption to their operations, but it was just kind of clear that like there's

• 42:54Nathan Labenz?

  a limit to your upside here so that, you know, can affect the stock price, even if like today's operations are still running pretty smoothly. That's kind of my sense for sort of what happened, I guess. But why did that happen? Like, what were they really trying to accomplish? Did they accomplish their goals or did it like, you know, turn out differently than the decision makers had hoped? And now I have a sense, again, a little bit pretty vague from just sort of reading the news that like. You know, even like very recently, like since maybe the deep sea moment, there's sort of a sense that like, okay, we maybe need to like, bring our technology companies back a little bit, but you know, exactly what does that mean? Like, what are we bringing them back from? And you know, sort of, again, like, what are they trying to accomplish?

• 43:36Nathan Labenz?

  You know, if it's volatility, like, what's the change in direction that all this sort of amounts to?

• 43:41Speaker 01

  Right, I mean, so by volatility, I mean that the regulatory pendulum swing is very, very dramatic. In the sense that the Chinese government either is very lax with its tech regulation, or become extremely intense and very strict with the tech regulation. And for the most part, from early 2010s until late 2020, until, and IPO debacle, I would say that the Chinese consumer tech businesses enjoy like, a decade honeymoon period with the Chinese government, where the government is like taking a very light touch approach with these firms. And so there was a period like until, you know, from that IPO,

• 44:26Speaker 01

  until early 2022, there was like an 18 months, very intense crackdown. And then after that, we revert back to the normal. I mean, so if you think about how China regulate AI these days, I also think it's really, really lax at the moment. So exactly what happened is very, very complicated. And obviously, for the first decade honeymoon period, because the government is not doing much, it's actually doing very little. And that also created a lot of problems. Because had these problems been addressed earlier, they would not have become what it is today. It actually led to a very concentrated tech sector, extremely concentrated tech sector.

• 45:09Speaker 01

  We are mostly talking to major players, right? Alibaba, Tencent, we have duopolies in China. Whereas in the US, you know, you already have the seven major tech firms. The at least is still a bit more, uh, less concentrated in a sense, right? I mean, so that concentration problem led to a lot of issues, right? And a lot of regulatory problem. And from that respect, it's not so different from what you witness and experience in the Democrat Senate. But I think what is really the last straw for the camel's back was the IPO of Aang Group, which is China's largest fintech company and actually also the world's largest fintech company.

• 45:53Speaker 01

  And it was go on the largest IPO in history in late 2020. And that IPO was suspended just at 11 hours. And that's why it really stunned investors. And that's the kind of volatility I was talking about. Now, why did they call off the IPO at the last minute? Was because obviously Jack Ma's speech was very helpful, but fundamental helpful to contribute to the debacle in a way. But I think fundamentally, it's the regulatory tensions between China's financial regulator and Aang Group. And I think that, you know, despite the fact that you think about Alibaba's business empire, mostly started from e-commerce business. But when he spin off his Alipay,

• 46:38Speaker 01

  which is China's payment app to and to start up Aang Group, the fintech business, he starts to cross the line. He start to venture into the financial industry. And that touch a sensitive nerve of the Chinese Communist Party. Right? I mean, who is very obsessed with control. Right? I mean, when you're just selling clothes, selling cabbages, selling toys, you know, it doesn't pose any social stability or political threat to political stability, right? But as soon as you start to venture into finance and as soon as you grow to such an enormous scale, okay? That will put Chinese top leadership on high alert.

• 47:21Speaker 01

  Because the last thing they want is one single private entrepreneur. Let's just imagine Jack Ma, which used to control over 50% of the shares in Aang Group. One single entrepreneur amassed so much fortune in the largest financial institution in China, right? And so, not to mention, like, I mean, think about it, from even from a legitimate regulatory standpoint.

• 47:50Speaker 01

  What if this firm collapsed, right? I mean, and and it's it's ownership structure is also very okay because you have a dominant controlling shareholder there. So we we probably won't have time to go into all these details. I do have a lot of sympathy with the Chinese government and why they want to intervene in the IPO of this firms. Because to be fair, Ant Group, um, they they do all sorts of financial services. However, they argue that they're not a financial institution and they changed the name from Ant Financial to Ant Group to avoid being identified as a financial firm. They don't even want to be seen as a fintech businesses. In their IPO prospectus, they call themselves a tech fin businesses.

• 48:35Speaker 01

  So they're a tech firm. And eventually they got a very high valuation of the IPO, three hundred and twenty billion US dollars, which is higher than JP Morgan at that time. It was like that was something that really stunned the Chinese regulators, like, what? This firm was like spin off from Alibaba less than six years ago and now grew up to be the largest financial institution in the world? That looks like a huge bubble in the making, right? I mean, we just need to, we need to intervene before it is too late because this firm now poses a systemic risk to the Chinese financial industry. And so I think this is the major reason why, you know, the government realized these firms,

• 49:15Speaker 01

  they are not just doing ride hailing or selling clothes or video games. They are venturing into the most important part of the Chinese tiny businesses. And so we have to reduce the influence. We have to make sure that they listen to us, right? I mean, we have to remind them who's the big boss. I think, I mean, to just to put it very

• 49:35Nathan Labenz?

  Should we understand that as Xi personally, like when when something like this happens, should I be thinking, you know, Xi gathered the cabinet and like got reports from different directions and ultimately made like a personal decision like this is not going forward? I say so.

• 49:51Speaker 01

  Yeah.

• 49:52Nathan Labenz?

  Dude goes to Uh, you know, home arrest. That's it's coming from what?

• 49:58Speaker 01

  He has a home arrest. No, I don't think it's a home arrest. And by the way, he should have a Jack Ma the other day. I mean, we just we it all went round circle now. Like, I mean.

• 50:06Nathan Labenz?

  Yeah. So what's the new? What's the next turn then? Like they, you know, put him in his place for a while. I I hear the argument that like, okay, hey, this is now a national public good. And, you know, it's just not our style to let random entrepreneurs control such things. So, you know, you're no exception. Well, you know, has are we swinging back because for like competitive reasons? Or what? How do you sort of, you know, account for the most recent apparent vibe shift?

• 50:40Speaker 01

  I don't think it's swing back in the sense that a government is encouraging this kind of financial services. No, right? I mean, I don't, I, I, I, I think it remains clear from Xi's standpoint. What are the priority industry that can really help China become strong and and and prosper? And you can see from the entrepreneurs he invited to that symposium how a couple of weeks ago, who who are on on Xi's table, like, I mean, so, so these are the entrepreneurs who want AI. I mean, even DeepSick's founder, who nobody knows over a year ago, now is on on on the table. And there are a couple of consumer type businesses.

• 51:24Speaker 01

  But for the most part, it are the firms in AI and EV, clean energies, robotics. And not the most important guy is the is the boss of Huawei, right? I mean, so these are the people that the Chinese government rely on. These are the the most important prioritized strategic industries. Um, the government, yes, they understand. We, we, we should let you continue to sell video games and and do all these consumer type businesses as usual. Because we still need employment. We desperately need employment. Our young people need jobs, right? I mean, unemployment rate is too low.

• 52:05Speaker 01

  But that's not going to have the transformative impact on the Chinese economy. Right? I mean, the Chinese went through a very painful structural transformation in the past past few years under Xi. And I think Xi is very ambitious in trying to transform China from the old and dirty economy into a new economy. And you you can't, you have to say, you know, when you look back at what China are trying to do, they achieved mostly what they want to do. Even the panic controversial China twenty twenty five project. And I think Bloomberg ran the report the other day and see China achieved most of its goals.

• 52:46Speaker 01

  And China now become a leader in most of these tech, almost all this technology China tried to set the goal earlier, right? I mean, so and and China, you know, went through really painful property reforms because China don't want its economy to build on the property bubble. And and now, you know, you can see that the the economy has switched to a high manufacturing and clean energy exports, right? I mean, so um, we'll have to wait and see what the trajectory of the Chinese economy would look like in a few years. But you do see that government's emphasis from tech and particularly hard tech, when coming with hardcore technology that can give China competitive patch.

• 53:32Speaker 01

  Is clearly the main focus of the Chinese government. And also thanks to, you know, the pressure from the US, right? I mean, that China feel the urge that I have to be independent, I have to be self sufficient.

• 53:45Nathan Labenz?

  So how about AI, who are in the, you know, maybe the early innings of the great AI competition, which is not something I'm super enthused about, to be honest, because I feel like the technology is unwieldy enough without making it, you know, putting it right at the center of geopolitical struggle. But nevertheless, you know, that's the way the winds are certainly blowing for the moment, whether I like it or not.

• 54:08Nathan Labenz?

  I guess, you know, one of the things that has sort of surprised me, you mentioned that the sort of AI is still in its honeymoon phase. I've heard a little bit about this before where it's like, you know, there are sort of some standards, some expectations, but it's not like the government is like doing pre-launch reviews of all these products. My sense is they're more kind of letting people do stuff, go to market, see what happens. And then, hey, if there's a problem, you know that you're probably going to get smacked for it. But like, you're kind of given freedom to operate until something goes wrong. Still, though, I was surprised by just seemingly how kind of free and like almost whimsical the DeepSeek, you know, releases have been where I'm not sure if, and maybe nobody's sure, but like it's unclear to me like,

• 54:52Nathan Labenz?

  did they run that by the, you know, the top leadership? Was that something that, you know, the would rise to the sort of senior decision makers? Like, hey, this company is planning to launch or, you know, wants approval to launch a open source, basically frontier model that's on the level of the best stuff that's out there. Like, I'm not sure, I could, I could imagine a world where you'd say, yeah, Xi would definitely be personally looking at that and signing off on it. And I could also kind of imagine a world where you might say, actually, that note has taken them totally by surprise. And, you know, they heard about it on Twitter with the rest of us. So what do you think is kind of the alertness to the AI moment right now in the Chinese government?

• 55:34Speaker 01

  Well, I, I definitely think that DeepSea is, is quite independent in, in, in turning out their own products. And I, you know, obviously any business, whether you are foreign or domestic in China, you operate under the authority of the Chinese government, right? I mean, you need to play by the Chinese rules. However, the true creative destruction coming out from China, it's all from private businesses, owned, independent and innovation, right? I mean, I almost have to be too harsh to say that anything the Chinese government touches, it's not doing that well, to be honest, because whenever a government tried to allocate resources,

• 56:15Speaker 01

  it leads to corruption, a lot of inefficiencies and, and loss, right? I mean, and that's we see and observe in the semiconductor industry. There's a lot of corruption scandals. And and so far, China is not achieving that much of its semiconductor capability. And so they need to rely on Huawei. I mean, Huawei is not a stable firm. It's a private business, right? I mean, so the true innovative capabilities still come from the private entrepreneurs, like this kind of animal spirits of the business leaders in China. And DeepSeek is a maverick in the sense that it's not even a big tech firm. It's just a kind of like a random hedge fund, quantum computing hedge fund,

• 56:58Speaker 01

  who actually kind of like, because of regulations, reasons, they were restricted from trading some businesses, a financial part of businesses. And so they devote more resources to to train AI models and become like overnight success. I mean, so I I think it's a very idiosyncratic success story of DeepSeek. Although at the same time, you see all the major big tech companies like Alibaba, Tencent, ByteDance, and including a lot of AI startups, they have also made tremendous progress with AI efficiencies. It is just that DeepSeek is the best, but everybody else is not so far behind. And I don't think the Chinese government have anything to do with that.

• 57:41Speaker 01

  But I do think the Chinese government is very supportive of of the AI development. But if you ask me, what is the first and foremost priority, I will still think it is the hardware. It is the semiconductor, because this is really China's bottleneck at the moment.

• 58:01Nathan Labenz?

  So is that how we should understand the recent announcement of this like mega funding of a hundred plus billion dollars, that I've seen it called a quarter trillion dollars in PPP? Is that a hardware build out more than anything else? Or is there anything else that we should infer from that? I mean, you know, we're hearing here in the United States, like, not, I would say, like, you know, super credible calls just yet, but you know, the the over the window now extends to Manhattan Project for superintelligence. And, you know, part of the reason, you know, people are willing to entertain that is they think that maybe China is going to do its version of a Manhattan Project for superintelligence. Does this sort of, you know, large investment?

• 58:45Nathan Labenz?

  Tell us anything about sort of how centralized the effort might be? Or maybe another way that we could, you know, frame that is like, we hear a lot about civil military fusion in China. And certainly it sounds like we have like, sort of,

• 59:00Nathan Labenz?

  maybe like media military or media government fusion, you know, from the, the sort of earlier generation of more like social media platform companies. But yeah, like what, what is this, where's this money going? You know, what does it imply? And to what degree do you expect, even if like all these, okay, these things came up independently, but should we expect that like, there's government monitors like at the deep sea offices, like looking at all the developments now on an ongoing basis? Or like, you know, what's, I think people actually think that's what's happening. So if you think that's laughable, like, you know, please disabuse me of that notion, but I, I really am not sure what I'm, I'm, I'm ignorant about what's going on for real.

• 59:34Speaker 01

  Well, I do think that deep sea will need to closely communicate with the Chinese government, given that it's, it's such a major player in the game right now. But for the most part, I think its intentions are benign because it's open source and it's kind of providing a public good for the rest of the world, right? I mean, so, and, and that's also, you know, from that standpoint, it also makes sense why they want to make it open source. So I mean, also make them more credible and also make China become like an industry standard setter and in a way, right? I mean, China also gained the reputation being a, you know, now recognized as the second most important AI superpower.

• 1:00:17Speaker 01

  And when the deep sea is widely accessible everywhere, in a way, China can potentially also shape the standards of the AI technology with its open source AI models, right? I mean, so I, I think the Chinese government is playing a long game. And on the one hand, they understand they are not the best positioned to create the technology or to run the technology. But I, I think that they also want to guide the technology in a way that maximize the national interest. Now, why do I think that the US semiconductor project, and particularly all these export controls might fail?

• 1:01:01Speaker 01

  And, and then China may, we might experience another deep sea moment with China's semiconductor breakthrough. It's because. The US export controls have what inadvertently have created is that alignment of the private sector and the government's interests. Right? I mean, so in Washington DC nowadays, because of the emergence of deep sea, there are a lot of industry leaders, policy analysts, still advocating for very strict export controls of AI chips to China because, you know, national security reasons like Dario on Monday was one of the most vocal proponents of of that idea.

• 1:01:44Speaker 01

  He wrote an essay that we should double down on this export control. Right? I mean, we need smarter export control strategy and things like that. I think this school of thoughts, it just that it it they totally disregard the unintended consequences, not just the deep seas innovation, but also the alignment of interests from the private sector. Because at that point, the private sector, knowing they can't access advanced foreign technology, they have to innovate and they have to work with the government. They have to think about solutions, right? I mean, so you're incentivizing that strategic alignment between the private and the public sector here.

• 1:02:28Speaker 01

  And and that is the unintended consequences resulting from all these US restrictions. And I actually think that it's not a remote possibility, although a lot of industry folks were saying, you know, China is like a decade behind in semiconductor technology and things like that. I am more optimistic about China's capability. And it's, um, look, I mean, this is a country with 1.4 billion people, tons of really capable engineers, by the way, a lot of them came back from the United States because of the US anti-expinage investigation. So US lost out a lot of towns to China.

• 1:03:10Speaker 01

  I think the possible, yes, thanks to Donald Trump's, the old China Initiative project. And so when you have people, that is exactly what Ren Zhengfei, the Huawei boss, was saying, that during that symposium with Xi Jinping, the most important thing is that we have people, even if we lose out everything, as long as we still have people that we can innovate, right? I mean, so I think if my projection is that a few years from now, we will experience another deep-seated moment, and I'm like, holy cow, how did the Chinese crack out this really difficult problem? And at that point, I think the US-China tech war will end, because there's no other important obstacle along the way.

• 1:03:58Nathan Labenz?

  When you say that the tech war will end, what does that mean? Does that mean like we enter into a new period of like friendship? I mean, one question I often ask that I think is like too, you know, too quickly glossed over in many of these conversations is like, why are the two countries at odds right now? I mean, I know that there's like a long list of grievances that both countries will cite, but in your view, is there like a fundamental interests-oriented analysis that leads to like unavoidable tension or conflict? Or would you just describe this more as like a sort of malfunction of leadership potentially on both sides that has sort of created conflict for maybe like domestic political reasons

• 1:04:42Nathan Labenz?

  that doesn't have a more fundamental reason to exist long term?

• 1:04:47Speaker 01

  So Nathan, you should invite me back for another episode. This is exactly what I'm writing right now. It's called America's Legal Gambit Against China. So now just keep a preview of and to answer your question, right? I mean, just think about the deterioration of the US-China relationship. When did it start? It started from 2016 after Trump was elected, particularly after 2018. The approval rating among the US people against China dropped dramatically since 2018 and reaches lowest points, you know, just just keep decreasing over time. So we now enter the worst time of this relationship. Now,

• 1:05:29Speaker 01

  How does that happen? Right, I mean, if you think about this outcome is driven by both demand and supply. So from a demand standpoint, there are two things happening. First is the trade imbalances the economists was talking about because China, after US liberalized this trade relationship with China, I mean, just the influx of Chinese import in the United States and that took away a lot of US jobs and caused manufacturing decline and generate a lot of discontent in the US society. And that is a part of the story we have all heard about, right? I mean, that's why Trump's major, major campaign promise is that we need to bring back jobs to the US if it's China that was taking, stealing our jobs, right? I mean, and the other thing is China's rights, right?

• 1:06:12Speaker 01

  I mean, China's geopolitical rights has disrupted the pre-existing great power order, right, I mean, was challenging US hegemony, right? So this is, these are all from the main side, why, you know, the relationship turns sour. But what I am writing about is from the supply side. We not only need to think about why the US need to get tougher on China, we also need to think about who are the, you know, what are the institutions that are shaping the policy response to address these demands? And I think Trump played a pivotal role in contributing to the deterioration of the

• 1:06:50Speaker 01

  US-China relationship because when we talk about foreign relations, the president, executive branch have tremendous discretion, despite the fact that US is a democratic country. But when it comes to foreign policy, things are very different, right? I mean, the power is very concentrated in a way that makes US look like China. Power is very concentrated in executive branch. Now, when Trump came into power, his major, one of his major car is China, is against China. That, that was his brand, right? I mean, we need to be tough with China. And Trump broke a lot of presidential norms in taking a lot of actions against China.

• 1:07:32Speaker 01

  If you think about, he was the first to invoke Section 301 to impose tariffs on China, accusing China of forced technology transfer, right? I mean, that is something that broke the norms because that is a violation of the WTO commitments. Rarely has been invoked, like highly unpopular, no precedent before Trump. Very rarely would use tariffs to do this kind of issues, right? I mean, Trump was the one who started this game. Trump was the first to, you know, started all this restriction of capital flow into China. First one to really toughen up sanctions and restrictions on Chinese firms like Huawei,

• 1:08:15Speaker 01

  ZTE, the rest of Manchao, all these stories that we heard. Trump was the first one to propose banning TikTok, restrict information flow. Trump was also the first one to start this China Initiative Program to start a massive anti-espionage investigation over thousands of ethnic Chinese scientists working in the United States. Eventually, these people just left and go back to China, right? He was the one who broke with all these norms. And when he was doing that, just like Chinese government, right? When he was applying this, you also drum up the demand because he also talked very tough on China. So you can see the public opinion was very, very negative of Trump.

• 1:08:56Speaker 01

  You know, like he would say, every Chinese student who comes to live here is a spy. And he called the virus China virus, right? I mean, tripping all the blinks in China. So in supplying to this demand, he also increased the demand. He inflated the demand. So even after he left, you see that Joe Biden inherited almost all his policies and in some areas doubled down and intensified particularly active control.

• 1:09:24Speaker 01

  Right, I mean, so this is a part that most people don't really talk about. So I think it's important to see that institutional comparison with China. And in fact, when I finished this article, I was thinking, in a way, in its efforts to contain China, the US is becoming more like China, ironically, in so many ways. And you see concentration of power, the structure. You also see volatility with its practices. TikTok is a very good example, right? Now Trump is the biggest savior of TikTok, by the way. And you're going to see fragility of the regulatory outcome. You see the deep-seated emergence is a clear example of how the US export control generated huge backlash and unintended consequences.

• 1:10:09Speaker 01

  Wipe out over a trillion dollars market cap from the US tech firms, thanks to this export control. And what has it achieved? Right? I mean, and by the way, the people in Washington DC still, these days, they are still arguing for tough export control. And Trump, there's rumors around, just today, I saw on Twitter, that Trump is going to appoint somebody to the BIS and it's going to get tougher with export control. Like, I mean, it's, you see, once this institution has been set up, they are there. They will have long-lasting impact. Yeah.

• 1:10:48Nathan Labenz?

  So how do you think the Chinese government right now understands the United States's goals with respect to it? Like, do they see this in terms of like increasing, you know, volatility and maybe think like, geez, you know, Trump's probably going to be gone in a couple of years and maybe we can just, you know, yeah, we're going to like, obviously develop our own domestic chip industry, but like, other than that, you know, hopefully we can wait this guy out and we'll kind of get back to saner leadership? Or do you think that it's starting to take on its own sort of, you know, hard-to-control momentum where they may be like, really sort of seeing the United States as an enemy long-term and in a way that will be like, hard to undo or hard to get over?

• 1:11:32Speaker 01

  I think the biggest enemy for China is never the United States. Is that they mess up themselves. Right? I mean, this is my book, you know, the title of the book is called High Wire, How China Regulates Big Tech and Companies Economy. You can also say how China has messed up themselves.

• 1:11:51Speaker 01

  That tech crackdowns wipe out trillions of market cap from Chinese-speaking tech firms. Highly inject any competition into the tech sector. And no entries because all the private investors has gone and flee the Chinese market. They believe China is uninvestable. They, you know, that totally sabotage private entrepreneurial spirits, right? It was not the United States. Yes, you know, there's tariffs, there's export control and all these restrictions creating obstacles for the Chinese entrepreneurs. But that's not the biggest worry of operating China. That's not the biggest obstacle. The biggest obstacle is that how do we have, you know,

• 1:12:32Speaker 01

  really true great vision and good rule of law system in China that give people the confidence to invest and to prosper, right? I mean, at the end of the day, we come down to a good governance structure. Same story go to the United States. From the US biggest enemy is not China. It is its own democracy, its own, you know, what people are talking about constitutional prices at the moment. How the United States mess up itself. It's not China is outcompeting the US. Even if you look at DeepSea's story, it is a story about geopolitics because DeepSea created the technology because of the necessity, right?

• 1:13:17Speaker 01

  You can't get access to US export control. But you also ask yourself, why doesn't any of the US-speaking tech companies come up with this efficient solution to train their AI models? When they have abundant resources? When they are the clear technology leader? When they know very well what China has done? Because this is the internet age, right? I mean, for over a year, everybody in Silicon Valley already know Chinese firms are very good with improving efficiencies of the AI model. But none of the big tech firms show any interest in doing that. Following similar strategies. People say this is a good thing from the Silicon Valley. I don't think so.

• 1:14:02Speaker 01

  I think at the end of the day, it is a business deliberate business choice. I just wrote in the pendant in Project Syndicate called how deep sea um upend the US tech dominance. It's because the US tech industry is too concentrated. If you think about the AI industry, the infrastructure level are controlled by a few monopolies, right? At the very top, you have Nvidia, which is virtual monopoly. And then the the four big cloud makers, right? I mean, these people, they also invested downstream, all of them, right? They're in a way kind of vertically integrated. The money is all upstream. That's where the profit is. That's what the profit margin is, right? Nvidia, what is the operating profit margin? Right, over sixty percent?

• 1:14:45Speaker 01

  But where they sell downstream all the AI firm, OpenAI, these are losing business, right? So the money, the monopoly profits are upstream. They're not interested in competing downstream. They want to increase the demand of the AI chips, the computing resources, that will continue to project a very rosy picture of the demand, the scarcity, of the craziness for computing resources. That's why they have to scale things up. That's the business strategy, right? That's the, that's how Silicon Valley works, right? So if you, when we think that, oh, how deep sea succeeded, we also need to reflect upon ourselves why we fail. We fail not because we lack the innovative capability, which we clearly have.

• 1:15:30Speaker 01

  It's because of the concentration problem in the US that blindsided the innovation, misled the innovation trajectory.

• 1:15:41Nathan Labenz?

  How do you think about your own position in this crazy world? I mean, having grown up in China, you know, my understanding is like the Chinese state may still be taking an interest in what you're saying, even as you live abroad. I don't know if you feel that way, but I've certainly heard people say that that is something that the Chinese state does. You're, you know, clearly willing to be critical of both countries' governments. Like, you feel like, you know, totally comfortable and fine doing that? Or I guess, or, you know, maybe what is your sort of strategy or golf in the work that you're doing in in all this public communication?

• 1:16:21Speaker 01

  Well, I think that my value as a scholar, just think about, you know, if I see myself as an entrepreneur, I am also producing product, which is my scholarship. And I need to have my brand. My brand, like I mean, is I am very neutral. Because I grew up in China, I've worked very extensively overseas, in Europe, I also know Europe pretty well, and the United States. I think I can offer a unique perspective, being very neutral and honest. And when people read my work, they will see how critical I am with the Chinese government. I'm equally critical with what I'm quite kind of writing about, about the US government. I think we need this kind of niche product at the moment.

• 1:17:04Speaker 01

  Right? I mean, who can really give a fair and honest opinion on what is going on? I think that there is a demand for this. And thanks for your podcast and how my product diffusions, right, I mean, disseminates my ideas, which is very important, which scholars usually do.

• 1:17:24Nathan Labenz?

  Another niche product, but we're doing our part. What about, you know, this may be one that's like too far outside of, you know, what's knowable to really have an opinion on, but in AI safety circles, there is the notion that maybe Xi is a doomer. And, you know, what exactly that would mean, you know, in American AI safety circles, it's like, literally, you take seriously the possibility that AI could lead to like, human extinction, or sort of collapse of society. And as such, you're, even if you're, you know, historically, somebody who's very pro-technology and very libertarian in your politics, you're still inclined to have sort of a special level of caution and

• 1:18:09Nathan Labenz?

  inclination toward regulation for this particular wave of of technology that is the, you know, the frontier AI. Is there any way to read what Xi might really be thinking with respect to these extreme risk scenarios? And is there any reason to think that he like can or can't be engaged or reasoned with on that level?

• 1:18:31Speaker 01

  Well, I have no idea what President Xi is thinking about. But from what I observe, like, I mean, in the US and in China, the both countries are pressing AI development at full steam, right? I mean, if you're doing that, then if you're rational, then you shouldn't be an AI doomer. You should be an optimist, thinking that this AI is doing more good than than bad things. And unfortunately, I think this is very sad trajectory. I mean, because we already seen the AI can have a lot of dangerous capability along with its great promise, right? So I wrote an article called "The Promise and Perils of China's Regulation

• 1:19:13Speaker 01

  of Artificial Intelligence," and taking this very lax stance potentially could also sow the seeds for potential disasters and catastrophes later down the road, particularly when we think about the dynamic pyramid model of China's governance, right? And things don't really get attention from the very top until it is too late, right? I mean, and that's a recurring theme in China's regulatory governance. And think about COVID-19 pandemic control, think about the tech regulation, property crisis, one after another. And so, AI will be the next disaster? We'll have to wait and see. But, you know, at the same time, the US is following China's lead, in a way, you know? It's also relaxing regulation and going to

• 1:19:57Speaker 01

  another extreme. And this is really truly worrying, because after all, the US is still the clear leader in this technology.

• 1:20:06Nathan Labenz?

  Yeah, certainly at the very frontier. I agree with that. So, last question. How much value do you see in sort of Track 2 dialogues, particularly, you know, motivated by the idea that, like, geez, this AI stuff could get really powerful. One day, we might need to step back from the brink of, you know, all-out competition and have some sort of arms control or coordination or whatever. How much value is there in Track 2 type of work? And do you have any advice for people who want to build these sort of, you know, bridges or relationships or whatever that might one day be useful in that scenario?

• 1:20:46Speaker 01

  I think what the world needs is a disaster at the moment. Until a disaster occur, let's hope the disaster is not so disastrous that it's going to kill us all, that it's still can relatively contained. That we need to show the world's leader the dangerous capability of AI. The potential misuse of AI can turn into a huge AI accident that really threatens social political stability. Then our leaders, all the politicians all over the world, they will wake up and then will take proper actions. So in my opinion, the biggest obstacle to US-China AI cooperation is not your politics.

• 1:21:31Speaker 01

  It is the fact that we haven't seen the disaster. It's the fact that we still don't know, don't quite understand what this capability of AI. We don't understand AI. We don't know how to regulate it. This is not what, I was actually quoting Geoffrey Hinton. He's the guy who came up with this idea. He was saying, we don't understand this, how these things work. Because we don't understand how the brains work. This is more the afterbrain. And we just know we feed them with computing power, with data, and an algorithm and it works. But how it works, what capability it will turn out, we don't know. So there's a lot of uncertainty and unknown when it comes to regulating AI.

• 1:22:12Speaker 01

  And that's the reason why regulators are not serious, right? If you think about during the Cold War, the Soviet Union and the United States, even at the brink of the Cold War, they still sign nuclear non-progression agreement because they know nuclear weapon can kill us. But we don't know what will happen with AI.

• 1:22:37Nathan Labenz?

  So that's a sort of, you know,

• 1:22:41Nathan Labenz?

  I could imagine a more optimistic take, to say the least, but I honestly don't disagree with that assessment. In the meantime, though, I think a lot of people sort of feel like, what can I do now that would be useful in a crisis later? So I want to just give you one more chance to advise me if I want to do something to marginally improve the situation, you know, what else could I do that might build some social capital or communication bandwidth or something that might be useful when that disaster might hypothetically hit?

• 1:23:13Speaker 01

  I think there was a proposal, which is a very sensible one, of creating an independent agencies, a model after the IPCC, which is like in the environmental sphere of collecting intelligence of climate and disaster. I think if we have an independent international organizations staff with good scientists all over the world, share intelligence about AI capability, right? I mean, we already gather a lot of evidence and that and then we go back to update our government about what's really going on and whether the potential consequences is in disaster. At least we make sure we're on the same page and together to understand

• 1:23:56Speaker 01

  and trying to take precautions before things are too late, right? I mean, just think about if there is a 1% or 0.01% remote chance that AI can really get out of control and the consequences could be disastrous, is it worth us investing a little bit of resource in that? Clearly is. That's the whole point why we buy insurance, right? I mean, so to completely abandon AI regulation to walk away and just totally overlook this and only intervene until things too late is not a very wise regulatory approach.

• 1:24:31Nathan Labenz?

  Yeah, I'm with you on that for sure. All right, I'll live more into those proposals. I think this has been a fascinating 90 minutes, so I really appreciate it. Any closing thoughts or you want to share like where people can find you online or anything like that before we break?

• 1:24:47Speaker 01

  Harvard Law Professor Kavil Alfred, he said, "I have the best well-made personal website of the legal scholar in the United States." So if you search for my name, Angela Huizang, you will find me online. He said, "That was the most elaborate personal website of any law professor in this country."

• 1:25:08Nathan Labenz?

  All right, well, we'll have to check it out.

• 1:25:12Nathan Labenz?

  For now, again, thank you for doing this, Professor Angela Zhang. Thank you for being part of the cognitive revolution.

• 1:25:19Speaker 01

  It's a great pleasure. Thanks for having me.

• 1:25:21Nathan Labenz?

  It is both energizing and enlightening to hear why people listen and learn what they value about the show. So please don't hesitate to reach out via email at [email protected] or you can DM me on the social media platform of your choice.