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China, China, China. Breaking Down China’s Tech Surge BG2 w/ Bill Gurley and Brad Gerstner

Over lunch, this individual told me, “every founder and every VC in China studies the West at a nauseating level.” So they listen to all the podcasts, they read everything they possibly can, they study any speech, they look at the financials. And he said, the West doesn’t do that of China.

And, you know, maybe we should be, maybe we should be studying the best and the brightest over there.

“Hey, Bill, great to see you.” “Good to see you, Brad.”

Summer has just blown past. It’s almost football season. Yes. How are the Longhorns looking this year? They rank pretty high. “What’s that mean? Come on, give me the scoop. I know you’re all over this.” People that know, no, but they have the dangerous starting position of being ranked number one in the country. Oh, wow. Wow. Any big games coming up? They play the number two team in the country this Saturday. So we’re going to find out, we’re going to find out, we’re going to find out. Oh, it gets real fast. And back to Buckeye country. Yeah, exactly. It’s been really incredible. You know, I just got back to Silicon Valley after being away for a few weeks.

These, you know, the OpenAI deal, the Anthropic deal, I was just looking at these. I think these are bigger private IPOs than any public IPO done in the last five years in the tech market.

Right. You had Sam Altman say the other day,

“Two things can be simultaneously true. One, that this is the biggest thing to have ever happened in technology. But number two, that in the short run, things become overheated and people can get a little bit ahead of themselves.”

Brad: Where are you on that?

Bill: Look, there’s just no denying that the amount of capital that is going into these companies earlier in their life and the scale of hiring and their willingness to take on risk, which I think you can use cash burn as just a proxy for risk because you get further away from knowing unit economics. And you’re more threatening.

You know, I think those numbers are unprecedented. Like even against the Uber-DoorDash wars and all this, they’re bigger than that.

So I think it’s part of, we’ve talked about it. I think it’s part of a systematic trend where investors are aware of network effects. They’ve watched companies that get the initial conditions right, go on to really big outcomes, and they’re willing to bet ahead of the curve.

And as the more confident they get over more time, the more they’re willing to make that bet ahead of time. And so, you know, it is what it is. We’re seeing, you know, massive numbers.

Brad: Well, I’d say it’s a combination of two things:

• Extraordinary scaling. We’ve never seen two companies, in the case of OpenAI, scale users and scale revenue as fast as they are.

• But definitely, you’re absolutely right, the private markets are there to meet them.

Brad: We’re seeing the depth and breadth of capital and investment in the private markets. I think unlike anything we’ve ever seen.

But you know, we’re going to save that for it.

Bill: Yeah. Save it for me. Let’s save it. Let’s save that for another day.

We’re going to do something a little different today. You know, one topic that I think we’ve hit on time and time again, but we’re really just going to dedicate the show to it today. And that’s China.

You just got back from China. It’s one of the hottest, in many ways, most consequential and also most controversial debates, I think, in Silicon Valley and in Washington.

On the one hand, you have, I think, national security economic hawks who are in this camp that we should decouple. It’s a little bit more Cold War 2.0, a great power struggle. This is the Mearsheimer perspective.

Maybe in the middle, you have, you know, tech pragmatists, I guess I might call them, like Jensen Huang or Tim Cook. I’d probably put myself in this camp who think we have to compete. We have to re-onshore industry. You probably should have some tariffs in order to achieve that, but you definitely can’t decouple or ignore or antagonize.

And then maybe on the other end, you have kind of the globalists. I don’t know, Jeffrey Sachs is probably in this camp. It’s free trade, open science collaboration.

And, you know, there’s tremendous consequences to issues around tariffs and trade, issues around military, issues around AI.

There’s this new book out by Dan Wang that I want to talk about, where he really takes on the differences between the two countries.

Brad: But why don’t we start with, you know, this trip that you recently took? You just got back from China. Why did you go? And frankly, especially given all the blowback you’ve gotten personally, Benchmark’s gotten, with respect to China, maybe for having too soft of a view on China, give me your inspiration for wanting to go and spend as much time as you did studying China.

Bill: Yeah. So I, I’ve probably been four or five times before this trip, but I hadn’t been since COVID and I’ve been reading about everyone that’s been going. We’d talked about Thomas Friedman’s comments from his last trip. And you hear about all the things that are different.

Personally, my daughter’s an Asian studies major. So she went on the trip with myself and my wife. And so, with her studying that topic, this is, I thought it’d be a great chance for her to see things too, much younger than us, but I wanted her to go around. And the fact that she speaks Mandarin was helpful on the trip as well.

But you said something, right? You said,

“this is probably the most consequential other nation when it comes to thinking about America or thinking about our stock markets or thinking about how technology companies are evolving.”

And so I just wanted to learn, like, why wouldn’t you want to know more? I don’t understand how, if it is the most consequential relationship for our country, why you’d want to know less.

I’ve always enjoyed going over there. I’ve always enjoyed learning things that I don’t know. I really wanted to see it up close and personal. One thing that was super helpful was Dan Wang, who you just mentioned, gave me an early copy of his book. So I read it on the way over there.

Brad: Tell us a little bit. Who is Dan Wang?

Bill: So, it’s a gentleman that lived over there during COVID. He’s a policy analyst and recently moved back to the U.S. He’s at the Hoover Institute, has been studying China for a long time, looks at it through the lens of technology and innovation. The book’s titled Breakneck.

It’s really talking about some of the acceleration that we’ve seen in building inside of China. But I would suggest two things about the book that are really interesting:

• One, he kind of uses it as a mirror back on the U.S. So it’s really about both countries, not just about China.
• Two, he’s balanced. He talks about the pros and the cons of what happened over there.

He starts with this chapter that was recently republished in The Atlantic, where he highlights that the vast majority of the political bureau are former engineers. This is the ruling party within China. And that the vast majority of the people in Washington D.C. are former lawyers.

He uses that lens to say,

“this is why they’re great at building things and maybe why they’re not so great at social things.”

I think he gives the edge to having the lawyers to protecting free speech and personal rights.

He did not enjoy the lockdown in Shanghai, which was fairly abrupt. He’s very negative on the one-child policy. For those who don’t know, the Chinese government is now trying to encourage people to have three children, not successfully, but that’s the new program. They’ve completely flipped from where they were.

But it’s a fascinating read. It’s a very personal read. You can tell that his life journey - his parents were born there, left, went to Canada, and that’s how he grew up in the West. Then he went back. I think it’s a really interesting lens, and it’s very, very current.

One of the things he really dives into, and this is something that people who know China have known for some time, but I don’t think the general public understands, is that one of the reasons for the vast build-out -

We’ve read about:

• High-speed trains
• Overnight cities
• The number of companies in the solar space and in the EV space

One of the reasons this happens is the provincial leaders compete with each other. The provinces are very competitive with one another, not in the same way the states are in the U.S.

One of the reasons this is true is if you run a province and do well, you put yourself in really good standing to move up in the federal government.

Brad: But wouldn’t you say that’s similar to, say, Gavin Newsom competing with DeSantis in Florida on who is more business-friendly or tougher on immigration?

Bill: It seems a little bit the same way. I think it’s somewhat similar, but the difference is because there’s a singular government that’s going to make choices. In the U.S., if you do well as a governor, you might get elected. Got it. But in this case, it’s more like divisions of a company. If you run one well, you might get the CEO job.

And so that competition leads to overbuild in certain cases. So there’s… Several ghost cities, that are buildings that are empty, where they’ve built too fast, are now facing problems. This is happening even though China is the world leader in EVs and the world leader in solar panels, where some of these companies need to go bankrupt, but a province may not want them to because of employment issues.

Those are two sides of a coin. You get one benefit, you get hyper competition. We talked about the thousand flowers bloom.

The federal government publishes every five years this mandate of the important things you need to work on. Then the provinces go at it-sometimes right against those initiatives. That’s how they’ve taken a lead in energy production. You wonder about the number of nuclear plants, new nuclear starts, solar farms, wind farms.

Brad: I’m going to dig into that. There’s a general view that China is good at building things, like iPhones, but perhaps not at innovating. However, Jensen Huang reminded us recently that:

“50% of the world’s AI researchers are in China and they’re indeed innovating and not copying.”

On the ground, when you look at what’s happening in auto, AI, space, or energy, they are innovating.

How would you compare and contrast, as a venture capitalist, the level of rigor, innovation, excitement, enthusiasm, and investment going on in these critical future industries?

Bill:

If you’re over there, you know that:

• ByteDance founder is remarkably unique.
• Lei Jun at Xiaomi is remarkably unique.

If you spend time studying those people, it’s hard to think they can’t innovate. For example, TikTok was there first, then came here, and Reels copied TikTok.

One surprising example is Pop Mart, a $40-50 billion public children’s toy company started in China and widespread there. The idea that there is no innovation seems flawed.

One of my favorite meetings, where I promised to protect the innocent, involved an individual who told me over lunch that:

“Every founder and every VC in China studies the West at a nauseating level. They listen to all the podcasts, read everything, study any speech, and look at financials. But the West doesn’t do that of China.”

Maybe this reflects my motivation for going over there to learn, but that was a provocative statement.

Maybe we should be studying the best and the brightest over there.

Brad: Let’s dive into one industry as a lens. I know you spent time in the auto industry, looking at new entrants. Help us understand the innovation happening in:

1. Electric vehicles
2. Autonomy
3. How Tesla competes effectively in this hyper-competitive EV market

Bill: I had several auto experiences when I was over there.

First, I was invited to visit BYD. They gave me a nice coat. I met with Stella Li, their top executive facing outside China, running all their Europe initiatives.

For those who don’t know, BYD is the largest EV manufacturer in the world at about four million vehicles. They started in batteries, competed with Foxconn to build mobile phones, and bought Jabil Circuit (an old company).

They make many things: buses, subways, and various products, but entered cars about five to ten years ago.

They have a number of models. They gave me a very high-end sports car-actually, I met a public company CEO who said this was his favorite car to drive. They make an SUV that can drive into the water-I don’t know why you’d want to do that, but we drove it in the water and out.

They have cars at the $10,000 to $15,000 price point on the entry side. They’ve hired a European designer. It’s just how they’re building stuff like this, on the higher end. They’re very aggressive from a cost perspective. I think BYD more than anyone on the cost side, it’s not preventing them from building higher-end cars as well. So that’s BYD.

I also had a chance to visit Xiaomi. They also gave me a car. The Xiaomi story is super interesting if people don’t know. I was fortunate enough to meet Lei Jun back in 2003 or 2004. About 10 to 13 years ago, he started a phone company, and that’s what Xiaomi is.

That company is now the third largest, I think, around the globe in handset sales-heavy in Europe, heavy in South America, not just China. Around 2021, three to four years ago, he decided to build a car, which was about the same time Apple announced they were going to build a car.

Mind you, Lei Jun was back in 2003 running an e-commerce company called Joyo. There was no obvious reason he should be able to build a phone and then build a car.

Brad: So what do you attribute that to, Bill? Why do you think Xiaomi is so successful?

Bill: Going back to Dan Wang’s book, he says this is an engineering culture that has built these technological ecosystems creating a higher velocity of innovation than we see in the United States.

Brad: Dan would argue the U.S. is bogged down by regulatory capture and lawyers, etc. Why do you think Xiaomi is so successful?

Bill: By the way, here are some numbers: They are making about

• A thousand cars a day
• Just came out with this production capacity
• The factory I visited is sold out, with a 30 to 40 week backlog
• It costs five grand to get on the waiting list

The factory itself makes a thousand cars a day with 2,000 employees. It is highly automated, really highly automated.

I imagine they plan to improve that ratio-say, a thousand employees for a thousand cars-that’s essentially one employee per car per day. That number is about six employees per car per day in the U.S. This is very interesting for a number of reasons:

• If you want to bring jobs back to the U.S., automation might mean there are fewer jobs available by the time you succeed.
• The global potential for car manufacturing in five to ten years might be only around 400,000 total jobs.

So we need to be really thoughtful about these dynamics.

Back to Lei Jun - he gave a talk in 2024 that people should watch and learn from. It’s on YouTube-his State of the Union from 2024. He spends about an hour discussing his approach to building a car.

He shared something entrepreneurial: He hadn’t driven a car in ten years because he had a driver. So he immediately switched seats with his driver. Then, at his company parking lot, if there was ever a car he had not driven, he’d leave a note on it requesting to borrow it. He asked the owners what they liked and didn’t like about their cars.

He claimed he drove 170 cars that way.

Like BYD, they hired a European designer who helped him out. But for an entrepreneur who had never been in the car business to build a factory in a three-year window is spectacular.

Our friend Omeed built a factory in Texas in under 40 months. It blows my mind that these entrepreneurs are capable of such accomplishments.

When I was driven around in a golf cart through the Xiaomi factory, I was just thinking that this person wasn’t in the car business three to four years ago.

For those who don’t know, I encourage you to watch that.

The CEO of Ford, Jim Farley, also toured the factory. He insisted they ship him a car back to Chicago, and he’s been driving it around.

He made some pretty extreme statements after experiencing the car. It sells for about $40,000.

He said:

“It’s the most humbling thing I’ve ever seen.”

Even beyond that, he said their cost and quality of vehicles are far superior to what he sees in the West.

He emphasized:

“We are in a global competition with China and it’s not just EVs. If we lose this, we do not have a future at Ford.”

Bill: That’s Farley at Ford. I would pause after mentioning that to those who might accuse me simply of going over there to learn and accuse me of somehow being like an agent for the CCP. Is that also true of the CEO of Ford?

You know, like, why is he saying these things? Like we’re just witnessing what’s happening on the ground.

Brad: Yeah. One of my observations is, and you hear this from Elon, you hear this from Jensen Huang, you hear this from Tim Cook, you hear it from Farley. It’s extreme respect for the level of innovation, for the focus, for the engineering-led culture that exists in China.

And that to me, one of the reasons I wanted to do this pod on China is because I think it’s as much a reflection about what the United States needs to do to re-engineer its own society, right? It’s not enough to say that we want to re-onshore critical manufacturing. It really is about this movement around American exceptionalism, America builds.

It’s about making the reforms necessary, whether it’s regulatory capture, whether it’s the tort reform, legal reform required to frankly allow this level of innovation and recognize that we’re in this global competition, and there are two ways in which you can approach this:

• One is we can build barriers.
• We can try to decouple.
• We can pretend the rest of the world somehow won’t buy China’s goods.

But if you look at it today, the U.S. only represents about 14% of China’s exports. The U.S. only represents about 3% of China’s GDP.

Right. So like, we’re just not that important to China. I don’t want to understate it; we’re still very significant, but China has found a market in Europe, Africa, and South America.

It seems to me that the harder pill for the U.S. to swallow-and this is where I think that I’m in the camp of those in the middle who say:

“We need to engage. We need to compete. There is a competition. We want to win the competition, but this is about focusing on us and winning and running a faster race.”

We have a lot of reforms. I think a lot are occurring now. I think we’re doing the type of things we need to be doing to get more globally competitive. There are industries critical to our national security, such as:

- Rare earth magnets
- Steel production
- Pharmaceuticals

Where I think it is appropriate to have both an industrial policy and a tariff policy that’ll provide incentives to those industries.

But to me, the reflection on what I hear you saying about China, when I read Dan’s book, is that China is putting the accelerator to the floor in terms of innovation, and it’s in every single industry. It’s powered by the provincial competition you talked about, powered by people who are just naturally entrepreneurial and hardworking.

Brad: There’s no escaping that. And there’s no putting that genie back in the box. What are your thoughts on that?

Bill: Yeah, no, I think it’s exactly right.

I mean, BYD has a big presence in Hungary, and they have a factory in, or already have one, in Mexico.

And why, if you’re Mexico, would you not buy the 10 to 20 grand EV? Why would you buy the 50 grand one from America? It just doesn’t make any sense.

If for any country around the world-and I could reflect this on the U.S. as well-if you’re not going to buy domestically, you should certainly buy from the low-cost producer. It goes back to comparative advantage.

If you can’t produce a globally competitive product and you close your import border, your people are forced to buy a product that is overpriced and not competitive. From a standard of living perspective, they’re worse off than they would be if you had opened the import door.

Bill: I’ll give you another example of this.

This is the Apollo, a competitor to Waymo.

• We’ve seen the Waymos around Austin and San Francisco.
• We’ve ridden in them.
• This is, I’ve ridden in it now. It’s a little bigger, I think a little roomier than the Jaguar for sure.
• It’s more of an SUV.

But this is on the streets, and Apollo is kind of interesting. It’s inside of Baidu, which is a search engine company.

While people are simultaneously saying that the Waymos should be worth $170 billion inside of Google, you can buy shares of Baidu for zero enterprise value. It’s a $30 billion market cap, $30 billion in cash on the books.

From a global perspective, I don’t know why, if this is $30K, you’d want to deploy Waymos, which people say are over $150K partially. Due to the MEMS solid-state LiDAR advantage that China has, which we’ve talked about previously, the rest of the world is a really interesting thing to think about when you compare the two countries. I personally don’t think all the other countries in the world share the same level of hawkishness that at least part of the members of our national government have. So, I don’t think they’re going to be as afraid of their technologies.

Let’s think about this in the context of what you’ve seen. If you were giving advice to Trump on export controls, for example, whether it’s on AI chips or other things, what would your advice be?

Well, I think you hit on some of it around the red tape. There are a couple of different things in certain industries where we’re really behind. I would be very open-minded to joint ventures (JVs) coming towards us. For the past 50 years, European car manufacturers and US car manufacturers opened facilities in China. Some of them were forced to be 49% owned, 51% owned. I’d be very open to that kind of thing.

There was some positive news out this past week following Trump’s engagement with Korea around nuclear, which we have talked about before. Korea can build a nuclear plant for one fourth the price that we can. Why don’t you invite them to come help us build a few in the US and see what we can learn?

I wonder if we should allow for, given there are so many EV companies like NIO and Zeekr and some of these other things, innovating in different ways, but some of those are going to have financial trouble. NIO is public; you can see that the stock’s not doing all that well. Would we let a Ford or GM buy one of those companies? Maybe we should. I don’t know if the Chinese government would let them, but we’d let one of those companies open a JV with Ford or GM in the US. I think we should if we’d learn from it.

You could say the same thing about solar, or any of these technologies where they have a lead - solar, nuclear. So I would be open-minded to those types of things. I would be really big on trying to get regulation out of the way and recognizing that an autocratic country that has specific goals can move so much faster in any industry than you ever could in the US. We’ve created so many people whose jobs are to block things.

We’re seeing that type of behavior in certain states, which is why TSMC is in Arizona, which is why Tesla’s in Texas. I would give Governor Shapiro a lot of credit for reopening Three Mile Island and what he did with I-95. Like all those things are signs of recognizing that we’ve built mud in our system that prevents building. How do you get, how do you start to remove that and move in the opposite direction?

Specifically, thinking about the tariff. The president tweeted that if we don’t get rare earth magnets from China, he could raise the tariff rate to 200%. There was some talk that he was going to visit China in the first week of September, which is right around the corner.

I said on a couple of pods ago, the way to understand this president is that

“he’s a self-described deal junkie. He’s a pragmatist. He’s not an ideologue.”

It seems to me that when he’s talking with Jensen Huang and others, he falls in that kind of pragmatic centrist category. He certainly wants to rebuild stuff in the United States, but at the same time, it appears to me he wants to get a big deal done on China.

Brad: Where do you come down? If you were an advisor on the tariff side of things, Bill, do you think he’s going to get a big deal done with China? Do you think that’s the right thing to do? And how do you think that influences some of the building that you’re talking about?

Bill: I have zero insight. I didn’t meet with anyone in the CCP or the government. So I have no idea what their mindset is. This is pure speculation on my part.

You already brought up that we’re a much smaller percentage of their exports than people realize and think about. As a result, I think that China is going to be far more biased by what they view as fair and face-saving than they are necessarily like numeric. And so I think if we, if someone were to approach them in a pragmatic way, I think a pragmatic deal could easily get done. I, you know, if they are engineers, as Dan Wang said, I, it’s not like, you know, they wouldn’t accept a pragmatic outcome. I think they would.

But if we, if we’re intent on being derogatory in our language, and, and by the way, that’s the thing that I just really don’t understand, that you see in Washington, you see it on that select committee of the CCP, and you see it from some of the people in Silicon Valley, I just don’t understand the value of being belligerent. And, but, but many people clearly are, I mean, they have four times the number of citizens on this earth than we do.

None, everybody’s country of birth is something that happens to them outside of their control. So I just don’t know why vilifying a billion people is a good idea. So I think it’s possible. I think there’s, I think they would do a deal.

And I just don’t know if, if we get caught up in a silly tit-for-tat verbal war, what the benefit of that is and anything like that. This is one of the points Jeffrey Sachs makes, not David, you might provoke world war three.

So, what do you put into your MPV calculation? Is it fair to say that, you know, if you look at tariffs heading into this year, they basically doubled on China, but if we put tariffs on particular industries in order to incent building industries in the United States, imagine it was a deal, a bit like the Japan deal back in the 80s, where we also cut a deal with the Chinese that they had a trillion dollars of investment the way we have with other companies that go into the U.S. into some of these industries and that we perhaps get some reciprocity and reduction of barriers to some Chinese goods into China.

Where, how would you handicap that? Did you get any sense? Or, you know, do you get any sense from the stuff you read in the United States as to the probability?

Brad: I think it’s one of the biggest influences as we look at growth in the back half of this year, as we look at market sentiment in the back half of this year. Just curious where you stand on that.

Ironically, one of the things that, like I said, I met with companies and founders and a few academicians, but I didn’t meet with the government. But in general, there’s just not any hostility from their side, from that group of people that I met with.

In fact, most of those people look up to the U.S. founders that have done great things - the Jobs and the Elons, and most of them aspire to compete globally the same way a founder in the U.S. would like. And so they would like to see all this rhetoric die down and they would like to have the opportunity to come to the U.S. market. They’d like the opportunity to compete in Europe and South America.

Many are Xiaomi and BYD already are. And so I think, like I said, I think there’s a pragmatic deal to do, to the extent, and if that led to the types of programs that I just talked about - this kind of JV thing, where there’s a market, they’re a leader in, and we have that company come to the U.S. and help us understand how to compete in some of these technologies and get to lower price points - I think that’d be fantastic.

Brad: Do you feel like over the last 20 years, who do you think’s gotten the best out of the relationship, Bill?

You know, I haven’t read this Apple China book. A lot of people have been talking about it and I aim to. I think the problem with looking at it that way is, you and I’ve talked about this finite versus infinite game - where are we in the time of the planet and what do you think the planet’s going to look like 15, 20, 30 years from now?

I mean, I think it’d be very easy to say, using your framing, to say the U.S. took advantage of Europe post-World War II. A lot of the manufacturing that existed prior to World War II shifted to America.

And so you could then, with that same frame, say, yeah, China grew on the back of America from that time. But I kind of look at it another way, which is there have been different periods where these different countries have industrialized.

We were a huge beneficiary post-World War II because most of Asia and Europe had been blown up and there was no production capability whatsoever. And a lot of the kind of glory day mindset that we have about what life and generational change should be like in the U.S. come… From that time, which is a bit unfair, I think from a global perspective, there are a ton of hardworking people over there. Deng Xiaoping brought capitalism underneath the Chinese government and led to the biggest increase in standard of living of any country. It’s like 500 million people came out of poverty as a result of that.

When people say,

“Oh, we should have never let the jobs go over there,”

I don’t think they really want to say,

“Well, we shouldn’t have let 500 million people out of poverty.”

It’s the same people that want to talk about aid in Africa and whatnot. So, a lot of people benefited in China, but they’re also hardworking people.

We talk a lot about meritocracies, right? Some of the same people that talk about meritocracies are anti-China. So that’s a hard thing to square because if someone’s willing to work twice as hard as you and willing to study harder and all that kind of stuff, do they not deserve a chance at a life like you have?

I think the bigger complaint is that we were naive in our trade policy and therefore allowed huge advantages to flow to other areas. By the way, as Dan says in his book, at the same time, we were actually moving to more of a regulatory state in the United States. So our companies were getting less competitive at the same time we were helping their companies get more competitive. There was a lot of collateral damage in the United States during that period of time.

I think right now people are saying, okay, we’re moving into this age of AI, but we have to get back to driving reform in the United States that levels that playing field a bit. You can’t undo the past. But there is recognition that we need to do things in order to incentivize U.S. industry to compete more effectively in a lot of these different categories.

I think it is going to be tricky though. If you say, for example,

• You’ve got 100 competitors in the EV industry in China,
• They’re all willing to work on razor-thin margins,
• They’re willing to sell cars into Europe at $20,000 or $25,000.

Today, as Farley said, there is not a U.S. manufacturer, except perhaps Tesla, that comes anywhere close to being able to compete in that way on a global basis.

One thing I’ve been studying a bit is that the Chinese government’s more scrutinous of monopolies. I don’t think they care about market cap. They care more about employment and global competitiveness, which would cause them to support low-margin companies. They get to choose to make that choice. I’m not judging it, but it would result in this outcome.

In addition to the Farley quote, the Mercedes CEO said,

“we need a reality check,”

when he was talking about Chinese EVs. Then Stellantis, the new name for the company that rolled up a bunch of other car companies, said Chinese EVs are quote, possibly the biggest risk facing his car maker and Tesla.

This is Carlos Tavares, who publicly criticized EU tariffs on Chinese electric vehicles, calling them a major trap for automakers.

You talk about what policy would fix things. I’ll tell you what policy will make things worse.

You start protecting U.S. industries by putting export tariffs on the most competitive products around the world - which I talked about earlier. Now your consumers don’t have access to those price points, so you’re buying inferior goods at inflated prices. That’s going to lead to inflation, prosperity, and standard of living levels dropping in the U.S.

There’s a lot of variables. I would say that’s generally true.

If there was a national strategy to improve competitiveness in an industry that had an unfair playing field for a period of time, I could see a national strategy. For example, we talked about:

- Pharmaceutical manufacturing
- Chip manufacturing
- Rare earths

where you would say, okay, we’re going to actually impose a tariff because these other goods are flooding and it deprives us of the ability to build our own domestic industry.

But I think we have to be very careful when you do that. To your point, we know that unfettered competition will lead to:

• Much better products
• Much lower prices

And when you start… Protecting these industries, what I worry about is you protect the regulatory grift and the over-lawyering that Dan talks about in his book, right? We got to face up to this fact that we have to reform some of these basic things in the United States. That’s why you see companies like Tesla moving to Texas where those reforms are moving forward.

I think we are making progress on that, but there is a rationale for those critical national industries. However, I generally agree with you that if we move to high levels of protection because we simply can’t compete-because it takes us 10 people in an auto plant to do what they do with one person in an auto plant-that’s unsustainable.

I think we need to be careful with the rhetoric we throw around. So, I’ll give an example. If you read what comes out of the biggest talks, they say,

“Everyone in China just steals things and the government subsidizes everything.”

So I brought that up with Stella Li at BYD. She said,

“If I’m getting all this government subsidy money, can you please find it and show it to me? We’re a public company. Come show me the money I’m getting from the government.”

She said,

“I’m getting nothing.”

And then, you look at the US- we give companies subsidies all the time to build factories. We’ve had EV credits for the past 10 years, both at the state and federal level. Intel’s getting money from the US government.

I don’t understand where we’re pointing or accusing, and why it isn’t the same thing here. And then lastly, Elon’s published all the Tesla patents-so there’s free IP for Ford and GM.

Brad: I would ask you, with that free IP, if we gave Ford and GM subsidies, do you think they’d immediately be competitive with China?

Bill: No, sir.

If I ask a hundred smart investors that question, what would they say?

• I think they’d agree with me.

So, the thing we’re accusing them of being the reason they’re succeeding, if you flipped and gave that to US companies, none of us have confidence that would work.

That’s what I’m saying. You just got to try to get as much information as you can, learn as much as you can. I just want people to have a pragmatic and accurate view as they make decisions.

I did a deep dive on your favorite product, ChatGPT, a $300 version, deep research on the 24 members of the select committee for the CCP. I think all but four have never been to China, and the ones that went, it was seven years ago. I just encourage them to go visit.

If they’re going to sit there and have such strong opinions, it’d be good if they were educated. I wouldn’t want, if you were putting together a committee inside your corporation that’s going to be in charge of something, that you wouldn’t want the most educated people on that committee.

Brad: I can already hear the criticism:

“Oh yeah, of course people would say, well, we don’t expect the CEO of BYD to tell you the truth necessarily about government subsidies or things like that.”

But here’s the one thing I want to get across in this pragmatist camp. We do have to be self-reflective, right? If we have this view that the only reason China’s competitive or winning is because they’re stealing or subsidized, I think what that view does is it allows us to delude ourselves into believing we don’t need to get better ourselves.

If you’re playing a competition and your kids are out there playing in a football game or swimming race and they lose, and they come back and say,

“The only reason that person won was that they cheated.”

Your advice should be,

“No, you’ve got to get better yourself.”

We’ve got to get better. How can we get better? That’s why cultivating this balanced and realistic view of China-what’s actually happening on the ground, how hard folks are working, what the level of innovation is, the fact that the US is a diminishing part of their trade and GDP-should cause us to look inward.

We need to ask:

• How do we accelerate?
• How do we build more?
• How do we invest more?
• How do we get globally competitive?

Why does it cost us four to five times more to build a fission reactor in this country? Why are we building no nuclear reactors in this country?

The good news is this: I feel like there’s a lot of momentum under this administration. That was building before this administration around investing in America, getting more globally competitive, right? A lot of people want to build things here again, and you have somebody like Jensen Huang who says both can be true. We need to sell H20s and B30s into China. We need to stay relevant in their ecosystem. But at the same time, we need to build plants in Arizona, and we need to rehabilitate and invest aggressively in our own domestic chip program. Those things can be really simultaneously true.

It’s interesting that all of those CEOs who spend the most time competing in China, they all fall in that pragmatist realist camp, in the center about the United States needing to get serious about the work it needs to do if it wants to remain globally competitive.

Brad: With that said, Bill, can we shift for a second? I want to look at this through the lens of what’s going on in AI. I know you spent a bunch of time over there looking at the key players on the model side, on the chip side, and so forth. Maybe just round out that other conversation and then shift there.

Bill: Yeah, so one thing to note that isn’t in the Dan Wang book, but I think we can infer from it: the government every five years publishes this five-year plan. The last one was the 14th, and I think the next one will be coming out soon. I would encourage everyone to read that because that’s where they tell the provinces what’s important to work on. Historically, this has led to areas where they’re investing heavily. They might make a mistake in what they say to focus on, but when they’ve gotten it right, it has led to a lot of global competitiveness. So I would watch that.

In the last one, in the 14th five-year plan, they literally talked about open source. I found a document that covers all the history of Chinese open source, but it goes back 20 years. This isn’t an overnight thing. Our government recently said they were pro open source in this new AI executive order, but this was kind of pushed out to the provinces.

Two things I would say about the AI market there:

• First of all, no one’s particularly concerned about there being a monopolist because there are so many open models.
• From the entrepreneur’s perspective, there is a more relaxed opinion because they can work on products and integrate all these different models.

I think DeepSeek has the most intellectual brand because of how it arrived and the national pride that came along with it.

Qwen is a really important player mainly because Alibaba leads in the cloud market over there. They are about a 70% player in the cloud market, which gives them a natural place to deliver models from, making them important.

On the consumer side, ByteDance seems to be the company to watch on anything consumer. They already have an app that, if someone said whose app is closest to OpenAI’s in China, it’s already an app from ByteDance that’s out there.

People on the watch list wonder if Tencent is going to do something. Obviously, WeChat is still extremely important in China, which is a great asset if they were to bring something, but they haven’t been particularly aggressive.

And then Xiaomi, because of Lei Jun, everyone wonders what he might do, and owning the phone with that big market share might give you some advantages. We’ve talked about that with the US players.

So that’s kind of my assessment of the state of affairs over there when it comes to AI.

On the model layer, do you think there’s an acknowledgement or belief that they basically have the tools, the chips, with Huawei, et cetera, to be competitive? Brad: Is there a sense in China that Qwen code is going to be competitive with Claude code? We know they’re all open source. Do you think there is a sense that they all stay at the frontier?

Bill: I had that sense even before I went, just because of the number of competitive open source models and the way they can trade, train each other. You just have a much more natural environment to have this kind of hyper competition that we talked about in EVs or solar. Having that many open source providers gives you that.

I would say even maybe more because of the way the models can help one another. At least in the EV case, you can’t take someone else’s EV and make yours better, but here you can.

Brad: Can we talk about that? Just open for a second. Let me double click on this. You know, obviously we saw OpenAI, open source, a model a few weeks back. Now we have comments this week out of Elon. They’re getting back to more aggressively open sourcing. You’ve obviously got Meta already, with Llama out there on the open source front. And I saw you had a tweet yesterday, maybe Bill just on, you were surprised that Google had not taken a more aggressive position with respect to open sourcing Gemini.

Brad: Do you think they will? Why do you think they haven’t? And why do you think it would be the right thing for them to do that?

Bill: Well, I had some replies to that tweet to get into this, but this goes back to where you started the podcast. I don’t think public companies understand, or I don’t think they’ve internalized, and really come to terms with the fact that the private markets are willing to bet so aggressively on these new players. And you know, we’re talking about AI today, but this could be true of any new disruption in the future.

When I was going through the Uber-Lyft wars, we’d be in board meetings and look at these burn rates and all this money we’re spending. You talk about whether or not to raise another round and certainly thought about doing what Sam did and trying to talk capital out of the market, which never seems to work. But you get frustrated with that game and you want to, you know, but you’re dealing with business decisions that you would never see in another industry.

Getting back to the question you asked, I just don’t know. If everything’s at stake for Google, should they be willing to lose five or ten billion dollars because the startup that’s attacking their space is willing to lose that amount of money? I think it’s an ironic situation we’re in where the private markets and the startups are willing to be more aggressive, perhaps more risk-seeking than the public incumbents are.

I think our friend Rich Barton took a lot of heat at Zillow when he chased Opendoor, but he was faced with a situation where a private company was claiming it was going to out innovate him and disrupt his game. Some of Wall Street had come to believe that. So he engaged and played that game on the field.

Now, that eventually turned out not to be true. Maybe if he hadn’t engaged competitively with Opendoor, they wouldn’t have kind of tripped and fallen. But it was probably the right thing to do. I don’t think a lot of public companies think that way.

Now, Google historically, when it came to AWS, open sourced Kubernetes and went after them. When it came to Apple, they open sourced Android. Certainly some of their lower models are open sourced and competitive on OpenRouter, but maybe they should be more aggressive even still because of what’s at stake. That was my point.

Brad: Okay. Shifting back real quick, and you know, we’ll round up here on China.

The VC market in China — just rewind the clock, not that long ago, Bill. There was a lot of US enthusiasm. A lot of US firms were investing directly in China, from Sequoia to GGV. A lot of those firms either shut down or spun off their operations in China.

Benchmark has taken a lot of heat for doing an investment in Manis that I’ve read Benchmark explained really isn’t even based in China.

Brad: What do you see? When you were there, do you see a lot of US investors actively investing on the venture side in China? And then what does the Chinese venture ecosystem look like?

Bill: So, a couple of different things.

• First of all, there’s a real lack of Westerners. For all my trips, this was the fewest Westerners I’ve ever seen.
• The high-end hotels and the high-end restaurants were fairly empty.
• I think that just has to do with the thawing of the relationship, which has caused less travel from Westerners.

The VC market is in a bit of a lull because when these policies all changed, and when the Jack Ma thing happened, when DD got pulled back from the US markets, when the for-profit education companies got taken out, and when Tencent went flat for a couple of years because of game reforms, all those things took a lot of air out of the system and caused a lot of people to reconsider.

Then you also had, and I don’t even know if this was more led by the US government or the China government, you had the splitting of the venture capital firms.

• Sequoia split in half.
• GGV split in half.

There are much fewer Western dollars available to invest in China. And so, you know, there are a few firms that have stayed. Neil Shen at HongShan had raised a ton of money right before all this happened. He’s very active, has a huge staff of people. Anna Fang and Zen Fund, which is an angel group, are very active. And IDG is highly present and has been active, but that’s only three firms, you know, and compared to where things were six years ago, when every one of our competitors in the venture industry were making an annual trip, it’s kind of night and day.

Then there’s not that many R and B dollars available to the venture market. A lot of the, you don’t have the foundations and university endowments that you do here, and the billionaires who have made wealth typically are looking to diversify offshore. So you just don’t have a lot of R and B dollars seeking a home.

Now you have the provinces entering the investment space, which is an uncomfortable reality for some of the VCs. They’re asked, I hear they’re asking for terms that you and I would consider “non-starters.” So that’s all a little bit messy.

It’s funny because it’s simultaneously with some of these markets-EVs, autonomous, robotics-where the country is doing extremely well. So I found those things off a little bit. Everyone’s very aware that if the government decides your company is doing something that’s not in the best interest of the citizenry, that that’s going to get corrected.

And so there’s a phrase, I don’t know if it was in Dan’s book or I read somewhere else, called “don’t be the tallest tree.” That’s a problem for you. Yeah, exactly.

In that regard, do you think, you know, that’s what I was wondering; despite the fact that VCs have retreated, that you have companies that are not going public and have been shut down, you have entrepreneurs that have gone missing, it doesn’t really seem to have diminished the activity around:

• AI
• startups
• entrepreneurism

And in fact, a lot of the locals heavily dispute that Financial Times graph that was going around about the number of startups. They said it just mismeasured the whole thing.

So no, I don’t sense that there’s any lack of enthusiasm from entrepreneurs in towns like Shenzhen, where DGI, BYD, and Huawei are all located. I mean, that town is a new, young, 20 million people, a highly energetic town with lots of stuff happening.

Brad: You said something to me before we wrapped, is there anything else we didn’t cover that you want to hit on?

Bill: There’s two things I would hit on. You talked about innovation. One thing you notice very quickly as a Westerner is no one takes credit cards. They used to, like the last time I went, but it’s almost a hundred percent WeChat Pay and Alipay. If you can’t get those to work on your phone, you’re screwed. You can’t pay for anything.

What’s the government’s position on crypto? I don’t know the answer to that question. Because they’ve been using these apps for so long, you’ve started to see incremental innovation around that.

At most restaurants you go to, not very high-end ones, there’s a QR code on your table. That QR code not only represents the restaurant, but it represents the table. You can order from that and pay from that. So, if you are done eating and want to pay and leave, you just scan and pay and go. You walk right out.

We’re far away from that in the U.S. in terms of that amount of automation around payment. And it’s just interesting. That goes from the high-end hotel and restaurant, which will take WeChat Pay, to the street vendor who will also take it. It’s universal.

So that’s one thing. The other thing I would just mention: very recently China announced something called the K visa.

One of the things that’s happened recently, because of increased agitation between the two countries, is there have been a number of very recent policies in America that are impacting skilled immigration, especially at the university level. I heard stories over there of groups of 50 or 100 PhD students who had been admitted into a university and were now being told they can’t attend.

You and I, and everyone, have talked about skilled immigration and how that’s been kept flat in the U.S. Now, at least with regard to China, we’re starting to put up blockers.

On top of that, you’ve seen other charts where like 50% of the AI researchers in America are… Chinese. And so that, that’s something that’s super interesting to watch. And this K visa thing, which they’ve never done before, says if you are studying technology, you don’t even have to have a job. So this isn’t like in the U.S. where you need a work offer. You’re welcome to come. They’re going to give you a visa. So China is basically inviting everyone to come to the university systems from around the globe.

I don’t know how successful they’ll be. I don’t know if Europeans will go there, but it’s an interesting thing to see. Again, it’s just a reminder to me. I continue to think that the U.S. is in an incredible position on a global basis, an incredible position vis-a-vis China, but decisions matter.

And, you know, we talked about stapling a green card to every diploma as the president did as part of the presidential race. Certainly, I think there’s ample opportunity for upside to accelerate, to attract, to build in the U.S. I hope that one of the takeaways of this conversation, the many conversations we ought to have-and it’s why I think being overly dogmatic leads us astray-is we have to reflect on the things we can be doing better to run a faster race ourselves.

Right. And I’ve heard you say this before. You know the old quote from The Godfather:

“Never hate your enemies.”

You know, it clouds, it affects your judgment. I think there’s a lot of that going on in Silicon Valley and other places. We’re going to be a lot better off if we’re very pragmatic about it. There’s no slowing down in China. They’re going to be there in AI. They’re going to build chips at Huawei. They’re going to build models at DeepSeek.

The way to beat them is not to try to cut them off at the knees. We don’t need to make it easy on them, but the United States needs to accelerate our race. If we focus too much on “how do we slow down China?” we take our eye off the ball on how to accelerate our own race.

Brad: So it’s fun spending one of these moments just digging deep on a particular topic. It sounds like an incredible trip.

Bill: Yeah. And I would just echo what you said, especially on learning. My main point to anyone interested in this topic would be to just make sure you have the exact right information as you go to make decisions, especially around policy.

• Talk to and read what these global CEOs are telling you; they’ve been over there.
• They’re seeing it with their own eyes.
• They don’t have a reason to be as candid as they are necessarily, but they are.

And then read Dan Wang’s book. I think it’s fabulous. Like Tyler Cowen said, it might be one of the best books of the year. It’s very well written and a joy to read. I would encourage everyone to go pick it up. It’s called Breakneck. I think it’s out now.

No, you literally can go on ChatGPT and just ask,

What does Jensen Wang think about the level of competition in China?
What does Tim Cook think?
What does Elon Musk think?

The reality is the people who spend the most time on the ground in China have the most respect for the innate capabilities and ongoing competition that we’re going to see with China.

And I thought that Dan had a really balanced view at the end, which is:

“We shouldn’t go out of our way to make it really easy on China, but at the same time, we’ve got to engage, we’ve got to be pragmatic. We can’t stick our head in the sand and we have to know that we’ve got to reform ourselves. We’ve got to run a faster race ourselves.”

Bill, it’s great seeing you. I’m glad we’re kind of getting back in the swing of things and look forward to continuing the conversation.

As a reminder to everybody, just our opinions, not investment advice.