In this episode, Anita talks with Jason Hsu, chairman and CIO of Rayliant Global Advisors (RGA), a global investment management group that specializes in the Chinese market. We discuss the tradeoffs between investing in China and preserving the national security of Americans. Jason also shares his views on why he believes the U.S. will continue to out-innovate China.
We also cover the latest on the Russia-Ukraine war, including the Ukrainian drone strikes on Russian military bases and the start of the G7 sanctions on Russian oil. Next, we discuss the massive protests in China and the government’s rollback of its zero Covid policy. Finally, there were two coup attempts this week; one in Peru and one in Germany. We talk about what this means for these two countries.
Topics Discussed in this Episode
Articles and Resources Mentioned in Episode
Joseph Asunka and the Afrobarometer
Russia-Ukraine Update
Chinese protests and the end of the Zero Covid policy
This Week in Feckless Coups: Peru and Germany
Interview with Jason Hsu, Rayliant Global Advisors
Follow Us
In this episode, Anita talks with Jason Hsu, chairman and CIO of Rayliant Global Advisors (RGA), a global investment management group that specializes in the Chinese market. We discuss the tradeoffs between investing in China and preserving the national security of Americans. Jason also shares his views on why he believes the U.S. will continue to out-innovate China.
We also cover the latest on the Russia-Ukraine war, including the Ukrainian drone strikes on Russian military bases and the start of the G7 sanctions on Russian oil. Next, we discuss the massive protests in China and the government’s rollback of its zero Covid policy. Finally, there were two coup attempts this week; one in Peru and one in Germany. We talk about what this means for these two countries.
Topics Discussed in this Episode
Articles and Resources Mentioned in Episode
Joseph Asunka and the Afrobarometer
Russia-Ukraine Update
Chinese protests and the end of the Zero Covid policy
This Week in Feckless Coups: Peru and Germany
Interview with Jason Hsu, Rayliant Global Advisors
Follow Us
Welcome to Kellogg's Global Politics, a podcast on current events in U.S. foreign policy and international affairs. My name is Dr. Anita Kellogg, an international relations scholar specializing in the relationship between economics and national security. I'm here with my co-host, Ryan Kellogg, an expert in energy investment and policy. Thanks and glad to be here. So this is Episode 24, and we're recording this on December 11th, 2022. In this episode, I talk with Jason Tsu, Chairman and CIO of Raeliant Inter-Global Advisors, a global investment management group that specializes in the Chinese market amongst others. We discuss the trade-offs between investing in China and preserving the national security of Americans. Jason also shares his views on why he believes the U.S. will continue to out-innovate to China. First, however, we dive into the latest on the Russia-Ukraine war including the Ukrainian drone strikes on Russian military bases inside Russia. Next, we discuss the massive protests in China and the government's rollback of its zero COVID policy. Finally, there are two coup attempts this week, one in Peru and one in Germany. We talk about what this means for these two countries. Okay. It's been a couple of weeks since we recorded, we had Thanksgiving and then you had your academic conference in Gainesville, Florida. So you want to talk a little bit about that and what that was like going down to Gainesville? Yeah. Just very briefly, it was a good conference on security studies. So there was some interesting research, I always liked the economic aspects of national security. So some interesting work on sanctions and security and covert actions and combining them. Gainesville itself is pure university town. So it's small but it's all built around the university. So it reminded me of growing up in Fayetteville, Arkansas. So it's just the neat atmosphere around the college campus like that. But certainly you don't get in DC and a lot of urban campuses. So that was really neat and it was a good trip. Yeah. That's nice. Yeah. In order to Chris, Rebecca and I were on our own here. So we had to come up with something to do. You always do the fun stuff when I'm away. Well, this is something specifically that you passed on and wanted nothing to do with, which I think is crazy. But I think one of the greatest uniquely American institutions that exist is Medieval Times. And for those that haven't been to medieval times, it's basically a franchise kind of renaissance fair where you go into a big semi-stadium. You eat a dinner that is entirely with your hands as one would do in the Middle Ages. They're not historically tied. But and then you watch nights like clobber each other. I mean, in a semi-professional wrestling sort of vibe to it where it's all kind of set up and staged but is awesome nonetheless. So it's a solid two hours entertainment. Fortunately, there was one that was within about an hour where we live in DC. And yeah, we had a lot of fun. People clearly get into it a lot. I mean, there are people in the full kind of Game of Thrones, Renaissance fair set up, which is really cool and the crowd gets very involved and cheering for their night as they battle each other. So you have a whole set up and then I ask our daughter, who's 10, what her favorite part of it was the food because of course food is just number one. And the food was solid and there was a lot of it, which is maybe that's the best aspect is you definitely left. You left full. And two, apparently there were some ducks and diapers. Yes. Yes. Well, yeah, that part was very entertaining. That was in line in order for me to tend to get adult beverage. But in that line, we were very entertained because there were two support animals there, two support ducks that were very dapper. They're wearing blue diapers and a little wig on top. A lot of people were snapping photos of it. It was probably the, well, clearly it was the highlight of the entire experience for Rebecca. But it was, you know, it was a highlight for me too. It was pretty cool seeing that. So that was the fun stuff. I can't say it was quite as entertaining at the conference. We definitely did not have any ducks and diapers. Or anyone dressed up in Renaissance. Which would be kind of awesome. I know that should be like the dress code to like the formal dinner is Renaissance fair. Just to change it up. Yeah. Yeah. Well, very good. I think we also wanted to give a quick shout out to one of our guests that you interviewed and former colleague at UCLA. So Joseph Asanka, who we interviewed is the CEO of Afrobarometer, which does a series of surveys, engaging what African citizens concerned are about their government, about the economy. And so they had a recent piece in the monkey cage, kind of summarizing the current surveys. This is in conjunction with the fact that there's a big US African leaders conference that is going on here in DC. That is closing roads and taking up all the parking, including at my institute. But no, shout out for the article. It's definitely you should read it and listen back to our episode. One of the things that comes out in both his article and what we talked about is the desire for democracy and how we keep talking about the dangers of democracy in many parts of the world legitimately. But we should also celebrate that certainly democracy is still something many people, most nations want. So to the main part of the show. Another Russia-Ukraine update. Okay. Yeah. So there's been a number of news events, although overall, I think a little bit quieter than what we've seen over the last couple of months with the big counter offenses as both militaries try to position themselves for the more difficult period during the winter. But I think there are a couple of different things stood out in terms of the events on the battleground. One of them was a pretty audacious strike by the Ukrainian military on December 5th using drones. They targeted two different Russian military bases. And this is notable because they were hundreds of miles inside of the country. So the bases were located in Ryazan and Ingols. And they were both targeted because they've been used as launching off points for recent strikes on Ukrainian infrastructure, which we talked about in the previous couple of episodes. So both of these bases were targeted. I think one of them, they actually had to have Ukrainian special forces. So that was, again, another precedence being set. So special forces had to be on the ground, again, hundreds of miles away from the Russian-Ukraine border to help target these drones. So it really represents another thing that we talked about of this being the first drone war between two powers deploying different drones. Now, the West specifically has withheld its kind of cutting edge tech where it's longer range drones. But Ukraine is actually trying to independently develop those as much as possible. And we got a little bit of a preview of Ukraine deploying its own drones and some of the naval attacks last October and the harbor of Crimea. So it's something that Ukraine is actively deploying. Now, I think the effect of these attacks, and they were targeting specifically bases that had some of the longer range bombers on the, that the Russians possess, including some of their nuclear quick bombers. I think the Russians moved a lot of that aircraft away from that current base, but in terms of actual damage and effectiveness, it was relatively minimal. But it definitely is sending an important message that it raises the cost of the conflict, but Ukraine has the capabilities similar to what you saw with the Crimean bridge that can strike Russian assets. In this case, it can strike assets hundreds of miles away from where the conflict's occurring. And I saw a lot of analysis on, it offers a bargaining chip for future negotiations. Also, what I think is interesting about this and drones in this war is just that this is the first war where I think drones have played a real role in them or we're seeing how that technology is being deployed. Because of course, war on terror, I guess to the extent that that was, it's been used to target terrorists and stuff, but never in a more conventional sort of war. And it's turned out to play a big part. And I feel like that's a really interesting development. Oh yeah. Yeah, for sure. I mean, I think, you know, maybe the, I'm sure a lot of people will maybe study this as kind of a more modern warfare techniques and tactics are kind of deployed. I mean, a lot of it is because of the economic, definitely for the Russians, it's an economic equation. We talked about that before how these drones essentially that they're buying from Iran are 30,000, a pop, but in terms of their impact on the battlefield and being able to drain away Ukrainian resources, it makes a lot of sense from that perspective. And then obviously you're not risking trained personnel, which Russia has a huge lack of, apparently, you haven't really seen their conventional air force deployed a lot. So it's a way to be able to target easy areas like the electric substation. So we talked about before in a cost effective way. Right. And I think not just only the cost of drones, but it's also a quick order to replace them unlike conventional sort of aircraft. And I do know that military and such been interested in, if you're fighting a longer war, how do you build up your industrial base for surge production and how drones might supplement that? And I think it's really changing the nature. And I think this is sort of the beginning of people trying to understand of how drones could change warfare. Yeah, for sure. And that's interesting. You mentioned the building up, manufacturing capability and how quickly that can surge and jump in ahead a little bit. I mean, the other big news that came out was Washington security circles really flagging this growing partnership, which we talked about before between Russia and Iran, kind of the language that they're using around it to a full defense partnership with Moscow providing kind of military and technical support and Iran providing these drones and potentially ballistic missiles to showing how short the Russians are running in terms of their stockpile. But what will be interesting is seeing how quickly Russia can ramp up essentially kind of using the technology expertise from Iran and manufacturing that they've already picked a site within Russia to build kind of the manufacturing facility, but how quickly and I think analysts are expecting within months to be able to begin supplying that. And then the meantime Iran's being pushed to supply more of these drones and the strike. But that's kind of the, I guess, a test case for a country with Russia's capabilities in terms of how quickly can they ramp up manufacturing. These relatively simple and expensive drones. Yeah, no. I mean, I think from the beginning, sort of someone is teaching industrial mobilization, certainly Russia's ability to do so or well, they haven't really had any industrial mobilization to speak of, right? And so that's been hurting them. And so this is definitely something that, like you said, it's kind of a test case of how quickly a country like Russia, like what do you think America's capability or something like that or China's capability is to do that. Yeah. And really, I mean, in my mind, it raises kind of questions around, because we've had the discussions around like the chips and the microprocessors. I'm guessing whatever tech that these drones use is not cutting edge in any way. So that Iran and Russia both have access to these chips. But at the same time, it's like not like their manufacturing themselves. Where's the electronic components that go into these drones? Where are they coming from? Is this from the dual use thing, or are you just kind of disassembling available commercial technology and kind of repurposing the chips? Or is it just coming directly from China? Well, I think in that interview with Jason, he talked specifically about drones and how the military really wasn't doing much with the technology. And when it became part of so popular and civilian use is where you saw a lot of the innovation and development. So I think then, yeah, it's military repurposing what was out there in the civilian and then manufacturing it. So it's just kind of acquiring commercially available things and then repurposing them for, yeah. I mean, don't quote me on it. I don't know for sure. Yeah. But that's what it sounds like is happening. Yeah, so it'll be interesting to see this definitely seem like it's raised the stakes within that partnership and definitely the idea of, are they actually going to provide ballistic missiles as well? That would be a major ramp up from relatively simple drones. So that'll be interesting to see. I think the other big development on the battlefront is there are a couple articles which will provide links to, one was from the Financial Times, which actually had it on the ground reporting from there, from the city of Bakhmut. So Bakhmut is located in the northern part of the Donetsk province, which is in the eastern Donbass region. At once was a city of about 70,000, but essentially has been reduced to rubble. And I think the thing that's been real stark here, and it's been contested since May, but over the last two weeks, the Russians have launched a major offensive in the area. And what's unique about this is that they're deploying essentially World War I style frontal assaults, essentially using that build up in personnel from the partial mobilization that they carried out a couple months ago and just throwing bodies at it to the point of they're literally charging reinforced positions with manpower and getting mowed down. So it's a certain sense of desperation. There doesn't seem to be a clear strategic interest in terms of this town, but because of the losses, both in Kharkiv and Kherson, that it seems like the Russians are looking for some sort of victory prior to the onset of winter. So they've been throwing huge amounts of manpower, essentially battling over 100 meters of territory, which hasn't been successful thus far, but has come at a heavy cost. Analysts expect Russians are losing 50 to 100 people a day just on this offensive. So pretty brutal stuff. I think the other interesting thing about this is we have the mercenary group, so the Wagner group, and we mentioned before, I think, in previous episodes about the leader of that group, Pragozhin, he's kind of staked his personal and political reputation on victory, essentially saying he's always criticized the traditional Russian military and the leadership, saying that they're incompetent. So the Wagner group itself apparently is taking a leading role, not in these frontal assaults, they're using prison colonies, essentially, for that and probably whatever poor conscript they just drafted. The Wagner group is taking the lead at the night for the more high-tech kind of Nigel assaults, but all of this essentially has yielded very little territory and come at a heavy loss. So it seems like a lot of the focus is on that area right now. And in the meantime, Ukraine is a little bit of an opening to keep continuing to push, particularly in the southern, the Kyrgyz region, to see if it can make additional gains as it tries to advance towards Crimea. So I thought, for me, more interesting was the EU oil sanctions in the attempt to put a oil cap, basically saying that Russia can only sell its oil at $60 per barrel. But there are huge things about this. One, in that Russian crude is only actually trading at $50 per barrel right now, people may have noticed that their gas prices at the pump have gone down and oil prices have definitely gone down and then Russian oil is at a discount anyway. So that's one thing that kind of is probably not that effective. But I also thought it was interesting because you'd brought up some articles about potential for a lot of environmental damage of the fact that they're using these tankers that are not registered, do not keep up with international protocols. And they're using these to transport the oil, like China and other places. But because there's less safety licenses, there's less regulation, they're more likely to lead to oil spills. Yeah. Yeah. So it was interesting kind of the description of this process. But yeah, there's an entire black market for these older used tankers that essentially are domiciled in countries, usually small island countries or Central America that don't have the same standards in order to go to ports like in the US or in the EU. And you've seen it particularly, I think Chinese buyers buying up a lot of these used tankers in order to kind of fill this dark market that markets Russian crude. And yeah, the safety concerns are definitely pretty bad. You saw one incident actually September 28th off the coast of Malaysia with a Panama-based vessel. And it was carrying Russian crude to China and ran into a Costco shipping vessel and resulted in a major accident. But one of the other areas of big concerns is that most Russian oil actually has to pass through the Danish strait, which is very difficult to navigate. It's kind of that part of the world with a number of kind of shallow and then rough weather. And traditionally, before the sanctions, you'd actually have, because this is Danish international water or Danish territorial waters, you would have Danish navigators would go on board these ships and would help less experienced ship captains kind of navigate through these areas. But because of the sanctions, they no longer can participate in essentially a sanctioned vessel passing through this area. So there's a much higher chance. Yeah. Yeah. You should at least allow in those cases. Allow them to navigate. I know. Yeah. That should be part of the sanction. But essentially by helping them, you're helping that commercial enterprise and sanction what's been deemed an illegal action. But it's happening anyway. All you're doing is trying to prevent the environmental dimension. Right. Yeah. So it'd be interesting to see if that concern increases because I think it's the volume and the number of ships expected to pass through is going to increase and obviously the quality and the inexperience of the crews passing through is going to increase over time, whether you see some sort of carve out at least for these safety measures that allows participatory countries within the EU that are part of this sanction process to at least, yeah, to your point kind of help prevent this accident from occurring. So it seems to me there's actually a pretty high chance of this ultimately being more negative and positive because there's no signs that Russia will start selling less oil because of it. Yeah. It doesn't seem like it's going to take Russian crude off of the market or lower the price. Definitely not where the price is at currently. But $60 is essentially, I'm surprised it doesn't have a floating, depending on what the price of Brent crude oil is that the Russian price doesn't float along with it up or down. That doesn't make a lot of sense to me, but they took several months in order to hammer out this agreement so I can see why they're reluctant to have any sort of flexibility built into it. Yeah. I don't know. I guess we'll see. But I'm still skeptical about it. Yeah. And I really am. I'm right there with you for sure. Okay, on to our next topic. There were nationwide protests in China over the death of 10 people that were trapped inside a building because of the country's strict zero COVID policy that had shut down much of that city. And what was surprising is thousands protested against cross multiple cities the last week of November, many holding up blank white paper and some surprisingly calling for the Communist Party and Che to step down. So one of the things that was really notable and different about these protests is that they were happening in multiple cities across the country. Normally protests have been very localized. You know, we're localized issues such as jobs, environmental damage, things of that nature. What is also surprising I think is that without saying so, the government actually changes policy right as these protests were going on and ended the era of zero COVID. So that meant removing mandatory testing stations for the majority of public places. You used to have to have a negative test to write on the subway, for example, ending state and quarantine centers, which were very, very unpopular. In citywide lockdowns, even more unpopular, seem to be slowly winding down, although there are still 450 million affected as of last week. Propaganda has changed now saying, oh, Omicron is not that deadly. So it's okay that we do this now. It's much more mild. Some of the problems being that, so I've thought a lot about like China has given up a lot of GDP growth has certainly had a lot of economic costs to shutting down whole areas like Shanghai and other provinces where factories are. And so I thought a lot about, well, why would China do this? But the conclusion that I came to, and I think is the risk here, is that what would be even worse than these lockdowns, which have obviously been terrible and caused a lot of resentment and hurt companies thinking about moving away operations, not being able to have that stability is that if you have massive people coming down with COVID, then you have the potential for overwhelming your hospitals. And then that's another form of social instability. And then the government doesn't look particularly competent. Oh yeah, for sure. Yeah, I think that's the real risk here. Oh yeah. That's why the suddenness of it, how abrupt and complete the disassembly of the zero COVID policy has been like on a dime, which is just really shocking, which makes me think how bad were these protests? I mean, were these a lot more serious than, because I think what the view that we got was a lot more limited and in parts, but why pivot this hard, why put all the tools of censorship and propaganda towards reversing the message? Because what was real interesting was some of the takes in the New York Times describing weeks before. So the propaganda was, look at how dysfunctional and messed up America is. America suffered a million deaths, which is really is horrible. It's tearing America apart and they're all crippled because of long COVID. Just all these very look at how horrible and how great the party is. And this was talking with Omnicon. I mean, Omnicom has been the dominant strain for what, nine months now, if not longer? To then flip the switch completely and say, it's not that big of a deal. There's no such thing as long COVID. Everything's going to be fine. Yeah. I think a lot of people had thought that there would be some gradual easing of the measures. And one of the things that said in the articles that kind of also sparked these protests is that there was no signal after the party congress that they were going to do that. And people had been widely expecting that. But no one expected then the complete reversal, I think. Yeah. And at the timing of the protests, I mean, doesn't that, I mean, that certainly makes it look a lot weaker. I mean, at the same time, maybe it says something positive about the party that they can pivot that quickly to pressure that threatens its survival and to public will. But at the same time, it also makes them look bad. Because who's going to buy into this? It's like, oh, the government said this last week, and now it's like saying the complete opposite. And they just look like... Sure. All the people who went out and started... So that problem is not going to go away in terms of the government's incompetent or looking out for our best interest or... It depends on if how it works out. Yeah. And then it gets to the point of... Then it looks good for the party. So the best way for it to work out, I mean, because I think the biggest exposure and the biggest threat, certainly that we're seeing in this country with Omicron, because we still have 300 deaths a day. They're talking about mass mandates in LA. Right. And the other interesting thing that I've read is it's no longer really a pandemic of the unvaccinated, but it's strictly almost exclusively targeting people over 65 years, even if they're vaccinated, but maybe not boosted with the latest, like, by variant with Omicron. But China is way worse. The lowest vaccination rates are amongst the elderly. And they refuse to bring in the mRNA vaccines with Pfizer and Moderna. So what are they going to do? I mean, the worst... I have heard, though, some who say three doses of the Chinese vaccine is nearly as effective. For Omicron? Yeah. Okay. I haven't seen that. And in which case, yeah, maybe... Because I know they're doing a big push to bring up those vaccination rates, and maybe they can avoid the worst projections. I mean, some of the stuff coming out of London, which is some of the... Let's see, the Oxford were London School of Economics, they had projections based on kind of the experience in Hong Kong and how quickly Omicron spread, but saying over a million deaths within the next three months in China. But I see more lower-end stuff kind of in the hundreds of thousands. But still, that's a lot for a party that's kind of staked its success on how much better it's managed the death toll. Yeah. Not that we'll be honest necessarily about that or report that publicly, but... Well, it depends on how... First of all, I want to say that this shows again, once again, that it's not a totalitarian party, that it can't just dictate its will on the people. And I think this gets lost all the time, and that for all its censorship and all those measures, it does still have to respond to when there's large public sentiment. Yeah. I think that's an excellent point. And it's always a little bit in terms of your want to see China move to a more liberal direction towards democracy. It's disconcerting because it's painted as, oh, this is just a dictatorship. It's all the whims of she. He has zero because of his consolidated power. He has zero pressures from the outside, but the fact that they were able to pivot so quickly shows that it's a pretty responsive state, which makes it a more challenging adversary, I think, for the US perspective. Yeah. I mean, I think the Chinese government has the biggest thing they're always worried about is the power of the people. When you have that many, 1.3 billion, social instability is always the biggest threat. And while you have all these more ability to monitor citizens, still there is obviously, I think what's really notable about these protests is that it was across the country. It wasn't localized. And I just think that response, but I also, I wonder if you'll have a situation that's a lot like Sweden. So Sweden didn't lock down like other countries and a lot of old people died. And so I know a lot of people were like, we sacrificed our grandparents. So I wonder if you'll see that with lower vaccinations, those over 80, if you'll mostly see a lot of deaths of very old, a lot older people. And I think it's kind of hard to predict how people react to that. But it's also interesting that everyone's just preparing to get sick. People are doing all the activities that they've been like pent up, sort of like what we all did as soon as mandates were lifted. But they all are prepared for them to get sick. So they're buying all the over counter medicines. And yeah, which interestingly was actually blocked for a long time out of the over the counter cold medicines because the government didn't want that to mask like COVID symptoms. So you go in for like the temperature check or what? I guess not. You're still doing the COVID test everywhere. So I'm not exactly sure. But yeah, there's been like a big run on ibuprofen and other cold medicines. So people are prepared to get sick for sure. It's just kind of, you know, everyone has always said that China put itself in the worst position with zero COVID because it made it really hard to open up without so many people getting sick at one time. You know, China has less intensive care beds the most per person than most of Asia. It's, you know, not fully developed medical infrastructure as more developed countries are because in areas of China, it's not that developed. Right. I mean, I talk about all its economic and military power, but there's also areas that are very underdeveloped in China. And so I don't know. I mean, this is something that is definitely going to be something to watch in the next few weeks. Maybe it probably is not going to take a very long time to see how this develops. Yeah. For sure, you know, a lot of it also, yeah, you have the upcoming travel for the Lunar New Year coming up. So this is the biggest period where people in China kind of travel over the country and huge amounts similar to Thanksgiving or Christmas year. So yeah, definitely a super spreader event for Omnicron. So definitely, I mean, how China weathers this is really important and impactful. Yeah. Yeah. So I think along those lines, so from the economic front, I think it was seen relatively muted by markets because the Chinese economy itself is facing a lot of headwinds. It's unlikely to immediately have any kind of positive momentum. And that's driven by a couple of different reasons. One, you know, from the export standpoint, all the Western economies are likely heading into recession. So they're big markets in the US and EU. But is the US heading towards recession? I'm pretty sure the US is heading towards at least a mild recession. Yeah. I thought it was our eating recession. That's why I lost my bet. You did lose your bet, but then it rebounded. Then rebound a little bit. But I think people still think in the first couple of quarters the next year maybe, maybe rough. But we'll see. We'll see probably from, you know, how the holiday shopping period goes and how retailers kind of make. But from the consumer spending side on the Chinese side, everybody's expecting that still to be depressed. I mean, there's probably been a little bit euphoric. If they open up travel to different cities within China, that part of the Chinese economy will do well. But there's still, yeah, people have been kind of traumatized from this very intense zero COVID. There's still that fear disease spread. There's been a general lack of stimulus provided by the Chinese government directly to individuals. So unlike Western governments, people got from student debt relief to there's one-off checks, which according to the right wing here has helped maintain people for years and years, these $2,000 checks. But nevertheless, Western governments provide a lot more assistance and the saving rates also as a turn were a lot higher. But Chinese people have most of their wealth not in the stock markets, but within real estate, real estate is a sector that's been really hammered within China too. It's also not something medial accessible. And then I think what you mentioned earlier, there's very high youth unemployment as well. So close to 20%, which is really extraordinary. I know that similar like in Korea, for instance, it seems like it's more similar to some of its Asian peers. So yeah, the Chinese economy, I think is going to be low coming back to life. Yeah, definitely. All right, coup attempts, that's exciting. Unless you're in those countries, maybe. No, neither coup attempt was actually particularly dangerous, but just notable that they happened. Yeah, exactly. Yeah. So it was an eventful week. Both Peru and Germany had, let's be honest, pretty feeble coup attempts at them, but I think it's worth noting. Peru was more notable because it was the actual. Peru's very is more kind of endemic of the weakness of its democracy currently. But that's not a new thing. I mean, that's been a thing for 30 years where Peru, it's kind of struggled going between out and out military dictatorships and functioning democracies. But I think Peru is really notable because for a period in the 2010s, it was a real darling of South America, I think, combined with Colombia in terms of free market, strong economic growth, fairly sensible financial policy, is really seen as a potential growth area for South America. That's the thing that Peruvians deserve so much better. It's not trapped in the same way that Bolivia is in poverty because Bolivia just doesn't have resources, but Peru does. They could definitely see the type of growth that Colombia, there's a lot of similarities in where the two are located and the resources they have access to. And so it's the political system that is holding back. I think I saw it in one of your articles, how many people are not getting enough nutrition a day in Peru. Yeah, which is shocking, which is really shocking given, again, that it was one of the better performing countries in the 2010s. So to see it fall to that level, largely driven from the experience of COVID and then the inflation from the Ukrainian war have driven a lot of people into poverty in the country. So it's sad to see, especially given the incompetence of the government as of late. To go in a little bit into this, I think we had mentioned in one of our earlier podcasts about Pedro Castillo, he was in a president of Peru for a period about a year and a half. He was one of the first ones in the recent red wave, so left wing wave. What's that? People are now calling it a pink wave. Pink wave. Yeah, exactly. Yeah, these are definitely fairly constrained. And he came into office, again, he was outside the establishment. He was a farmer from the underrepresented rural regions. He came in campaigning fairly ambitiously about nationalizing, particularly around natural resources and industries there, but was elected on a very thin margin, essentially Congress controlled by the traditional opposition parties, so center-right parties. He was almost immediately constrained in terms of what he could accomplish, but at the same time, he also, in terms of his governance itself, struggled mightily. He had a total of five different cabinets, again, during this year and a half, an office, and faced six different criminal investigations. So it was during this last week that Congress was looking into impeachment hearings again for him. I think this was the third attempt. And they were broadcasting the congressional testimony where a former advisor of his was describing how he had to pay monthly bribes to six of the president's eight brothers in total. And in the middle of this testimony, the president comes on completely unexpected, and he was calling for the dissolution of Congress and then the installation of an emergency government, basically making him a dictator, so full-on coup. What was surprising is Castilla had apparently softly felt out in some positions, or some leaders within the military and within the police, but when it came to it, almost had no support. No support at all, no support from the courts. The military and police within hours basically come out and say, we're not backing you. And he actually left on his own and attempted to claim asylum at the Mexican embassy, but was effectively detained by his own security details. It was effectively detained by his own security details. So apparently there's this photo of him waiting to be processed, just kind of reading a magazine on the couch within the police. So this guy was president hours before, basically announcing on television a coup attempt while he's being impeached, has zero backing though and is immediately detained by his own secret service. Well, there's no respect for him at all. He was considered a corrupt, incompetent person. Not only did he have these five cabinets, but ministers were constantly going in and out. It wasn't uncommon for a minister to only last a week. Yeah, it makes Trump look good. Yeah. I mean, it's a level of corruption and competence that is really, really astounding. And that, yeah, no support from the traditional left, which again, just saw him as corrupt and incompetent. Yeah. So it's, I mean, it's extraordinarily tragic for the Peruvian people and for their young democracy. So the vice president, so Dina Buarte, she was sworn in. She's the first female president of the country at the end of the day. But all of this does nothing to resolve kind of the underlying problems within the governance model. I know a lot of people like to see new elections being held, but given that this is the seventh president in seven years, it doesn't speak very well for kind of the long-term prospects of Peru. Really aside, to echo the comment I made earlier, one last month, Peru has the highest rate of food insecurity in South America, which is striking because of the poverty of Bolivia, right? Venezuela. That's why I could hardly believe this, that certain parts of Peru were softer than Venezuela. And half the population lacking regular access to sufficient nutrition. Yeah. Half, half the population. So it's a very tragic story. Just have to keep rooting for them and hope that they can get their political system to work at least well enough to help the economic growth potential. I think on the slightly less serious front. So I want to say everybody is laughing at this one in Germany. And I know you're going to describe it, but I have to start out with they had a lot of guns. Like maybe we're laughing too much at it. Well, I mean, yeah, and it's also from an American spec. We say they're heavily armed. And that is shocking only because it's in the EU that you have any heavily armed groups opposed in the government. In the US, we have hundreds of heavily armed groups and millions of heavily armed citizens. I think it's just more from the shock value maybe. Yeah. Well, but they had the capability of carrying out. They were a lot more organized than anything. They had the capacity to carry out violence. Yeah. They had the capacity. That's true. They had the capacity to carry out violence. And they were certainly, I think, more organized and serious about it than I would say a lot of our would be coup attempts here. So I started like we're laughing too much at this, but you should probably explain what we're talking about. Yeah. So what happened this past week is you had a arrest of 25 individuals that were part of a cell of heavily armed German extremists that essentially were plotting to overthrow the elected government and elevate a man called Prince Heinrich the 13th to the throne of a new essentially German monarchy. So establishing the reestablishing the Kaiser that existed prior to World War I. And interesting was so it's part of a group called the Reichsberger, which literally means the Reich citizens. And they believe that every German state since World War I has been illegitimate. So this would include the the Weimar Republic, the Nazi regime, and then the current modern German government and the calling it a corporation rather than an authentic government. And thus that they are free to ignore all of its laws. And apparently it's very similar to the sovereign citizen movement, which I was only vaguely familiar with here in the United States. And that's a group that believes that the 14th Amendment or the leaving the gold standard, one of those two that kind of flux between what did this, but essentially that canceled the Constitution and that they have no obligation to obey the laws within this country. The other interesting part of this group is that it has been influenced by the conspiracy theory here in the United States, QAnon, which believes that Donald Trump is leading a secret campaign against the cabal of satanic pedophiles who run the world. Again, I always find it sad that this is now part of mainstream discourse instead of an amusing antidote. QAnon is essentially a faction of the Republican Party, still fringe faction, but it was very notable obviously on January 6th. A large fringe. And its movement. And yeah, I mean, Marjorie Taylor-Grain who we'll see if she has any committee leaderships is a significant part of the modern Republican Party. And at least until recently was a QAnon adherent. So it's interesting that this very American focused conspiracy theory built around Donald Trump has German adherents, but it does apparently German is the second most spoken, written language on online forums around QAnon. And it became real prominent around the anti-COVID protest in Berlin back in August of 2020, where QAnon conspiracies actually inspired members of this Reichsberger group to storm the Reichstag, so their parliament, because they thought Trump was there in Berlin and he was going to liberate all of Germany. So I think police did a lot more effective in guarding the Reichstag. So they weren't successful in penetrating the interior of the building. So yeah, it's a little bit wacky combination, but the thing that was serious about it is that again, we mentioned 25 individuals are arrested, but the movement itself is much larger. The government, which had kind of ignored this until 2016, believes that there's up to 20,000 supporters and they're heavily armed. So in the raids that they conducted, these 25 individuals, they have dozens of weapons kind of within their households. The group also, besides the prince that we mentioned, included one member of the AFD. So the AFD is a far right group within Germany. It has relatively few seats in parliament, although that has been increasing. And before, similar to Republicans kind of blew off this group, but now essentially tolerates the Reichsberger and its QAnon views, members, and ideas within it. Yeah, I mean, I think it's interesting. It's good to see the German government is on top of it kind of made. And this isn't the first. They've had other series of arrests, maybe not around this group, but they're used to dealing with the far right. First of the times, it's around neo-Nazi movements. In this case, this is a monarchist movement, but the German government and intelligence seems like they've did a good job here. Yeah, which is why we can laugh a little bit about it. Yeah, but it's... We've learned that we have to take all these things seriously. Yeah, yeah, for sure, unfortunately. Well, that concludes the World in Good Attempts. Forward next week. I hope not, there's only so many countries. So now onto my interview with Jason Su. Like I mentioned in the very beginning, he is the chairman and CIO of Raeliant Global Advisors. It's a global investment management that specializes in the Chinese market, amongst others. So we talk about a lot of issues. I think it's important to hear this particular perspective of the private sector and of someone who is both interested in selling people on the idea of investing in the Chinese market. Welcome to Kellogg's Global Politics, a podcast and current events in US foreign policy and international affairs. My name is Dr. Anita Kellogg, and I'm here with Jason Su, chairman and CIO of Raeliant Global Advisors, a global investment management group that specializes in the Chinese market amongst others. Hello, Jason. Welcome to the show. Hi, Anita. Glad to hear. So to get right into it, in the four years since the US started a trade war with China, the tension between the two governments has only increased over time to the point that many headlines talk about decoupling an economic war. How has this affected both Chinese firms looking to expand into the US and EU, and for American firms wanting to invest in China? Well, I mean, let me start in the reverse order, talk about American firms looking to do business in China. As ESG, meaning people wanting businesses in capital to be more socially conscious, to be more aware of the Western values and how they're being expressed, Western firms are under a lot of pressure. We're talking about Apple and Amazon and Tesla being questioned, how much business are you doing in China? How much is the manufacturing are you doing in China? Are you then beholden to the Chinese government, the Communist Party? So I think it's made it much more difficult for board to see sort of investing in China, building business in China as the inevitable thing to do because that market is so large. So I think we are seeing great hesitancy in new capital coming into China with a directly investing or indirectly investing. And certainly for firms already doing business there, I think there's a lot of political and some board pressure from the divest. So that's obviously a headwind for companies that's already so committed to those markets. Now on the other side, when you're talking about Chinese firms that are looking to do business globally, let me take example, Huawei, which is one of the biggest 5G network hardware providers out there. I mean, they have now given up doing business in the US, just announced that they're going to give up doing business in Europe. So we're talking about probably tens of billions of dollars in commercial value that's sort of gone down a drain for Huawei, but also of course, the ecosystem, people who've come to partner with them and like their products and have sort of built support or built their infrastructure or software around that, that's wasted investment as well. So for Chinese firms are looking to expand, I think the equal kind of hesitancy being experienced and certainly a lot of some cost has occurred as well. Yeah, no, that's a really interesting point. Along with these points, there's also the fact that the US government has taken aggressive stance in the semiconductor space with the CHIPS Act and greatly restricted imports of high-end chips. So how are Chinese companies in this sector adapting to this change or countering its effects? This is actually super interesting. And this is like the law of unintended consequences, right? Because I think not behind the CHIPS Act, Americans are probably expecting two things to happen. One is this is so going to damage their semiconductor industry and it is going to set China back because now China will no longer have access to the most advanced chips and that's going to slow down their AI, it's going to slow down their manufacturing in kind of the ultra-high-end product. But what we're actually seeing is the semiconductor companies in China, they have now become the only game in town in China where previously they're kind of tier two, they're not as cost-effective when it comes to higher quality chips. And so therefore, they don't have quite the pricing power and can't really make the kind of investments they need to make because they don't have the market share, the pricing power. But all of a sudden, they're the only games in town in China. So they're having record earnings and as a result of that, they're seeing bigger market share, their ability to invest and to do research has just gone through a roof. So in some ways, we're accelerating the competitors by all of a sudden giving them a lot more market shares, a lot better margin. So that's one thing, unintended cost. And the other thing that's probably more interesting was the Chinese government has always been looking to become self-sufficient when it comes to semiconductors. They realize it's the high-end manufacturing sits in Taiwan, sits in South Korea, sits in Japan, and they've always thrown lots of money. They figure if they poach engineers and throw lots of money at it, they can fix it. They last 10 years, they never accomplished what they thought the money could solve. And that was because when there's not great degree of urgency and the government just throwing subsidies around, there are a lot of people who are very good at getting subsidies and producing very low results. So this is all ecosystem ripping the government off. But all of a sudden, this has gone from like a nice pork program that the Chinese is running to a issue regarding national security. And so it's a different kind of attention and it's very low tolerance for folks that are just getting a government hand down, wasting our money. And so also we're actually seeing a very different kind of energy and a very different kind of focus when it comes to state-directed investment. And that might actually lead to China accelerating its path toward semiconductor sufficiency. So we'll see on that last part. But I think it's working out slightly different than the American government intended. Yeah, I mean, I think that's sometimes always the problem of these sort of measures not fully understanding the unintended consequences. And so it will be interesting to see how this actually affects research and development in the coming years. So what do you think that the effect is to the semiconductor sector more generally? We're adding a lot of costs. So anytime there's trade sanction, there's disruption to free trades, both sides lose, right? I mean, we're looking at a lot of global manufacturers seeing that, hey, they can't source chips from where they need to or they can't source the finished product because China isn't able to source chips. So we're just sort of adding costs at a time when there's global inflation and people are ill able to increase margin and pass through the cost. So we're seeing some immediate losers on both sides just because you're disrupting free trade. Right now, it is not obvious. So the biggest and the highest end semiconductor manufacturer, which is a TSMC based out of Taiwan, they've been invited to the US to set up a manufacturing plan in a present Biden has made that such a key initiative. He's visited the plant in Arizona. And then clearly this is critical for his national security policy plan. But I think what we don't understand are two things. One is the fact that we have done semiconductor manufacturing mostly in Asia. It's not because America lacked the technology, the engineer to manufacture high-end chips. It is that we simply do it at a cost that is not attractive to anyone who wants to buy semiconductor chips. And you don't solve that problem by asking Taiwan to start manufacturing in the US, because you could high engineers, very, very highly qualified engineers in Taiwan for a very cheap or a third of the price. You can't do that in the US. And so, yes, things will be manufactured in the US, but it'll be significantly more expensive. And it remains to be seen if there's a market for chips that are 50% more expensive than what you could source for from, say, Asia. So part of that moving manufacturing back to the US just fails to take a look at the issue is not the technology. It's always been the cost. So that's one thing. The other part is, for a lot of these semiconductor manufacturers, it's a very cyclical business, and getting a plant up and running takes years. It doesn't just get turned on. It's not software. So for a lot of them, they're wondering, OK, the US is forcing us to go build plants when it's all said and done. Does policy change enough? Do prices change enough that these might all potentially be sunk investments as well? So I don't think the Chinese are looking at this as like a big gear from the US at all. Yeah. Do you think the subsidies, so the Biden administration is offering $52 billion in subsidies to build these plants? Do you think that helps offset the costs in any way? Some of it. Now, of course, that $52 billion has been spread across a number of semiconductor manufacturers. So it's not like TSMC is getting $52 billion. A lot of it is actually going to the American semiconductor companies. Many of them, from a process perspective, and I would say cost optimization perspective, do like behind TSMC, but they're actually getting the bigger chunk of the subsidy check, of course, because they're American firms. So when I speak with people at TSMC and within the Taiwanese government, again, they're doing the math, they're doing the calculus, they feel like they're more pressured and forced into doing this than being drawn forth by the subsidy. Yeah. I mean, that's all very interesting. Along the slides, but also sort of what you mentioned in the beginning about Apple and the pressure that US companies are on under to move their manufacturing and other business out of China, one thing I'm always very curious about is to the extent there is distance between the reported decoupling and the actual decoupling, what is actually happening. Certainly, this is pretty big news. Is this a harbinger of more US manufacturers trying to reduce their exposure to China over time? Are they reacting to geopolitical tensions or do they have some other economic motivations? I think most firms would prefer that governments don't get involved. They can do their own math. They can figure out, hey, the kind of COVID lockdown that increased business costs, reduce expats' willingness to live and work in China. I think they can do that math. They can do their long-term planning. They're certainly seeing Vietnam, Malaysia, Indonesia as potentially even lower cost source of manufacturing, at least for less skilled type of manufacturing. I think most of them don't want to be doing something out of political pressure, pressure that's more driven by media and potentially negative publicity associated with the brands. And independent of pressure from the government, I think many brands have realized the concentration risk depending on one single supplier. The disruption to Shanghai ports because of COVID lockdown was a good reminder of the concentration risk. Many of them have already been planning if they're big enough to be multi-sourced. When a government gets involved, sometimes it makes them mad hard. There's a lot of companies are perhaps not big enough to go multi-sourced. They have a very, very short product life cycle. This is not something where they can do long-term planning and know exactly what they need. For a lot of businesses, moving away from China today is simply not feasible on business perspective. They're caught between a rock and a hard place. They're not big enough. They're very dependent on the manufacturers that already have a relationship and a credit line within China. They can't just all of a sudden move to Vietnam, that would be missing out on many, many years of stride or fashion trends or technology trends as they're moving. So I think this pressure is making it particularly hard for the smaller companies. Yeah, definitely a good point. Like I said, sometimes I think we talk a lot about companies actually decoupling. I think it's a good point that smaller companies really struggle to do that. But what about new investment in China? Are companies responding to geopolitical tensions, more possible government actions? Yeah, I mean, for sure, as I talk to clients and just talk to firms and people in general, I think interest in putting additional money to work or people who have always thought, I should go explore China and see what opportunities are there. That's right now pretty much dead in its track. So new money, new investments, new setting up of businesses, I think that's going to be dead for a very long while. I think there's another camp, which is the camp that is not as Western aligned. You talk about India, you obviously talk about the Middle East, you talk about Central Asia. Again, you're not mega players in the trade scene, but they do do enough global commerce, perhaps not manufacturing, but certainly do a lot of raw commodity trading. I think those countries and their companies are sort of looking at this as an opportunity to maybe increase collaboration and get a more favorable deal from China, what we're seeing in terms of people's willingness to now clear trades with China using Reming B instead of US dollars, reflect precisely that kind of opportunistic view. Like, hey, if the West is stepping back from China, maybe this is our turn to build a relationship and get a better turn to trade, and maybe making some concessions with China to improve and strengthen that trade relationship. I read somewhere actually that while the US and European investment in China, FDI, is definitely declined, a lot of it is being made up by these other countries. I guess, and while individually, obviously they can't bring the same numbers collectively, they are able to make up some of that losses that China is experiencing. Yeah, I think absolutely. Every shift is going to be slow. Initially, I think it's going to be a net negative, and then China being a large export country, they're going to feel it as well. Then not surprisingly, China is doing its very best now, trying to address that, recognizing that they do need the export engine to be working for their economy to remain vibrant. These have put in a lot of effort to orchestrate and to extend the olive branch to encourage European leaders. We've seen Germany visiting ahead of EU and now EU following suit, trying to assure the world, hey, look, there's things they disagree with China, but there are many, many things that they're critically dependent on China and would try to make sense for their own economy. They're not going to be completely following in the footsteps of the US. The EU's made that clear, and I think it just reflects to, when we talk about global trade, it's not just, oh, hey, we're going to stop buying from China. China will be screwed. Look, in global trade, you buy from China because you need to buy from China because there's no one else to buy from if you want the price and quantity. Again, given that we have this massive global inflation, where inflation is really the key problem in Europe outside of the war in Ukraine, many of European countries don't see it as a realistic scenario in the short run to simply cut off trade with China. Right. I think in general, American companies feel that way, but I get the sentiment that companies are more reluctant to invest just in this uncertain atmosphere and companies not liking uncertainty, and that might affect things down the road. It seems like China, the way it also might affect the Chinese economy, is not so much in people not buying stuff from China, but not having the investments may affect employment opportunities and building new jobs. With youth unemployment already so high, that seems to me that that might be a problem for China. Do you think the US should coordinate more with the European allies, or do you think that the market should just stand as it is? Certainly. The US goes between two modes. On the one hand, I think a lot of people in the US believe the best way for global peace is just let the free market do its work. Let trading, commerce, tourism improve our mutual dependency, when there's mutual economic dependency, when there's mutual prosperity, that's likely a problem. There's that one, and that one campus always saying election politics and geopolitics should really not send in a way of free trade, which is brought on in President prosperity and peace. Certainly there's another campus. I say, look, China may be getting the better deal out of this free trading. It's becoming too rich. With a single party, we claim it as a totalitarian regime that could turn evil anytime. We certainly don't want China to be too prosperous. That can then back their more military and the various ambitions. These are two camps of voices within the US. Again, they all want the same thing, which is peace and prosperity globally, but they just have foundationally different assumptions as to can you lean on just free trade to accomplish that? If you go into camp of anything that makes China weaker economically, reduces the likelihood of China being able to finance and bankroll its ambition for global domination and reducing US influence and the Western influence, so if you subscribe to that camp, then yes, of course, anything that urge China accomplishes that goal, and then you just have to wait, okay, it's going to hurt Europe as well. It's going to hurt US as well, but maybe the net benefit of not having a strong China is big enough. First of all, within the US, not everyone subscribes to that, so that's certainly an ongoing debate. When you look at Europe, they certainly have the same two camps. When they're doing the math, they may not agree, even if they believe in the thesis of weakening China as good for global peace. They might say, well, look, US should pay most of that cost because the biggest benefit goes to US as the dominant leader of the Western world. The rest of Europe shouldn't be dragged into it or shouldn't be paying a significant portion of that cost. I think this is going to be harder than we imagine, and that's why I think a lot of the European allies who historically spin quite a line with the US, started complaining around US policy. It's not just around China, but also around the US policy to contain Russia as Putin. Yeah, exactly. I tend to think that you seem to be more in the free trade camp, but I may be getting that wrong. I know your company manages a China-focused ETF fund. How have the last four years of you seen changes and how you have to manage the portfolio in terms of the types of companies you hold? For example, I heard you mention one point that Chinese defense companies during one of your interviews and the previous administration, are there any restrictions in the type of company holdings you offer US investors? Absolutely. When we work with global investors, let's take, for example, our US ETF, right? We think about, hey, who are buying them? We must make sure that the product is consistent with the values and the objectives of the investors who are buying that product. When we sell our Chinese strategy in China to the Chinese, clearly, they're not opposed to an investment in their own defense sector. They see that as very profitable, because if US and China relationship continue to go south, then their defensive spending will go up, and that's going to be great to invest in that industry. Similarly, when we think of our China strategy offer in sold Americans, we got to think about, hey, look, most Americans, they probably don't want to benefit from the rise in defense spending in China. We would follow the US sanctions for sure, and certainly, this is clearly against US interest. Those things would be screened out just to make sure that the product itself is aligned with investor-objective, investor values, subject to, of course, the overarching theme of diversifying into China and capturing a uncorrelated source of return. So yeah, that's good to know. Kind of along the same lines, when you talked about the camp that says anything that strengthens China allows them to increase their spending on military and civil military fusion products and investment. So I work for in military professional education, and I know one of the frustrations I constantly, constantly hear is that the private sector, the free market is all good and everything, but the private sector is putting profits over the national security of Americans due to this increased competition. So as someone who is more in the free market camp and promotes investments in the Chinese market, how do you regard the sentiment? Yeah. I mean, so this is definitely very difficult, but it worthwhile sort of conversation to sort out because, well, I believe in free trade and the invisible hand of the free markets. I also recognize that it can often sort of lead to bad outcomes. Like it on average gets you a pretty good outcome. That's the foundation that this great country is built on. More freedom and everything, including sort of trading and commerce, but we also realize laws and regulations are necessary to put some boundaries because free trade doesn't guarantee good outcome in every scenario. That's really my view, which is when it comes to national security, there are certainly things that policy will override free markets. It's sort of getting the balance right. Sure, you don't want export military IP to a foreign power that is either neutral to perhaps neutral negative in the long run, but at what point do you kind of stop and say, hey, everything else, that actually doesn't matter or everything else? Hey, if more trading with China creates greater mutual dependency, which creates pressure on the Chinese government, sort of not disrupt the free trade, that actually is. So they have a kind of soft powers of containing China as well. So it's a delicate balance because I think completely not trading is unlikely to the right solution because I think if you go the route of completely not trading, you isolate China that may actually increase the risk of it going rogue and losing any ability for diplomacy, losing any ability for kind of soft influence and soft power to create checks and balance and to contain China completely being ignorant to the rise of a major superpower and not being aware of what are China's intention and long-term ambitions and how might that impact kind of US interest by completely being oblivious to that? This is also the wrong answer. The question, of course, is can our political leaders, given their own messiness in trying to stay in power and win elections and then a lot of the populist politics will get involved in that as well, can that find the right balance? And that I'm probably less optimistic about. Yeah. I mean, so my research and I'm more inclined to the argument of mutual dependence reduces the chance of conflict by imposing costs on both sides. I do wonder a lot about the transfer of intellectual property. And now in terms of how do we decide what is important, what is not important, considering that civilian technology can also be used in military capabilities? Yeah. And if you take, for example, drone, right? Sure. In the very get go, drone was a bit more military, but I think the key advance only were made in the last five years when it became such a profitable civilian gadget. It's just a lot more use case, whether in sports, entertainment, and all of a sudden, the technologies just become so much better when it was purely for military use. And that's the same thing with the internet. It started as sort of the military use, and then once it became commercialized, like all the events that were made there, and then of course, it went back into the military again. So seeing that trajectory, I think it's almost impossible to block, right? Because there are so many things. And once it finds a civilian use, the true innovation, true breakthrough, right? That's where it gets funding. That's when all the good engineers get involved and all the innovation from different people competing as each other. That's kind of the core engine for innovation. And once that innovation is available, every country's military gets access to that. So I think it's going to be really hard to block semiconductor, internet technology, AI technology, drone technology, unless we want to stop civilian use. I think this is likely the model for everything, and you just can't block it. Right. So I guess what I hear you saying that even in terms of policy, it's kind of impossible to make those decisions about which technologies that may be being developed in civilian capability and non-military capability, but could be used in the military sense, like drones, that you think there's not a very good chance for us to be able to identify what is important. Correct. Because, you know, many things, right? Before the civilian investments made that technology leapfrog and become something that then have incredible military application, you don't see that before it happens, right? Unless we start a new department, start a forecast, well, you know, this thing really, really takes off and the technology really improves from civilian use, then it becomes a national security issue and we have to stop it, right? If you start to have a department analyzing that, you might be stopping way more commerce and innovation than the actual national security system. Right. Yeah. And I think I agree that getting that balance is really difficult and how do you predict that technology? So do you have any sort of final thoughts really on, you know, these political tensions spilling over into market considerations? Yeah. So there are a few things that I've been sort of researching and thinking about. One, that's fairly more recent, right, I mean, we're talking about TikTok a lot these days, right? There's that whole conspiracy theory that, hey, you know, this TikTok, which is kind of a social media platform, people create content for each other and depending on your preference and interest, you serve this type of content versus that type. And it's a wonderful conspiracy theory to say, hey, you know, the Chinese probably influencing that AI engine to serve up the dumbest, most stupid mind-numbing content to American consumers. And this is like the secret, you know, Chinese way to the dumbing of America. I just sit on that point real fast. I mean, what do you think, I guess the non-conspiracy but still concerned is like the user data that they might get the Chinese company may have on Americans. Yeah. So when it comes to user data, right, if you know kind of what these AI engines are designed to do, they're designed to figure out, what can I show you that maximize your screen time? I maximize your addiction to the screen. And of course, it's not just you being addicted to the screen. I didn't I got to show you some ads and figure out how to get you to spend money and buy something. Right? And that's all that technology has been developed to do that. And it's not like you're somehow able to collect user data and figure out, hey, this Dr. Anita Kellogg, you know, she's got some influence on American military. And then, you know, how do I then brainwash Dr. Anita Kellogg and, you know, make her more CCP and change her teaching curriculum. The AI can't do that because there are too few Dr. Anita Kellogg, right? So there's not a data for them to identify you. It's certainly not a data from the influence. So most what they're able to do is to kind of find out very blunt analyses of consumer buying behaviors and screen addiction. That's about the degree of AI technology that they can accomplish through the kind of consumer data tracking. Right? And that's not, if you suspect your phone was secretly recording your conversation and people are using that to blackmail you, that's a whole different kind of conspiracy theory. But when it's just sort of gathering your browsing habit and trying to serve up the right ads, I don't think that raises to a national security issue. Right, right. I didn't mean to interrupt your training thought. So I was wondering just to kind of get back to you said you had several points. I was wondering if you had any. Yeah. So, you know, on that tick-tock thing, I think there's a lot of sort of conspiracy theory where tick-tock and many other forms of social media is dumping everyone. But I don't think that's the Chinese doing. Right? I think that's, you know, if we want to honestly look at that, we should all think of what is social media trying to do, right? Like, what are these apps trying to do? And they are trying to get us addicted, right? If we think that's a problem and that's creating a dumping of America, we really need our political leaders to look at problems. They can we regulate that? Should we regulate that? Right? And that's like digital cocaine. And then, you know, since we do regulate physical cocaine, perhaps we should regulate digital cocaine. So that is really independent of China. And of course, if you bring in the Chinese conspiracy theory, and it makes this issue easier to address with national consciousness perspective, okay, maybe that's not a bad thing. I think of this current belt trade war with China and then geopolitical tension. It actually reminds me a little bit, not entirely the same, of the rise of Japan in the 80s and 90s. At that time, if you read headlines, share some of the same headlines that we see that are sort of, you know, I used to describe China today, right? I was fearful of the rise of Japan, right? And we start to harken back to when Japan was the aggressor in Asia, right? Now, could this mean Japan will both rise economically and perhaps militarily? This is the revenge. And you know, we put on trade sanctions. We were from policy perspective, very unfriendly to Japan. We're seeking to align other allies, asking people to diversify away from Japan and support other Asian economies. So there's some of that going on that feels familiar. The good news is Japan did continue to rise here per capita income rose as well. But just as soon as it rose, you know, it starts to run into its own problems, you know, bubbles, you know, unsustainable housing prices. The fact that they've been the economy that's built on imitating American technology and once they evolve too much and they're catching up to US and hit the frontier, then without US technology kind of leading the way, they can't themselves innovate enough to sustain growth and then they become like every other developed countries with lots of their own social and other problems to deal with and their, you know, prior ambition, you know, don't really translate anything scary. So you know, maybe some of that is true as well for China and maybe that tense relationship will over time, going as sort of reality suggests that aren't as bad as conspiracy theorists would make them out to be some hopeful. Yeah. So there's an argument about that China is starting to run into its own problems and that means that it's not going to grow as quickly as original projections. But part of that argument is also that China will become more dangerous because it will try to lock in the gains that it already has. So what do you feel about China's future? You know, are they going to confront significant enough problems that certainly threaten their economic trajectory? So probably the biggest long-term problems now have lots of short-term problems, right? You know, they'll have their boom bus cycles, you know, the expensive real estate is always going to be that social issue that they're trying to manage. But if you talk about sort of big long-term problems, demographics, same thing that Japan ran and you know, China's aging faster than anyone else. Part is one child policy that was explicit and part is the one child policy that is implicit meaning young people in China just don't want to have kids. So at the precipitous rate of population decline that is likely to hit them, that will become such an enormous problem for them to deal with that. And we all know any country that's aging rapidly, where you have insufficient number of young people to support the old people, the prospect of a war that kills off more of your young people is unattractive, extremely unattractive and just impractical. So that may be kind of the biggest saving grace for all of us, which is as all countries get old, you know, wars are not fought by people in their 60s, war are fought by people in their late teens and early 20s. And if we don't have a lot of those people sitting around, you don't send them out and shoot at each other. I think that's a really excellent point that sort of, I don't think I've ever heard anyone bring up before, but yeah, certainly, certainly very important consideration. Are there any other thoughts that you wanted to end us on? Yeah, so, you know, I think another thing that sort of useful for us to think about, we fear that China will compete with the US. The US and China are more likely to be this sort of co-operative partners. And it's the same playbook that we've seen for all the other Asian economies that have come before. You know, the relationship is always, US innovates technology and business model. And you know, part of that is culture and part of that is just path dependence, right? US evolved and emerged first, right? And to be the first to emerge, you have to unfortunately rely on R&D innovation. So that becomes your path, where you kind of are forced into it. And then if you're emerging second, your path is imitation, right? And you don't sit around trying to reinvent fire, right? Invent everything US has invented, right? It's easier to sort of imitate. And that also becomes your path. You lock into it. So I think it's not incorrect to largely think of US as the scientist within its global community. And we're forced to, right? Because we got no one else to imitate, right? We don't have alien technology here. And then the rest of Asia has this engineering culture that is very much built up, taking what is known and micro-improving quality, reducing cost. And that is very symbiotic because it's very difficult for a scientist to turn around and become a laboratory research scientist, right? Different culture, different infrastructure, different university educational system, different mentality. And so I think in many ways, Asia, particularly now China being so big, right? It is Asia. That relationship is going to sort of be locked in that shape. China will be optimistic and perhaps delusional to think it'll overtake US and become the global innovation leader. It's not built that way. It doesn't know. And then it's not its fault, right? It's the path that it is on, right? Being a follower, you don't need to build that innovation infrastructure. And it takes a long time to build that. It takes a lot of practice. And when US is already doing that, right, it's hard to catch up. And the US doesn't have the engineering culture, right? We're just not very good at making stuff. We're not very good at making things cheaper. It's not us. It's not what we do. And for us to say, oh, we're going to make a vacuum, China do it here, right? That again, fails to understand who we are. We are all honest about who we are. I think we'll all recognize implicitly, explicitly that this collaboration is both necessary and ideal. Yeah, that's such an interesting perspective. And I want to follow up on it. I mean, I know one of the concerns that people have is that there's, you know, China is putting so much money into research and development while the US has much lower levels. And so the concern there is that it will eventually lead to a culture of innovation. What specifically do you see in China that makes it more likely, sort of more imaginative and maybe smaller innovation rather than actually overtaking the United States and being able to out innovate it? I think there's a saying that this culture eats strategy for breakfast. And that's precisely that. The culture of innovation, that comes from generations. And it's a mentality. It's an attitude. And of course, it's also economically compatible, right? Because the US has no other choice but to innovate. That's the only way you can make money, right? Because we don't know how to make stuff cheap. And in China, the culture is the opposite, right? Like you grow up. You grow up with the culture and it's the culture that is profitable as well. For you to innovate, rather than just imitate what's available and with the industry structure, it just wouldn't make any sense. So yes, China can throw a lot of money at it. But that pales in comparison to how much money the US has thrown at it over the course of decades, right? And so that kind of advantage is just very difficult to overcome. You just look at US universities. US universities are horrible at teaching. It's a university professor. We know how bad we are teaching because that's not our jobs. Our jobs to do research, right? Our jobs is to train PhD students who can go and do better research than we can, right? To ask the truly out of the box questions that I haven't been asked before, right? The question is not about how do I make this cheaper? The question is about, well, how do I make something that's never been made before? And that is why all the best talents in the world who are of that intellectual caliber and who have that kind of natural curiosity, sort of less of the engineer personality, but more of the rebellious, you know, ask our question, for example, come to the US. It's, you know, our university system is built to support that. Whereas I think university systems in Asia, again, phenomenal institutions that attract a lot of people, when they're built to teach you what the latest technology, latest information is, and then kind of get you kind of into a industrial research lab that's more focused on, you know, process and quality and cost. And just the university, in a way in which you train people are so foundationally different to bridge that gap, you know, for China to crassacasm and change their entire university and training system. That is easier said than done. That's so interesting. And like I said, something that I haven't really heard or thought very much about. Thank you so much for your time. Like I really appreciate it. And this has been such an interesting discussion. And I've loved hearing your view and your perspective on these things. Thanks, Anita. Goodbye. Bye-bye, Neil. So I wanted to know if you had any particular reactions to our talk. Yeah. No, I thought it was, I thought Jason and Friday really interesting perspective and definitely a counterbalance to those with more of a kind of strictly national security standpoint. One of the things that stood out was towards the very end of the conversation and the idea that the United States didn't have anything necessarily to be concerned about because of the difference in kind of this engineering versus innovation culture. And I just wanted to push back a little bit against that. I mean, it felt like it played a little bit into the stereotype of the Western idea of a liberal education creates human capital that is inherently more innovative or pushing through while the more regimented education styles that you see stereotypically within Asia are more built for process and for engineering and things like that. But I think you're seeing changes. And I would point to the fact that China is now leading in a lot of different technologies and in areas of science in terms of citations within top academic journals, which I really view as a fair competitive field before people would cite number of patents within countries. But that can vary in terms of what the standard for a patent is. And that doesn't really tell you how successful the commercialization is for these ideas. But when you look at the top level, so like science or nature in terms of top journals within a field, and the fact that the Chinese are competing against US, UK, European scholars in some fields are leading those in terms of citation. So that shows that at least in these fields, which includes stuff like AI, that they are already at that cutting edge, which implies that they already are innovating, at least within academia. So I think the one part where maybe this doesn't translate, and Jason does mention, is the ecosystems kind of built within the United States. And we think about the ecosystem that exists within Silicon Valley. So you have both two world-class universities, Stanford University and UC Berkeley. And then the series of not only kind of individual corporations, but then the venture capital. So being able to take ideas that are kind of incubated within a laboratory type environment, within Stanford and Berkeley, and to have people that are willing to invest capital in these early ideas and then advance them to commercialization. That's something the US has succeeded in replicating in areas like Austin and in Boston for biotech, and in the Research Triangle Park in North Carolina. And these are very hard to recreate these sort of systems that take kind of a melding of the public and the private sectors in terms of like the university environments and private capital. So from that point, including that, I definitely see the point. But in terms of sheer innovation, Chinese are catching up. And their universities have moved up significantly in terms of the rankings. So I would say, can they recreate that secret sauce? They have the first step of it, which is the world-class universities. But then will they advance? And I think it takes a certain amount of financial liberalization, which I see them stepping away from with Xi's centralization of power. So maybe that's the thing that keeps them. But I want it to be so blanket as to say, oh, they're just all engineers and they're always engineers. Because I think in the university level, you're seeing them. Yeah, definitely cutting edge inventions and innovation. Yeah. And there's also the fact that much of it that they do, the intellectual property that they steal is cheaper for them. Because if you don't have to spend the R&D on it and then you can make it your own, you get a lot of profit from doing that. So there's also, if you can combine stealing the IPs of the most advanced technology and then develop some on your own, that is why I think people are so concerned. And is also an interesting point to think from the US side, can we ever get good at making things? And you might have a stronger... Yeah, well, that reminds me of the other point, because I don't know necessarily that we're bad at manufacturing as much as our inherent labor costs are just different than these countries. I mean, he mentioned Taiwan. I mean, Taiwan's also a very developed country. But yeah, when your inputs in terms of engineers cost a third less, that's not really a big function of being more efficient as much as your labor markets and standard of living, I don't know, are just so different that, yeah, of course, you're not going to be able to compete just from a cost. I mean, I think it's bad enough and maybe where the US could innovate on making things is just to automate things more and more. And it's interesting because there's just a lot of concern that I hear every day in my classes that we're not making things in the US anymore. And that makes this vulnerable if a war broke out and stuff, because we have to rely on imports. But no one solved the big problem of, well, the reason why we don't make things anymore is of labor costs and how much... It does depend, I think, on how much you can automate the process and then find the kind of quality skilled workers you need to be able to run those facts. The labor side of the Democrat Party will definitely promote it, but I don't see it creating the kind of jobs that people are hoping for. But anyway, I guess we'll see. But I thought there was... I just share the same sentiments you have on it, but I felt like it was still an interesting perspective and discussion. Oh, for sure. Yeah, I think it was a great perspective. Definitely a real interesting conversation. Yeah. Okay. Well, I think that's the show. This brings us to the end of this episode of Kellogg's Global Politics. You can visit our website at www.kelloggsglobalpolitics.com and follow us on Twitter @globalkellogg or me, @arkellogg. You can reach us by email, so Anita at kelloggglobalpolitics.com and myself, Ryan, at kelloggglobalpolitics.com. And as always, please see the show notes for the articles that we discussed in the episode and leave a rating and review on your favorite podcast provider. Thanks. Thanks, everybody. Bye. Bye. Bye.