A Stratechery, Sharp Tech, and Sharp China Crossover on the Chip Ban, Taiwan, TikTok and More
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Please note, at about the 30-minute mark, we had a technical issue with Andrew's mic. We apologize for the sound quality. So this is the first ever Stratechery Plus crossover pod. I think we're going to post this to Stratechery as the weekly interview. So welcome. Welcome to Stratechery, both of you. Sharp Tech and Sharp China Feeds, we should apologize to our most loyal listeners who listen to every single podcast.

because we're giving you three of the exact same episode. But I do think this is an opportunity to touch on subjects pertinent to all of us. So over here to my right, we are all in person is Andrew Sharp, host of Sharp Tech and Sharp China. Yes. It's great to be here. Welcome to Sharp China turf here, Ben. I think this is mostly a Sharp China episode. We are in the Sharp China room, which is Bill Bishop on my left library here in Washington, D.C.,

beautifully adorned with Chinese art and all sorts of things. But Bill, good to see you again. Good to see you, Ben. Welcome to D.C. It's nice to have you here in person. Yeah. It's been too long. It's been too long since you've been on Chatechery because you were a regular guest for interviews, and then we watched a podcast, and then you were never on Chatechery anymore. So I'm glad we can sort of solve that problem. But given we are just over a year old,

And actually, Andrew, I kind of wanted to start with you. Let's start with sharp tech. We'll get to listen most of this time on China. Um, you know, again, it's great to have bill sort of back on, but since we are doing a crossover pod, we have to cater to the fans. Um, you famously been thrown to the wolves in a subject matter that you freely admit you're not an expert in. Um,

Are you an expert now? In what, technology? Yes. I wouldn't go so far as to call myself an expert. I do feel more well-versed in it today than I did a year and a half ago. And particularly when we start talking about things like the chip man and everything else, I'm more fluent in it than I am.

could have ever imagined a couple years ago. And there are aspects of technology and the conversations that we have that, honestly, I've always been pretty fluent in, in terms of the way we all interact with technology and technology's role in reshaping society as we know it. So that part of it comes pretty naturally for me. Prepping for both Sharp China and Sharp Tech is

is always an adventure. At Sharp Tech, it can sometimes be even more difficult because you have this encyclopedic knowledge of tech and the context for everything that we're talking about today.

So you'll jump into a 15-minute digression about the history of Microsoft. And I'm like, wait a second. This is not supposed to be on the test. I'm prepped for the news that we're talking about today. Got to surprise you. Got to keep you surprised. Well, what's been the biggest surprise sort of hosting Sharp Tech?

So the biggest surprise hosting Shark Tech... You can take it either way because there's a question, surprise as far as technology in the year you've been paying particularly close attention or I guess about the podcast specifically. Well, I would say the surprise was how much time we've spent talking about streaming and entertainment, which I know like the back of my hand. Like there are aspects of tech and what is covered on Stratechery that is...

I guess it's closer to my zone of expertise than I would have guessed. And other than that, though, you make it fairly easy. There is a surprise that I've run into hosting Sharp China, which is that when we first got together and we're talking about potentially doing this show with Bill, one of the reasons I was so excited about it was that I felt like

The China and its interactions with the rest of the world just wasn't covered very well in the mainstream. And what I found early on is that it actually is covered pretty well. But it's a situation where almost all of the best coverage is subscription based coverage, including Bill. Like I'm so much smarter today about China than I was before.

a year and a half ago because I read cynicism every day. But then also you've got like the Wall Street Journal and Bloomberg and the Financial Times, all of whom do really great work, but all of whom are really expensive to subscribe to. And so it dovetails with like a consistent theme on sharp tech, which is that the marketplace that the internet once was, where it was like this utopian system

free exchange of ideas and frictionless all over the world. That's going away and it's starting to look more and more like a traditional marketplace where if it's something of value, you're going to have to pay for it. And that certainly has been true of China coverage where there's a lot of great stuff out there, but you have to

subscribe essentially. So subscribe to sharp China. Well, subscribe to cynicism. Can I just say credit to bill? He is the most patient co-host because I was mispronouncing cynicism for like the first six

weeks we were hosting a podcast but i thought you were gonna say the biggest surprise is now that you have people come up to you and ask for autographs now that you that's right podcast with ben right that's the that's the big thing is we're all much more famous i don't know about you know what honestly this is gonna make ben uncomfortable but that has been one of the biggest surprises is the extent to which ben thompson fanboys like

really lose it when they know and love Ben Thompson. There aren't that many of them. I've worked with Bill Simmons. Bill Simmons has many more fans, but the passionate fans that Ben has are really something else. So I've gotten a kick out of meeting them along the way as well. Well, I'm actually curious from your perspective, Bill, and you know, the way into so much of this coverage is been, you know, cynicism that you've written for, for many, many years. Um,

you know, my whole thing in the sort of pitch to you with, with, with sharp China was, look, we get those little morsels of commentary at the top of a letter. And if you scroll down, it just scroll past all the translations. I just bought Bill's take on it. And now you are an official takes men. How's it felt to adopt that mantle for, for the last year? It's actually good. I like, I like the chances that with Andrew, he's a really good interviewer. Actually. It's,

It's one of those things where China wasn't your thing before you did it, but you're actually really good at doing research and asking the right questions. And I think that helps the conversation because in some ways it brings it down to sort of a more of a...

just sort of a more fluid discussion and fluid discussion. And so, no, I like it. I wish I now every week I try and think, gosh, I wish I could just automatically spit out what I said and then put it in my commentary. Yeah. Because actually I realized when you talk, it's actually much easier for stuff to flow that when you try and sit there and write. For sure. For sure. Well, one thing that's interesting about sharp China in particular is there is a bit where over the last few years, but I would say arguably over the last year in particular, uh,

China has become like a current thing, right? It's like a big deal. And particularly here in D.C., I think more than maybe other areas. What has that been like from your perspective? You've been covering China for, wait, when did you start Cynicism? 2007? Actually, I think I launched Cynicism as a blog in 2008.

I think it was 2010 or 2011. Okay, got it. And then you were doing the newsletter for ages. Yeah, just sort of free hobby. And then you kept trying to convince me to make and do a business. Finally, I listened. Thank you. For a very long time. Tashi is the fourth member of our- If you hear a dog wandering around in the background. The famous Tashi. But what's that been like to become the center of things as opposed to a niche-

interest that people in the State Department will subscribe to and read. Well, it's interesting because when I started it, it was really more about very niche. A lot of stuff in Chinese was just kind of do what I was interested in and figured if people wanted to follow, that's fine. As it got bigger and I turned it into business, you realize you have to figure out how you make it both focused but also more accessible.

And so there's this constant tension between how do you make it more accessible and sort of more just written for a broader audience, but also stay focused. And, you know, I'm sort of,

And my goal, I just like writing the newsletter. It was never to become like sort of someone who is heavily followed. I'm glad it's good business, but I don't really like... It was never my aspiration to be kind of a center of attention, so to speak. And it was merely serendipity. We ended up in DC. This was not our first choice leaving Beijing. And so even though we're here...

And I think sometimes it gets lumped in as sort of part of the DC view on China. It actually really is. I mean, I'm not, I came here with no aspirations for like being in the government, being a think tank. It just happened to be sort of the place we picked. Right. But it's good actually, I think because it, it lets me, there's lots and lots of takes on China and DC. Yeah.

I we've joked before on on China, you could have like a game of op eds. It's just about sort of op eds about China that come out every day. I try and just sort of focus on sort of hear the facts and kind of look at it that way and and not sort of have a more politicized take. Because I think there's too much of that in D.C. But that gets tougher and tougher to maintain. It gets tougher and tougher to maintain. And, you know, part of the problem is as things change in China, you

And sort of you see how sort of the country has shifted under CGP. It gets tougher and tougher to do that. Well, let's let's stop with the navel gazing and we can actually get to some topics other than ourselves. This would have been the world's easiest podcast just to keep talking, you know, looking in the mirror as it goes. But, you know, from a trajectory and sharp tech perspective.

The biggest story over the last year pertaining to China is the chip ban. And I know that you guys have talked about this a fair bit on Sharp China, but for the sake of sort of the listeners that haven't caught those episodes or mostly listen to Reacher Checkery or listen to Sharp Tech, what's been, Bill, your sort of highlight

high-level opinion about the chip ban and your sort of perspective on this. And you can sort of take that in any direction you want. There's lots of angles of this, your personal opinion, and then we'll get to sort of the China perspective maybe a little bit more in a moment.

So I think, and we actually have a little bit of divergence. I think the risk with going down the road of starting to put in these restrictions around both semiconductor tools, software, as well as chips is that, and it started under Trump with ZTE and then Huawei, is that it has really mobilized sort of an all of nation approach in China, not just from the government, but from investors, from companies and from the sort of the masses, so to speak. And

And so the challenge then becomes, you know, the way the first Trump administration and the Biden administration have implemented these controls is they have lots of loopholes. They have lots of backdoors that are sort of written into them intentionally or not. And so it's been very leaky. And I think what it's done is it immobilized China. It basically focused and forced them to focus on de-Americanizing large swaths of their tech stack, which...

Various paranoid folks in the security services have talked about for years, but they never really had the real impetus to do it. Now they do. And then the question is, well, if you're going to go down this road as a government, do you keep making it leakier or just go all the way? And I think what we've ended up with in some ways is the worst of both worlds is sort of where I come away. And I think this latest round of updated controls in the second week of October, the updated October 7 controls from last year,

we're a lot tougher on AI, but then they actually loosen some stuff on the semiconductor equipment. And so I think it, it sets China back, but in some ways it may end up rebounding and make them much more, much more motivated and focused on, um,

really pushing out U.S. tech much faster. Yeah. Andrew, you're going to have to be the judge here because I'm still waiting for the part where we disagree. I think we're totally on the same page. But I thought you said it was going to force China basically down this road that was going to make them go for the really sort of the most advanced stuff too quickly instead of building up. No, no. I don't. I actually... The...

I think the way for China to respond to this chip ban is to completely and utterly de-Americanize. And the way you do that is when they built these 7 nanometer chips, that's using basically all U.S. technology and equipment. Yeah. And so that they had already gotten in or fit into these loopholes. And I think the long term most sustainable approach for China and the most damaging to the U.S. interest in the long run

is to go back to where they can make all the equipment they can do it all, whether that be 90 nanometers or 1.3 microns or whatever it be, and master that, and then move up the next node, master that, move up, and get to the point where you can actually make 7 nanometer, and maybe it takes 10 years or however long, but you're doing it on all Chinese equipment. At that point, you have the U.S. really under the barrel on multiple perspectives, which is, number one, you basically will have

completely dominate the trailing edge. Like these are the chips that go in cars or going to appliances and all that sort of thing. And,

And because you've been working down this curve, you've been flooding the market. You're probably half bankrupting TSMC along the way because you're just selling these. You have massive government subsidies. So you're way underpricing the rest of the world. It's like the Japanese flooding the RAM market in the 80s. And so, number one, that is weakening that sort of whole ecosystem in general. And it's increasing the world's dependence on China because you need China.

For refrigerators. Yeah. And as we saw, that's what actually moved the needle with the chip stack and stuff like that was despite Intel probably going to be the biggest beneficiary, the actual pain was felt on chips that were- Once it was impossible to find a rental car. Right. Chips were made like 25 years ago. But then moving forward to your point of

you've eliminated this point of leverage going forward because they've now built on their own thing. And then number three, you can start to seriously threaten U.S. leadership

elsewhere and around the world and you start bleeding. And, you know, part of the whole issue with China and why the loopholes exist is the these chip companies are like, look, we need this revenue for R&D for sort of like pushing forward and you're killing not just us, but also like, you know, the future of technology going forward. A bit of that, I think, is oversold on their part. Their revenues has been artificially inflated for decades.

Since ZTE, basically, because China's been sort of... Well, for example, Tencent announced today in their earnings they have two years' worth of the... Two generations' worth of the NVIDIA chips they need for their AI model. Right. They've stockpiled so much. Yeah, well, I mean, I think... And I think this is actually one of the big questions around NVIDIA and their earnings and their alleged...

you know, being short supply, to what extent have they been short supply because they've known this is coming and basically every chip they've been making for the last nine months has been the 800 versions and sending them to China. I would imagine a very large amount. And so, and that's what they say. The chip bank comes down and he's like, yeah, they'll have no impact on earnings.

Yeah, because you have all this backlog of shipping the actual versions of your chips to the U.S. because you've been sending everything to China. So, yeah. So I'm not surprised to hear that. No, I think they've really... It forced a lot of demand forward or pushed a lot of demand forward. That's right. And that has been happening for all the semiconductor suppliers for like five to six years. Like 30% of their revenue has been... So China's just been stockpiling every aspect of this chain. Now...

That is still about using U.S. equipment to build 28 nanometer chips, 14 nanometer chips, 10 nanometer, maybe even 7 nanometer as they sort of demonstrate they can. But I do think the real long term risk is building up from the bottom and it's all China equipment. So one question, though, as far as de-Americanizing is concerned, do you think that they can –

because in talking to both of you, the divergence may be that, Bill, you think that it's possible that they can focus on both leading edge and trailing edge at the same time. And I'm not sure that you think that. I don't want to say what you think. I don't think. Well, I think the question is, you talk about the whole of China approach, is how much of the money and resources are going to

like the seven nanometer stage and, and, and building a competitor there. Cause you see the fanfare surrounding the Huawei breakthrough. That's right. And I wonder, has it actually sharpened their focus? That's right. Right. Exactly. Whereas I think the, you know, China loves to, you know, sell the story that we're the leadership that cares about 20 years from now and 200 years from now, we're not like those short-term democracies. If that was actually the case,

they wouldn't care about the seven nanometer chip because that's actually in some respects a false victory because you like that's as far as you're ever going to get because you don't you don't have uv though you're probably going to get uvs by learning to moving down the warning curve of all these other technologies so you understand how that works and if you actually had the 100 year view or whatever the what's the right year the the 100 year view is that does that work oh well there's that book the 100 year marathon i don't know i mean i yeah it's 2020 2049 is supposed to be the

Right. The great rejuvenation. Putin and Xi are ushering in changes that we haven't seen in 100 years. Yes. Keep that in mind as well. OK, thank you. See, this is the problem. Although the China experts just become, you know, spouting Chinese propaganda over here. But yeah, so that is maybe this is the point here, which is word is not the right word. I'm sitting here as an American, as an analyst. My concern, if I was looking at China,

As like a company is like you're pursuing short term gains when all your energy should be built, focused on the long term. So and what I would say to that is I actually think given given the resources the government is pushing into the sector that they're trying to do both.

Now, it doesn't mean it's going to be incredibly wasteful. They've had these – they had the big fund. They called it the big fund, which they had a fund for several years to invest in semiconductor-related stuff. They ended up arresting most of the executives because they were so corrupt, right? And they ended up with a bunch of crappy investments, wasted money.

They arrested them all. They had a big corruption crackdown. I think the next round of people got the message. And so I just think that when you look at sort of how from Xi Jinping on down, they talk about the imperatives of breaking through what they call these chokepoint technologies and specifically like semiconductor technologies.

You know, they are putting every resource they can get their hands on into this from money to people to cyber espionage to hire, you know, hiring people from Taiwan, hiring people from Korea, Japan, from the US. And so it's not obviously not easy and it may not make may take many years. But I do think that now that they're fully motivated, we might, you know,

Again, we would probably be wise to assume that they're going to actually be more successful than not in this endeavor. Right. Which I think is reasonable. Yeah. I mean, one thing that is interesting, too, is you mentioned the espionage bit, which speaks to the idea that they're not being asked to invent this stuff.

And they they have working models of all this equipment like they just need to reproduce it and and figure out like what's the. And this is where like like metallurgy is like a huge thing, like the nature of like, you know, whether the parts in the machines or the silicon itself or all this sort of things.

That is a lot of the key learnings they need to do to, say, invent EUV, for example. There's parts of that, the laser in particular, that is super... It's never been shipped before. It's something unique, and they're going to have to figure that out. But they know it exists, and that makes it easier. And the reason why this is important is...

A way to counter what you said is you go back to like Intel and Robert noise, and he was very determined to not take government contracts because the point was when you take government contracts, they start dictating what you do. And his whole bet was that the consumer market would provide such volume, give you better answers. Yeah. And the, the market pressures would force you to invent stuff that actually mattered sort of, sort of in the market and say, Oh, well it's China. That's, you know,

you can't just throw money at the problem. The difference is, is a fundamentally different problem. Intel was actually inventing new things that didn't exist in the world. This is just an attempt to, can we reliably reproduce something that we know is possible and does exist? And if you do, you have our hands on already. And if you do, you're selling into the potentially large consumer market in the world, right? I mean, you're replacing all the self smartphone chips, all the computer chips in China.

Right. So you have the consumer market if you can do it. It's not like you're a small country where you have to figure out how to export it. Right. Yep. Taiwan definitely knows the pain there. One other thing I'd add to that, though, is there's a sort of a broader backdrop to this de-Americization where Trump and then the Biden administration, their policies have certainly accelerated this. But you have to go back to those revelations where that was a real wake up call for Democrats.

Again, the people in the security services where they realized that very early on, very soon after the Snowden revelations, they made a much more concerted effort to rip out Cisco from all their internet and rip out Oracle and other American software and hardware because they realized that it was all vulnerable to the NSA. So that was more of a, they can use all these things to spy on us approach, but it was this broader, we need our own indigenous network.

indigenous technology. And, you know, there's this project H63 that I think they started in the 80s, again, which was, you know, they tried to build semiconductor ships. It's all about, you know, there's this multi-decade programs within the country to have their own key technologies because they don't want to be relying on the U.S. And so this may have been inevitable. I just think the inevitability has now been accelerated. Yeah, I mean, I think because I do think it does still matter

Is it a government bureaucrat giving you money and telling you to do something versus sort of to your point, is it 10 cent demanding and putting you, you know,

we need this performance. We need sort of X, Y, Z. And that is another, you know, pertinent thing that is, that will shift over time and it will actually drive better results. So yeah. The one other thing that I would add is it was really interesting for me just watching the evolution of the chip band and the evolution of the updated controls that were passed last month. It just, in terms of the way the,

the American system works. Like I've said a couple of times on Sharp China, I end up learning as much about America as I do about China just from hosting that podcast and watching the lobbying effort that the chip companies were engaged in over the summer and the twists and turns that the conversation took

as various luminaries on the chip side said, look, we're not going to be able to build the factories, the fabs in America that we had talked about if you're kneecapping us in this export market and just pressuring the executive branch to basically soft pedal any sort of updates to the controls. And to Bill's point, what was passed a year ago

really did kneecap American companies without achieving its goal and without really creating a situation where you're actually slowing down China's long-term ambitions. And, um,

It was encouraging to see that the U.S. government eventually did actually update the controls in a meaningful way because for a while there, it looked like the lobbyists were going to end up winning out and it would just be this Swiss cheese sort of regulation that didn't achieve any of its stated goals. And that's...

was a little bit deflating as an American to watch the government sort of stumble into that. Well, I was going to ask you, I had a question that I skipped over. If sharp China has made you more, maybe more pessimistic than you might have hoped.

But it's good to see Optimus Andrew is here in full force. Me and both Bill are kind of looking at you and saying, okay. Well, one thing I'd add to that, which is interesting, is I learned earlier this year the way that the original round of the October 7th controls got passed. There was a lot of resistance, a lot of lobbying against it, was Pelosi's visit to Taiwan.

because and in someone who worked on it told me that was our window to push it through because the chinese so overreacted that it basically put everyone against these sort of tougher controls on a back foot because it looked like they were you know it was just too hard to argue against well look what look what china may be doing um you know we know we have lobbyists some of the lobbyists who listen to sharp china we've gotten a call from at least one after a podcast when we talked about this i think um a right of initiation yes i will say when you look at the

latest round, the updated controls, when you look at the companies who have really good government affairs teams and hired people, say from out of the Department of Commerce, like Lam Research, for example, versus Nvidia, who has up until recently no government affairs team and took a much more direct approach to trying to sort of push really hard against the government and specific officials.

the ones who know how to have good lobbies and know how to work it came out much better on those controls than the ones like NVIDIA who didn't. Yeah. So NVIDIA is changing that. It's sort of a rite of passage for especially the high-flying tech companies that are used to winning on sheer sort of charisma and technology. And money. It's just basically, I got $5 million here, I'm going to throw it at you, and you do what I want you to do. Yeah. We have sophisticated corruption here, not this low-grade sort of thing. Exactly.

Well, what about on the China side?

How has this changed their perspective? Or is it not a surprise from sort of, at least from what you can infer from Beijing, and this is, is it sort of something where it just empowered the people that were skeptical about the dependence on American troops in general, which are more hardliners? So I think it's done that. I think it's certainly empowered the people who are more skeptical to begin with. I think it also fit into Xi's worldview. Xi Jinping's view of sort of a broader view

I don't want to use the word confrontation in the kinetic sense, but just the broader struggle with the United States and that this just confirmed everything that he believed it had been saying. And so ultimately, I think on China right now, the biggest winner, again, ironically, considering what the US government did to them, it looks like it's going to be Huawei.

Where they're getting the most support. They have their AI chips now that they're pushing out. They're trying to set up their own, you know, push out their own AI framework to basically completely... Because NVIDIA is very sticky, right? I mean, right? And so they're trying to just destroy the NVIDIA ecosystem. Yep. From a sort of technological perspective, the real risk for NVIDIA is that CUDA becomes weakened because there's an entire...

part of the broader tech ecosystem that is not building on NVIDIA anymore. There is some encouragement here where I think Huawei is going about it wrong. Like they're trying to have their own proprietary sort of alternative to CUDA when actually they should be... China should be weaning heavily. They should be the biggest proponents of open source because then you're... Everyone in tech wants there to be an open source alternative to CUDA. And you could...

be pushing forward and benefiting from Western investment and pushing for sort of an alternative ecosystem. But Huawei kind of like wants to be the Chinese version of Nvidia. Well, but that also, I mean, to your point, which, which again would be not that I want Huawei to do this, but then it would make sense because it also means that the, that that would,

eventually probably increase uptake of the Chinese products in the rest of the world too. Right. Right. Yep. I mean, it would be a way of getting around. It sort of, which sort of speaks to my point that it's sort of another angle. And I was getting at earlier where I'm not sure China is, is taking the optimal approach. Oh, they usually don't, but they, they usually take a brute force approach with a lot of money and people and some stuff works. Someone will figure it out. Someone doesn't work. And sometimes they will figure it out. And I think in this case, the, the,

the stakes are so high and it's become such a political priority from the top that the odds are that they'll make more breakthroughs than, than I think a lot of people expected, but we'd be, we'd be my guess. Yeah. This is this specific point though. Does is, is it all Huawei to your point or does it become a more open sort of ecosystem? Well, I think is actually one of the more interesting questions develops. And if it's much better for Nvidia, uh,

If it becomes a Huawei ecosystem, because no one in the West is buying Huawei stuff. Right, right, right, right, right. Whereas if it's Nvidia versus open source, that's a much bigger threat. Except maybe the Germans. Yeah. Different discussion. Yeah. That's another podcast that is TBD to be determined. Well, moving on from the chip band, I thought your point about this validates Xi Jinping's view of the world was interesting.

incredibly astute and pretty chilling to be to be pretty honest um what does this mean for sort of the long run and what does it mean for u.s companies in china i think that intel not being allowed to buy tower because china just never bothered to consider the case is

I think was the most probably concrete retaliation. That was, you know, it was a very Chinese sort of completely deniable. We just didn't get to it sort of thing. They're doing it again with Broadcom and VMware. VMware. Yeah. Which, you know,

The whole point of that acquisition is it's not clear why those two companies go together. It's not really an antitrust concern. Is that it, though? Does Apple need to worry? Have you been surprised that there hasn't been more retaliation? I think what I had heard was after October 7th last year, people after a couple months were like, oh, there's no real retaliation. Was that actually the Chinese are taking a much more systematic approach to how they retaliate?

and sort of trying to figure out where they have real leverage that they can use, they can exercise without damaging their own interests. And so I think that's one reason why Apple really hasn't been affected because they're still, you know, Apple through Foxconn and through some of the, you know, like Lux, what is it? What's the Luxor? Luxor, Luxfort, what is it? Yeah, something. And other sort of suppliers, they employ a lot of Chinese people. They put a lot of money in the Chinese economy. And so...

I think that they've gone after or they started to go after some of the key critical minerals, rare earths, sort of talking. They haven't quite banned it, but they're talking about maybe you have to report your export or they have sort of export quotas, etc. They are starting to flex. And I think that Apple...

If they were to go after Apple, then that would also just spook so many foreign investors and foreign companies. Yeah. Because Apple, one, is such an iconic brand, too. It employs so many Chinese people. Three, Apple and Tim Cook have done a huge amount of work to stay in the good graces of the Chinese government. And so if they were to get somehow affected, that would be pretty shocking. Although, again, we know Foxconn is under the gun because of telecommunications.

So Foxconn employs hundreds of thousands of people, if not over a million. So you're not immune. Can we explain the Foxconn thing? Because I don't know that everybody knows that. Well, there's a little bit of a side. So the founder of Foxconn has left the company. Now he's running for president in Taiwan. He's a spoiler. He's not going to win. He's probably going to make it so that the candidate that Beijing doesn't like has a better chance of winning. And so about a month ago...

The authorities in China announced that they were looking at a tax audit and a land use investigation of Foxconn to basically shoot across their bow, the point being that Terry Goh, the founder, should really just drop out of the race. And then all of a sudden, your taxes are okay. But he's not dropping out of the race. So I think actually Foxconn is probably going to get – the screws are going to turn a bit tighter over the next few days on Foxconn.

But so back to your point, I think ultimately when you look at these tech companies and the ones I've talked to, I mean, it is more about how much money can you harvest from China before the party's over. Most of these tech companies realize that there is no sort of law, like given the way the party is moving in terms of indigenous innovation, you know, getting rid of the, basically de-Americanizing the core tech stack, the long term for most of these companies is grim. But as you know, I mean, CEOs,

They're not there for the long term for the most case. They're there for this quarter, next year. Their incentive pay is based on much shorter-term horizons. So they'd much rather squeeze what they can out of China now and let the next person deal with it. Yeah. No, I think that I agree with you. I think I used to write

at the beginning of Stratechery about, you know, what about Apple and sort of thing. And it quickly became apparent they were not a retaliation target. If ever they cracked down on Apple, that's like the end of the game, right? Because to your point, the employment, yeah, no, exactly. But they can chip away at things like that. They're probably going to be chipping away at the App Store by forcing...

You know, Apple's kind of gotten away with having apps that aren't approved in their Chinese app store. Not anymore. Yeah, right. And, you know, there was the stuff that bubbled up at the end of August where certain like state-owned enterprises and government bureaucracies, government ministries were telling their employees that they shouldn't be – you have Apple phones or shouldn't bring Apple foreign devices, really. That was – there was never any proof of like this sort of –

statewide ban. Had it started over the summer, it was not at all time to like the Huawei phone launch. But I think it's also like Tesla is banned from certain areas. When Xi Jinping travels in China, Teslas are banned from a certain radius of Xi Jinping because the assumption is this is a foreign country.

connected device. Therefore, it is, you know, we on the Chinese side, we understand how these devices can be used as a vector for spying. Yeah, it's a lot of projection, right? It tells you a lot about how they view these devices and these cars.

that question of projection or, or validation ties back to the Snowden point you made sort of before. And yeah, the, the, the long-term impact of that, because that obviously is that's caused all kinds of problems for tech companies in Europe as well. Yep. Like all, you know, the data transfer stuff and all these sorts of things and all like, like,

gives a lot of teeth and energy to stuff that is not only about privacy, but really goes back to the sort of Snowden revelations for sure. Speaking of data and privacy, you know, another question folks have is around AI, you know, the nominal driver of this chip ban, more of a crackdown this time. What is the sense of where China is as far as sort of AI is concerned? Yeah.

So they're pretty far ahead on regulation. You know, they pushed out this these rules on for AI. I mean, obviously, they have a political component. Right. So you have to make sure that it that, you know, whatever your your model is spitting out is in accord with like socialist core values and doesn't say anything bad about the party. But they've actually thought pretty hard about it.

And so I think – I mean there was a good post by this guy, Kevin Hsu, who writes a newsletter. He just had a post earlier this week about – he's quite bearish because he says forget the chip ban.

And, you know, they block hugging face, right? Which I guess is because of the data sets. Right, the open source models. The way that the Chinese internet sort of data is structured and the way people get around censorship messes up the data sets. And then you have all this regulation where you're a startup and you want to do AI. You have to go through all these hoops to sort of pass the rule. Yeah, I'm relieved you're going this direction because your opening response was they're ahead in regulation. I'm like,

Did you mean that as a good thing or a bad thing? No, I meant that as an agnostic in terms of regulators thinking it through like the EU would be proud. Put it that way. That fount of innovation, the EU, yes.

the Biden executive order, there were so many people in the American tech community who were like, well, there it goes. We're going to lose the AI battle with China and they're putting us at such a competitive disadvantage. And in the back of my mind, as co-host of Sharp China, I was like,

I'm not sure, but I don't think that China is some haven for free enterprise and innovation. It's been really interesting to watch over time, right? For a long time, the assumption was that China would dominate AI because of Western reluctance to collect the data necessary, right? Data is the new oil. That's right. That's right. I read a whole article once taking down that specific phrase because it's so irritating. I mean, but...

It's not like data is... Because you believe that. Yes, I get it. What are we going to do? But, I mean, that's arguably been true as far as things like face tracking are concerned, right? And, you know, that sort of stuff China is very good at. And it also...

for obvious reasons, aligns with sort of concerns of leadership. But this is where the large language models have really been interesting because, one, to your point, China has less stuff on the internet because of censorship. Or to the extent it's on there, it's all screwed up, right? Yeah, and the way people get around it. The five gazillion ways you refer to Tiananmen Square, right? Yeah, yeah, yeah, exactly. But then number two, to your point, China's going to be much more restrictive on LLMs

But not because they hallucinate. That will be the excuse. But because they might tell too much of the truth. Right? And that's the big concern. No, that's right. And so it is a – I mean you'll probably have – like be quite ahead in things like looking at CAT scans or –

healthcare or diagnostic stuff, right? That's probably where they may actually end up being ahead. But like these big LLMs, it doesn't, again, I think it's, you sort of really have to scratch your head and wonder how is that going to work when everything is just so controlled and censored? And how does, you know, I mean, you ask it a question about history, well, there's the Communist Party version of history and then there's the rest of the world version of history. And so, I mean, you have to put a lot of work into making sure that those models don't spit out the kind of thing that

It gets you in trouble if not detained. Right. Yep. Yep. If you remember the ByteDance early on when, when Zhang Yiming, the head of ByteDance, I had a TikTok. Sorry, ByteDance. TikTok's the American company. ByteDance, or the Cayman Islands company. ByteDance is a Chinese company. He, they had their previous app. They had some bad information. He had to write this abject, humiliating apology.

Yeah.

And it's going to happen in the AI world sooner or later. It's just inevitable. It does feel like there's been, sort of speaking of, a lot more energy about TikTok and TikTok being a concern and maybe Trump was right. By the way, that's the countervailing story as far as optimism for our government's confidence is concerned. When you compare the chip ban and successfully updating the export controls...

Sort of feels like the Americans have dropped the ball on TikTok, but we'll see where we end up over the next couple of years. Well, I mean, as a longtime TikTok hater, not because it's Chinese, but because it makes you feel old, do you feel the vibes are shifting? Is the ban coming or is it just never going to happen? We're just going to keep griping about it. Well, it certainly sounds like the ban is not going to be coming from a Democratic president in the...

in the run up to an election. It turns out it's kind of useful. I don't know that it is that useful. I think there are people on the Dem side who look at TikTok and are terrified that they would lose a generation of liberal voters if they ban TikTok. I actually think that's a mistake. And I think if there's a voter out there who's a single issue voter and is a TikTok voter, that person probably shouldn't be voting anyway. Yeah.

But I do think that that fear is part of what has sort of broken the tie, as it were, in terms of whether or not to take action on TikTok.

And it's interesting because the philosophy that underlies the chip ban is that we're looking at China as a foreign adversary. And if we have the ability to blunt their progress in AI, that is a national security concern that's worth... And it's worth sacrificing the preeminence of our most valuable industry in the very long run because it's worth the risk. You know...

I'm now upset because it's such a good point. We are risking our single most important industry in the short term as far as R&D goes, in the long term of Chinese actually building up and competing around the world when they would have been basically a monopoly forever. We're willing to do that, and we're not willing to ban or force a shift in ownership. I don't want TikTok as a competitor to Facebook. Great.

The ownership, the fact that it is run from China...

And they can't do that. And they continually get caught sort of, oh, misunderstanding. We don't have any access from China. Oh, well, this guy had – we forgot to change the setting. They continue getting caught in these – call them misunderstandings. Call them dissembling. But it's clear that the links are still there as hard as they try to dissemble. The data access – and you've written about this. You were early on this. All of that is a red herring. Yeah, who cares?

That's ideologically driven. Well, no. Yeah.

then it should also be essential, using that same logic, to not give that government the power over what is certainly one of the most powerful information tools we have, maybe the most powerful. And trendsetting and thought.

Sort of direct. It's like like directing thought. That's what it is. And it seems insane to allow another country, let alone a potentially adversarial country to have that power. It is insane. Well, Nepal just banned it. India's banned it. You know that. And China's banned all of our social networks for a reason. No, but this is the whole thing is like you.

any policy that you have that it's based on absolutes is going to fall down. Right. So like, Oh, I believe that the government should not be seizing private property. Sure thing. I believe that as well. There exceptions exist for a reason. And to your point, we are willing to admit to those exceptions and, and leverage them in the case of chips. We won't in case of this. Oh, it's not. No. Well, the other thing, I mean, so, so, so things have shifted again. You know, there was that surge, you know,

about a year ago or thereabouts, you know, the hearings where they brought in the, the, the bite dad CEO and, you know, and it looked like maybe something could happen. And then people got busy with something else. You know, the next, the next shiny object showed up in DC and that was it. And the lobbies did their thing. Um, it has come back and mostly from, uh, I think more on the Republican side, like, like representative Gallagher, who chairs that select committee, uh,

on China, Wisconsin's own, where it comes up over the sort of what's been going, what's been on TikTok since the, the, the October 7th terrorist attack on Israel and then the, and the aftermath. And so, but that again is on the Republican side, the Democratic side, I really think there's, there's no prospect of, of the Democrats supporting a ban on TikTok or any sort of,

anything that would materially impact TikTok before next year's election. One, because they do believe that it's very important for getting out the vote, young voters. It's where they target young voters. Two, the lobbyists. I mean, TikTok is spending so much money in this city, and they've hired some of the most connected Democratic lobbyists and people, including lobbyists who are very close with the president and his administration.

And so I think they've got this town wired. It's very hard to imagine how that changes before the election. To your point, though, what's crazy, nothing is crazy. You talk about the data. People talk about, well, they can have access to this data. And even someone democratically cited, there's a risk. So...

Think about it. You have – we talk about the 2016 election and, oh, Russia interfered, and we're not going to have a – we're not going to get in a debate about that, right? But the whole idea that sort of people say, oh, Russia interfered, and they had this crazy server stuff. So you have – the presidential campaign will be uploading real-time basically selects or targeting data into TikToks.

for the kind of voters they want to talk or the kind of issues they want to talk, they're uploading it to what is effectively a platform that if you really believe it, it's controlled by a potentially adversarial government. It's insane. It's insane, right? It's absolutely... Like, if you're concerned about foreign interference in an election, why would you put up all this sensitive campaign...

Anybody would love to know what the sort of internal campaign data is about, what they're trying to target, what the message they're trying to put out and have it at real time. If you're the campaigner, you're uploading to TikTok, you're giving it to TikTok. Yep. That's the data that actually matters. Yeah, because people don't – the way these – it's called lookalike audiences. You upload your own list of people.

Right. Into it because it's – and then the way it works is find other people on this platform that are similar to these people. So you are – this is where Facebook gets their data. It's people uploading lookalike audiences, all this bit about – and then they get signals from stuff you surf around the web. That is what some of the signal comes from. But the actual core data is people just giving it to Facebook.

And people are giving that data campaigns to your point or giving it to tick tock. It is, it's insane. Again, it makes the same people that are kneecapping our chip industry, which again, I think you can make a case for it. That's a reasonable step to take, right? It's, but this goes back to the earlier point about, I mean, about DC and how, I mean, it's hard not to get cynical living in DC and sort of starting to dig into how the sausage gets,

made the form. And there's a bit too, people are so, if you see this again, again, this is a human quality. I'm sure I do the same thing. People are so motivated to, to believe what they already believe or what they want to believe. Right? So for, when I first wrote about TikTok in the context of Daryl Morey and Hong Kong,

Right. And his comments when he was at the Rockets, right? Right. Yeah. And I went on TikTok and I searched for every single NBA team and every single NBA team brought up highlights except for the Rockets. And this is you in Taiwan.

I did it via VPN, also via the US. But see, yes, if you want to, like, this is what, no, these are the responses I got from everyone. Like, oh, no, you're doing it wrong. China's not leaning on the algorithm. They're not changing or whatever. No, no, I'm giving you a hard time. But no, but that is what it was. Oh, you're in Taiwan or you're biased. Oh, any of you, you know, it's your profile. I don't, you know,

The issue, by the way, is it's all so opaque that the experience – Which cuts both ways, right? It's opaque, so it's hard to prove what's going on. But it's opaque, which means it's easy to manipulate because you would never even know. And the other thing about the censorship inside China and the internet companies is –

It's multilayered, and it's actually quite clever. You have regular updates of things you're not supposed to talk about, but these companies are so conditioned or beaten down. So they just – they err on the side of caution, thinking, well, this – I shouldn't have this on myself. That's how the whole Bori thing happened. But then it's – The government didn't do it, right? But the mentality is like, oh, we better be careful, right? And we don't know, so let's be careful. Let's not do it.

That's how the whole Memorial thing happened is it spun out of control of people preemptively reacting as opposed to being sort of a top-down thing. But, I mean, geez, it's unbelievable. And along these lines, if we're talking about the U.S. government's inefficiency, I was thinking earlier today because we're a year in here. It's sort of a big milestone, the three of us podcasting together. And I was thinking back to some of the early podcasts that you and I did, Bill.

And early on, there was a, the World Cup was being played in Qatar.

And there was a story about CCTV censoring the crowds in Qatar. No masks. Right. Crowds having a great time watching soccer. And I remember being pretty flabbergasted that they had that ability and were using it to sort of shape the reality that they were showing inside China.

And then we got very accurate statistics afterwards, but yes. Yeah.

efficient an authoritarian government can be in some ways where they can overnight shift gears and shift messaging and there's not really any sort of well we're in the middle of that right now because it's pretty funny people online on the Chinese internet are just like wait oh we can like Americans now because in the run up to the Xi Biden meeting today they completely shift the prop again and all of a sudden it was like people to people friendly relations and all of a sudden they're like wait what I thought

Are we supposed to hate them or are we supposed to like them? I'm confused. The flip side of that dynamic, though, is that there was no feedback loop for the first three years of zero COVID. And China and its economy is still feeling the consequences of the policies that were set at the beginning of COVID. And

So I just think that strategically, as inefficient as the American system can look, there are also long-term strategic benefits to the marketplace of ideas and constitutional freedoms and the rule of law. And the ability to self-correct and criticism. Exactly.

I would like to end it here with Optimist Sharp, but it's like Optimist Prime. That's the new podcast. But we haven't talked. We are recording as she and Biden are meeting. I think the second most important meeting. You just stole my joke. That is exactly what I was going to say. So I think you guys are going to record another episode that's sort of more focused on that. Go subscribe to Sharp China if you are not. But

I'm curious. I don't think there's a tech angle than the other stuff like chip and stuff, but why San Francisco? Well, APEC. It's because of the APEC meeting. APEC was set. You predetermined. She was invited as a member, and so then the hope was that she and Biden could meet at APEC. So it had to be San Francisco. And APEC was scheduled to be in San Francisco a long time ago. Yeah, yeah, yeah. It's way scheduled out, I think,

more than a year in advance. It is, it is a remarkable how they can do things when they want to. Um, although we'll see what happens the day after. Um, one thing, there is a tech angle though, because one of the, one of the, you know, the U S administration lease has been very tried very hard to, um, really set low expectations for this, uh,

meeting, you know, not really a lot of outcomes. One outcome though, that is, I think most people, certainly the administration has talked about it and there's been some reporting about it, is there is going to be some sort of mechanism to talk about AI, right?

like a working group or whatever they're going to call it, I think is one of the expected outcomes. And in that, they will be sort of talking about one thing, you know, there's been a story about they'll talk about we don't want to use AI in the nuclear command and control process. Great, right? That sounds good. But it's also going to be the Chinese side wants to use it as a forum to talk about the broader tech restrictions.

So there is – I mean because from the Chinese perspective, on the one hand, I mean what's interesting, right? We talked about sort of how it's accelerating China's march to become indigenous. But it is a setback. It is a huge setback. They want time, right? The game they're playing is they want relief so they can buy time so they can fill the gap.

But even if they get relief and they buy time, it's not like, oh, okay, you're nice. Never mind. We're going to kill the funds and we're not going to try and become self-reliant. It's just all about how do we work it so that we can fill that gap so that we get more time to catch up. So should I be worried being in Taiwan?

Actually, today in my newsletter, I wrote optimism. I think there is going to be a shift where people have been really negative about Taiwan, about US-China. I think this meeting will...

put a sort of a near-term, I mean, so cliche, but like a floor in the downward trajectory of the relationship. So I think over the next few months, there will probably be more and more kind of more positive talk about US and China. It's not going to fix anything, but it's going to change the attitude for some people and change the discussion and the environment. I think on Taiwan, the deal to sort of have the two opposition candidates combine their

Well, they combined the legislative slate, though. No, today they announced that actually they're – Oh, well, there you go. I actually did not know that. And Ma Ying-jeou, the former president, brokered it, and then they're going to basically decide who is the presidential candidate, who's the vice presidential candidate based on a series of surveys. Explain that for us.

So basically the incumbent president in Taiwan is Tsai Ing-wen. She's from the DPP, the Democratic Progressive Party. Traditionally, they were the party of independence, although they've tempered that when they got into power. But Beijing does not like the DPP. So the current president is finishing up her – Look at this updated article. It literally just happened. Finishing up her second term –

Before we go down the Taiwan rabbit hole, the point though is what's happened is that the Chinese always prefer the KMT, the Kuomintang, which was the original party that they had a civil war with, but then the KMT fled to Taiwan and set up the Republic of China. Right. Their problem with the CCP is not that they're communists. It's that they're...

they took power from... They're usurpers. But the Beijing views that the KMT is much more willing to engage in discussions for a political solution to reunification or something approaching reunification, whereas the DPP is intransigent. Currently in the polls, the current vice president is the DPP candidate for president. He's leading. And the way Taiwan politics is working, there are, I think, four other candidates, three other candidates for president.

That sort of splits the field, means that the DPP would likely win. Now that, though, that two of those candidates have combined from the KMT and this other party, the TPP, the Taiwan— The very popular sort of, or very iconoclastic, I think is the word you use, mayor of Taipei. But that news just broke last night, but that means that now the election, which is, I think, the 13th of January or the second week in January, is going to be much more competitive. It means it's much more possible that the DPP loses.

And the concern has been over the next couple of months what China would do to really – how they would sort of try and raise the tensions or manipulate –

to sort of somehow influence the elections. Now, they may not need to do that as much because they got Ma Ying-jeou, who they like, has brokered this deal. So what that may mean is it lowers the tensions around the Taiwan election for the next couple of months. That feeds into this sort of broader kind of stabilization of U.S.-China relations. So it may actually mean the next two or three months are a little less stable.

And some of the geopolitical risk, at least in the short term, maybe has dissipated. So I have one question. Do you think that the potential for stabilization here is a reflection of vulnerability on both the U.S. side and the China side of the relationship right now? I think they both would like relief from some of the pressures. I mean, the U.S., I don't think, wants a crisis with China when they're dealing with the crisis in the Middle East, crisis in Ukraine, etc.

the chinese economy is not doing well that they need they could use a better environment because one of the things that's happened with the with the

really deteriorating US China relationship, but also the tensions over Taiwan is it spooked all these foreign businesses. It's one of the reasons you're seeing, or I think several of the reasons you're seeing a foreign money leave China and foreign businesses either leave or stop investing because you, you, how do you, how do you say I'm committed to a $5 billion new investment in China when maybe there'll be war over Taiwan in, in, you know, two, three, four, 10 years.

So the hope, I think not the hope, but one of the possibilities is we're moving into a stage where people, at least businesses, can start to make the argument that things have stabilized and maybe they can get back a little bit more. Because a lot of these companies, they'd much rather be in the China market.

For sure. Right. So and then they're about to have dinner. You know, she's having a dinner with these CEOs. They're a very eager audience. They are very receptive to positive messages from the Chinese. I think we also may see coming out of this dinner, you know, some of these big CEOs talking about how, well, you know what? Actually, it's all over. You know, it's all overdone. It's overblown. This negativity. It's not that bad. She's the guy we can do business with. Maybe not. But I think that's there is a possibility because the Chinese are.

I think they have realized that they need to do a better job of talking, at least talking to the foreign investors. The one thing that is of concern and relevant to all three podcasts here is there's a lot of talk of like 2027 or whatever it be, which mostly has to do with like U.S.,

changing its fleets and that's going to be the lowest force level and China's obviously modernizing and building up their capabilities.

There is this AI angle, which is the whole point, if you believe it, that AI has some sort of military application is not really about the capabilities that exist today. It's the capabilities that exist in 2035 or something like that. And even if you are optimistic about China catching up in chips and catching up in their capabilities today,

We're talking like a long term 10 to 20 year sort of play. And there is China's relative weakness, technologically speaking, compared to the US is probably going to be in the, you know, around 2030, probably somewhere around then.

And the fact that happens to line up with all these other factors, I think, is a concern. Like one of the most destabilizing things that can happen in terms of like military force or whatever is when one side perceives they're about to become at some sort of permanent disadvantage and wants to sort of like get ahead of it. So there's good news and bad news. Yeah. And I'm not at all saying that the risks are gone. I'm just saying that you may see a brief period where people.

Before attitudes shift a little bit. Right. You know what I'm saying. Two, three months. Yeah, yeah, yeah. A short-term adjustment to less pessimism might be the way I would describe it. Which would be good. But the risks certainly remain. Yep.

Very good. Well, it's been a fun year. Everyone links in the show notes. You can, again, if you go subscribe to Sharp China now and Sharp Tech now, you're going to get the exact same podcast. So we apologize for that. But there's lots of other good podcasts. And there is a new Sharp China that will be, you know, next week. We'll talk about this meeting in much more depth. Yes.

Talk about the second most important meeting of the week. A fun discussion of Gavin Newsom a couple weeks ago. A highlight that I enjoyed. Yes, Gavin Newsom. America's unexplained envoy to China. Yes. What's going on there? All part of the adventure. And the...

There's a basketball angle. You saw the video, right? Yes, he ran over the elements. The primary school kid. That is the hack, by the way. Because, first of all, when we started Sharp China, I was not expecting the U.S.-China relationship to devolve progressively. I know. It's been very tough for Optimus Sharp. Welcome to my world. It's been seven years. We had to search for some positive light.

Yeah, it turns out when you left Beijing, it was getting bad. Well, that's why I left. It was like a high point. Because I had friends saying, you know, today's the best day of the Oceania relationship for the next several decades. Which is like, tiny friends are like, oh, God. It turned out they were right. A couple weeks ago, we had to, toward the end of the episode, I had to like abandon the rundown and say, Bill, just tell me what it was like starting Cynicism. And so he told us the story of starting Cynicism. That was terrific. But in general, Sharp China Sports

is how we end each episode with a dispatch about usually basketball, but who knows what we get into. Also some panda coverage. Maybe we'll get pandas. I don't know. This week we could get more pandas. Oh, that would be a big deal. Easy win. She does nothing but embrace easy wins. Oh, wait, no.

A great note to end on. We were getting a little too optimistic. But yes, we'll have to make this an annual tradition. Yeah. We should go to Taiwan. We should do it in Taipei. I'm ready. Taiwan and then maybe the Shanghai Grand Prix. Is that – they have to start running that again? I don't think you can go to Shanghai now. I don't think we're going to China anytime soon. I think you're on Sharp China. I don't know, but we'll have to see.

Very good. Bill, Andrew, good to have you. And love. Well, it's so great that you that this is part of the Struck Your Bus bundle. Of course, I'm talking my book here, but it is a perfect example of like something that's important. Get the best sort of person in the world to just like explain what's going on and have Andrew as like this perfect sort of stand in for people's questions and understanding. And yeah, I'm happy to work with you guys and happy to do this podcast.

Thanks. Good to see you. Thanks, everybody.