TikTok and Musk and Xiaohongshu; Xi’s Speech To Top Leaders; New PLA Capabilities for Taiwan; Proposed AI Controls and Continued Hacking Concerns
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Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, it's great to see you again. How you doing?

Happy New Year, Andrew. It's been too long. I missed you and I missed all of our listeners. It's been so long. I had somebody reach out and say, is the podcast ending? No, I was on vacation last week, so we wound up taking a longer holiday break than normal, but it's really nice to be back. How are you doing? Are you filled with Commander's fever after the win on Sunday night?

Don't jinx it, man. It is, look, five games in a row. They won with the last play. That doesn't seem sustainable, but you got to enjoy it while it continues. Indeed. The Lions, I think, are a pretty formidable opponent. Yeah. I mean, they're probably screwed on Saturday night, but it's been a very entertaining two or three months here with Jaden Daniels and the Commanders. And I won't jinx anything. Jaden Daniels in particular, he's a great guy.

Feels a little bit too good to be true. Shades of rookie year RG3. So hopefully he can keep it rolling. But we have a lot to cover on this episode. And speaking of a hell of a ride, we can pick up where we left off before the holidays with the latest in the TikTok saga. We're waiting on a Supreme Court ruling that will presumably come sometime this week, maybe as early as Wednesday this week.

And given that uncertainty, I wouldn't normally lead the show with the TikTok topic. I could say, let's roll it over once things become clearer next week. But there was a headline from Bloomberg on Monday night that read, China weighs sale of TikTok US to Musk as a possible option.

And they write, Chinese officials are evaluating a potential option that involves Elon Musk acquiring the U.S. operations of TikTok if the company fails to fend off a controversial ban on the short form video app, according to people familiar with the matter.

Chinese officials have yet to reach any firm consensus about how to proceed, and their deliberations are still preliminary, the people said. It's not clear how much ByteDance knows about the Chinese government discussions or whether TikTok and Musk have been involved.

So first of all, a wonderful detail that ByteDance leadership may not have any idea what PRC officials are considering doing with their company's most valuable international asset. That made me smile on Monday night. I wonder if it's too late for the government to add that to their briefing before the Supreme Court. But TikTok, in response to that report, said we can't be expected to comment on pure fiction.

But then since that story broke, both the Financial Times and the Wall Street Journal each followed up with stories suggesting that Chinese officials are looking to Musk for a solution, with the Financial Times saying that they hope Musk could help, quote, broker a resolution of some sort, and the Journal saying that Musk is a potential buyer of TikTok at some point.

what do you make of all this news over the last couple of days and what it might portend for the next couple weeks, months, and years of TikTok's future in the U.S.? And U.S. politics and national security policy for the next four years. Indeed. It was interesting. When the Bloomberg story came out,

greeted with a lot of that can't be it's you know the sourcing is pretty thin there was no byline on the story which is not uncommon for sensitive stories reported out of China I figured that was part of the explanation and even I think on CNBC this morning David Faber was talking about how he's very skeptical and he had

spoken with people at ByteDance and they sort of reiterated the fiction quote and it's not happening. But then, of course, earlier today or subsequently, we had reports from both the Financial Times and Wall Street Journal that were some variation of that story, not exactly the same. It makes sense, right, that somewhere in the PRC bureaucracy, there would be discussions about what would happen if the ban were to come into effect and how might they

be able to facilitate a way to forestall a ban. There was no mention of where these officials are in the bureaucracy, what level they are, how serious these discussions are in the sense that they had a level where it would be a couple rungs removed from Xi Jinping, for example, where someone could actually get close to making a decision, or is it further down in the bowels of the bureaucracy? But I think the bigger point is

I mean, there are several. One is the idea that Musk would be seen as someone who could either be a person who could broker a deal with Trump or even take it over just makes sense given his

raft of interests tied to the PRC. I mean, they see him as sort of a friendly emissary. Not sort of. 100% he is. And he's made that very clear. And obviously, he is close to the president at this point and has a lot of influence, at least it appears to have a lot of influence on

And so, I mean, there's no... I don't think there should be any surprise that if the PRC officials are thinking this way, Musk would be... Musk or someone who works for him in China, they would be a conduit. And that raises a whole bunch of other questions about what other policies might they look to Musk as some sort of a broker. For example...

you know, chips. Who's at this point probably the biggest supplier or the biggest buyer of advanced NVIDIA chips? Right? Absolutely. Elon Musk. Jensen Huang says, hey, you know, help us. I mean, again, there's all these interconnected conflicts that I think we may, you know, we're starting to see with TikTok, but there's no reason we're not going to see a whole bunch of areas going forward if Musk retains his level of influence. Well, yeah. And about the idea that, you know,

Of course, people will say, well, the fact that the Chinese government and Chinese policymakers or officials are discussing this potential, therefore, is more proof that it is not a private company. The fact that the ByteDance executives might not be aware sort of supports that. Right.

Exactly. That's what I said. Or just add it as a footnote after the fact. Or supports the idea that from a PRC official perspective, no company is really an independent private company. So therefore, if they say this is a solution, then ByteDance would have to get with the program. It's not great on... I think it's not a great view into one, how maybe PRC officials look at the company. And it does, I think, support the...

some of the more paranoid concerns about ByteDance and TikTok. But it's also not a great look at sort of the current state of the U.S. political system and how influence flows. Right. Yeah. I mean, again, TikTok said this is pure fiction and that's how I'm going to treat this possibility until more substance emerges in the next couple of days or weeks. But it was interesting. It's this sort of chaotic plot twist that can't be totally discounted

And so for that reason, I feel like it's appropriate and a good tone setter as we enter the new year and new presidential administration on the podcast here. And if it were just Bloomberg reporting it, it would be, I think, easier to dismiss it. The fact that both the FT and the Wall Street Journal apparently independently were able to get bits of the story makes, I think, it more likely that there is actually...

Something's going on. Yeah. And the FT said it was preliminary, essentially brainstorming ideas for what to do with TikTok if, in fact, the ban goes forward. But I mean, again, you said it. The fact that it can't be totally discounted just underscores how much uncertainty there is around Musk and his relationship to China and

And TikTok has argued repeatedly that it would be basically impossible from a practical standpoint to separate TikTok's algorithm and operations from ByteDance in Beijing.

So I don't even know what Musk would potentially be buying with TikTok. Like, would he be buying a hollowed out husk of TikTok as a favor to the Chinese government? Or would he be buying the real thing, but by dance of the CCP would retain some level of access and integration and the divestiture would be more superficial in that scenario, but blessed by Trump. Yeah.

And I think the best case scenario for the company, for TikTok by dance, and for, I think, Chinese policymakers is more of the find a way to negotiate a way to keep TikTok alive. Right. And use Musk as a conduit and a broker to make that happen. Yeah. And maybe find a way to... I mean, he wouldn't be a white glove, so to speak, because it's too obvious, but find a way to structure a transaction that passes...

a smell test if you sort of completely cover your nose, close off your nostrils with clothespins and therefore say, yes, it now meets this. It passes the threshold and it the law doesn't apply to it. Yeah. Well, and in terms of the law, U.S. Solicitor General Elizabeth Prologger said at the Supreme Court last Friday that the ban would end as soon as ByteDance sells the platform in a way that meets the law's requirements.

And she was arguing on behalf of the government and said, when push comes to shove and these restrictions take effect, I think it will fundamentally change the landscape with respect to what ByteDance is willing to consider. We shall see on that front. But she also added that Trump could choose not to enforce the law and.

And Justice Kavanaugh, in response to that, then questioned whether companies like Oracle, Apple and Google, who are subject to the law and subject to the fines if they continue hosting TikTok in defiance of the law, would continue providing services for TikTok anymore.

In that scenario, if President Trump just says we don't intend to enforce the law, he said they're not going to take that risk unless they have the assurance that a presidential statement of non enforcement is, in fact, something that can be fully relied upon because the risk is too severe otherwise.

right? That was his question to her. And that's another unknown in the middle of all this. And more will be revealed in the weeks to come, I assume. And so, but it is, I think, having some impact on TikTok already. We're seeing...

I mean, if you look at the news, you can't get past the sort of huge hype all of a sudden about all these TikTok, quote unquote, TikTok refugees going over to this other Chinese app called Xiaohongshu or Red Note in English. But they're not trying to run a U.S. operation like TikTok. This is a Chinese app run out of China. Yeah.

And yet you have all these people going over there. I'm very skeptical that it started in an organic way. I think that probably Xiaohongshu, which is a private company, competes with ByteDance. They have very good marketing folks. They saw a really good opportunity to take a shot at a big competitor. But

Again, the Chinese media is having a field day talking about all these people. They're refugees from US censorship and they're running away. They're trying to find a better app that's not an American app to continue to be able to do what they do on TikTok. So it's pretty messy. It's gotten pretty gross.

And the whole process, I mean, it was never a particularly pretty process, but it's gotten pretty ugly. And I think we'll get uglier over the next couple of weeks. So one question on the ByteDance divestiture side. If ByteDance divested, I read somebody who wrote,

that it would be seen as a national humiliation in China and could jeopardize some of ByteDance's pretty considerable business that they do on the mainland in China. Do you think that's a possible concern that's animating some of their behavior here or no? I mean, I think that, you know, it's a reasonable concern to have. I think that if it gets to the point where they need to have some sort of a transaction done,

if they won't do a transaction without making sure the government is at least okay with it, assuming the government hasn't actually helped arrange it. There's reports we just talked about a few minutes ago. They're driving the bus here. And so if the regulators are on board, then you could easily see some part of the Chinese internet, very nationalist, will attack them. But

If the government's on board with some sort of a broker deal, I would also expect them to see that those voices be reined in. They shape the messaging around that deal. Yeah, they're not. They can control it if they think it's a problem. Okay. They being...

like PRC regulators. That makes sense. So two questions on Xiao Hongshu. Does Xiao Hongshu translate to Little Red Book, as some on Twitter have said? It's being called Red Note by American users. Mao's Red Book was the Hongbaoshu, like the Red Treasure Book. Okay. This is not...

The mouse little red book thing. Okay. Got it. Well, see, this is why we come to you. And I think that the, I believe in English, it's the, they use the term, they use the name red note is what they're calling. Right. Red note is what the Americans are calling it. And,

This is an interesting subplot because Semaphore, I was reading right before we logged on, they aggregated a few interesting reports on this. One was from Wired, who noted that Xiaohongshu has transformed into a unique platform for cultural exchange, reminiscent of the early Internet's open forums. And some Americans say they are picking up Mandarin while Chinese users are seeking help from the American users with their English homework.

Others are communicating purely by meme. So it's kind of a throwback to pre-firewall days and people are communicating on both sides of the world. And it's really great in that respect. I'm skeptical of the actual numbers of Americans that are joining Red Note here. I actually think it's sort of a social media story more than a real story. But I still I'm a cynical guy.

But this is, but they're having seen lots of marketing campaigns in China. I will bet a lot of money. If you ever came to a poly market, I will bet a lot of money that this is an extremely inorganic shift.

In terms of like logistically, they're paying. Xiaohong Xu got sort of figured out some influencers and got them on board to make this move happen and then is amplifying them or promoting them in the app right now to sort of make it feel like it's even more.

Yeah, it's definitely being amplified, including on Twitter, because it's an interesting little twist. But it's amazing to watch the media just like, I mean, it's every freaking site that writes about China has something about this whole phenomenon. To your point about people, oh, it feels like the old days.

I think I'll, I forget who else talked about this, but I don't remember if you remember clubhouse, the thing that at one point was worth $4 billion for like a week in the, in the, you know, right. And there was a moment when it was a really interesting thing because you could, people from China could, could jump on and you had these conversations and you had these cross-cultural conversations and within, I might be getting the timing wrong, but I think within three or four weeks,

You had to have a phone number to verify yourself to get on. All of a sudden, the Chinese side stopped allowing those SMSs to go through. Yeah. Well, and to that point, that's the other thing that's interesting here. A source close to Xiao Hongxu, this is from PC Online, which is a Chinese digital media outlet.

Revealed to PC online that the company issued internal and partner directives this morning to quote, not discuss, not promote and not share the matter of all these Americans joining red note this week. The surge in traffic has become a Domically's sword hanging over Xiao Hongshu for the platform, which unexpectedly became the recipient of this influx of traffic. The risks far outweigh the opportunities.

Typically, domestic social media apps that expand internationally create separate domestic and overseas versions due to differences in content regulations, data security, and privacy protection across countries. Examples include Diane and TikTok.

Quashu and Kuai. However, Xiaohongshu, which has shown little ambition in overseas expansion, does not have an international version. This means that as a significant volume of foreign language content appears within the domestic internet environment, Xiaohongshu faces immense pressure on its content review mechanisms.

So could be a bit of a gift and a curse in terms of what they're buying. I mean, if you really want to, you know, I'm sort of joking, but if you really want to be conspiracy-minded, maybe it's a Xiaohongshu competitor who orchestrated that. Oh, boy, yeah. Because, no, in all seriousness...

you know, we'll get past the like, isn't this great? People are communicating and you know, there's like, it's very friendly and you're actually having, you know, some of the, some of the videos are pretty funny. You know, who might not like that? The Chinese government. Well, I mean, I'm not a, I'm not a big user of Xiao Hongshu, but, um, I'm on there and, you know, so far they haven't censored Tashi. Um, but are you posting Tashi to Xiao Hongshu? I have. Great. I'll join then. In, in a, um,

No, it's a real, it'll very quickly become a real censorship problem because there are people posting, if they don't censor them, and then it gets found out, then they're going to get in trouble. If they do censor it, then all these, you know, it's going to come back, oh, the TikTok refugees, quote unquote, TikTok refugees are going to start, people are going to start talking about, oh, well, actually, we're being censored. Mm-hmm.

Exactly. And so, you know, and the fact is, I mean, this is why there's a TikTok and there's a Douyin, right? Because ByteDance split the app. So there's Douyin for China, which has all the censorship and the controls. And then there's TikTok for the rest of the world.

Right. And there's some pretty odd, at least in a Western context, censorship going on on Xiao Hongxun now around LGBT stuff. And some woman was censored because her top was too low cut. So that's how that's not odd at all. That's.

That's how it works. They're applying the PRC content management playbook because it's a PRC app. No, exactly. If you're a 19-year-old TikTok refugee, though, you might be in for kind of a rude awakening as you encounter some of that censorship. But...

Also, fun unverified fact per Twitter user Hank in Beijing, Jiang Zemin's grandson is an investor in Xiaohongshu. So perhaps Red Note is a fairly well-connected app.

Well, has anyone seen him last year? Some folks were wondering what was going on because they hadn't heard from him. They usually heard from him and they hadn't heard from him for a few months. Oh boy. Yeah, that's true. Proof of life at some point would probably be useful. Okay. Well, thorny future for perhaps Jiang Zemin's grandson and perhaps Xiao Hongxu itself. But in any event...

We will keep it moving and we will update people next week on whatever the Supreme Court decides on TikTok. And it's going to be an interesting couple of weeks here because I do think it's ultimately a reflection of.

the health of the U.S. political system and seeing how the U.S. government handles all this has been really, really interesting. And there will be more tests in the weeks to come. And I don't know how serious Trump may be about just not enforcing the ban if it does go forward. But he seems like he's pretty serious. So time will tell. Any final thoughts or should we move to Xi and his New Year's essay?

We can go. This is such a fun one. Yeah. Oh, boy. Yeah. Everybody buckle up. Speaking of life on the mainland, I'm going to read a few passages from the cynicism translation of she's New Year's essay in Chosha. This was adapted from a speech that she gave in February 2023 and.

And the title of this essay, as it appeared in the magazine, was Comprehensively Advancing the Building of a Strong Country and the Great Cause of National Rejuvenation Through Chinese Modernization. And Bill, you translated all this on New Year's Eve of this year. So of last year, that is. So it was a raucous New Year's Eve in your household. Yeah.

This is how we party, right? Indeed. So she said, modernization in Western countries was steeped in wars, slavery, colonialism, and plunder, causing immense suffering for many developing countries. Having experienced aggression and humiliation by Western powers, the Chinese nation knows all too well the value of peace and will never repeat the old path taken by Western countries.

And then further down, he writes, we must accelerate the establishment of a new development pattern that allows for internal circulation while leveraging our supersized domestic market to attract global resources and production factors. We will safeguard economic security with a particular focus on food security, energy security, and the security of industrial and supply chains.

We will improve the new nationwide system for mobilizing resources, strengthen our national strategic scientific and technological capabilities, and, guided by our country's strategic needs, pool our efforts to achieve original and pioneering breakthroughs in science and technology, determined to win the battle of conquering key core technologies.

Daring to struggle is embedded in our party's very genes and is a distinctive trait forged over a century of practice. Our party relied on struggle to create a brilliant past, and it must also rely on struggle to carve out a bright future.

History has repeatedly proven that striving for security through struggle brings genuine security, while seeking security through weakness and concession ultimately leads to insecurity. Seeking development through struggle brings real development, while pursuing development through weakness and concession results in decline. This is precisely why I have repeatedly stressed the necessity of carrying forward the fighting spirit.

In the face of blockades, containment, and suppression, we must have every reason to fight confidently because we stand on the right side of history and on the side of progressive human civilization. We are on a path of justice, engaged in a righteous cause. Meanwhile, hegemonism, power politics, unilateralism, and protectionism run counter to the tide of the times, lack popular support, and are bound to fail.

So Bill, we had an email about this speech, which we can get to in a moment, but there's not much new in that messaging necessarily, but I thought those passages were kind of a useful, concise summary of the she worldview. Was there anything that you found notable in either the substance of that speech or the timing of the release on New Year's Day? One other sentence I would add to what you read, and in the translation I made, I bolded up

several passages I thought were interesting. We'll put that in the show notes. She also said that thanks to the initial success of Chinese modernization and its notable achievements, along with the March contrast in the new era, often described as the East is rising while the West is in decline, an order in China versus chaos in the West. But what's really, I think, most important is, you know, they, this, Chou Shui has, you know, they run China

or they run speeches that she has given on a regular basis as a lead essay. You never know if it's the full speech. Oftentimes, it's an expanded version

of a speech that's already been publicized. Like this speech was publicized when he gave it in 2023 in February, but there's more in this here. The couple of things I think do stand out. One is it's important to look at the audience. So the audience for this speech in February, 2023 was, it was at a study session for new members of the central committee that had just been selected at the end of 2022 for the 20th party Congress or at the 20th party Congress.

along with principal, provincial, and ministerial level leaders. So basically, you have the top leadership from the party, the state, and the military. They're the audience for the speech. So this is the audiences. This is what the party, this is what we are going to do. This is how we see the world. This is how we see how we're structuring our

politics in our economy. And this is effectively the sort of laying the framework for the various marching orders that follow. It is also interesting, I think, that they selected this as the... Again, the speech was given 22 months ago or 23 months ago. Why did they choose it as the lead essay in the first issue of the 2025, three weeks before Trump becomes president, potentially? Right.

We don't know, right? They never say, well, this is why we're picking it for this. It comes out twice a month. They don't tell you, well, this is why it's coming out this issue versus some other time. But the timing, I think, is certainly interesting, but also the audience is really important.

Right. Well, and the juxtaposition between the language about the West and the West's tendency to creating wars, and they talked about Western brutality and the brutal nature of capitalism, and the Chinese nation knows all too well the value of peace. But then some of the other things that I read sounded basically like,

The PRC needs to prepare for war and daring to struggle is in part is embedded in our party's very genes and economic security is a priority. Food security is a priority. Energy security is a priority. And so, again, it's just sort of an interesting reflection of what I've come to know talking about. She every week on this podcast is driving a lot of the decision making in Beijing.

I think the trends are not great. Yeah. And I think that this is, you know, people will have endless debates about, well, is she this way because the U.S. is mean to him? Or is she this way because he has a different view of how the world should be ordered? I will say a couple other things.

passages. And again, I do think people... If you have business in China, you want to invest in China, you should read the speech. It's pretty dense. But for example, for folks who are hoping for some sort of return to quote-unquote pragmatism around, say, financial markets, capital, she goes on to say that the greatest shortcoming of Western modernization is its capital-centric rather than people-centric approach, which

which prioritizes maximizing capital gains instead of serving the interests of the vast majority. This has led to significant wealth disparities and severe polarization. Today, many Western countries find themselves increasingly in difficulty, largely because they cannot curb the greedy nature of capital or address the deep-rooted maladies of materialism and spiritual emptiness. Right.

I mean, there are probably listeners who would agree with that. But from the perspective of, say, U.S. policymakers or foreign investors, that's not particularly comforting. Right. Well, and I think the other thing that's useful about this document and your translation is that

There's a lot of rhetoric about what Xi may or may not believe, but he spells it out pretty clearly here as far as some of the Marxist principles and as far as some of his attitudes and assumptions about what's going to be necessary for China over the next 10 years. It's all stated pretty plainly and, as you said, is unsettling. The audience matters. Yeah. This is the thing that I think is the most...

I found the most concerning about it is, you know, again, this is coming from the top. This is what the system is being inculcated with. I mean, you got to remember a speech like this gets studied ad nauseum. Right.

Well, it's throughout the system. Yeah, we got this email from Stephen about the audience. He said, Bill and Andrew, thanks for the good work last year. I have a few questions on Bill's New Year's Eve post about the essay in the January 1, 2025 issue of the Chusha Journal, which covered a speech she delivered on February 7th, 2023.

In reading through some of the text, I wondered if 10% of American college seniors could read this and write a very crude summary of the English version. I checked out the English version of the book The Governance of China by Xi Jinping. To say it was a tough read is a serious understatement.

So who is the real target audience in China for the above two documents? I have to think that those under 30 years old who are not serious CCP members have no real interest in these writings. It's not us. It's the system. It's the people in the system.

So he's basically just telegraphing all this to party members and no one else. And then it gets all the messaging gets amplified through the repeated study sessions and sort of how policy gets set. And so that's why it is important because, and again, the context, the timing, this is

two plus months out of the 20th Party Congress. This is, they are, every Party Congress, a couple months later, they have a meeting with all the new, the top leaderships and the new members. And this is the sort of

I think that the visuals are like they're sitting at almost like school kid jammed into school kids' desks, just sort of listening to the teacher. Right. Well, and then republishing it a couple weeks before Trump takes office as an anchoring message and document is certainly notable. Well, and I think, again, this is all speculation, but the timing, you have to wonder why now. And what are the...

I mean, there may be domestic reasons too, given where the economy is going, but certainly I think

you know, so much of the sort of views of the world and policies are driven or are influenced by the state of the US-China relationship that I think it's fair to speculate that there may be some relation to the incoming Trump administration. Right. Well, and as far as what Chinese modernization has looked like in practice, I

One element has been running massive trade imbalances with the rest of the world. And to that end, the PRC announced on Monday that its trade surplus reached almost $1 trillion this year. And the New York Times noted that when adjusted for inflation, China's trade surplus last year far exceeded any in the world in the past century, even those of export powerhouses like Germany, Japan, or the United States.

Chinese factories are dominating global manufacturing on a scale not experienced by any country since the United States after World War II. So that is going to continue to drive tensions with the United States and with other partners around the world. But with lots of countries, not just the U.S. And it's going to drive tensions. It is driving tensions.

with countries in the global south. Indeed. And that will continue to be a theme here. It was a theme in 2024. I think it's going to be a theme in 2025 and possibly years beyond that. He references it in the speech. It's part of this longer, older dual circulation strategy. I mean, they're very clear that they want to bind supply chains to China. Right. That's what they're doing. The decoupling is not happening the way people feared. And this is because...

Again, on the one hand, you build up a fortress economy. On the other hand, you increase supply chain reliance on China for other countries. Then going forward, you have much more freedom of action if you need to do things that might

cause a massive sanction response. 100%. You're creating vulnerabilities all over the world. Like Taiwan. Yep. Well, that is a natural segue to where we're going next. We're getting good at this, Andrew. Indeed. Indeed.

Took a couple years, but we're in peak form right now. Sorry, it's sadly not something to joke about, but yeah, we will segue. Yes, it was a good segue. We're joking about the segue, not the news, which is unsettling. This is a news brief that came in a few days ago from Naval News. The headline was,

China suddenly building fleet of special barges suitable for Taiwan landings. And they wrote, a number of special and unusual barges, at least three, but likely five or more, have been observed in Guangzhou shipyard in southern China. These have unusually long road bridges extending from their bows. This configuration makes them particularly relevant to any future landing of PRC forces on Taiwanese islands."

And then for some analysis, John Culver, who is a former national intelligence officer for East Asia and retired CIA analyst, I discovered his work through you a couple of years ago and is a really valuable resource. He tweeted in response to this news, last week's revelation of new portable bridge docks is a signal that the next 18 to 24 months are likely to see some shocking new PLA capabilities when

When Xi Jinping in 2021 allegedly directed the PLA to be prepared to compel Taiwan unification by 2027, it wasn't a war decision, but it wasn't nothing. The operational challenges for the PLA are daunting. There are specific problems it needs to solve for invasion or blockade to be viable, but

The bridge docks, if produced in sufficient numbers, could enable heavy over-beach operations. Superiority in information, maritime, and air operations requires major PLA advances, some of which have been underway for years, as documented in annual DOD reports. The new U.S. administration is going to confront PLA developments that will drive tensions and blur analytic debates over Chinese capabilities and intentions."

buckle up. So Bill, I hesitate to ask this because I feel like given your area of expertise, this is the first thing all sorts of people in DC want to ask you about. You probably get tired of answering it, but has that news or any other recent news changed how you think about a potential Taiwan invasion sometime in the next couple of years here? No, I think it just... Look, I think

Having to actually invade and use force would be a political failure. I don't think that Xi Jinping wants to have to invade Taiwan, but I think he wants to have everything in place to compel Taiwan to basically say, okay,

we have to agree to some sort of political settlement. Right. And so you, you want to build up all of, you know, you want to build a fortress economy. You want to build resilience in your economy. You want to build leverage with foreign countries. You also want to make sure you have every piece in place for the military option. And I think that is, this is just part of it because from can't, I can't find anybody who looks at those barges that are being built in the Guangzhou shipyard. And I, I think the number is a lot higher than five, um,

There's no real legitimate civilian use. Right. And I'm not thinking that they're going to be launching an amphibious invasion of Japan yet. Sorry, I shouldn't joke, but I don't think that's really on the table. So it's pretty hard, I think, it's pretty hard to argue that this isn't a pretty significant...

when it comes to their Taiwan strategy. Right. Yeah. I was struck by how concerned various members of the defense community seem to be online over this development over the weekend. I mean, I hope in the classified world that the Taiwan side and the U.S. government is not a surprise. Yeah. No idea. Yeah.

Right. Well, and I mean, it makes me wonder whether it changes attitudes in Taiwan and whether it compels more action in Taiwan over the next year or two in response to some of these threats. I mean, I think that's why, you know, the elections were...

not a total disaster for the PRC where, you know, you have a DPP president, but you have the legislation that's effectively controlled by the KMT. And so political dysfunction with one party controlling one branch of government that has a more, a more willingness to,

find a deal with the PRC, again, that's something that can be leveraged. So I think, again, you have to look at the way they approach Taiwan. It really is a truly, it's a whole of everything approach. So obviously there's the military element, there's all sorts of inducements they're adding to help make Taiwanese who want to live and work in the mainland, make their lives easier, make their businesses better. There's

all sorts of other propaganda work they're doing, influence work they're doing. There's all sorts of work they're doing globally so that if there is a contingency that involves force, most countries will say, well, it's an internal matter and this is a breakaway renegade province. And then there's also the, again, I think it has a lot to do with their nuclear modernization because ultimately, look at the US and Ukraine. The US stayed out of Ukraine for

directly because of the Russian nuclear threat. Why wouldn't the same thing work for the Chinese? No, exactly. And I also think... I still don't... I don't understand that all this discussion in D.C. about how the U.S. would intervene. What if the nuclear weapons growth sort of development in China is off the charts right now? If Xi just says, if you get involved, we're going to nuke... We'll use nuclear weapons on something...

Again, it's a head-scratching discussion because what are people going to say? We're going to start a nuclear war? So I think this is a... The Taiwan side, I mean, again, I don't think that they want to invade, but I do believe that Xi wants this settled while he's in power. And he's 71, I think. Yeah.

And he's 10 years younger than Biden. So it doesn't have to be 2027. It doesn't have to be 2030. But it has to be sometime while he's still in power. Well, we're going to be outside the paywall this week. So for anybody who's newer to these issues, as far as 2027 and that date,

That was set forth in 2021, and allegedly she directed the PLA to be prepared to reunify Taiwan by 2027. Is that right? Am I missing any context there? Yeah, no, the 2027 thing gets muddled. Again, I think as Culver said and other...

Officials have said there isn't sort of a 2027 deadline like we have to take Taiwan. It's more about a monetization goal for the PLA. Preparedness, yeah. Preparedness, yeah. And we've got the whole discussion. Gosh, there's a lot of corruption in the PLA. Lots of folks have fallen. More folks have fallen since our last podcast. It was interesting over, I think it was the 26th of December, suddenly the two new...

planes appeared that had very unique tailless designs. That's right. Unclear exactly what they're for. They launched a new ship. I think they, you know, even though there's a lot of corruption, we still, I don't think anyone who looks at the PLA seriously says, well,

it is it's not helping, but that it somehow cripples the force. Right. Well, and one of the things that has always given me comfort in these conversations about various Taiwan invasion scenarios is the people who study this space closely, at least over the last several years, when the topic comes up, they'll say, well, if the PLA is serious about taking Taiwan at some point, they have a lot of work to do.

And what this news is a reminder of is that that work is being done and those projects are being undertaken and all of it is just sort of an ominous signal. And when you look at,

The possibilities here, I mean, because it is probably just leverage to potentially take Taiwan without force. But in that scenario, the Taiwanese people are not going to be embracing unification in that scenario, particularly after everything that's happened in Hong Kong. And so it's just hard to see a way for this to end that doesn't get

really messy. And so we end up back at square one where I guess the best thing to hope for is to just be able to kick the can down the road and the temperature continues to rise. But again, we just sort of cross our fingers and hope that we can buy time. No, that's the best ideas in DC are basically how do we just keep running out the clock and keep kicking the can down the road?

Indeed. Okay, well, to keep it moving, let's close with a variety of updates on the US-China front. It has been a busy week for BIS over at Commerce in the final week of the Commerce Department under Raimondo.

On Tuesday, BIS and the Commerce Department announced a final rule prohibiting certain transactions involving the sale or import of connected vehicles integrating specific pieces of hardware and software with a sufficient nexus to the People's Republic of China or Russia. So the rule on connected vehicles bill is now final. And then on Monday, in a move that was more controversial...

The Wall Street Journal writes, the U.S. is imposing some of its strongest measures yet to limit Chinese advances in artificial intelligence, requiring companies to get government approval to export certain information about their AI models and set up large AI computing facilities overseas.

The rules out Monday are a final push by the Biden administration in a years-long effort to use export controls to stem China's advances in chip making and AI, and they have sparked a backlash from companies, including NVIDIA. The rules impose caps on how many advanced AI chips can be exported to certain countries and require a license to export the data that underpins the most sophisticated AI systems."

And there is a 120 day notice period before those measures would take effect. And it seems like there's going to be some pushback per Punchbowl News. Ted Cruz has said that he's considering the Congressional Review Act to rescind the measures altogether. Other Republicans are in favor of the measures. What interests you about that development coming out of BIS and the potential next steps here?

So it's pretty remarkable. It's basically, you know, right now there really are no other options for the best chips for AI. China does not have a good enough replacement. And even if they did right now, they don't have enough to export. So you can't, you know, someone who wants to build a data center in a third country can't

even if they wanted to buy a bunch of Huawei chips, I don't think they would be able to get enough because China's not making enough for what they need inside the country. And so there's a moment where I guess the US regulators, policymakers decided that

they still have a lot of leverage. And so therefore they are going to create a whole new effectively export control regime to limit the export of these chips so that only certain countries can build these massive data centers freely. And I think it's 18 countries. And then, you know, if you're on that list, you're like, wow, you're good friends of the U S there are some countries that are tier two where you can get some, but there's a more of an owner onerous process and,

Some of those countries, I think, thought they were pretty friendly with the US but are clearly not trusted enough. And then the third is like Russia, China, North Korea. And so in some ways, I was thinking back in the Cold War era, there was something called COCOM, the Coordinating Committee for Multilateral Export Controls. This is not that, but it feels a little bit like that where the US is trying to basically say, here is this cutting edge technology that's going to change the world and we are going to decide

which countries can be trusted to have it. Right. And we're going to work with close ally. And so I think that it is...

The Chinese are obviously very upset. I think a lot of other countries are very upset. And then, of course, the companies, NVIDIA came out with a statement, Oracle came out with a statement, the Semiconductor Industry Association came out with a statement. They're all really upset and, oh, we weren't consulted. And so now they're focusing all their lobbying on the incoming Trump administration and on Capitol Hill, which...

So far, they have not actually said what kind of an impact this will have on their financial results. And again, that is something where at the next earnings call, they will either talk about it in their statements or they will be asked about it. And then I think you will get a much clearer, real...

data point on how much of, if any, of a financial impact these rules have, because they're not going to exaggerate on the earnings call. Right. Well, and in the interim, the NVIDIA statement was very strongly worded. They wrote, in its last days in office, the Biden administration seeks to undermine America's leadership with a 200-page regulatory morass

drafted in secret and without proper legislative review. This sweeping overreach would impose bureaucratic control over how America's leading semiconductors, computers, systems, and even software are designed and marketed globally. And by attempting to rig market outcomes and stifle competition, the lifeblood of innovation, the Biden administration's new rule threatens to squander America's hard-won technological advantage."

They could have started that statement with, Dear President Trump. Right. No, that is just focused on the next administration. The language about the legislative review is focused on people like Senator Ted Cruz, who is now, like you quoted, they've found folks on the Hill who are willing to sort of carry their water on this issue. This goes back to the earlier discussion, though, about sort of Musk and TikTok and

China and tech is that there are a lot of, quote unquote, tech bros, I hate that term, but everyone seems to use it, who are in or involved or around the orbit of the incoming Trump administration. Musk, of course, is the apex predator in that group. He has, I think, a very different view towards China than most of the other ones do. A lot of the other ones are quite hawkish on China and have been quite vocal about

TikTok, for example. And so how that conflict plays out in the Trump administration is going to be really interesting to watch because, of course, most people are afraid that they're not going to go against Trump publicly. And I think people are also afraid to go against Musk publicly because he has so much power.

Right. Yeah. Well, and with respect to the AI rule, I am reluctant to read too much into it. First of all, it's a 200-page document, but also there's a 120-day period. Yeah. As I wrote yesterday, I think it...

the odds of it actually going into force as written, I think, are not high. Right. And so it wouldn't be all that useful to parse some of the specifics here. It does seem to be closing some of the loopholes that were concerning a lot of people who've been in this space over the last year or so. But by the same token, it's a 200-page document. And anytime you've got 200 pages of regulation, I'm sure you're going to have some unintended consequences there.

that emerge. And there's another one supposed to be coming around semiconductor exports and chip making equipment. Chip making equipment because again, this, if you're Jake Sullivan or you put together this export control regime around chips, AI chips and models and specifically on chips, you're going to

It doesn't ultimately work if you're still having companies sell the chip-making equipment to China where they can ultimately make these breakthroughs. Right. Yeah. And so then the next question will be when those rules, I think...

I may have heard maybe they're coming out Wednesday. There aren't many days left, so they're going to come out before Monday, right? It's got 96 hours here. It's pretty easy to predict it's coming out in the next few days. Right. If it's actually going to come out, it'll be interesting to see what influence they're able to have and how much teeth those really have and whether or not it fits with this idea of closing some of the bigger loopholes that...

That definitely exists. Now, this is a momentous document, though. It really is a... It's basically... It's telling most of the world, you can't have the good stuff. Mm-hmm.

And the concern would be that eventually the rest of the world goes to China for the good stuff, but they're not in a place where they can produce it. Right. And the U.S. can do this right now because there is no other viable choice right now. Yeah. And China is already working around the clock to try to indigenize, so there's not really a cost on that side. The toothpaste is out of the tube as far as that's concerned. And for a long time, whatever China can make, they need...

domestically. Yep. Well, it'll be interesting to see how much of it, if any, becomes real 120 days from now. And the fissures within the Trump circles is going to be something to monitor for the next four years. I had no idea how influential Marc Andreessen has become within the Trump circle, but there was the Washington Post article that

last week talking about how he's quietly and successfully recruiting candidates for positions across the incoming administration. And he's someone who's been pretty vocal and hawkish about China. And so to your point earlier, it's like, and Trump...

unlike she is not particularly ideological. And it sometimes seems like you just have to catch him on the right day or be the last person who talked to him in order to achieve your intended purpose if you're lobbying the president. And so there's just so much unknowns as we head into the presidency here. But six days from now, it gets real. Yeah. Yeah.

Less, less than six days now, right? Well, this will publish on Wednesday. So T minus five days, I suppose. One final note here. Outgoing FBI director Chris Wray was on 60 Minutes this past Sunday, and he said in part,

China's cyber program is by far and away the world's largest, bigger than that of every major nation combined, and has stolen more of Americans' personal and corporate data than that of every nation, big or small, combined.

But even beyond the cyber theft, there's another part of the cyber threat that I think has not gotten the attention publicly that I think it desperately deserves. And that is China's government's pre-positioning on American civilian infrastructure to lie in wait on those networks, to be in a position to wreak havoc and inflict real world harm on

at a time and place of their choosing. Things like water treatment plants, we're talking about transportation systems, we're talking about targeting of our energy sector, the electric grid, natural gas pipelines, and recently we've seen targeting of our telecommunication systems. And Bill, I'll just say-

This dovetails with our discussion of the massive telecommunications hack over the past few months. There was also a chilling Wall Street Journal report from the beginning of January on some of the infrastructure hacking that has been undertaken by the PRC over the past several years, most of which had not been publicized before, um,

And in some cases, according to that journal story, the NSA thought that the PRC hackers may have been intentionally trying to be discovered in order to show the U.S. administration that China has infiltrated critical infrastructure. This goes back to the discussion we had about Taiwan, about all the different things that are being done to lay the groundwork for...

Basically expanding optionality over what to do and creating more leverage. One of the things that's interesting around this connected vehicles rule is I was told recently by someone who worked on it that one of the things that helped the push forward with tougher rules was...

the discovery of these campaigns to implant malware, to pre-position malware in sort of core, you know, critical US infrastructure. And sure enough, in the announcement today, in the actual document, there's a section and one of the paragraphs starts with,

The PRC has pre-positioned malware on U.S. information technology and critical infrastructure networks. Right. So basically it was used in our – well, if they're going to put it in water systems and they're going to put it in airports and put it on electrical grids, who's to say they can't put it into cars? Of course they would put it into cars if they're doing all those other things. Right. So this is something where you can have certain –

The Chinese government's obviously unhappy about these rules and certain industry participants and lobbyists are unhappy about it. But the PRC government's actions actually helped contribute to tougher rules is what it looks like. Well, and this also circles back to the TikTok discussion. It's like, why is it problematic that the Chinese government has control over a powerful algorithm that can influence the most popular app among every American under 30?

Because there's activity like this that's been happening for years now. And with the hacking in particular...

It just seems like I will be curious to see how prominent this issue becomes in the next 12 months, because it seems like this sort of thing that could and probably should engender a lot of collective concern and a collective awakening because it seems pretty extensive. But by the same token, with the telecommunications hack as an example, it doesn't seem like the

And downplaying these massive vulnerabilities could just be the path of least resistance in the short term? I think it's not at all clear what's really been happening. The Biden administration, I think the National Security Advisor on the weekend said they've expressed their concerns or they've given their response to Beijing. It wasn't no details what that was, whether it was like an angry letter or...

you know, they actually did something or maybe they just wrote an email and left it in the server. They could read the drafts anyways. No, I mean, in all seriousness, I think it really, they're kicking the issue, that particular issue, they're kicking that into the Trump administration. Right. But then it goes to what does Trump want to do? Because if you want to have a big deal with China, if you want to have, you know, some sort of big meeting with Xi in the next

couple months, then they're probably going to hold off on something that would be seen as escalatory. Right. And part of the difficulty with this particular issue is it requires...

collective awareness and action in the private sector as well because the private sector is vulnerable to these hacks and that private sector has a lot of infrastructure that impacts civilians in a Taiwan scenario. This is where it's going to get interesting with the technology with Silicon Valley because there is a lot of money that is flowing to companies that are building out

defense industrial businesses, cybersecurity businesses, that really their whole business model is the China challenge. And so there are other forces that have different interests than traditional lobbies like the semiconductor industry. Yeah.

So it's going to be interesting to watch. Right. Well, and I think true vigilance requires pretty explicit recognition that China is an enemy. And China at this point is still a partner in a lot of areas. And so I don't know how this will play out. But again, we'll link to the Wall Street Journal report from the beginning of January. It was a pretty sobering read in terms of what's already been done.

Yeah. No, it is sobering. I think we should all hope there's a way that it isn't a real enemy, but that is how it is trending. Yes. Well... It is a very... It's just...

It's not, it's not a good trend. And in the shadow of all this, I want to read this comment on cynicism before the new year. This was sense, uh, who writes to the podcast frequently. And I believe he was commenting on a sharp China episode. If not, it was one of your daily updates. Uh,

He writes, according to usual diplomatic protocol, one does not send people of the same rank as the party boy or girl to not outshine them on their big day. This is in response to Trump inviting Xi Jinping to his inauguration on January 20th.

Nowadays, Censa writes, you see more and more often countries deviate from this. But according to my database of diplomatic trips, China sticks to it. It usually sends a vice chair of the NPC standing committee, mostly to inaugurations or funerals in friendly African or Latin American states. If they really care, they send the vice president. Charles III got VP Han Zheng.

The thing to watch then is, of course, not whether she will come to D.C. to play a supporting actor role on Trump's big day. I would find a vice chair already something. But if Han Jong comes to the Donald Trump inauguration, that should be a big, big sign.

And indeed, there's reporting that Hong Jong will be coming to the Trump inauguration. Nothing's been confirmed yet. That's a good point. Nothing's been confirmed. What also needs to be watched is what happens to the Taiwan delegation. And is there something, will there be demands that certain officials don't come from the Taiwan side who would normally maybe go to an inauguration ceremony?

because they want to have a PRC senior official go. Oh, boy. I think it's going to be interesting. And again, we'll know before the next podcast. Exactly. We're going to have a lot to catch up on on the next podcast. Yeah, it's good. But I hope Han Jeong comes, if only so that I can credit Senza for calling it like six weeks ago. And if he does, they'll probably give him a special tour of the Panda enclosure. Oh, boy. The Pandas are...

Yes, you were away in a warm place, so you didn't get to see the National Zoo's videos of the new pandas playing in the snow last week. So I did, however, show my son the video that you sent, and he loved it. I can't promise him that we're going to be visiting the pandas anytime in the next month or two because I'm sure it's going to be unbelievably crowded because of the inexplicable popularity. Oh,

I wish we had better guanxi here. We could get like some sort of tickets to the opening or something. I know, we need some VIP connections. But I did appreciate the panda in the snow video. So I look forward to perhaps more pandas in the snow. Maybe we'll get more snow in DC the next couple of months. What I'm actually looking forward to is several more weeks of podcasting with you, Bill. And like you said, we're going to have a lot to catch up

I hope, wait, only several more weeks? Is there an announcement? Are you moving to Red Note? No, we were off for three weeks and now we're just going to be consistently powering through. And then at some point I'm going to have a second child this spring. But yeah.

for the next month or two every week here. So it's good to be back. People can continue to write to us at email at sharpchina.fm and we'll keep it rolling next week after the inauguration. Perhaps we'll see Han Zhang. Perhaps not. Who knows what the future holds? Will TikTok be banned by then? Likely? I don't know. But Bill, I will talk to you soon. Thanks, Andrew. Thanks, everybody.