We are at the Impact conference in Poznan and my guest is Alice Han. Hello Alice.
Nice to see you. You are a leading China expert, a China strategist at Greenmantle, which is a global financial advisory firm, and you are also a co-host of the weekly China Decode podcast. So from this introduction it's obvious we'll be talking about China. And I would like to start with my personal story about the shift in my perception of China. Like, I think 10 years ago my view was that China is like a producer of cheap plastic goods. Today, to me, and I think to a lot of people in Poland and in Europe, China is a leader, for instance, a leader in electric vehicles. And during a debate in which you participated at the main Impact stage, I heard that we can expect a flood of robots from China coming soon to Europe. So my first question is, what Europe and particularly Poland can learn from China about making things happen and so fast?
Well, thank you so much for that description, and I'm glad that you started with the question, what can we learn from China? I don't think that people in the West think enough about that. Yes, there are a lot of weaknesses to the China model, but there's also a lot of strengths that Europeans and Americans can learn from. I would say that the two main takeaways from the China experience are the following. Number one is to have a technocracy, meaning that the government, mainly comprised of technocrats, cares a lot about industrial policy at a national scale, and thinks very deeply about not just supply chain dominance, but supply chain resilience. So, on the supply chain dominance front, it's about making sure that China can be a lead exporter of EVs, of batteries, of solar panels, which they've all achieved in the last couple of years. In supply chain resilience, it's about finding ways to plug the holes or the gaps in the upstream commodities all the way downstream to the consumer-facing products, such that China always has a plan B. You know, it understood really from, I would say, Trump 1.0 through to COVID, through to Russia-Ukraine, through to now Iran, that geopolitically geopolitical crises have massive outside impacts on supply chains, and that if China doesn't have alternative supply chains or know exactly where it can leverage certain supply chain sources, it is at risk of massive supply chain disruptions with implications for manufactured goods, for technology products. So, that's number one, is having a disciplined technocracy that was thinking deeply about supply chains.
Number two is a concept that I don't think is thought at length enough about in the West, is this kind of concept of centrality versus decentralization. So, yes, China is a very centralized system driven by the party and the state and the State Council, the government. But it is also decentralized in the sense that it allows local governments to go out there and experiment. A famous economist, Kellee Tsai, has written a book about this, about the China model, about sort of these ideas of competing mayors, mayor entrepreneurs that are trying to generate innovation in their localities. I think that hits the nail on the head because you cannot have innovation and scale without, say, your Shanghai provincial governments or your Shenzhen to Hangzhou, your Guangdong or the Greater Bay Area, those governments saying we want to create the best possible environment, either through subsidies or through generating talent through university pools, to build the best innovation in local government areas. You then have competition across those local governments, so that's why you've got EVs in almost every major eastern province in China, different EV brands that are invested in by the local governments. This is what creates a lot of the innovation energy that I don't think is talked about enough in the West.
What I think is obvious is that what attracts a lot of media attention now is the AI race, and it's also in the context of relations between the US and China. And I heard during the conference that you mentioned it, that the US and China have different strategic views on AI, on the development of AI. In short, I could say it's a race towards superintelligence, the US, and diffusion of AI in practical life. Could you elaborate on that?
Yeah, I'm glad you raised that question because I go into detail in the presentation. But just to break it down, in the US, they're almost chasing this dystopian super AI god, and that's why you've seen massive debt financing, investment capex into the LLM models, right? But the Chinese understand that LLMs are not the only way in which AI can be played out. And here I think it's interesting that China has been quicker to go towards world models, spatial intelligence, where more recently you've seen somebody like Yann LeCun, spun out of Meta's, just former army, he's interested in the spatial intelligence world models space. That matters because, to your point that you just referenced in my presentation, AI diffusion means you need to actually care about more than just the generative AI, the language to cognition kind of aspects of AI models, towards actually what, you know, visual intelligence, what is happening in 3D space. And that's why actually China has been investing a lot, and I think is still at the forefront of autonomous vehicles, autonomous drones. It cares a lot about how it can actually use robots that actually can collect spatial data to make real-time decisions and act intelligently in real life. That I think is a very different approach to what we're seeing in the US, which is let's throw a ton of money at LLMs, make them the most intelligent possible so that they're more intelligent than humans. The Chinese think actually let's take this approach of building good enough LLMs, but let's care more about the whole suite of other kind of AI systems that we can build in autonomous vehicles, in vision, in robotics.
Another thing that struck me in your presentation was the point about choke points, geographic economic choke points. And also, you said, and this is I think really interesting, that we are living in an era where geopolitics matters more than economics.
And from the marketers' point of view, how can they adapt to this new era? What to do to avoid so-called geopolitical risk?
So, I think a lot about what Nassim Taleb talks about in Antifragile, his book. And he says that the danger of having this kind of economic efficiency model is that you don't build enough buffer or redundancy for periods of crises, where your models no longer capture the realm of possibility. And I think a lot about that in terms of what we've seen in the last 10 years, the fat tail risks that we didn't think were actually going to happen, that did happen, that have massive outsized impacts. So, COVID, Russia-Ukraine, Iran more recently. And here I think that we can learn from Taleb, but also the Chinese who understood this very early on, is that we can no longer do what is economically efficient, meaning import just enough oil and gas to meet demand. We need to start thinking long and hard about strategic stockpiling and reserves across the supply chain beyond hydrocarbons and petrochemicals to base metals, for instance, or rare earths and critical minerals. And here I think the market needs to start to understand that we need to increase the demand models to take into account strategic stockpiling that I think will have to happen after Iran, because a lot of these, not just Western countries, but East Asian and Southeast Asian nations were caught off guard by the massive risk that emanates from Iran, not just in terms of oil and gas, petrochemicals, fertilizers, helium, all these byproducts.
