Over lunch, this individual told me, you know, every founder and every VC in China studies the West at a nauseating level. So they listen to all the podcasts, they read everything they possibly can, they study any speech, they look at the financials. And he said, "The West doesn't do that of China." And you know, maybe we should be studying the best and the brightest over there.
Hey, Bill. Great to see you.
Summer has just blown past. It's almost football season.
How are the Longhorns looking this year? They're ranked pretty high.
What's that mean? Come on, give me the scoop. I know. I know. You're all people that know, but they have the dangerous starting position of being ranked number one in the country.
Oh, wow. Wow. Any big games coming up?
They play the number two team in the country this Saturday. And so, we're going to find out. We're going to find out. We're going to find out. Oh, back to Buckeye country.
Yeah, exactly. It's been really incredible. I just got back to Silicon Valley after being away for a few weeks. The OpenAI deal, the Anthropic deal, I was just looking at these. I think these are bigger private IPOs than any public IPO done in the last five years in the tech market, right? You had Sam say the other day, Sam Altman, say two things can be simultaneously true: one, that this is the biggest thing to ever happen in technology, but number two, that in the short run things become overheated and people can get a little bit ahead of themselves. Where are you on that?
Look, there's just no denying that the amount of capital that is going into these companies earlier in their life and the scale of hiring and their willingness to take on risk, which I think you can use cash burn as just a proxy for risk because you get further away from knowing unit economics and you're more threatening. I think what those numbers are unprecedented. Like even against the Uber DoorDash wars and all this, they're bigger than that. And so I think it's part of a systematic trend where investors are aware of network effects. They've watched companies that get the initial conditions right go on to really big outcomes and they're willing to bet ahead of the curve. And as the more confident they get over more time, the more they're willing to make that bet ahead of time. And so, you know, it is what it is. We're seeing massive numbers.
Well, I'd say it's a combination of two things. Extraordinary scaling. We've never seen two companies, in the case of OpenAI, scale users and scale revenue as fast as they are. But definitely, you're absolutely right. The private markets are there to meet them. And we're seeing the depth and the breadth of capital and investment in the private markets, I think, unlike anything we've ever seen. But, you know, we're going to save that for another day. We're going to do something a little different today. One topic that I think we've hit on time and time again, but we're really just trying to dedicate the show to it today, and that's China. You know, you just got back from China. It's one of the hottest, in many ways most consequential, and also most controversial debates I think in Silicon Valley and in Washington. On the one hand you have national security economic hawks who are in this camp that we should decouple. It's a little bit more Cold War 2.0, a great power struggle. This is the Mearsheimer perspective. Maybe in the middle you have tech pragmatists, I guess I might call them, like Jensen Huang or Tim Cook. I'd probably put myself in this camp who thinks we have to compete. We have to re-onshore industry. You probably should have some tariffs in order to achieve that. But you definitely can't decouple or ignore or antagonize. And then maybe on the other end, you have kind of the globalist. I don't know, Jeffrey Sachs is probably in this camp. It's free trade, open science, collaboration. And there's this new book out by Dan Wang that I want to talk about where he really takes on the differences between the two countries. But why don't we start with this trip that you recently took. You just got back from China. Why did you go, and frankly especially given all the blowback you've gotten personally, Benchmark's gotten with respect to China maybe for having too soft of a view on China. Give me your inspiration for wanting to go and spend as much time as you did studying China.
Yeah. So I've probably been four or five times before this trip but I hadn't been since COVID. And I've been reading about everyone that's been going. We had talked about Thomas Friedman's comments from his last trip and you hear about all the things that are different. Personally, my daughter's an Asian studies major, so she went on the trip with myself and my wife, and so, with her studying that topic, I thought it'd be a great chance for her to see things, too. Much younger than us, but I wanted her to go around and the fact that she speaks Mandarin was helpful on the trip as well. But you just said something, right? You said this is probably the most consequential other nation when it comes to thinking about America or thinking about our stock markets or thinking about how technology companies are evolving. And so I just wanted to learn. Why wouldn't you want to know more? I don't understand how if it is the most consequential relationship for our country, why you'd want to know less, right? And so, I've always enjoyed going over there. I've always enjoyed learning things that I don't know. And I really wanted to see it up close and personal. One thing that was super helpful was Dan Wang, who you just mentioned, gave me an early copy of his book, so I read it on the way over there.
Tell us a little bit, who is Dan Wang?
So, it's a gentleman that lived over there. He lived over there during COVID. He's a policy analyst and he recently moved back to the US. He's at the Hoover Institute, been studying China for a long time, looks at it through the lens of technology and innovation. And the book's titled Breakneck and it's really talking about some of the acceleration that we've seen inside of China. But I would suggest two things about the book that are really interesting. One, he kind of uses it as a mirror back on the US. So, it's really about both countries. It's not just about China. And then two, he's balanced. He talks about the pros and the cons of what have happened over there. He starts with this chapter that was recently republished in the Atlantic where he highlights that the vast majority of the politburo are former engineers. So this is the ruling party within China and that the vast majority of the people in Washington DC are former lawyers. And he uses that lens to say this is why they're great at building things and maybe why they're not so great at social things. I think he gives the edge to having the lawyers to protecting free speech and personal rights. He did not enjoy the lockdown in Shanghai which was fairly abrupt. He's very negative on the one child policy and for those people that don't know the Chinese government's now trying to encourage people to have three children, not successfully, but that's the new program. So they've completely flipped from where they were. But it's a fascinating read, it's a very personal read. You can tell that his life journey, his parents were born there and left and went to Canada and that's how he grew up in the west and then he went back. And so I think it's a really interesting lens but it's very, very current. One of the things he really dives into and this is something that people that I talked to that know China have known this for some time but I don't think the general people understand this. So one of the things that's led to the vast buildout, so we've read about high-speed trains, we've read about overnight cities, we've read about their number of companies in the solar space and the EV space. One of the reasons that happens is the provincial leaders compete with each other. So the provinces are very competitive with one another. Not in the same way the states are really. One of the reasons this is true is if you run a province and do well, you put yourself in really good standings to move up in the federal government.
But wouldn't you say that's a, I mean that seems to me like Gavin Newsom competing with DeSantis in Florida on who is more business friendly, who is tougher on immigration. It seems a little bit the same way.
I think it's a little bit the same way but the difference is that because there's a singular government that's going to make choices, like in the US if you do well as a governor you might get elected. But in this case, it's more like divisions of a company and if you run one well, you might get the CEO job. And so that competition leads to overbuild in certain cases. So there's several ghost cities that are buildings that are empty, where they've built too fast, are now facing problems even though they're the world leader in EVs and the world leader in solar panels where some of these companies need to go bankrupt and a province may not want them to because of employment issues, right? And so those are two sides of a coin. You get one benefit, you get hyper competition. We talked about the thousand flowers bloom. So the federal government publishes every five years this mandate of the things, these are the things that are important and you need to go work on and then the provinces go at it like they go right against those initiatives and that's how they've taken a lead in those things we mentioned and energy production, right? You wonder, we talk about all the number of nuclear plants that they have, new nuclear starts, solar farms, wind farms.
I want to dig into that. I think there's this general view that China's good at building things, building iPhones, but perhaps not at innovating, right? And then, Jensen Huang reminded us recently that 50% of the world's AI researchers are in China and they're indeed innovating and not copying. On the ground, when you look at the things happening in auto, when you look at the things happening in AI, when you look at the things happening in space or energy, etc. How would you compare contrast as a venture capitalist the level of rigor and innovation and excitement, enthusiasm, and investment, I guess, going on against these critical future industries?
Well, if you're over there, you know that the ByteDance founder is just remarkably unique. You know, Lei Jun at Xiaomi is remarkably unique. And if you spend time studying those people, I just don't know how you would possibly think that they can't innovate. I mean, TikTok was there first, right? And then it came here and then Reels copied TikTok. One thing that doesn't seem like innovation, but I was surprised by PopMart is a 40-50 billion dollar public company, which is a children's toy company that started in China and is everywhere over there. But like just the idea that there is no innovation. One of my favorite meetings and I promised I would protect the innocent. So I'm not going to say who it was with, but over lunch this individual told me, you know, every founder and every VC in China studies the West at a nauseating level. So they listen to all the podcasts, they read everything they possibly can, they study any speech, they look at the financials. And he said the West doesn't do that of China. And you know, maybe this goes back to my main motivation for going over there to learn, but I thought that was a very provocative statement that he made. And maybe we should be studying the best and the brightest over there.
Well, let's dive into maybe one industry, I guess, as a lens. I know you spent a bunch of time in the auto industry. Help us understand the innovation that's happening there on two dimensions. One on just electric vehicles. Number two on maybe autonomy. And then number three, I'm just curious like how Tesla is able to compete so effectively in a market where you have this hyper competition for electric vehicles.
Yeah. So I had a number of auto experiences when I was over there. First of all, I was invited to visit BYD. This is my, they gave me a nice coat. I met with Stella Li who is their number one executive I think facing outside of China. She runs all their Europe initiatives. For those people that don't know BYD is the largest EV manufacturer in the world at about 4 million vehicles. They started in batteries. They compete with Foxconn to build mobile phones. They bought Jabil Circuit. You remember that old company? And they make lots of things. They make buses and subways and all kinds of different things, but they got into cars over I don't know about 5 to 10 years ago. They have a number of models. They gave me this one. This is a very kind of high-end sports car. In fact, I met a public company CEO that was proudly showing me this was his favorite car that he drives around. They make an SUV you can drive into the water. I don't know exactly why you'd want to do that, but we rode it into the water, drove around in the water, and drove out. They have cars at 10 to 15 grand price point on the entry side. They've hired a European designer, which is how they're building stuff like this on the higher end. And they're very aggressive from a cost perspective. I think BYD more than anyone on the cost side. It's not preventing them from building higher-end cars as well. So that's BYD. I also had a chance to visit Xiaomi. They also gave me a car. The Xiaomi is a super interesting story if people don't know. So I was fortunate enough to meet Lei Jun back in 2003-04. But about 10 to 13 years ago he started a phone company and that's what Xiaomi is and that company's now third I think around the globe in handsets sold, heavy in Europe, heavy in South America, not just China. And 3 to 4 years ago I think around 2021 he decided to build a car and it was about the same time Apple said they were going to build a car. And mind you this guy was back in 2003 ran an e-commerce company called Joyo. Like there's no reason he should be able to build a phone and then build a car.
So what do you attribute that to, Bill? Like why, when you see that, again going back to Dan Wang's book, he's like this is an engineering culture that has built these technological ecosystems that gives rise to a higher velocity of innovation than we see in the United States that Dan would argue is bogged down by regulatory capture and lawyers etc. Why do you think Xiaomi is so successful?
And by the way let me just share with you some numbers. So they're making a thousand of these a day. They just came out with a kind of a Cayenne.
Yeah. In the factory that I went to, they're sold out. They have like a 30 to 40 week backlog. You have to pay five grand to get on the waiting list. The factory, this is an interesting data point, the factory makes a thousand cars a day with 2,000 employees. It was highly automated, like really highly automated. I imagine that they plan to improve that number over the next 5 years. Let's say they took it to 1,000 employees for a thousand cars. That'd be an employee per car per day. That number is like at six in the US. And that's super interesting for a number of things. It's like if you want to bring the jobs back there by the time you get the jobs back there may not be any jobs. Because of automation, the entire global potential for car manufacturing in 5 to 10 years from now could be like 400k total. And so we just need to be really thoughtful about those things. But back to Lei Jun, he gave a talk in 2024, we're talking about maybe people should be watching and learning in both directions that I would encourage people to watch. It's on YouTube. It's his State of the Union from 2024. And he spends about an hour talking about his approach to building a car. And it sounded like so ridiculously, like you ask about entrepreneurial. He decided that he hadn't been driving a car for 10 years because he had had a driver. So, he immediately switched seats with his driver and then he went through the parking lot at his company and if there was ever a car he had not driven, he'd leave a note on it and ask to borrow it and then he would have the owner of the car tell them what they liked and didn't like. So, he claimed he drove 170 cars that way. And then he also, like BYD, they hired a European designer that came in and helped him out. But for an entrepreneur who had never been in the car business to build a factory in a three-year window and look, same thing was true. Our friend Omid built a factory in Texas, under 40. Like just spectacular that these entrepreneurs are capable of doing these things. But it just kind of blows my mind like when I was being driven in this golf cart through this factory just thinking that this person wasn't in the business three or four years ago. And for people that don't know, I'd encourage you to go online and so the CEO of Ford, Farley, he went over there and I think had the exact same tour I did and he insisted they ship him one back to Chicago and he's been driving it around and he's made some pretty extreme statements after having experienced it. This car sells for about 40k. But he said it's the most humbling thing I've ever seen. And he says even beyond that their cost, their quality of vehicles is far superior to what I see in the west. We are in a global competition with China and it's not just EVs. If we do not, if we lose this we do not have a future at Ford. You know that's Farley at Ford. And I by the way, I would take a pause after mentioning that to the people that are going to accuse just because I went over there to learn, accuse me of somehow being an agent for the CCP. Is that also true of the CEO of Ford? You know, why is he saying these things? We're just witnessing what's happening on the ground. One of my observations is, and you hear this from Elon, you hear this from Jensen Huang, you hear this from Tim Cook, you hear it from Farley, it's extreme respect for the level of innovation, for the focus, for the engineering culture that exists in China. And that to me, one of the reasons I wanted to do this pod on China is because I think it's as much a reflection about what the United States needs to do to re-engineer its own society, right? It's not enough to say that we want to re-onshore critical manufacturing. It really is about this movement around American exceptionalism, America builds. It's about making the reforms necessary whether it's regulatory capture whether it's the tort reform, legal reform required to frankly allow this level of innovation and recognize that we're in this global competition. And there are two ways in which you can approach this, Bill. One is we can build barriers, we can try to decouple and we can pretend the rest of the world somehow won't buy China's goods. But if you look at it today, the US only represents about 14% of China's exports. The US only represents about 3% of China's GDP.
Yep.
Right. So, like we're just not that important to China. I don't want to understate, we're still very significant, but China has found a market in Europe. They found a market in Africa. They found a market in South America, right? And it seems to me that the harder pill for the US to swallow and this is where I think I'm in the camp of those in the middle who say we need to engage. We need to compete. There is a competition. We want to win the competition. But this is about focusing on us and winning and running a faster race. We have a lot of reforms. I think a lot are occurring now. I think we're doing the type of things that we need to be doing in order to get more globally competitive. There are industries that are critical to our national security, things like rare earth magnets, things like steel productions, things like pharmaceuticals where I think it is appropriate to have both an industrial policy and a tariff policy that's going to provide the incentives to those industries. But to me, the reflection on what I hear you saying about China when I read Dan's book is that China is putting the accelerator to the floor in terms of innovation and it's in every single industry. It's powered by this provincial competition you talked about. It's powered by people who are just naturally entrepreneurial and hardworking. And there's no escaping that and there's no putting that genie back in the box. What are your thoughts on that?
Yeah. No, I think it's exactly right. I mean, BYD has a big presence in Hungary and they have a factory, they're building a factory in or already have one in Mexico. And why, if you're Mexico, would you not buy the 10 to 20 grand EV? Why would you buy the 50 grand one from America? It just doesn't make any sense, right? Like for any country around the world and I could reflect this on the US as well, if you're not going to buy domestically you should certainly buy from the low-cost producer, right? It goes back to comparative advantage, right? If you can't produce a globally competitive product and you close your import border your people are forced to buy a product that is overpriced and so from a standard of living perspective, they're worse off than they would be if you had opened the import door. And so I don't, I'll give you another example of this. So this is the BYD Apollo competitor to Waymo. So we've seen the Waymos around Austin and San Francisco. We've ridden in them. I've ridden in this now. It's a little bigger, I think, a little roomier than the Jaguar for sure. It's more of an SUV. But this is on the streets, and Apollo is kind of interesting. It's inside of Baidu, which is a search engine company. While people are saying that Waymo should be worth 170 billion inside of Google, you can buy shares of Baidu for zero enterprise value. It's a 30 billion market cap, 30 billion in cash on the books. And from a global perspective, I don't know why if this is 30K, why you'd want to deploy Waymos, which people say are over 150K partially due to the MEMS solid state LiDAR advantage that China has, which we've talked about previously. So yeah, I think rest of world is a really interesting thing to think about when you compare the two countries because I personally don't think all the other countries in the world share the same level of hawkishness that at least part of the members of our national government have. And so I don't think they're going to be as afraid of their technologies.
Let's think about this in the context of what you've seen. If you were giving advice to Trump on export controls for example, Bill, whether it's on AI chips or other things, what would your advice be?
Well, I mean, I think you hit on some of it around the red tape. And there's a couple different things in certain industries where we're really behind. I would be very open-minded to JVs coming towards us. You know, for the past 50 years, European car manufacturers, US car manufacturers, they opened facilities in China. Some of them were forced to be 49% owned, 51% owned. I'd be very open to that kind of thing. There was some positive news out this past week following Trump's engagement with Korea around nuclear which we have talked about before. Korea can build a nuclear plant for a quarter the price that we can. Why don't you invite them to come help us build a few in the US and see what we can learn? And I wonder if we should allow Ford. There are so many EV companies. I didn't even mention NEO and Zeekr and some of these other things. They're all innovating in different ways, but some of those are going to have financial trouble. NEO's public. You can see that the stock's not doing all that well, but would we let a Ford or a GM buy one of those companies, right? Maybe we should. I don't know if the China government would let them. Would we let one of those companies open a JV with Ford or GM in the US? I think we should if we'd learn from it. You could say the same thing about solar or any of these technologies where they have a lead, solar, nuclear. So, I would be open-minded to those types of things. I would be really big on trying to get regulation out of the way and recognizing that an autocratic country that has specific goals can move so much faster in any industry than you ever could in the US because we've created so many people whose jobs it are to block things. And we're seeing that type of behavior in certain states which is why TSMC's in Arizona, which is why Tesla's in Texas. I would give Governor Shapiro a lot of credit for reopening Three Mile Island and what he did with I-95. Like all those things are signs of recognizing that we've built mud in our system that prevents building and how do you start to remove that and move in the opposite direction.
Specifically thinking about the tariff. So, I think the president tweeted yesterday morning, if we don't get, it was appearing that we're on a glide path and making a lot of progress with China, we may very well be. I think he tweeted yesterday morning that if we don't get rare earth magnets from China, he could raise the tariff rate to 200%. There was some talk that he was going to visit China in the first week of September. So, that's right around the corner. I said on a couple pods ago, I thought that the way to understand this president is that he's a self-described deal junkie. He's a pragmatist. He's not an ideologue. It seems to me that when he's talking with Jensen Huang and others, he falls in that kind of pragmatic centrist category. He certainly wants to rebuild stuff in the United States, but at the same time, it appears to me he wants to get a big deal done on China. Where do you come down? Again, if you were an adviser on the tariff side of things, Bill, do you think he's going to get a big deal done with China? Do you think that's the right thing to do? And how do you think that influences some of the building that you're talking about?
Okay, this is, I have zero insight. Like I didn't meet with anyone in the CCP or the government so I have no idea what their mindset is. This is pure speculation on my part. You already brought up the fact that we're a much smaller percentage of their exports than people realize and people think about. And as a result, I think that China is going to be far more biased by what they view as fair and face saving than they are necessarily numeric. And so I think if someone were to approach them in a pragmatic way, I think a pragmatic deal could easily get done. If they are engineers, as Dan Wang said, it's not like they wouldn't accept a pragmatic outcome. I think they would, but if we're intent on being derogatory in our language and by the way, that's the thing that I just really don't understand that you see in Washington, you see it on that select committee of the CCP and you see it from some of the people in Silicon Valley. I just don't understand the value of being belligerent. But people clearly are. I mean, they have four times the number of citizens on this earth than we do. And nobody's country of birth is something that happens to them outside of their control. So I just don't know why vilifying a billion people is a good idea. So I think it's possible. I think they would do a deal. And I just don't know if we get caught up in a silly tit-for-tat verbal war what the benefit of that is. And this is one of the points Sachs makes, Jeffrey Sachs not David, you might provoke World War III. So what do you, how do you put that into your NPV calculation?
Is it fair to say that, I think if you look at tariffs, heading into this year, they've basically doubled on China, but if we put tariffs on particular industries in order to incent building and industries in the United States, imagine it was a deal a bit like Japan, Bill, where we also cut a deal with the Chinese that they had a trillion dollars of investment the way we have with other companies that go into the US into some of these industries and that we perhaps get
Some reciprocity and reduction of barriers to some Chinese goods into China. How would you handicap that? Did you get any sense from the stuff you read in the United States as to the probability of that? I think it's one of the biggest influences as we look at growth in the back half of this year, as we look at market sentiment in the back half of this year. Just curious where you stand on that.
Ironically, one of the things that I mean, like I said, I met with companies and founders and a few academicians, and some journalists, but I didn't meet with the government. But in general, there's just not any hostility from their side, from that group of people that I met with. In fact, most of those people look up to the US founders that have done great things, the Jobs and the Elons, and most of them aspire to compete globally the same way a founder in the US would like. And so they would like to see all this rhetoric die down and they would like to have the opportunity to come to the US market. They'd like the opportunity to compete in Europe and South America. Many are, Xiaomi and BYD already are. And so I think, like I said, I think there's a pragmatic deal to do to the extent and if that led to the types of programs that I just talked about, this kind of JV thing where there's a market they're a leader in and we have that company come to the US and help us understand how to compete in some of these technologies and get to lower price points, I think that'd be fantastic.
