transcript

Speaker 1:
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Speaker 3:
[01:41] There is really a gold rush now, a frenzy in the US and in other countries around the world to get hold of these cheap Chinese tokens. And that's the reason why this is becoming a geopolitical issue, because a lot of startups in Silicon Valleys are preferring to use Chinese tokens. In other words, Chinese, either Agenetic AI or LLMs, to power their startups, to power their technology. And that's making a lot of people in the US quite concerned, both from a technological perspective and from a geopolitical perspective.

Speaker 4:
[02:22] Welcome to China Decode. I'm Alice Han.

Speaker 3:
[02:24] And I'm James King.

Speaker 4:
[02:26] In today's episode of China Decode, we're discussing the advantage China might be developing in the AI economy, how the country is strategically using its export controls, and how a push for innovation in the domestic market is creating a wave of unusual new products for Chinese consumers. That's all coming up, but first let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai A-Share Index ended the day up about 0.76 percent, while the Shenzhen Component Index hit its highest point since December 2021. Financial stocks showed strength with Industrial and Commercial Bank of China up 1.75 percent, Agricultural Bank of China up 1.84 percent, and China Construction Bank Corporation up 3.4 percent. Chips stocks were mixed, however, with Huahong Semiconductor shares rising almost 5 percent, and domestic GPU makers Muxi, Kuo and more threads both declining. The biggest decline today came from the high-tech manufacturer OKE precision cutting tools falling nearly 14 percent. All right, let's get into it. The National Bureau of Statistics in China announced late last week that its GDP grew 1.3 percent in Q1. GDP was also about 8.5 percent larger than the same period last year, beating forecasts despite the global fuel disruption caused by the blockade in the Strait of Hormuz. Infrastructure investments in the country offset some weaker consumer spending, while apartment prices and car sales have been plummeting. And while Chinese semiconductor imports were up 54 percent in March, year on year, the Chinese economy is exporting something vital to the growth of AI, where it stands to develop a key competitive advantage. That is that they're quietly becoming the world's leading exporter of tokens. Now tokens are a key commodity in the AI landscape, especially as the age of agentic AI comes into fruition, a kind of computational fuel that helps power large language models. To give a sense of scale, in one week in February alone, Chinese AI models delivered 4.12 trillion tokens, while US models delivered only 2.94 trillion. James, that number is pretty startling to me, and it completely chimes with previous observations that you've made on the ground. This shift purely from LLMs towards agentic AI, and it seems that the adoption rate has been really, really high in China. Tell me a little bit about your experience because you just came back from China and what this means for the AI race.

Speaker 3:
[05:02] Yeah, I had a fascinating time in China, I must say. Talking about these tokens may sound a little bit wonky, a little bit in the weeds. But in reality, what we're talking about, as you've just alluded to, is the fact that the digital age is being powered to a very significant extent by AI tokens. AI tokens are effectively the new oil. And we've seen geopolitically what's happening in terms of oil supply in the Straits of Hormuz, you know, in the conflict between the US and Iran. So we know how important oil is. And AI tokens are really powering the AI race between the US and China. And the key point is that China is producing these tokens much more cheaply than the US or any other country. So to put it another way, China has developed a new structural advantage over the US. And we all know how important this is, given the fact that the AI race between the US and China is absolutely critical to the future of the technological leadership between these two nations. And of course, in terms of money, about 1.6 trillion US dollars has been invested in artificial intelligence all over the world so far. And last year alone, about 250 billion US dollars was invested in AI. So obviously, if China can build up as it is, a structural advantage in the fact that it can produce the oil for the digital age much more cheaply than the US and any other country, then it has got a serious advantage. And that's what we're beginning to see now. And that's what underlies the big gap that you just quoted in the numbers, the amount of tokens that the US is using and China is using. And it's becoming much more critical for the reason that you also gave, because AI tokens are becoming an increasingly scarce resource because of the fact that these AI agents use many, many more tokens than the previous chatbot-dominated model. So things like ChatGPT, an AI agent will use much more tokens than a chatbot like ChatGPT. So the premium on being able to get tokens and get them quickly is far, far greater than it was even a few months ago. Now, just for those listeners who are not AI experts, let me define a token so that people can get a sense of how important this really is. A token is a fundamental unit of data. So it's a word or part of a word or a punctuation mark that is represented by a token ID. So a token ID is assigned to a bit of a word like that. And all of the large language models use these token IDs or these tokens to generate text. So every time you put a question into your large language model, what is actually happening in the technology is that a whole load of tokens are being generated in order to answer your question. So that's really it. But now that we've got the rise of agentic AI, so these are pieces of software that actually do tasks. So for instance, you could ask an AI agent to book your entire holiday. You just write, please book me a holiday in France with a few more instructions. It'll book your air tickets, it'll book your hotel, book your buses, book your taxis, book everything that you need. That is performing a task rather than simply replying to a query that you've made have, that you had. Of course, that uses many, many more tokens than simply asking a question. So let me come to the crucial aspect of this. The cost differential between Chinese-generated tokens and US-generated tokens. So just to give you a little bit of an example, Minimax and Moonshot, these are two Chinese AI models. Their cost per million output tokens is about $2 US to $3 US. Conversely, Anthropix Claude Sonnet 4.5, that's a big American LLM, they cost about $15 US dollars per million output token. So there's about a six-fold gap between the US and China. So there is really a gold rush now, a frenzy in the US and in other countries around the world to get hold of these cheap Chinese tokens. And that's the reason why this is becoming a geopolitical issue, because a lot of startups in Silicon Valleys are preferring to use Chinese tokens, in other words, Chinese, either agentic AI or LLMs to power their startups, to power their technology. And that's making a lot of people in the US quite concerned, both from a technological perspective and from a geopolitical perspective. But what are you seeing in this, Alice? Do you think we're at a kind of turning point? Is this a big moment?

Speaker 4:
[10:40] Well, it's interesting. I think over a year ago, you had the Airbnb founder and CEO, Brian Chesky, saying that Airbnb is actively using Chinese LLMs, models from DeepSeek and Alibaba, Quinn, because that they were cheaper and it was easy to then fine tune them for the engineers. But I don't know how sustainable that is. That was my next question to you. My own sense is that right now, we're in a bit of a gold rush. But at some point, just as we saw in terms of the Biden administration, putting tariffs on Chinese EVs and effectively blocking them, I wouldn't be surprised if in a year or two, we see similar movement politically coming out of Washington and Silicon Valley to start clamping down on Chinese AI companies being used. Not just the LLMs, but also the agentic layers on the basis of national security threat. And I think that that isn't off the table in terms of the realm of possibilities. In fact, I assign pretty high probability to that. I would also say that even although China may in a couple of years or maybe less be effectively blocked out of the US market, the EV example, which we talked about previously, shows that there's so many other markets for China, right? The fact that last March we saw over 140% year-on-year growth in EVs, obviously spurred by the oil crisis, suggests that even though Chinese EVs don't have that lucrative big US market, that there is plenty of other markets to play in. And I think that, to your point, James, the given that these agentic AI models are really quite a bit cheaper, in fact, to some extent, almost about 10 times cheaper than what is coming out of the US. This makes it, I think, very cost-effective for a lot of consumers and some corporates overseas outside of China. But all of this suggests to me that Nvidia is the big winner, because Nvidia's Jensen Huang has really come out and said, effectively, agentic AI systems are going to be great, because to your point, James, they're more token-consuming intensive and that will be net beneficial for Nvidia's AI chips. How do you think about the winners and losers in this space? I certainly think there's a lot of Chinese winners, but I think at the end of the day, Nvidia is laughing its way to the bank.

Speaker 3:
[13:10] I definitely agree with you on the Nvidia front. Obviously, Nvidia has the most powerful chips, the Blackwell series of chips. They're much more powerful than any kind of AI chip that China can produce. So everybody is going to be trying to get their hand on these Nvidia Blackwell chips as the premium on tokens increases. Because obviously, the more powerful your computer system, the more tokens you can generate more efficiently. So that's a key aspect of this definitely. But I also tend to agree with your point on how the US will view this. Already we're seeing US commentators saying that China's superiority in tokens, i.e. the fact that it can produce tokens much more cheaply and export these tokens to the US and other countries around the world, is creating substantial data, strategic and regulatory concerns for the United States. And I can certainly see that from a US point of view. I mean, if you've got a Chinese LLM or a Chinese agentic AI model operating in the United States, there is very little way that the US can regulate those, because head office for those companies is back in China. The algorithm is back in China. The staff are back in China. It really is the genuine export of this Chinese technology. And the more that Chinese tokens and Chinese chatbots and agentic AI is used in places like Silicon Valley, the more embedded it becomes in one of the most critical and strategic sectors in the entire US economy, i.e. AI, and more generally tech. So that has to be a big concern. But my question is, how do you actually stop it, given that this is basically a click away? I can find a Chinese agentic AI model or a Chinese LLM simply with a search on my computer. So I don't know how the US could stop it if they decide that they wanted to do that.

Speaker 4:
[15:19] Well, I think it would have to, I mean, definitely government agencies would have to crack down in the way that they have in the couple of years on using certain Chinese apps, right? But also Chinese hardware, right? Phones are effectively, Chinese phones are effectively banned by American government agencies. That I think will be a low-hanging fruit to impose in terms of restrictions. The next question is, will Silicon Valley get politicized about this issue and basically mandate from top down that the engineers can't use Chinese agentic AI or LLMs on the basis of data security? You know, that will be contingent on company decisions by the leadership in Silicon Valley companies. But given, I think, the recent title shift, I wouldn't be surprised if that does happen. If at some point, you have a mark, it's like about coming out and saying like, these are our big strategic competitors, not just in terms of corporate competition, but as a national security and we need to crack down on using Chinese models. I don't think they're at that stage yet because they're still interested in seeing where it goes. Meta just bought Manus as we talked about previously. Although that seems to be in a bit of the crosshairs with China investigating the legality of that purchase. Then one last thing I will say is that I get a sense that American and Western investors are frothing at the mouth with regards to Chinese AI companies from a public and private markets perspective. A lot of people, foreign people made money from the Minimax IPO. Now DeepSeek just announced that it's taking external fundraising at a 10 billion valuation. So effectively fundraising at 300 million. Looking at external investors, maybe they're open to foreign investors. I think that's the next thing to watch. But certainly the stories that are coming out of China, I think they're getting a lot of Western investors enthused about the China AI landscape from a private and public markets perspective.

Speaker 3:
[17:17] Yeah, completely. I think that's the gold rush aspect of this. But one thing I didn't quite explain clearly enough is why it is that Chinese tokens are cheaper than those tokens generated in America. There are two main reasons. One is that the cost of electricity in China is so much lower than it is in the US. And the other is a more technical reason. The way in which Chinese LLM models work is different in the sense that the Chinese AI architecture uses what's called a mixture of experts system, which uses much less compute power to generate these tokens than the similar system in the US. So that's a little bit technical, but I think that's a crucial piece of background as to why China has a structural advantage in producing tokens cheaply.

Speaker 4:
[18:13] Yeah. Really interesting point, James. And in a way, it's because of the chip restrictions from Washington that they had to be more compute efficient to your point. Okay. We'll be back with more after a quick break. Stay with us.

Speaker 5:
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Speaker 6:
[20:51] K-Pop Demon Hunter's Saja Boys Breakfast Meal and Huntrix Meal have just dropped at McDonald's. They're calling this a battle for the fans. What do you say to that, Rumi?

Speaker 7:
[21:00] It's not a battle.

Speaker 3:
[21:01] So glad the Saja Boys could take breakfast and give our meal the rest of the day.

Speaker 7:
[21:05] It is an honor to share.

Speaker 6:
[21:07] No, it's our honor.

Speaker 7:
[21:08] It is our larger honor.

Speaker 3:
[21:10] No, really, stop.

Speaker 6:
[21:12] You can really feel the respect in this battle. Pick a meal to pick a side.

Speaker 8:
[21:19] I participate in McDonald's while supplies last.

Speaker 4:
[21:22] Welcome back. We've been talking about imports and exports in the world of artificial intelligence, but let's zoom out now to the bigger picture around exports in China. The Financial Times just reported that China has nearly tripled its use of export controls over the last five years. James, in the last, I would say, five years or more, it has been a kind of tit-for-tat response between Washington and Beijing on export controls. I must have the point where I feel like China is copying and pasting what the US is doing as they reciprocate some of these export controls. We started in the realm during the Trump 1.0 to Biden administrations with chip export controls, and we've expanded it to other dual-use technologies. More recently, China has retaliated with rare-earths, and now it seems that instead of being on the defensive or reciprocal front, it is going out on the offensive and trying to consolidate an export control regime that encompasses not just a whole panoply of rare-earths and rare-earth related equipment technologies, but also solo panel parts and solo panel green technologies. Now, the question then is, what is next, right James? And why is China doing this? I have my own thoughts, but I'm curious what you think.

Speaker 3:
[22:46] Yeah, my sense of this is that, you know, we often focus on the measures that the US has taken against China in the trade war and tech war. And, you know, there has been a lot over the last five years, more than 3000 Chinese entities, mostly companies, have been subjected to licensing requirements or other forms of US export control. But as you mentioned, China has been much quieter about its own sanctions against the US. And as you've mentioned, it's actually tripled its use of export controls over the past five years. There have been, according to a EU Chamber of Commerce in China study, there's been 30 times between 2021 and 2025 that China has put export controls on. And that's up from about 11 times in the previous five years. And when we look at what's happening in each of these 30 times, the picture becomes a little bit clearer. And particularly what becomes clear is China's use of global choke points in supply chains to exert pressure on trade partners that it wants to punish. So there are 10 instances of China using global choke points in supply chains, such as the time last October when China put a whole slew of restrictions on exports of rare earths. Rare earths are these crucial materials used in making many, many different technologies, often high tech, around the world. So China has shown that it will weaponize its supply chain on 10 of these occasions and in 10 other occasions, these have been different measures to coerce its trade partners to do what it wants. But I think why this is becoming really perturbing right now, is because last week there was a new set of controls. These are called the State Council Regulation on Industrial and Supply Chain Security. A bit of a mouthful there, but basically what these say is a whole load of legal rules and stipulations that are so vague that nobody around the world can actually ascertain what they really mean in concrete terms. One of these rules makes it illegal to quote, harm the security of the country's industrial and supply chains. The countries in this case is China's. So, I mean, what could that be? We have no clue what that means in real terms. Another of the articles in the latest legislation says that China would carry out action against anyone who quote, carries out information gathering activities related to industrial and supply chains in China. So, let's say a foreign company working in China was subject to some kind of a trade war sanction or a tariff or something like that, and it wanted to investigate its Chinese supply chain, something I think companies do all the time all over the world, then it could potentially be breaking the law in China. So, there are several other articles here in this extremely vague piece of legislation that the Chinese just put out, and a lot of foreign companies, some of the biggest companies in the world, are very concerned about this. So, I don't know where this is going to go, Alice, but this seems a bit of a step change to me. Maybe this will just quieten down. I know you do a lot of consulting with foreign companies in China. Maybe this will just quieten down and go away. I'm not sure, but what do you see?

Speaker 4:
[26:49] Well, I was at a talk in Shanghai late last year, and then one person in the audience was actually an expert in export controls legislation in China. She basically said quite emphatically and openly that from really Biden onwards, MOFCOM, which is Chinese Ministry of Commerce, was basically recreating what the US's Bureau of Industry and Security, BIS, has been doing and building the architecture of the unreliable entities listing, which was a US creation that the Chinese then copied. The affiliates listing more recently that Trump included late last year, which is to say that any subsidiary of an unreliable listed entity that had 50% or more ownership by anyone on the unreliable entities listing would be subject to the sanctions within the unreliable entities listing rules. China then did something similar. Then more recently with last year's fairly expensive, I would say heavy to medium rare earth export controls, you saw China recreate the foreign direct product rule. The or the de minimis requirements that the Biden administration had done. But China expanded it further by saying, actually anything that is at least 0.1 percent sourced from Chinese rare earths, heavy rare earths is subject to Chinese export licensure regime. That suggests to me two things. Number one, China has really been trying to use this as an offensive measure to stop America from expanding its export control regime. Number two, that China is very concerned about what they call stranglehold industries or what we would call choke point industries, and the way that they can be used to coercively, through economic means, attack China's supply chains. I sense now that there is a bit of a shift from the defensive to the offensive, which is to say that instead of reciprocating what the Americans have done, they're actually going through their supply chains and going, hey, where are areas where not only we are at risk of being choke pointed by other countries, but where potentially we won't be able to control our dominance in certain domains in the future? Then the big question to my mind, which I don't have an answer for, is what other industries will China go for? Now certainly in green technology, China is a leading player. We've already seen some announcements of semiconductor export controls mainly on the basis of dual use technology. But I think the next thing will be what other areas, if it's petrochemicals, if it's commodities, and that is a huge part of the global supply chain. Will China be putting in these export licensure regimes or export controls? That I think is the next big question. But certainly I get a sense that they're changing their whole attitude towards the export control regime, which is, we're no longer just doing what the Americans have done in a tit for tat iterated game theory. But we're actually going to work out a supply chain strategy to make sure that China has maintained dominance across several key choke point industries.

Speaker 3:
[30:29] Yeah, absolutely. I think that's a very astute comment, Alice, because I mean, when it comes to the balance of power, China has the power in terms of its supply chain. Its supply chain is of unrivaled superiority in the world. Just a few numbers. In terms of these generic drugs, China makes more than about 60 percent of the world's total. In terms of legacy semiconductors, so that semiconductors above I think about 14 nanometers, China is making around 70 percent. Rare Earths, we've already mentioned, China makes about 80 to 90 percent of the world's rare earths. In sector after sector, China has potential chokeholds over the rest of the world economy. And I think it's just showing the US that hey, don't tangle with us. We can beat you. If you're going to put a whole load of restrictions on us, then we can hit you back by restricting our supply chain exports to the US and other countries. And I just wonder how this plays into the summit between Trump and Xi Jinping, which is supposed to, I believe, take place in early May. I don't think we've got final confirmation of that yet, but maybe there's an element of this, particularly with the rules that I just cited, the ones that have just come out last week, that China is just trying to build leverage in trade negotiations between it and the United States ahead of the Trump visit, so that there aren't any nasty surprises from Washington. I don't know, that's purely speculation on my behalf, but I've seen this movie a few times before, and China does tend to do things like that.

Speaker 4:
[32:16] Yeah, I could see that in the short term, but if China does go ahead and implement these export curves on solar technologies or other green technologies, this couldn't come at a worse time, not just for the US, but for other developed and developing economies, because we're in the midst of month two of a probably prolonged oil shock crisis emanating from the Strait of Hormuz, and China is making almost 80 percent of the world's solar panel components. If it really wanted to hit America right now, I think it would hurt a lot more. That punch would land a lot harder now than it would, say, a couple of months ago. So it is all very interconnected. But I do buy your take that China is showing its cards ahead of a summit and saying, don't hurt the panda. Let's take one last quick break. Stay with us.

Speaker 8:
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Speaker 10:
[33:49] Secretary of Defense, Pete Hegseth, has been talking about the war in Iran in distinctly Biblical terms, citing Psalms, the Resurrection of Jesus, and the Book of Quentin.

Speaker 11:
[33:59] And I will strike down upon thee with great vengeance and furious anger those who attempt to capture and destroy my brother.

Speaker 10:
[34:06] President Trump is comparing himself to Christ, Vice President Vance is fighting with the Pope. Watching all of this is the increasingly influential pastor, Doug Wilson. He co-founded the church that Hegseth attends. Wilson's a Christian nationalist who would like the USA to be a theocracy. He'd also like to help us get there, though he doesn't think it's going to happen anytime soon.

Speaker 12:
[34:26] I believe that it is accelerating. I believe that we're making significant gains. I see us assembling resources. And I'm encouraged in that labor. But I don't expect to see what we're praying for in my lifetime.

Speaker 10:
[34:40] Pastor Doug Wilson and how much you should worry about his plans. On Today Explained from Vox, weekdays, afternoons, wherever.

Speaker 9:
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Speaker 7:
[34:55] A podcast that's a place for listening, wondering, thinking, feeling, and questioning.

Speaker 9:
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[35:03] But we almost never disagree, and we're always learning.

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[35:07] That's true. You can subscribe to The Curiosity Shop on YouTube or follow in your favorite podcast app to automatically receive new episodes every Thursday.

Speaker 4:
[35:17] Welcome back. Moving now to the domestic market in China and how innovation is really starting to push the boundaries of consumer products. James, you were just in China and you flagged this as a trend that you've been watching closely from in-car toilets to floating bicycles, ideas that feel unconventional, but maybe point to something bigger. Now, there's a new headline that takes us even further. A humanoid robot just ran a half marathon in Beijing and beat every human and other robots in the race. James, you've been following this very, very closely and I know you just got back from China as well, where you probably saw some wacky technology being used. What were some of the crazy out of this world's technology uses that you saw when you were in the ground?

Speaker 3:
[36:04] Yeah, I must say I am a bit of a sucker for humanoid robots. I did go around a couple of exhibition halls looking at the latest humanoids. But this humanoid robot that ran the half marathon in Beijing is kind of next level actually because not only did the robot beat all the human competitors in the race, it was a hybrid race. So there were robots and humans, very fast humans, I mean proper athletes. Not only did it win the race by a very wide margin, but it also broke the world record for the men's half marathon by an equally wide margin. It ran the half marathon in 50 minutes and 26 seconds, living up to its name. The robot is called Lightning. And so that breaks the human world record for the half marathon, which is held by Uganda's Jacob Kiplemo. And that record is 57 minutes, 20 seconds. So basically, the humanoid was seven minutes faster than the world record holder. So, you know, the other thing is that these humanoids, most of them ran autonomously. So they weren't being controlled by somebody with a gadget. And, you know, that just shows again, how far the humanoids have come. They can now assess their environment as they're running along. They can follow a path. They don't need to be controlled by somebody with a remote. So this was a pretty amazing thing. And I must say, I think YouTube and other internet channels have been lit up with this humanoid robot winning the race. But to me, this is just one example of China moving into the passing lane when it comes to innovations of all types. And at the risk of going a little bit lavatorial, I couldn't help but notice the one that you mentioned, Alice, the in-vehicle toilet. This is actually not a product yet. It is at the moment just a patent, but a Chinese car maker, Ceres, has been granted the patent for what it calls an in-vehicle toilet. It slides under the passenger seat of the car, and presumably it slides out again if somebody needs a convenience break. It's made to satisfy, this is according to the literature put out by the company, it's made to, quote, satisfy users' toilet needs on long journeys, while camping or while staying in the car. Just in case you're wondering, there are special fans and extractors made to deal with the by-products of that. There are also all kinds of other car-related innovations underway. There's massage seats, karaoke systems, a fridge, and all of these, I think, are trying to differentiate one car brand against another. In fact, in China last month, I was riding along in a car that gave me a massage as we went along. I must say it was very comfortable. I was also in a car that jumps on the road when it sees an obstacle. It's going along, and here in the UK, we have lots of potholes. If it sees a pothole, it'll just jump them. This happened when I was in the car. You hardly felt it. It was pretty amazing. China is absolutely charging ahead. I've got plenty of other examples of Chinese innovations, but you must be seeing similar things.

Speaker 4:
[39:45] Well, I haven't been following this as closely as you do, because when I go to China, it's a lot about what's happening in the Chinese economy and less about some of these newfangled technological innovations, even though I would love to learn more about them. But I do recall a year ago, seeing a lot of drones being used for food deliveries in, say, like Shenzhen. There's a lot of talk about the so-called drone economy in China, and building up the domestic use of drones for logistics, but also for consumer purchases and whatnot. Has that been a theme at all in your travels, James?

Speaker 3:
[40:24] Yeah. Drones are off the charts in China. There are all types of different drones being made, many of them with a military purpose. I think we can see that both in Ukraine and in Iran. But I'm just wondering whether China is entering a kind of innovative golden age, a bit like America was in the run up to World War I. At that time, the US had already invented the aeroplane, the light bulb, the telephone, the record player, air conditioning, automatic transmission, the machine gun, ballpoint pen, all of these things. A lot of people in the UK would say, hang on a sec, we got the patent for that lot. But anyway, there was a UK-US nexus going on behind all of those innovations, and many more, and I just think that China is now at this moment. I think that where we are right now will be regarded as a golden age. Some of the innovations are fairly, well, I don't know, I don't want to prejudge, but they seem a little bit out there. But some of them are genuinely impressive. I mean, you mentioned drones a minute ago. China has got these flying taxis, flying cars that are now leading the world in terms of autonomous passenger flight. There's a company in Shenzhen called Yihang, and China is going to pilot the first genuine commercial transport using these passenger flying cars. One other I'd like to mention, which I think is truly amazing, is something called the T-Flight Hyperloop, which is China's attempt to use a train to go faster than a plane. And this, effectively a train that travels using magnetic levitation, so its wheels don't even touch the track. It just skims over the track. It can travel up to 387 miles per hour.

Speaker 4:
[42:26] Well, I was at Hong Kong University of Science and Technology last year, and they were very proudly saying that we're the number one research institute in China in terms of patent influence. So not necessarily the volume of patents, but in terms of how many patents get used by industry. And they were saying, we're betting on innovation in the Greater Bay Area, so spanning from Guangdong Province to Hong Kong to Macau, and that you see a lot of cross-border talent in research, both in Hong Kong and in the mainland, and that that is spurred by immediate industrial application in the big southern Chinese provinces that are manufacturing intensive. So you have Guangdong, Shenzhen, and Hangzhou. So I think what makes China unique in the contemporary environment is that you have strong R&D, but you also have strong industrial application in the way that Germany and Japan once were, but I think have really lost their mojo in some respects. But China has maintained that dual track of research innovation on one side and then application on the other side. But I think the big technological breakthroughs when I think about AI, when I think about quantum, when I think about biotech, it's still to my mind, maybe you disagree with me, James, but when I think about the cutting edge technologies, it still seems like the US is leading, although China is closing the gap on some of the benchmark KPIs. But at least for now, it seems like when we talk about world-class cutting edge innovative technologies, like Google DeepMind Alpha Fold, for instance, it's still coming out of the US out of Silicon Valley.

Speaker 3:
[44:15] Yeah. I mean, I don't want to write off the US in any way at all. I mean, obviously, there's a lot of very impressive innovations coming out of the US. But one number comes to me, and that is the number of patents being applied for at the World Intellectual Property Office of the United Nations. Chinese individuals and companies have got 1.8 million of these patent applications, and US companies and individuals have just over 500,000. So I'm not saying that this conclusively proves anything because you can inflate patent claims, you can get patents for things that are not very useful. So I don't want to say that that figure tells a story, but I think it might point to a direction of travel at least.

Speaker 4:
[45:06] Yeah. Certainly, it doesn't preclude them for being very, very innovative in what they're doing. I remember very briefly, I was seeing a factory in China late last year that was making cutting edge wheels that I think was steel and aluminum blend alloy. As a result, they were exceptionally lightweight, but still very hardy and intensive and durable, like your traditional wheels. They're pretty much the only factor, I think, in the world that does it. They supply directly to Tesla. So there's a lot of industrial innovation, and I sense, to your point, James, it's happening, and it might take us in very exciting directions like the Japanese did for the toilets, right? There might be some interesting consumer related inventions that will be coming out of China very, very soon. All right, James, you know what time it is. It's prediction time. As you peer into the future this week, what do you see?

Speaker 3:
[46:00] So I'm going rather bold this week, Alice. My prediction is measured in the hundreds of billions of US dollars. What I would like to say is that I think the gap between the total stock market valuation of China's top five technology companies, and the top five tech companies in the US, will close somewhat over the next year. In other words, the gap in the valuation will close. So just to give you a few numbers on this, the combined market value of the top five US tech companies, which are Nvidia, Alphabet, Apple, Microsoft and Amazon, was 17.8 trillion US dollars last Friday. And the market cap of the top five Chinese tech companies last Friday, those companies are Tencent, Alibaba, CATL, Xiaomi and PDD Holdings, was 1.48 trillion US dollars. So in other words, at the moment, the market is saying that the top five Chinese tech companies are worth one twelfth of the value of the US's top five. I reckon by this time next year, this is not a scientific projection, but I just feel that it shows the direction of travel. I reckon this time next year, it could be one tenth or something like that. So in other words, the Chinese companies will be worth more relative to the US companies, although of course, the US companies will still be worth far more in an absolute basis.

Speaker 4:
[47:39] Yeah. I mean, that sort of chimes with what could be happening in the US economy, where if you see an inflation prolong series of rate hikes, you might see the markets start to cool and then people get worried about the AI bubble in the Mag-7. I think that that chimes with, I think the directional travel of things in the US. So I could foresee that. So I'll be on the same side of that bet. So my prediction is a little bit more niche, but I think it's important and it picks up on the theme that we had a couple of episodes ago. And that is, the UAE has just said that it's potentially facing a liquidity crunch because of the oil crisis coming out of Iran. And it's asking, I think in some reports, the US administration to help with currency swap lines. A couple of years ago, I think, I believe in November 2023, China's PBOC agreed a 5 billion US dollar currency swap agreement with the UAE's central bank. I could foresee when that agreement ends, I believe in the next two years or so, it's a five-year agreement, that that number will be increased and will have a greater increase of CNY usage in the region, in FX reserves, in currency swap arrangements. I'm going towards this theme of not necessarily de-dollarization, but an increased presence of CNY in trade, in FX, in swap lines, in the Middle East region. All right. That's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts, so you don't miss an episode. Talk to you again next week.