Dan Wang on China's Breakneck Economic Growth

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, we are recording this on August 27th. Did you catch the Trump cabinet meeting yesterday?

Joe Weisenthal (0:31)

Oh, I saw your tweets, and they looked like sort of the most obsequious. I mean, a lot of these are unusually obsequious, but even yes, I saw your tweets.

Tracy Alloway (0:43)

You could just say yes. So there were a bunch of things that stood out, but one in particular was Donald Trump talking about building out new energy capacity, and he said specifically, I'm going to quote here, you know, in China, they do it very quickly. They have one person that says do it, and that's it. But essentially, we have one person that says do it, and we've given that order.

Joe Weisenthal (1:07)

Yeah, you know, like, he's very abundance coded. He wants to like, he wants to get rid of all of the or he seems to have this impulse to get rid of all of the myriad checks and balances and all these things that stand in the way of developing things. So it sounds like Trump is abundance-pilled. I assume that's the direction you're going in.

Tracy Alloway (1:26)

Yes. If there's one thing I think you could say about China's economy and its political economy, it is that China is pretty good at building things, right? And we've seen various examples of that over time. Back when I was living in Hong Kong, I took the high-speed rail from Hong Kong to Beijing. And that was absolutely amazing. You get to Beijing in less than a day. The US is nowhere near having anything like that. And I speak as someone who takes Amtrak in the Northeast regularly. On the other hand, China at various times has produced too much, right?

Joe Weisenthal (2:00)

It's accused as such, right? I know that people say this.

Tracy Alloway (2:04)

Okay. But for instance, you think back to the ghost city.

Joe Weisenthal (2:08)

Sure.

Tracy Alloway (2:09)

Bridges to nowhere.

Joe Weisenthal (2:10)

Sure. They were bridges to nowhere at the time.

Tracy Alloway (2:13)

Amusement parks that no one goes to.

Joe Weisenthal (2:15)

Definitely. Although we have amusement parks here that no one goes to.

Tracy Alloway (2:18)

Disagree. Disagree hard. But this has sparked a new movement in China by policymakers called Involution, which is basically an attempt to reduce overcapacity in terms of building things.

Joe Weisenthal (2:32)

There's definitely no question that there does seem to be this phenomenon which the government in Beijing seems highly cognizant of, which is this profitless competition, much of it driven by the incentive structure that is borne by the provinces promoting their local champions. So far as much success as some of these companies have on some metrics, there's no money to be made in many cases. That sounds nice from the consumer perspective. It's like Zerpia 2010s when we were all getting cheap Ubers and stuff like that.

But there seems to be a risk of certain internal imbalances on that front.

Tracy Alloway (3:09)

I think the issue is you have a lot of companies who are basically producing all the same thing, and therefore racing to the bottom in terms of price, and no one can actually make money. I don't know about you, but if I was a startup founder, I would probably want to make money at some point. I would not want to be locked in a forever competition in terms of who could drive the absolute lowest cost.

Joe Weisenthal (3:31)

What if you were just a normal consumer who wasn't a founder?

Tracy Alloway (3:35)

Sadly, that is what I am. Well, on this note, we have the perfect guest. We're going to be speaking with Dan Wang, friend of the pod and who has just written a new book called BREAKNECK, China's Quest to Engineer the Future. He's also a research scholar at the Hoover Institution. Dan, welcome back to the show.

Dan Wang (3:54)

Thanks so much, Tracy. Really glad to talk about Moby Dick with my friends.

Joe Weisenthal (4:00)

Why do you cause trouble? Why do you cause trouble?

Tracy Alloway (4:02)

I was actually wondering if you were going to bring up the Moby Dick reference in the book.

Dan Wang (4:07)

Joe, I've been a d***head for a very long time, and maybe this is what we need to be getting into.

Tracy Alloway (4:12)

That's right. Simple question to start. Why does China like building stuff?

Dan Wang (4:17)

China likes building stuff because it is made up of leadership that is very heavily engineering-pilled. Many of them have been engineers-trained of a very Soviet sort, hydraulic engineers, electrical engineers, thermal engineers, which is kind of a term in China that means producing coal and processing coal. They treat the mega-project as the solution to every problem. They are building enormous dams. They're building a big new dam now that is going to use 60 times more concrete than the Hoover Dam. They're going to produce, I think, three times as much power as the Three Gorgeous Dam. But this is a lot of their solutions to a lot of different economic problems and social problems as well, that new highways, new homes, coal plants, hyperscalers, it's what they know how to do and it's what they're going to do.