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Then you also saw larger ads against a truck call app. It’s called Full Truck Alliance as well as Kanzhun, which is a major online recruiter in China. And I think that’s important because if you look at the Chinese tech sector, which is the most dynamic and innovative in the world besides the United States, it has been pulled significantly, I would even say mostly, by the private sector.
And China is a communist country. They engage in state capitalism. The State is therefore the main economic actor, but there is a dynamic private sector. And especially when we’re talking about innovation and the ability to attract world-class talent who work very hard and could work anywhere, it’s important to get that level of efficiency that it’s the private sector. . Well, the Chinese government is increasingly uncomfortable with the independence of many of these companies. And the main way for many of these companies to become more independent was to register outside of China and increasingly outside of Hong Kong as well. And for many, that means listings in the United States. Now, as the Chinese government is now sending a message that there is going to be a significant price to pay for Chinese tech companies listed outside of China, Mainland China, or Hong Kong, this is going to have an effect. very strong deterrent on any Chinese tech companies that are planning to do so, which will mean a much greater alignment of these tech companies to the Chinese government model, becoming national champions more in line with, say, Huawei, which is really headed by the state, integrated militarily. And they’re trying to make money, but first and foremost, it’s not really about shareholders. This is really what the Chinese government wants.
Now in the United States, of course, it’s a very different landscape. You have companies in the United States that are more aligned with the government in the tech space. Everything from Oracle to Microsoft to Anduril which is AI and drones together, for example, but then you have a ton of companies that are more traditional multinational corporations that are focused only on their shareholders. And Apple doesn’t work closely with the government in any way. And you have a lot of individual CEOs, tech CEOs, who increasingly feel like the most powerful individual players in the United States and in the increasingly digital space of the planet, Mark Zuckerberg, Elon Musk . Now we know that the Chinese government does not allow any Elon Musk to emerge in China. One of them did, Jack Ma, and the Chinese government basically defended it, but they hadn’t taken that stance towards Chinese tech companies. And now they are more and more.
I would say that there are some big questions that this brings into play. The first is that it makes it more likely that there will be a larger tech divide between the United States and China. Fewer Chinese companies with access to US investments and shareholders, more Chinese technology companies aligned with the Chinese government, fewer US technology companies having access to the Chinese market. They are the two largest economies in the world. These are the two technological superpowers. I would say more integration and interdependence is good. And that’s good because you ultimately don’t want to destroy things that you are interdependent with. So this means that there will be a greater sense of cooperation, even in the absence of trust. I think we are moving away from that.
But the other question, and this is a big question, is to what extent a Chinese tech sector that is increasingly controlled by the government, not just in terms of red lines of what they can and cannot can not do, not only state capitalism and industrial policy, but that the actors themselves can increasingly not be full-fledged private actors. Does this mean that the tech sector in China will become considerably less competitive and less efficient than it has been in the past?
And I think there is a danger. Granted, over the past 20 years, if you think about why tech companies are really successful, yes it’s access to capital, yes it’s access to data, but it’s also access to incredibly innovative human capital. The world’s best data scientists, technologists, entrepreneurs. And I think it’s true that there are some high-tech areas where it’s not important. And certainly, some of the advancements in artificial intelligence have been more about a lot of data and deep learning of that data, even at our highest rate, than about human capital. But in most sectors of the advanced economy, great technological advances do not come only from data and capital. You have to have the human element.
And as long as this continues to be the case, I believe the current direction China is taking will support political stability in the short term, but undermine the productivity and growth of China’s tech sector in the medium to long term. And I think monitoring that momentum is going to be of critical importance to the United States, China, and the world.
So anyway, tough news, scary news for those of us who are hoping that the US-China relationship can become more stable over time and not more confrontational. This is certainly not the direction in which we are currently heading. And I would also like to point out that these decisions were made right after the 100th Communist Party Congress and Xi Jinping’s big plenary session as people hoped that after that you could start to see more commitment, he all you had to do was take Xi through this important period when he needed to be more nationalist. I don’t think that’s true at all. I think structurally the Chinese government has, is, and will be headed in a much more national direction, in part because it thinks that is how it wins and it feels a lot more confident in its role model. Whether this trust is properly misplaced is a very open question.
In short, interesting stuff. I hope everyone is doing well. See you soon.