Podcast: Ain't Nuthin but a 5G Thang with Keyu Jin

TRANSCRIPT: Ain't Nuthin but a 5G Thang with Keyu Jin

Keyu Jin:

China recognizes that it has taken a lot from the global system. It's time to give it back, whether the world is skeptical of that view or not.

Ian Bremmer:

Hi, I'm Ian Bremmer and welcome to the GZERO World Podcast. It's an audio version of what you can find on public television, where I analyze global topics, sit down with big guests, and make use of little puppets. This week I sit down with Keyu Jin, she's a professor of economics at the London School of Economics, who knew, and a leading expert on all things China. Today we'll talk about US China relations, that pesky trade war, and how the race for 5G fits into the mix. Let's get to it.

Announcer:

The GZERO World is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients' needs first, by providing responsive, relevant and customized solutions. Visit firstrepublic.com to learn more.

Ian Bremmer:

Keyu Jen.

Keyu Jin:

Hi Ian.

Ian Bremmer:

Professor at London School of Economics. Wonderful to be with you.

Keyu Jin:

Thanks, Ian. Good to see you.

Ian Bremmer:

What will the Chinese do, in your view, to create more independence and self-sufficiency in Chinese technology?

Keyu Jin:

They've already done it. Now there's an excess supply, or excess amount of resources devoted to R&D to make Chinese produce their own chips. So it's already happening.

Ian Bremmer:

But how? What's the timeframe by which you could actually see Chinese technology as being more or less broken from Western supply?

Keyu Jin:

Ian, the technology scene is so crazy, and dynamic, and amazing in China. And here we're not just talking about internet and consumer e-commerce, which is at the forefront of the world, even in some ways more advanced than in the US. Two out of the four or five areas in artificial intelligence is ahead of the US. This is not including some of the very high-tech areas. Even military technology is rapidly converging. Now, there are many domestic factors that's contributing to that. Of course, the government is able to mobilize a large amount of resources for R&D, but actually a lot of this innovative activities is powered through by the three big internet companies, BAT, Baidu, Alibaba, Tencent.

Keyu Jin:

It's very interesting that it paints a very sharp contrast with the large American companies. Some have argued that they have, to a certain extent, suppressed some of the innovative activities because of the higher concentration over time, and their monopoly over the process innovation. In China, it's just the opposite. Ali is funding the smart cities in China. They are investing in R&D and financing lots of small companies on their ecosystem. So there are two misconceptions. One is that Chinese technology is all about copying and no innovation, that's no longer true.

Ian Bremmer:

It was true-

Keyu Jin:

It was true.

Ian Bremmer:

But it's not true today.

Keyu Jin:

It's definitely not true today. And second is that the government is the main backer, is the major driver of a Chinese innovation.

Ian Bremmer:

Can you say, if the Chinese are cut off from Western 5G, if Huawei is banned from the United States and from European countries, and as a consequence, the global technology market is not global. But instead you have Baidu, Alibaba, Tencent's on the Chinese side, and you have Google, Microsoft, Amazon, Facebook, a few others on the American side, it's hard to see how that's better for China. Hard to see how it's better for the United States-

Keyu Jin:

For the world.

Ian Bremmer:

Right. But hard to see how it's better for China. I'm having a hard time understanding that. I get the fact that China needs to do some reforms and that this is pushing them to do reforms. But it's hard for me to paint a picture that this is uniformly good for China.

Keyu Jin:

On the technology, in the technology sphere, clearly having two separate digital infrastructure technology ecospheres in the world is clearly inefficient and costly for everybody, and for China as well. But the Chinese government realizes that it's very possible that the exchange of knowledge, flows of ideas, technological, let's say sharing, could potentially really stop. The Google, Facebooks, Microsoft hire a lot of Chinese students, and then they return to the US pushing through a lot of these innovative activities, that can all just stop. So the Chinese is braced for those kinds of outcomes. That's not to say that it has to be the ultimate consequence, but they are prepared for that. And we agree it's highly costly for everybody, but Huawei, Huawei is going to be just fine, because Huawei has a huge Chinese domestic market. All these tech companies will be just fine just occupying the Chinese market and bits and parts of an emerging world.

Ian Bremmer:

Now Keyu, you've said that China's responding to the Trump administration on a lot of this, and I certainly understand that in terms of the buying soybeans and financial sector openness, maybe other sectors as well. But when we talk about technology, the decision to launch an AI 2025 plan came before the tariffs were announced by Trump. And of course the fact that Facebook doesn't do business in China, Mark Zuckerberg even learned some Mandarin, and he-

Keyu Jin:

That's good effort.

Ian Bremmer:

... ain't allowed in. So it doesn't seem like the Chinese are very interested in having a single technology ecosystem globally. Is that correct?

Keyu Jin:

It is fair to say that information sensitive internet companies have had a lot of trouble in China, and there was government intervention, but that is certainly not the case for companies like Amazon and eBay, which were simply out competed by the domestic companies. Now, Alibaba was one out of 12,000 e-commerce platforms. Meituan, a group-buying business, was one out of 6,000. It drove out Groupon. The competition is so ferocious, and partly, interestingly enough, it's due to the lack of intellectual property protection in the domestic economy. There's so much imitation that these companies have to constantly innovate, perfect their business models and be ahead of the curve. So they completely drove out, by sheer competition, the foreign firms. So we can't categorically say that the foreign technology companies simply failed because of government intervention. There are many, many examples, and I think industry experts will agree that domestic competition was too fierce for them.

Ian Bremmer:

So when we think about the role of the Chinese government in the economy and with the private sector, and you say it's not that the Chinese government controls all these companies, but how do we think about it? Because the Chinese government is of course developing a very strong industrial policy. They think of technology as critical strategic sector. They are talking about how they're rolling out smart cities and they have national champions. In the private sector, for these... should we think of these companies as not quite private, not quite state, but some sort of hybrid? Is that a better way of thinking about them?

Keyu Jin:

Industrial policies have worked to a certain extent in China. It might also work in other countries. Other countries should feel free to pursue them-

Ian Bremmer:

But that's good of you to offer, right? Absolutely.

Keyu Jin:

I always think about if the Chinese want to fund everybody else to consume cheaper electric cars and cheaper technology, why not let them do it?

Ian Bremmer:

Now, you mentioned before that intellectual property is something that the Chinese are prepared to treat differently going forward. I certainly understand why the Chinese government would want to say that. I understand why they would want to ensure that IP is more respected for Chinese companies that are more competitive with each other. But what is the real incentive for the Chinese to actually create standards of strong, independent intellectual property for Western firms?

Keyu Jin:

The intellectual property-

Ian Bremmer:

They clearly haven't, right? Thus far.

Keyu Jin:

That's right. To be very honest, my thoughts are the following. Number one is China recognizes that it has taken a lot from the global system. It's time to give it back. Whether the world is skeptical of that view or not is an open question. The second reason is that China really needs to enter a new stage of development, which is based on technology, which is based on innovation, and intellectual property protection is absolutely crucial and critical.

Ian Bremmer:

So how optimistic should we actually be about the Chinese economy right now?

Keyu Jin:

Ian, two years ago, the world thought China was a ticking financial bomb. They were almost certain there was going to be a financial implosion, because of the explosion in debt. Now, what we're seeing in terms of slowdown is a simple economic consequence of de-leveraging. If you look at the various sectors, the corporate sector, the financial sector, the leverage ratios have really come down. So that means that, in my view, China is slower but safer as compared to a few years ago. That said, it's not that there's no fundamental problem with the Chinese economy. There are plenty, and the crux of the matter here is the financial system. Chinese financial system really sucks.

Ian Bremmer:

Well, if you can't force a bankruptcy with assets that are clearly not productive, and historically in China, that has not been feasible for political reasons.

Keyu Jin:

There are lots of agency problems, incentive problems, associated with bank lending because the equity markets and bond markets are nowhere near efficient. Bank lending is still the dominant source of funding for these private firms. And what we see right now is that the financial system is not a channel that directs and allocates resources to the productive firms. And that is really the problem. If you can actually make that conduit much smoother, then there's a huge amount of productivity to be unleashed in the private sector.

Ian Bremmer:

That does imply a lot less political control of who gets the cash and who doesn't get the cash in China, doesn't it?

Keyu Jin:

These are all very important things, absolutely.

Ian Bremmer:

Yeah. So at the end of the day, one of the things that I find very interesting is that you have much more innovation in the Chinese economy today. You have certainly some world-beating technologies that are being developed in China. You certainly have a lot of long-term strategy, but you also have political consolidation. One thing that you would say, certainly in the five years since Xi Jinping has been president is that, if anything, there's more consolidation of power under an authoritarian system than there was when he first came in, and even more so last March when he decided no more term limits. How do you balance a stronger top-down system of political control with the kind of economic loosening and vibrancy that you're talking about as an economist?

Keyu Jin:

That's a fantastic question, Ian. First of all, the legitimacy of the party was brought into question because of the massive amounts of corruption, that it weakened and debilitated the country before Xi took over. And because the political corruption have weaved into networks, deeply entrenched networks, it would've been-

Ian Bremmer:

Local party officials.

Keyu Jin:

Local parties, yeah.

Ian Bremmer:

Military leadership.

Keyu Jin:

It's all a-

Ian Bremmer:

Key ministries.

Keyu Jin:

... web of interconnectedness. To fight anti-corruption, you need to break that net. And no matter what we think about political consolidation, that was a necessary condition for that to happen. Now it's a great question to how do we balance that and economic vibrancy, part of-

Ian Bremmer:

Well, before we get there, because we haven't quite finished the political consolidation, because anti-corruption gets you over the last four years, but no more term limits. That's after anti-corruption has already run its course. So individuals frequently decide that they like power and they want even more, not necessarily all according to plan. Like when people ask me anti-corruption, was it about more power for Xi Jinping or was it about anti-corruption, the answer is yes. Right?

Keyu Jin:

I'm going to give you a different view from what we usually hear Ian. It takes time to do stuff in China. It really takes many, many years to do something, and you know China has a long term view, but still, it really takes time.

Ian Bremmer:

Do we think that the Chinese entrepreneurial sector has today anywhere close to the animal spirits that we have in the United States or in traditional capitalist societies?

Keyu Jin:

Some of it for sure, P2P platforms. There were many, many of them, and many became problematic. So the government had to step in. The government's approach is, you guys just first do what you want, because you guys know what's best and you guys are smart. If there's a problem, we're going to come in and intervene. But they don't stop you from the beginning, because they know it's these companies that's powering Chinese growth, that's producing some of these national champions. But is there an over-optimism? Absolutely. Are we in a bubble? Maybe.

Ian Bremmer:

Were you surprised Jack Ma suddenly kicked it over?

Keyu Jin:

He's been around for a long time and he's onto doing more impactful things for society. I think that's a good move. In China, we don't have enough philanthropy. So I think it's-

Ian Bremmer:

You buy that story? I mean, three months before that announcement, that wasn't the plan. You buy that story?

Keyu Jin:

He's very active in the education-

Ian Bremmer:

You buy that story?

Keyu Jin:

Buy what story?

Ian Bremmer:

That this was not politically pressured for him to step aside, as a man that was increasingly revered in Chinese societies, as an independent power base that was a little separate from.

Keyu Jin:

Well, Alibaba's going to stick around with or without Jack Ma. So we'll see what's going to happen after he leaves.

Ian Bremmer:

So you're not sure.

Keyu Jin:

I have no information based on that hypothesis, so I'm not going to make conjecture.

Ian Bremmer:

That's fair enough. Keyu Jen, professor at London School of Economics, wonderful to be with you.

Keyu Jin:

Good to be here, Ian.

Ian Bremmer:

That's our show this week. We'll be right back here next week same place, same time. Unless you're watching on social media, in which case, it's wherever you happen to be. Don't miss it. In the meantime, check us out at gzeromedia.com.

Announcer:

The GZERO World is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company places clients' needs first, by providing responsive, relevant and customized solutions. Visit firstrepublic.com to learn more.