China Decode: Taiwan's Record Defense Budget, Evergrande's Life Sentence, and China's Robot Boom

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2:11 What I found so fascinating digging deep into the data It's the fact that actually a lot of the robots Are not being bought by families or consumers. They're actually being bought by These government backed uh training centers. That do w what is called teleoperation training data.

2:31 So humans are remotely uh guiding these robots through physical tasks. And then they sell whatever data they generate from those tusks. Uh back to the robot makers to improve their AI. Welcome to China Decode. I'm Alice Hann. And I'm James King. In today's episode of China Decode, we're discussing

2:54 the largest defense budget in Taiwan's history, the man who built China's biggest property empire, who is sentenced to life in prison, and getting to the bottom of who is really buying and using China's humanoid robots. 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, markets were down thanks to a broad tech sector sell off, with news from Alibaba leading the sell off. The Shanghai composite was down zero point five nine percent. The Shenzhen component fell 2.13%, and the Hang Sang was down one point eight nine percent.

3:28 Biggest gainers included SinoPec, up over four percent. China coal up around three point five percent and ping an insurance up three percent. All right, let's get into it. We'll start in Taipei, where the government of Taiwan has approved a proposed twenty twenty seven budget this week that would push defense spending past one point one two trillion Taiwanese dollars or roughly thirty five billion US dollars. That's an eighteen point two percent jump from this year, but the budget still has to make it through Taiwan's opposition. controlled legislature. Well, James, before we get into the politics minutia, of whether or not this gets passed, this is pretty considerable

4:09 Given that If you recall, uh, earlier this year there was some speculation that Trump's fourteen billion dollar arm sales package would go through. It seems like he's paused that. Um it's unclear whether or not he's gonna revive that package in a time in which a lot of missiles and ammunitions are being used up in the Middle East. So the big question is, will the spending actually be significant for Taiwan's battle preparedness?

4:36 I'm a little sceptical when I compare Taiwan to Ukraine, for instance. What strikes me is the relative backwardness of the Taiwanese military and the lack of preparedness. There's a hundred and seventy thousand active troops in Taiwan, now three hundred thousand active troops in Ukraine Taiwan currently spends about two point one percent of GDP on the military. Ukraine seriously ramped up. In twenty twenty one spending as a share of GDP and that's gone up to forty percent, which is considerable to say the least. But beyond that, it seems like everyday Taiwanese people don't have the same s uh sense of

5:13 uh battle preparedness and and bellicosity when it comes to uh mainland China as the Ukrainians do towards uh Russia. Maybe I'm misreading this, uh, but I when I go to Taiwan I I and even mainland China, I don't sense a s you know, this degree of urgency that, you know, one would have sensed in the in the years leading up to the Russia Ukraine crisis. Maybe I'm misreading this. We can get into the specifics of some of the military equipment and hardware, which I think is considerable. But my big takeaway is that I just think that Taiwan is not will not be in the same place if war strikes that Ukraine has been. And Ukraine is really surprised to the upside the fact that it has been able to weaponize asymmetric capabilities It has, you know, really been able to dig deep into its population for

6:00 Both active duty and reserves. Um I think Taiwan might be a different story. Yeah, Alice, I mean my sense of this, the importance of this eighteen percent rise in proposed defense spending for next year. To me, what it means is that Taiwan's threat perception towards the mainland, towards China is rising. Um and I think we can also see that in the recent um military exercises that Taiwan conducted. The reason why, of course, and I'm sure all of our listeners are well aware of this, the reason why this is It this is such a hot topic.

6:37 Is because We have a three way dynamic here. You have mainland China on one side, and then on the other side you have Taiwan And the United States, and of course. In nineteen seventy nine

6:50 The United States signed the Taiwan Relations Act. Now this does not legally commit The US to use military force to defend Taiwan But what it does do is

7:04 It requires the US to provide Taiwan with the tools and arms needed for self defense and To maintain US military capacity. to resist threats against Taiwan's security. So it's a somewhat vague uh form of words. But If you ask me what it means is that it doesn't mean that Uncle Sam will be fighting alongside Taiwanese soldiers against China necessarily. Of course, the US

7:35 could choose to do that, but it isn't required to do that by this act. But what it does mean is that the US is very much involved in The arms that Taiwan needs to defend itself against A potential threat from China. And so that's the key background, and that's why I think both This uh new budget that uh that Taiwan is proposing and the military exercise that took place earlier on this month.

8:02 Okay because To me they both mean that the threat perception from Taiwan to China is rising. So the military exercises were really quite interesting. Uh they were super realistic this year. In the past Uh quite a few of these Taiwanese uh exercises have been somewhat ceremonial, but this year

8:26 The exercises went on double the length of time from last year. They lasted for about ten days. They were about twenty thousand to twenty Two thousand Taiwanese troops. Taking part. And the nature of the exercises were supposed to mirror or to echo the chaos of war.

8:45 It was being the exercise was being undertaken by Taiwanese troops with a decentralized command, and they were simulating urban warfare. Uh bridge and intersection defense. Uh, as well as a communication blackout drill in major cities such as Taipei. And the other thing that was being simulated was how Taiwan would respond to a blockade of the island by China. So you can see I I I think through the details of what took place in this military exercise.

9:20 That Taiwan is getting very serious. about preparing for an invasion. Now I want to be absolutely clear. This does not mean that there will be an invasion, nor does it mean that I am predicting an invasion. Uh I'm absolutely not predicting an invasion, but it shows that Taiwan is getting, I would say, much more serious and Uh To my mind, that's where

9:46 this budget, the increase of eighteen percent. taking uh this budget to above one trillion Taiwanese dollars. That's thirty one billion US dollars for the first time. Um and uh you know, I I I think it just shows that uh The Taiwan's getting more serious. Now, if you ask me, this is a natural response to the increased bellicity or pressure that Taiwan is experiencing from China.

10:16 The people's liberation army, that's China's uh huge army, routinely sends war warplanes across the median line of the Taiwan Strait. The Taiwan Strait is the the rather large waterway actually that that flows between Taiwan and the mainland. Um and also it's sending naval vessels close to Taiwanese waters. So mainland China has also conducted many large scale military exercises near Taiwan. So The temperature. On both sides of the strait, I would say, is rising. I think you made the excellent point, Alice, that this doesn't add up to any Clear and present danger as far as we know right now. Um?

11:01 Well, uh firstly, I agree with you, James, that right now the Taiwanese are getting more ready to let's be let's say put it this way, have a degree of self sufficiency military In military terms. Uh and the reason I say that is because I think that the say the policy on conscription. has been a pretty strong signal that they are more worried of the threat of a showdown. uh over Taiwan but with the mainland.

11:32 Uh, so before two thousand eight there was a two year mandatory uh military service. This is true of a lot of neighboring countries, whether it's uh you know You know, there's a there's a strong tradition of military service in a lot of neighboring countries in the region. If you look at South Korea and also Singapore. Then in twenty thirteen they phased that out or and m and replaced it with a four month uh conscription that was largely um, you know, for voluntary work. And then Just uh at l uh two years ago, so two thousand and twenty four.

12:02 They brought back one year military service. uh as part of the conscription program. Again suggesting that they the the the government, the Taiwanese government is getting more worried about the domestic combat readiness of the Taiwanese population. But I here I may differ from your assessment, James, so correct me if I'm wrong. I don't think it's so much the threat that they're perceiving from China as it is the threat of America withdrawing. Because you you rightly do pr you know, point out the fact that embedded in the Taiwan Relations Act, going back to nineteen seventy nine.

12:38 There's this degree of strategic ambiguity. But the U I think deliberately put in terms of the language, um, such that it is not clear what uh American involvement or deterrence would look like. If China did a blockade, a quarantine, or a full scale invasion. Uh and so within that gray zone, so to speak, uh the US has been, I think, largely happy to support Taiwan through arms sales.

13:02 Like I said, uh just now, we haven't seen the fourteen billion dollar, which would have been a record package, go through this year. I doubt it will go through, and certainly not before she got meets with Trump in the US, September twenty fourth. So then That builds a case for the Taiwanese to say, Hey, if if Trump and the US and and Brit Large are not going to back us and and they're not going to supply supply us with arms, then we've got to look to our own um population and to our own Industrial complex

13:32 For combat readiness and capabilities. And again, and this leads me to my next question. I'm curious if you have a thought on this. Іно, haveс фукраїн. for Taiwan because I think there are some uh parallels, you know, in terms of Uh Russia and China being significantly larger.

13:49 uh then ukraine and Taiwan respectively. Um uh Russia and China are nuclear powers uh Ukraine and Taiwan are not and similarly uh Ukraine and I think Taiwan will have to fight to some extent asymmetric war warfare given the Capabilities disparity. And here, just in recent years, it looks like the Taiwanese have shifted away from some of the traditional military equipment that they're getting from the US to developing their own

14:17 Indigenous anti ship missiles. Um, UAV drones, again, I think that's been a big lesson from Ukraine that actually drones can have a real asymmetric impact uh on on the battlefield and also s laying down sea mines as well to disrupt PLA. submarines and and carrier vessels. I want to get your sense of of that trend because Based on conversations over the years really, uh I think the direction of travel from

14:45 people that I've spak spoken to in Taiwan is that Hey, the Americans And not reliable allies. We need to look to ourselves. Yeah, I must say I have also heard that. Um

14:56 I've been to Taiwan a couple of times over the last couple of years and uh ha having uh I used to be based there and I've met Taiwanese people coming over here as well and uh That sense is definitely on the rise, I would say. The level of US commitment towards Stepping in. With military force.

15:16 in the event of a conflict between China and Taiwan, um, I I I would say the the level of Taiwanese confidence that that would happen is is declining, dwindling. Um, perhaps even dwindling sharply. But the truth is that we just don't know. Um, you know, this is a decision that will be taken by the US president and the people around him at the time of whatever conflagration occurs, and there are so many scenarios for what type of conflagration might occur between China and Taiwan. There's the full-on invasion scenario, but increasingly these days what we hear is um grey zone tactics uh a kind of a blockade or a partial blockade or a drawn

16:01 a a drone swarm over Taiwan or knocking out critical Taiwanese infrastructure and i issuing ultimatums. There are so many permutations as to Ch as to how China could uh decide to pressure Taiwan That it's very hard to give a a clear answer on how the US might back Taiwan in that instance. Uh So, you know, it it is just a very subtle and complicated and also evolving picture, I would say.

16:31 Okay, we'll be back with more after a quick break. Stay with us. Mm. Support for the show comes from ShipStation. Even in our digital age, businesses still need to ship real goods from real fulfillment centers to real people. Whatever your business shipping needs, ShipStation's AI tools can help you do it as efficiently as possible. ShipStation is an end-to-end order fulfillment platform for e-commerce businesses. It's powered by AI trained on decades of data from billions of shipments across the world. Because any AI model is only as good as the data it's built on, and Shipcenter's shipping data is second to none. ShipStation adapts to your unique business, alerting you when stock is low, recommending the best carrier selection and rates, and automating tasks to save you time.

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19:12 Welcome back. A court has just closed the book on one of the most dramatic corporate collapses in modern Chinese history. The founder of China Evergrande. Xu Jian was once China's richest man and has been sentenced to life in prison for large scale financial fraud. James, I remember many years ago that you know Shu Jin would be on TV, be on the cover of magazines. This was um

19:38 For a period of time you might have been been the richest man in the world, but certainly the richest man in China. And his story was really the story of the rise of real estate developers, private real estate developers in China. in the early two thousands, uh, going into around twenty twenty one. And here we we see a real breaking point.

20:01 in the industry and in the fate of Evergrande. As I recall, you know, just before the real estate crackdown, Evergrande You know, in Hay Days was uh not just a real estate developer, it was also issuing issuing wealth management products. It was in the financial sector. There was talks about it creating its own electric vehicle, its own automobile. So it really was ex ex you know, expanding into a conglomerate across sectors and was a huge part of of China's um vibrant private sector. But there was a lot of financial Scandal associated

20:35 With this company. Um At some point there were people who were trying to get their money back from these wealth management products that were uh effectively a form of financial fraud. So it it isn't surprising that um That this guy, Shujaim has basically been issued this sentence of life imprisonment and it's a signal that uh

20:57 Not only Is uh the central government unhappy with a lot of the financial fraud, but also I think the political corruption. that the private sector has unleashed. You know, if if in previous discussions we've talked about the uh you know the corruption that has happened at the local government level between the private sector and local government officials. This certainly was the case through most of the early two thousands, two thousand tens.

21:23 So you know, this is I think the final chapter of uh what was once one of China's biggest uh real estate developer stories. What's your take on this, James? Because you also lived through much of this period too, the heydays. Yes, uh I I I lived through the the heady days of Evergrande and also the downfall of Evergrand. I was in Hong Kong at that time. Uh and you know, my first reflection is my goodness, how the mighty fall uh Xi Jaiin, as you said, was China's richest man at one point. Um And my other reflection, following close on the heels of that, is

21:56 This is a cautionary tale that is relevant today. Uh, we've got a lot of money piling into uh Chinese. Uh technology stocks and other types of stocks. both in Hong Kong um and in Shanghai and the Shenzhen market as well. And you do have to wonder how many fraud cases are lurking beneath the surface in some of these star Chinese stocks. Um And the reason I say that is because Evergrande was a an investor darling. You know, it was a huge company. Uh it was, I think, the most valuable real estate company.

22:34 In the world. Ансотвое скал. PwC, which is a British accountancy company, acknowledged that its audit work for China Evergrand Group fell unacceptably below expected network standards. And this auditor, PWC, was separately fined sixty two million US dollars by Chinese regulators and a hundred and sixty six million US dollars

23:06 by Hong Kong authorities, uh that was in April twenty twenty six, for its role In signing off On the inflated financials that uh the Evergram group had put through. And when you look at the numbers involved here of those inflated financials, they really are quite stunning.

23:26 Because the regulators found that the flagship unit, uh, which is called Hungar Real Estate. inflated its two thousand and nineteen revenue by two hundred and fourteen billion Remin B, um, and it's twenty twenty revenue by three hundred and fifty billion Remin B. That's seventy eight percent of the total revenue recorded. So we're talking really big numbers here. I mean this is a this is a major issue. What I would uh want to say about how relevant this is today

24:03 Is that you know A lot of money is piling in. Are there other frauds lurking beneath the surface uh that we don't know about? Of course, we don't know about them. We didn't know about Evergrande at that time. Uh it's hard to overestimate what a darling Evergrande was at that time. The whole world knew about Evergrande. Su Jay Yin himself was a

24:26 flamboyant character. He had Uh uh an immunology center at Harvard University was named after Evergrande. Uh, Sijayen had bought a professional football club. He'd expanded into sectors such as EVs, bottled water, entertainment. He donated, as I said, to uh elite educational establishments around the world. So this guy had everything going for him. He was riding high. And now as the house of cards has collapsed, We see what it was built on. Um so

25:01 Uh I I I do think it is relevant for today. I'm not trying to spook people by suggesting that all Chinese stocks are are fraudulent, but uh This is a big, uh uh big case of fraud. Yeah, and it it affects the local governments, right? You know, at the at its height, and this is pre cracked out in around twenty twenty one on the real estate sector, the there's some good economic data that it suggests that the real estate sector and real estate related activities, including construction And services uh About

25:32 as much as thirty percent or were as much as thirty percent of the GDP. This was pre-2021 crackdown. So this is a huge part of the economy. It's also a huge part for a low lort of local governments. And here the Evergrande story became I r I remember writing a piece about this When Evergrande first defaulted on its bonds back in twenty twenty-one, there was a big question about whether or not this was a lehman crisis moment for China. Uh, in the the sense that again, here you saw a property related bubble that could have macro contagion effects on um and also find financial contagion effects. Uh but what has been clear sin is that effectively local governments have been forced to buy up um some of the liabilities they've been forced to make good on some of the projects that Evergrad and other real estate developers left behind. But the the sum that of liabilities is astonishing.

26:27 Total abilities uh that Emer Evergrand uh b defaulted on was three hundred billion dollars. It's still the world's largest corporate litigation for the property sector. Uh and home prices haven't really recovered since then. Home prices are still by some metrics twenty percent from their peak, uh and this was b back in around twenty twenty. So The story of Evergrad is not just the story of the fall of of Shu Jain and other You know, big

26:54 Chinese private developers. It's the story also of the real estate sector really being taken down. uh by these crackdowns from the central government. And I don't think we're gonna get back to the heady days, as you call it, James, of the you know, the roaring two thousands, two thousand tens. Uh, because it's clear that r uh right now the central government, Beijing that is doesn't really want to see the property sector um reflate into the bubble that it it was pre twenty twenty one, right? Absolutely. Um, I think uh these days are gone. Um

27:26 Now uh a lot of the uh attention in the Chinese stock market and uh a lot of the investors' intention are in new technologies such as EVs and batteries and renewables and and other things like that. Um Also, robots and AI and uh all of these uh new technologies are attracting a great deal of interest now. It seems like property is yesterday's story, but at the time The property sector accounted for nearly thirty percent of Chinese GDP. Um, and a lot of people, uh a lot of economists and e economic historians have said that The collapse of the Chinese property market is probably the biggest ever Property bust.

28:09 in history exceeding the Japanese property bust of the nineteen nineties and even The US housing sector collapse in the run up to the two thousand and eight financial crisis. So we can't really overestimate the size of this thing and the impact that this property collapse has had on the Chinese economy and

28:31 Evergrande is the symbol of that collapse. So it really is a very important story. And I believe that it's also a a cautionary tale to the Chinese authorities. Perhaps there's something here about an authoritarian system's blind spot. You know, when everything's going well in an authoritarian system and somebody like Shu Jayin Is cock of the hoop. He is extremely powerful. People pay deference to him. He's got more money than Crisus, you know.

29:03 Uh It's hard to bring somebody like that down. Um China is I would say it's itself a a deferential uh uh culture and it's uh certainly deferential to people with plenty of power and money. So maybe there's something there, perhaps others will disagree with me, but perhaps there's something about the relationship between authoritarianism and governance as well. Yeah, I I and

29:30 To add on to that. Uh Excellent point, James. The uh the other issue that we're seeing, and it's not just in the real estate sector, but also in robotics and EVs. In any kind of sector where there are hits or or real um sh shapes of a bubble

29:48 And that is that the local governments are incentivized to create their own local champions, so to speak, right? There's a there there was a period a couple of years ago when it seemed like almost every major province had its own electric vehicle. Now we've been in through a process of involution where some of these EV companies and and solar panel companies and wind turbines before them have gone bankrupt. So we've had more market consolidation. But in general, part of what makes China very bubbly in sectors like the real estate sector and robotics, which we'll get into, is the fact that you have a lot of local government competition and local governments trying to prop up their own local champions. I think that's Not understood as well.

30:30 in other countries because China's system is, yes, authoritarian and centralized, but it is actually is quite distributed in in terms of uh output and and and um industrial performance across different provinces. That are competing with each other. Арай, лет'я один лас кставить. Mm.

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33:13 Terms and conditions apply. Support for the show comes from Chime. Summer can cost a lot, a trip here, a dinner there, a couple concerts, it all adds up. But if you really want to elevate your summer and your summer's to come, you need to be getting the most out of your money. And that's what Chime is for. Chime is not like a traditional bank. Chime offers the most rewarding fee-free banking with the power of the word no. No overdraft fees, no monthly fees, and no minimum balance fees. You get five percent cash back with chime cards on things including gas or groceries, all while building credit through regular everyday spending. You can also grow your money faster with a savings rate that is nine times the national average, and If you're ever in a pinch, SpotMe lets you overdraft up to$200 fee free. Join the millions who are already banking fee free with America's number one choice for banking. Head to chime.com slash prof G.

34:08 That's Chime.com slash ProfG. Sign up now, it takes only a few minutes. Chime is a fintech, not a bank. Banking services and Chime card provided by Chime's bank partners, qualifying direct deposits required, terms and limits apply, go to Chime.com slash disclosures for details. Welcome back. China's humanoid robot industry has become the biggest flex China has when it comes to its high tech manufacturing sector. Just this week, a Chinese humanoid robot ran faster than Usein Bolt. Breaking his two thousand and nine one hundred meter dash record. With a caveat that It then ran into a wall and had to be carried out on a stretcher. Chinors reportedly account for something like ninety seven percent of humanoid robots shipped globally in

34:55 in the first half of this year, and Chinese buyers absorbing roughly eighty-five percent of global demand. I do have to say Usain Bold is still more charismatic as a runner, but it was amusing to watch these robots run. You know, we've seen a couple of uh videos in the last few years of you know, dancing robots, uh From Unitry, now these robots running marathons, now doing sprints.

35:19 Uh it points to I think the fever pitch in domestic I enthusiasm for robots. But what I found so fascinating digging deep into the data was the fact that actually a lot of the robots are not being bought by families or consumers. They're actually being bought by

35:40 These government backed uh training centers. That do w what is called teleoperation training data. So humans are remotely uh guiding these robots through physical tasks, and then they sell whatever data they generate from those tasks. uh back to the robot makers to improve their AI. Um so in a way it's this kind of circular model as opposed to uh you know direct to consumer or going directly into factories uh to replace workers. That those are happening, but the blind share, it seems, the demand is as being fed into other sectors of the AI robotics uh economy. I thought that that was super interesting. And that ch then Chinese domestic demand is still the lion's share of Of of the r of robot demand coming from China. It's we haven't yet seen an upswing globally, but I think it's only a matter of time.

36:33 Just as it we've seen for EVs before it. Yeah, I mean, um I I also love these videos. I remember last year that there was that rather uh v uh sad video of a robot uh running a race in China and it fell over and its arm fell off, and then it got up, it staggered back to its feet, and it finished the race, and it had the the wires flapping uh from from the arm that it had lost. And it was almost illicited sort of human feelings towards the robot. I I felt quite sorry for it, you know. But back to the main point on this Is the business model for humanoid robots in any way sustainable? Uh, or is this just another big bubble? Um

37:14 You know what, my sense of this is that It's a little bit like the early days of Amazon. I can remember when Amazon was not making any money and everybody was saying, Oh, you know, I don't know if this internet uh will ever catch on, not sure about selling stuff over the internet. And now we see I think Amazon is capitalized at close to three trillion US dollars. Um, my sense is that there will be a market for humanoid robots, a big, big market. Uh it's just that the technology has not yet caught up with the opportunity. Um

37:52 And I I would say that what's happening at the moment is Rather interestingly. that the phase of market development is focused on Training robots So that the robots themselves

38:07 can turn themselves into a technology that people actually wanna buy. You know, um, and I think that a lot of these training centers um and the universities and others in China that have bought these robots, what they're really trying to do is to sell the training data. That they get from the robots.

38:30 And it turns out That this training data is actually really quite expensive. Um Something as simple as a five minute robot dance. I mean we've all seen the robots do the dance and all of that. But if you want to buy the data.

38:47 that underlies that five minute robot dance you can you might be paying a million R for it. That's a hundred and forty eight thousand US dollars. So that illustrates how much of a gold rush there is right now. for humanoid robot training data.

39:07 And the reason there's such a a gold rush for that is because Everybody in the industry well, I don't know about everybody, but a lot of the big names in the Chinese industry are transfixed by a point in the future. And that point in the future is being called the chat GPT moment. for humanoid robots or for embodied intelligence. And that

39:31 Effectively is when you can just say to a humanoid robot without pre programming it, you just say Do this or do that. And it will be able to do about eighty percent of those tasks. That moment, which is called the chat GPT moment. for humanoid robots is estimated by one Sing Sing He's the CEO of this

39:55 Unitry Robotics, that's the leading humanoid robot company in China. He reckons That that breakthrough could take two to three years optimistically or Not so optimistically, up to five to ten years from now, one her who is uh founder of the Chinese robotic startup Galbot.

40:17 said that he reckons the chat GPT moment will arrive. By twenty twenty eight. Um and you know, so obviously he's a lot more optimistic the Wang Sing Sing So To me this is key.

40:30 Because After that moment has arrived, I can see so many use cases for humanoid robots. They can follow commands. That are issued off the cuff. They can adapt to their real time situation without endless

40:45 pre-programming to do narrow Tasks. Um So it all depends. When is the chat GT GPT moment coming? If it's gonna come soon, then I would say we're gonna see revenues for these uh robot companies rise sharply. But if it's gonna take ten years, I think a lot of these companies are gonna be in the wilderness. They are not going to have Uh strong earnings.

41:11 I love the fact, James, that you talked about the chat GPT moment for the r humanoid robotic space and here It reminds me of of this divergence that we're seeing in the debate on world models. So effectively Um, you know, the then the next generation I think of AI that goes beyond the um LLMs that we are currently experiencing with ChatGPT and Claude. to the physical AI space where, you know, robots

41:40 and other devices are interacting with the real world uh and and delivering and delivering intelligence and knowledge based on uh the physical world. Uh right now there's a debate as to whether or not you go the route of on the one hand, regenerating and simulating the details of the real world and using that to train the robots on, or if you uh f create an abstraction or prediction model of the world and use the robots to train on that data. uh Yan Le Con, for instance at Army Labs or Fe Fe Li at uh um in her own world model startup, they represent, I think, the very differing approaches between the two. Uh in China, I sense that they favor uh, you know, the idea of re simulating the world and getting the robots to train within that. Yung Tree CEO Wang Xing is saying that He really wants China to be a leader in the embodied AI space and is ha has an open source ecosystem for that, for the training of robots that would

42:36 obviously be open uh to the public to view. So I do think that this is actually quite important in this bigger debate of where we land. in the embodied AI and physical AI, especially if we see China leading uh in terms of its models. Right now a lot of it is still in the early stages of R D. So for a company like Unit Tree that just IPO'd uh nine hundred five million dollar IPO And really is a darling of China's robotic sector. So their twenty twenty five revenue was two hundred and fifty-two million US dollars, and seventy five percent of that, around seventy five percent of that was for research and education, as opposed to industrials and consumers.

43:16 Now that'll probably shift over time, but that suggests we're that we're still in the R D phase of trying to figure out how do we actually deploy the data. But also the um the models that have been generated from this embodied AI space. um how these Chinese companies like Spirit and Unitry are are doing um globally. Well I mean I think they there will be a a market if um, the security agencies in various countries allow there to be a market. I notice that the US is

43:49 Just crack down on allowing imports of Chinese humanoid robots into the US. So we'll have to see what Europe does. Um, but overall, I mean, you know, there should be a market. Um all over the world if the price of these humanoid robots comes down. I note that unit unitry does make one humanoid robot for slightly over five thousand US dollars

44:14 Uh the last time I checked. So that seems like a a price that quite a few companies might be willing to pay. And so, you know, I I would say this is a This is uh a really a fast evolving space. But back to the big question of whether or not this is a bubble Uh if you look at what's happening around the eye catching uh companies such as Unitry, you see what appears to be, I mean, it has to be a bubble.

44:43 There are nearly Three hundred and seventy robotic startups in China um and over fifty of them are planning to uh list on the stock market, um, uh, you know, it do initial public offerings on V various different stock markets. Uh that seems to be quite impossible. I can't imagine

45:04 that that number of startups would flourish in a competitive environment and I can't imagine that we'd have that many companies listing. So I'd say that that aspect of the industry certainly looks like a bubble, but Then we go back to Unitary itself and It's listing on the Shanghai Star Market. uh gave it a fifty billion US dollar valuation after a six hundred percent surge

45:34 uh in its stock price. So uh you can see there's a lot of demand for this. This has really caught the imagination of the Chinese investing public. Yeah, I think the big question as to whether or not it becomes a bubble is w is what you just alluding to, James, is W well Will Chinese robotics companies be able to find a market outside of China? Because if you look at any

45:59 Form of bubble. in the industry, whether it's the real estate sector or uh you know wind turbines, solar panels, EVs, batteries. Uh you know, a huge um influence on whether or not it becomes an us unsustainable bubble is the extent to which China can re export or export to the rest of the world.

46:19 Uh it remains to be seen. It could be Um, and this is not a solid prediction, but it could be that that robots become a geopolitical um bone to pick, it becomes more problematic than EVs, for instance. uh or phones uh given

46:37 The sort of closer human interaction or you know, humanoid aspect of it. But but we'll see. And I said maybe consumers will be a little bit more freaked out about it, but uh it remains to be seen. And w we'll certainly be interested to see where Europe lands on this. What is the feeling in Europe now towards the the the humanoid robot masses coming from China? Well, I mean, I don't think they've really started. Um, I've rarely seen a humanoid robot in Europe. I think I've seen one. Um So I don't think

47:09 It's begun yet. Um Uh and you know Europe has been a lot more open to Chinese technology than The US has um Look at

47:22 the you know, the policies towards EVs and the way that EVs are flooding into countries all over Europe and uh into the UK as well. So my sense of it is that maybe to start with, Europe will be relatively open to Uh the humanoids. But then all kinds of questions about data security inevitably crop up. And about the impact that

47:47 um of of cyber espionage. Um, you know, are these humanoids gonna be talking to your wifi? Are they gonna be hacking into your computer? Do they have backdoors? Are there sensory modules? All of these questions that seem to dog every type of technology that comes from China, I wouldn't be surprised if they get raised as well with regard to humanoids, but that's Just A a while in the future, I would say.

48:15 All right, James, you know what time it is. It is prediction time. As you look into the future, what's your prediction for this week? Okay, I'm going back to uh exports. Uh we've just been talking about exports of various Chinese goods. Including humanoid robots and My sense is that this year is gonna be another bumper year. four Chinese exports in total. Um I would say that this year

48:41 Uh for the full year They may uh Chinese exports could total about four point four trillion US dollars. That would be up about eighteen percent from last year. And I also think that the Chinese trade surplus is likely to exceed, but not not by a huge margin, but uh

49:02 Nevertheless exceeding. last year's record of one point two trillion US dollars. That's obviously a very politically sensitive number between China and its Trade partners, whether that trade partner would be the United States or the European Union or and other countries around the world. So

49:21 I'm focusing in on that, as you mentioned, Alice. Exports are a vitally important part of the Chinese economy now. China really needs these exports because the rest of its economy or or significant parts of its economy are not performing well at the moment. So they need the boost that they can get from exports. Yeah. Yeah, very interesting. So my prediction and it's on the back of uh she Trump meeting that is expected to happen in the US on September twenty four.

49:51 uh is that we'll probably see an extension of the TARF truce that is uh set to end in November. Uh and that even though we have In recent days, the threat of secondary sanctions on China. the threat of now overcapacity tariffs on China. that in general, I think Trump will continue to uh play nice with the Chinese because if you look at his foreign policy record elsewhere,

50:19 He's gonna need a diplomatic victory, and I think he's gonna look to Xi and and good relations with China in order to offset some of the negatives on the foreign policy record. He's also got the midterms that are coming up. Uh so in general, I think the meeting will go ahead, even though in in recent days there's been speculation that more pressure will be applied on China. And I do think that that Trump um will probably continue to be soft on on the trade issue, uh, and maybe even on aspects of export controls. 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, and we'll talk to you again next week.

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