Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: My guest today is Dan Wang. Dan is a technology analyst and author who spent six years living in China studying its manufacturing ecosystem and tech development. Best known for his new book Breakneck, Dan offers the most nuanced framework I've encountered for understanding US-China competition. We explore a critical asymmetry: it's far harder for the US to rebuild manufacturing capacity than for China to improve scientific research, with profound implications for AI, national security, and investment returns. For investors, Dan explains the ByteDance problem—why exceptional Chinese companies trade at massive discounts due to Communist Party unpredictability and geopolitical risks. He argues China is a high-agency society that executes relentlessly while America deliberates endlessly. We discuss innovation, state capacity, and investing across both superpowers. Please enjoy my great conversation with Dan Wang. What was the title of your book before Breakneck? [00:00:00] S1: We had a series of titles, and the one that I thought would make the most sense was Move Fast and Break People: China's Quest to Engineer the Future. [00:00:00] S0: Publisher did not like that one? [00:00:00] S1: Too much like Facebook they thought. They were right. And I think Breakneck is a nice, snappy title. I love that it mostly has a positive connotation. We made the vaccines at breakneck speed. We built the bridges at breakneck speed. Yet look at that coil of violence inside the title. I think this one worked. [00:00:00] S0: What about breaking people is relevant though?
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: What about breaking people is relevant though? [00:00:00] S1: I think the part of China that I object to the most is that, for the most part, physical dynamism in building a lot of new things—bridges, subways, highways, new homes, hyperscalers, whatever else—has some problems there, but is mostly pretty positive. The fundamental problem with China is that they're not just physical engineers, they're also social engineers, and they treat society as if it were just another building material. And I object strongly to their practices around ethno-religious minorities in Tibet as well as Xinjiang. I object strongly to the one-child policy, and I thought that the Zero-COVID policy was also a disaster. I think the issue is that when they feel the need to run roughshod over people—whether that's to build a giant dam like the Three Gorges Dam, which displaced around a million people, or if it is to build a really great train track, or if it is to stop overpopulation as they imagined it throughout the 1980s—they barely hesitate to do what are some pretty brutal measures. [00:00:00] S0: Can you teach us the origins of that aspect of their society?
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Can you teach us the origins of that aspect of their society? [00:00:00] S1: So China's a country I call the engineering state, because they want to engineer the physical environment, the economy, the people as well. And I want to be just pretty playful with this framework that they're a country of engineers. In part, the roots are from the fact that in recent years, if you take a look at the most senior leadership, the entirety of the Standing Committee of the Politburo had degrees in engineering. And I also draw this back to slightly older roots. If we take a look at the Chinese emperors way back in the past, let's say 1,500 years, two of China's biggest projects include the Great Wall as well as the Grand Canal—so a fortification system in the first case and then a big water management system in the second case. That is a country that has built a lot of big projects in the past. A lot of the emperors barely hesitated to completely reorder a peasant's relationship to the land. And throughout Chinese history, they've really moved a lot of people around to settle the frontiers here or defeat the nomadic tribes over there. And so that's kind of my playful framework for saying that China is really ruled by this engineering mindset that really wants to build. They're often very illiberal-minded about governing society, as if people were just a series of chess pieces to be moved around. And that extends from the imperial times all the way to the modern day.
· Dan Wang, Patrick O'Shaughnessy
[00:00:00] S1: So China's a country I call the engineering state, because they want to engineer the physical environment, the economy, the people as well. And I want to be just pretty playful with this framework that they're a country of engineers. In part, the roots are from the fact that in recent years, if you take a look at the most senior leadership, the entirety of the Standing Committee of the Politburo had degrees in engineering. And I also draw this back to slightly older roots. If we take a look at the Chinese emperors way back in the past, let's say 1,500 years, two of China's biggest projects include the Great Wall as well as the Grand Canal—so a fortification system in the first case and then a big water management system in the second case. That is a country that has built a lot of big projects in the past. A lot of the emperors barely hesitated to completely reorder a peasant's relationship to the land. And throughout Chinese history, they've really moved a lot of people around to settle the frontiers here or defeat the nomadic tribes over there. And so that's kind of my playful framework for saying that China is really ruled by this engineering mindset that really wants to build. They're often very illiberal-minded about governing society, as if people were just a series of chess pieces to be moved around. And that extends from the imperial times all the way to the modern day. [00:00:00] S0: What do you think the greatest aspect of the US system is that you have the hardest time imagining getting truly adopted in China?
· Dan Wang
[00:00:00] S1: Pluralism. I spent six years living in China. I moved to China at the start of 2017 to be a technology analyst at an economic investment research firm called Gavekal Dragonomics. At the time that I moved there at the start of 2017, Trump had just taken office. I remember watching these strange confirmation hearings for his cabinet officials right when I left. And I lived through this period when Trump launched a trade war that quickly morphed into a tech war. I wrote a lot of research notes about what exactly was happening to companies like Huawei and other sanctioned entities. And throughout this time, I was open to the idea—I didn't necessarily believe it, but I was open to the idea—that we're at the start of something like an Asian century in which China and India were going to become much bigger powers. By the time that I'd left in 2023, when I returned to the US to be a fellow not too far away from here at the Yale Law School's Paul Tsai China Center in Connecticut, I thought that the experiences that I lived through—some incredible technological successes, along with worsening repression, along with a worsening geopolitical environment for China, along with the centerpiece of Zero-COVID, all three years of which I was there—I started being skeptical that China could tolerate debate, could really encourage some measure of useful dissent inside the official system. That they were going to be able to figure out these persistent problems with autocratic systems in terms of figuring out succession planning, for example. That they were capable of a great number of successes, but because there is this official voice that is meant to speak over everyone else, because that official voice is a little bit idiosyncratic in terms of all of the values that it really cares about—some degree of national power, some degree of sovereignty, some thin skin about anything that could be critical of the regime—I don't feel like the Communist Party has mastered some autocratic formula in order to really build the future because they cannot have anything like debate, discussion, and long-term stable society.
· Patrick O'Shaughnessy
[00:00:00] S0: You have this great Andy Grove quote in the book about the difference between the mythical, magical moment of creation and innovation that the US has so dominated, and this ability to innovate on the factory floor, the scaling up that China has done so well. Based on everything you just said, how do you relate to their ability to do more innovation in the future? There's that famous stat of only one Nobel laureate has ever been from China or something—I think it's that low. Say a little bit about your conclusions around their current ability to innovate and how that might change in the future.