Invest Like the Best with Patrick O'Shaughnessy
· Dan Wang
[00:00:00] S1: What I would point out is that when China decides to do something, it moves really quickly. It’s much more of a whole-of-society, whole-of-government effort, and it’s much more serious about doing big projects. Sometimes that goes disastrously off track because they end up committing to something like the One-Child Policy or Zero-COVID, in which the number is right there in the name. It’s almost an engineering project—there’s no ambiguity about what those things mean. Whereas the U.S. is much more deliberative; it thinks a lot about things. Often, it fails in some of these goals that it tries to pursue. The U.S. couldn’t possibly have achieved Zero-COVID because there was no possible enforcement mechanism to get people actually staying indoors and not going outside in a big way. So the U.S. doesn’t get stupid ideas like Zero-COVID, but it also doesn’t get things that it says it really wants to do, like California high-speed rail. One of my conclusions, one of my new realizations after writing this book, is that maybe there can be too much state capacity. Maybe you don’t want a state to be too efficient. If the engineers are too efficient and they drag society off track, they can go really far before there’s any course correction. You want the ideal level of state capacity that’s much more than what the U.S. has right now, but maybe a little bit less than what China has.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Are there any other companies that—again, putting my investor hat on—Huawei is a great example, Xiaomi is a great example, Foxconn’s a good example. Any other companies that you think are the most interesting to study for people who are interested in what’s working so well in China, who may want to go visit one of their factories or whatnot? What’s the canon of other companies that should be studied in detail in addition to the ones we’ve talked about so far? [00:00:00] S1: I would love to get to know better a company like Meituan, which again is one of these octopus-like conglomerates. When I visited Meituan in Beijing in 2018, they told me, “We have about 50 core business lines.” And we went, “What? How can you have 50 core business lines?” But I think they really meant it. There are a lot of managers, and they’re really intent on making a lot of these different things work. There’s a great book about Huawei written by my friend Eva Dou, a former reporter for The Wall Street Journal, now at The Washington Post, called House of Huawei, released earlier this year. [00:00:00] S0: Really good.
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Really good. [00:00:00] S1: I endorsed it, and I think it’s really good. I’d also like to understand companies better like Alibaba, BYD, and plenty of up-and-coming firms I’ve never heard of that are working on some pretty interesting things—companies like DeepSeek. All of these deserve much better profiles than what the Chinese government has allowed any reporters or writers to access. These companies generally don’t like to talk to foreigners at the best of times, and then you have an overbearing state that in some cases forbids companies like DeepSeek from speaking with foreigners. But if we could gain real understanding of these companies, that would be amazing. [00:00:00] S0: Do you think that’s in the cards? Do you think there’s a version of the world where those profiles are really good for China—if they’re true, honest, and high-access?
· Patrick O'Shaughnessy, Dan Wang
[00:00:00] S0: Do you think that’s in the cards? Do you think there’s a version of the world where those profiles are really good for China—if they’re true, honest, and high-access? [00:00:00] S1: I think it would be great for China. I want the U.S. to be 20% more engineering, and I want China to be 50% more lawyerly. It would be amazing if the Chinese state actually respected the creative impulses of its own people. It would be amazing if individual rights could be respected. I think there’s a general Asian reticence toward real press, and you can see this also among Koreans as well as the Japanese. But right now, in this environment, I don’t really see it in the cards because the U.S. and China are in an adversarial relationship. Maybe Donald Trump will change that once he visits Beijing, as he’s likely to do later this year. I’m not really counting on it. I think these two countries are pretty adversarial and I don't see either the Chinese state or the American state really waking up one day and deciding that we're going to trust the other party and then we're going to be friends. [00:00:00] S0: I wouldn't ask you to give me a probability or something of a hot war because it's just too freaking hard. It's too complicated. But if your life depended on creating that probability, what are the variables that you think will most influence whether or not one happens?
· Dan Wang
[00:00:00] S1: I think that the flashpoints would be most likely something over Taiwan. That's kind of the obvious one. If the Chinese ever decide that their window is closing in actually reunifying the island, or in their words, liberating the island into socialism, either because the US is going to be much more militarily strong, the Taiwanese are going to be much more militarily strong, there's some sort of crisis in China, then perhaps they decide to move. Right now, I see the status quo persisting because the status quo works well for the Chinese, the Taiwanese, and the Americans. But if there's some big shift in strategic calculations, then that's always a sign of nervousness. Maybe there's a flashpoint in the South China Sea, which the Philippines and China right now have really been ramming each other's ships, and the Philippines has historically been a US protectorate, US ally. That could be a flashpoint in 2020, shortly after the pandemic broke out of Wuhan and the world was really nervous about this respiratory virus. On top of this, the icing on the cake was that there was a minor border conflict between China and India way up in the Himalayas, which was fatal for a number of Chinese as well as Indian troops. And China is surrounded by, I think, something like 25 countries, just has a lot of neighbors, some of whom, like North Korea and Russia, are not very nice, and they don't fully trust themselves. And so maybe there is some sort of a border conflict that erupts with one of China's near neighbors. What I wouldn't think is likely is for the Americans to try to invade mainland China. I don't see that the Chinese would try to seize Oregon. What would they do with Oregon? It would be some sort of a conflict somewhere in the Pacific that erupts into a bigger war. And for something like Taiwan, that's not one of the things that really keeps me up at night right now. Maybe it could happen, but generally, if you bet on peace, that would spin a pretty good bet, and I expect that will continue. The scary things are some sort of totally unpredictable border conflict, as we saw in 2020, with India, or some ship sinking with respect to the Philippines that escalates from there.
· Patrick O'Shaughnessy
[00:00:00] S0: So you've been writing about China for a long time. Your annual letters have been some of my favorite things to read for many, many years. Your research, too, back when you were doing that, in the process of writing this specific book, did your mind change in any major ways or surprising ways?