Dan Wang: So I think that we have moved on from this idea that the Chinese cannot innovate. I think that idea is now decisively buried and I'm glad that we have buried that idea.

We've moved on to another idea which is that okay, the Chinese are much better at scaling, going from one to a hundred whereas the Americans are still good at going from zero to one. And I wanna suggest, and, you know, no, let's, let's bury this idea too, that Chinese are able to both innovate as well as scale that, you know, numbers are continuous. And so I think they, this, you know, this idea of going from. Zero to one as just exclusively the remit of the West, I think is not empirical at this point. And there's also an idea of, you know, what does it matter if you go from zero to one if you cannot go from one to a hundred?

Steve Hsu: Welcome to Manifold. It's my pleasure to be here with Dan Wang at his home I institution. We're here at the Hoover Institute. Dan, as you know, is the author of Breakneck China's Quest to Engineer the Future. This was a huge success. The book was listed as one of the best books of 2025 by the Financial Times.

I think it will become one of the go-to books for everyone in the United States or in the English speaking world that wants to learn more about China and the competition between the US and China. Dan, welcome to the podcast.

Dan Wang: Steve. Welcome to the Hoover Institution. We are sitting in a seminar room on the at the library just to showcase our intellectual content.
I've placed behind me a copy of the US Industrial Outlook from 1991. This is the intellectual caliber you've reached, Steve.

Steve Hsu: A classic. A classic. So I want to congratulate you for the success of your book.

Dan Wang: Thank you.

Steve Hsu: Now, for the audience, I'm not gonna try to do justice to the book because it's quite a lengthy book, and Dan has been interviewed something like 70 times?

Dan Wang: Yes.

Steve Hsu: About his book. Is that the right number?

Dan Wang: Yes.

Steve Hsu: So I won't try to rehash all the details of his book. I'm gonna drill down on certain topics that I think my audience, the Manifold audience, which, is very interested in the US China competition and the development of China in the last generation.
You know, I think that audience, our audience already has a fair amount of background on this. Dan's book does a great job of introducing someone who isn't an expert in this topic to the situation. But we're gonna try to drill down on a few topics that I think my audience is, and I, I, myself, am particularly interested in. So hope that's okay, Dan.

Dan Wang: Sounds great.

Steve Hsu: Okay. So, one of the things, one of the themes in your book is contrasting the so-called engineering state of China versus the Lawyerly Society of the United States. And I think that's a brilliant formulation and it's gone viral. So just the other day I was listening to a, a keynote talk that Adam Tooze the historian was giving for the London Review of books, and there was a pretty big audience.

It was a keynote address and he spent a fair amount of time discussing. I don't know if he mentioned you, but he, he used, I didn't know that he used that exact terminology. So you're, you're already affecting some of the leading thinkers in our society

Dan Wang: Affecting or infecting, Steve?

Steve Hsu: Affecting.

Dan Wang: Good.

Steve Hsu: Affecting. I would like to hear a little about your reflections on the book tour. So, what were the things that surprised you? Were there any particular questions where people challenged you or changed your thinking on the topic?

Dan Wang: I think the first thing I should acknowledge is that this idea of lawyers and engineers it's become a mimetic idea, but it hasn't exactly been original to me.
And I wanna first acknowledge that this is sort of an idea that's been more or less in the air for quite a long time. We've had bill Clinton Quip in something like in the 1996 when he was in China, to say, well, we are governed by so many lawyers, you're governed by so many engineers. We should have a swap.

So I think what I've really tried to do was to take this concept and weaponize it and really try to create a bit of a framework in terms of thinking through China and write it in a way that fits my strengths as a writer, which is to write these very long essays in the form of annual letters really to try to, you know, explain what works and doesn't work in China.
And I think one of the things I've really wanted to do is to try to capture this fact that I would say that China, modern China today is defined by two central facts. Two central trends. The first is that it has lifted hundreds of millions of people out of poverty, a few of those people into the global elites as well as the broader middle class. And that must be acknowledged that there is very real economic progress there.

At the same time, the Communist Party has been repressive in novel ways being a authoritarian power in the 21st century with all of the tools that it has in ways that I think repress quite a lot of people that suppress their own human flourishing.

And so I think that is sort of the, the, the two facts I really want to get across. And as part of this book tour,I think what surprised me is the extent to which people are now quite curious about China. I think China's in the water, so to speak, everybody has to have a view about China, whether that is something very, you know, social media driven, like home prices and you know, that's a, that's been a weird mimetic trend to take off.
You know, whatever aspect of weird industrial chemicals that was a TikTok meme very briefly. So the youths are onto this China thing.

At the same time, the older elites are also very onto this thing. And so I think what I've been heartened by is that my book isn't just being read by folks in the Bay Area where we're speaking not just folks in Washington dc, not just folks in New York. But also folks in Michigan, Ohio, Indiana, the broader Midwest, as well as the rest of the world because I think it is really important for all of us to be at least more curious about China.

Steve Hsu: I think Trump really did you a favor by starting this trade war and ensuring that every day on the front page of the New York Times and Wall Street Journal, there was some headline about China or US China competition. So definitely the timing of your book was exquisite.

Dan Wang: Perhaps, and I think that one might have to say Thank you, president Trump, and maybe more of us will be compelled to say thank you president Trump more on a, on, on an ongoing basis now. But I think there was something about the year 2025 in which we started the year with news about DeepSeek moved on to news about electric vehicles and then had more of the trade war, the 14th five year plan.

But I think that you know, every day now there is going to be more and more China news. And frankly, that's probably a good thing because what is more important to the United States now than these two big trends, namely the rise of China in a more adversarial relationship as well as the rise of technology, which has been something that I've been thinking about for the past decade.

Steve Hsu: Right. One of the things I, I, maybe not everybody in the audience is aware of, is that your life path. really prepared you exquisitely to write this book and even prepared you for that specific formulation of lawyers versus engineers. So when you were working in China, was it roughly 2017 to 2023?

Dan Wang: Correct.

Steve Hsu: You were working for Gavekal?

Dan Wang: Yes.

Steve Hsu: Which is an investment analysis firm. And you were often analyzing companies in the chip industry, semiconductor industry. So you're very familiar with the engineering state, the technological development of China, the competitiveness of the products and companies. But then I think when you were writing the book, you were in residence at Yale Law School.

Dan Wang: Yes.

Steve Hsu: So you were surrounded by the top legal minds in our country. And so you, you had both juxtaposed right before you and that must have helped you formulate the ideas in the book.

Dan Wang: Yes. And I would furthermore add that my mother was a radio news anchor as well as a TV news anchor in Yunnan for the Yunnan broadcasting network. And so she has also prepared me exquisitely to speak to you today, Steve.

So I think that that is absolutely right, that I've been thinking about China and technology working for Gavekal Dragonomics working for my Rabbi Arthur Kroger, thinking very extensively about China's developments in semiconductors, clean technology, manufacturing broadly living in Beijing as well as Hong Kong, as well as Shanghai throughout the entirety of zero COVID as well.

And after zero COVID fell apart in China, I moved to the Yale Law School where I was a fellow. And that was really the contrast that set everything up that I lived through, um, zero COVID, in which the numbers right there in the name, no ambiguity about what zero COVID could possible mean.

Thinking through the history of the one child policy, which was in part heavily influenced by a missile engineer who is one of China's top cybernetics experts, mathematicians at the time. And then sitting at the Yale Law School among what was, I think the self-consciously grooming America's ruling class at a time when this was in 23, 24 when the Biden administration recruited very heavily

Steve Hsu: Yes.

Dan Wang: from the Yale Law School, we had folks like Jake Sullivan, Gina Raimondo, Brian Dees were all graduates of Yale Law. These were people who I think suborned the Economist and try to really assert their influence as lawyers that run a lot of policy.
And I think all of that came together very, very well to think that, well, you know actually the engineers and the lawyers, though it collapses quite a lot, no question that has actually a pretty decent framework. No less bad than socialist capitalists, democratic authoritarian to have another lens to think about this important relationship.

Steve Hsu: Now, setting aside China entirely, as somebody who spends all his time talking to other scientists and talking to technologists in Silicon Valley, the idea that our nation should be run by lawyers is to us a shockingly bad outcome. And, and I mean, it's something that people decry constantly in the circles that I move in and I don't know, perhaps you disagree with me, but I'm curious what, how you think about that.

Dan Wang: Yeah. Well there's a brilliant politician who offered this quote that power isn't something that is ever given to you. Power is something that you have to seize. Now, who said that? Was that Mussolini? No, that was someone far more ruthless. I mean, of course, speaker Nancy Pelosi. So I think that, you know, if you are going to be want to have power, no one is gonna give it to you on a silver platter.

And rather than you know, decrying the lawyers for having seized all that power for themselves, I would say, why don't we point the finger at. The economists, let's say, who had power tenuously, but then gave it up and they were really, it was really pride outta their fingers by the lawyers. I would say why don't we say to the engineers and the scientists, can you not get better at organizing society?

Can you not make a case better to the population and speak in a little bit more of a coherent and appealing manner than you presently do? And try to get that power away from them. So that, that's my challenge to the scientists. We can't expect the lawyers to let go. You gotta seize it from them.

Steve Hsu: Yeah, it's very interesting because we, we may have just entered an age where, if you think about it, so Trump is more of a business person, entrepreneur, although he certainly has had a lot of experience with the legal system. He's not the legal mind himself. The other people who are contending for power like Elon Musk they often control these huge platforms and can subtly influence the messages that are promulgated on those platforms. So we could be entering an era where vast wealth and control over these media platforms is what propels people to power, not Yale Law School.

Dan Wang: Yeah. Well, I think the first thing to acknowledge is that Trump is an excellent, splendid product of the lawyerly society.

Steve Hsu: Yeah.

Dan Wang: He has abducted Maduro from Venezuela using, because this fellow is designated a narco terrorist as, as charged by

Steve Hsu: and machine gun owner

Dan Wang: and a machine gun owner. And I, I saw some tweet about this. I'm not sure if it was actually true, but one of the charges against Maduro now is that he has been dispossessing native peoples indigenous peoples from land in the course of oil drilling.
So, you know, there is something, there is a legal pretense, a legal fiction on upon a lot of things that Donald Trump tries to do. I think a lot about some of these quotes there was someone there was a Latin American ruler who once said anything from my friends. For my enemies, the law.

So, you know, law can be terrifying and Donald Trump knows what Law Fair is. He was schooled by Roy Cohn, who practiced Law Fair extensively. This is a man who, for whom lawsuits are absolutely sensual to his business career. He has sued totally everyone. He keeps suing people three times a day before breakfast.

And he is very intent on, you know, fleeing accusations left and right, intimidating people, and trying to establish guilt in the court of public opinion.

Steve Hsu: So the, the comment you made about the sort of trumped up charges against Maduro is illustrative of the, the reason why people who come from more of a science or techno entrepreneurial background really hate the ideas the idea of lawyers running society. It's because for us, the number one thing is uncovering truth, uncovering how the world works. So in the case of a scientist, what are the natural laws? What are the scientific or technical mechanisms by which things operate? How can I make a better transistor? And for an entrepreneur, the truth is discovering what does the market really want?

What thing can I invent and scale and show the market that they want? So for us, it's mainly that concern, not making things up or making arguments regardless of the true reality of the situation, which is the way, the way that we think about lawyers. And so it, it just seems very repulsive for me what the jar, most jarring thing that has occurred to me in dealing with people in positions of high power in our government and other governments who are trained as lawyers, is as a scientist I see they're often just not very anchored in the reality of what is true or not true in the world. And they're just making arguments on one, whatever side they want to make the argument in favor of. They're free to make that argument and often free of the actual kind of scientific or rigorous thinking that we're used to.

Dan Wang: Yeah. I get where you're coming from and I think it is it's position that is easy to be sympathetic to. But I want to rebutted somewhat with this idea that, you know, what is, what is truth and if we can discover the truth. What follows is not necessarily something that scientists are able to comment on very well.

You say that entrepreneurs are trying to figure out what consumers want. Well, is that a truth of what consumers want? Well, that, that sort of process of trying to determine all of that, does that seem quite as straightforward as measuring gravity or something? Right. That is consumers are fickle. The economy is a web of relations that is not you know, there's no commandments dictating what people want to do. And so, you know, that process, it immediately becomes very, very complicated. Now, what we could have are scientists asserting themselves to say that. Global warming is true. Okay. And I think that is a statement that I think that we can more or less say is a factual statement now, but what we ought to do with it, I think that doesn't necessarily follow, does that mean that we need to cease all economic activity and lock people up so that no one emits any carbon?

You know, that is something that. Lawyers have to get involved in, as well as economists, as well as many other folks, as well as all sorts of humanists to figure out how do we resolve these normative questions. How do we handle disputes within society? You know the, because the Chinese are very capable of following science to its logical conclusion, which in the case of Zero COVID was to essentially lock up the residents of its biggest city of about 25 million people or to say that, well, we have this population crisis. The solution is extremely simple one child per couple, which ended up being enormously disruptive to every, everyone. So I would say that what we want is pluralism. What we need to have are some scientists and the ruling elites. We need to have some economists, lawyers, humanists, et cetera.

Steve Hsu: Yeah, I, I think that in navigating a rules-based system, principled system for determining how society should react to some discovered conclusion about reality, I mean, that is where you need a sophisticated legal system, a sophisticated system, civil society, and debate. I think all of those things are quite necessary and beneficial.
It's, it's the commitment to the idea that our knowledge of how the universe is, is uncertain, and we have to be disciplined in practicing our discovery of what turns out to be true or what doesn't turn out to be true. I think good business people are like scientists in this way, that they, they can't come in and say, I am sure people want to buy X.

I'm not gonna give them X. They have to sort of look at, oh, what features does X need? What, how can I change it to make it more popular? So, so there's a process of discovery that they're committed to, which is an empirical process of observing what's true in the world and reasoning based on that. And I, I just find a, a lawyer that you know, is practiced in debate and will adopt either position and throw themselves fully into that position without concern about whether the position is actually fundamentally true or false. That to us is very disturbing That finding of truth is our sort of most sacred activity.

Dan Wang: Yeah. Well, you, what you call arguing out of both sides of your mouth, I can call empathy

Steve Hsu: Yeah.

Dan Wang: And understanding what the other side thinks this is something that I think the Communist Party, for example, is not very good at doing. They do not have a good sense of mind of how other people think.

And, you know, the Lawyerly Society has created some astonishing companies you know, the West Coast is the only region in the world that has created several companies worth trillions of dollars, And maybe that's a weird thing. Maybe things are overvalued, in fact we're, we can be sure that they're overvalued.

But I think that you know, there. It, it doesn't seem to me that the lawyerly society has been awful at you know, creating companies, creating products even though the lawyers can argue any side.

Steve Hsu: Yeah, I, I think characterizing the US as the lawyerly society makes sense in contrast to China. But as far as like the way that the Google founders had to operate or the way that Jensen Huang had to operate, the, the law is part of the system that they're in. I don't know if it's the primary, their primary concern, the thing that made their company valuable and Yahoo not so valuable, wasn't necessarily that, oh, this is a lawyerly society and that dictated the outcome.

But certainly I think property rights, well-defined rules for how businesses have to operate in society, all those things I think are important and maybe lacking in China at this point. I think that that's a fair point.

Dan Wang: Yeah.

Steve Hsu: So I want to turn to a concept called industrial maximalism which is promulgated by something which is sometimes called the Industrial Party in China.
And in your book, you spend a little bit of time talking about this, and I think you actually investigated, I think you went and read some of the

Dan Wang: Yes.

Steve Hsu: Original documents or essays that started this movement all the way back in, I think the early 2010s and, and mainly online. It was an online movement. It, it wasn't started by the central government. It somehow made its way into the halls of power, but started really as an internet phenomenon. And some people who are watching the tech competition with China very closely, both from the Silicon Valley side and from the Chinese side, might say that this industrial maximalism idea has actually won out in the Chinese government.

So the Chinese government, some people would argue, is actually behaving as if they've now embraced this idea of industrial maximalism. And so I just wanna discuss that a little bit with you. Yeah. So maybe just say a little bit for the audience about what you wrote in the book about the industrial party and its history.

Dan Wang: Yeah. The Industrial Party is not a legitimate political party because there are only aside from the Communist Party, I believe there are eight other tolerated part political parties in China, but all of them must be subservient and loyal and obedient to the, the Communist Party.

So the Industrial Party is more of an online me meme movement. Maybe this is one of these early memes from the Chinese internet when it was a relatively free space before the Great firewall really managed to slam down. And these were people who were essentially advocating for technocratic rule in order to pursue science and technology that these were people who have.

You know, understood that China's weaknesses stem almost entirely from backwardness in science and technology. That it was invaded brutally by Japan as well as partially colonized by Western powers. And the solution is to pursue not just the bomb, not just the satellite, but all sorts of important science and technology and really to organize society, the entirety of society to pursue these sort of things.

Now, there are some important canonical texts about this. One of them is something like the title is something like Study or Wash Dishes. One of the most interesting ones is something called the Morning Star of Lingao in which there is this online fan fiction community that imagine descending a lot of people from the present into something like the

Steve Hsu: Ming dynasty

Dan Wang: in the Ming Dynasty to industrialize the island of Han and so, you know, it's kind of an interesting little read there at various points the industrial party has been censored and so. Some of these people have been quite interesting. They, they were empowered to be major voices on the internet, and I think these creative people did not always follow that dictates of the party.

And when they spoke up sometimes that the Morning Star Lingao was interrupted based on that fact. And I think the, actually the, the canonical text of the industrial party was the three body problem, which is one of China's best known cultural exports now. And I, I love the three body problem.

I think that it is a remarkable piece of science fiction or, and you know, one of the underlying themes was that Liu Cixinsaid that created a scenario in which humanity bands together under technocratic rule builds these enormous spaceships controlled by the Navy in order to confront an extra terrestrial threat. And that feels like the sort of prescription that the industrial Maximalist are really interested in.

Steve Hsu: So for our non-Chinese listeners I think it's important to give some cultural context here, which is that for thousands of years, China regarded itself as at least the preeminent civilization that it knew of on the planet. And the, the reading of the past couple hundred years is the idea that some barbarians with superior science and technology came and inflicted terrible humiliations on Chinese civilization. And we are now recovering from that period in China's reassuming. Its rightful place is one of the leading, perhaps the leading nation in the world, that that's sort of the background to all this.

So I think if you're a scientist or engineer in China, it's natural for you to attach to science and technology as the thing which the barbarians used to beat us couple hundred years ago, and the thing which we have to perfect now to restore our civilization to its rightful place. Do you, do you think that's fair? That's, that's in the mind of like almost every Chinese person on the planet?

Dan Wang: Yes. I think that is a fair reading and I think that that is instilled into the minds of many but I would offer two remarks.

Steve Hsu: By the way. I'm not endorsing it. I'm just saying that, that that is a story that every chinese person is familiar with so

Dan Wang: Yes, that is a story that even before the Communist Party the Chinese rulers have created this story and the communist Party has indeed put it into the heads of everyone. And I would want to offer a little bit of nuance here. First, if these were barbarians, how do they get all this great science and technology?

So maybe there is at least a little bit something else here going on that these British, Dutch, red bearded people were able to invent a lot of great things. So was there something deficient in China that it wasn't able to do? Maybe, maybe not. And the other part that I would offer is that yes, China fell behind in what it referred to as the century of humiliation in which these Western barbarians came over and seized major parts of China.

Made it the people and the government suffer various indignities and much more serious was the Japanese invasion, which was a brutal invasion by a fascist power that really ravaged a lot of the country. That pushed the state into these pretty interior remote areas in order to carry on the fight.

And what I would offer is, you know, that was the century of humiliation. Yeah. Pretty bad. I agree. But what about the quarter century of self humiliation that the Communist Party inflicted right afterwards after 1949 when tens of millions of people perished after various landlord struggles after the great leap forward in which famine ravaged the land we had the cultural revolution afterwards.

There was this other spasm of the one child policy. And then there's some things that we don't even speak so much about, you know, the strike hard against crime campaign in the 1980s. There was the you know, various issues with the inner Mongolia separatist party that we, we, we don't even think about.

That was that created incredible ravages and that, you know, China was a society after the Communist party took over that suffered these extraordinarily violent convulsions throughout society. How do we explain something like that? Was that something that the barbarians inflicted upon the Chinese?

No, I would say that that was something that emerged organically from them. And so it's, it is fine and good to think about the century of humiliation. Let's also consider a little bit about the quarter century of self humiliation.

Steve Hsu: Yeah, I mean, I think that the, the apologists for the current Chinese government for the Communist party, you know, they would say, oh, we had to break a bunch of eggs and we made a bunch of mistakes to get us to where we are now.
But now we finally emerged in our rightful place among the leading nations. I think one should not minimize the mistakes that were made, the terrible suffering, all that sort of thing. But I think from a nationalist perspective, or even an ethnonationalist perspective, you know, mistakes made by your own people, which inflict suffering on your own people somehow.

I'm not justifying this, but I think this is the perspective, are more, are more tolerable than things inflicted on you by some alien group of people, right? I think that's the psychology that, that governs this. So they're willing to overlook famines and great leaps forward and all kinds of terrible things.

One, child policies, things like this. A miracle did happen that in a period of one, between one and two generations, it went from absolute levels of poverty similar to the poorest countries in the world to being possibly the most advanced technological civilization on the planet.

And, and so they're willing, these, these people who are nationalists are willing to forgive all of that based on where the country has now arrived.
Dan Wang: Yes. And I think they are able to justify this and self justify this. And I think that the rest of us don't have to give in to some of that. And we can question whether self-inflicted harms is somehow morally better than other inflicted harms, and do the ends justify the means, whatever. And ancient philosophical question, they would say yes. But that is something that we can also be we can also interrogate and be critical about.

Steve Hsu: Yeah, I think from, I mean, you and I were both raised in the west, and so from our perspective, the idea is that the greater country is one where one can critique what the government has done in the past, criticize it. Try to open it up for consideration, even if it is embarrassing for the current regime or current leaders. And that's, that's a sign of strength of the country that, that, that, that can happen. You can have dissidents. The dissidents are allowed to air their views and people consider those views and the country is internally stronger because of that.

I think one argument that people would make on the other side is that we are rising speaking if as if I were a industrial maximalist or Chinese nationalist or something, we are rising from the ashes. Okay? These guys came, they fed us opium. Japanese came and killed so many people. MacArthur wanted to use nukes against Chinese cities during the Korean War.

We had to overcome all that and we're still overcoming the moment We showed some ability to move up the value chain. The Americans tried to completely crush us. And so when this is all over. And we are on top and we're no longer threatened, existentially threatened by the West, then we can relax and create this beautiful vision that you have for how society should be.

But right now, we're in the middle of a war, and you don't necessarily see the war. The war is being conducted in a very serious way. Not for the average person to perceive, but for people who are watching carefully. This is an a war, this is the third World war, but it's being conducted in a more subtle way. And I think that that is a, that is what some of my listeners who belong to this party, the industrial party, that's how I think they would articulate their position.

Dan Wang: That is a view that I wonder whether they can allow for any sort of relaxation afterwards that do you want to believe that you are a war and a sort of a silent war in which the West is trying to suppress you?

I think that is a reasonable reading of the evidence so far over, especially the past decade when the US government really weaponized its China's dependence on semiconductors, and I was covering all of these twists and turns of US export controls. I've been on net fairly critical of US export controls.

I've written several essays in the New York Times and in foreign Affairs saying that this will in fact over the longer run stimulate China's technological self-sufficiency. But you know, what I would like is for a little bit more self-confidence from the regime if China is, as you posit the world's leading technological civilization, they claim that I would mostly sign on to. There's

Steve Hsu: they're just starting to enter that phase. They're not starting to enter that phase. Not fully in that phase, but they're just starting to,

Dan Wang: Yeah, there's some questions about when they can achieve semiconductor self-sufficiency, supremacy, whatever it is. There's some questions about whether they can actually replicate all the capabilities of Airbus and Boeing. But I think that it is a reasonable claim to say that China is in many ways technologically more self sophisticated. I just had an op-ed come out in the New York Times saying that China's winning the electrical age while Donald Trump is invading Venezuela for oil that the US doesn't need.

Steve Hsu: Yes.

Dan Wang: But, you know, so in that case why can it not gain a little bit more self-confidence and be a little bit more, let's say, beneficent in a confusion sense against the rest of the world? And if there is kind of this siege mentality, you know, one of the things I think about as someone who thinks about not just authoritarian systems, but Leninist systems in particular, in which I think that the Communist party, and it's, you know, the Leninist heritage, the leaders wake up every day feeling like this is a life and death struggle against the western colonialists, capitalists, whatever it is.

And I wonder. If they will ever feel like they can relax, and I suspect not. Let's say that somehow the West is in disarray and fairly weak that China can, you know, close the gates of the Celestial empire and just be serenely un troubled. Do you really think that this londonist regime can ever relax?

No, I think that these people are highly, highly paranoid. They're trained to be paranoid, and what I want to do is to start relaxing now rather than some mythical end state that they will never feel comfortable with.

Steve Hsu: Yeah, I think this is the essential point. One, China does achieve its full potential as a civilization. I mean its economy, its technology. Will they be able to transition to a different kind of government, a different sort of set of values for what's allowed in society or not allowed in society? And you could either be, you know, you could have different views about how likely that is, will they be so locked in to this paranoid worldview that they won't be able to get out?

And I wanna say that this, by the way, this Nat Ssec national security perspective, it exists on both sides. So in the United States, we had this McCarthys era. We were very worried, worried about communism. We had Sputnik, the Sputnik scare. So the question is, at what point do you get confident enough that you can sort of relax and stop locking up your dissidents and not think every visitor from this competing country is a spy, right?
Can they, are they gonna be locked into this paranoid mindset forever or a generation from now? Could the world look totally different to whoever the new set of leaders are 30 years from now? And I think nobody really knows the answer to that. I think some people just assume China will fully recover from its bad few hundred years, and then it can become just a normal country again, even though it is starting from a what is currently a communist authoritarian system.

And other people would think no. It's like I was just listening to Dario Amodei at Davos talking about this with Demis Hassabis saying, no, we cannot possibly give them Nvidia chips because these people are so horrible. You know, it's, if they get AI first, it's game over for the whole planet, et cetera, et cetera.

So I don't claim to know the answer for which of those two scenarios is more plausible. But I think it's the one, it's, it's what people should really be focused on and thinking about the future of a world in which China becomes possibly the most powerful country.
Dan Wang: Yes and I would say that, you know, in general the track record of America is that there has been this sort of these paranoid spasms.

I think you're, you're absolutely right that the McCarthy era when they deported Sung Caltech professor who ended up building you know, missile delivery systems for Beijing Sputnik moment was a stimulus towards science in the us but there's been, you know, parts of the American berserk and Philip Roth's terms that we really deranged this country.

On the other hand, this is also a country that I think try to build up Europe try to be kind and we are utilitarian towards Japan and Germany after it vanquished them that for the most part embraced what we call the liberal international order by being open to globalization hoping now we say foolishly hoping that China will also grow into its own image, which was a bet that proved wrong I think we can say that now. But there, you know, the, the episodes of paranoia also coexist with episodes of generosity in ways that I think the Trump administration calls foolish generosity at this point, given how globalization in their view has not worked out very well.

Steve Hsu: So coming to the nature of the current Chinese government and the nature of life in China, so you've commented on the precarity that's experienced in China, even by the elites. So I guess the way I would describe it is I think the average person in China is pretty happy with their government just because of the very strong growth and development that's happened in the last generation. I think if you question them carefully, they might say something like, oh, there are certain topics it's best not to talk about.

We could get in trouble. Let's not talk about that and just change the subject. They have that awareness, but in general, I think they think of their government as a good government and they have some confidence in it. I, I think, I could be wrong about this, but this is my impression for sort of ordinary people.

Dan Wang: I agree with that impression.

Steve Hsu: Yeah. And, but then I think you make this insightful comment both in some of your interviews and also in the book. I think that. For the elites, there is still this sense of precarity because you might be doing well in your business because of some guie or patronage network, and the person at the very top of that network who's some high party official, might get axed for corruption.

And then suddenly your whole safety net or your whole system of power or connections vanishes. And that's why you send your kids to Western universities and try to get as much of your capital out and buy a bunch of property in Vancouver and la. So talk a little bit about what you think the world looks like for these relative successful elites in China. Do they not feel as comfortable about their future or secure in their future as, say, a wealthy person in San Francisco,

Dan Wang: Who are Chinese elites? Well, I think that in the state party context then these are people who are relatively high up within the Communist party. These are relatively high up in the People's Liberation Army. Let's check in. How are they feeling? You know, right now the Pollock Bureau has I believe now formally 23 members. The one spot traditionally reserved for a woman has been axed. One of the two people celebration Army Pollock Bureau members has been given the sac potentially.

Another poll bureau member who is in charge of he weapons state owned enterprises may also be, have fallen. And there's this journal now that the, this track that the Communist Party has disciplined around a million officials last year. And this keeps going higher. And, you know, the discipline process for a Communist party official, this is extra legal. They have their own the party system. It's like being court-martialed in the military system here. That's kind of a grim fate. And so, you know, that's a, a million party officials disciplined out of population of about a hundred millionparty officials that feels fairly substantial, both tigers as well as flies.

Where do Chinese, elites work outside of the party state? Well much like the us some of them are working in the financial industry and some of them are working in the semiconductor industry. Some of them are working in the broader tech industry. How are they doing? Well, the, a lot of the financial industry has been smacked around.
They've had pay gap pay ceilings imposed on how much they can earn about $300,000 if you're working for a big state owned bank, which on Wall Street, this is what the second year associate makes at some of these bigger banks. And a lot of the tech sector has obviously been smacked around especially if you're working in consumer internet about five years ago, a semiconductor industry. There's been an enormous amount of craft there that the the party state has been keen to crack down on. And so, you know, this is where I feel like much of the party state doesn't feel very safe in Xi Jinping's China and Xi Jinping himself sent his daughter to study at Harvard University.
I did not go to Harvard, but his daughter was graduated college in the same year that I did. And so among my friends who did attend Harvard, you know, some of them knew her. And so, you know, if if Harvard is not too good for Xi's daughter why should anyone else not send their kids to Stanford or Berkeley or Michigan or or wherever else, right?
And so when people have the ability to acquire a American status, passports, university education, they generally tend to seize it. And it is exceedingly rare for Americans to want to feel like they have to do the same thing. And I think it is still relatively rare among people in developing countries given a choice between spending much more of your time in China or the US it seems like they still on net a little bit more want to spend their lives in the US.

Steve Hsu: That sentiment I think is easy to find. So if I were talking to some people who grew up in China but are working in the United States, and I sort of stated your, the case you just made, I think all of them would be familiar with it.

I'm not sure how many of them would really strongly feel that way, that they, you know, they're better off in the United States or safer, more secure in the United States than they are in China. I, I, I know a lot of people who have the opposite view and feel that now is the time actually to go back to China, because now the, the companies there really are doing cutting edge stuff and you know they wouldn't sacrifice their intellectual development by being at Chinois versus being at Harvard or something like this.
I think it's quite complicated. I, I, I don't actually know the answer myself, but I, I think you could easily find people who don't necessarily have the psychology you described, but there are many people who do have that psychology, but I think that's a key. Variable in what's gonna happen to the country are, are they really gonna lose 50% of their top people to this?

If they only lose 10% of their top people to this, then they still have sort of an overwhelming, potentially, I would say, advantage in human capital over the United States. So I think it's something to monitor.

Dan Wang: Yes.

Steve Hsu: Very careful. What the mood is of the most able dynamic entrepreneurial people in China. Like are they better off staying there and building that economy or are they better off trying to get out.

Dan Wang: Yeah, I think that's a great observation and I think that it is, it's hard to monitor them and, you know, we can find plenty of examples of people who've decided to move to China over the last few years.

You can also cite that I think it was I believe it was Matt Sheen who did this work that, you know, 90% of the major AI researchers who published in big papers over the last couple of years, 90% of them are still in the US and have declined to move elsewhere. And so we can find numbers for both of these, butI think, maybe Steve, you should be the sharp tip of the spear in tracking.

Steve Hsu: I try to spend a fair amount of time in China.

Dan Wang: Yes.

Steve Hsu: And then inevitably here when I'm at one of the big labs here, I bump into a bunch of people who have China backgrounds, but maybe they got their PhDs here or something. I'm constantly interrogating this question.

Yes. Trying to. See how people feel about things. And you know, it may vary by age, it may vary by the family background of the individual. A funny story that I, I think I told before on this podcast is that I was visiting DeepMind my host who's actually I think a Google, Google fellow or has some pretty fancy title was showing me around and I was there to talk about the use of AI in physics to using the current best ais to help physicists do their research. And this guy was showing me around and we, we encountered this group of three or four, obviously Chinese AI researchers who were coming, and young, very young people who are walking through the, this, there's a pavilion down at Google where they've put all the AI people in Palo Alto and or Mountain View and every and everybody's young and you hear a lot of Mandarin actually at all these labs. My host who is not Chinese. Introduced me to these young people and said, oh, this is Professor Shu. He's helping us make ouris more useful for physics or something like this. And I was shocked because first of all, I have not, I'd never encounter, I had encountered this in Japan and Korea, but not in China.

But all of them bowed to me slightly, which I thought, is that coming back? Like students bowed to teachers. 'cause I, I had not experienced that in China in the past when I, when I visited. But anyway, they all kind of bowed to me. And then one of them said very, very sincerely and naively, like a young nerd said, oh, uh, professor Hsu if, if you find any problem with our motto, we will make it better.

It so like you know, like naive and sincere, like the reaction of this kid. So anyway, but it was like a, it was like a cluster of Chinese and these guys were like involved in the most hardcore model training, pre-training of the models at DeepMind and Google. So, so like, I would love to pull them aside and say like, well, why are you here?
Yes. Why are you not at Tsinghua? Like, what are your classmates doing? You know, so, so I'm trying to monitor that kind of situation as much as I can.

Dan Wang: Well, I would love it if more of these your students at Michigan State bout to you much more actively, Steve, that what, what a nice idea.
So give us a sense of the, by check of the moment, how many of these talented Chinese BA origin researchers that you've been speaking to on your big tour of Silicon Valley, how many of them wanna move to Tsinghua?

Steve Hsu: You know, my best spy when it comes to this is a Chinese American kid who grew up in California, but unlike me, actually mastered the Chinese language. So he's fully bilingual and after doing his undergrad degree in the UC system, was asking me where he should do his PhD in ai. And so we were talking about the strengths and weaknesses of various programs and he ended up going to Tsinghua.

So he's actually a grad student in Tsinghua now, and he regularly reports to me about what the scene is like for these huge numbers of kids going through Beda and Tsinghua and other universities there and working with the companies. So here it's a little funny because the, the big labs aren't that well integrated with academia and academia's a little bit isolated right now from the frontier developments, but I think that's less true in China.

So a lot of the academic groups are collaborating tightly with by dance and some of the other companies that are building frontier models. So he reports to me that the, the scene in partially for this reason, because he's on the academic side, he's doing his PhD, the scene in Beijing is more vibrant than the scene here on the Stanford campus because most of the Stanford people are locked out.

They're not actually able to do this frontier level work at Google or at OpenAI or at anthropic, the companies are doing their thing and the academics are doing their thing. But in Beijing, there's a very fertile mix between these groups. And so he, he keeps thanking me that I, I didn't encourage him to go to Tsinghua but I gave him what I thought was a realistic view of what he would find there, and he's quite happy there.
So that it's only one data point. It's, it's an very important thing to like, just keep your finger on to like understand where, where is the talent flowing.

Dan Wang: Yeah. And the people that you're speaking to here, how many of them want to keep actively going to China? Yeah, it's very interesting or they work for ance?
Steve Hsu: Yeah, so after I, my stay here in the bay ends, I'm actually going, I will be visiting Tsinghua for a while and my host is a young new assistant professor at Tsinghua, who his prior position was as, as a postdoc in the US at one of the top universities. And he's quite happy to go back. I, I, I don't know. I mean, I think, of course he's super nerdly, so he probably doesn't think at all about precarity or getting on the wrong side of the Communist Party. He's just thinking about, well, how many smart students can I get? How much research money do I have and what companies can I collaborate with? So but I don't think it's a completely zero one kind of, you know, one sided decision. Some people could decide in one way and some people could decide in other ways, maybe even because of food.

Yeah. Some people might just be like, wow, my, the food is so much better in, in Beijing than here or something. So, and the research stuff is kind of comparable, so who knows? But I think it's something we should all be keeping tabs on.

Let's switch gears now. I have a bunch of quotes, which I loved that came from your, I think the ones I wrote down came from your annual letter.
And so for my audience, maybe I'd love to hear your comment on this. Maybe one of the reasons Dan's book was so successful is that he already had a huge following among all the people who seriously think about China and US-China competition through the annual letters that he wrote. And you, you always write these at the end of the year during the holidays. Right. And how many years were you writing that letter?

Dan Wang: Eight. Now.

Steve Hsu: So for, I mean, I'm sure at the beginning maybe not that many people were reading it.

Dan Wang: Only my mother.

Steve Hsu: Okay. Only their mother. But by the end I, I know you skipped 2024, right? Correct. But by say 2023 or 2025, like everybody who is seriously thinking in this space is reading his annual letter. They're beautifully written. They're not short. These are long as kind of discursive essays and the one in 2025, I really enjoyed. Do you think that helped your book when it came out, people already knew who you were and already were familiar with your thinking or?

Dan Wang: I think that it was a slightly higher stakes letter to write because this was a, I've have a book audience that is onto me now.

Steve Hsu: Yeah, yeah.

Dan Wang: And so I'm speaking to a broader array of people who are not necessarily you know, thinking about China, you know, I, what I really tried to do was to for my book was to reach the lawyer in Ohio or Indiana. Yes. And so, you know, now that these people, if these people are interested in my work, I wanted to hit them with a really big annual letter.

This is also an annual letter that is more driven by Silicon Valley, where I spent a lot of time now and not just to China.

Steve Hsu: Yeah. So let me quote, I think these quotes, I think I got them from your, not from the book, but from the annual letter. And I just want you just feel free to riff on, you know, extend what you said in the quote or make any comment that you think is appropriate. So here's a quote. Probably the most underrated part of the Chinese system is the ferocity of market competition. It's excusable not to see that, given that the party espouses so much Marxism, I would argue that China embodies both greater capitalist competition and greater capitalist excess than America does today. So beautiful.

Dan Wang: Yeah, I think that you know, there's a lot of ways in which the tech companies in Silicon Valley feel they are very. It's like a gentleman's club, of you know, playing with against each other. You know, Google got search and then Amazon's gotten e-commerce and Facebook's got everything else.

And so they don't really tread that hard against each other's toes. Where has in China, you know, everyone is fighting everyone over everything. And you have these I, I like this chart that Kyle Chan of high capacity has created we got these big interlocking circles that's highly complicated and I think that just really shows how everybody is up in each other's business all the time.

Whereas in the us at least among the tech companies, it is much more gentle. You know, we've got union protections here where you don't have unions really in China, they arrest the Marxist organizers. And so, you know, what sort of a, what sort of socialism is this?
Steve Hsu: So. You know, Peter Thiel was famous for saying that competition is for suckers, for losers. What you should try to do is get a monopoly, and that's how you really create a trillion dollar company. And one critique of our lawyerly society here, or our political system, is that business can co-opt government to the point where they can actually end up with a monopoly. And government doesn't do anything about it because they have enough influence in Washington. And whereas in China that's not gonna happen. The countries, the government likes to see these companies beat each other up and of course, drive the profit margins to zero, but maybe to the benefit of the consumer. Do, do you think that's just a caricature or do you think that's a fair picture of what's going on?

Dan Wang: I think that's pretty fair. If we take a look at the Chinese equity market, I mean that's it, this is not the whole reason, but part of the reason that you know, it has the Shanghai, uh, composite index has mostly trended sideways for, um, 20 years.

Steve Hsu: To my dismay.

Dan Wang: To your dismay. Well, I'm sorry. Sorry about your losses, but yeah, maybe should have been

Steve Hsu: or lack of, lack of gains

Dan Wang: investing in America, Steve.

Steve Hsu: Well, I do. I do both, but

Dan Wang: you do both. So I think that is part of the reason that you know, profits are just much lower in China because it's much more competitive and a bunch of losers maybe. But it's, I think that's great to be a consumer there.

Steve Hsu: Yeah. That's my, well, for Americans who've never lived in China or spent time there, the buying power you have there is just unbelievable.

Dan Wang: Yes.

Steve Hsu: Like for dollar, for dollar, what you can buy, not just food, but electronic gadgets, cars, whatever

Dan Wang: services.

Steve Hsu: Yeah. It's just insane. It's insane. Which is another reason, actually, I won't say his name, but one very prominent person who is in Beijing. Big venture investor now was a very prominent technologist in the United States for one of the big tech companies.

He just says like, I can't have this quality of life in the United even though I'm a billion. He's a billionaire. Even though I'm super wealthy, I can't have this quality of life in the US because I get on my phone and do this, and some really delicious food appears 20 minutes later delivered to my office. And yeah, he says, I can't have that in the us. Yeah, so

Dan Wang: lower labor costs is a real thing.

Steve Hsu: Yeah. Yeah.

Dan Wang: Yes.

Steve Hsu: Next quote, Beijing has been preparing for Cold War without eagerness for waging it while the US wants to wage a cold war without preparing for it.

Dan Wang: Let me reply to your quote, or rather my quote with another quote. This is apocryphal quote attributed to Viennese satirist, Karl Kraus. In Berlin the situation is. Serious but not hopeless. Whereas in Vienna, the situation is hopeless, but it is not serious. And this is where I think a lot of the US is where they are just not a serious country in a lot of different ways.

Now is China eager to wage cold war? I can say maybe they are. But I would also, I would say that the balance of evidence has been that China grew very, very rich under an international system in which it became a major trading power without a large Navy. That might be unprecedented. You know, you didn't, the UK was a major trading power within a large Navy, so was Portugal, so was the Netherlands.

So was the United States. China didn't have to build a big navy in order to become a big maritime power, the US gave it to them for free, right? And so it prospered by any measure under this system and that system has kind of turned against it. And so it is reacting. That's all fine, but China has mostly prospered under this system.

And so, but it has been also quite cautious and preparing for energy, self-sufficiency, food self-sufficiency. I spent some time in my book examining something called the Mayor's Vegetable Basket program in which there's incredible amounts of farmland around big cities like Beijing and Shanghai. As soon as you take the high speed rail out,

Steve Hsu: yeah

Dan Wang: you get into, you hit farmland really quickly. And that's in part because the mayors not the party secretaries, but the mayors people are responsible for logistics and operations have to manage grains self-sufficiency as well as various parts of vegetables and meat, self-sufficiency as well.

And there's obviously now a drive towards technological self-sufficiency. Whereas the US right now is obviously floundering for, to escape a system that it has very substantially built that it is trying to figure out how to subdue China in various ways, but it is not preparing all that hard and it is unwilling to make a lot of pay a lot of high costs in order to get to a much better state.

And so that's why I think it, there's parts of America that wants to wage a cold war without really doing enough to prepare for it.

Steve Hsu: Yeah. When I mentioned that a lot of my listeners are in a way, members of the industrial party, I didn't mean the Industrial Party of China, I meant they're members of the Industrial Party of America. So lots of entrepreneurs, Silicon Valley people are astonished that we can't seem to get our shit together. We talk about reshoring manufacturing to the United States. But the hard work of really doing it the government doesn't seem, or society doesn't seem serious enough really to undertake that heavy lift.
And it might take decades for us to get there. It'll take decades of sustained effort. And I'm not sure, I'm not as an American, as an American who grew up in the Midwest, i'm not sure that we still have it in us to do that. I hope we do.

Dan Wang: Yes.

Steve Hsu: Read a few things about innovation and manufacturing in China from, from you. I'm gonna read a few of them and then you, you can comment. So, by failing to recognize China's real strength, the industrial ecosystem's pulsating with process knowledge. The US is only cheating itself. Chinese workers innovate every day on the factory floor. Western elites keep holding on to a distinction between innovation in quotes, which is mostly the remit of the West and quote, scaling which they accept that China can do. I want to dissolve that distinction.

Dan Wang: So I think that we have moved on from this idea that the Chinese cannot innovate. I think that idea is now decisively buried and I'm glad that we have buried that idea.

We've moved on to another idea which is that okay, the Chinese are much better at scaling, going from one to a hundred whereas the Americans are still good at going from zero to one. And I wanna suggest, and, you know, no, let's, let's bury this idea too, that Chinese are able to both innovate as well as scale that, you know, numbers are continuous. And so I think they, this, you know, this idea of going from. Zero to one as just exclusively the remit of the West, I think is not empirical at this point. And there's also an idea of, you know, what does it matter if you go from zero to one if you cannot go from one to a hundred? So I cite the example of, you know, who is it, who you know, which American lab invented solar panels, pop quiz, do you know?

Steve Hsu: No

Dan Wang: Bell Labs, uh, 1957 in New Jersey. Where is Bell Labs today? Nowhere because this thing is gone. Who owns the entire solar industry today? It is the Chinese and they own not only the final assembly of the modules, but also the polysilicon processing, as well as the equipment to produce all of the solar wafers and modules.
So, you know, this is something that I think that, you know, let's not cheat ourselves out of the idea that. Chinese cannot do this or cannot do that, that they're fundamentally constrained because of the nature of their political system. You know, the political system has gotten pretty far in terms of producing a lot of technology.
I believe that authoritarian powers can do incredible science and technology. We saw this with the Soviet Union. We saw this with Nazi Germany, in which totalitarian systems produce miracles in, let's say space flight, as well as many other things. So I think that the more that we can get our discourse and our level of competition to the level of sustained capacity building, which is what the Chinese have done, rather than thinking, oh, well they can do that, which is not that difficult, and we can do this, which is much harder.

Let's acknowledge that they can do a lot of difficult, important things and that the United States should also get in this game in a much more active way.

Steve Hsu: If you take the Normie Boomer. Sort of outdated view on China. Okay. We could have different stages. One stage is they only make crappy, low end stuff. They can't do high quality, cutting edge manufacturing. I think by now, people, even, even most normie boomers have kind of set that one aside and they say, oh, well they can do advanced manufacturing. But the core idea, the zero to one brilliant genius breakthrough, that still has to come from the west.

And I think you're saying, okay, even that misconception should be set aside. I'm curious, in your 70 odd interviews that you did or addresses to big audiences of serious people, what fraction of the population is ready for that step? Are they already there in understanding that or are they still resisting that step or clinging to that illusion that the zero to one step can't happen in China?

Dan Wang: Maybe half, half. I think that there is still plenty of clinginess among the quote unquote serious people, but I think that there is also a readiness. I mean, it, it starts sounding a little bit absurd. Oh, well they can make all the toys and t-shirts and they may can make the large capacity batteries for the EVs, but they can't, you know, that's these sort of things statements don't really make sense to me, I think that you know, I mean 2025 was an important year in terms of. You know, the DeepSeek moment, maybe that scale of success was overstated. You know, there's this big market reaction to deep seek and that was a little bit hard to predict based on the release of a paper.

But you know, EVs are definitely taking over and, you know, we don't have to over index our expectations of the economy based on EVs alone. And transportation equipment is not a giant sector of American eco, the American economy, even though the auto sector is politically important but I think that people now are ready to hear this, especially given the moment we're in with Donald Trump eroding a lot of alliances.

You know, making the world question American leadership. I think that it is good for there to be a little bit more worry about what is the American position and try try to be a little bit more clear-eyed about what are American weaknesses.

Steve Hsu: This, this question of whether in a less free political atmosphere, scientists can't. Make big, innovative leaps. I, I still hear that.

Dan Wang: Yes.

Steve Hsu: Do you still hear that?

Dan Wang: Yes. And I think this is one of the sins of the lawyers

Steve Hsu: Yeah.

Dan Wang: That they think that, oh, we need so much free speech in order to

Steve Hsu: Right.

Dan Wang: produce scientific breakthroughs. In my book, I, a bit of time thinking about the example of the Soviet Union, and there's a particular historian of science from Harvard named Lauren Graham, who studied the, the Soviet Science System.
And, you know, pointed out that there were two big cataclysmic events for Soviet scientists. The first was the terror of the Stalin purges throughout the thirties and the second was the dissolution of the Soviet Union throughout the 1990s. Which event was worse for scientists? Actually it was the dissolution of the Soviet Union because that was when the money stopped. A lot of scientists had to close their labs and leave. Whereas. very strangely throughout the 1930s under Stalin, there are many, many examples of scientists who barely staggered out of gulags and then produced their prize winning Nobel Prize winning scientific innovations. And so, you know, part of this is because Stalin funded science, I mean, you throw in a lot of money at science, you're probably gonna get a lot of science at, at least this was true about a hundred years ago.

Yeah. Maybe, maybe not so true today and there is also this view that, you know, why was, why were the Soviets so good at pure mathematics as well as chess, as well as a lot of science? Well, potentially they treat doing science as an intellectual escape when they do not, cannot enjoy broader political freedoms.

So I don't think that, you know, authoritarianism is good for science. I, I definitely will not go that far. What I will say is that money is good for science. Yeah. For the most part. And right now the Trump administration is cutting somewhat some scientific funding. University budgets are on the back foot, but the Chinese are funding a lot of science, and I think they're gonna get the science.

Steve Hsu: Yeah, I agree with you. So I finished my PhD in 1991, which coincided with a huge influx of former Soviet scientists to the west.

Dan Wang: Right.

Steve Hsu: The best of the best from the Soviet Union, former Soviet Union. Came to the United States and competed with, you know, young Americans like me for the same jobs. So it was a very, very vivid experience with me. And I, I spent many, many hours in so-called Russian seminars. Our seminars are usually scheduled, oh, it's an hour. And if a few people wanna stay longer and talk to the speaker, they hang out. But everybody else leaves. The Soviet system, they talk for hours. And they fight, until they get to the, the bottom of the matter. So the style, even the style of Soviet physics and mathematics, I was very familiar with.

When you talk to those individuals, you get to know those people after they become professors here and you collaborate with them. They had very, very fond memories of the Soviet system. It was a system. There were even cities, if they were adjacent to the weapons program, they would live in a secret city where they didn't have to worry about food, they didn't have to worry about salaries. Everything was provided, and they could just focus on the science. And they had a chance to have an orchestra and play chess and their free time or write poetry. So it really did not interfere. You know, they, they knew there were certain things they were not supposed to do. They should not suddenly write a track about why the, the, the wheat harvest was so terrible in Ukraine last year.
Right. Okay. Avoid that topic. But if you wanna learn about electrons in super lattice, no problem. Right. So. They always felt very nostalgic for that system. And then what happened is when that system collapsed, just as you said, they literally couldn't eat . They had to grow potatoes in their front yard in order not to starve and just plead for with Western colleagues to send them a few dollars so they could actually survive, you know, in Soviet Union.

Eventually they all left the Soviet Union. So this idea of connecting the political system to the productivity of the scientific effort is it's, it's a very tenuous connection.

Dan Wang: I even wonder why that system took place. Like how did we forget the Soviet Union produced a lot of amazing math and science. How do we forget about Nazi Germany?

Steve Hsu: I think most people don't have direct experience with how scientific breakthroughs or technical breakthroughs are produced. So there it's always like at, at great remove. Like you read about it in a textbook or you watch a movie about it, but for the people who really see how it's done. You know, the, the Asby genius is gonna improve your large language model, transformer model. That guy's not potentially thinking about any political things. He just wants to actually sit in his office and, and do his own thing. And he could do that just as well in Beijing as in Mountain View. Yes. So,

Dan Wang: but I, I want, I
do wanna say that I think that ASPI genius would do even better in a system where he was allowed to criticize the Ukrainian harvest.
We can state a minimal case in which authoritarianism does not have to defeat science. Yeah. But I think we can still embrace the, a stronger case that, you know, freer societies can get better science because the American science ultimately was better in probably most ways, with some exceptions.

Steve Hsu: Now, there is a more extreme version of this hypothesis, which, for example, people from the French system and people who really experience the Soviet system. Will advocate for, I, I don't necessarily hold this for you, but they will advocate for it. For example, the French really outperformed the Americans in winning fields medals.
It's because they don't have a system that glorifies money and becoming a, a, a billionaire. They, they have values, they have cultural values. Mathematics is one of their things that in their society is highly esteemed. And a kid here who is really talented in math is thinking to themselves, well, how can I make a lot of money in cryptocurrency when he's 17 years old?

Is that doesn't happen so much in France and it doesn't, didn't happen so much in the Soviet Union. And so they claim that on a pound for pound basis, their math and physics was better because they were not corrupted, not, I'm not talking about intellectual freedom or political freedom. They were not corrupted by capitalism, by materialism.
And that that is an argument that some people, even French scientists today, will still make actually.

Dan Wang: Well, France is interesting because they've had several leaders with mathematics degrees and like even modern senators and that, that is interesting.
Steve Hsu: Yeah. The prestige in France from having a mastery of mathematics is quite high still here in the United States. Not so high, although maybe it's coming back with AI and crypto and stuff like that. I don't know, but

Dan Wang: I doubt it, Steve.

Steve Hsu: Okay.

Dan Wang: I don't think mathematicians will be cool.

Steve Hsu: I can only dream. let me throw one more quote at you. I think we still have a little bit more time. This is from your letter.

I sometimes hear that the US will save manufacturers through automation. The truth is that Chinese factories tend to be ahead on automation. That's a big part of the reason that Chinese Tesla workers are more productive than California. Tesla workers China regularly installs as many robots as the rest of the world put together.

They're also able to provide greater amounts of training data for ai. We have to be careful not to let automation, like super intelligence become an excuse for magical thinking rather than doing the hard work of capacity building.

Dan Wang: There's all these wonderful claims now that AI AGI super intelligence, whatever we wanna, wanna call it, is gonna solve all of our problems.

It is going to solve our scientific development. This is going to cure cancer. This is gonna fix our industrial base. And you know, I fear that before it cures cancer and rebuilds the industrial base, AI is simply going to deran us all that, you know, people are getting fooled quite easily on the Sora two with these video generation, you know, how can you tell what is an AI video today like? Is there, are there even actually any watermarks here to, to say, hard to say. There's, you know, teens with their AI companions and I don't know. I feel like social media is already trolling me to insanity without, you know, the super intelligence you know, amping that up.

So I am worried about AI and I think that you know, there's, there's all sorts of opportunity, but it seems like there's also a lot of threats here that I, that I don't really know how to assess. What's your, what's your view on AI? Steve, when you think, when you are in this, you're doing your tour of Silicon Valley here, you're living in Berkeley this month.

When engineers come up to you with this, these really apocalyptic claims about AI or, you know, pure utopia claims, how do you personally react? How do you assess it? How do you maintain epistemic hygiene and sanity? And I want to know your mental toolkit for dealing with these claims.

Steve Hsu: Yeah, I think this is, this is the question of our era. I, and I think this is ground zero. Um, you know, on the one hand on Saturday I'll be at a dinner. I'll give a talk and there'll be a hackathon at AGI house, which is a, a huge mansion that's been rented by these AI researchers. It has a view, it's, it's a twin, the Twin Peaks neighborhood of San Francisco, and it has this unbelievable view of the bay looking to the east.

On the other hand, at Light Haven in Berkeley, where there's assembled crew of rationalists who are all doomers and worried about AI killing us, they have a beautifully manicured campus where you can sit outside and discuss things in a philosophical tone. So here we have both poles of the, the most optimistic, abundance focused view of what AI is gonna give us, and the most domish existential risk view.
And those two communities are living, you know, maybe 10, 10 miles apart from each other. So it, this is the place to examine those views. You know, for me, I would say we are close to spending 2% of GDP now on CapEx investments for data centers and model training and NVIDIA chips and things like this.

And back to your quote, the assumption that that will suddenly make us competitive. In terms of industrial robots or automation in our ports or assembly lines where cars are made, things that China is way ahead of us on, I, I don't see that the AI that we're currently developed is necessarily gonna close that gap automatically in some magical way.

I agree with you. It's sort of magical thinking on the abundance side to think that these large language models are suddenly gonna solve that, all those problems for us. So I think that's pretty unrealistic and I think that's a problem for us. Strategy. If you, if you're sort of a hard power person thinking about US China competition, I, I don't think these AI investments are going to, at least for a while, close these gaps that are very concerning.
As far as the long run existential risk from AI I think the people who are afraid are not wrong. I think in the long run, if we do create things which are more intelligent than us. More powerful thinkers than us, but also eventually have their own desires and wants and maybe even a kind of consciousness, then it will be hard eventually for them to displace us in some way.

I think there is a real long-term existential risk. I don't think it's as proximate as some of these people in Berkeley think. I think it's gonna take longer. I think there could actually be a period of human flourishing where we do create these great intelligences and for a while they are harnessed to our needs.

They are well designed. They are aligned in, in some sense that alignment, I think can't be guaranteed in any rigorous mathematical way. And so in the long run they could diverge and we could create God-like things that eventually don't care about us and accidentally smush us. And I think that that's the ar that's the argument that the, the Berkeley crowd would make.

Dan Wang: What is the long run? Is that a matter of two decades or two years?

Steve Hsu: Very hard to predict because the problem is that, and this is the key thing everyone's on the lookout for, is when do the ais become so good at AI research and software writing that they start improving themselves and at a pace where human engineers can't quite follow the way in which they're improving themselves.
I don't think we're close to that right now. I think I would guess we're probably five or 10 years be away from that inflection point, but other people have much more aggressive timelines than I do. Yeah. Yeah. It's hard to know. It's one of these things, it's like, oh, what is the, you know, if China does succeed in becoming wealthy and fully developed, what will their government, what will their government system evolve to? I, I, I literally don't know the answer to that. And similarly, I do think AI is definitely gonna continue to advance rapidly, but I don't know the, the, the timescale over which it will become threatening to us.

Dan Wang: Do you believe that there will be a point in which this starts self recursively improving?

Steve Hsu: Yes, I do.

Dan Wang: Okay. I mean, this is this is one of these hard things where you know, it is really easy for you know, once you look at all these exponential curves and we, we, we see them and it's like a lock scale is a perfectly linear you know. It becomes really, really difficult to think of anything but you know, the extent of these curves and, you know, I don't know if the saying to do, saying thing to do is to just rule out the idea of, you know, the idea that this will self recursively improve. Because once we're in that scenario, then all bets are off. Right? And how can we predict anything?

It's like the, the first order impact of AI is hard enough to understand and then we have to like think about the 17th order impact. Like that's just way too hard. Right. And so this is where I'm wondering whether, you know, this sort of totalizing aspect, it is occluding our view of what is really important and maybe it is rational because there's plenty of smart folks who are telling all of us that we get to this point of recursively and.
I don't know. It's, it feels like it is just gonna be, it's hard to come up with the epistemic tools really to, to deal with that argument.

Steve Hsu: So, so I was in a, a war game held at the Tate Modern, this museum in London. And the, the war game was sponsored by people who are concerned about AI safety. I think the British government funded some of it and some of the big AI companies funded it.

And I, my team was the China team. I, I was a leader of China in this, it was, it's literally a war game where there's a turn by every, every turn is like a year, and you're making decisions about how your society's gonna allocate things or, or what you're gonna do to other countries. During that turn, the head of the US team was a guy called Stanley McChrystal, who was a prominent, former general, very serious simulation.
The outcome was though very optimistic because what happened is that. When we, in our respective countries, saw this recursive capability start to appear, we negotiated a slowdown and we negotiated mutual inspections of our AI labs so the American side could send AI scientists to see what was going on in the Chinese labs and vice versa.
And so the, the game ended with us slowing down the development at a place where we might lose control over, you know, the AI. Now I just, before I came over here, I was listening to as I mentioned earlier, I was listening to this interview of Demis Hassabis and, Dario Amodei at Davos, which I think is happening right now.

And they both said, they just kind of mentioned during their conversation, which is mostly not about this stuff, but a little bit about this cataclysmic type development. They both, they both mentioned that they're in communication because they're both on the lookout for this and they are competing against each other and they're competing against Chinese labs, but they are watching for this development and they, they, they do have in mind that they are gonna start talking to each other when they start to see it.
And hopefully, I think it would just be wise that if we start to see that we slow down now for the doomers, this doesn't solve the problem. 'cause the doomers will say, oh, but there'll be some lab in China that doesn't stop. Or there'll be some dudes in UAE who have a big data center and they won't stop.

So it doesn't completely solve the problem. But you know, there is a plausible future where we delay the, the real catastrophe for a long time by being smart about this process.

Dan Wang: Well, if we're sure that the catastrophe is coming, why don't we slow down now?

Steve Hsu: Well, those guys were actually interesting, so very, very interesting remark because both Dario and Demis said in this conversation, they would both be happy if they could slow down, right?

They both said that. So Dario has a one to five year timeline, and, and Demis has more of a five to 10 year timeline to get to this point. And they both said, Dario said, I actually prefer your timeline. I wish it would, I hope it's gonna take five to 10 years and not one to five years and they both said, yeah, we're both more comfortable if we can slow this down.

So, but it's a collective action problem. It's a little bit like global warming. Like can people actually put aside their narrow self-interest to co, to cooperate, to avert this catastrophe? I, I don't know.

Dan Wang: Well, global warming is challenging in part because there are so many countries that have to coordinate together who

Steve Hsu: Right.

Dan Wang: Have to trade off against you know, economic benefits, presumably with coal. But why don't we send General McChrystal to start inspecting those laps right now? Because

Steve Hsu: Yeah.

Dan Wang: You know, we, we can do a lot of that right now.

Steve Hsu: When they, when they designed this war game that I was part of, they were, the people who designed it are actual specialists who designed war games for the Pentagon and also for the British defense ministry.
They were honest. So they designed the dynamics of the game to be as realistic as possible. However, they were, the makers of the documentary were hoping that the ending would be an optimistic one, where the, the, the competing sides could cooperate. And the view is like, this provides a template because a movie version of it is very.
Real for the ape brain to see like humans enacting the story. It's a narrative, right? And the hope is that this will plant the seed in the Chinese leadership and the US leadership and the corporate leadership that yes, we do need to be ready to pause when things start to get dangerous. So I think it is in everybody's mind, whether it, it could still be a tragedy, right? It could still be a runaway arms race, but I'm, I'm optimistic actually.

Dan Wang: Narratives matter. We are all ruled by AP rings, and so this is why the lawyers are in charge. Yeah. And the scientists and engineers need to get better at narrative.

Steve Hsu: Very good. Well, that's a good place for us to stop. So thank you very much,
Dan. It's been a wonderful experience. Hope my audience enjoys this read his book, read his annual letter, and we'll put some useful links in the show notes to some of these things like the industrial, industrial maximalism, and other topics that came up. Thanks very much for your time.

Dan Wang: Thanks, Steve. This was wonderful.
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