Keyu Jin: China's Economy, Tariffs, Trade, Trump, Communism & Capitalism | Lex Fridman Podcast #477

- The following is a conversation with Keyu Jin,

an economist at the London School of Economics,

specializing in China's economy,

international macroeconomics, global trade imbalances,

and financial policy.

She wrote the highly lauded book on China titled

"The New China Playbook: Beyond Socialism and Capitalism,"

that details China's economic transformation

since 1978 to today.

And it dispels a lot of misconceptions about China's economy

that people in the West have.

This is the "Lex Fridman Podcast."

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And now, dear friends, here's Keyu Jin.

What is the single biggest misconception the West has

about China's economy today?

- The biggest misunderstanding

is somehow that a group of people, or even just one person,

runs the entire Chinese economy.

It is far from the reality.

It is a very complex, large economy.

And even if there is an extreme form

of political centralization,

the economy is totally decentralized.

The role that the local mayors,

I call this the mayor economy, plays in reforms,

but also driving the technological innovation

that we're seeing right now,

it is actually not run by just a handful of people.

It's more decentralized than the US's.

And I think more broadly,

a big misunderstanding is really the relationship

between Chinese people and authority.

- Can you elaborate on that?

- Well, people think that somehow

there's almost blind submission to authority in China.

We have a very nuanced relationship with authority,

whether it is between kids and parents,

or students and their teachers,

or with your bosses and the Chinese government,

it's kind of the same thing.

There's paternalism,

they think that they're responsible for you,

but deference,

a certain amount of deference to authority

is not blind submission.

It's been written in implicitly in our contract

for thousands of years that in exchange for some deference,

we are given stability, security,

and peace, and hopefully, prosperity.

- So there is some element that we have in the West

of freedom of the individual,

so that a little bit of the rebel is allowed

imbalance with the difference to authority?

- Yeah, absolutely.

Without that,

how can you have this radical,

dynamic entrepreneurialism you see in China?

If you don't have a sense of self,

a sense of the fact that you can find opportunities,

you look for opportunities, you drive opportunities,

it's all self-motivated.

- Is there still a young kid in China that's able to dream

to be sort of the stereotypical Steve Jobs in the garage,

start a business and change the world by doing so?

- There are millions of young kids like that in China.

They might not be thinking about changing the world,

and this is where the Chinese approach to innovation

is very different from the Silicon Valley one, I'd say.

But they see opportunity.

They see a country with a billion consumers.

They see scale, they see speed,

they see that with their dreams and the team

that you have in China,

with engineers, and the digital transformation,

you can do so many things.

And this generation of young people

think about transforming their local economy.

I think we're gonna get into this,

but it's no longer gonna just be manufacturing.

The young kids are entrepreneurs.

- Well, let's stand the big picture,

but there's a perception that China

is a communist country.

So to what degree is China a capitalist country

and to what degree is it a communist country?

- I've rarely seen a more capitalist society than China

from the pure economic side.

I've rarely seen companies that are as competitive

as Chinese companies.

People as ambitious and obsessed with making money

as Chinese people.

Kind of ruthless actually.

And look, consumers shop, firms invest.

If you invest well financially, you'll get great returns.

What is not capitalistic about the Chinese economy?

At the same time, the social fabric is highly socialist.

First of all, the state or enterprises

dominate many of the sectors.

The state banks control the financial system.

We often talk about common prosperity,

about equal opportunity, just and fair society,

but even daily stories,

a walk in the park behind my my parents' apartment,

you're gonna find at least 50 organized social groups

on a daily level singing, dancing, exercising,

doing whatever these fantastic idiosyncratic hobbies

they have, getting together every single day.

And free courses for the elderly and retired.

That sense of communalism, that sense of belonging,

that strive for harmony at the societal level is there.

- So just to go back to something you said,

there is a value for competition culturally.

So on the business side, on the economic side,

there is sort of a cultural value

of people competing in a meritocratic way.

- Competition is ferocious in China,

especially when it comes to Chinese companies,

but also in education.

I should be thankful that I'm not born later that I am,

because I thought China was pretty competitive already

going to the schools and studying for the exams.

It is a different level today.

Competition is not necessarily in the culture, I'd say.

It's driven really by the economic

and social circumstances of the day.

The Chinese companies are all hardworking.

They're all going after the market share.

They all kind of wanna do the same thing.

It's not quite like in the US where you open a coffee shop,

well, next door I'm gonna open a bagel shop, right?

In China, the coffee shop does well,

everybody wants to open the same coffee shop.

And I think, again, I'm sure we're gonna get to this,

but there's a lot of that kind of competition

which really drives the world sometimes crazy

of replication.

But it's because it's not easy, right?

It's not easy to make money.

In education system,

there are not enough jobs for the young people.

So how do you get ahead?

Let's say, if you're part of a lower stratum society,

how are you gonna make sure that your children

are gonna have a better life than you?

You invest in education.

So everything is about competition.

In a country with 1.3 billion people,

that's somewhat to be expected.

- Let's go back to the roots of that.

So you described the China's economy model

is rooted in its history.

So can we talk about Confucianism?

Can you explain to what degree those roots

run back to Confucianism, and in general,

to other parts of Chinese history?

- Yeah, Confucianism is more of a moral philosophy

than let's say religion or a belief system.

It prioritizes social harmony above anything else.

It's not about metaphysics, but more about ethics.

And at the individual level, the responsibility,

the duties are all meant to preserve that social order.

So it's filial piety, it is loyalty,

it is how to be a Chinese gentleman.

But things like saving, frugality,

is part of the moral discipline.

Education is part of the moral cultivation.

So there's a very strong emphasis that you as a citizen

have a responsibility to contribute to society as a whole.

- On the education side,

a part of Confucianism is a value for meritocracy.

So how does that permeate the education system in China?

You've already spoken to it a little bit,

the value of competition in that

it's already getting more and more intense.

But it would be very interesting to get your understanding

of the education system,

its history, and as it stands today.

- If China were relatively successful economically,

a huge part of the reason is by and large

it's been meritocratic.

That is changing somewhat now.

But the only way that you have

still that many poor people,

especially a couple decades back,

still be in harmony with society,

seeing all these rich people make tons of money

and you're still belonging to that lower stratum,

the only reason is that you believe

that your children have a future through meritocracy.

And even though it's imperfect,

it's highly imperfect standardized testing,

all this competition,

all of the hours and the tutorials

to studying for standardized exams,

well, that is a very realistic scenario in China,

because there's that many people.

When I was growing up in school, we had 60 people per class,