China: Indonesia & Trump Tariffs, Manufacturing Dominance & Involution 内卷 & Education Labor Mismatch with Jianggan Li -E455

Jianggan Li, Founder & CEO of Momentum Works, and Jeremy Au talked about three main themes:

1. Indonesia & Trump Tariffs: Indonesia's new tariffs target imports like China-manufactured footwear, clothing, and ceramics to protect 65M local micro, small and medium enterprises employing 109M people. These trade barriers have negatively impacted local customers, e.g a hotpot restaurant struggling to get custom-branded plates. Similar measures include Brazil's quota for steel products, South Africa's tariffs on solar panels, and Trump's proposal to increase US tariffs to 60% on Chinese goods.

2. China Manufacturing Dominance: Manufacturing efficiency is driven by specialization, scale and agglomeration, e.g. Zhejiang dominates specific industries such as fishing rods, while Zhongshan (Guzhen) is known as the "lighting capital of the world." Historical precedents are Germany and Japan's post-WWII industrialization surge that resulted in global trade wars, UK protectionism and USA enacting the Plaza Accords to protect their manufacturers.

3. Involution 内卷 & Education Labor Mismatch: Intense competition in China's manufacturing sector has resulted in low-profit margins and thus low salaries for workers. Fierce competition among workers for limited gains leads to significant burnout, a phenomenon known as "involution" (内卷, nèijuǎn). Chinese workers heavily invest in gaokao (高考) education for their children as a ticket to a better life, but too many families doing so has led to an oversupply of university graduates vs. the actual labor market - further exacerbating stress and pressure. Overseas consumers benefit the most by enjoying low prices and high-quality goods, which contribute to low inflation in their own countries.

Jeremy and Jianggan highlighted Singapore and Malaysia's collaboration challenges on data centers, Germany's vocational education system, and the long-term benefits of Chinese businesses setting up operations abroad.

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(01:51) Jeremy Au:

Good morning.

(01:52) Jianggan Li:

Hey, good morning, Selamat pagi.

(01:54) Jeremy Au:

Is that Bahasa?

(01:55) Jianggan Li:

Yeah, that's me trying to speak Bahasa. I'm in Jakarta now.

(01:58) Jeremy Au:

Okay. Jakarta is all in the news recently because of the recent tariffs or trade barriers that's been enacted on the e-commerce side. Is that why you're there?

(02:06) Jianggan Li:

That's not why I'm here, but that's something I'm hearing a lot while speaking to people over the last couple of days. So everyone is like looking at all these issues about customers clearance, trade tariffs and stuff and a few freight forwarders I spoke to actually seized the business for the last week or so.

(02:20) Jeremy Au:

Yeah. Let's definitely talk about what these things are. So for Indonesia, they recently announced trade barriers and they're targeting footwear, clothing, textiles, cosmetics, ceramics. And I think the stated reason for them is that they want to protect Indonesia's micro, small, medium enterprises from being attacked or overwhelmed by what they feel are cheap Chinese imports. And so they kind of say that, Hey, if America can do it, we can do it as well. What are your thoughts about this trade tariffs?

(02:45) Jianggan Li:

Yeah. What you have mentioned about ceramics is quite interesting because last night, I was having dinner at a hot pot restaurant in Jakarta, like obviously run by somebody from China, with the local staff. And they were telling me that, okay, they were short of plates because some of the plates that they design and supposedly imported from China are now somewhat stuck in China and not being imported in Indonesia. I said, it's weird. I mean, why can't you just go and buy some plates in the market? They said, okay, but we specifically designed those for our brand. And if you buy a random ceramic cups from IKEA or something, it will look different, but yeah, I think, you feel that there's a bit of unease here amongst both sides.

I mean, first, obviously, it's the government side. Now we know that a new government is coming in sometime in October. So there's lots of uncertainty about who exactly will be in charge. And the second is that you have so many businesses from China, look at Indonesia as a large market. And it's weird, last two days, I bump into random people who are like owners of a large consumer brands in China, just happened to be Indonesia to to study the market. Definitely there's a strong desire for businesses in China to expand and all to export. There is definitely a strong desire for the government here to make sure that whatever these guys do, it gets done in a way that benefits the local ecosystem. So how to find that I wouldn't say middle ground, but how to find that women's situation is something that people need to work on because, I mean, if you study culture, you will know that China is a high context country, and Indonesia is also a high context country, but the context is different. So I see lots of discussions that it takes a while for people to understand what each other really mean.

(04:19) Jeremy Au:

And what do you think they are trying to mean to each other?

(04:22) Jianggan Li:

There's lots of subtlety in the conversation, but I do think, I mean, I operated business Indonesia back in 2017 to beginning of 2020. And I've dealt a lot with different parts of the ecosystem. I do think from bank, government point of view, it's a big country, and big countries care about things which are not exactly, they're not exactly looking for a rule bound international system, but they're looking for things which can help them govern the complexities of internal forces, right? I mean, you mentioned about Indonesia trying to protect the MSMEs. There are, if you believe in the government statistics I think in 2022 or 2021, there were like 65 million micro, small and medium enterprises employing 109 million people. That's 35, 40% of the country's population who are in these sectors. And obviously, are the sectors efficient? No. I mean, in a perfect globalized world, and this sector would not be competitive, but how do you make the sector efficient? And if there's a short term shock, how do you get employment for all those people I think these are the things that that governments of large countries are thinking about.

(05:25) Jeremy Au:

I think it's a fair point. And, it's not the only country that is also starting to react to Chinese exports. So we have Brazil. They started to put a quota system on alloy and steel products to protect their local steam makers. I think South Africa has put together a 10% tariff on solar panel cells and modules, because again, so interesting to see some of these changes that are happening as well.

(05:46) Jianggan Li:

Yeah, you mentioned Brazil and South Africa. I mean, both countries have recently added tariffs to cross-border e-commerce goods, the small parcels, both countries, actually.

(05:54) Jeremy Au:

Yeah. So do you think it's the same rationale or how do people and how should people think about it?

(05:59) Jianggan Li:

For a long time, there's always this argument about the factories of the world, I mean, will China be the last stop? The price of key ingredients, like labor, like land, etc. in China grows. Would manufacturing move elsewhere and but that was the narrative for a few decades, so also seeing manufacturing needs that from the US to Mexico and then to countries with lower cost of the factors of production. And after 2003, things started flooding into China. I think China created something which is unique amongst all the previous generations of of low cost manufacturing centers because it has a scale. It has scale which allows all the small businesses along the value chain to specialize. I'm not sure if I've visited the factories in some of the coastal areas. Sometimes it's crazy, right? I mean, you go to Zhejiang, this is a small town which manufactures, I don't know how much percentage of the fishing rods in the world. And you look at the small factories, and each factory is manufacturing one small segment and just that segment. So whoever gets the order will procure the rest from the other factories. That allowed them to remain efficient, cost competitive. Even though you have you have rising labor cost, you have rising cost of rent, et cetera, et cetera, they still remain very competitive. And and for lots of products, they also have the domestic market to absorb a large part of their output. Even though, I mean, people are saying that domestic consumption is stagnant, but that still absorbs lots of production. So that allowed the manufacturers to be of scale.

So this is something that becomes a little bit difficult for other countries in the manufacturing sector to compete against. I know some people have have argued about creating this web of countries in Asia, which can take part of the specialization of of production that each province or each city in China has, then collectively that you will form a manufacturing base which is efficient enough. But that obviously overlooks the complexities of first, all this cross-border arrangements and second, the aspirations of of each government, especially the government of some larger countries. They want to do everything. They don't want to be part of the supply chain, which supplies the West, but they don't have full control.

(08:01) Jeremy Au:

Yeah, no, I totally agree with with you. And, it was funny because I went back. Yeah, I agree with you. I went back to China to visit my home village supposedly from my paternal grandfather, in Zhongshan, and now it's like the lighting capital of the world, right? So all the lights, chandeliers and your different types of light bulbs, everything, it's all made there.

(08:19) Jianggan Li:

So you went to that that stretch, I think it's called Guzhen, right? The last time I went there was like, wow, okay, 10 years ago. Back then, I already saw, somebody drove me around, it's 15 kilometers along the stretch of one road, all of emporiums and displays of different lighting factories. I said, wow. And he said, yeah. So this is the clustering in effect, yeah.

(08:38) Jeremy Au:

Yeah. It's crazy because I never ever thought that you could have a whole town just on lights and chandeliers, and all this other stuff, lighting fixtures from luxury to basic to IKEA style. So I thought it was really fascinating. So I agree with you because I think people felt like you said that, manufacturing will move out of China because the cost of labor is going up, but I think China's investments in infrastructure and a lot of local government coordination and also a lot of the free competition and specialization by small manufacturers in China allows that low cost manufacturing position competitiveness to stay for a little bit longer, similar to Germany, from my perspective.

So I think it actually makes it very tricky because supposedly, giving an example, be like Singapore and Malaysia can collaborate on semi data center set up and capital flows, et cetera. And I think that does make sense because it's relatively high value goods, so Johor, Singapore is very close. But, there's a lot of coordination issues because, Singapore and Malaysia obviously have different laws, different national policies. They're not working hand in hand. And even though it's very close by, it's like less than 20 minutes by car, even the transportation links between Singapore and Malaysia used to have high speed rail. That plan got cancelled. Now it's still driving and there's still often congestion at the ports between the immigration authorities on both sides.

So even though both sides are trying to speed it up, it's not the same, right? So I think this is hard even for a microcosm of a supposedly easy industry to collaborate on. It actually can be quite difficult.

(09:56) Jianggan Li:

Yeah. So it's very complex and and there's another issue which people don't talk about as much, but I think it's critically important. It's the ability to structure labor in a very flexible way. I've discussed with businesses, I mean, especially in Latin America, because now you see the imports of different kinds of goods into Latin America, organized by cross-border e-commerce, and sometimes they are charged with very high tariffs. But the business still flowed in because I spoke with some of the CEOs of the large retailers in Latin America, and especially in the fashion industry. A big challenge for them to manufacture in Latin America, in certain countries in southern part of Latin America, is we hire workers, you have to sign at least one month contract. It's not in the case that, okay, there's a surge in demand and you go to the labor market in a city saying that, Hey, I'm willing to pay double, but only for two days. In many countries, I think things are not organized this way and which deprived companies of extreme efficiency. Is that a good thing or not? Probably neutral on that, I am. If the whole world functions in this way, then obviously everyone plays by the same rules, but you see that labor policies in different countries can be very different.

(10:58) Jeremy Au:

People talk about how China has a lot of high education, so they're upskilling. So supposedly, it's supposed to give more value to supply chain because people are more educated on average, but then they also say that, Hey, there's also a glut of unemployed university graduates because there's not enough jobs. So it's a bit confusing, like what it makes China's labor force, like, how do you see that developing? Is it going to be able to maintain that cost competitiveness or dynamic?

(11:22) Jianggan Li:

I think a couple of things, I mean first is that the government really enforced a nine-year basic education. For base manufacturing, like textile, like ceramics, this stuff, it doesn't probably make much difference but for lots of things which are slightly more sophisticated, I mean, think about all the factories along the EV supply chain. Think about all the factories along the Apple supply chain. It's much easier in China to hire workers who have a basic secondary education, who can read the instructions and who can comprehend things a little bit better compared to people who don't have the basic education. So when that is played at a scale, it makes a difference.

Not a question about college graduates. That's that. I think that there's a mismatch there because that East Asian cultures price a lot on education and everybody wants to be ahead of their peers. But we have a oversupply of college educated graduates versus the number of jobs which are available to those people. And the result is that either the price goes down. I mean, if you believe in free market economics, the price in terms of salary will go down or some people would be priced out of jobs and they have to take in jobs which do not match exactly their aspirations and their levels of education. So this is what we are seeing. You have college graduates competing for jobs like security guards in China now.

(12:35) Jeremy Au:

Yeah, I think it's true. I think in general, I'm a big education nerd and, you know, there are two major systems, right? One is either you're designing your education system to teach them certain subjects, and then you let them figure out later on whether it makes sense or not. So I would say America and China are actually quite similar in the sense that they allow people to study as much as they want versus I would say that Germany and Singapore are more similar in the sense that the ministry is actually quite selective about what is the flow of education because they want to maximize employment, which Is quite different because then you want to, when you want to maximize employment, you need to do a lot of vocational training, you do a lot of streaming and you tell people like, hey, maybe you shouldn't go to college, which is a terrible thing for a parent to hear but from a government's perspective, it's hey, they still can do good jobs in manufacturing or something else.

(13:15) Jianggan Li:

It's a terrible thing for parents to hear, I mean, in the East Asian context. I think lots of kids, they probably feel differently, but it's all this, I wouldn't say indoctrination, but all this expectation setting by the family, by the uncles, by the aunties, saying that, hey you have some promise when you're in primary school, you should work hard you should get into university, and even sometimes getting into university is not enough, you should get postgraduate, et cetera. So all these expectations layered upon the kids by their families and the society as a whole actually puts lots of pressure. That's one of the many reasons why all these Asian societies have low birth rate, right?

(13:48) Jeremy Au:

What's interesting is that all this pressure, people talk about obviously two things as a result, right? They obviously talk about the "gāokǎo" (高考) which is the big exam that seems to decides everybody's future to go to university, that's one. And of course there's this new phrase called "involution", right? "nèijuǎn" (内卷), so I'm just curious, what're thoughts about that.

(14:03) Jianggan Li:

Some of my primary school classmates, back in China, actually went into the vocational training route and some of them are perfectly happy about it because if you look at their family background, their families were farmers, and some of them are basic workers and the aspirations of the parents are very different from what you see in the urban middle class, right? I mean, if the parents are sort of college educated, or if the parents are working in sectors where there are lots of college educated people and peers, and they aspire for their kids to go up and especially now, the system is where everybody has one kid. So they put lots of pressure. But I see some of the vocational training facilities are actually pretty cool in a way. I mean, there's this big school up in the north in Shandong province. They have this huge vocational training facility that offer many things, but the two things they are specialized in is, the construction equipment that extravates, excavator. So one of the two largest I wouldn't say faculty, but two largest specializations they have is to operate these machines. And they train thousands of people to operate these machines.

And the second is cooking. So they train lots of, I don't want to say chefs, but lots of people to work in 70 something million restaurants in China. There, I look at some of the videos, some of the people coming out of that, they said it's super competitive. I mean, if you are learning how to cook, you have to practice your cutting, I don't know, for one and a half years until you make sure that even if you cut tofu that it has to be finely sliced of equal size and you have to think about it. And for people to operate the excavators, they need to have certain level of expertise as well. That, I think served well to absorb some of the non-college educated kids, I think up until recently, right? Because in the past, the economy was always growing and everybody was growing around it. There's so much construction but now, when you see that things are slowing down a little bit which is expected. You can't always have high growth in any sector, but the challenge is that for many people, it's something that they have not seen in the last 20 years, especially people have been only working for less than 20 years. They don't know how to go through a cycle.

(15:51) Jeremy Au:

And it's interesting because, obviously the slowing growth rate. So people get worried. But I think what's interesting is, like you said, the involution piece is that the Chinese are always very competitive, but they're all competitive on the same dynamic, for example, academics, right? Like better grades for the kids, but then the sense is that even though there's increased competition, it's actually leading to diminishing returns. And it's causing stagnation and burnout rather than progress or innovation. How do you feel about involution or competition? How are, I guess, parents or how are people thinking about it?

(16:20) Jianggan Li:

I think it leads to progress and efficiency and sort of all this technological adoption, but the thing is that in Indonesia. Now, in the last few days, I visited lots of the Chinese property brands. I visited at least five yesterday, and it's good that the headquarters are all crowded around the same area. So you can walk into one and get introduced to the boss, I don't know five minutes walk down the street, you have another one. And you look at the scale they are doing. I mean the largest now has 23,000 stores and that's why I visited yesterday, which is relatively unknown. You never see them being reported in international media at all. They have 500 stores in Indonesia, opened over the last six months, and the funny thing is that the government actually likes this kind of stuff, the government here because they give the franchise to local entrepreneurs. And the one I saw that they run a large training facility for people to operate the F&B, which is kind of the thing that works well in the society, unlike the ones which are selling pure, cross-border goods, right? And you have a large assortment of goods coming in that nobody along the value chain would actually benefit from that.

(17:15) Jianggan Li:

When it comes to involution, when it comes to excessive competition, that drives the efficiency. Yesterday I saw, the, the world training facilities, how they put ice cream into the waffle. I said, okay, wow. I didn't know you could do that. And of course there's competition. There's scale, and the machine makers upstream have to up their game as well. So now even a simple waffle maker is more sophisticated than they were two or three years ago. And I was visiting a cafe and the owner was talking to me about this Chinese-made coffee machines versus the Swiss-made coffee machines. I said, okay we studied a lot about the business model of chain cafes, but we never go into the detail about different kinds of coffee machines, what's the error rate, et cetera, et cetera. And they said, some of the Chinese-made stuff are good enough. That's all driven by competition because if there's no excessive competition, people will not innovate that fast. But the question is, after all this, I mean, who would benefit from that ? So you have put so much effort innovating, making yourself more competitive, but because the market has so many competitors, nobody's really ripping excessive benefits out of that.

Is that healthy or not? I don't know. I think as a consumer, I see things improve. And that gets cascaded outside China as well. You see some of the some sectors adopting some Chinese equipment, which is like one fifth of the cost that they used to do. So that allows them to stay afloat and become more efficient. But we go to different sectors. I mean, because of the competition, everybody looks tired and everybody doesn't know why they are doing this, but they are still doing this.

(18:32) Jeremy Au:

Yeah, I mean, I think it's perfect description of the economics. I think Chinese is like perfect competition, right? So everybody's fighting each other. Everybody's innovating. Everybody's trying to get some advantage and differentiate, but there's not much profit. And if the firms already profit and the workers also don't really profit as well versus I think Boeing versus Airbus on the other side of the market. It's a duopoly effectively for almost the vast majority of global air travel planes. And of course the problem of the duopoly, of course, is that Boeing and Airbus have very large profit margins. The workers obviously work hard, but the management gets record profits, and then Boeing took those profits and didn't reinvest that back in engineering and quality control.

And obviously now we have all the Boeing safety issues. But of course, the difference between the Boeing and the perfect competition like manufacturing is, like you said, if you're on the receiving end, if you're receiving Chinese goods, you're a consumer, you're benefiting because you're getting plates and everything else cheaper than ever before at a cost of Chinese workers. Whereas, historically, global travelers, air travelers have suffered because some of that wealth transfer went to the Boeing management and the company. So I think it's an interesting piece, but then of course, the opposite is that, like you said, the domestic manufacturers in Indonesia are suffering because they can't compete against that perfect competition in China.

(19:43) Jianggan Li:

They just don't have that level of efficiency. And it's impossible for them to achieve that level of efficiency just serving the domestic market because the ones in China, they have a much larger domestic market to serve, even though the market is not growing, it still has scale that even Indonesia can't match.

(19:57) Jeremy Au:

Yeah, so I think there's an interesting what's the word? Economics debate about who benefits, who loses. So to some extent, it's two sides of the same coin, right? The suffering of Chinese workers, trying to differentiate on the other side. Actually, there's also domestic manufacturers in Asia who are trying to figure out what to do, in terms of Malaysia or Philippines.

(20:14) Jianggan Li:

Yeah, it's funny. I was talking to some of the business owners in China. They don't understand. I mean, some of the small business owners in China, and who have had some decent education, they don't understand why the US is imposing tariffs on cross border goods sold by Temu and Shein and stuff. And they said, Look, these platforms squeeze Chinese manufacturers to subsidize American consumers and help you with the inflation problem. And why would you worry? Collectively, your economy is benefiting much more because of all this efficiency which brings down the consumer prices.

(20:43) Jeremy Au:

Yeah, I mean, Trump wants to do a global 10% tariff on all global imports into America, and he also wants to do like a 60% tariff on Chinese goods into America, which I think is a kind of a really large difference. And obviously it's going to be a big shock to a global trade if Trump wins the election.

(21:02) Jianggan Li:

But I think even if you're in Singapore, you look at a relatively small economy and how difficult it is for the government to rescue the labor force which have been impacted by the shift of manufacturing. I think U. S. is probably facing a much larger scale. I mean, you look at some of the species by people from the Rust Belt, right? I mean, Pennsylvania, et cetera. They are facing this issue and the issue is obviously impacting the domestic politics and how to manage that. And, I don't know. I mean, a perfect economist to sort of understand is that, okay, there'll be short term pain, but people will find their place. But no, many people find it much harder to adjust to these. And it probably takes a generation to adjust it properly. And In the meantime, they turn to a populist politicians because those people can appear to them and this is something that you see in Europe a lot in the last few months with all the election results and stuff and I see lots of analysts are saying that, okay it's weird because France is going right, UK is going left, et cetera, but at the end of day's the same. It's people who are dissatisfied with the status quo and they're looking for the fringes of the spectrum to come in and help them sort of fix the issue, what the issue can be fixed or not. Probably not, but but people are happy. I mean, how do you deal with it?

(22:06) Jeremy Au:

That's the problem, right? People are unhappy and it just takes a lot of time. And I think that's where government, those are proactive will be really important. For example, I think that education like authorities really need to educate people because I think if you are a high information parent, then you can see what's coming down the road, right? And you can help your child get towards the right career that is a bit more defensive. But most people, most parents are just going to send their kids and let this country teach your kids whatever it is. And so you can actually end up a situation like China. You can actually teach your kids and let them grow into the wrong jobs that don't exist anymore. And I think that's really happening all around the world. It's like China's rise is faster than parents can react for their kids. Authorities can reskill the workers. And I think there's this giant fight that's happening right now.

(22:49) Jianggan Li:

Yeah, and a lot of time, like last week, I spoke with the people in charge of some large international consumer brands who are operating in China. So they told me a specific challenge, right? I mean, there are lots of things which they could have done. And if they had done it they would, they'll still be growing because overall you see online consumption in China is still growing and e commerce parcel is still growing, but the thing is that for many of them, between 2013 to 2019, they didn't have to do anything to enforce some international brands. They didn't have to do anything to achieve double digit growth in China. And they were happy. Their franchises are happy. Their partners are happy. Their joint venture partners are happy. We're happy. But when things became stagnant and people said that, okay, now we need to do this thing, which which we said we should do back in 2017, but it was too hard. No, I mean, internally, nobody wants to do that work.

A lot of work for two years and to see the return. Now we have to do it, but it's still the same questions that, okay, I need to do it for two years to show the results. And at the same time because the sales of my core products are slowing down or even declining and I have lots of emotions from myself, from our partners, from our sort of distributors, et cetera. And so it became very hard to manage and it's not entirely rational in a way where you look at the individual level, but we try to manage it collectively. You have to deal with lots of issues like that which is a rational thing that you have to deal with, but it's not easy.

(24:04) Jeremy Au:

Yeah. I think this, what this reminds me because I'm a history kind of guy, this really reminds me of post World War II when Germany and Japan really became very large export powers. Obviously, war one, one, two or two, obviously I was just for figuring it out. Everybody's a colonial side, but after World War II, Germany, Japan were devastated and then suddenly they both reconstructed like crazy. And it became export powerhouses similar to China today. And I think all of us think about it quite normally, like as if it, people have always been okay with it, but even back then people were very unhappy with Germany and Japan. When Japan became very powerful, started buying stuff. America got very unhappy that, obviously a lot of same thing, tariffs and protectionist measures against Japan, but they also eventually negotiated the Plaza Accord which is to make sure that the Japanese yen, is revalued to allow or to lower the competitiveness of Japanese exports, that's one.

But also at a time when Germany became powerful under the middle stand, which is similar to the Chinese small and medium enterprise was with agglomeration and competitiveness and differentiation. At a time, the UK was very unhappy with Germany and also doing lots of protectionist measures and competition. So I think today in like 2020 plus, we're all used to the fact that people in Southeast Asia should not try competing with the Japanese on certain things. They should not try to compete with Germans and other things, but I think there was actually a long period of at least 10, 20 years where there was a structural adjustment where people were just trying to figure out how to compete or differentiate as a country versus Germany and Japan.

(25:27) Jianggan Li:

Yeah, and when I look at some of the scholars, I talk to historians, I talk to economists in Beijing, and many of them are actually trying to study Japan really hard, because they know that Japan went through a period where there's no domestic growth, where you can't really export things as you used to because of the Plaza Accord. And some of them argue that, even if such an accord was not in place, eventually, they will hit a wall somewhere that becomes untenable. So we look at what happened after 90, late 1980s and the whole Japan went to stagnation for 30 years, but they created the economy by Japanese companies and Japanese capital outside Japan, which is, I don't know exact amount, which is probably not smaller than the economy of Japan itself I mean if you look at all the manufacturing, all the supply chain, etc that japan has managed to replicate outside Japan. This is something that many are arguing that okay, this is what Chinese business should do instead of competing against each other and then try to sell goods cheap outside. You should really go out and work with the locals set up factories there set up a supply chain there.

It's complex but for the long term, it's healthy because you benefit everyone and you transfer the skills and and you bring up both a worker class as well as a managerial class in the countries that you're working. The problem now in the short term is that many of the company bosses in China, they are used to like the high growth in the last 20 years. So emotionally, it's very hard for them to adjust. I mean, how do you deal with people who have very different mentality because shaped by history, shaped by politics and and how do you work with them to find a situation where each other benefits?

I think that's something which took the Japanese a few decades to do. The Chinese businesses, as well as some of the policymakers, they should do this as well. They should be, I would say the sign, right? I mean, the government is trying to encourage businesses not to just export. They encourage businesses to set up facilities elsewhere, employ the local workers, and I think that's even beneficial for their businesses in China. If I have no growth in China, if I don't know, set up factories in Indonesia, Mexico, Turkey, that gives me 20, 30% growth over my sort of entire sort of business and then my business is alive compared to you know I'm competing for no growth, But that will take time. I will take time and a lot of friction along the way.

(27:26) Jeremy Au:

Yeah, and I think, what's interesting, of course, is that Japan took a different path from Germany because Germany didn't end up exporting its value chain outside primarily, but they focus on building out the European Union which has lower trade barriers and obviously, there's still export of German expertise and so forth, but there's also a lot more free trade, within the EU bloc that allows the export of German goods and the rest of EU, which is quite a different path from the Japan approach, which was like, they basically move the factories and supply chain out. So it'd be interesting to see which route China takes more on the free trade agreement side, like Germany side or, and more economic integration versus more of like building out a global multinational corporations and go from there.

On that note, thank you so much Jianggan for discussing it. Really good to discuss the tariffs, but also the involution competition dynamic in China, as well as what the future is for China versus Japan and Germany's industrialization.

(28:16) Jianggan Li:

Yeah, have a good day and have a good weekend!