Dwarkesh Podcast
China’s Manufacturing Dominance: State Directives & Ruthless Competition — Arthur Kroeber
19 Jun 2025
Arthur Kroeber is a leading researcher on Chinese tech and macro, a founding partner at Gavekal Dragonomics, and author of "China's Economy: What Everyone Needs to Know." It's the most useful, detailed resource I've found of how China actually works.On this episode, we discuss how China achieved high-tech manufacturing dominance, and where they'll go from here. By Arthur’s account, the Chinese government is like a giant VC fund: they decide on key priorities and then spend hundreds of billions of dollars subsidizing ruthless competition at the local level. They are willing to lose huge amounts of money for a few of their bets to pay off: at China’s scale, effectiveness matters more than efficiency.There's also a growing bipartisan consensus that we need to combat China's rise. This doesn’t make much sense to me. China is a big, powerful country at the frontier in many fields, and its economy is intricately tied in with our own. Being instinctively adversarial is both unsustainable and risky. Arthur and I discuss how we can create a productive, mutually beneficial version of this relationship.Watch on YouTube; listen on Apple Podcasts or Spotify.Sponsors* Scale is building the infrastructure for smarter, safer AI. In addition to their Data Foundry, they recently released Scale Evaluation, a tool that diagnoses model limitations. Learn how Scale can help you push the frontier at scale.com/dwarkesh.* WorkOS Radar ensures your product’s free trials go to actual users. Radar uses 80+ signals to distinguish malicious bots from real people, eliminating costly free-tier abuse. See why companies like Cursor, Perplexity, and OpenAI use Radar by visiting workos.com/radar.* Lighthouse is THE fastest immigration solution for the technology industry. They help you understand your options and navigate applications for expert visas like the O-1A and EB-1A. Explore which visa is right for you at https://www.lighthousehq.com/ref/Dwarkesh.To sponsor a future episode, visit dwarkesh.com/advertise.Timestamps(00:00:00) – We should reconcile with China(00:21:21) – BYD, Tesla, & Chinese EV industry(00:36:05) – Will China have a Japan-style financial crisis?(00:44:39) – Local debt situation is manageable(00:57:28) – If CCP is so competent, why isn’t China richer?(01:05:08) – How China keeps tech under control(01:33:45) – Does China win AI?(01:43:34) – Communication with China key for AI safety(02:10:08) – What foreigners get wrong about China(02:17:32) – China-US relationship future Get full access to Dwarkesh Podcast at www.dwarkesh.com/subscribe
Full Episode
Today, I'm interviewing Arthur Kroger, who is the founder of Gavkal Dragonomics, which is a research consultancy focused on China and author of China's Economy, What Everybody Needs to Know. A friend while I was in China recommended it to me, and it's been the most valuable and useful resource that you can get today on how China works.
So, Arthur, thanks for coming on the podcast and taking the time to chat with me. It's great to be here. Thanks. First question. What really is the problem if China becomes as wealthy or if its economy grows as big as America's or grows even bigger? I know maybe it's not your perspective to be a China hawk, but I've never really understood why this is a problem in the first place.
Yeah, it's a very good question. It's a very good question. There's a lot of criticism of China from the standpoint of, okay, you're trying to get rich. That's fine. Okay. But you're basically trying to get rich on the backs of everyone else in the world by running this gigantic manufacturing export machine where it seems like the Chinese ambition is to produce –
all the manufactured goods in the world for everyone, run an enormous trade surplus, which means that they are depending on other people's buying power to support them, and that this is basically not fair, not sustainable, not a stable way to participate in the global economy. So that's more of a question not of if China does get rich, but how does it get rich?
Does it get rich by essentially operating on the same rules as everyone else and having a market that other people can participate in? Or does it grow rich by essentially making it impossible for anyone else in the world to have the kind of production structure that they want to have and relying entirely on these ever-growing trade surpluses?
In general, in principle, from a welfare standpoint, it would be great if China got to be as rich as everywhere else in the world, even as rich as America. But that is likely to have some pretty difficult and destabilizing political consequences because of the vast differences between the Chinese political system and the U.S.
political system and the political systems of all the other major industrialized countries.
I mean, the trade surplus point, to the extent that it is made possible by the government involvement in industry, which is actually not even clear to me that that's the case. I mean, just like if you have high savings and not enough investment domestically, just like the accounting identities are just that you will have a trade surplus. Right. But suppose that's even the case.
On paper, it just seems like what is happening, the Chinese taxpayer, the Chinese saver is subsidizing foreign importers. So on paper, it just seems like we're getting a good deal. I'm sure some people are upset about this, specifically people who manufacture outside of China. Yeah. But it's certainly not like something obviously insidious. Right.
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