Dwarkesh Podcast
Xi Jinping’s paranoid approach to AGI, debt crisis, & Politburo politics — Victor Shih
29 May 2025
On this episode, I chat with Victor Shih about all things China. We discuss China’s massive local debt crisis, the CCP’s views on AI, what happens after Xi, and more.Victor Shih is an expert on the Chinese political system, as well as their banking and fiscal policies, and he has amassed more biographical data on the Chinese elite than anyone else in the world. He teaches at UC San Diego, where he also directs the 21st Century China Center.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 just released Scale Evaluation, a tool that diagnoses model limitations. Learn how Scale can help you push the frontier at scale.com/dwarkesh.* WorkOS is how top AI companies ship critical enterprise features without burning months of engineering time. If you need features like SSO, audit logs, or user provisioning, head to workos.com.To sponsor a future episode, visit dwarkesh.com/advertise.Timestamps(00:00:00) – Is China more decentralized than the US?(00:03:16) – How the Politburo Standing Committee makes decisions(00:21:07) – Xi’s right hand man in charge of AGI(00:35:37) – DeepSeek was trained to track CCP policy(00:45:35) – Local government debt crisis(00:50:00) – BYD, CATL, & financial repression(00:58:12) – How corruption leads to overbuilding(01:10:46) – Probability of Taiwan invasion(01:18:56) – Succession after Xi(01:25:10) – Future growth forecasts Get full access to Dwarkesh Podcast at www.dwarkesh.com/subscribe
Full Episode
Today, I'm talking with Victor Shi, who is the director of the 21st Century China Center at UC San Diego. China is obviously the most important economic and geopolitical issue over time, and doubly so if you believe what I believe about AI.
I was especially keen to talk to you because you have deep expertise not only in Chinese elite politics, but also its economic system, its fiscal banking policies. We'll get into all of that before we get into the AI topics. Is China actually a more decentralized system than America?
If you look at government spending by provincial governments versus the national government in China, it's like 85% local versus provincial, 15% national. In the U.S., it's actually, if you look at state and local, it's 50%. Federal government is 50%. When you think of an authoritarian system, you often think of it as very top-down. The center controls everything.
But if you look at these numbers, it just seems like it's quite decentralized. Or is that the wrong way to look at the numbers?
Yeah.
I think for a while, China was quite decentralized. So this is kind of from the mid-1970s all the way until the mid-1990s. China was very decentralized where local governments generated a lot of revenue, but they also spent a lot of money. And it incentivized them to do kind of
basically good things such as trying to attract as much FDI as possible, trying to attract as much local investment as possible, give tax breaks and so on and so forth. So I think, you know, China had a very good period of mainly sort of private sector driven growth. because of this fiscal decentralization. And that's the understanding of, I think, most economists.
But then there was a tax centralization in 1994, basically, where the central government basically said, okay, this is ridiculous. We don't want to end up like the Soviet Union and fall into different pieces. We need to control fiscal income. So then they grab the most lucrative source of taxation at that time. And it continues to be the case, which is the value-added tax.
And so the collection of value-added taxes – and then also in subsequent decades, pretty much all other tax categories are now collected by the central government. Then they reimburse part of the money to the provinces. And then supposedly they say, okay, now you can spend the money as you wish. But in reality, that's not the case.
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