Episode 2: Red Bulls

Episode 2: Red Bulls


Here’s United States Vice President Joe Biden speaking in 2014:


I want you to keep that quote in mind during today’s episode.

While discussing the life of Baidu founder Robin Li in Episode 1, I mentioned that the early 90s were a pessimistic time in China. Chinese citizens like Li were leaving the country to study or seek fortunes abroad. It was common for China watchers view China as a kind of pressure cooker, and one that was ready to overheat at any time. 

There’s probably nobody more associated with pessimism around China, than Gordon C. Chang. In 2001, Chang published a now infamous book, The Coming Collapse of China, that predicted that the end was near for China’s political and economic system. Chang even put a hard deadline for the collapse: 2006.

Of course, China didn’t collapse in 2006. In fact, after the global financial crisis in 2008 China looked stronger than ever. But Chang stuck to his guns, again predicting that China would collapse in 2011. And then again in 2012, and then in 2016, and then in 2017. As you can imagine, Chang developed a reputation as a sort-of “boy who cried wolf.”

Chang is definitely not a major figure in Silicon Valley or technology circles, but I wanted to bring him up. Because when it comes to technology in China, there’s nobody like Chang. There doesn’t seem to be any dissent. Nobody’s crying wolf. 

There seems to be a more-or-less unanimous sentiment that with respect to technological development, China is doing things right, that Chinese entrepreneurs are going to play a major part in building the future, and that if you’re a venture capitalist, it’s a good idea to get at least some exposure to China.

In today’s episode, which I’m calling Red Bulls, I’m going to introduce you to a few of the venture capitalists who are making big bets on Chinese companies. I’m going to do my best to get inside their heads,  and explore some of the reasons that these technology investors are so bullish on tech in China. 


“Silicon Valley Would be Wise to Follow China’s Lead” is the title of a controversial January 2018 editorial by Sir Michael Moritz published in the Financial Times. Moritz is a partner at Sequoia Capital, one of the top venture firms in the world. Moritz has made billions through investments in a little company called Google, as well as Yahoo, PayPal, Linkedin, and others. So yeah, he’s had pretty a good run.

Moritz’s background is unusual in the world of venture capital. While most of his competitors are computer scientists, engineers, researchers, or the children of venture capitalists, Moritz came to venture capital from a journalism background. For years he was a staff-writer for TIME Magazine and also wrote history books about Apple and Chrysler. OK, so he’s also got a degree from Oxford and an MBA from Wharton––so he’s not exactly a man of the people.

Moritz once admitted to the New York Times that he occasionally rereads the memoir ‘Seven Pillars of Wisdom,’ by T.E. Lawrence, better known as the memoir of Lawrence of Arabia. Moritz called it “An exquisite lyric of derring-do, the navigation of strange places and the imaginative ruses of a peculiar character.”

In his work with China, Moritz has been channeling some of that derring-do. He’s been one of the most outspoken cheerleaders of the future of technology in China. Here he is talking about China in an interview he did at a university in Hong Kong.


That line about four Silicon Valleys, by the way, isn’t just an off-hand remark in an interview. If you visit Moritz’s page on the Sequoia Capital website, you’ll see it written there, too. China has become a major focus for Moritz.

If you do a Google search for Silicon Valley in China, you can find that at least five different Chinese cities have been touted as “The Silicon Valley of China.”

There’s the Zhongguancun region in Beijing, which is home to Google China, Microsoft Research, and Lenovo.
Or you can visit Shenzhen, which has Tencent.
Then there’s Hangzhou, where Jack Ma built Alibaba.
And Shanghai, where the Sina microblog is based.
Perhaps the most most specious claim comes from the inland city of Chengdu, which doesn’t have any big internet companies, but apparently two-thirds of the world’s iPads are manufactured there, which lead at least one journalist to compare it to Silicon Valley, where, you know, zero thirds of the world’s iPads are manufactured.

I honestly don’t know whether it’s fair to compare any of those regions to Silicon Valley. My gut feeling is that it’s not. It’s like when Sarah Palin said that she read “all the newspapers”––that actually meant she read no newspapers. Likewise, when China says it has 5 Silicon Valleys, it probably means it doesn’t have any. At least not yet.

But just the existence of all of these wannabe Silicon Valleys speaks to something important.
An enormous amount of people in China are working in technology. As our friend Joe Biden mentioned in the introduction, each year China graduates almost 7 times as many engineering graduates as we do in the United States.

And those graduates want to make money in tech. Peter Thiel’s book Zero to One sold over a million copies in China––compared to just 40,000 in India, a country with a similarly large population. People in China are really excited about tech startups.

A huge population interested in technology and engineering makes China an exciting place for people like Michael Moritz. 

But there’s more to it than just numbers. As Moritz writes on his Sequoia Capital page, “Few markets are as ferociously competitive as the technology business in China. People there simply work a lot harder.”

This is another big part of the pro-China narrative: That Chinese people generally work harder than Americans do. 

Some Chinese technology companies have taken to a so-called “9-9-6” schedule, meaning “start work at 9 am, stop work at 9 pm, and work 6 days per week. This aggressive work schedule may have been inspired by Alibaba founder Jack Ma, heard here addressing early Alibaba employees in 1999:


There’s a story about Jack Ma and his wife, Cathy, visiting Zurich, Switzerland for the first time. It’s a Sunday, and many of Zurich’s retail stores are closed. Cathy surmises, “Oh––the owners must be working their second jobs.” This is to say, there’s at least some truth to this “Chinese people work hard” narrative.

“We need to learn the hardworking spirit of Silicon Valley. If we go to work at 8am and go home at 5pm, this is not a high tech company, and Alibaba will never be successful. If we have that kind of 8 am to 5 pm spirit, then we should just go do something else.”

Moritz’s Financial Times editorial includes a photograph of a young man climbing into a bunk bed, apparently a sleeping quarters at his startup. Moritz writes that Chinese tech workers often work around the clock, on weekends, neglect their health and their families, and are paid significantly less than their competitors in Silicon Valley. 

If that sounds to you like a terrible working environment, you’re right. But it also sounds like a pretty good place to be a venture capitalist.

Whether or not Chinese companies are actually more productive because of the intense work hours is a noisy debate that I’m not going to participate in.

But I will make one point about this “Chinese work harder” narrative that I haven’t read before. 

Anyone who’s ever had a bad job knows that an enormous amount of the work day is spent doing absolutely nothing. But you have to be at work anyway, just to pretend to work in front of your boss––who’s probably doing the same thing, just in front of his boss. When the boss goes home, only then can you go home. 

I call that time you spend doing nothing but smile at your boss “face time,” and in China, a country where until recently most of the economy was controlled by the state, there’s as much “face time” as anywhere else in the world.

I don’t know if Chinese startup workers actually do more work than Americans, but they definitely work longer hours. 


There’s probably nobody who translates between the technology worlds of China and the US better than Kai-Fu Lee. 

Lee was born in Taiwan. His father was was a politician and historian who fled from the mainland during the Communist takeover. Lee’s parents sent him to live with extended family in Tennessee during middle school. He went on to get a PhD at Carnegie Mellon doing a thesis in speech recognition. He eschewed academia for a job with Apple, spending years in Silicon Valley before joining Microsoft in 1998, helping them open an R&D lab in Beijing. Lee joined Google as President of Google China in 2005.

In 2009, Sina launched its microblogging platform, Sina Weibo, perhaps better known by the misleading title of “Chinese Twitter.” Lee, then in his final months as President of Google China, was an early adopter. Lee was already very well-known in China, having authored several Chinese-language books. But the microblogging platform made him into a megastar. Remember when I said Chinese people are really interested in technology startups? Today Lee, now a venture capitalist, has over 50,000,000 followers. That’s 5-0 million.

Lee is less famous in the English-speaking world, but it’s possible that that will change this year. He’s releasing a book through Houghton Mifflin in September, with the lofty title AI Superpowers: China, Silicon Valley, and the New World Order. 

Lee has been in venture capital since 2009 and has invested millions into Chinese technology companies. His firm Sinovation Ventures closed a $500 million dollar fund in early 2018. The fund will focus on on Chinese artificial intelligence companies, which Lee believes have some significant advantages over foreign competitors.

Here is Lee, speaking at MIT in November of 2017:


So Lee believes that autonomous cars will arrive in China 5 to 10 years earlier than they will in the United States. 

Lee’s confidence in China comes in part from the same arguments Michael Moritz makes around the competitiveness and growth of Chinese technology markets. But Lee makes some more nuanced arguments as well. For example, according to Lee, Chinese companies have bigger data sets than American companies. And bigger data sets means better artificial intelligence.

In order to understand this, think about Facebook. 

I just logged onto my Facebook and one of the first things I saw was an advertisement for a big corporate gym. Facebook knows I’m an exercise fanatic––maybe because I’ve visited the Facebook pages of other gyms or maybe because I’ve uploaded some photos of myself playing sports. Who knows. The point is, Facebook has a bunch of data about me, and when they plug that data into an algorithm, the algorithm presents me with a pretty good targeted advertisement. 

But the more data Facebook is able to collect, the smarter its algorithms get, and it’s able to provide me with even better targeted advertisements: Consider what would happen if Facebook also tracked my cellphone location and found out that I spend a lot of time at an MMA gym. In that case, maybe instead of giving me an ad for a big corporate gym, they’d show me an ad for a small MMA gym.

The more data Facebook collects, the better its ads get.

So Lee is basically arguing that if Facebook were in China, its advertisements would be better. Because Chinese companies have access to even more data than American companies.

And if you think about it, it’s pretty obvious that that’s true. Just to begin with there’s 3 times as many smartphone users in China as there are in the United States. And that means three times as much mobile data right off the bat.

But it’s much more than just the sheer number of phones out there. It’s how people are using their phones that really allows Chinese companies to collect immense amounts of data.

Consider the fact that in China today, people are using cell phones to make retail purchases instead of credit cards. In fact, as of June 2017, Chinese people were 50 times more likely to pay for goods with their smartphones than Americans. 

That translates to much more data for the companies that make your smartphone apps. Your phone might know where you were when you made the purchase, what store you were in, how much you spent, maybe even what you bought. That’s a lot of very valuable data.

And it’s not just the fact that people are using their phones to make payments. It’s also that the two leading apps used to make payments are owned by huge technology companies: AliPay, owned by Alibaba, and WeChat Pay, owned by Tencent. It’s as though Visa and Mastercard were owned by Amazon and Facebook. Here’s Lee again:


So these giant internet companies are going to have consumer data, payment data, in-house banks and insurance companies, creating massive, interconnected stores of data. And because of antitrust laws, American companies cannot possibly match them.

Another important reason that Chinese companies have access to more data is that there is less protection for consumer privacy in China than there is in the United States. Earlier this year Mark Zuckerberg was an internet meme for a few days when he testified before Congress regarding Facebook’s relationship with the controversial political marketing firm Cambridge Analytica. Congress was able to grill Zuckerberg about just how Facebook was sharing user data with its advertising clients.

I’ll be blunt: You’re unlikely to ever see a technology CEO testifying about user privacy on national TV in China.

It’s sometimes argued that Chinese technology companies are able to be intrusive because Chinese citizens have low expectations of privacy to begin with. The population density of China means there has never been much privacy. Many Chinese college students, for example, sleep in small dorm rooms with 8 other students.

Here’s Baidu founder Robin Li, with one perspective:


I’ll be blunt again, it’s easy to hold that perspective as the technology CEO who’s collecting the data.

Here’s Li Shufu, the billionaire founder of Geely, the Chinese automotive company that bought Volvo in 2010. I think his attitude toward privacy is probably somewhat representative of Chinese citizens.

By the way, he mentions Pony Ma, who is the CEO of Tencent, which owns China’s ubiquitous chat application WeChat.


“When you drive your car, there are bright lights everywhere, taking your picture. Where in China isn’t like that? Everywhere is like that. So when you sit inside, it’s very hard to avoid it. This was necessary in this country.

And when you look at our phones, and WeChat. I think to myself, Pony Ma he can open our messages every day. Because he can open them, whenever he wants.

This is a big problem.

And our cars. They all have signals. No matter where you go, from wherever, to wherever, your whole trip, it’s all easy to track. You don’t have any privacy.”


On this somewhat dystopian note, it’s probably a good time to speak about the government’s role in all this. Because the Chinese government’s involvement in technology has been controversial.

Just a few years ago, the dominant narrative was that China’s heavy-handed government was a hindrance to innovation. The theory was that Chinese government controls on industry and freedom of expression stifled creativity. And without creativity, there could be no innovation.

Those controls on freedom of expression are very real. The investor Kai-Fu Lee himself discovered this back in 2013 after criticizing a state-owned search engine. Lee made fun of the fact that the government had appointed an Olympic gold-medal winning ping pong player as the search engine’s president. Fairly or not, Lee said that it was akin to putting Michael Phelps in charge of Google.

As you might imagine, somebody in the government didn’t appreciate Lee’s remark, and Lee’s main social media account was suspended for three days. And remember, Lee has 50 million followers. So people noticed.

Despite stories like Lee’s, concerns about the relationship between freedom of expression and innovation in China seem to have lessened. In some cases, they’ve actually been turned on their head. 

Take, for example, a 2017 blog post by Sam Altman, an investment Partner at the startup accelerator Y-Combinator. Altman writes,

“I noticed something in China that really surprised me.  I realized I felt more comfortable discussing controversial ideas in Beijing than in San Francisco.  I didn’t feel completely comfortable—this was China, after all—just more comfortable than at home.”

Altman goes on, “This will be very bad for startups in the Bay Area.”

Altman implies that any advantage that Silicon Valley had with respect to freedom of expression is gone. Coincidentally, Y-Combinator held its first startup school event in China in May of this year.

And it’s not just that investors seem to be ambivalent about the Chinese government’s involvement in tech. Some of them seem to view the Chinese government’s involvement as a net-positive. The government does much more than just constrain freedom of expression, and there seems to be a growing consensus that the Chinese government is smart, capable, and generally doing things right. Here’s a clip from one of the top American minds in venture capital discussing China:

Americans––venture capitalists and others––have a tremendous Chinese political leadership... 


OK––so maybe that isn’t one of the top minds in American venture capital. But seriously, that’s more or less what American venture capitalists sound like when they talk about the Chinese government.

In Kai-Fu Lee’s presentation at MIT, for example, he praises Chinese government subsidies that are helping large companies modernize their data collection and warehousing procedures. He also points out that local governments are creating millions of dollars of tax incentives for technology companies that want to open offices in their cities.

Investors are excited about the Chinese government.

This is another narrative flip. 

Because Silicon Valley is famously libertarian. And for years     technologists have argued that part of Silicon Valley’s success is owed to its physical distance from Washington D.C. People believed that lack of government oversight and meddling had been integral to the development of the technology industry and startup culture in Silicon Valley. 

It’s common to hear people question for example, whether Uber’s ride-sharing service could have started in Washington D.C. What Uber was doing, after all, was illegal, and threatened some politically influential taxi companies. Lawmakers could have easily quashed Uber before it took off.

And yet Didi, Uber’s Chinese equivalent, was born in China’s capital city of Beijing.


If you’re expecting me to end this episode by dissenting against these Red Bulls by outlining a cogent, sensible bearish position, you’re going to be disappointed.

Instead I want to challenge you to think for a second. How do you think the Chinese feel about Michael Moritz’s interest to invest in China?

Here’s something that will help you empathize: As much as American venture capitalists seem to be excited about China, Chinese venture capitalists are at least that excited to invest in the United States. In the last three years, money from Chinese investors has made up 10-15% of all United States venture capital deals. In 2010, that number was just 1%.

I learned these numbers from an April 2018 report published by Defense Innovation Unit Experimental, or DIUx, an organization that sounds like it employs Jason Bourne.

In reality, DIUx is an arm of the US Department of Defense that helps the DoD work with private technology companies. The report is titled “China’s Technology Transfer Strategy: How Chinese Investments in Emerging Technology Enable A Strategic Competitor to Access the Crown Jewels of U.S. Innovation.” 

That’s a bad title. What they should have called it is “Monkey Steals the Peaches,” which is a hand-to-hand combat technique that may be entirely made up but may also come from Chinese Kung Fu––I can’t tell from Googling it. The technique is an upward slap to the groin.

So if you’d like to know how the Chinese feel about Michael Moritz, Sam Altman, and Kai-Fu Lee investing in China... Well... Monkey steals the peaches.

Episode 3: Failure

Episode 3: Failure

Episode 1: A History of Chinese Entrepreneurship in Three Biographies

Episode 1: A History of Chinese Entrepreneurship in Three Biographies